UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 1-5406
HOUGHTON MIFFLIN COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1456030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Berkeley St., Boston 02116-3764
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 351-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------------- --------------------------
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant was approximately $589,777,345 as of February
29, 1996.
The registrant had outstanding 14,527,114 shares of common stock
(exclusive of Treasury shares) and 14,527,114 Preferred Stock Purchase Rights
as of February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission relative
to the Company's 1996 Annual Meeting of Stockholders are incorporated into
Part III.
<PAGE>
HOUGHTON MIFFLIN COMPANY
TABLE OF CONTENTS
FORM 10-K
Part I
<TABLE>
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Page
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<S> <C> <C>
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
Part II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Item 8. Consolidated Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 33
Part III
Item 10. Directors and Executive Officers of the Company 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
Part IV
Item 14. Exhibits, Financial Statements and Schedule, and Reports on Form 8-K 33
Index to Consolidated Financial Statements and Financial Schedules 33
Financial Statement Schedule 34
Signatures 35
Index to Exhibits 36
</TABLE>
<PAGE>
PART I
Item 1. Business
(a) Description of Business
Houghton Mifflin Company (the "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 has two significant
subsidiaries: McDougal Littell Inc., Evanston, Illinois, publishes
educational materials for the secondary school market; and The Riverside
Publishing Company, Chicago, Illinois, publishes assessment materials for the
educational and clinical testing markets. The Company's principal business is
publishing, and its operations are classified into 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. In this description of the Company's business, all
subsidiaries are treated as part of the Company.
In October 1995, the D.C. Heath and Company ("Heath") division of Raytheon
Company was acquired in a purchase transaction for $452.9 million in cash.
Heath is a publisher of textbooks and supplemental materials for the
elementary and secondary school and college markets. Heath's operating
results from the date of acquisition have been included in the educational
publishing segment of the Company's consolidated financial statements.
In June 1995, the Company recorded special charges related to a decision
to outsource existing distribution operations. These charges consisted
primarily of termination benefit costs, warehouse closing costs, and
inventory relocation expenses. In February 1996, the Company announced the
reassumption of the distribution function maintained at its Geneva, Illinois
facility. This warehouse will continue to service the elementary and
secondary textbook and college product distribution operations. The
distribution operations for Riverside and Trade & Reference will continue to
be managed by a third party.
In March 1994, the Company's former Software Division successfully
completed an initial public offering. The Company retained an equity interest
in the successor company, INSO Corporation ("INSO"), of approximately 40%. In
August 1995, INSO completed a new public offering of 1.2 million shares of
common stock which reduced the Company's ownership interest to approximately
36%. INSO declared a stock split in the form of a 100% stock dividend to be
paid in September 1995. All INSO share references have been restated to
reflect the effects of the stock split. Up to 3.8 million of the Company's
INSO shares have been used to collateralize the principal owed from the
issuance of the 6% Exchangeable Notes due in 1999 ("SAILS").
(b) Financial information about the industry segments
Financial information about the Company's industry segments is set forth
in Note 14 to the Consolidated Financial Statements (Part II, Item 8) under
the heading "Segment Information" on page 30 herein, and in the schedule
"Five-Year Financial Summary" on page 6 herein.
(c) Narrative description of business
For the Company, the business of publishing is the shaping of ideas,
information, and instructional methods into various media that satisfy the
lifelong need for people to learn, gain proficiency, and be entertained. The
Company seeks out, selects, and generates worthwhile concepts and then
enhances their value and accessibility through creative development, design,
production (performed by outside suppliers), marketing, sales, and
distribution. While the Company's works have been published principally in
the form of printed materials, many programs or works are published in other
formats including computer software, laser discs, CD-ROM, and other
electronic and multimedia products.
Textbooks and other educational materials and services
This industry segment includes textbooks and instructional materials,
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, 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. Major regional sales
offices are located in Illinois, Texas, Georgia, New Jersey, and California.
The Company is required by certain states to use state textbook depositories
for the distribution of educational materials. Textbooks and materials for
the elementary market are sold by the School Division; sales for the
secondary school market are made by McDougal Littell Inc. ("McDougal"); the
educational and clinical testing materials markets are serviced by The
Riverside Publishing Company ("Riverside"); and the two- and four-year higher
education markets are serviced by the College Division. Heath elementary,
secondary, and college materials will be sold by the School Division,
McDougal, and College Division, respectively. All operating divisions have
their own dedicated sales forces. In 1995, the Company outsourced the
distribution operations of all product components in the educational segment.
In December 1995, the Company
1
<PAGE>
announced the creation of a new operating unit within the educational segment
whose focus will be the development and sale of products for the
supplementary instructional market that complement the Company's elementary
and secondary publications. Existing School, McDougal, and Heath products,
including reference, audio visual and display materials, workbooks and
manipulatives will be used as a foundation for the unit Great Source
Education Group, which was incorporated as a subsidiary in February, 1996.
The division will operate independently with its own editorial staff and
sales force and will be located in Wilmington, Massachusetts. In February
1996, the Company announced that it will resume control of distribution
operations for the shipment of product components for the School Division,
McDougal, and College Division from its Geneva, Illinois facility.
General publishing
This industry segment includes trade books of fiction and nonfiction for
adults and children, dictionaries and other reference works. The principal
markets for trade books and reference works in this segment are retail
stores. The sales volume for trade books and reference works may vary
significantly from year to year based on the success of one or more titles.
In addition, book reprint rights are sold to paperback publishers, book
clubs, and publishers in the U.S. and internationally. Reference and
dictionary materials are also sold to schools, colleges, office supply
distributors, and businesses. In 1995, the Trade & Reference Division
announced the launch of a new imprint, "Houghton Mifflin Interactive," whose
principal initiative is the development of CD-ROM titles for sale in the
multimedia consumer product markets. These products will be created from new
and existing Houghton Mifflin titles, and will include children's, reference
and adult hobby titles. The Trade & Reference Division's publications are
sold by its own sales force, as well as the Company's other divisional sales
forces, commission agents, and wholesalers. Major corporate sales and support
offices are maintained in Massachusetts and New York. On June 1, 1995, the
distribution operations for trade products were outsourced to Publishers
Resources Inc.'s facilities located near Nashville, Tennessee. The former
office and warehouse facility located in Burlington, Massachusetts was closed
and the property sold in November 1995.
Company business as a whole
The availability of printing and binding capacity and raw materials
continued at satisfactory levels throughout the year. The availability of
adequate high quality paper supplies has tightened during 1995; however the
Company has had available to it adequate sources to meet production
requirements at competitive prices. The Company is not dependent upon any one
supplier. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth on page 7 herein.
The Company's principal businesses are seasonal and consist of sales
predominately to schools and colleges with approximately 70% of sales
normally occuring in the second and third quarters as purchases are made for
the school year which begins in September. Third-quarter results are material
to full-year performance with the Company realizing more than 40% of its net
sales and substantially all of its net income during the third quarter. The
acquisitions of Heath and McDougal have not materially changed the seasonal
nature of the Company's net sales or operating profits. See "Summary of
Quarterly Results of Operations (unaudited)" for the two-year period ended
December 31, 1995, set forth on page 32 herein.
Sales of educational materials are cyclical as a result of purchasing
patterns that are based on both the academic year and the textbook adoption
process. Approximately one-half of the United States school population adopts
new elementary and secondary school textbooks on a statewide basis for a
particular subject every five to seven years. The increase in the number of
states adopting elementary and secondary school products provided for
increased sales opportunities in 1995. It is expected that 1996 will offer
more limited sales opportunities for state-wide adoption. The loss of a
single customer or a few customers would not have a materially adverse effect
on the business of the Company, but as discussed above, the timing of
adoption opportunities may affect year-to-year revenue performance.
The Company's products are sold in highly competitive markets due to the
extensive consolidations that have occurred in the publishing industry in
recent years. The major competitive factors in the industry are believed to
be quality of product and customer service. The elementary and secondary
school market is concentrated in approximately 10 significant publishers; in
the college book market the Company competes with 10 significant publishers.
In the diverse trade and juvenile book markets, approximately 60% of the
estimated $6 to $7 billion total industry sales is shared by 10 major
publishers including Houghton Mifflin.
At December 31, 1995, the Company employed approximately 2,350 people.
The Company anticipates no substantial expenditures for compliance with
environmental laws or regulations.
(d) Financial information about foreign and export sales
Operations in foreign countries were substantially reduced in 1992 with
the sale of the Gollancz publishing and distribution businesses in the United
Kingdom and school publications of the Company's Canadian subsidiary. Export
sales are not at present significant to either of the Company's two business
segments.
2
<PAGE>
Item 2. Properties
The Company's principal executive office is currently located at 222
Berkeley Street, Boston, Massachusetts.
The following table describes the approximate building areas and principal
uses of the significant operating properties of the Company and its
subsidiaries at December 31, 1995. The Company believes that its owned and
leased properties are suitable and adequate for its present and anticipated
business needs, satisfactory for the uses to which each is put, and in
general fully utilized.
<TABLE>
<CAPTION>
APPROXIMATE AREA PRINCIPAL USE SEGMENT USED
LOCATION IN SQUARE FEET OF SPACE BY
- ------------------------ ------------------ ------------- ----------------------------------
Owned Premises
- ------------------------
<S> <C> <C> <C>
Geneva, Illinois 486,000 Offices & Textbooks and other educational
warehouse materials
Palo Alto, California 18,000 Offices Textbooks and other educational
materials; sales office
Indianapolis, Indiana 503,000 Offices & Textbooks and other educational
warehouse materials; sales office
Leased premises
- ------------------------
Boston, Massachusetts * 246,000 Executive & (1) Textbooks and other
222 Berkeley Street/ business educational materials and
500 Boylston Street offices services, (2) General
publishing, and (3) Corporate
headquarters
Dallas, Texas 80,000 Offices & Textbooks and other educational
warehouse materials and services
Chicago, Illinois 53,000 Offices Textbooks and other educational
materials and services
Evanston, Illinois 48,000 Offices Textbooks and other educational
materials; sales office
Wilmington,
Massachusetts 40,000 Offices Corporate support
Atlanta, Georgia 31,000 Offices & Textbooks and other educational
warehouse materials; sales office
New York, New York 36,000 Offices General publishing
St. Charles, Illinois 14,000 Offices Textbooks and other educational
materials; sales office
Princeton, New Jersey 5,700 Offices Textbooks and other educational
materials; sales office
</TABLE>
The years of expiration on leased premises are as follows:
Boston, Massachusetts 2007
Dallas, Texas 2005
Chicago, Illinois 1996
Evanston, Illinois 2004
Wilmington,
Massachusetts 2005
Atlanta, Georgia 1998
New York, New York 2004
St. Charles, Illinois 2006
Princeton, New Jersey 1999
* Lease agreement entered into in February 1996 for expansion of 56,000
square feet into premises adjacent to existing corporate headquarters.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1995.
3
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Executive Officers of the Company
<TABLE>
<CAPTION>
Other
Office positions
Age at held with the
Name 2/28/96 Office since Company
- ----------------------- ------ --------------------------------- ---- ---------
<S> <C> <C> <C> <C>
Nader F. Darehshori 59 Chairman, President, and 1991 Director
Chief Executive Officer
Albert Bursma, Jr. 59 Executive Vice President, 1995 --
President, Great Source
Education Group, Inc.
Gail Deegan ** 49 Executive Vice President, Chief 1996 --
Financial Officer, and
Treasurer
Margaret M. Doherty 57 Senior Vice President, Human 1994 --
Resources
Elizabeth L. Hacking 54 Senior Vice President, 1993 --
Strategic Development
Michael J. Lindgren 38 Vice President, Controller 1994 --
Julie A. McGee 52 Executive Vice President; 1995 --
President, McDougal Littell
Inc.
