<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
===========================================================================================================
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SAILSSM ( % Exchangeable Notes)....... 2,000,000 $58.00 $116,000,000 $40,000
===========================================================================================================
<FN>
(1) Includes 250,000 SAILS, which may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) of the Securities Act of 1933, as amended, based on the
average of the high and low sales prices per share of INSO Corporation
Common Stock as reported on the Nasdaq National Market on May 19, 1995.
</TABLE>
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.
================================================================================
<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 MAY 26, 1995
1,750,000 SAILSSM*
[HOUGHTON MIFFLIN 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.
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 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 will not necessarily receive
an amount equal to 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. INSO will have no obligations
with respect to the SAILS. 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. Neither offering is conditioned on the
closing of the other offering. See "Relationship
Between the Company and INSO."
*Stock Appreciation Income Linked Securities (SAILS) and SAILS are servicemarks
of CS First Boston, Inc.
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
"SPECIAL CONSIDERATIONS."
------------------
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.
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).
2
<PAGE> 4
SPECIAL CONSIDERATIONS
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.
COMPARISON TO OTHER DEBT SECURITIES; RELATIONSHIP TO 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.
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.
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
3
<PAGE> 5
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 may 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. SAILS are novel and
innovative securities, and 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 CONSIDERATIONS
The Indenture (as defined herein) 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 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. 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 original equipment manufacturers ("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.
4
<PAGE> 6
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.
5
<PAGE> 7
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 of the
Company (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 May 24, 1995, the Company and INSO signed a letter of intent
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. It is contemplated that the Company will
continue to distribute the Information Please family of books. As of May 24,
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 (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 retain its present
6
<PAGE> 8
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 May 24, 1995)............................ 65.00 48.25
</TABLE>
On May 24, 1995, the per share closing price of INSO Common Stock as
reported on the Nasdaq National Market was $57 1/4. 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."
7
<PAGE> 9
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>
8
<PAGE> 10
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>
9
<PAGE> 11
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 May , 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 will not necessarily receive an
amount equal to 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
10
<PAGE> 12
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.
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 day preceding the Notice Date (as defined below) or,
if such day is not a Trading Day, 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 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 National Association of Securities Dealers, Inc.
Automated Quotation System, 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>
11
<PAGE> 13
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 will
not necessarily receive an amount equal to 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.
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)
12
<PAGE> 14
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 annual reports and proxy statements provided by INSO to
its stockholders generally (the "INSO Reports"). INSO shall transmit the INSO
Reports by mail to holders of the SAILS, without cost to such holders of the
SAILS.
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
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
13
<PAGE> 15
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)
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
14
<PAGE> 16
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 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
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<PAGE> 17
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"
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)
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<PAGE> 18
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 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.
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<PAGE> 19
(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, 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
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<PAGE> 20
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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<PAGE> 21
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain 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. It is based on the advice of Goodwin, Procter & Hoar,
counsel to the Company.
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 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.
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
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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 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
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<PAGE> 23
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 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 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.
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<PAGE> 24
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 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.
23
<PAGE> 25
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.
24
<PAGE> 26
- ---------------------------------------------------------
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>
------------------
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Documents Incorporated by Reference...... 2
Special Considerations................... 3
The Company.............................. 5
Ratio of Earnings to Fixed Charges....... 5
INSO Corporation......................... 6
Relationship Between the Company and
INSO................................... 6
Price Range of INSO Common Stock and
Dividend Policy........................ 7
Use of Proceeds.......................... 8
Capitalization........................... 8
Selected Financial Information........... 9
Description of the SAILS................. 10
Certain United States Federal Income Tax
Considerations......................... 20
Underwriting............................. 22
Notice to Canadian Residents............. 23
Legal Matters............................ 24
Experts.................................. 24
Prospectus Relating to Common Stock of
INSO Corporation ............... Appendix A
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
[LOGO] HOUGHTON MIFFLIN COMPANY
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> 27
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))
4.2 Form of First Supplemental Indenture dated as of May , 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> 28
<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 Amendment dated , 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))
<FN>
- ---------------
* Filed herewith
+ To be filed by amendment
</TABLE>
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> 29
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, the Commonwealth of Massachusetts on May 26,
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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Nader F. Darehshori, Paul D. Weaver and Gary L. Smith and each
of them, with full power of substitution, to execute in the name and on behalf
of such person any amendment (including any post-effective amendment) to this
Registration Statement to file the same, with exhibits thereto, and other
documents in connection therewith, making such changes in this Registration
Statement as the person(s) so acting deems appropriate, and appoints each of
such persons, each with full power of substitution, attorney-in-fact to sign any
amendment (including any post-effective amendment) to this Registration
Statement and to file the same, with exhibits thereto, and other documents in
connection therewith.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NADER F. DAREHSHORI Chairman of the Board, May 26, 1995
- --------------------------------------------- President, Chief Executive
Nader F. Darehshori Officer and Director
(principal executive officer)
/s/ MICHAEL J. LINDGREN Vice President, Corporate May 26, 1995
- --------------------------------------------- Controller and Treasurer
Michael J. Lindgren (principal financial and
accounting officer)
/s/ JOSEPH A. BAUTE Director May 26, 1995
- ---------------------------------------------
Joseph A. Baute
/s/ GAIL DEEGAN Director May 26, 1995
- ---------------------------------------------
Gail Deegan
/s/ JAMES O. FREEDMAN Director May 26, 1995
- ---------------------------------------------
James O. Freedman
</TABLE>
II-3
<PAGE> 30
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARY H. LINDSAY Director May 26, 1995
- ---------------------------------------------
Mary H. Lindsay
/s/ CHARLES R. LONGSWORTH Director May 26, 1995
- ---------------------------------------------
Charles R. Longsworth
/s/ JOHN F. MAGEE Director May 26, 1995
- ---------------------------------------------
John F. Magee
/s/ CLAUDINE B. MALONE Director May 26, 1995
- ---------------------------------------------
Claudine B. Malone
/s/ ALFRED L. MCDOUGAL Director May 26, 1995
- ---------------------------------------------
Alfred L. McDougal
/s/ GEORGE PUTNAM Director May 26, 1995
- ---------------------------------------------
George Putnam
/s/ RALPH Z. SORENSON Director May 26, 1995
- ---------------------------------------------
Ralph Z. Sorenson
/s/ DEROY C. THOMAS Director May 26, 1995
- ---------------------------------------------
DeRoy C. Thomas
</TABLE>
II-4
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <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 May , 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 Amendment dated , 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))
<FN>
- ---------------
* Filed herewith
+ To be filed by amendment
</TABLE>
<PAGE> 1
Exhibit 1
HOUGHTON MIFFLIN COMPANY
1,750,000 SAILS(SM)1
(STOCK APPRECIATION INCOME LINKED SECURITIES(SM))
[ ]% EXCHANGEABLE NOTES DUE 1999
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF INSO CORPORATION)
UNDERWRITING AGREEMENT
, 1995
CS FIRST BOSTON CORPORATION
ADAMS, HARKNESS & HILL, INC.
c/o CS First Boston Corporation
55 East 52nd Street
Park Avenue Plaza
New York, NY 10055
Ladies and Gentlemen:
1. Introductory. Houghton Mifflin Company, a Massachusetts
corporation (the "Company"), proposes to issue and sell to you (the
"Underwriters"), an aggregate amount of 1,750,000 SAILS (Stock Appreciation
Income Linked Securities) consisting of its [ ]% Exchangeable Notes Due 1999,
which are registered under the registration statement referred to in Section
3(a) (referred to herein as the "Firm SAILS"), in such amounts to each of the
Underwriters as set forth in Schedule A hereto. The SAILS will be issued under
an Indenture, dated as of March 15, 1994 between the Company and The First
National Bank of Boston, a national banking association, as trustee
("Trustee"), as supplemented by a First Supplemental Indenture, dated as of
[__________], 1995, between the Company and the Trustee (as supplemented from
time to time, the "Indenture"). In addition, the Underwriters will have the
option to purchase from the Company up to an additional 250,000 SAILS (the
"Option SAILS"). The Firm SAILS and the Option SAILS, if purchased, are
hereinafter collectively referred to as the "SAILS."
In connection with the foregoing and pursuant to the Formation
Agreement dated January 10, 1994 by and between INSO Corpo-
__________________________________
(1) Plus an option to purchase up to 250,000 SAILS from the Company to cover
over-allotments, if any.
<PAGE> 2
ration, a Delaware corporation ("INSO") (then known as InfoSoft International,
Inc.), and the Company (the "Formation Agreement"), and in accordance with the
Company's request thereunder, INSO has filed with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to
1,750,000 shares (the "INSO Firm Shares") of common stock of INSO, par value
$.01 per share ("INSO Common Stock"), plus an additional 250,000 shares of INSO
Common Stock (the "INSO Option Shares") to the extent the Underwriters exercise
their over-allotment option with respect to the SAILS, for sale by the Company
as a selling stockholder (to the extent it shall so elect to deliver INSO
Common Stock to holders of the SAILS at maturity thereof pursuant to the terms
of the SAILS), which registration statement is referred to in Section 2(a).
The INSO Firm Shares and the INSO Option Shares, if the Options SAILS are
purchased, are hereinafter collectively referred to as the "INSO Shares."
Concurrently with the offering contemplated hereby, INSO is
offering (the "INSO Offering") for sale to the public 500,000 shares of INSO
Common Stock, plus up to 75,000 additional shares to cover over-allotments (the
"Primary Shares").
2. Representations and Warranties of INSO. INSO represents and
warrants to, and agrees with, the Underwriters and the Company that:
(a) INSO meets the requirements for the use of a Form S-3
under the Securities Act of 1933, as amended (the "Act"). A
registration statement on Form S-3 (File No. 33-[ ]), including a
preliminary form of prospectus, relating to the INSO Shares has been
filed with the Commission and either (i) has been declared effective
under the Act, and is not proposed to be amended or (ii) is proposed
to be amended by amendment or post-effective amendment. If INSO does
not propose to amend such registration statement and if any
post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this
Underwriting Agreement ("Agreement"), the most recent such amendment
has been declared effective by the Commission. For purposes of this
Agreement, "INSO Effective Time" means (i) if INSO has advised the
Underwriters that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (ii) if INSO has advised the
Underwriters that it pro-
2
<PAGE> 3
poses to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such
registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the
Commission. "INSO Effective Date" means the date of the INSO
Effective Time. Such registration statement, as amended at the INSO
Effective Time (including all material incorporated by reference
therein and including all information (if any) deemed to be a part of
such registration statement as of the INSO Effective Time pursuant to
Rule 430A(b) under the Act), is hereinafter referred to as the "INSO
Registration Statement" and the form of prospectus relating to the
INSO Shares attached as Appendix A to the Company Prospectus (as
hereinafter defined), as first filed with the Commission pursuant to
and in accordance with Rule 424(b) under the Act ("Rule 424(b)") or
(if no such filing is required) as included in the INSO Registration
Statement, including all material incorporated by reference in such
prospectus, is hereinafter referred to as the "INSO Prospectus."
Copies of such registration statement and amendments and of each
related preliminary prospectus ("Preliminary INSO Prospectuses") have
been delivered to the Underwriters. The preliminary form of
prospectus included in the registration statement on Form S-3 filed by
INSO in connection with the INSO Offering is hereinafter referred to
as the "Primary Shares Preliminary Prospectus" and the form of
prospectus relating to the Primary Shares, as first filed with the
Commission pursuant to Rule 424(b) or (if no such filing is required)
as included in the registration statement for the Primary Shares at
the time the same is first declared effective by the Commission, is
hereinafter referred to as the "Primary Shares Prospectus."
(b) If the INSO Effective Time is prior to the execution and
delivery of this Agreement: (i) on the INSO Effective Date, the INSO
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the
Commission promulgated thereunder ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading and (ii) on the date of this
Agreement, the INSO Registration Statement conforms, and at the time
of filing of the INSO Prospectus pursuant to Rule 424(b) and at all
times subsequent thereto up to and at the First Closing Date (as
defined below) or any Option Closing Date (as defined below), as the
case may be, the INSO Registration Statement and the INSO Prospectus
and any amendments or supplements thereto will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the INSO Effective
Time is subsequent to the execution and delivery of this Agreement: on
the INSO Effective Date and at all times subsequent thereto up to and
at the First Closing Date or any Option Closing Date, as the case may
3
<PAGE> 4
be, the INSO Registration Statement and the INSO Prospectus and any
amendments or supplements thereto will conform in all material
respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents will include any untrue statement of a
material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. The two preceding sentences do not apply to statements in
or omissions from the INSO Registration Statement or the INSO
Prospectus based upon written information furnished to INSO by any
Underwriter through CS First Boston Corporation ("CS First Boston") or
the Company specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 10(h). The Commission has not issued any order preventing or
suspending the use of any Preliminary INSO Prospectus or the INSO
Prospectus.
(c) The documents incorporated by reference in the INSO
Registration Statement or the INSO Prospectus, when they became
effective or were filed with the Commission, as the case may be, under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
conformed, and any documents so filed and incorporated before the
First Closing Date, will, when they are filed with the Commission,
conform, in all material respects to the requirements of the Act and
the Exchange Act, as applicable, the Rules and Regulations and the
rules and regulations of the Commission under the Exchange Act (the
"Exchange Act Rules and Regulations").
(d) INSO and each of its subsidiaries (as defined in Section
11) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation with full corporate power and corporate
authority to own, lease and operate their respective properties and
conduct their re-
4
<PAGE> 5
spective businesses as described in the INSO Registration Statement,
and INSO and each of its subsidiaries are duly qualified to do
business as foreign corporations and are in good standing in each
jurisdiction in which their respective ownership or lease of property
or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the condition (financial or
otherwise), earnings, prospects or results of operations or business
of INSO and its subsidiaries taken as a whole (an "INSO Material
Adverse Effect").
(e) The capital stock of INSO conforms in all material
respects to the statements relating thereto contained in the INSO
Registration Statement and the INSO Prospectus (and such statements
correctly state the substance of the instruments defining the
capitalization of INSO in all material respects); the INSO Shares and
all of the issued shares of capital stock of INSO have been duly and
validly authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the INSO Prospectus;
the form of certificate used to evidence INSO Common Stock is in due
and proper form and otherwise complies with all statutory requirements
under the laws of the State of Delaware; except as described in or
contemplated by the INSO Prospectus, there are no outstanding options,
warrants or other rights for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital
stock of INSO or any security convertible into, exercisable for or
exchangeable for any shares of capital stock of INSO; and, except as
described in or contemplated by the INSO Prospectus, all of the issued
shares of capital stock of each subsidiary of INSO have been duly and
validly authorized and issued and are fully paid, non-assessable and
are owned directly or indirectly by INSO, free and clear of all liens,
encumbrances, equities or claims.
(f) Except as set forth in the INSO Prospectus, there is not
any pending or, to INSO's knowledge, any threatened action, suit,
claim or proceeding by or before any court or governmental agency,
authority or body or otherwise against INSO or any of its subsidiaries
or any of their respective officers or any of their respective
properties, assets or rights which would or could reasonably be
expected to have an INSO Material Adverse Effect or prevent
consummation of the transactions contemplated herein.
5
<PAGE> 6
(g) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the execution, delivery and performance of INSO of this Agreement
or the consummation by INSO of the transactions contemplated by this
Agreement, except such as may be required under the Act, the Rules and
Regulations, the Exchange Act, the Exchange Act Rules and Regulations
or under state or other securities or Blue Sky laws, rules or
regulations.
(h) INSO has full legal right, corporate power and corporate
authority to enter into this Agreement and perform the transactions
contemplated hereby; this Agreement has been duly authorized, executed
and delivered by INSO and is a valid and binding agreement of INSO,
enforceable against INSO in accordance with its terms, except as the
indemnification and contribution provisions hereunder may be limited
by applicable law and except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(i) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, (i) the charter or by-laws of INSO or
any subsidiary; (ii) any material indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note or other evidence of
indebtedness or any material lease, contract or other agreement or
instrument to which INSO or any subsidiary is a party or by which it
or any such subsidiary or any of their respective properties may be
bound; or (iii) any law or any order, rule or regulation of any
governmental agency or body or any court having jurisdiction over INSO
or any subsidiary or over the properties of INSO or any such
subsidiary.
(j) Except as described in the INSO Prospectus, there are no
contracts, agreements or understandings between INSO and any person
granting such person any preemptive right, co-sale right, right of
first refusal or right to require INSO to file a registration
statement under the Act with respect to any securities of INSO owned
or to be owned by such person or to require INSO to include such
securities in the securities registered pursuant to the INSO
Registration Statement or in
6
<PAGE> 7
any securities being registered pursuant to any other registration
statement filed by INSO under the Act.
(k) Ernst & Young LLP, who have audited the financial
statements, together with the related schedules and notes, of INSO and
Systems Compatibility Corporation, an Illinois corporation ("SCC"),
filed with the Commission as a part of the INSO Registration
Statement, some of which are included in the INSO Prospectus, are, to
the best of INSO's knowledge, independent accountants within the
meaning of the Act and the Rules and Regulations; the audited
financial statements of INSO and SCC, together with the related
schedules and notes, forming part of the INSO Registration Statement
and INSO Prospectus, fairly present in all material respects the
financial position and the results of operations of each of INSO and
SCC at the respective dates and for the respective periods to which
they apply; all audited financial statements of INSO and SCC, together
with the related schedules and notes, and all interim unaudited
financial information of INSO filed with the Commission as part of the
INSO Registration Statement have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, except as may be otherwise stated
therein; the selected and summary financial data included in the INSO
Registration Statement present fairly the information shown therein
and the historical financial information included in such data has
been compiled on a basis substantially consistent with the
financial statements presented therein; the pro forma adjustments
reflected in the pro forma consolidated financial information included
in the INSO Prospectus have been properly applied to the historical
amounts in the compilation of such information and provide a
reasonable basis for presenting the significant effects of the
acquisition of SCC; and no other financial statements or schedules or
notes are required to be included in the INSO Registration Statement.
(l) Subsequent to the respective dates as of which
information is given in the INSO Registration Statement and the INSO
Prospectus, except as described in or contemplated by the INSO
Prospectus, there has not been or occurred (i) any change in the
business, property or assets described or referred to in the INSO
Registration Statement, or the condition (financial or otherwise),
earnings, prospects or results of operations or business of INSO which
could have an INSO Material Adverse Effect, (ii) any transaction which
is material to INSO and its subsidiaries taken as a whole, except
transactions in the ordinary course of business,
7
<PAGE> 8
(iii) any obligation, direct or contingent, incurred by INSO which is
material to INSO and its subsidiaries taken as a whole, except
obligations incurred in the ordinary course of business, (iv) any
change in the capital stock or outstanding indebtedness of INSO which
is material to INSO and its subsidiaries taken as a whole, (v) any
issuance or granting of any right to acquire any securities of INSO
(other than grants of stock options to directors or employees in the
ordinary course) or (vi) any dividend or distribution of any kind
declared, paid or made on the capital stock of INSO.
(m) Neither INSO nor any of its subsidiaries (i) is in
violation of their respective charter or by-laws, (ii) is in default,
and no event has occurred which, with notice or lapse of time or both,
would constitute a breach or default, in the due performance or
observance of any term, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which they are parties or by which they are bound or
to which any of their respective properties or assets are subject,
(iii) is in violation of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets may
be subject or have failed to obtain, comply with or maintain the
effectiveness of any license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of
their respective property or to the conduct of their respective
business except, in the case of clauses (ii) and (iii), for those
defaults, violations or failures which, either individually or in the
aggregate, would not or could not reasonably be expected to have an
INSO Material Adverse Effect.
(n) INSO is not required to be registered, and is not
regulated, as an "investment company" as such term is defined under
the Investment Company Act of 1940, as amended (the "1940 Act").
(o) INSO and its subsidiaries own or possess adequate rights
to use all material patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and
copyrights described or referred to in the INSO Prospectus as owned or
used by it or which are necessary for the conduct of its business as
described in the INSO Prospectus; INSO has not received any notice of
infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade
8
<PAGE> 9
names or copyrights which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have an INSO
Material Adverse Effect.
(p) INSO Common Stock is listed on the Nasdaq National Market
("NNM"), and INSO has received no notice of any proceeding having the
purpose or effect of discontinuing such listing.
(q) INSO has not taken and will not take, directly or
indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the
price of the shares of INSO Common Stock to facilitate the sale or
resale of the SAILS.
(r) INSO has not distributed and will not distribute any
prospectus or other offering materials in connection with the offering
and sale of the SAILS other than the INSO Preliminary Prospectus, the
INSO Prospectus, the Primary Shares Preliminary Prospectus and the
Primary Shares Prospectus or other material permitted by the Act.
(s) INSO will comply with all agreements on its part to be
complied with, and use all reasonable efforts to satisfy all
conditions on its part to be satisfied, pursuant to this Agreement on
or prior to the First Closing Date or any Option Closing Date, as the
case may be.
(t) As of the date hereof, INSO is in compliance with all
provisions of Section 1 of the Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and if INSO
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the INSO
Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported
in the INSO Prospectus, if any, concerning INSO's business with Cuba
or with any person or affiliate located in Cuba changes in any
material way, INSO will provide the Department notice of such business
or change, as appropriate, in a form acceptable to the Department.
3. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Underwriters that:
9
<PAGE> 10
(a) A registration statement on Form S-3 (File No. 33-[
]), including a preliminary form of prospectus, relating to the
SAILS has been filed with the Commission and either (i) has been
declared effective under the Act and is not proposed to be amended or
(ii) is proposed to be amended by amendment or post-effective
amendment. If the Company does not propose to amend such registration
statement and if any post-effective amendment to such registration
statement has been filed with the Commission prior to the execution
and delivery of this Agreement, the most recent such amendment has
been declared effective by the Commission. For purposes of this
Agreement, "Company Effective Time" means (i) if the Company has
advised you that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (ii) if the Company has advised you
that it proposes to file an amendment or post-effective amendment to
such registration statement, the date and time as of which such
registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the
Commission. "Company Effective Date" means the date of the Company
Effective Time. Such registration statement, as amended at the
Company Effective Time, including all material incorporated by
reference therein and including all information (if any) deemed to be
a part of such registration statement as of the Effective Time
pursuant to Rule 430A(b) under the Act, is hereinafter referred to as
the "Company Registration Statement" and the form of prospectus
relating to the SAILS, as first filed with the Commission pursuant to
and in accordance with Rule 424(b) under the Act or (if no such filing
is required) as included in the Company Registration Statement,
including all material incorporated by reference in such prospectus,
is hereinafter referred to as the "Company Prospectus". Copies of
such registration statement and amendments and of each related
preliminary prospectus ("Preliminary Company Prospectuses") have been
delivered to the Underwriters.
(b) If the Company Effective Time is prior to the execution
and delivery of this Agreement: (i) on the Company Effective Date, the
Company Registration Statement conformed in all material respects to
the requirements of the Act, the Rules and Regulations and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and did
not include
10
<PAGE> 11
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) on the date of this Agreement, the
Company Registration Statement conforms, and at the time of filing of
the Company Prospectus pursuant to Rule 424(b) and at all times
subsequent thereto up to and at the First Closing Date or any Option
Closing Date, as the case may be, the Company Registration Statement
and the Company Prospectus and any amendments or supplements thereto
will conform, in all material respects to the requirements of the Act,
the Rules and Regulations and the Trust Indenture Act, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. If the Company Effective Time is subsequent
to the execution and delivery of this Agreement, on the Company
Effective Date and at all times subsequent thereto up to and at the
First Closing Date or any Option Closing Date, as the case may be, the
Company Registration Statement and the Company Prospectus and any
amendments or supplements thereto will conform in all material
respects to the requirements of the Act, the Rules and Regulations and
the Trust Indenture Act, and neither of such documents will include
any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The two preceding sentences do not
apply to statements in or omissions from the Company Registration
Statement or the Company Prospectus based upon written information
furnished to the Company by any Underwriter through CS First Boston
for use therein, it being understood and agreed that the only such
information is that described as such in Section 10(i). The
Commission has not issued any order preventing or suspending the use
of any Preliminary Company Prospectus or the Company Prospectus.
(c) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation with
full corporate power and corporate authority to own, lease and operate
their respective properties and conduct their respective businesses as
described in the Company Registration Statement; and the Company and
each of its subsidiaries are duly qualified to do business as foreign
corporations and are in good standing in each jurisdiction in which
their respective ownership or
11
<PAGE> 12
lease of property or the conduct of their respective businesses
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition
(financial or otherwise), earnings, prospects or results of operations
or business of the Company and its subsidiaries taken as a whole (a
"Company Material Adverse Effect").
(d) The documents incorporated by reference in the Company
Registration Statement or the Company Prospectus, when they became
effective or were filed with the Commission, as the case may be, under
the Exchange Act, conformed, and any documents so filed and
incorporated before the First Closing Date will, when they are filed
with the Commission, conform, in all material respects to the
requirements of the Act and the Exchange Act, as applicable, the Rules
and Regulations and the Exchange Act Rules and Regulations.
(e) The SAILS conform in all material respects to the
statements relating thereto contained in the Company Registration
Statement and the Company Prospectus (and such statements correctly
state the substance of the instruments defining the obligations of the
Company in all material respects).
(f) The Indenture has been duly authorized by the Company and
the SAILS to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement; the Indenture has been duly qualified under the Trust
Indenture Act; and the Indenture, when the First Supplemental
Indenture is duly executed and delivered, and the SAILS, when they are
duly executed, authenticated and issued as contemplated
hereby and by the Indenture and delivered against payment therefor in
accordance with the terms of this Agreement, will constitute valid and
legally binding obligations of the Company enforceable in accordance
with their respective terms subject to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar
laws affecting creditors' rights generally or by general equitable
principles.
(g) Except as set forth in the Company Prospectus, there is
not any pending or, to the Company's knowledge, any threatened action,
suit, claim or proceeding by or before any court or governmental
agency, authority or body or otherwise against the Company or any of
its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights which
12
<PAGE> 13
would or could reasonably be expected to have a Company Material
Adverse Effect or prevent consummation of the transactions
contemplated herein.
(h) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the execution, delivery and performance of this Agreement and the
Indenture in connection with the issuance or sale of the SAILS by the
Company or the consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required under
the Act, the Rules and Regulations, the Exchange Act, the Exchange Act
Rules and Regulations, the Trust Indenture Act or under state or other
securities or Blue Sky laws, rules and regulations.
(i) The Company has full legal right, corporate power and
corporate authority to enter into this Agreement and perform the
transactions contemplated hereby; this Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the indemnification and
contribution provisions hereunder may be limited by applicable law and
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(j) The execution, delivery and performance of this
Agreement and the Indenture by the Company and the consummation of
the transactions herein and therein contemplated, including without
limitation the issuance and sale of the SAILS, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, (i) the charter or by-laws of the Company
or any subsidiary; (ii) any material indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note or other evidence of
indebtedness or any material lease, contract or other agreement or
instrument to which the Company or any subsidiary is a party or by
which it or any such subsidiary or any of their respective properties
may be bound; or (iii) any law or any order, rule or regulation of any
governmental agency or body or any court having jurisdiction over the
Company or any subsidiary or over the properties of the Company or any
such subsidiary.
13
<PAGE> 14
(k) Except as described in the Company Prospectus, there are
no contracts, agreements or understandings between the Company and any
person granting such person any preemptive right, co-sale right, right
of first refusal or right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Company Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act.
(l) Ernst & Young LLP, who have audited the financial
statements, together with the related schedules and notes, of the
Company filed with the Commission as a part of the Company
Registration Statement, some of which are included in the Company
Prospectus, are, to the best of the Company's knowledge, independent
accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together
with the related schedules and notes, forming part of the Company
Registration Statement and the Company Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply;
all audited financial statements of the Company, together with the
related schedules and notes, and all interim unaudited financial
information of the Company filed with the Commission as part of the
Company Registration Statement have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, except as may be otherwise stated
therein; the selected and summary financial data included in the
Company Registration Statement present fairly the information shown
therein and have been compiled on a basis substantially consistent
with the financial statements presented therein; and no other
financial statements or schedules or notes are required to be included
in the Company Registration Statement.
(m) Subsequent to the respective dates as of which
information is given in the Company Registration Statement and the
Company Prospectus, there has not been or occurred (i) any change, nor
any development or event involving a prospective material adverse
change in the business, property or assets described or referred to in
the Company Registration Statement, or the condition (financial or
otherwise), earnings, prospects or results of operations or busi-
14
<PAGE> 15
ness of the Company which could have a Company Material Adverse
Effect, (ii) any transaction which is material to the Company and its
subsidiaries taken as a whole, except transactions in the ordinary
course of business, (iii) any obligation, direct or contingent,
incurred by the Company which is material to the Company and its
subsidiaries taken as a whole, except obligations incurred in the
ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company which is material to the
Company and its subsidiaries taken as a whole or (v) any dividend or
distribution of any kind declared, paid or made on the capital stock
of the Company.
(n) Neither the Company nor any of its subsidiaries (i) is
in violation of their respective charter or by-laws, (ii) is in
default, and no event has occurred which, with notice or lapse of time
or both, would constitute a breach or default, in the due performance
or observance of any term, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which they are parties or by which they are bound or
to which any of their respective properties or assets are subject or
(ii) is in violation of any law, ordinance, governmental rule,
regulation or court decree to which they or their respective property
or assets may be subject or have failed to obtain, comply with or
maintain the effectiveness of any license, permit, certificate,
franchise or other governmental authorization or permit necessary to
the ownership of their respective property or to the conduct of their
respective businesses except, in the case of clauses (ii) and (iii),
for those defaults, violations or failures which, either individually
or in the aggregate, would not or could not reasonably be expected to
have a Company Material Adverse Effect.
(o) The Company is not regulated, and after giving effect to
the offering and sale of the SAILS and the application of the
proceeds as described in the Company Prospectus, will not be required
to be registered, as an "investment company" as such term is defined
under the 1940 Act.
(p) The Company and its subsidiaries own or possess adequate
rights to use all material trademarks, service marks, trade names and
copyrights described or referred to in the Company Prospectus as owned
or used by it or which are necessary for the conduct of its business as
described in the Company Prospectus; the Company has not received any
15
<PAGE> 16
notice of infringement of or conflict with asserted rights of others
with respect to any patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Company Material Adverse Effect.