John H. Oswald 45 Executive Vice President; 1993 --
President, The Riverside 1992 --
Publishing Company
Gary L. Smith 50 Senior Vice President, 1991 --
Administration
June Smith 51 Executive Vice President, 1994 --
College Division
Wendy Strothman 46 Executive Vice President, Trade 1996 --
& Reference Division
John E. Tyler 54 Senior Vice President, Chief 1993 --
Technology Officer
Paul D. Weaver 52 Senior Vice President, Clerk, 1989 --
Secretary, and General Counsel
William J. Wisneski 48 Executive Vice President, 1992 --
School Division
</TABLE>
Executive officers are elected by the Board of Directors to serve annual
terms.
Below is a brief account of the business experience of each executive
officer during the past five years. Each executive officer has been employed
by the Company for more than five years with the exception of Mr. Bursma, Ms.
Deegan, Mr. Lindgren, Ms. McGee, Mr. Oswald, Ms. Smith, Ms. Strothman, and
Mr. Tyler.
Nader F. Darehshori
1991--Chairman, President, and Chief Executive Officer
Albert Bursma, Jr.
1995--Executive Vice President, President, Great Source Education Group,
Inc.*
1994--Executive Vice President, D.C. Heath and Company; President, School
Division (D.C. Heath and Company was a publisher not affiliated with
the Company prior to its acquisition on October 31, 1995.)
Gail Deegan **
1996--Executive Vice President, Chief Financial Officer, and Treasurer
1995--Senior Vice President, Regulatory and Government Affairs, NYNEX
1994--Vice President and Chief Finanical Officer, New England Telephone, a
wholly-owned subsidiary of NYNEX
Margaret L. Doherty
1994--Senior Vice President, Human Resources
Elizabeth L. Hacking
1993--Senior Vice President, Strategic Development
1993--Vice President, Strategic Development
1992--Vice President, Higher Education Planning, Research, and Development,
College Division
Michael J. Lindgren
1995--Vice President, Controller, and Treasurer
1994--Vice President and Controller
1994--Divisional Vice President and Controller
1993--Director of Planning & Analysis, ITT Sheraton
4
<PAGE>
1992--Director of Accounting and Management Reporting, ITT Sheraton (ITT
Sheraton is a hotel and real estate subsidiary of ITT Corporation,
primarily an insurance and financial services holding company not
affiliated with the Company)
Julie A. McGee
1995--Executive Vice President
1994--Senior Vice President
1994--President, McDougal Littell/Houghton Mifflin Inc.*
1991--President, McDougal, Littell & Company (McDougal, Littell & Company was
a publisher not affiliated with the Company prior to its acquisition on
March 1, 1994.)
John H. Oswald
1993--Executive Vice President
1992--President, The Riverside Publishing Company*
1992--Vice President
1991--Executive Vice President for Sales, Customer Service, and Operations
for The Psychological Corporation of Harcourt Brace Jovanovich, Inc. (a
publisher not affiliated with the Company)
Gary L. Smith
1991--Senior Vice President, Administration
June Smith
1994--Executive Vice President
1992--Vice President, Editorial Director, College Division
1991--Editorial Director and Publisher--College Division of McGraw-Hill,
Inc. (a publisher not affiliated with the Company)
Wendy Strothman
1996--Executive Vice President, Trade & Reference Division
1995--Vice President, Publisher, Adult Trade and Reference
1995--Director, Beacon Press (a publisher not affiliated with the Company)
John E. Tyler
1993--Senior Vice President, Chief Technology Officer
1992--Vice President, Information Technology, Seattle Times (a publisher not
affiliated with the Company)
Paul D. Weaver
1989--Senior Vice President, Clerk, Secretary, and General Counsel
William J. Wisneski
1992--Executive Vice President, School Publishing
1991--Senior Vice President; President, The Riverside Publishing Company*
* A subsidiary of the Company
** Ms. Deegan became Executive Vice President, Chief Financial Officer, and
Treasurer on February 26, 1996, at which time she resigned as a Director
of the Company.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company's common stock is traded on the New York Stock Exchange. As of
February 29, 1996, the approximate number of holders of common stock of the
Company was 5,121.
Information about stock prices and dividends paid per share is set forth
under the heading "Stock Prices and Dividends Paid Per Share" presented
below:
HOUGHTON MIFFLIN COMPANY
STOCK PRICES AND DIVIDENDS PAID PER SHARE (Unaudited)
1995 1994
------------------------ --------------------------
Dividend Dividend
High Low Paid High Low Paid
----- ----- ------ ----- ----- --------
First quarter $47.13 $39.75 $.225 $53.00 $40.63 $.215
Second quarter 54.75 45.88 .225 48.25 38.88 .215
Third quarter 52.88 44.88 .240 46.13 36.13 .215
Fourth quarter 46.75 39.63 .240 47.88 40.63 .225
---- ------
Year $.930 $.870
==== ======
5
<PAGE>
Item 6. Selected Financial Data
The response to this item is set forth below under the heading "Five-Year
Financial Summary."
HOUGHTON MIFFLIN COMPANY
Five-Year Financial Summary
<TABLE>
<CAPTION>
(Unaudited) Years ended December 31
(In thousands of dollars except amounts per share) 1995 1994 1993 1992 1991
--------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 529,022 $483,076 $462,969 $454,706 $466,801
Operating income (loss) (13,095) 53,464 51,370 44,310 44,862
Net interest expense 13,008 6,509 2,347 2,339 3,706
Gain on equity transactions of INSO Corporation
and sale of interest in Software Division 13,102 36,212 -- -- --
Loss on disposition of foreign publishing
operations -- -- -- (13,527) (710)
Income (loss) before taxes, extraordinary item
and accounting changes (11,444) 85,140 49,023 28,444 40,446
Cumulative effect of accounting changes -- -- -- (14,657) --
Net income (loss) (7,243) 51,191 30,371 4,414 25,077
- ----------------------------------------------- ------- ----- ----- ----- -------
PER COMMON SHARE
Net income (loss) per share of common stock $ (0.52) $ 3.70 $ 2.20 $ 0.31 $ 1.75
Dividends declared per share 0.93 0.87 0.83 0.79 0.75
Book value 16.89 17.74 16.15 14.52 15.63
Stock price--High 54.75 53.00 50.38 39.88 30.38
Low 39.63 36.13 36.38 26.63 22.25
Close 43.00 45.38 48.63 39.88 28.50
- ----------------------------------------------- ------- ----- ----- ----- -------
FINANCIAL DATA
Total assets $1,046,798 $497,266 $398,086 $371,421 $381,780
Long-term debt less current portion 426,148 99,445 26,438 52,608 52,975
Additions to book plates and plant, property
and equipment 54,278 33,720 36,524 38,186 41,037
Dividends paid 12,845 12,026 11,475 11,037 10,746
Average number of shares available for earnings
per share (in thousands) 13,812 13,822 13,823 14,029 14,314
- ----------------------------------------------- ------- ----- ----- ----- -------
Net Sales--Classes of Similar Products
Textbooks and other educational
materials and services
School publishing $ 359,523 $303,370 $267,106 $272,289 $291,896
College publishing 82,277 84,057 90,092 81,212 78,336
------- ----- ----- ----- -------
441,800 387,427 357,198 353,501 370,232
General publishing 87,222 95,649 105,771 101,205 96,569
------- ----- ----- ----- -------
$ 529,022 $483,076 $462,969 $454,706 $466,801
======= ===== ===== ===== =======
</TABLE>
In October 1995, the Company completed the acquisition of D.C. Heath and
Company from Raytheon Company in a purchase transaction (See Note 2). As a
result, certain charges of $49.3 million ($30.0 million after-tax, or $2.17
per share) were recorded in 1995 associated with the integration of the Heath
business.
An after-tax gain of $7.8 million, or $.56 per share, was recognized in
1995 in connection with an additional public offering of 1.2 million shares
made by INSO. In 1994, the Company recognized an after-tax gain of $22.8
million, or $1.65 per share, in connection with the initial public offering
of INSO Corporation, the successor company to the former Software Division.
In March 1994, the Company acquired the assets of McDougal, Littell &
Company in a purchase transaction (See Note 2).
In 1992, the Company adopted the provision of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109,
"Accounting for Income Taxes."
In 1992, the Company recognized a loss associated with the sale of certain
foreign operations.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three years ended December 31, 1995.
On October 31, 1995, the Company acquired D.C. Heath and Company ("Heath")
for net cash consideration of $452.9 million. On March 1, 1994, the Company
acquired McDougal, Littell & Company ("McDougal") for net cash consideration
of $130.3 million. These acquisitions have been accounted for as purchases
and, accordingly, the operating results of Heath and McDougal are included in
the Company's consolidated financial statements from the date of acquisition.
Net sales in 1995 increased $45.9 million, or 9.5%, to $529.0 million from
1994 net sales of $483.1 million. The educational publishing segment's net
sales increased by $54.4 million, or 14.0%, in 1995 from net sales of $387.4
million in 1994. The increase in revenues is primarily due to the increased
adoption opportunities in 1995 and $17.8 million in incremental revenue as a
result of the Heath acquisition. The general publishing segment net sales of
$87.2 million in 1995 decreased $8.4 million, or 8.8%, from 1994 net sales of
$95.6 million. The decrease in net sales for 1995 primarily resulted from the
absence of sales from the former Software Division, lower distribution
revenues, lower revenues from weaker front list titles, and additional
provisions for book returns.
Net sales of $483.1 million in 1994 increased $20.1 million, or 4.3%, from
1993 net sales of $463.0 million. The educational publishing segment's net
sales of $387.4 million in 1994 increased by $30.2 million, or 8.5%, over net
sales of $357.2 million in 1993. Net sales from McDougal of $62.4 million
more than offset a net sales decrease from other educational publishing
segment components. The general publishing segment's net sales of $95.6
million in 1994 decreased by $10.1 million, or 9.6%, from net sales of $105.8
million in 1993. The decrease in net sales in 1994 primarily reflected the
disposition of the Company's former Software Division, which successfully
completed an initial public offering in March 1994. General publishing
segment sales were up slightly in comparison to 1993 with removal of the
former Software Division's sales from both year's results.
The Company's operating loss for 1995 was $13.1 million compared to
operating income of $53.5 million recorded in 1994, while the operating
income recorded in 1994 was a 4.1% increase from the $51.4 million recorded
in 1993. Included in these operating results were $56.3 million, $6.5 million
and $10.6 million of special charges for 1995, 1994 and 1993, respectively.
The 1995 special charges include $49.3 million of charges related to the
integration of the Heath operations and $7.0 million resulting from the
decision to outsource the Company's distribution function. The charges
related to Heath include $32.9 million for inventory and plate adjustments
based on strategic decisions made and actions taken subsequent to the
acquisition, $9.3 million for integration of administrative and sales
functions and $7.1 million for indirect costs of the acquisition. The
distribution-related charges include $3.0 million for closing costs and the
disposal of assets, $2.9 million for severance, and $1.1 million for
consulting and inventory relocation.
The 1994 special charges included $3.5 million for corporate and
divisional staff reductions, $2.0 million for consolidation of Company-owned
and leased facilities, and $1.0 million for disposal of assets.
The 1993 special charges included $7.5 million for the realignment of
corporate and divisional responsibilities and workforce reductions, $.9
million for the sale of a California warehouse facility and related costs,
and $2.2 million to relocate and consolidate Boston area operations in a new
location.
The after-tax cost of the $56.3 million, $6.5 million, and $10.6 million
in special charges was $34.3 million ($2.48 per share), $4.0 million ($.29
per share), and $6.6 million ($.48 per share) for 1995, 1994, and 1993,
respectively.
The educational publishing segment's operating income decreased by $4.4
million or 6.5% in 1995 on a sales increase of 14.0%. The general publishing
segment recorded a loss from ongoing operations in 1995 of $8.5 million, a
decrease of $15.8 million from 1994, on a revenue decrease of $6.6 million or
7.0%. The Company's general corporate expenses increased 2.5% to $16.0
million in 1995 from the $15.6 million reported in 1994.
The educational publishing segment's operating income decreased by $.7
million, or 1%, in 1994 on a sales increase of 8.5%. The general publishing
segment's income from ongoing operations in 1994 decreased 12.6%, to $7.3
million from the $8.3 million recorded in 1993. The Company's general
corporate expenses declined $3.3 million, or more than 17%, to $15.6 million
in 1994 from the $18.9 million reported in 1993. This reduction was due in
part to the restructuring actions taken in 1994 and prior years.