(q) The Company has not taken and will not take, directly
or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the SAILS.
(r) The Company has not distributed and will not
distribute any prospectus or other offering materials in connection
with the offering and sale of SAILS other than the Company Preliminary
Prospectus and the Company Prospectus or other material permitted by
the Act.
(s) The Company will comply with all agreements on its
part to be complied with, and use all reasonable efforts to satisfy all
conditions on its part to be satisfied, pursuant to this Agreement on
or prior to the First Closing Date or any Option Closing Date, as the
case may be.
(t) As of the date hereof, the Company is in compliance
with all provisions of Section 1 of the Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and
if the Company commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date
the Company Registration Statement becomes or has become effective
with the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the
information reported in the Company Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a
form acceptable to the Department.
4. Purchase, Sale and Delivery of SAILS. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters and the Underwriters agree, severally and not jointly, to purchase
from the Company,
16
<PAGE> 17
at a purchase price of $[ ] per SAILS, the respective number of Firm SAILS
set forth opposite the names of the Underwriters on Schedule A hereto.
The Company shall deliver against payment of the purchase price the
Firm SAILS in the form of one or more permanent global SAILS in definitive form
(the "Firm Global SAILS") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global SAILS will be held only in
book-entry form through DTC, except in the limited circumstances described in
the Company Prospectus. Payment for the Firm SAILS shall be made by the
Underwriters by certified or official bank check or checks in New York Clearing
House (next day) funds drawn to the order of the Company at the Boston offices
of Skadden, Arps, Slate, Meagher & Flom (or at such other place as may be
agreed upon among the Underwriters and the Company), at 9:00 A.M., New York
time, on the [fifth][third] full business day following the date of this
Agreement, or at such other time not later than seven full business days
thereafter as CS First Boston and the Company determine, such time being herein
referred to as the "First Closing Date," against delivery to the Trustee as
custodian for DTC of the Firm Global SAILS representing all of the Firm SAILS.
The Firm SAILS will be made available for checking at the office of CS First
Boston or such other location as CS First Boston may reasonably request at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CS First Boston to the Company
from time to time not more than 30 days subsequent to the date of the Company
Prospectus (or, if such 30th day shall be a Saturday, Sunday or holiday, on the
next business day thereafter when the New York Stock Exchange is open for
trading), the Underwriters may purchase all or less than all of the Option
SAILS at the purchase price per SAIL to be paid for the Firm SAILS. The
Company agrees to sell to the Underwriters and the Underwriters agree,
severally and not jointly, to purchase from the Company, the number of Option
SAILS specified in such notice to the Company. Such Option SAILS shall be
purchased by the Underwriters only for the purpose of covering over-allotments
made in connection with the sale of the Firm SAILS. The number of Option SAILS
to be so purchased by each of the Underwriters upon exercise of such option
shall be the same proportion of the total number of Option SAILS being
purchased by each Underwriter pursuant to the exercise of such option as the
number of Firm SAILS purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm SAILS purchased by the Underwriters,
adjust-
17
<PAGE> 18
ed by CS First Boston in such a manner as to avoid fractional shares. No
Option SAILS shall be sold or delivered unless the Firm SAILS have been
simultaneously or were previously sold and delivered. The right to purchase
the Option SAILS or any portion thereof may be surrendered and terminated at
any time upon notice by CS First Boston to the Company.
Each time for the delivery of and payment for the Option SAILS (each
such time herein referred to as an "Option Closing Date"), which may be the
First Closing Date (the First Closing Date and each Option Closing Date, if
any, being sometimes referred to as a "Closing Date"), shall be determined by
CS First Boston but shall be not later than seven full business days after
written notice of election to purchase Option SAILS is given. The Company will
deliver, against payment of the purchase price, the Option SAILS being
purchased on each Option Closing Date in the form of one or more permanent
global SAILS in definitive form (each, an "Option Global SAILS") deposited with
the Trustee as custodian for DTC and registered in the name of Cede & Co., as
nominee for DTC. Payment for such Option SAILS shall be made by the
Underwriters by certified or official bank check or checks in New York Clearing
House (next day) funds drawn to the order of the Company at the above office of
Skadden, Arps, Slate, Meagher & Flom against delivery to the Trustee as
custodian for DTC of the Option Global SAILS representing all of the Option
SAILS being purchased on such Option Closing Date.
5. Offering by Underwriters. It is understood that the Underwriters
propose to offer the SAILS for sale to the public as set forth in the Company
Prospectus.
6. Certain Additional Agreements of INSO. INSO agrees with the
Underwriters or the Company, if applicable, that:
(a) If the INSO Effective Time is prior to the execution and
delivery of this Agreement, INSO will file the INSO Prospectus with
the Commission pursuant to and in accordance with subparagraph (1)
(or, if applicable and if consented to by CS First Boston,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the [fifth][fifteenth] business day after the INSO
Effective Date. INSO will advise the Underwriters promptly of any
such filing pursuant to Rule 424(b);
(b) INSO will advise the Underwriters promptly of any
proposal to amend or supplement the registration statement
18
<PAGE> 19
as filed or the related prospectus or the INSO Registration Statement
or the INSO Prospectus and will not effect such amendment or
supplementation (other than any document required to be filed under the
Exchange Act which, upon filing, is deemed to be incorporated by
reference therein) without CS First Boston's consent, which consent
will not be unreasonably withheld; and INSO will also advise CS First
Boston promptly of the effectiveness of the INSO Registration Statement
(if the INSO Effective Time is subsequent to the execution and delivery
of this Agreement) and of any amendment or supplementation of the INSO
Registration Statement or the INSO Prospectus and of the institution
by the Commission of any stop order proceedings in respect of the INSO
Registration Statement and will use all reasonable efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued;
(c) If, at any time when a prospectus relating to the INSO
Shares is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the INSO Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the INSO Prospectus to comply with the
Act, INSO will promptly notify CS First Boston of such event and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission
or an amendment which will effect such compliance. Neither CS First
Boston's consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 9;
(d) As soon as practicable, but not later than the INSO
Availability Date (as defined below), INSO will make generally
available to its stockholders an earnings statement covering a period
of at least 12 months beginning after the INSO Effective Date which
will satisfy the provisions of Section 11(a) of the Act. For the
purpose of the preceding sentence, "INSO Availability Date" means the
45th day after the end of the fourth fiscal quarter following the
fiscal quarter that includes the INSO Effective Date, except that, if
such fourth fiscal quarter is the last quarter of INSO's fiscal year,
"INSO Availability Date" means the 90th day after the end of such
fourth fiscal quarter;
19
<PAGE> 20
(e) INSO will furnish to the Underwriters copies of the INSO
Registration Statement (three of which will be signed and will include
all exhibits), each related INSO Preliminary Prospectus, and, so long
as delivery of a prospectus relating to the INSO Shares is required to
be delivered under the Act in connection with sales by any Underwriter
or dealer, the INSO Prospectus and all amendments and supplements to
such documents, in each case as soon as available and in such
quantities as CS First Boston requests. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents;
(f) INSO will arrange for the qualification of the INSO Shares
for sale under the laws of such jurisdiction as CS First Boston
designates and will continue such qualifications in effect so long as
required for the distribution, except that INSO shall not be required
in connection therewith or as a condition thereof to qualify as a
foreign corporation or to execute a general consent to service of
process in any jurisdiction or to make any undertaking with respect to
the conduct of its business. In each jurisdiction in which the INSO
Shares shall have been qualified as above provided, INSO will make and
file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction;
(g) During the period of five years after the date of this
Agreement, INSO will furnish to the Underwriters, (i) concurrently
with furnishing such reports, if any, to its stockholders, quarterly
reports of operations of INSO for each of the first three quarters in
the form furnished to INSO's stockholders; (ii) concurrently with
furnishing such reports to its stockholders, annual reports of INSO as
of the end of each fiscal year (including financial statements audited
by independent public accountants); (iii) as soon as they are
available, copies of all other reports (financial or other) furnished
to stockholders; (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"); and (v) any additional information
of a public nature concerning INSO or its business which the
Underwriters may reasonably request. During such five-year period, if
INSO shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the
accounts of INSO and its subsidiaries are consolidated and shall be
accompanied by similar finan-
20
<PAGE> 21
cial statements for any significant subsidiary which is not so
consolidated;
(h) So long as the SAILS are Outstanding (as defined in the
Indenture), and at the Company's expense, INSO will furnish to the
Trustee and the Company in sufficient quantity or, at the option of the
Company, mail to record or beneficial 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 shall transmit the INSO Reports by mail to all
such holders at the Company's expense and without cost to such holders;
(i) During a period of 90 days after the date of the initial
public offering of the SAILS, INSO will not, without the prior written
consent of CS First Boston, issue, sell, offer, agree to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Act relating to any
additional shares of INSO Common Stock, any options, warrants or other
rights to purchase any shares of INSO Common Stock, or any securities
convertible into, exercisable for or exchangeable for shares of INSO
Common Stock other than INSO Shares offered pursuant to the Company
Prospectus and shares of INSO Common Stock offered pursuant to the
Primary Offering Prospectus, and options granted or shares issued
pursuant to employee benefit plans, stock option plans or other
employee compensation plans existing on the date hereof; and
(j) INSO shall take such action as may be reasonably necessary
to comply with the rules and regulations of the NASD in respect of INSO
Common Stock to be registered in connection with the offering by the
Company of the SAILS.
7. Further Agreements of the Company. The Company covenants and
agrees with the Underwriters that:
(a) If the Company Effective Time is prior to the execution
and delivery of this Agreement, the Company will file the Company
Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CS First
Boston, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of
this Agreement or (B) the [fifth][fifteenth] business day after the
Company Effective Date. The Company will advise the
21
<PAGE> 22
Underwriters promptly of any such filing pursuant to Rule 424(b);
(b) The Company will advise the Underwriters promptly of any
proposal to amend or supplement the registration statement as filed or
the related prospectus or the Company Registration Statement or the
Company Prospectus and will not effect such amendment or
supplementation (other than any document required to be filed under
the Exchange Act which, upon filing, is deemed to be incorporated by
reference therein) without CS First Boston's consent, which consent
will not be unreasonably withheld; and the Company will also advise CS
First Boston promptly of the effectiveness of the Company Registration
Statement (if the Company Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of the Company Registration Statement or the Company
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of the Company Registration Statement and will
use all reasonable efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued;
(c) If, at any time when a prospectus relating to the SAILS
is required to be delivered under the Act in connection with sales
by any Underwriter or dealer, any event occurs as a result of which
the Company Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Company Prospectus to comply with
the Act, the Company will promptly notify CS First Boston of such
event and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Neither CS First Boston's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 9;
(d) As soon as practicable, but not later than the Company
Availability Date (as defined below), the Company will make generally
available to its stockholders an earnings statement covering a period
of at least 12 months beginning after the Company Effective Date which
will satisfy the provisions of Section 11(a) of the Act. For the
22
<PAGE> 23
purpose of the preceding sentence, "Company Availability Date" means
the 45th day after the end of the fourth fiscal quarter following the
fiscal quarter that includes the Company Effective Date, except that,
if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Company Availability Date" means the 90th day after the
end of such fourth fiscal quarter;
(e) The Company will furnish to the Underwriters copies of
the Company Registration Statement (three of which will be signed and
will include all exhibits), each related Company Preliminary
Prospectus, and, so long as delivery of a prospectus relating to the
SAILS is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, the Company Prospectus and all
amendments and supplements to such documents, in each case as soon as
available and in such quantities as CS First Boston requests. The
Company will pay the expenses of printing and distributing to the
Underwriters all such documents;
(f) The Company will arrange for the qualification of the
SAILS for sale under the laws of such jurisdiction as CS First Boston
designates and will continue such qualifications in effect so long as
required for the distribution, except that the Company shall not be
required in connection therewith or as a condition thereof to qualify
as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or to make any undertaking with respect to
the conduct of its business. In each jurisdiction in which the SAILS
shall have been qualified as above provided, the Company will make and
file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction;
(g) During the period of five years after the date of this
Agreement, the Company will furnish to the Underwriters, (i)
concurrently with furnishing such reports, if any, to its
stockholders, quarterly reports of operations of the Company for each
of the first three quarters in the form furnished to the Company's
stockholders; (ii) concurrently with furnishing such reports to its
stockholders, annual reports of the Company as of the end of each
fiscal year (including financial statements audited by independent
public accountants); (iii) as soon as they are available, copies of
all other reports (financial or other) furnished to stockholders; (iv)
as soon as they are available, copies of all reports and financial
statements furnished to or
23
<PAGE> 24
filed with the Commission, any securities exchange or the NASD; and
(v) any additional information of a public nature concerning the
Company or its business which the Underwriters may reasonably request.
During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and
its subsidiaries are consolidated and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated;
(h) The Company will apply the net proceeds from the sale of
the SAILS being sold by it hereunder substantially in the manner set
forth under the caption "Use of Proceeds" in the Company Prospectus;
(i) During a period of 90 days after the date of the initial
public offering of the SAILS, the Company will not, without the prior
written consent of CS First Boston issue, sell, offer, pledge, agree
to sell, or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to any
shares of INSO Common Stock, any options, warrants or other rights to
purchase any shares of INSO Common Stock, or any securities
convertible into, exercisable for or exchangeable for shares of INSO
Common Stock (other than the INSO Common Stock offered pursuant to the
Company Prospectus and INSO Prospectus);
(j) The Company will not, without the Underwriters'
consent, offer or sell, or publicly announce its intention to sell,
any debt securities having a maturity of more than one year covered by
any registration statement filed under the Act (except under prior
contractual commitments or pursuant to bank credit agreements) during
the period beginning on the date of this Agreement and ending 30 days
following the First Closing Date; and
(k) The Company will deliver to CS First Boston at the
address specified in Section 14 at or prior to the First Closing Date
a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
8. Expenses. The Company and INSO further agree with the
Underwriters that:
24
<PAGE> 25
(a) The Company and INSO will pay all expenses incident to the
performance of the Company's and INSO's obligations under this
Agreement (such expenses to be allocated between them as the Company
and INSO may agree) and will reimburse the Underwriters for any
expenses, including fees, charges and disbursements of Skadden, Arps,
Slate, Meagher & Flom, counsel for the Underwriters ("Underwriters'
Counsel"), incurred by it in connection with qualification of each of
the SAILS and INSO Shares for sale and determination of their
eligibility for investment under the laws of such jurisdictions as CS
First Boston designates and the printing of memoranda relating
thereto, fees relating to the review of documents by the NASD pursuant
to the Corporate Financing Rule of the NASD, for any fees charged by
investment rating agencies for the rating of the SAILS, for any travel
expenses of the Company's and INSO's officers and employees and any
other expenses of the Company and INSO in connection with attending or
hosting meetings with prospective purchasers of the SAILS and for
expenses incurred in distributing any Preliminary Company Prospectus,
Preliminary INSO Prospectus, the Company Prospectus and the INSO
Prospectus (including any amendments and supplements thereto) to
the Underwriters; and
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part
of the Company or INSO, as the case may be, to perform any agreement
on their respective parts to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company and
INSO will reimburse the Underwriters for all out-of-pocket expenses
(including reasonable fees, charges and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating, preparing to
market or marketing the SAILS.
9. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm SAILS
on the First Closing Date and the Option SAILS to be purchased on each Option
Closing Date will be subject to the accuracy of the representations and
warranties of INSO and the Company herein, to the accuracy of the statements of
Company officers or INSO officers made pursuant to the provisions hereof, to
the performance by INSO and the Company of their respective obligations
hereunder, and to each of the following additional conditions precedent:
(a) The Underwriters shall have received a letter, dated the
date of delivery thereof (which, if the INSO Effective Time is prior
to the execution and delivery of this Agreement, shall be on or prior
to the date of this Agreement or, if the INSO Effective Time is
subsequent to the execution and delivery of
25
<PAGE> 26
this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed
shortly prior to the INSO Effective Time), of Ernst & Young LLP
confirming that they are independent public accountants within the
meaning of the Act and the Rules and Regulations and stating in effect
that:
(i) in their opinion the financial
statements and schedules examined by
them and included in the INSO
Registration Statement or
incorporated by reference
therein comply in form in all
material respects with
the applicable accounting
requirements of the Act and the
related published Rules and
Regulations;
(ii) on the basis of a reading of the
latest available interim financial
statements of INSO, inquiries of
officials of INSO who have
responsibility for financial and
accounting matters and other speci-
fied procedures, nothing came to
their attention that caused them to
believe that:
(A) at the date of the latest
available balance sheet read by
Ernst & Young LLP, or at a
subsequent specified date not more
than five days prior to the date of
this Agreement, there was any change
in the capital stock or any increase
in short-term indebtedness or
long-term debt of INSO or, at the
date of the latest available balance
sheet read by such accountants,
there was any decrease in net
assets, as compared with amounts
shown on the latest balance sheet
included in the INSO Prospectus;
(B) for the period from the closing
date of the latest income statement
included in the INSO Prospectus to
the closing date of the latest
available income statement read by
such accountants there were any
decreases, as com-
26
<PAGE> 27
pared with the corresponding period
of the previous year, in the total
amount of net income; or
(C) the pro forma adjustments
reflected in the pro forma
consolidated financial information
included in the INSO Prospectus have
not been properly applied to the
historical amounts in the
compilation of such information;
except in all cases set forth in clauses (A) and (B)
above for changes, increases or decreases which the
INSO Prospectus discloses have occurred or may occur
or which are described in such letter; and
(iii) they have compared specified dollar amounts
(or percentages derived from such dollar
amounts) and other financial information
contained in the INSO Registration Statement
or incorporated by reference therein (in each
case to the extent that such dollar amounts,
percentages and other financial information
are derived from the general accounting
records of INSO and its subsidiaries subject
to the internal controls of INSO's accounting
system or are derived directly from such
records by analysis or computation) with the
results obtained from inquiries, a reading of
such general accounting records and other
procedures specified in such letter and have
found such dollar amounts, percentages and
other financial information to be in
agreement with such results, except as
otherwise specified in such letter.
For purposes of this Section 9(a), if the INSO Effective Time
is subsequent to the execution and delivery of this Agreement,
"INSO Registration Statement" shall mean the registration
statement as proposed to be amended by the amendment or
post-effective amendment to be filed shortly prior to the INSO
Effective Time, and "INSO Prospectus" shall mean the
prospectus included in the INSO Registration Statement.
27
<PAGE> 28
(b) The Underwriters shall have received a letter, dated the
date of delivery thereof (which, if the Company Effective Time is
prior to the execution and delivery of this Agreement, shall be on or
prior to the date of this Agreement or, if the Company Effective Time
is subsequent to the execution and delivery of this Agreement, shall
be prior to the filing of the amendment or post-effective amendment to
the registration statement to be filed shortly prior to the Company
Effective Time), of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the
Rules and Regulations and stating in effect that:
(i) in their opinion the financial
statements and schedules examined by
them and included in the Company
Registration Statement or
incorporated by reference therein
comply in form in all material
respects with the applicable
accounting requirements of the Act
and the related published Rules and
Regulations;
(ii) on the basis of a reading of the
latest available interim financial
statements of the Company, inquiries
of officials of the Company who have
responsibility for financial and
accounting matters and other
specified procedures, nothing came to
their attention that caused them to
believe that:
(A) at the date of the latest
available balance sheet read by
Ernst & Young LLP, or at a
subsequent specified date not more
than five days prior to the date of
this Agreement, there was any change
in the capital stock or any increase
in short-term indebtedness or
long-term debt of the Company or, at
the date of the latest available
balance sheet read by such
accountants, there was any decrease
in net assets, as compared with
amounts shown on the latest balance
sheet included in the Company
Prospectus; or
28
<PAGE> 29
(B) for the period from the closing
date of the latest income statement
included in the Company Prospectus
to the closing date of the latest
available income statement read by
such accountants there were any
decreases, as compared with the
corresponding period of the previous
year, in the total amount of net
income;
except in all cases set forth in clauses (A) and (B)
above for changes, increases or decreases which the
Company Prospectus discloses have occurred or may
occur or which are described in such letter; and
(iii) they have compared specified dollar amounts
(or percentages derived from such dollar
amounts) and other financial information
contained in the Company Registration
Statement or incorporated by reference
therein (in each case to the extent that
such dollar amounts, percentages and other
financial information are derived from the
general accounting records of the Company and
its subsidiaries subject to the internal
controls of the Company's accounting system
or are derived directly from such records by
analysis or computation) with the results
obtained from inquiries, a reading of such
general accounting records and other
procedures specified in such letter and have
found such dollar amounts, percentages and
other financial information to be in
agreement with such results, except as
otherwise specified in such letter.
For purposes of this Section 9(b), if the Company
Effective Time is subsequent to the execution and
delivery of this Agreement, the "Company Registration
Statement" shall mean the registration statement as
proposed to be amended by the amendment or
post-effective amendment to be filed shortly prior to
the Company Effective Time, and the "Company
Prospectus" shall mean the prospectus included in the
Company Registration Statement.
29
<PAGE> 30
(c) If the INSO Effective Time is not prior to the execution
and delivery of this Agreement, the INSO Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CS
First Boston. If the INSO Effective Time is prior to the execution and
delivery of this Agreement, the INSO Prospectus shall have been filed
with the Commission in accordance with the Rules and Regulations and
Section 6(a) of this Agreement. Prior to the Closing Date, no stop
order suspending the effectiveness of the INSO Registration Statement
shall have been issued and no proceedings for that purpose shall have
been instituted or, to the knowledge of INSO or the Underwriters, shall
be contemplated by the Commission.
(d) If the Company Effective Time is not prior to the
execution and delivery of this Agreement, the Company Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented
to by CS First Boston. If the Company Effective Time is prior to the
execution and delivery of this Agreement, the Company Prospectus shall
have been filed with the Commission in accordance with the Rules and
Regulations and Section 7(a) of this Agreement. Prior to the Closing
Date, no stop order suspending the effectiveness of the Company
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission.
(e) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in or affecting
particularly the condition (financial or other), business, properties
or results of operations of the Company, INSO or their subsidiaries
which, in the judgment of the Underwriters, is material and adverse
and makes it impractical or inadvisable to proceed with completion of
the public offering or sale of and payment for the SAILS; (ii) any
downgrading in the rating of any debt securities of the Company or
INSO by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or
review its rating of any debt securities of the Company or INSO
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such
rating); (iii) any
30
<PAGE> 31
suspension or limitation of trading in securities generally on the New
York Stock Exchange or the NNM, or any setting of minimum prices for
trading on such exchange, or any suspension of trading of any
securities of INSO or the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any outbreak or escalation of
major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of the
Underwriters, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the SAILS.
(f) The Underwriters shall have received an opinion, dated
such Closing Date, of Hale and Dorr, counsel for INSO, to the effect
that:
(i) The documents incorporated by reference
in the INSO Registration Statement or
the INSO Prospectus (other than the
financial statements and related
schedules), when they became effective
or were filed with the Commission, as
the case may be, under the Exchange
Act, complied as to form in all
material respects with the requirements
of the Act, the Exchange Act, the Rules
and Regulations and the Exchange Act
Rules and Regulations, as applicable;
(ii) INSO [and each of its subsidiaries] have
been duly incorporated and validly
existing as corporations in good
standing under the laws of their
respective jurisdictions of
incorporation, with power and authority
(corporate and other) to own, lease and
operate their respective properties and
conduct their respective businesses as
described in the INSO Prospectus; INSO
and each of its subsidiaries are duly
qualified to do business as a foreign
corporation and is in good standing in
each jurisdiction in which the
ownership or leasing of properties or
the conduct of their businesses
requires such qualification, except
where the failure
31
<PAGE> 32
to be so qualified would not have an
INSO Material Adverse Effect;
(iii) The INSO Firm Shares or the INSO Option
Shares, as the case may be, and all of
the issued shares of capital stock of
INSO are duly authorized, validly
issued, fully paid and nonassessable;
the capital stock of INSO (including
the INSO Shares) conforms in all
material respects to the statements
relating thereto contained in the INSO
Registration Statement and the INSO
Prospectus (and to the extent such
statements purport to summarize
provisions of the statutes and
instruments referred to therein, fairly
summarize such provisions in all
material respects); the form of
certificate used to evidence the INSO
Common Stock is in due and proper form
and otherwise complies with all
statutory requirements under the laws
of the State of Delaware; except as
described in or contemplated by, the
INSO Prospectus (including stock option
plans described therein), to the
knowledge of Hale and Dorr, there are
no outstanding options, warrants or
other rights for the issuance of, and
there are no commitments, plans or
arrangements to issue, any shares of
capital stock of INSO or any security
convertible into, exercisable for or
exchangeable for any shares of capital
stock of INSO;
(iv) No consent, approval, authorization or
order of, or filing with, any
governmental agency or body or any
court is required for the consummation
of the transactions contemplated by
this Agreement, except such as may be
required under the Act, the Rules and
Regulations, the Exchange Act, the
Exchange Act Rules and Regulations or
under state or other securities or Blue
Sky laws, rules and regulations;
32
<PAGE> 33
(v) INSO has full legal right, power and
authority to enter into this Agreement
and perform the transactions
contemplated hereby; this Agreement has
been duly authorized, executed and
delivered by INSO;
(vi) The execution, delivery and performance
of this Agreement and the consummation
of the transactions herein contemplated
will not result in a breach or
violation of any of the terms and
provisions of, or constitute a default
under, (A) the charter or by-laws of
INSO or any subsidiary; (B) any
indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note
or other evidence of indebtedness or
any material lease, contract or other
agreement or instrument to which INSO
or any subsidiary is a party or by
which INSO or any such subsidiary is
bound filed by INSO under the Act or
the Exchange Act; or (C) any law or
rule or regulation of any governmental
agency or body having jurisdiction over
INSO or any such subsidiary or over the
properties of INSO or any subsidiary;
or (D) to the knowledge of Hale and
Dorr, any order of any court having
jurisdiction over INSO or any
subsidiary or over the properties of
INSO or any such subsidiary;
(vii) Except as described in the INSO
Prospectus or except as previously
waived, to the knowledge of Hale and
Dorr, there are no contracts,
agreements or understandings between
INSO and any person granting such
person the right to require INSO to
file a registration statement under the
Act with respect to any securities of
INSO owned or to be owned by such
person or to require INSO to include
such securities in the securities
registered pursuant to the INSO
Registration Statement or in any
securities being registered pursuant to
any other registration statement filed
by INSO under the Act;
33
<PAGE> 34
(viii) The INSO Registration Statement was
declared effective under the Act as of
the date and time specified in such
opinion, the INSO Prospectus either was
filed with the Commission pursuant to
the subparagraph of Rule 424(b)
specified in such opinion on the date
specified therein or was included in
the INSO Registration Statement (as the
case may be), and, to the knowledge of
Hale and Dorr, no stop order suspending
the effectiveness of the INSO
Registration Statement or any part
thereof has been issued and no
proceedings for that purpose have been
instituted or are pending or, to the
knowledge of Hale and Dorr,
contemplated under the Act and the INSO
Registration Statement and the INSO
Prospectus, and each amendment or
supplement thereto, as of their
respective effective or issue dates, or
at such Closing Date, as the case may
be, complied as to form in all material
respects with the requirements of the
Act and the Rules and Regulations; no
facts have come to the attention of
Hale and Dorr causing it to believe
that either the INSO Registration
Statement or the INSO Prospectus, or
any such amendment or supplement, as of
such respective dates, contained any
untrue statement of a material fact or
omitted to state any material fact
required to be stated therein or
necessary to make the statements
therein not misleading; any
descriptions in the INSO Registration
Statement and the INSO Prospectus of
the charter and by-laws of INSO,
statutes, legal and governmental
proceedings and contracts and other
documents are accurate and fairly
present the information required to be
shown; Hale and Dorr does not know of
any contracts or documents required to
be filed as exhibits to the INSO
Registration Statement which are not
filed as required, it being understood
that Hale and Dorr need express no
34
<PAGE> 35
opinion as to the financial statements
or schedules or other financial or
statistical data contained in the INSO
Registration Statement or the INSO
Prospectus.
In rendering such opinion, Hale and Dorr may rely as to the
materiality of agreements and other factual matters on one or more
written certificates of officers of INSO or public officials, as and
to the extent they deem such reliance appropriate. It is further
understood that the negative assurance to be given by Hale and Dorr
with respect to material misstatements and omissions in the INSO
Registration Statement, the INSO Prospectus and each amendment or
supplement thereto as set forth in paragraph (ix) of this Section 9(f)
may be set forth in a separate statement in its opinion and need not
be set forth in a numbered paragraph therein.
(g) The Underwriters shall have received an opinion, dated
such Closing Date, of Goodwin, Procter & Hoar, counsel for the
Company, or Paul D. Weaver, Senior Vice President and General Counsel
of the Company, to the effect that the discussion presented under the
heading "Certain United States Federal Income Tax Considerations" is
an accurate summary of the material federal income tax consequences
relevant to an investment in the SAILS and to the further effect that:
(i) The documents incorporated by reference
in the Company Registration Statement
or the Company Prospectus, when they
became effective or were filed with the
Commission, as the case may be, under
the Exchange Act, conformed as to form
in all material respects to the
requirements of the Act, the Exchange
Act, the Rules and Regulations and the
Exchange Act Rules and Regulations, as
applicable.
(ii) The Company and each of its
subsidiaries have been duly
incorporated and are validly existing
as corporations in good standing under
the laws of their respective
jurisdictions of incorporation, with
corporate power and corporate authority
to own, lease and operate their
respective properties and conduct their
respective businesses as described in
the Company Prospectus; the Company
and each of its subsidiaries are duly
qualified to do business as a foreign
corporation and is in good standing in
each jurisdiction
35
<PAGE> 36
in which the ownership or leasing of
properties or the conduct of its
businesses requires such qualification,
except where the failure to be so
qualified would not have a Company
Material Adverse Effect;
(iii) The Indenture has been duly authorized,
executed and delivered by the Company
and has been duly qualified under the
Trust Indenture Act; the Firm SAILS or
the Option SAILS, as the case may be,
have been duly authorized by the
Company; the Firm SAILS or the Option
SAILS, as the case may be, have been
duly executed, authenticated and issued
and delivered by the Company; the
Indenture and the Firm SAILS
constitute, and any Option SAILS, when
executed, authenticated and issued and
delivered against payment therefor in
accordance with the terms of this
Agreement, will constitute, valid and
legally binding obligations of the
Company, enforceable in accordance with
their terms, subject to bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium and similar
laws of general applicability relating
to or affecting creditors' rights and
to general equity principles; the SAILS
conform in all material respects to the
statements relating thereto [,other
than any statements under the heading
"Certain United States Federal Income
Tax Considerations"] contained
in the Company Registration Statement
and the Company Prospectus (and to the
extent such statements purport to
summarize provisions of the statutes
and instruments referred to therein,
fairly summarize such provisions in all
material respects);
(iv) No consent, approval, authorization or
order of, or filing with, any
governmental agency or body or any
court is required for the consummation
of the transactions contemplated by
this Agreement in connection with the
issuance or sale of the SAILS by the
Company, except such as may be required
under the Act, the Rules and
Regulations, the Exchange Act, the
Exchange Act Rules and Regulations, the
Trust Indenture Act or under state or
36
<PAGE> 37
other securities or Blue Sky laws,
rules and regulations;
(v) The Company has full legal right,
corporate power and corporate authority
to enter into this Agreement and
perform the transactions contemplated
hereby; this Agreement has been duly
authorized, executed and delivered by
the Company and is a valid and binding
agreement of the Company;
(vi) The execution, delivery and performance
of this Agreement and the consummation
of the transactions herein contemplated
will not result in a breach or
violation of any of the terms and
provisions of, or constitute a default
under, (A) the charter or by-laws of
the Company or any subsidiary; (B) any
indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note
or other evidence of indebtedness or
any material lease, contract or other
agreement or instrument to which the
Company or any subsidiary is a party or
by which the Company or any such
subsidiary may be bound filed by the
Company under the Act or the Exchange
Act; (C) any law or rule or regulation
of any governmental agency or body
having jurisdiction over the
Company or any subsidiary or over the
properties of the Company or any such
subsidiary; or (D) to the knowledge of
Goodwin, Procter & Hoar, any order of
any court having jurisdiction over the
Company or any subsidiary or over the
properties of the Company or any such
subsidiary;
(vii) The Company Registration Statement was
declared effective under the Act as of
the date and time specified in such
opinion, the Company Prospectus either
was filed with the Commission pursuant
to the subparagraph of Rule 424(b)
specified in such opinion on the date
specified there-
37
<PAGE> 38
in or was included in the Company
Registration Statement (as the case may
be), and, to the knowledge of Goodwin,
Procter & Hoar, no stop order
suspending the effectiveness of the
Company Registration Statement or any
part thereof has been issued and no
proceedings for that purpose have been
instituted or are pending or, to the
knowledge of Goodwin, Procter & Hoar,
contemplated under the Act and the
Company Registration Statement and the
Company Prospectus, and each amendment
or supplement thereto, as of their
respective effective or issue dates,
or at such Closing Date, as the case
may be, complied as to form in all
material respects with the requirements
of the Act, the Rules and Regulations
and the Trust Indenture Act (except
that such counsel need express no
opinion as to the Statement of
Eligibility and Qualification under the
Trust Indenture Act on Form T-1 of the
Trustee (the "T-1")); and the
descriptions, if any, in the Company
Registration Statement and the Company
Prospectus of the charter and by-laws
of the Company, statutes, legal and
governmental proceedings and contracts
and other documents are accurate and
fairly present the information required
to be shown.
In addition, Goodwin, Procter & Hoar shall state that Goodwin,
Procter & Hoar has no reason to believe that either the Company
Registration Statement or the Company Prospectus, or any such amendment
or supplement, as of their respective dates, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and Goodwin, Procter & Hoar does not know of
any legal or governmental proceedings required to be described in the
Company Registration Statement or the Company Prospectus which are not
described as required or of any contracts or documents of a character
required to be described in the Company Registration Statement or to
any document incorporated by reference therein or the Company
Prospectus or to be filed as exhibits to the Company Registration
Statement which are not described and filed as required, it being
understood
38
<PAGE> 39
that Goodwin, Procter & Hoar need express no opinion as to the
financial or statistical statements or schedules or other financial
data contained in the Company Registration Statement or the Company
Prospectus or as to the T-1. In rendering such opinion, Goodwin,
Procter & Hoar may rely as to the materiality of agreements and other
factual matters on one or more written certificates of officers of
the Company or public officials, as and to the extent they deem such
reliance appropriate.
(h) The Underwriters shall have received from Underwriters'
Counsel such opinion or opinions with respect to the incorporation of
INSO and the Company, the validity of the Firm SAILS or the Option
SAILS, as the case may be, the validity of the INSO Firm Shares or the
INSO Option Shares, as the case may be, the INSO Registration
Statement, the Company Registration Statement, the INSO Prospectus,
the Company Prospectus and other related matters as the Underwriters
may require, and the Company and INSO shall have furnished to such
counsel such documents as they request for the purpose of enabling
them to pass upon such matters. In rendering such opinion,
Underwriters' Counsel may rely as to the incorporation of INSO and the
Company and all other matters governed by Delaware law upon the
opinion of Hale and Dorr referred to above.
(i) The Underwriters shall have received a certificate,
dated such Closing Date, of the [ ] and [ ] of INSO to the
effect that, and the Underwriters shall be otherwise satisfied that:
(i) the representations and warranties of INSO in this Agreement are
true and correct as if made on and as of such Closing Date; (ii) INSO
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such Closing
Date; (iii) to their knowledge no stop order suspending the
effectiveness of the INSO Registration Statement has been issued and
no proceedings for that purpose have been instituted or are
contemplated by the Commission; and
39
<PAGE> 40
(iv) that subsequent to the date of the most recent financial
statements in the INSO Prospectus there has been no material adverse
change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business,
properties or results of operation of INSO and its subsidiaries taken
as a whole except as set forth in or contemplated by the INSO
Prospectus or described in such certificate.
(j) The Underwriters shall have received a certificate,
dated such Closing Date, of the [ ] and [ ] of the Company to
the effect that, and the Underwriters shall be otherwise satisfied
that: (i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of such Closing
Date; (ii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date; (iii) to their knowledge that no
stop order suspending the effectiveness of the Company Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; and (iv) that
subsequent to the date of the most recent financial statements in the
Company Prospectus there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operation of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Company Prospectus or
described in such certificate.
(k) The Underwriters shall have received letters, dated such
Closing Date, of Ernst & Young LLP which meet the requirements of
Sections 9(a) and 9(b) hereof, except that the specified dates
referred to in Sections 9(a) and 9(b) hereof will be a date not more
than five days prior to the Closing Date for the purposes of this
Section 9(k).
INSO and the Company will furnish the Underwriters with such conformed
copies of such opinions, certificates, letters and documents as the
Underwriters reasonably request. CS First Boston may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to the
obligations of the Underwriters hereunder, whether in respect of an Option
Closing Date or otherwise.
40
<PAGE> 41
10. Indemnification and Contribution.
(a) INSO will indemnify and hold harmless each Underwriter
and the Company against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or the Company, as the
case may be, may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any
representation, warranty, agreement or covenant of INSO herein
contained or any untrue statement or alleged untrue statement of a
material fact contained in the INSO Registration Statement, any
Preliminary INSO Prospectus, the INSO Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter or the Company for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that INSO
shall not be liable in any such case (i) to any Underwriter or the
Company to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with written information
furnished to INSO by or on behalf of any Underwriter or the Company
specifically for use therein, unless such loss, claim, damage or
liability arises out of the offer or sale of SAILS occurring after any
Underwriter or the Company, as the case may be, has notified INSO in
writing that such information should no longer be used therein, it
being understood and agreed that the only such information furnished
by any Underwriter consists of the information described in subsection
(h) below or (ii) to any Underwriter if (A) any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
any of such documents, (B) such untrue statement or alleged untrue
statement or omission or alleged omission is corrected in any
amendment or supplement to the INSO Registration Statement or the INSO
Prospectus, (C) INSO shall have performed each of its obligations
under Section 6 in respect of such amendment or supplement and (D) to
the extent that a prospectus relating to such SAILS was required to be
delivered by such Underwriter under the Act, such
41
<PAGE> 42
Underwriter, having been furnished by or on behalf of INSO with copies
of the INSO Prospectus as so amended or supplemented, thereafter
fails to deliver such amended or supplemented INSO Prospectus prior to
or concurrently with the sale of SAILS to the person asserting such
loss, claim, damage, or liability who purchased such SAILS from such
Underwriter. The indemnification provided for in this Section 10(a)
shall be in addition to any liabilities which INSO may otherwise have
and shall extend upon the same terms and conditions to, and shall
inure to the benefit of, each person, if any, who controls the
Underwriters or the Company within the meaning of the Act.
(b) The Company will indemnify and hold harmless the
Underwriters and INSO, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or INSO, as
the case may be, may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
Company Registration Statement, the Company Prospectus or any
amendment or supplement thereto, or any Preliminary Company
Prospectuses, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter or INSO for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case (i) to any Underwriter or
INSO to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter or INSO
specifically for use therein, unless such loss, claim, damage or
liability arises out of the offer or sale of SAILS occurring after the
Underwriter or INSO, as the case may be, has notified the Company in
writing that such information should no longer be used therein, it
being understood and agreed that the only such information furnished
by any Underwriter consists of the information described in subsection
(i) below or (ii) to any Underwriter if (A) any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or al-
42
<PAGE> 43
leged untrue statement or omission or alleged omission made in any of
such documents, (B) such untrue statement or alleged untrue statement
or omission or alleged omission is corrected in any amendment or
supplement to the Company Registration Statement or the Company
Prospectus, (C) the Company shall have performed each of its
obligations under Section 6 in respect of such amendment or supplement
and (D) to the extent that a prospectus relating to such SAILS was
required to be delivered by such Underwriter under the Act, such
Underwriter, having been furnished by or on behalf of the Company with
copies of the Company Prospectus as so amended or supplemented,
thereafter fails to deliver such amended or supplemented Company
Prospectus prior to or concurrently with the sale of SAILS to the
person asserting such loss, claim, damage, or liability who purchased
such SAILS from such Underwriter. The indemnification provided for in
this Section 10(b) shall be in addition to any liabilities which the
Company may otherwise have and shall extend upon the same terms and
conditions to, and inure to the benefit of, each person, if any, who
controls the Underwriters or INSO within the meaning of the Act.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless INSO against any losses, claims, damages
or liabilities to which INSO may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the INSO Registration Statement, the INSO Prospectus or any
amendment or supplement thereto, or any Preliminary INSO Prospectuses,
or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
INSO by such Underwriter specifically for use therein, and will
reimburse INSO for any legal or other expenses reasonably incurred by
INSO in connection with investigating or defending any such loss,
claim damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished
by any Underwriter consists of the information described in subsection
(h) below. The indemnification provided for in this Section 10(c)
shall be in addition to any
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<PAGE> 44
liabilities which the Underwriters may otherwise have and shall extend
upon the same terms and conditions to, and shall inure to the benefit
of, each officer and director of INSO and each person, if any, who
controls INSO within the meaning of the Act.
(d) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims,
damages or liabilities to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Company Registration Statement, the Company
Prospectus or any amendment or supplement thereto, or any Preliminary
Company Prospectuses, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter
specifically for use therein, and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim
damage, liability or action as such expenses are incurred, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described in subsection (i)
below. The indemnification provided for in this Section 10(d) shall
be in addition to any liabilities which the Underwriters may otherwise
have and shall extend upon the same terms and conditions to, and shall
inure to the benefit of, each officer and director of the Company and
each person, if any, who controls the Company within the meaning of
the Act.
(e) Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under subsection (a), (b), (c) or (d)
above, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party under
subsection (a), (b), (c) or (d) above except to the
44
<PAGE> 45
extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, which
consent shall not unreasonably be withheld, be counsel to the
indemnifying party if the indemnified party shall have been advised by
counsel that there may be one or more defenses available to it which
are different from or additional to those available to the
indemnifying party), and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 10(e) for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation. An
indemnifying party shall not be liable for any amounts paid in
settlement of any action or claim without its written consent, which
shall not be unreasonably withheld.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party
is or could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on
any claims that are the subject matter of such action.
(g) If the indemnification provided for in this Section 10
is unavailable or insufficient to hold harmless an indemnified party
under subsection (a), (b), (c) or (d) above, then each indemnifying
party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b), (c) or (d) above (i)
in such proportion as is appropriate to reflect the relative benefits
received by the Company or INSO, as applicable, on the one hand, and
the Underwriters, on the other hand, from the offering of the SAILS or
(ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits
45
<PAGE> 46
referred to in clause (i) above but also the relative fault of the
Company or INSO, as applicable, on the one hand, and the Underwriters,
on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits
received by the Company or INSO, as applicable, on the one hand, and
the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the offering (before
deducting expenses) received (directly or indirectly) by the Company,
bears to the total underwriting discounts and commissions received by
the Underwriters. In the event that the Company does not participate
in any such contribution for whatever reason, INSO shall be deemed to
have received all of the net proceeds from the offering for purposes
of the immediately preceding sentence. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company, INSO or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this Section 10(g)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any action or claim which is the subject of this Section
10(g). Notwithstanding the provisions of this Section 10(g), no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the SAILS underwritten by
it and distributed to the public were offered to the public exceeds
the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section
10(g) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(h) The Underwriters confirm that the only information
furnished by any Underwriter for the INSO Prospectus consists of the
legend concerning over-allotments, stabiliza-
46
<PAGE> 47
tion and passive market making on the inside front cover page, and the
concession and reallowance figures appearing in the fourth paragraph
under the caption "Underwriting", and the information contained in the
[eighth] and ninth paragraphs under the caption "Underwriting".
(i) The Underwriters confirm that the only information
furnished by any Underwriter for the Company Prospectus consists of
the last paragraph at the bottom of the front cover page concerning
the terms of the offering by the Underwriters, the legend concerning
over-allotments, stabilization and passive market making on the inside
front cover page, and the concession and reallowance figures appearing
in the fourth paragraph under the caption "Underwriting" and the
information contained in the [eighth] and ninth paragraph under the
caption "Underwriting".
(j) The Company confirms that the statements with respect to
the terms of the SAILS set forth on the cover page of, and under the
caption "The Offering of the SAILS" in the INSO Prospectus Summary and
paragraph 6 under the caption "Underwriting" in any Preliminary INSO
Prospectus and in the final form of INSO Prospectus filed pursuant to
Rule 424(b) constitute the only information furnished in writing to
INSO by the Company specifically for inclusion in any Preliminary INSO
Prospectus, the INSO Prospectus or the INSO Registration Statement.
(k) INSO confirms that the information set forth under "INSO
Corporation" in any Preliminary Company Prospectus and in the final
form of Company Prospectus filed pursuant to Rule 424(b) constitutes
the only information furnished in writing to the Company by INSO
specifically for inclusion in any Preliminary Company Prospectus, the
Company Prospectus or the Company Registration Statement.