In connection with the initial public offering by the former Software
Division, INSO Corporation ("INSO"), the Company recognized in 1994 a gain of
$36.2 million ($22.8 million after tax, or $1.65 per share). In 1995, INSO
completed an additional public offering of 1.2 million common shares at
approximately $33 per share; as a result, the Company's equity ownership has
been reduced to approximately 36%. The Company recorded a non-cash gain of
$13.1 million ($7.8 million after tax, or $.56 per share) in 1995,
representing the Company's portion of the increase in the net assets of INSO
as a result of this offering.
7
<PAGE>
Net interest expense increased $6.5 million, or almost 100%, in 1995 due
to the $345 million of commercial paper and bank financing obtained for the
Heath acquisition, the $126.6 million SAILS issuance and a full year of
interest on the $100 million of 7.125% 10 year notes issued in April 1994
("Notes") to finance the McDougal acquisition. Net interest expense increased
nearly $4.2 million in 1994 from the $2.3 million reported in 1993 due to the
debt service requirements of the $100 million Notes used to finance the
McDougal acquisition.
The Company's effective tax rate for 1995 was approximately 37% compared
to approximately 38% for 1994 and 36% for 1993. The reduction in the
effective tax rate in 1995 is primarily due to the combination of a 41% tax
rate applied to the gain on the equity transactions of INSO offsetting the
39% tax rate used on the loss from operations. The increase in 1994 over the
1993 effective tax rate reflects the impact of federal tax law changes
enacted in 1993 which became effective on January 1, 1994, and the intangible
asset amortization expense related to the McDougal acquisition.
The consolidated net loss in 1995 was $7.2 million, or $.52 per share.
These results included the previously discussed after-tax gain recognized in
connection with the sale of additional common shares by INSO Corporation, of
$7.8 million ($.56 per share), and the after-tax special charges of $34.3
million ($2.48 per share). Consolidated net income in 1994 was $51.2 million,
or $3.70 per share including the previously discussed after- tax gain,
recognized in connection with the public offering of the Company's former
Software Division, of $22.8 million ($1.65 per share), the after-tax special
charges of $4.0 million ($.29 per share), and an extraordinary item of $1.2
million ($.09 per share), related to the early extinguishment of debt.
Consolidated net income in 1993 was $30.4 million or $2.20 per share,
including the previously discussed after-tax special charges of $6.6 million
($.48 per share), and an extraordinary item of $1.0 million ($.07 per share),
related to the early extinguishment of long-term debt.
Textbooks and Other Educational Materials
The educational publishing segment's net sales of $441.8 million were
$54.4 million higher than the $387.4 million in 1994 an increase of 14.0%. In
elementary and secondary school publishing, the School Division and McDougal
contributed an increase of $35.8 million, reflecting the increase in adoption
opportunities as well as the expected leverage from a dedicated secondary
school sales force. Net sales of $17.8 million from Heath, acquired on
October 31, 1995, also contributed to the increase. The Riverside Publishing
Company ("Riverside") reported a sales increase of 4.7% over 1994. The
educational testing market continues a shift from norm- referenced
standardized tests to customized criterion-referenced tests. The transition
continues to affect Riverside as it develops its expertise in
criterion-referenced tests and diversifies its product base to include more
clinical and guidance assessment products. The College Division, which
continues to compete in a difficult industry, reported a 2.1% decrease in net
sales from 1994. The acquisition of Heath and its college business is
expected to significantly increase the revenues for the combined college
business in 1996.
Net sales of $387.4 million from the educational publishing segments in
1994 were $30.2 million higher than the $357.2 million reported in 1993, an
increase of 8.5%. Net sales of $62.4 million from McDougal, acquired on March
1, 1994, more than offset a net sales decrease from other educational
publishing segment components. School Division sales, exclusive of McDougal,
decreased 14%, or $30.4 million, compared to 1993 mainly due to the existence
of significant state adoption opportunities in 1993 for elementary school
reading products. The decrease in School Division revenues was partially
offset by the open-territory sales of reading and the Company's new
elementary school mathematics program. Riverside reported a sales increase of
6.9% over 1993. The College Division reported a 6.7% decrease in net sales
from 1993 primarily due to 1993's favorable returns experience. Gross sales
of college product increased slightly in 1994.
Operating income for the educational publishing segment decreased $4.4
million, or 6.5%, to $63.8 million from the $68.2 million reported in 1994.
The resulting operating margin for 1995 decreased to 14.4% from 17.6% in
1994. The decrease in the operating margin is primarily due to increased
development spending, the incremental Heath operating losses, and higher
distribution costs. Development spending for School and McDougal increased
$15.4 million, or approximately 60%, reflecting the investment in new
programs for adoption opportunities in 1997 through 1999. Programs under
development included Houghton Mifflin Reading: Invitations to Literacy(C)
1996, Houghton Mifflin Social Studies(C) 1997, and McDougal Littell The
Language of Literature(C) 1997. Selling and administrative costs increased
approximately 9.5%, reflecting the incremental Heath costs and a full year of
McDougal costs, including the intangible asset amortization. Additionally,
outsourcing of distribution at the Geneva, Illinois, facility posed problems
for the Company in 1995. Distribution costs increased $6.5 million in 1995
and service to the Company's customers was not acceptable. In February 1996,
the Company announced that it was re-assuming control over the distribution
function maintained at its Geneva, Illinois, facility.
Operating income for the educational publishing segment in 1994 decreased
$.7 million to $68.2 million from the $68.9 million reported in 1993. The
resulting operating margin for 1994 decreased to 17.6% from 19.3% in 1993.
Selling and administrative costs increased approximately 17%, reflecting the
incremental costs of the
8
<PAGE>
McDougal acquisition and 1995 adoption opportunities. Excluding the effect of
the McDougal acquisition, the educational publishing segment's selling and
administrative expenses would have declined approximately $1.8 million. This
decrease is due in large part to the restructuring actions taken in 1994 and
prior years. The decrease in the segment's operating income and margin also
reflects a 36% decrease from 1993 in the College Division's operating income.
General Publishing
Compared with 1994's net sales from ongoing operations, adjusted for the
sale of the former Software Division, the general publishing segment's net
sales in 1995 decreased $6.6 million, or 7.0%, to $87.2 million. The revenue
decrease was primarily due to a decline in revenue contribution from the
adult book list and lower distribution revenues. The general publishing
segment's loss from ongoing operations was $8.5 million, compared to income
of $7.3 million in 1994. There was a $7.5 million non-cash charge recorded in
the fourth quarter of 1995, to increase reserves for author advances,
inventory obsolescence, and book returns. In addition to these charges, the
division reported an operating loss from its new imprint, Houghton Mifflin
Interactive. Distribution costs increased by $1.6 million for actions
required during the transition to outsourced distribution. That transition is
now complete and the Burlington, Massachusetts, facility formerly used for
general publishing distribution has been sold.
Net sales from ongoing operations, excluding software, in 1994 increased
$1.6 million, or 1.7%, to $93.8 million from 1993's level of $92.2 million.
Net sales of reference products increased 4%, distribution revenues increased
sharply, juvenile sales were flat, and adult trade sales were down 6%
compared to 1993.
The general publishing segment's income from ongoing operations was $7.3
million in 1994 compared to $8.3 million in 1993. The decrease in 1994's
operating income reflects slightly higher manufacturing and selling costs.
There were no material charges to operating income in either 1994 or 1993 for
royalty advances to authors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal businesses are seasonal, with approximately 70% of
net sales normally reported in the second and third quarters. The first and
fourth quarters historically have contributed approximately 10% and 20%,
respectively, of the Company's annual net sales. The acquisitions of Heath
and McDougal have not materially changed the seasonal nature of the Company's
net sales.
The revenue seasonality also affects the Company's operating cash flow. A
net cash deficit from all the Company's activities is normally incurred
through the middle of the third quarter. This deficit is funded through the
draw-down of cash and marketable securities, supplemented by short-term
borrowings, principally commercial paper.
In October 1995, the Company acquired Heath, a leading publisher of
elementary, secondary, and college educational products, for $452.9 million
in net cash, including investment advisory and other third-party costs. The
total acquisition cost was financed through a combination of existing cash
balances, $145 million in commercial paper, and $200 million in bank
financing. The Company has a currently effective registration statement with
the Securities and Exchange Commission for the issuance of up to $300 million
in debt securities. It is intended that a portion of the proceeds from the
issuance will be used as permanent financing for the Heath acquisition. In
March 1996, under this registration statement, the Company issued $125
million of 7% Notes due 2006. In March 1996 the Company also issued $100
million of the medium-term notes available. These notes were issued with a
weighted average interest rate of 6.0% and a weighted average maturity of 2.6
years. The proceeds from these issuances were used to repay $100 million of
the unsecured bank facility and $125 million of the commercial paper
borrowings.
In March 1994, the Company acquired McDougal, a leading publisher of
educational products, for $130.3 million in net cash, including investment
advisory and other third party costs. The total acquisition cost was financed
through a combination of existing cash balances and a public debt offering of
$100 million of 7.125% Notes due 2004.
The Company's former Software Division successfully completed an initial
public offering in March 1994. In connection with the public offering, the
Company received a pre-tax cash dividend of $32.9 million from INSO, the
successor company. In 1995, the Company recorded a non-cash gain of $13.1
million as a result of INSO's additional public offering of 1.2 million
shares at approximately $33 per share. This non-cash gain represents the
Company's portion of the increase in the net assets of INSO as a result of
this offering. The Company has pledged up to 3.8 million shares of INSO
Corporation common stock as the collateral for the redemption of the 6%
Exchangeable Notes (SAILS) due 1999, that were issued in August 1995. At
maturity, the principal amount of each SAILS will be mandatorily exchanged
for a number of shares of INSO common stock, or at the Company's option, cash
with an equal value. The number of shares which could be issued in exchange
will be dependent on INSO's market share price at the time of the redemption.
The Company will record as
9
<PAGE>
additional non-cash interest expense, over the life of the SAILS, the excess
of the current INSO stock price over the maximum redemption price at
maturity. The additional non-cash interest expense to be recorded through
August 1999, based upon INSO's December 31, 1995 stock price, is $10.1
million. If the Company chooses to redeem the SAILS with shares of INSO
common stock, it would record a gain representing the excess of the
redemption amount over the book value of the Company's investment in INSO.
The Company's ownership percentage of INSO after this redemption would be
less than 20%. The remaining non-pledged INSO shares may be sold by the
Company, subject to certain restrictions, as market conditions and events
warrant.
The Company had $145 million in short-term borrowings outstanding at
December 31, 1995. There were no short-term borrowings outstanding at
December 31, 1994. Average short-term borrowings increased in 1995 primarily
due to $145 million in commercial paper financing for the Heath acquisition,
the increase in seasonal borrowing needs as a result of including a full year
of operations for McDougal, and the incremental impact of funding Heath
operations for the final two months of 1995. Average short-term borrowings
increased in 1994 compared to 1993 primarily due to the bridge financing of
$100 million for the McDougal acquisition, higher seasonal borrowing
requirements, and the early redemption in March 1994 and June 1993 of $25
million of 8.78% senior notes which were scheduled to mature in 1997 and
1994, respectively. The Company financed the March 1994 redemption of the
senior notes with a combination of the INSO dividend and operating cash. The
June 1993 redemption was financed with commercial paper. The Company's
average short-term borrowings (exclusive of the commercial paper used to
refinance the June 1993 senior notes redemption) were $13.6 million, $8.9
million, and $3.9 million in 1995, 1994, and 1993, respectively.
At December 31, 1995, the Company's debt (including the short-term
borrowings for the Heath acquisition) was $570.8 million as compared with
$100 million (discounted value $99.4 million) at the end of 1994. The
Company's percentage of debt to total capitalization (debt plus stockholders'
equity) was 71.0% at the end of 1995 as compared to 28.9% at the end of 1994.