(l) The agreements contained in this Section 10 and the
representations, warranties and agreements of INSO in Sections 2 and
6, and of the Company in Sections 3 and 7, shall survive the delivery
of the SAILS and shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement or any investigation
made by or on behalf of any indemnified party.
11. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which
commercial banks in The City of New York are
47
<PAGE> 48
open for business and (b) "subsidiary" has the meaning set forth in Rule 405 of
the Rules and Regulations.
12. Default of Underwriters. If any Underwriter defaults in its
obligations to purchase SAILS hereunder on either the First or any Option
Closing Date and the aggregate number of SAILS that such defaulting Underwriter
agreed but failed to purchase does not exceed 10% of the total number of SAILS
that the Underwriters are obligated to purchase on such Closing Date, the non-
defaulting Underwriter may make arrangements satisfactory to the Company for the
purchase of such SAILS by other persons, including the non-defaulting
Underwriter, but if no such arrangements are made by the Closing Date, the
non-defaulting Underwriter shall be obligated to purchase the SAILS that such
defaulting Underwriter agreed but failed to purchase on such Closing Date. If
any Underwriter so defaults and the aggregate number of SAILS with respect to
which such default occurs exceeds 10% of the total number of SAILS that the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to the non-defaulting Underwriter and the Company for the purchase
of such SAILS by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of the
non-defaulting Underwriter or the Company or INSO, except as provided in Section
13 (provided that if such default occurs with respect to Option SAILS after the
First Closing Date, this Agreement will not terminate as to the Firm SAILS or
any Option SAILS purchased prior to such termination). As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 12. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
13. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and INSO or their respective officers and of the
several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation or statement
as to the results thereof, made by or on behalf of the Company or INSO or any
Underwriter or any of their respective representatives, officers or directors
or any controlling person, and will survive delivery of and payment for the
SAILS. If this Agreement is terminated pursuant to Section 12 or if for any
reason the purchase of the SAILS by the Underwriters is not consummated, the
Company shall remain responsible for the expenses to be paid or reimbursed by
it pursuant to Section 8 and the respective obligations of the Company and INSO
and the Underwriters pursuant to
48
<PAGE> 49
Section 10 shall remain in effect, and if any SAILS have been purchased
hereunder the representations and warranties in Sections 2 and 3, and all
obligations under Sections 6 and 7 shall also remain in effect. If the
purchase of the SAILS by the Underwriters is not consummated for any reason
other than solely because of the termination of this Agreement pursuant to
Section 12 or the occurrence of any event specified in clauses (iii), (iv) or
(v) of Section 9(e) hereof, the Company will reimburse the Underwriters for
all out-of-pocket expenses (including fees, charges and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
SAILS.
14. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters, will be mailed, delivered, telecopied or facsimiled
and confirmed to the Underwriters, c/o CS First Boston Corporation, Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, Attention: Investment
Banking Department - Transactions Advisory Group, or, if sent to INSO, will be
mailed, delivered, telecopied or telegraphed and confirmed to it at INSO
Corporation, 31 St. James Avenue, Boston, Massachusetts 02116, Attention: Steven
R. Vana-Paxhia; or, if sent to the Company, will be mailed, delivered,
telecopied or telegraphed and confirmed to it at Houghton Mifflin Company, 222
Berkeley Street, Boston, Massachusetts 02116, Attention: General Counsel.
15. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 10, and
no other person will have any right or obligation hereunder.
16. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
18. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws.
49
<PAGE> 50
The Company and INSO hereby submit to the non-exclusive jurisdiction
of the Federal and state courts in the Borough of Manhattan in The City of New
York in any suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us one of the counterparts hereof
whereupon it will become a binding agreement among the Company, INSO and the
Underwriters in accordance with its terms.
Very truly yours,
HOUGHTON MIFFLIN COMPANY
By
---------------------------
Name:
Title:
INSO CORPORATION
By
---------------------------
Name:
Title:
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
CS FIRST BOSTON CORPORATION
ADAMS, HARKNESS & HILL, INC.
By: CS FIRST BOSTON CORPORATION
By__________________________
Name:
Title:
50
<PAGE> 51
SCHEDULE A
Number of
Underwriter SAILS
- ----------- -----
CS First Boston Corporation . . . . . . . . . . . . . . . . . . .
Adams, Harkness & Hill, Inc. . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . .. . . . . . . . . . . . . . . . 1,750,000
=========
51
<PAGE> 1
Exhibit 4.2
===============================================================================
HOUGHTON MIFFLIN COMPANY
AND
THE FIRST NATIONAL BANK OF BOSTON
Trustee
____________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of May __, 1995
____________________
Supplemental to Indenture dated as of March 15, 1994
===============================================================================
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE dated as of May __, 1995 (this
"Supplemental Indenture"), made and entered into by and between HOUGHTON
MIFFLIN COMPANY, a corporation organized and existing under the laws of the
Commonwealth of Massachusetts having its principal office at 222 Berkeley
Street, Boston, Massachusetts 02116 (the "Company"), and THE FIRST NATIONAL
BANK OF BOSTON, a national banking association, as trustee (the "Trustee").
WHEREAS the Company entered into an Indenture dated as of March 15,
1994 with the Trustee (the "Indenture") for the purposes of issuing unsecured
debentures, notes or other evidences of indebtedness to be issued in one or
more series (the "Securities") in such principal amount or amounts as may from
time to time be authorized by or pursuant to the authority granted in one or
more resolutions of the Board of Directors of the Company; all capitalized
terms used herein and not otherwise defined will have the respective meanings
ascribed thereto in the Indenture; and
WHEREAS the Company has issued pursuant to the Indenture the series of
Securities denominated its 7 1/8% Senior Notes due 2004 in the aggregate
principal amount of $100,000,000 with respect to which The First National Bank
of Boston has been appointed to serve as Trustee; and
WHEREAS the Company proposes to issue a series of Securities
consisting of up to 2,000,000 Securities denominated its "___% Exchangeable
Notes due 1999" (individually, a "Stock Appreciation Income Linked Security" or
a "SAILS" and, collectively, the "Stock Appreciation Income Linked Securities"
or the "SAILS") the principal amount of each of which SAILS at Maturity is
mandatorily exchangeable into shares of common stock, par value $.01 per share
("INSO Common Stock"), of INSO Corporation, a Delaware corporation ("INSO"),
or, at the option of the Company, cash, in either case at the Exchange Rate as
defined herein; and
WHEREAS Section 901 of the Indenture provides that without the consent
of the Holders of Securities, the Company, when authorized by or pursuant to
the authority granted in a Board Vote, may enter into one or more indentures
supplemental to the Indenture to, among other things, establish the form or
terms of Securities of any series as permitted by Sections 201 and 301 thereof,
to cure any ambiguity, to correct or supplement any provision in the Indenture
which may be defective or inconsistent with any other provision of the
Indenture or to make any other provisions with respect to matters or questions
arising under the Indenture which shall not adversely affect the interests of
the Holders in any material respect; and
WHEREAS the entry into this Supplemental Indenture by the parties
hereto is in all respects authorized by the provisions of the Indenture; and
<PAGE> 3
WHEREAS this Supplemental Indenture has been authorized, adopted and
approved by a Board Vote and all other things necessary to make this
Supplemental Indenture a valid agreement of the Company in accordance with its
terms have been done:
NOW, THEREFORE:
In consideration of the premises and the mutual covenants herein
contained and of the purchase and acceptance of the SAILS by the Holders
thereof and for other valuable consideration, the receipt and sufficiency
whereof is hereby acknowledged, the Company, for itself and its successors,
does hereby covenant and agree to and with the Trustee and its successors in
said trust, as follows:
SECTION 1. The Indenture is hereby amended as follows:
(A) By amending Section 101, solely with respect to a
series of Securities that consists of SAILS, to add new definitions thereto, in
the appropriate alphabetical sequence, as follows:
"Current Market Price": See Section 1301.
"Closing Price": See Section 1301.
"Exchange Rate": See Section 1301.
"Extraordinary Cash Dividend": See Section 1303.
"Final Maturity": See Section 1301.
"Initial Price": See Section 1301.
"INSO": See Section 1301.
"INSO Common Stock": See Section 1301.
"INSO Successor": See Section 1303.
"NNM": See Section 1301.
"Notice Date": See Section 1301.
"Optional Redemption Date": See Section 1301.
"Reorganization Event": See Section 1303.
2
<PAGE> 4
"Threshold Appreciation Price": See Section 1301.
"Trading Day": See Section 1301.
"Transaction Value": See Section 1303.
(B) By amending Section 301 of the Indenture by (i)
adding as a new subsection (16) the following: "(16) the obligation, if any,
of the Company to permit the conversion or exchange of the Securities of such
series into other securities (whether or not issued by, or the obligation of,
the Company), and the terms and conditions upon which such conversion or
exchange shall be effected (including, without limitation, the initial
conversion or exchange price or rate, the conversion or exchange period and any
other provision in addition to or in lieu of those set forth in this Indenture
relative to such obligation; and"; and by (ii) renumbering current subsection
(16) of Section 301 to subsection (17).
(C) By amending Section 902(1) of the Indenture by adding
to the end thereof the following: "change the terms under which the SAILS are
exchangeable as set forth in Article XIII of this Indenture, or"
(D) By adding, solely with respect to the series of
Securities that consists of the SAILS, a new Article XIII as follows:
ARTICLE XIII
EXCHANGE OF SAILS
SECTION 1301. Mandatory Exchange; Optional Redemption.
(a) Unless previously redeemed by the Company as provided
herein and in the form of SAILS, on __________ __, 1999 or such
earlier date on which the SAILS become due and payable as a result of
acceleration ("Final Maturity"), the principal amount payable with
respect to each SAILS shall be automatically and mandatorily exchanged
(subject to Section 1301(d)) into a number of shares of common stock,
par value $.01 per share ("INSO Common Stock"), of INSO Corporation
("INSO") at the Exchange Rate (as defined below). As a result,
Holders of the SAILS may not receive a payment representing the
principal amount of such SAILS. The "Exchange Rate" is equal to,
subject to adjustment as a result of certain dilution events relating
to the INSO Common Stock as provided for in Section 1303, (i) 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"), 0.___ shares of INSO Common
Stock per SAILS, (ii) if the Current Market Price is less than the
Threshold Appreciation Price but is greater than $_______ per share of
INSO Common
3
<PAGE> 5
Stock (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 (such fractional share being
calculated to the nearest 1/10,000th of a share or, if there is no
nearest 1/10,000th of a share, to the next higher 1/10,000th of a
share) and (iii) 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 Final
Maturity, as provided in Section 1302. Such exchange shall be subject
to the right of the Company to redeem the SAILS as provided in Section
1301(b) and in the form of SAILS.
(b) The SAILS are not redeemable by the Company prior to
__________ __, 1998. At any time on or after ____________ __, 1998
and before Final Maturity, the Company may, at its option, redeem up
to fifty percent (50%) of the then Outstanding SAILS upon mailing of
notice of such redemption to Holders of SAILS to be redeemed not less
than 30 nor more than 60 days prior to the date fixed for redemption
by the Company (the "Optional Redemption Date"), in accordance with
the terms of the Indenture; provided, however, that the Company shall
have the right to redeem the SAILS on only one occasion prior to Final
Maturity. Upon any such redemption, the Company will deliver to the
Holder thereof in exchange for each of the SAILS so redeemed, (i)
subject to Section 1301(d), a number of shares of INSO Common Stock
at the Exchange Rate and (ii) cash in an amount equal to all accrued
and unpaid interest thereon to the Optional Redemption Date; provided,
however, that if the Optional Redemption Date falls on an Interest
Payment Date or between a Regular Record Date and the next succeeding
Interest Payment Date, then the interest payable on such Interest
Payment Date shall be paid to the Holder of record on the next
preceding Regular Record Date. On and after the Optional 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 pursuant to Section 1301(d)), unless the Company defaults on such
exchange or payment. No fractional shares of INSO Common Stock will
be issued on the Optional Redemption Date, as provided in Section
1302.
(c) The "Current Market Price" for purposes of determining the
Exchange Rate at Final Maturity shall be the average Closing
Price per share of INSO Common Stock on the 20 Trading Days
immediately prior to, but not including, Final 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 day preceding the Notice Date (as defined herein) or,
if such day is not a Trading Day, 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 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 ("NNM") on
such date or, if such security is not listed on the NNM 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 otherwise 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
4
<PAGE> 6
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 NNM 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 (i) 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 (ii) 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.
(d) Notwithstanding anything to the contrary in this
Section 1301, the Company may, at its option, in lieu of delivering
shares of INSO Common Stock at Maturity, deliver cash in an amount
(calculated to the nearest 1/100th of a dollar per SAILS or, if there
is not a nearer 1/100th of a dollar, then to the next higher 1/100th
of a dollar) equal to the value of the number of shares of INSO Common
Stock otherwise deliverable by the Company in exchange for the SAILS
pursuant to Section 1301(a) or 1301(b), as the case may be, at the
Current Market Price. In addition, the Company may, at its option,
deliver cash in lieu of INSO Common Stock to beneficial Holders of any
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.
SECTION 1302. No Fractional Shares.
No fractional shares or scrip representing fractional shares
of INSO Common Stock shall be issued or delivered upon the exchange at
Maturity of any SAILS. If more than one SAILS shall be surrendered
for exchange at one time by the same Holder, the number of full shares
of INSO Common Stock which shall be delivered upon exchange, in whole
or in part, as the case may be, shall be computed on the basis of the
aggregate number of SAILS so surrendered at Maturity. Instead of any
fractional share of INSO Common Stock which would otherwise be
deliverable upon exchange of any SAILS at Maturity, the Company,
through any applicable Paying Agent, shall make a cash payment in
respect of such fractional interest in an amount equal to the value of
such fractional shares at the Current Market Price. The Company
shall, upon exchange of any SAILS, provide cash to any applicable
Paying Agent in an amount equal to the cash payable with respect to
any fractional shares of INSO Common Stock deliverable upon exchange
of such SAILS, and the Company shall retain such fractional shares of
INSO Common Stock.
5
<PAGE> 7
SECTION 1303. Adjustment of Exchange Rate.
(a) The Exchange Rate shall be subject to adjustment
from time to time as follows:
(i) If INSO shall:
(A) pay a dividend or make a
distribution with respect to the
INSO Common Stock in shares of such
stock,
(B) subdivide or split the outstanding
shares of INSO Common Stock into a
greater number of shares,
(C) combine the outstanding shares of
INSO Common Stock into a smaller
number of shares, or
(D) issue by reclassification of shares
of INSO Common Stock any shares of
capital stock of INSO,
then, in any such event, the Exchange Rate in effect
immediately prior to such event shall be adjusted so that the
Holder of any SAILS shall thereafter be entitled to receive,
upon mandatory exchange of the principal amount of such SAILS
at Maturity, as set forth in Section 1301, the number of
shares of INSO Common Stock which such Holder would have owned
or been entitled to receive immediately following any event
described above had such SAILS been exchanged immediately
prior to such event or any record date with respect thereto.
Each such adjustment shall become effective at the opening of
business on the business day next following the record date
for determination of stockholders of INSO Common Stock
entitled to receive such dividend or distribution in the case
of a dividend or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, split, combination or reclassification. Each
such adjustment shall be made successively.
(ii) If INSO shall, after the date hereof, issue
rights or warrants to all stockholders 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 current market
price of INSO Common Stock (determined for purposes of this
clause (ii) as the average Closing Price per share of INSO
Common Stock on the 20 Trading Days immediately prior to the
date such rights or warrants are issued), then in each case
the Exchange Rate shall be adjusted by
6
<PAGE> 8
multiplying the Exchange Rate in effect immediately prior to
the date of issuance of such rights or warrants, by a
fraction, of which the numerator shall be the number of shares
of INSO Common Stock outstanding on the date of issuance of
such rights or warrants, immediately prior to such issuance,
plus the number of additional shares of INSO Common Stock
offered for subscription or purchase pursuant to such rights
or warrants, and of which the denominator shall be the number
of shares of INSO Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to such
issuance, plus the number of additional shares of INSO Common
Stock which the aggregate offering price of the total number
of shares of INSO Common Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase at
such current market price (calculated as the average Closing
Price per share of INSO Common Stock on the 20 Trading Days
immediately prior to the date such rights or warrants are
issued), which shall be determined by multiplying such total
number of shares by the exercise price of such rights or
warrants and dividing the product so obtained by such current
market price. Such adjustment shall become effective at the
opening of business on the business day next following the
record date for the determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of
INSO Common Stock are not delivered after the expiration of
such rights or warrants, the Exchange Rate shall be readjusted
to the Exchange Rate which would then be in effect had such
adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of shares
of INSO Common Stock actually delivered. Each such adjustment
shall be made successively.
(iii) If INSO shall pay a dividend or make a
distribution to all stockholders of INSO Common Stock of
evidences of its indebtedness or other assets (excluding any
dividends or distributions referred to in subparagraph (i)
above or any ordinary periodic cash dividends that do not
constitute Extraordinary Cash Dividends (as defined in clause
(vi) below) or shall issue to all stockholders of INSO Common
Stock rights or warrants to subscribe for or purchase any of
its securities (other than those referred to in subparagraph
(ii) above), then in each such case, the Exchange Rate shall
be adjusted by multiplying the Exchange Rate in effect on the
record date mentioned below, by a fraction of which the
numerator shall be the current market price per share of INSO
Common Stock on the record date for the determination of
stockholders entitled to receive such dividend or distribution
(such current market price being determined for purposes of
this clause (iii) as the average Closing Price per share of
INSO Common Stock on the 20 Trading Days immediately prior to
such record date), and of which the denominator shall be such
current market price per share of INSO Common Stock less the
fair market value (as determined by the Board of Directors of
the Company, whose determination shall be conclusive, and
described in a resolution
7
<PAGE> 9
adopted with respect thereto) as of such record date of the
portion of the assets or evidences of indebtedness so
distributed or of such subscription rights or warrants
applicable to one share of INSO Common Stock. Each such
adjustment shall become effective on the opening of business
on the business day next following the record date for the
determination of stockholders entitled to receive such
dividend or distribution. Each such adjustment shall be made
successively.
(iv) Any shares of INSO Common Stock issuable in
payment of a dividend shall be deemed to have been issued
immediately prior to the close of business on the record date
for such dividend for purposes of calculating the number of
outstanding shares of INSO Common Stock under subparagraph
(ii) above.
(v) All adjustments to the Exchange Rate shall 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 adjustment would
require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by
reason of this clause (v) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. If an adjustment is made to the Exchange Rate
pursuant to subparagraph (i), (ii) or (iii) of this Section
1303(a), an adjustment shall also be made to the Current
Market Price solely to determine which of paragraphs (a), (b)
or (c) of the definition of Exchange Rate in Section 1301 will
apply at Maturity. The required adjustment shall be
determined by multiplying the Current Market Price by the
reciprocal of the number determined under subparagraph (i),
(ii) or (iii) by which the then existing Exchange Rate was
multiplied to adjust such rate. This subparagraph (v) shall
be so used to adjust the definition of Current Market Price
only as such term is used for the first time in each of
subparagraphs (a), (b) and (c) of the definition of Exchange
Rate.
(vi) For purposes of the foregoing, the term
"Extraordinary Cash Dividend" shall mean, with respect to any
consecutive 365-day period, any cash dividend with respect to
INSO Common Stock the amount of which, together with the
aggregate amount of all other such cash dividends on the INSO
Common Stock occurring in such 365-day period, exceeds on a
per share basis 10% of the average of the Closing Prices per
share of the INSO Common Stock for each Trading Day during
such 365-day period, and for purposes of applying the formula
set forth in clause (iii) above, the fair market value of such
dividend being calculated pursuant to such clause (iii) shall
be equal to (x) the aggregate amount of such cash dividend
together with the amounts of such other cash dividends
occurring in such period minus (y) the aggregate amount of
such other
8
<PAGE> 10
cash dividends occurring in such period for which a prior
adjustment in the Exchange Rate was previously made under this
Section 1303(a). In making the determinations required by the
foregoing sentence, the amount of cash dividends paid on a per
share basis shall be appropriately adjusted to reflect the
occurrence during such period of any event described in this
Section 1303(a).
(b) In the event of (i) 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 the 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), (ii) 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, (iii) any statutory exchange of securities of INSO or any
INSO Successor with another corporation (other than in connection with
a merger or acquisition) or (iv) 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 exchange at Maturity for each SAILS will be
adjusted to provide that each Holder of SAILS will receive at Maturity
cash in an amount equal to (a) if the Transaction Value (as defined
below) is greater than or equal to the Threshold Appreciation Price,
0.__ 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 or (c) if the Transaction Value is
less than or equal to the Initial Price, the Transaction Value.
"Transaction Value" means (x) for any cash received in any such
Reorganization Event, the amount of cash received per share of INSO
Common Stock, (y) for any property other than cash or securities
received in any such Reorganization Event, an amount equal to the
market value at Maturity 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
(z) 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, 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 (y) or (z) above, as
applicable. The kind and amount of securities into which the SAILS
shall be exchangeable after consummation of such transaction shall be
subject to adjustment as described in paragraph (a) above following
the date of consummation of such transaction.
9
<PAGE> 11
SECTION 1304. Notice of Adjustments and Certain Other
Events.
(a) Whenever the Exchange Rate is adjusted as herein
provided, the Company shall:
(i) forthwith compute the adjusted Exchange Rate
in accordance with Section 1303 and prepare an Officers'
Certificate setting forth the adjusted Exchange Rate, the
method of calculation thereof in reasonable detail, and the
facts requiring such adjustment and upon which such adjustment
is based, which Officers' Certificate shall be conclusive,
final and binding evidence of the correctness of the
adjustment, and file such certificate forthwith with the
Trustee for the SAILS; and
(ii) within 10 Business Days following the
occurrence of an event that requires an adjustment to the
Exchange Rate pursuant to Section 1303 (or if the Company is
not aware of such occurrence, as soon as practicable after
becoming so aware), provide written notice to the Trustee and
to the Holders of the Outstanding SAILS 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 per
SAILS.
(b) In case at any time while any of the SAILS are
Outstanding the Company receives notice that:
(i) INSO shall declare a dividend (or any other
distribution) on or in respect of the INSO Common Stock to
which Section 1303(a)(i) or (ii) shall apply (other than any
cash dividends and distributions, if any, paid from time to
time by INSO that do not constitute Extraordinary Cash
Dividends);
(ii) INSO shall authorize the issuance to all
stockholders of INSO Common Stock of rights or warrants to
subscribe for or purchase shares of INSO Common Stock or of
any other subscription rights or warrants;
(iii) there shall occur any conversion or
reclassification of INSO Common Stock (other than a
subdivision or combination of outstanding shares of such INSO
Common Stock) or any consolidation, merger or reorganization
to which INSO is a party and for which approval of any
stockholders of INSO is required, or the sale or transfer of
all or substantially all of the assets of INSO; or
(iv) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of INSO;
10
<PAGE> 12
then the Company shall promptly cause to be delivered to the Trustee
and any applicable Paying Agent and filed at the office or agency
maintained for the purpose of exchange of SAILS at Maturity in the
Borough of Manhattan, in the City of New York by the Trustee (or any
applicable Paying Agent), and shall promptly cause to be mailed to the
Holders of SAILS at their last addresses as they shall appear upon the
registration books of the Security Registrar, at least 10 days before
the date hereinafter specified (or the earlier of the dates
hereinafter specified, in the event that more than one is specified),
an Officers' Certificate stating (x) the date on which a record is to
be taken for the purpose of such dividend, distribution or grant or
rights or warrants, or, if a record is not to be taken, the date as of
which the stockholders of INSO Common Stock of record to be entitled
to such dividend, distribution or grant of rights or warrants are to
be determined, or (y) the date, if known by the Company, on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective.
(c) On or prior to seven Business Days preceding Final
Maturity or any Optional Redemption Date, as the case may be, the
Company will provide notice to the Holders of record of the SAILS and
to the Trustee and will publish a notice in a daily newspaper of
national circulation stating whether the Company has irrevocably
elected to deliver INSO Common Stock pursuant to Section 1301(a) or
(b), as the case may be, or cash pursuant to Section 1301(d) (or any
other property or securities that may be delivered pursuant to Section
1303(b)) at Final Maturity or, with respect to SAILS called for
redemption, on the Optional Redemption Date, as the case may be.
(d) The Trustee may rely without inquiry on any Officers'
Certificate or written notice furnished to it pursuant to this Section
1304 and shall not be deemed to have knowledge of any adjustment or
other event described herein unless it shall have received such
Officers' Certificate or notice.
SECTION 1305. Taxes.
(a) The Company will pay any and all documentary, stamp,
transfer or similar taxes that may be payable in respect of the
transfer and delivery of INSO Common Stock pursuant hereto; provided,
however, that the Company shall not be required to pay any such tax
which may be payable in respect of any transfer involved in the
delivery of INSO Common Stock in a name other than that in which the
SAILS so exchanged were registered, and no such transfer or delivery
shall be made unless and until the Person requesting each transfer has
paid to the Company the amount of any such tax, or has established, to
the satisfaction of the Company, that such tax has been paid.
(b) The parties hereto hereby agree, and each Holder of
a SAILS by its purchase of a SAILS hereby agrees:
11
<PAGE> 13
(i) to treat, for U.S. federal income tax
purposes, each SAILS as a unit (the "unit characterization")
consisting of (x) a debt obligation (the "Exchange Note") with
a fixed principal amount and issue price equal to the
principal amount of the SAILS, bearing interest at the stated
interest rate, and with the principal amount unconditionally
payable at Maturity, and (y) a 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, the INSO Common Stock which the Holder
is entitled to receive at that time (subject to the Company's
right to deliver cash in lieu of such INSO Common Stock
pursuant to Section 1301(d)), which treatment will require,
among other things, the Holder to include in income as
interest, in accordance with its method of accounting,
payments made with respect to the SAILS that are denominated
as interest;
(ii) in the case of an initial purchase, to
allocate the entire purchase price of a SAILS to the Exchange
Note and to allocate no part thereof to the Purchase Contract;
and
(iii) to file all U.S. federal, state and local
income and franchise tax returns consistent with the unit
characterization (unless required otherwise by an applicable
taxing authority).
SECTION 1306. Shares Free and Clear.
The Company hereby warrants that upon exchange of a SAILS for
INSO Common Stock at Maturity pursuant to this Indenture, the Holder
of a SAILS shall receive all rights held by the Company in the INSO
Common Stock for which such SAILS is at such time exchangeable
pursuant to this Indenture, free and clear of any and all liens,
claims, charges and encumbrances other than any liens, claims, charges
and encumbrances which may have been placed on any INSO Common Stock
by the owner thereof prior to the time such INSO Common Stock was
acquired by the Company. Except as provided in Section 1305(a), the
Company will pay all taxes and charges with respect to the delivery of
INSO Common Stock delivered in exchange for the SAILS hereunder.
SECTION 1307. Cancellation of Security.
Upon receipt by the Trustee of the SAILS delivered to it for
exchange under this Article XIII, the Trustee shall cancel and dispose
of the same as provided in Section 309.
12
<PAGE> 14
SECTION 1308. Limitations on Trading During Certain Days.
The Company hereby agrees that it will not, and it will cause
each of its Subsidiaries not to, buy or sell shares of INSO Common
Stock for their own account during the 20 Trading Days prior to
Maturity of the SAILS.
(E) By amending the table of contents of the Indenture to
reflect the additions described in subsections (a) and (d) of this Section 1.
SECTION 2. The form of SAILS attached hereto as Exhibit A is
hereby adopted, pursuant to Section 201 of the Indenture, as a form of
Securities of a series that consists of the SAILS.
SECTION 3. The Indenture, as supplemented and amended by this
Supplemental Indenture and all other indentures supplemental thereto, is in all
respects ratified and confirmed and approved, and the Indenture, this
Supplemental Indenture and all indentures supplemental thereto shall be read,
taken and construed as one and the same instrument.
SECTION 4. If any provision hereof limits, qualifies or
conflicts with another provision hereof which is required to be included in
this Supplemental Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
SECTION 5. All covenants and agreements in this Supplemental
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 6. In case any provision in this Supplemental Indenture
or in the Securities of any series shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions (or of
the other series of Securities) shall not in any way be affected or impaired
thereby.
SECTION 7. Nothing in this Supplemental Indenture, expressed or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Holders of each series of Securities any benefit
or any legal or equitable right, remedy or claim under this Supplemental
Indenture.
SECTION 8. This Supplemental Indenture and each Security of any
series shall be deemed to be a contract made under the laws of the State of New
York and this Supplemental Indenture and each such Security for all purposes
shall be governed by and construed in accordance with the laws of the State of
New York.
SECTION 9. All terms used in this Supplemental Indenture not
otherwise defined herein that are defined in the Indenture shall have the
meanings set forth therein.
13
<PAGE> 15
SECTION 10. This Supplemental Indenture may be executed in one
or more counterparts, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
SECTION 11. The recitals contained herein and in the Securities,
except the certificate of authentication of the Trustee thereon, shall be taken
as statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of the Indenture, this Supplemental Indenture or of the Securities
and shall not be accountable for the use or application by the Company of the
Securities or the proceeds thereof.
[END OF TEXT]
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By:
--------------------------------
Name:
Title:
[Seal]
Attest:
- ----------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON, as Trustee
By:
--------------------------------
Name:
Title:
[Seal]
14
<PAGE> 16
Attest:
- ----------------------------------
Name:
Title:
15
<PAGE> 17
COMMONWEALTH OF MASSACHUSETTS)
) ss.:
COUNTY OF SUFFOLK )
On the ____ day of May, 1995, before me personally came ___________,
to me known, who, being by me duly sworn, did depose and say that he is
____________ of Houghton Mifflin Company, one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
____________________________________________
[Seal] Notary Public, Commonwealth of Massachusetts
Qualified in________________________________
Commission Expires _________________________
16
<PAGE> 18
COMMONWEALTH OF MASSACHUSETTS)
) ss.:
COUNTY OF SUFFOLK )
On the ____ day of May, 1995, before me personally came ____________,
to me known, who, being by me duly sworn, did depose and say that he is
____________ of The First National Bank of Boston, a national banking
association described in and which executed the foregoing instrument; that he
knows the seal of said association; that the seal affixed to said instrument is
such association seal; that it was so affixed by authority of the Board of
Directors of said association, and that he signed his name thereto by like
authority.