The increase in the percentage is principally due to the $345 million in
commercial paper and bank financing which partially funded the Heath
acquisition, and the $126.6 million SAILS issuance. The capitalization
percentage at December 31, 1995 decreases to 64.6% excluding the short-term
borrowings.
The Company's cash and marketable securities position at the end of 1995
was $17.3 million, compared to $47.2 million at the end of 1994. Net cash
from operations in 1995 decreased $54.2 million from 1994, primarily due to
the increase in inventories and the additional seasonal operating losses from
the acquisition of Heath. Although net cash from operating activities
increased $6.3 million in 1994, due primarily to the McDougal acquisition,
the Company's year-end cash and cash equivalents decreased $36.9 million.
Net cash required for investing activities (excluding proceeds from
marketable securities) increased by $371.3 million in 1995. This increase
primarily resulted from the $452.9 million acquisition of Heath. Net cash
required for investing activities (excluding proceeds from marketable
securities) increased by $97.5 million in 1994. This increase resulted from
the $130.3 million acquisition of McDougal offset by the $32.9 million
dividend received from INSO.
The Company's financing activities contributed $459.6 million in 1995,
$26.2 million in 1994, and required $10.9 million in 1993. The increase in
financing sources in 1995 was a result of the incremental borrowings of $345
million used to finance the Heath acquisition and the $126.6 million SAILS
issuance. Financing activity outflows in 1995 included $12.0 million less to
repurchase stock than in 1994. The 1994 increase in financing sources
included proceeds from the 2004 Notes. Financing activity outflows in 1994
included $51.6 million to retire debt and the repurchase of $12.3 million
more common stock than in 1993.
In 1995, the Company continued the reorganization of certain
administrative and corporate functions begun in 1991, culminating in the
actions resulting in the special charges taken in the second quarter of 1995,
first quarter of 1994, and the second quarter of 1993 related to workforce
changes and distribution consolidation and outsourcing. These actions, as
well as other measures taken over the past four years, are expected to
continue to reduce costs and increase efficiency. The Company remains
committed to further investment in new technology and enhancement of existing
technology now used in the publishing process. These efforts are expected to
yield further operating and publishing cost savings, as well as to free up
capital to pay down debt and to invest in new product development.
The Company believes that its cash and marketable securities position,
along with funds generated from operating activities and borrowing
facilities, will be sufficient to meet total cash requirements for the
foreseeable future, including the refinancing of the borrowings from the
Heath acquisition. The periodic use of the short-term debt market, primarily
commercial paper, for seasonal liquidity needs will continue. The average
seasonal borrowings in 1996 are expected to be higher than undertaken over
the past three years due in part to the addition of Heath's seasonal
operations.
IMPACT OF INFLATION AND CHANGING PRICES
Although inflation is currently well below that of prior years, which has
benefited recent Company results, particularly in the area of manufacturing
costs, there are offsetting costs. The Company's ability to adjust selling
10
<PAGE>
prices always has been limited by competitive factors and long-term
contractual arrangements which either prohibit price increases or limit the
amount by which prices may be increased. The combination of a weak domestic
economy and low inflation results in lower tax receipts at the state and
local level, which adversely affects the funding and buying patterns for
textbooks and other educational materials.
In 1994, the Company started to experience higher prices for paper goods
which continued into 1995. Although there has been some softness in recent
prices for certain paper products, the Company anticipates that the trend to
higher prices will continue as the demand for high quality paper continues to
outpace the available supply.
The most significant Company investments affected by inflation include
book plates, other property, plant, and equipment and inventories. The
last-in, first-out (LIFO) method is used to value substantially all inventory
and, therefore, the cost of inventory charged against income approximates
replacement value. The incremental replacement cost expense amounted to $5.2
million in 1995 as compared with $.6 million in 1994.
The Company's publishing business does not require a high level of
investment in property, plant, and equipment. Such net assets represented
3.1% of consolidated assets at December 31, 1995. The Company's net
investment at the end of 1995 in capitalized book plates for educational and
reference works represented approximately 8.6% of total assets. The Company
continues to commit funds to new publishing areas through both acquisitions
and internal growth.
Management believes that by valuing its inventory using the LIFO method,
continuing to emphasize technological improvements, and quality control, the
Company can continue to moderate the impact of inflation on its operating
results and financial position.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of
1995: Statements in this report that are not historical facts may be
forward-looking statements that are subject to a variety of risks and
uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any
forward-looking statements made by the Company. These factors include, but
are not limited to, (i) the highly seasonal and cyclical nature of the
Company's educational sales; (ii) variable funding in school systems
throughout the nation, resulting in both cancellation of planned purchases of
educational materials and shifts in timing of purchases; (iii) changes in
purchasing patterns in elementary, secondary, and college markets; (iv)
regulatory changes which would affect the purchase of educational materials
and services; (v) severe increases in paper prices; and (vi) other factors
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
11
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Management's Responsibility for Financial Statements 13
Report of Independent Auditors 13
Consolidated Balance Sheets at December 31, 1995 and 1994 14
Consolidated Statements of Operations for the three years ended December 31, 1995 16
Consolidated Statements of Cash Flows for the three years ended December 31, 1995 17
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1995 18
Notes to Consolidated Financial Statements 20
</TABLE>
Supplementary Data
Summary of Quarterly Results of Operations (unaudited) are presented on page 32.
12
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Houghton Mifflin Company is responsible for all
information and representations contained in the financial statements and
other sections of this annual report. Management is also responsible for the
internal consistency of such information and representations. In preparing
the financial statements it is necessary for management to make informed
judgments and estimates and to select accounting principles which it believes
are in accordance with generally accepted accounting principles appropriate
in the circumstances.
In meeting its responsibility for the reliability of the financial
statements, management relies on the Company's internal control systems and
procedures. In designing such control procedures, management recognizes that
errors or irregularities may nevertheless occur and that estimates and
judgments are needed to assess and balance the relative costs and expected
benefits of controls. However, management believes that the Company's
accounting controls do provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with corporate policy and management's authorization. As a further
safeguard, the Company has a program of internal audits and appropriate
follow-up by management.
The financial statements have been audited by the Company's independent
auditors, Ernst & Young LLP, in accordance with generally accepted auditing
standards. In connection with its audit, Ernst & Young LLP develops and
maintains an understanding of the Company's accounting and financial
controls, and conducts such tests and related procedures as it deems
necessary to render its opinion on the financial statements. The adequacy of
the Company's internal financial controls and the accounting principles
employed in financial reporting are under the general surveillance of the
Audit Committee of the Board of Directors, consisting of five outside
directors. The independent auditors and internal auditors have free and
direct access to the Audit Committee and meet with the committee periodically
to discuss accounting, auditing, and financial reporting matters.
The Company has distributed to its employees a statement regarding, among
other things, potentially conflicting outside business interests of
employees, and proper conduct of domestic and international business
activities. It has developed and instituted additional internal controls and
audit procedures designed to prevent or detect violations of these policies.
Management believes this provides reasonable assurance that its operations
meet a high standard of business conduct.
Nader F. Darehshori Gail Deegan
Chairman, President, Executive Vice President, Chief
and Chief Executive Officer Financial Officer, and Treasurer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Houghton Mifflin Company
We have audited the accompanying consolidated balance sheets of Houghton
Mifflin Company as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. Our audits
also included the financial statement schedule listed in the Index at Item
14(a) 2. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Houghton Mifflin Company at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/S/ERNST & YOUNG LLP
Boston, Massachusetts
January 23, 1996, except for Note 4,
as to which the date is March 7, 1996
13
<PAGE>
HOUGHTON MIFFLIN COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands of dollars, except share amounts) 1995 1994
--------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 16,701 $ 30,372
Marketable securities and time deposits available-for-sale,
at fair value 604 16,821
Accounts receivable 204,542 143,599
Less allowance for book returns 21,698 12,836
------- ------
182,844 130,763
Inventories 139,927 61,661
Deferred income taxes 23,728 8,334
Prepaid expenses 7,396 2,150
------- ------
Total current assets 371,200 250,101
Property, plant, and equipment, net 32,879 29,822
Book plates, less accumulated depreciation of $70,032 in 1995
and $48,252 in 1994 90,221 39,066
Other assets
Royalty advances to authors, less allowance of $21,848 in
1995 and $11,079 in 1994 23,988 19,750
Intangible assets, net 474,751 124,408
Deferred income taxes 15,688 12,227
Other investments and long-term receivables 38,071 21,892
------- ------
Total other assets 552,498 178,277
------- ------
$1,046,798 $497,266
======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
HOUGHTON MIFFLIN COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands of dollars, except share amounts) 1995 1994
--------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 94,556 $ 45,023
Commercial paper 144,612 --
Royalties 40,140 32,947
Salaries, wages, and commissions 18,751 13,634
Other 44,324 13,106
------- ------
Total current liabilities 342,383 104,710
Long-term debt 426,148 99,445
Accrued royalties payable 2,497 3,169
Other liabilities 15,192 13,005
Accrued postretirement benefits 26,884 24,864
Stock repurchase commitment -- 7,600
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $1 par value, 500,000 shares authorized,
none issued -- --
Common stock, $1 par value, 70,000,000 shares authorized,
14,758,726 shares issued in 1995 and 1994 14,759 14,759
Capital in excess of par value 29,973 22,316
Retained earnings 228,528 248,828
------- ------
273,260 285,903
Less:
Notes receivable from stock purchase agreements 5,821 5,841
Common shares held in treasury, at cost, 273,681 shares in
1995 and 328,685 shares in 1994 5,795 6,091
Benefits trust assets, at market 27,950 29,498
------- ------
39,566 41,430
------- ------
Total stockholders' equity 233,694 244,473
------- ------
$1,046,798 $497,266
======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
15
<PAGE>
HOUGHTON MIFFLIN COMPANY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Years Ended December 31, 1995
(In thousands of dollars, except per share
amounts) 1995 1994 1993
------- ------- ---------
<S> <C> <C> <C>
Net sales $529,022 $483,076 $462,969
Costs and expenses
Cost of sales 271,036 230,674 227,969
Selling and administrative 214,818 192,425 173,070
Special charges 56,263 6,513 10,560
----- ----- -------
542,117 429,612 411,599
----- ----- -------
Operating income (loss) (13,095) 53,464 51,370
Other income (expense)
Gain on equity transactions of INSO Corporation
and on sale of interest in Software Division 13,102 36,212 --
Equity in earnings of INSO Corporation 1,557 1,973 --
Net interest expense (13,008) (6,509) (2,347)
----- ----- -------
1,651 31,676 (2,347)
----- ----- -------
Income (loss) before taxes and extraordinary item (11,444) 85,140 49,023
Income tax (benefit) provision (4,201) 32,710 17,650
----- ----- -------
Income (loss) before extraordinary item (7,243) 52,430 31,373
----- ----- -------
Extraordinary item, net of taxes
Loss on early extinguishment of debt -- (1,239) (1,002)
----- ----- -------
Net income (loss) $ (7,243) $ 51,191 $ 30,371
===== ===== =======
Per share:
Income (loss) before extraordinary item $ (0.52) $ 3.79 $ 2.27
Loss on early extinguishment of debt -- (0.09) (0.07)
----- ----- -------
Net income (loss) $ (0.52) $ 3.70 $ 2.20
===== ===== =======