____________________________________________
[Seal] Notary Public, Commonwealth of Massachusetts
Qualified in________________________________
Commission Expires _________________________
17
<PAGE> 19
EXHIBIT A
No. [S_________] CUSIP NO. ________
[Form of Face of SAILS]
HOUGHTON MIFFLIN COMPANY
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
HOUGHTON MIFFLIN COMPANY
______________ SAILS(SM)*
(Stock Appreciation Income Linked Securities (SAILS)(SM)*)
___ % Exchangeable Note due 1999
(Subject to Exchange at Maturity into Shares of
Common Stock, Par Value $.01 Per Share,
of INSO Corporation)
HOUGHTON MIFFLIN COMPANY, a corporation duly organized and existing
under the laws of the Commonwealth of Massachusetts (hereinafter called the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________________ or registered assigns, the principal sum of
_____________________ Dollars (or _________________ Dollars per Stock
Appreciation Income Linked Security (each a "SAILS")) on ____ __, 1999 (subject
to the mandatory exchange provisions at Final Maturity described below),
subject to prior redemption by the Company on or after __________ ___, 1998 as
hereinafter provided, and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) thereon from _____, 1995 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
quarterly in arrears on ___________, __________, __________ and ____________ in
each year, commencing _______, 1995 at the rate per annum specified in the
title of this note computed
A-1
<PAGE> 20
quarterly, until the principal hereof is paid or made available for payment.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in said Indenture, be paid to the
Person in whose name this SAILS (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the _______ or ___________ (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Except as
otherwise provided in the Indenture, any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
SAILS (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of the SAILS
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the SAILS may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Unless previously redeemed by the Company as provided herein and in
the Indenture, at Final Maturity the principal amount of this SAILS will be
mandatorily exchanged into a number of shares of common stock, par value $.01
per share ("INSO Common Stock"), of INSO Corporation ("INSO") at the Exchange
Rate (as defined below) and, as a result, the Holder of this SAILS will not
necessarily receive in cash an amount equal to the principal amount hereof.
The "Exchange Rate" is equal to, subject to adjustment as a result of certain
dilution events relating to the INSO Common Stock as provided for in the
Indenture, (i) 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"), 0.__ shares of INSO Common Stock per
SAILS, (ii) if the Current Market Price is less than the Threshold Appreciation
Price but is greater than $_____ per share of INSO Common Stock (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
or (iii) if the Current Market Price is less than or equal to the Initial
Price, one share of INSO Common Stock per SAILS. Notwithstanding the
foregoing, as provided in the Indenture, the Company may, at its option, in
lieu of delivering shares of INSO Common Stock at Maturity, deliver cash in an
amount (calculated to the nearest 1/100th of a dollar per SAILS or, if there is
not a nearer 1/100th of a dollar, then to the next higher 1/100th of a dollar)
equal to the value of the number of shares of INSO Common Stock otherwise
deliverable by the Company in exchange for the SAILS pursuant to Section
1301(a) or 1301(b) of the Indenture, as the case may be, at the Current Market
Price. In addition, the Company may, at its option, deliver cash in lieu of
INSO Common Stock to beneficial Holders of any 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. No fractional shares of INSO Common Stock will be issued at Final
Maturity, as provided in the Indenture. Such mandatory exchange shall be
subject to the
A-2
<PAGE> 21
right of the Company to redeem up to fifty percent (50%) of the SAILS then
Outstanding on or after _________ __, 1998, and before Final Maturity, as
described herein and in the Indenture.
On a single occasion on or after ________ __, 1998 and before Final
Maturity, the Company may, at its option, redeem up to fifty percent (50%) of
the then Outstanding SAILS upon mailing of notice of such redemption to Holders
of the SAILS to be redeemed not less than 30 nor more than 60 days prior to the
date fixed for redemption by the Company (the "Optional Redemption Date"), in
accordance with the terms of the Indenture. The Company may not redeem the
SAILS prior to _______ __, 1998. Upon any 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 as provided in Section 1301(d) of the Indenture) at the Exchange Rate and
(ii) cash in an amount equal to all accrued and unpaid interest thereon to the
Optional Redemption Date; provided, however, that if the Optional Redemption
Date falls on an Interest Payment Date or between a Regular Record Date and the
next succeeding Interest Payment Date, then the interest payable on such
Interest Payment Date shall be paid to the Holder of record on the next
preceding Regular Record Date. On and after the Optional 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 as provided in Section 1301(d) of the
Indenture), unless the Company defaults on such exchange or payment. No
fractional shares of INSO Common Stock will be issued on the Optional
Redemption Date, as provided in the Indenture.
The "Current Market Price" for purposes of determining the Exchange Rate
at Final Maturity shall be the average Closing Price per share of INSO
Common Stock on the 20 Trading Days immediately prior to, but not including,
Final 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 day preceding the Notice Date (as defined herein)
or, if such day is not a Trading Day, 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 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 ("NNM") on such date or, if such
security is not listed on the NNM on any such date, as reported by the
principal United States securities exchange on which such security is so
listed, or if such security is not so listed on a United States national or
regional securities exchange, as otherwise 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 NNM 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
A-3
<PAGE> 22
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security.
Interest on this SAILS will be payable, and delivery of INSO Common
Stock (or, at the Company's option, cash in an amount equal to the value of
such INSO Common Stock) in exchange for the principal amount of this SAILS at
Maturity will be made upon surrender of this SAILS, at the office or agency of
the Company maintained for that purpose in the City of New York, New York, and
payment of interest on (and, if the Company elects not to deliver INSO Common
Stock upon exchange at Maturity, the cash equivalent thereof payable upon
exchange for the principal amount of) this SAILS will be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register or by wire transfer to an account maintained by such Person
with a bank in The City of New York (so long as the Company has received proper
transfer instructions in writing).
ADDITIONAL PROVISIONS OF THIS SAILS ARE CONTAINED ON THE REVERSE
HEREOF AND SUCH PROVISIONS SHALL HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH
IN THIS PLACE.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof, directly or through an
Authenticating Agent, by manual signature of an authorized signatory, this
SAILS shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
*"SAILS" and "Stock Appreciation Income Linked Securities" are service
marks of CS First Boston, Inc.
A-4
<PAGE> 23
IN WITNESS WHEREOF, HOUGHTON MIFFLIN COMPANY has caused this
instrument to be duly executed under its corporate seal.
Dated:
HOUGHTON MIFFLIN COMPANY
By
---------------------------------
Name:
Title:
Attest:
-----------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This SAILS is one of the Securities of
the series designated herein and
referred to in the within-mentioned
Indenture.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
--------------------------------
Authorized Signatory
A-5
<PAGE> 24
[Form of Reverse of SAILS]
HOUGHTON MIFFLIN COMPANY
___% Exchangeable Note due 1999
(Subject to Exchange at Maturity
into Shares of Common Stock, Par Value $.01
Per Share, of INSO Corporation)
This note is one of a duly authorized issue of debentures, notes or
other evidence of indebtedness (hereinafter called the "Securities") of the
Company of the series hereinafter specified, which series is limited to
2,000,000 SAILS, all such Securities issued and to be issued under an indenture
dated as of March 15, 1994, between the Company and The First National Bank of
Boston, as Trustee (as supplemented by a First Supplemental Indenture, herein
collectively the "Indenture"), pursuant to which the Company has designated
The First National Bank of Boston as Trustee for the SAILS, to which Indenture
and all other Indentures supplemental hereto or thereto reference is hereby
made for a statement of the rights and limitation of rights thereunder of the
Holders of the Securities and of the rights, obligations, duties and immunities
of the Trustee for each series of Securities and of the Company, and the terms
upon which the Securities are and are to be authenticated and delivered. As
provided in the Indenture and subject to certain limitations therein set forth,
Registered Securities of this series are exchangeable for a like aggregate
principal amount of Registered Securities of this series and of like tenor of
any authorized denominations, as requested by the Holder surrendering the same,
upon surrender of the Registered Security or Registered Securities to be
exchanged at any office or agency described below where Registered Securities
of this series may be presented for registration of transfer. This note is one
of a series of the Securities designated __% Exchangeable Notes due 1999
referred to herein as the "SAILS").
If an Event of Default with respect to the SAILS, as defined in the
Indenture, shall occur and be continuing, the principal of all the SAILS may be
declared due and payable and therefore will result in the mandatory exchange of
the principal amount thereof for INSO Common Stock (or, at the Company's
option, cash as provided in Section 1301(d) of the Indenture), all in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of a majority in principal amount of the Securities
at the time Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all the Securities of such
A-6
<PAGE> 25
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences
with respect to such series. Any such consent or waiver by the Holder of this
SAILS shall be conclusive and binding upon such Holder and upon all future
Holders of this SAILS and of any SAILS issued upon the transfer hereof or in
exchange herefor or in lieu thereof, whether or not notation of such event or
waiver is made upon this SAILS.
As set forth in, and subject to, the provisions of the Indenture, no
Holder of any SAILS will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default with respect to the SAILS, the Holders of not less than 25% in
principal amount of the Outstanding SAILS shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall have received from the Holders of a majority in
principal amount of the Outstanding SAILS a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted by
the Holder hereof for the enforcement of payment of the principal of or
interest on this SAILS on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this SAILS or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this SAILS
at the times, place and rate, and in the manner, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this SAILS is registrable in the Security
Register, upon surrender of this SAILS for registration of transfer at the
office or agency of the Company to be maintained for that purpose in the City
of New York, or at any other office or agency of the Company maintained for
that purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new SAILS of like tenor, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
No service charge shall be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with the registration of such
transfer or charge, other than certain exchanges not involving any transfer.
Certain terms used in this SAILS which are defined in the Indenture
have the meanings set forth therein.
A-7
<PAGE> 26
The Indenture and this SAILS shall for all purposes be governed by,
and construed in accordance with, the laws of the State of New York.
Prior to due presentment of this SAILS for registration of transfer,
the Company, the Trustee for the SAILS and any agent of the Company or such
Trustee may treat the Person in whose name this SAILS is registered as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this SAILS be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
A-8
<PAGE> 27
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COMM -- as tenants in common UNIF GIFT MIN ACT --
TEN ENT -- as tenants by the entireties _______ Custodian _______
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants Under Uniform Gifts to Minors
in common Act__________________
(State)
Additional abbreviations may also be used though not in the above list.
Social Security or taxpayer I.D. or other identifying number of assignee
___________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within SAILS and all rights thereunder, hereby irrevocably constituting and
appointing ___________________________________________, attorney to transfer
said SAILS on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
----------------------------
-----------------------------------
A-9
<PAGE> 1
Exhibit 5
May 26, 1995
Houghton Mifflin Company
222 Berkeley Street
Boston, MA 02116
Ladies and Gentlemen:
This opinion is rendered to you in connection with the preparation of
the registration statement (the "Registration Statement") on Form S-3 under the
Securities Act of 1933, as amended (the "Act"), with respect to the offering by
Houghton Mifflin Company, a Massachusetts corporation (the "Company"), of up to
2,000,000 of its ___% Exchangeable Notes due 1999 ("Stock Appreciation Income
Linked Securities (SAILS)" or "SAILS"). The SAILS will be issued under an
Indenture dated as of March 15, 1994, as supplemented by the First Supplemental
Indenture (the "Indenture"), between the Company and The First National Bank of
Boston, as Trustee.
We have acted as counsel to the Company in connection with the
preparation of the Registration Statement and the proposed issuance and sale of
the SAILS. For purposes of this opinion we have reviewed the Company's
Restated Articles of Organization and Amended and Restated By-Laws, each as
amended to date. We have also examined such records of corporate proceedings
of the Company and such other documents as we have deemed necessary to enable
us to render this opinion.
We are attorneys admitted to practice in the Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdiction
other than the laws of the United States of America and the Commonwealth of
Massachusetts.
Based upon and subject to the foregoing, and having regard for such
legal considerations as we have deemed relevant, it is our opinion that, upon
the due execution and delivery of the Indenture and issuance of the SAILS
pursuant thereto, the SAILS will have been duly authorized for issuance by all
necessary corporate action on the part of the Company and, upon execution and
authentication of the SAILS as provided in the Indenture and payment for the
SAILS against delivery thereof (subject to the effectiveness of the
Registration Statement), will be the legal, valid and binding obligations of
the Company, enforceable in accordance with their terms, except that (i)
enforcement of the rights and remedies created
<PAGE> 2
Houghton Mifflin Company
May 26, 1995
Page 2
thereby may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and by equitable principles which may limit the
right to obtain the remedy of specific performance or other injunctive relief
and (ii) we express no opinion as to the legality, validity or binding nature of
any choice of law provision.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption
"Legal Matters" in the prospectus included as part of the Registration
Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR
<PAGE> 1
EXHIBIT 12
HOUGHTON MIFFLIN COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------
1995 1994(B) 1993(A) 1992 1991 1990
--------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income from continuing operations..... $30.7 $52.4 $31.4 $19.0 $25.1 $18.0
Provision for income taxes............ 20.3 32.7 17.7 9.4 15.3 13.2
----- ----- ----- ---- ---- -----
Income from continuing operations before
taxes, extraordinary item and cumulative
effect of accounting changes............. 51.0 85.1 49.1 28.4 40.4 31.2
Interest expense*..................... 7.4 6.5 3.6 4.4 6.1 5.9
Interest portion of rental
expense**........................... 3.6 3.4 3.3 3.7 3.7 3.6
----- ----- ----- ---- ---- -----
Earnings before fixed charges.............. $62.0 $95.0 $56.0 $36.5 $50.2 $40.7
===== ===== ===== ===== ===== =====
Fixed charges:
Interest expense*..................... $ 7.4 $ 6.5 $ 3.6 $ 4.4 $ 6.1 $ 5.9
Interest portion of rental
expense**........................... 3.6 3.4 3.3 3.7 3.7 3.6
----- ----- ----- ---- ---- -----
Total fixed charges........................ $11.0 $ 9.9 $ 6.9 $ 8.1 $ 9.8 $ 9.5
===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges......... 5.6 9.6 8.1 4.5 5.1 4.3
===== ===== ===== ===== ===== =====
<FN>
- ---------------
(A) On June 4, 1993, the Company completed an early redemption of $25 million in
senior notes due December 15, 1994. The Company recognized an extraordinary
loss of $1.0 million, net of a tax benefit of $0.6 million. The
extraordinary loss is excluded from earnings before fixed charges and
interest expense in calculating the ratio of earnings to fixed charges.
(B) On March 30, 1994, the Company completed an early redemption of $25 million
in senior notes due March 30, 1997. The Company recognized an extraordinary
loss of $1.2 million, net of a tax benefit of $0.8 million. This
extraordinary loss is excluded from earnings before fixed charges and
interest expense in calculating the ratio of earnings to fixed charges.
* Includes: interest amortization of debt issuance costs in 1991 and 1992 of
approximately $55,000 annually and in 1993 of approximately $100,000
annually, and interest costs on capital lease obligations of $480,000 in
1990; $430,000 in 1991; $260,000 in 1992; and $155,000 in 1993.
** Includes the portion of rent expense for each period presented that is
deemed by management to be the interest component of such rentals.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) 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
May 23, 1995