Average number of common shares outstanding 13,812 13,822 13,823
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16
<PAGE>
HOUGHTON MIFFLIN COMPANY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Years Ended December 31, 1995
(In thousands of dollars) 1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ (7,243) $ 51,191 $ 30,371
Adjustments to reconcile net income to net cash from operating
activities:
Gain on equity transactions of INSO Corporation and gain on sale of
interest in Software Division (13,102) (36,212) --
Equity in earnings of INSO Corporation (1,557) (1,973) --
Early extinguishment of debt cost, net of taxes -- 1,239 1,002
Depreciation and amortization expense 52,426 44,416 39,361
Change in operating assets and liabilities:
Accounts receivable, net (4,366) (26,751) (19,497)
Inventories (25,388) 17,606 (2,454)
Royalty advances, net (5,981) 3,448 1,085
Accounts payable (11,698) 6,705 5,645
Income taxes (23,882) 5,949 (1,455)
Other, net 53,813 1,634 6,899
------ ------ -------
Net cash from operating activities 13,022 67,252 60,957
------ ------ -------
Cash flow from (used in) investing activities:
Acquisition of publishing assets, net of cash acquired (452,888) (130,342) --
Dividend received from INSO Corporation -- 32,860 --
Book plate expenditures (46,740) (25,242) (25,796)
Property, plant, and equipment expenditures (7,538) (8,478) (10,728)
Marketable securities 16,217 893 11,250
Sale of building and equipment 4,628 -- 2,836
------ ------ -------
Net cash used in investing activities (486,321) (130,309) (22,438)
------ ------ -------
Cash flows from (used in) financing activities:
Dividends on common stock (12,845) (12,026) (11,475)
Issuance (repayment) of commercial paper 144,612 (24,605) 24,605
Senior note redemption -- (26,960) (26,511)
Issuance of SAILS 126,643 -- --
Issuance of long-term debt 200,000 99,415 --
Purchase of common stock (957) (12,913) (654)
Exercise of stock options 2,175 1,442 2,377
Other -- 1,834 710
------ ------ -------
Net cash from (used in) financing activities 459,628 26,187 (10,948)
------ ------ -------
Net increase (decrease) in cash and cash equivalents (13,671) (36,870) 27,571
Cash and cash equivalents at beginning of year 30,372 67,242 39,671
------ ------ -------
Cash and cash equivalents at end of year $ 16,701 $ 30,372 $ 67,242
====== ====== =======
Supplementary information:
Income taxes paid $ 18,194 $ 26,252 $ 19,121
Interest paid $ 10,941 $ 6,323 $ 3,632
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
17
<PAGE>
HOUGHTON MIFFLIN COMPANY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
For the Three Years Ended December 31, 1995 Common Capital Notes receivable
(in thousands of dollars, except share stock in excess Retained from stock
amounts) $1 par value of par value Earnings purchase agreements
------------- ------------- --------- --------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $14,759 $21,684 $192,326 $ --
Net income -- -- 30,371 --
Common stock dividends, $.83 per share -- -- (11,475) --
Stock options exercised -- 958 -- --
Share repurchases -- -- -- --
Other equity transactions, net -- 2,310 -- --
Benefits trust asset remeasurement -- 5,660 -- --
Amortization of restricted shares -- -- -- --
Foreign currency translation adjustments -- -- -- --
----------- ----------- ------- ------------------
Balance at December 31, 1993 14,759 30,612 211,222 --
=========== =========== ======= ==================
Net income -- -- 51,191 --
Common stock dividends, $.87 per share -- -- (12,026) --
Stock options exercised -- (233) -- --
Notes receivable from stock purchase
agreements -- 443 -- (5,893)
Issuance of restricted shares -- 73 -- --
Share repurchases -- -- -- --
Other equity transactions, net -- 1,133 -- 52
Benefits trust asset remeasurement -- (2,112) -- --
Valuation allowance on noncurrent
marketable securities -- -- (1,559) --
Stock repurchase commitment -- (7,600) -- --
----------- ----------- ------- ------------------
Balance at December 31, 1994 14,759 22,316 248,828 (5,841)
=========== =========== ======= ==================
Net loss -- -- (7,243) --
Common stock dividends, $.93 per share -- -- (12,845) --
Stock options exercised -- 776 -- --
Issuance of restricted shares -- 252 -- --
Share repurchases -- -- -- --
Executive stock repurchases -- -- -- 344
Other equity transactions, net -- 573 -- (324)
Benefits trust asset remeasurement -- (1,544) -- --
Valuation allowance on noncurrent
marketable securities -- -- (212) --
Stock repurchase commitment -- 7,600 -- --
----------- ----------- ------- ------------------
Balance at December 31, 1995 $14,759 $29,973 $228,528 $(5,821)
=========== =========== ======= ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
Unamortized Foreign
Treasury Stock value of currency
-------------- Benefits restricted translation
Shares Amount trust shares adjustments Total
- ---------- ------- -------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
(347,703) $ (2,255) $(26,156) $(549) $ 30 $199,839
-- -- -- -- -- 30,371
-- -- -- -- -- (11,475)
94,486 1,419 -- -- -- 2,377
(16,400) (654) -- -- -- (654)
37,158 123 672 -- -- 3,105
-- -- (5,660) -- -- --
-- -- -- 549 -- 549
-- -- -- -- (30) (30)
- ---------- ----- ------ ------------ ---------- -------
(232,459) (1,367) (31,144) -- -- 224,082
========== ===== ====== ============ ========== =======
-- -- -- -- -- 51,191
-- -- -- -- -- (12,026)
50,203 1,675 -- -- -- 1,442
138,272 5,450 -- -- -- --
1,789 14 -- -- -- 87
(318,900) (12,913) -- -- -- (12,913)
32,410 1,050 (466) -- -- 1,769
-- -- 2,112 -- -- --
-- -- -- -- -- (1,559)
-- -- -- -- -- (7,600)
- ---------- ----- ------ ------------ ---------- -------
(328,685) (6,091) (29,498) -- -- 244,473
========== ===== ====== ============ ========== =======
-- -- -- -- -- (7,243)
-- -- -- -- -- (12,845)
70,698 1,399 -- -- -- 2,175
10,766 213 -- -- -- 465
(24,000) (957) -- -- -- (957)
(7,742) (403) -- -- -- (59)
5,282 44 4 -- -- 297
-- -- 1,544 -- -- --
-- -- -- -- -- (212)
-- -- -- -- -- 7,600
- ---------- ----- ------ ------------ ---------- -------
(273,681) $ (5,795) $(27,950) $ -- $ -- $233,694
========== ===== ====== ============ ========== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
HOUGHTON MIFFLIN COMPANY
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements include the accounts of Houghton
Mifflin Company ("the Company") and its wholly-owned subsidiaries. All
material intercompany accounts and transactions are eliminated in
consolidation.
Investment in 20% to 50% owned entities are accounted for on the equity
method. The Company uses the income statement method to account for issuances
of common stock by a subsidiary. Under this method gains and losses on
issuance of stock by a subsidiary are recognized in the income statement.
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
Cash and cash equivalents:
Cash and cash equivalents consist primarily of cash in banks and highly
liquid investment securities that have maturities of three months or less
when purchased. The carrying amount approximates fair value due to the
short-term maturity of these instruments.
Marketable securities and time deposits available-for-sale:
Marketable securities included in current assets consist of instruments
with original maturities of three months or greater. The securities held
consist primarily of tax-exempt municipal certificates, government agency
obligations, and time deposits and are stated at fair value, which
approximates cost due to the short maturity of the instruments. The fair
values are estimated based on quoted market prices.
Marketable securities included in other assets are classified as "Other
investments and long-term receivables" for consolidated financial statement
purposes. These investments, which consist of equity securities, are carried
at market value. Unrealized holding gains and losses are recognized as a
reduction in stockholders' equity.
Book returns:
A provision for estimated future book returns is made at time of sale, and
consists of the sales value less related inventory value and royalty costs.
Inventories:
Inventory balances at December 31, 1995 and 1994 are as follows:
In thousands 1995 1994
- --------------- ------- --------
Finished goods $120,120 $55,174
Work in process 8,733 4,460
Raw materials 11,074 2,027
----- ------
$139,927 $61,661
===== ======
Inventories are stated at the lower of cost or market (replacement cost
for raw materials, net realizable value for other inventories). The last-in,
first-out (LIFO) method is used to determine the cost of inventory. If the
cost of all inventories had been determined by the first-in, first-out method
(FIFO), which approximates replacement cost, inventory values at December 31,
1995 and 1994, would have been higher by $23.1 and $20.0 million,
respectively.
During 1994, inventory quantities were reduced, excluding the impact of
the McDougal acquisition. These reductions resulted in the liquidation of
certain LIFO layers carried at costs which were lower than the cost of
current purchases. The effect of the reductions was to lower cost of goods
sold by $2.4 million and to increase net earnings for 1994 by $1.5 million,
or $.11 per share.
Property, plant, and equipment:
Property, plant, and equipment are recorded at cost and depreciated over
the estimated useful lives of the underlying assets. Depreciable lives range
from three to forty years. Depreciation and amortization are provided on a
straight-line method for buildings, leasehold and land improvements; and
accelerated methods for machinery and equipment.
Balances of major classes of assets and allowances for depreciation and
amortization at December 31, 1995 and 1994, are as follows:
20
<PAGE>
In thousands 1995 1994
- ------------------------------------------------ ------- ---------
Land and land improvements $ 2,046 $ 2,640
Buildings and building equipment 19,169 18,560
Machinery and equipment 57,444 50,225
Leasehold improvements 8,079 6,318
----- -------
Total 86,738 77,743
Less allowances for depreciation and
amortization (53,859) (47,921)
----- -------
Property, plant and equipment, net $ 32,879 $ 29,822
===== =======
Maintenance and repair costs are charged to expense as incurred, and
renewals and improvements that extend the useful life of the assets are
capitalized. Depreciation expense was approximately $8.8 million in 1995;
$8.6 million in 1994; and $7.2 million in 1993.
Book plates:
The Company's investment in book plate costs is capitalized and
depreciated on an accelerated basis over three years, except for trade and
some reference publication costs, which are expensed when incurred.
Depreciation expense was approximately $32.9 million in 1995; $29.1 million
in 1994; and $29.6 million in 1993.
Income taxes:
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded to reflect
the tax benefits and consequences of future years differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Intangible assets:
Intangible assets at December 31, 1995 and 1994, consist of the following:
In thousands 1995 1994
- ------------------------------ ------- ---------
Goodwill $473,786 $113,268
Publishing rights 18,523 15,530
Other 5,891 5,730
----- -------
Total 498,200 134,528
Less: accumulated amortization (23,449) (10,120)
----- -------
Intangibles, net $474,751 $124,408
===== =======
Purchased editorial publishing rights are amortized on a straight-line
basis over the estimated economic life of the titles or contracts, but do not
exceed 15 years. The excess of cost over net assets acquired, or goodwill, is
amortized on a straight-line basis over periods that do not exceed 25 years.
The carrying value of goodwill is periodically reviewed to determine the
recoverability based upon projected undiscounted net cash flows over the
remaining life of the related business unit or purchased assets. If the
analysis indicates that impairment has occurred, the book value is written
down to the undiscounted net cash flow amount. Intangible asset amortization
expense was approximately $10.7 million in 1995; $6.7 million 1994; and $2.1
million in 1993.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of" for fiscal
years beginning after December 15, 1995. The Company intends to adopt SFAS
121 in 1996, and does not expect the impact on its financial position or its
results of operations to be material.
Benefits trust:
The trust assets consist primarily of 650,000 shares of the Company's
common stock purchased from the Company's treasury shares at quoted market
price in 1992. The trust is available to fund certain compensation and
benefit plan obligations. The common stock is carried at market value with
changes in share price from prior reporting periods reflected as an
adjustment to capital in excess of par value.
Earnings per share:
Earnings per share are based on the weighted average number of common
shares deemed outstanding. Shares of common stock held in the benefits trust
and common stock equivalents, such as employee stock options, are evaluated
for inclusion in the earnings per share calculation under the treasury stock
method and have had no dilutive effect.
Risks and Uncertainties
Organization:
The Company's business is publishing and it operates primarily in the
domestic market in two industry segments. Based on sales, the Company's
largest segment is textbooks and other educational materials and services for
the school and college market. The other segment is general publishing in a
wide variety of topics, formats, and media. The principal markets for
textbooks and other educational materials and services are
21
<PAGE>
elementary and secondary schools and two- and four-year colleges. The
principal market for trade books and reference works in the general
publishing segment is retail stores.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
significant estimates that affect the financial statements include, but are
not limited to, book returns, recoverability of advances to authors, and
amortization periods and recoverability of long-term assets such as book
plates and intangibles.
Note 2. Acquisitions
The Company acquired D.C. Heath and Company ("Heath"), a leading publisher
of high school, elementary, and college textbooks, on October 31, 1995 for
approximately $452.9 million. The acquisition was financed through a
combination of operating cash and $345.0 million in indebtedness. The
acquisition was accounted for as a purchase and the net assets and results of
operations have been included in the consolidated financial statements since
the date of acquisition. The purchase price has been preliminarily allocated
on the basis of the estimated fair market value of the assets acquired and
the liabilities assumed. The costs of purchased editorial rights and the
excess of the net assets acquired, or goodwill, are being amortized on a
straight-line basis over a period that averages twenty years.
In conjunction with the Heath acquisition, certain charges were recorded
in the fourth quarter of 1995 for indirect costs incurred as a result of the
acquisition ($7.1 million), costs related to the integration of the
administrative and sales functions ($9.3 million), and provisions to adjust
the carrying values of certain inventory and book plates based on strategic
decisions made subsequent to the acquisition ($32.9 million). The integration
costs include the costs to consolidate certain administrative and sales
functions of the combined businesses as well as training and other similar
costs. After completion of the transaction, the Company evaluated its
publishing programs and direction and concluded that assets relating to
certain overlapping or duplicative programs should be adjusted based upon the
estimated future revenues of the combined companies.
On March 1, 1994, McDougal, Littell & Company ("McDougal"), a leading
publisher of elementary and secondary school textbooks, was acquired for
$130.3 million. Initial financing was through a combination of operating cash
and $100 million in short-term bank debt, which was repaid on April 5, 1994,
with the proceeds from a $100 million public debt offering. The acquisition
was accounted for as a purchase and the net assets and results of operations
have been included in the consolidated financial statements since the date of
acquisition. The purchase price has been allocated on the basis of the
estimated fair market value of the assets acquired and the liabilities
assumed. The excess of the net assets acquired, or goodwill, is being
amortized on a straight-line basis over twenty years.
The following unaudited summary pro forma information combines the
consolidated results of operations as if Heath and McDougal had been acquired
as of January 1, 1994. The pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the Heath
and McDougal acquisitions been consummated as of the assumed dates, nor are
they necessarily indicative of future results of operations.
Years ended December 31, 1995 1994
- --------------------------------------- ------ -------
In millions, except per share amounts
Net sales $705.5 $664.9
Income (loss) before extraordinary item (14.9) 29.8
Net income (loss) (14.9) 28.6
Net income (loss) per share $(1.08) $ 2.06
In a separate closing, the Company intends to take possession of the
outstanding shares of Heath Canada. It is expected that this closing will
take place in 1996. The pro forma financial information above presents the
results of operations as if the Heath Canada acquisition had been made as of
January 1, 1994.
Note 3. Taxes on Income
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
significant components of the net deferred tax assets are shown in the
following table:
22
<PAGE>
In thousands 1995 1994
- ------------------------------------ ------ --------
Tax asset-related:
Pension and postretirement benefits $16,300 $13,610
Publishing expenses 22,840 5,614
Allowance for book returns 1,084 1,259
Deferred compensation 1,700 2,254
Other, net 2,936 661
---- ------
44,860 23,398
---- ------
Tax liability-related:
Depreciation expense (4,655) (1,758)
Deferred income (789) (1,079)
---- ------
(5,444) (2,837)
---- ------
Net deferred tax assets $39,416 $20,561
==== ======
At December 31, 1995 and 1994, net deferred tax assets represented
approximately 4% of total consolidated assets. The net deferred tax asset
balance is stated at prevailing statutory income tax rates. The Company
currently does not anticipate any change in valuation methodology applied to
the determination of net deferred tax assets.
Significant components of the provision (benefit) for income taxes
attributable to income before taxes and extraordinary items consist of the
following:
In thousands 1995 1994 1993
- ---------------- ------- ------ --------
Current:
Federal $ 13,201 $23,711 $15,715
State and other 2,669 5,719 3,522
----- ---- ------
Total current 15,870 29,430 19,237
Deferred:
Federal (16,246) 2,653 (1,398)
State and other (3,825) 627 (189)
----- ---- ------
Total deferred (20,071) 3,280 (1,587)
----- ---- ------
$ (4,201) $32,710 $17,650
===== ==== ======
The reconciliation of the income tax rate computed at the U.S. federal
statutory tax rate to reported income tax expense (benefit) attributable to
income before taxes and extraordinary items is as follows:
1995 1994 1993
----- ---- ------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 4.6 4.6 4.6
Nondeductible goodwill amortization (19.8) 2.2 --
Foreign losses .8 (0.1) (0.5)
Tax-exempt income 10.2 (0.7) (0.5)
Non-deductible meals and entertainment (4.9) .7 .6
Life insurance 5.2 (0.5) --
Other 5.6 (2.8) (3.2)
--- -- ----
Effective tax rate 36.7% 38.4% 36.0%
=== == ====
As a result of the SAILS transaction, the Company is likely to record a
gain on the redemption of these debt securities. Accordingly, in 1995, the
Company is providing deferred taxes on the undistributed earnings of INSO.
Accumulated undistributed earnings of INSO on which taxes have not been
provided were approximately $2.0 million at December 31, 1995 and 1994.
Note 4. Debt and Borrowing Agreements
The Company had $400 million in unsecured credit facilities available at
December 31, 1995, which was supported by commitment fees. There was $200
million outstanding under this facility at December 31, 1995, at a weighted
average borrowing rate of 6.19%. A line of credit of $25 million was
available at December 31, 1994, for direct borrowings or as support for the
issuance of commercial paper.
23
<PAGE>
A summary of debt at December 31 is as follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
- ----------------------------------------------------------------- ------- -------
<S> <C> <C>
Borrowings from financial institutions, unsecured, with interest
at 6.19%, due January 10, 2000 $200,000 $ --
Commercial paper, with a weighted average interest rate of 6.17% 144,612 --
6% Exchangeable Notes, due August 1999, Stock Appreciation
Income-Linked Securities (SAILS) 126,643 --
7.125% Notes due April 1, 2004, interest payable semi-annually 99,505 99,445
----- -----
570,760 99,445
Less: portion included in current liabilities 144,612 --
----- -----
Total long-term debt $426,148 $99,445
===== =====
</TABLE>
On October 31, 1995, $345 million in credit facilities were drawn upon to
fund the initial purchase of Heath from Raytheon Company. These borrowings
were subsequently paid off with $200 million in proceeds from a $300 million
five-year credit facility and the issuance of $145 million in commercial
paper. On December 11, 1995, the Company filed a registration statement with
the Securities and Exchange Commission for the offering of $300 million in
debt securities. It is intended that a portion of the proceeds from the
draw-down of the shelf financing will be used as permanent funding for the
Heath acquisition. In March 1996, the Company issued $125 million of
long-term debt at 7.0% maturing in 2006 and $100 million of medium-term
notes. These notes were issued at a weighted average interest rate of 6.0%
and a weighted average maturity of 2.6 years. The proceeds from these
issuances were used to pay down part of the commercial paper and the credit
facility.
After the issuances described above, required principal payments of debt
outstanding at December 31, 1995 are: $19.6 million in 1996, $40 million in
1997 and 1998, $146.7 million in 1999, $100 million in 2000 and $224.5
million thereafter.
In August 1995, the Company completed a public offering of 6% Exchangeable
Notes Due in 1999 (Stock Appreciation Income-Linked Securities, or "SAILS")
at a principal amount of $34 per SAILS at issue. Net proceeds of
approximately $126.6 million were used for general corporate purposes,
including the repayment of seasonal borrowings and the partial funding of the
acquisition of Heath (See Note 2). At maturity, the SAILS will be
exchangeable for shares of INSO common stock, or at the Company's option,
cash in lieu of shares. If the SAILS are redeemed with shares of INSO common
stock, a gain representing the excess of the redemption amount over the book
value of the Company's investment in INSO would be recorded. The number of
INSO shares that would be exchanged for the SAILS depends, in part, on the
fair market value of the INSO stock price on the redemption date. If the fair
market value is $34 per share, 3.8 million shares of INSO would be exchanged.
As the price of INSO common stock increases, the Company is obligated to
exchange fewer INSO shares to redeem the SAILS. If the price of INSO common
stock is $39.44 or higher at the redemption date, the Company would redeem
the SAILS with 3.3 million shares of INSO common stock. The Company will
record as non-cash interest expense over the remaining term of the SAILS, the
excess of the market value of the current INSO common stock price over the
maximum redemption price of $39.44 per INSO share. Given the INSO quoted
closing stock price at December 29, 1995, incremental non-cash interest
expense of approximately $2.75 million would be recorded in 1996.
In April 1994, the Company issued $100 million of 7.125% non-callable
unsecured notes ("Notes") through a public debt offering. The Notes mature on
April 1, 2004 and were priced at 99.4 to yield an effective rate of 7.21%.
The proceeds from the issuance were applied to repay the $100 million
short-term credit facilities used as bridge financing in the March 1994
acquisition of McDougal, Littell & Company ("McDougal").
In March 1994, the Company completed an early redemption of $25 million of
8.78% senior notes scheduled to mature in March 1997. The extraordinary
refinancing cost of $1.2 million, or $.09 per share, was net of an income tax
benefit of $.8 million. The Company financed the early redemption of the
senior notes with operating cash and a portion of the dividend received from
INSO.
In June 1993, an early redemption of $25 million of 8.78% senior notes due
to mature in December 1994 was completed. The extraordinary refinancing cost
of $1.0 million, or $.07 per share, was net of an income tax benefit of $.6
million. The Company financed the early redemption of the senior notes with
commercial paper.
The Company enters into transactions involving financial instruments for
purposes of managing its exposure to interest rate risks and funding costs.
Through the use of interest rate products, such as interest rate swap
agreements and interest rate locks, the Company can achieve a predetermined
mix of fixed and floating rate debt. In connection with the Company's
issuance of debt securities through the draw-down of the $300 million shelf
registration, a forward interest rate lock agreement was entered into with a
counterparty for the
24
<PAGE>
notional principal amount of $100 million at 5.995%. Any amount received or
paid under this aggreement will be recorded as a yield adjustment to interest
expense, recognized over the term of the debt.
An interest rate swap agreement covering interest payments for $25 million
in notional debt was in place at December 31, 1994, whereby the Company paid
semi-annual interest on the notional $25 million principal amount at a
variable rate related to the six-month London Interbank Offering Rate (LIBOR)
and received semi-annual interest on the notional principal at 8.78%. The
swap rate at December 31, 1994, was 9.5%. The net interest settlements were
recognized as an adjustment to interest expense. The Company exited the rate
swap in May 1995 by making a payment of $.5 million. This amount had been
previously reserved.
Note 5. Retirement Plans
The Company has a noncontributory, trusteed defined benefit pension plan
that covers substantially all employees. Plan benefits are generally
determined by years of service, the final five years compensation during
active employment, and age. The funding policy is to contribute amounts
subject to minimum funding standards set forth by the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code. The plan's assets
consist principally of common stocks, fixed income securities, investment in
registered investment companies, and cash and cash equivalents.
Pension expense for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
In thousands 1995 1994 1993
- ---------------------------------------------- ------- ------ ---------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 2,602 $ 3,275 $ 3,420
Interest cost on projected benefit obligation 5,456 5,045 4,809
Actual return on plan assets (13,588) (1,165) (12,136)
Net amortization and deferral 7,722 (4,432) 7,244
----- ---- -------
Net pension expense $ 2,192 $ 2,723 $ 3,337
===== ==== =======
Significant actuarial assumptions:
Discount rate 7.75% 8.0% 7.5%
Increase in future compensation 5.25% 6.0% 6.0%
Expected long-term rate of return on assets 8.50% 8.5% 8.5%
</TABLE>
The following table sets forth the Plan's funded status at December 31:
<TABLE>
<CAPTION>
In thousands 1995 1994
- -------------------------------------------------------------- ------- ---------
<S> <C> <C>
Plan assets at fair value at September 30 $ 80,959 $69,750
Projected benefit obligation 72,815 69,446
----- -------
Excess of plan assets over projected benefit obligation at
September 30 8,144 304
Unrecognized items:
Net gain (14,687) (4,404)
Prior service cost (1,027) (1,095)
Net transition asset (1,241) (1,424)
----- -------
Accrued pension liability $ (8,811) $(6,619)
===== =======
Actuarial present value of accumulated benefits at September 30 $ 62,212 $56,923
Accumulated benefit obligation related to vested benefits at
September 30 $ 58,318 $53,312
</TABLE>
The actuarial assumption changes made in 1994 were applied to the
determination of the September 30, 1994 benefit obligation valuations. The
impact on pension expense was recognized in 1994 and was not material.
Due to workforce changes in 1993, there was a reduction in the defined
benefit pension obligation. A pre-tax expense reduction of $1.2 million ($.7
million after-tax, or $.05 per share) was recorded in the fourth quarter of
1993 in accordance with Statement of Financial Accounting Standard No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans."
In addition, the Company maintains a defined contribution benefit plan,
the Retirement Savings Plan, which conforms to Section 401(k) of the Internal
Revenue Code, and covers substantially all of the Company's employees.
Participants may elect to contribute up to 15% of their compensation subject
to an annual limit of $9,240 in 1995 to ten funds: seven equity funds, two
fixed income funds, and a fund invested solely in the Company's common stock.
The Company currently matches an employee's contribution to the Retirement
Savings Plan in amounts up to 3% of employee compensation. The contribution
expense, which is invested solely in shares of the Company's common stock,
amounted to approximately $1.8 million in 1995; $1.8 million in 1994; and
$1.7 million in 1993.
25
<PAGE>
Note 6. Postretirement Benefits
The Company provides postretirement medical benefits to retired full-time,
non-union employees hired before April 1, 1992, who have provided a minimum
of 10 years of service and attained age 55.
Under the terms of the benefits trust agreement formed in 1992, proceeds
from the periodic sale of assets by the trustee, cash dividends received, and
other trust earnings may be used to pay designated compensation and benefit
plan obligations, including retiree health care benefit costs. The assets in
the benefits trust consist principally of the Company's common stock. The
fair value of the benefits trust net assets was $27.9 million and $29.5
million, at December 31, 1995, and 1994, respectively.
The following table presents the postretirement benefit liability
recognized in the statement of financial position at December 31:
In thousands 1995 1994
- --------------------------------------------- ------ --------
Accumulated postretirement benefit
obligation:
Retirees $19,318 $18,344
Fully eligible active plan participants 3,243 1,828
Other active participants 3,562 2,777
---- ------
26,123 22,949
Unrecognized net gain 745 719
Unrecognized prior service cost 16 1,196
---- ------
Accrued postretirement benefit liability $26,884 $24,864
==== ======
Net periodic postretirement benefit cost includes the following components
for the twelve months ended December 31:
In thousands 1995 1994 1993
- ----------------------------------------------- ----- ----- ------
Service cost $ 349 $ 354 $ 426
Interest cost 1,676 1,786 1,859
Amortization of unrecognized prior service cost (68) (67) --
--- --- ----
Net periodic postretirement benefit cost $1,957 $2,073 $2,285
=== === ====
Assumptions used in the actuarial computations were as follows for the
twelve months ended December 31:
1995 1994 1993
--- --- -----
Weighted average discount rate 7.9% 7.8% 8.0%
Medical inflation trend rate 8.0% 9.0% 13.0%
The changes to the discount and inflation rates reflect stable long-term
interest rates and a moderation of health care costs experienced over the
past two years. At December 31, 1995, the medical care cost trend rate was
assumed to decline one percent per annum to a projected ultimate heath care
cost trend rate of 5.0% in 1998 and thereafter.
The assumed medical inflation trend rate can significantly influence
postretirement liabilities and expenses. An increase of one percent in the
assumed medical inflation rate would increase 1995 net periodic
postretirement expense by approximately $.1 million, and increase the
accumulated postretirement benefit obligation as of December 31, 1995 by $2.1
million. The Company expects to reduce the discount rate to 7.25% and the
health care inflation rate to 7% for 1996.
Note 7. Stock Options
The Company maintains two stock option plans, the 1992 Stock Compensation
Plan and the 1995 Stock Compensation Plan. Options outstanding include some
granted under the 1992 plan, under which no further options may be granted.
The Company has authorized 900,000 common shares under the 1995 Stock
Compensation Plan for the granting of incentive and non-qualified stock
options, awards of restricted or bonus stock, or other performance awards to
eligible employees and non-employee members of the Board of Directors and
shares issued to Directors as part of their compensation. Recipients of
restricted stock awards may not sell or transfer the shares until the
restricted period lapses provided that shares have not been forfeited due to
termination of employment. During the restriction period, the recipient is
entitled to the right to vote and receive dividends. In 1995, grants of
10,766 shares of restricted stock were made, of which 10,080 remained
outstanding at December 31, 1995. The Plans provide that the option price
shall not be less than the fair market value of the shares on the date of
grant. Options granted under all plans become exercisable at such times as
the Compensation & Nominating Committee has determined, but not later than
ten years from the date of the grant.
26
<PAGE>
The Company accounts for its stock compensation arrangements under APB 25,
"Accounting for Stock Issued to Employees," and intends to continue to do so.
In August 1994, pursuant to the 1994 Executive Stock Purchase Plan, whose
purpose was to increase stock ownership of the Company's Executive Officers,
the Company granted 124,272 options under the 1992 Stock Compensation Plan to
certain corporate officers for exercise at the then market price of $42.625.
These options were exercisable only on the date granted and stock was issued
from the treasury shares. A note was obtained from the officers and
collateralized by the stock. In addition, each participant has entered into a
risk sharing agreement which, among other things, limits the gains and losses
associated with the stock in the event of a future sale (See Note 13).
Income tax benefits are realized from the exercise or early disposition of
certain stock options. This benefit results in a decrease in current income
taxes payable and an increase in capital in excess of par value.
Transactions involving outstanding stock options under these plans were as
follows:
Option Price Per
Number of Share on Grant
Shares Date
------------- ------------------
Options outstanding at January 1, 1993 258,443 $22.25-$49.25
Granted 196,000 44.63
Exercised (94,486) 23.88-44.63
Cancelled/Expired (14,240) 23.88-44.63
----------- ----------------
Options outstanding at December 31, 1993 345,717 22.25-49.25
Granted 490,772 37.50-47.50
Exercised (174,475) 22.25-44.63
Cancelled/Expired (40,040) 23.88-49.25
----------- ----------------
Options outstanding at December 31, 1994 621,974 23.88-47.50
Granted 297,000 41.63-50.88
Exercised (70,698) 23.88-47.50
Cancelled/Expired (21,700) 35.25-45.75
----------- ----------------
Options outstanding at December 31, 1995 826,576 $23.88-$50.88
=========== ================
Exercisable at December 31, 1994 234,805
Exercisable at December 31, 1995 352,763
Available for grant at December 31, 1994 84,628
Available for grant at December 31, 1995 598,000
Note 8. Special and Restructuring Charges
In 1995, the Company incurred special charges to outsource existing
warehousing and distribution operations. In 1994, the Company substantially
completed the reorganization of certain administrative and corporate
functions begun in 1991. These actions, as well as other measures taken over
the past four years, are expected to hold down operating costs and increase
efficiency. A summary of the principal actions taken in 1995, 1994, and 1993,
and the related costs is set forth in the table below:
Years ended December 31, 1995 1994 1993
- ------------------------------------------ ------- ------- ---------
In thousands, except per share amounts
Severance $2,850 $3,560 $ 7,500
Facilities sale and consolidation 2,788 1,982 900
Inventory relocation 315 -- --
Disposal of tangible and intangible assets 250 971 --
Consulting 830 -- --
Headquarters relocation -- -- 2,160
----- ----- -------
7,033 6,513 10,560
Income tax benefit 2,743 2,475 3,960
----- ----- -------
Net charge to operations $4,290 $4,038 $ 6,600
===== ===== =======
Per share cost $ .31 $ .29 $ .48
===== ===== =======
The Company eliminated approximately 345 positions as a result of these
actions. As of December 31, 1995, approximately $12.6 million had been paid
to employees in the form of salary continuance and other benefits related to
these restructurings. The remaining liability of $1.3 million at December 31,
1995 for the remaining termination benefit obligations is expected to be
fully paid in 1996. There were no material differences between the amounts
accrued above and the payments against the liabilities recognized.
In connection with the acquisition of Heath, a non-recurring charge of
$49.3 million ($30.0 after-tax, $2.17 per share) was recognized. This charge
is principally comprised of integration costs, indirect costs of the
acquisition,
27
<PAGE>
and adjustments to reflect strategic decisions made and actions taken
subsequent to the acquisition to state certain inventories and book plates at
estimated net realizable values (See Note 2).
Note 9. Preferred Stock Purchase Plan
In December 1988, the Company adopted a Stockholders' Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
common stock. The Rights are attached to the common stock and do not have
voting or dividend rights, and until they become exercisable, can have no
dilutive effect on Company earnings. Each Right, when exercisable, entitles
the holder to purchase at an exercise price of $125 one one-thousandth of a
share of Series A Junior Participating Preferred Stock. The Rights will
become exercisable after a person or group has acquired ownership of 20% or
more of the outstanding common stock, or the commencement of a tender or
exchange offer that would result in a person or group owning 30% or more of
the common stock, or the determination by the Continuing Directors that a
person or group which has acquired a substantial amount (at least 15%) of the
outstanding common stock is an Adverse Person (as defined in the Rights
Agreement). Any declaration by the Continuing Directors that a person is an
Adverse Person, any acquisition of 30% or more of the outstanding common
stock (except pursuant to an offer the Outside Directors have determined is
fair to, and in the best interest of, the Company and its stockholders), and
certain mergers, sales of assets, or other "self-dealing" transactions with a
holder of 20% or more of the outstanding common stock, may entitle each Right
holder, other than the potential acquirer, to receive upon exercise of each
Right an amount of common stock, or common stock of the acquirer in the case
of certain mergers or sales of assets, having a market value equal to twice
the exercise price of the Right. In general, the Company may redeem the
Rights in whole at a price of $.05 per Right at any time prior to the tenth
day after a person or group acquires 20% or more of the outstanding common
stock. The Company may not redeem the Rights if the Continuing Directors have
declared someone to be an Adverse Person. The Rights will expire in December
1998.
Note 10. Commitments and Contingencies
Operating lease obligations
The Company has leases for various real property, office facilities, and
warehouse equipment which expire at various dates. Certain leases contain
renewal and escalation clauses for a proportionate share of operating
expenses.
The future minimum rental commitments under all noncancelable leases for
real estate and equipment are payable as follows:
Years In thousands
- -------------------------------- -------------
1996 $ 13,058
1997 11,835
1998 11,229
1999 10,387
2000 9,900
Thereafter 48,727
-----------
Total minimum lease payments $105,136
===========
Rent expense, net of sublease income, was approximately $13.0 million in
1995; $11.6 million in 1994; and $9.9 million in 1993.
Commitment
In February 1996, the Company agreed to lease an additional 56,000 square
feet of office space located adjacent to the corporate headquarters. The
annual lease commitment is approximately $1.4 million and will expire in
February 2007.
Other obligations
In August 1994, the Company sold in a private placement 2,000 put warrants
on 200,000 shares of its common stock. Each warrant obligated the Company to
purchase 100 shares of Common Stock at $38.00 per share if the counterparty
exercised in August 1995. The total exercise price of $7.6 million was
reflected in the financial statements at December 31, 1994, as a provisional
liability with the offset as a reduction of capital in excess of par value.
The sale proceeds of $.4 million were included in capital in excess of par
value. The options expired unexercised in 1995, and the liability was
reclassified to capital in excess of par value.
Contingencies
The Company is involved in ordinary and routine litigation incidental to
its business. There are no such matters pending that the Company expects to
be material in relation to its financial condition or results of operations.
28
<PAGE>
Note 11. Software Division Public Offering
In March 1994, the Company's former wholly-owned Software Division, a
developer of software tools for proofreading, reference, and information
management, completed an initial public offering of 6.9 million shares at an
offering price of $7.50 per share for total consideration of $51.8 million.
In connection with the public offering, the Company received a cash dividend
of $32.9 million from the newly-formed successor company, INSO. An after-tax
gain of $22.8 million, or $1.65 per share, was recognized in connection with
the public offering. Deferred taxes were recognized on the transaction. Upon
completion, the assets, businesses and employees of the Software Division
were transfered to INSO. The Company retained an ownership interest of
approximately 40% in the successor company subsequent to the transfer. Up to
3.8 million of the Company's INSO shares have been used to collateralize the
principal owed from the issuance of the 6% SAILS (See Note 4). In addition,
the Company and INSO had entered into a services agreement whereby certain
general administrative services were provided by the Company and reimbursed
by INSO. A portion of the facilities leased by the Company were placed under
a subleasing agreement which was terminated in May of 1995.
During 1995, the Company's Trade & Reference Division sold to INSO certain
properties and rights relating to the Information Please(R) almanac product
line for $3.3 million. At the time of the sale, the Company held a 40% equity
stake in INSO, and accordingly, $1.3 million of the gain was deferred. This
deferred gain will be recognized as income by the Company over a period of
three years.
In August 1995, INSO completed an additional public offering of 1.2
million shares of common stock at a net offering price of approximately
$33.00 for total consideration of approximately $39.6 million. As a result,
the Company's equity ownership has been reduced to approximately 36%. A gain
of $13.1 million, $7.8 million after-tax, or $.56 per share, was recorded
representing the Company's portion of the increase in INSO's net assets. On
September 1, 1995, INSO effected a two-for-one common stock split in the form
of a 100% stock dividend. All INSO share references have been restated to
reflect the effects of the stock split.
Note 12. Disclosures about Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- ----------------------
Carrying Fair Carrying Fair
In thousands Amount Value Amount Value
- -------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash, cash equivalents and marketable
securities $ 17,305 $ 17,305 $ 47,193 $ 47,193
Investments:
INSO 24,558 186,200 10,783 81,525
Cassell PLC 2,389 2,389 2,749 2,749
Financial liabilities:
Commercial paper (144,612) (144,612) -- --
7.125% Notes (99,505) (104,950) (99,445) (91,500)
SAILS (126,643) (136,800) -- --
Credit facility (200,000) (200,000)
Off-balance-sheet financial
instruments losses:
Interest rate swaps -- -- (729) (1,292)
Interest rate lock -- (2,957) -- --
</TABLE>
The fair values of financial instruments are estimates based upon market
conditions and perceived risks at December 31, 1995 and 1994, and require
varying degrees of management judgment. The fair values of the financial
instruments presented may not be indicative of their future values. The
following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash, Cash Equivalents, Marketable Securities, and Commercial Paper
The carrying amount approximates fair value due to the short-term maturity
of the instruments.
Investments
The fair value of the Company's investments is estimated based on the
quoted market prices for these securities at December 31, 1995 and 1994. The
fair value of the pledged 3.3 million shares of the investment in INSO has
been reduced to $39.44 per share to reflect the threshold appreciation price.
This is the maximum amount the Company can realize upon redemption of the
SAILS (See Note 4).
29
<PAGE>
Long-term Debt
The fair value of the Company's $100 million 7.125% Notes fixed rate
long-term debt is estimated based on the quoted market prices for the issue.
The fair value of the SAILS is based upon the quoted market price of the
underlying INSO shares multiplied by the shares necessary to redeem the
issuance.
The carrying amount of the credit facility approximates fair value because
of the renewing feature of the facility.
Off-Balance-Sheet Financial Instruments Gains (Losses)
The fair value of interest rate swap and interest rate lock agreements
(used for purposes other than trading) is the estimated amount that the
Company would pay to terminate the agreement taking into account interest
rates and the credit-worthiness of the swap counterparty. There were no
interest rate swap agreements outstanding at December 31, 1995. There were no
interest rate lock agreements outstanding at December 31, 1994. At December
31, 1994, reserves to offset part of the cost of terminating the interest
rate swap agreement were established. The Company does not enter into
speculative or leveraged derivative transactions.
Note 13. Related Parties
The Company presently holds notes receivable for a total of $5.8 million
from certain corporate officers and members of the Board of Directors. The
Company provided financing in 1994 to effect the purchase of an aggregate of
138,272 shares of the Company's common stock pursuant to the 1994 Executive
Stock Purchase Plan and the 1994 Non-Employee Director Stock Purchase Plan at
the fair market value on August 24, 1994, of $42.625 per share. The loans
bear an interest rate of 8% and are due in the fourth quarter of 1999. Loans
made to officers are collateralized by the shares of common stock purchased
and supported by a risk sharing agreement which provides, among other things,
for the Company to share in 50% of the gain on any shares sold before the
third anniversary, and to share in 50% of the loss on any shares sold after
the third anniversary. Loans provided to members of the Board of Directors
are unsecured. A director who sell shares purchased with Company financing is
responsible for 100% of any resulting loss. The notes receivable are shown as
a reduction in stockholders' equity in the consolidated financial statements.
In 1995, the Company recognized approximately $.4 million in interest income
in connection with the outstanding loans.
Note 14. Segment Information
The Company's principal business is publishing and is divided into two
segments: (a) textbooks and other educational materials and services for the
school and college markets; and (b) general publishing, including fiction,
nonfiction, software, children's books, and reference materials.
A comparative summary of segment information for the years 1995, 1994, and
1993 appears below. Net corporate expenses include certain corporate officer
compensation costs, certain system development costs, certain occupancy
costs, stockholder reporting expenses, legal costs, and consulting fees.
Corporate assets are principally cash and cash equivalents, marketable
securities, and deferred income taxes.
<TABLE>
<CAPTION>
Textbooks and
other
educational
materials and General
In thousands services publishing Corporate Consolidated
- --------------------------------------------- ------------- --------- -------- -------------
<S> <C> <C> <C> <C>
1995
Net sales $441,800 $87,222 $ -- $ 529,022
----------- ------- ------ -----------
Segment income (loss) 63,817 (8,520) -- 55,297
----------- ------- ------ -----------
Net corporate expenses -- -- (16,018) (16,018)
Special charges related to acquisition of
Heath (49,230) -- -- (49,230)
Special charges (3,825) (2,700) (508) (7,033)
Gain on sale of warehouses -- 3,889 -- 3,889
Gain on equity transactions of INSO -- 13,102 -- 13,102
Interest expense, net -- -- (13,008) (13,008)
Equity in earnings of INSO -- 1,557 -- 1,557
----------- ------- ------ -----------
Income (loss) before taxes 10,762 7,328 (29,534) (11,444)
----------- ------- ------ -----------
Identifiable assets 366,816 89,611 137,483 593,910
Acquired assets 452,888 -- -- 452,888
----------- ------- ------ -----------
Total assets 819,704 89,611 137,483 1,046,798
----------- ------- ------ -----------
Depreciation and amortization expense 47,393 1,655 3,378 52,426
Purchase of property, plant, and equipment,
including book plates 50,566 932 2,780 54,278
=========== ======= ====== ===========
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Textbooks and
other
educational
materials and General
In thousands services publishing Corporate Consolidated
- --------------------------------------------- ------------- --------- -------- -------------
<S> <C> <C> <C> <C>
1994
Net sales from ongoing operations $387,427 $ 93,811 $ -- $481,238
Net sales from former Software Division -- 1,838 -- 1,838
----------- ------- ------ -----------
Net sales 387,427 95,649 -- 483,076
----------- ------- ------ -----------
Income from ongoing operations 68,216 7,275 -- 75,491
Income from former Software Division -- 117 -- 117
----------- ------- ------ -----------
Segment income 68,216 7,392 -- 75,608
----------- ------- ------ -----------
Net corporate expenses -- -- (15,631) (15,631)
Special charges (4,575) (502) (1,436) (6,513)
Gain on sale of interest in Software Division -- 36,212 -- 36,212
Interest expense, net -- -- (6,509) (6,509)
Equity in earnings of INSO -- 1,973 -- 1,973
----------- ------- ------ -----------
Income before taxes and extraordinary item 63,641 45,075 (23,576) 85,140
----------- ------- ------ -----------
Identifiable assets 172,799 99,121 95,004 366,924
Acquired assets 130,342 -- -- 130,342
----------- ------- ------ -----------
Total assets 303,141 99,121 95,004 497,266
----------- ------- ------ -----------
Depreciation and amortization expense 39,439 1,692 3,285 44,416
Purchase of property, plant, and equipment,
including book plates 30,410 1,277 2,033 33,720
=========== ======= ====== ===========
1993
Net sales from ongoing operations $357,198 $ 92,215 $ -- $449,413
Net sales from former Software Division -- 13,556 -- 13,556
----------- ------- ------ -----------
Net sales 357,198 105,771 -- 462,969
----------- ------- ------ -----------
Income from ongoing operations 68,933 8,325 -- 77,258
Income from former Software Division -- 3,537 -- 3,537
----------- ------- ------ -----------
Segment income 68,933 11,862 -- 80,795
----------- ------- ------ -----------
Net corporate expenses -- -- (18,865) (18,865)
Special charges (4,976) -- (5,584) (10,560)
Interest expense, net -- -- (2,347) (2,347)
----------- ------- ------ -----------
Income before taxes and extraordinary item 63,957 11,862 (26,796) 49,023
----------- ------- ------ -----------
Total assets 175,378 84,559 138,149 398,086
----------- ------- ------ -----------
Depreciation and amortization expense 34,044 1,600 3,717 39,361
Purchase of property, plant, and equipment,
including book plates 26,918 3,182 6,424 36,524
=========== ======= ====== ===========
</TABLE>
31
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(Unaudited, in thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Year
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 50,505 $104,655 $267,893 $105,969 $529,022
Gross profit (net sales less cost of sales) 10,624 48,840 165,964 32,558 257,986
Net income (loss) $(18,532) $ (5,104) $ 68,070 $(51,677) $ (7,243)
====== ===== ===== ====== =======
Per share:
Net income (loss) $ (1.34) (0.37) $ 4.93 $ (3.74) $ (0.52)
====== ===== ===== ====== =======
1994
Net sales $ 49,388 $117,141 $230,304 $ 86,243 $483,076
Gross profit (net sales less cost of sales) 11,522 61,475 141,485 37,920 252,402
Net income (loss) before extraordinary item 3,210 8,700 47,573 (7,053) 52,430
Extraordinary item, net of taxes (1,239) -- -- -- (1,239)
------ ----- ----- ------ -------
Net income (loss) $ 1,971 $ 8,700 $ 47,573 $ (7,053) $ 51,191
====== ===== ===== ====== =======
Per share:
Net income (loss) before extraordinary item $ 0.23 $ 0.63 $ 3.45 $ (0.51) $ 3.79
Extraordinary item, net of taxes (0.09) -- -- -- (0.09)
------ ----- ----- ------ -------
Net income (loss) $ 0.14 $ 0.63 $ 3.45 $ (0.51) $ 3.70
====== ===== ===== ====== =======
</TABLE>
The above quarterly information indicates the seasonal fluctuations of the
Company's educational publishing business.
The second quarter of 1995 and the first quarter of 1994 include charges
related to the Company's corporate and domestic publishing operations which
are of an unusual nature. Note 8 to the consolidated financial statements
describes the transactions and related financial statement impact.
The fourth quarter of 1995 includes an after-tax charge of $30.0 million
related to the D.C. Heath acquisition. Note 2 describes this transaction.
The first quarter of 1994 includes an after-tax gain of $22.8 million, or
$1.65 per share, in connection with the initial public offering of INSO, the
successor company to the Company's former Software Division. The third
quarter of 1995 includes an estimated after-tax gain of $8.9 million, or $.64
per share, due to an additional public offering of 1.2 million shares of INSO
common stock. The fourth quarter of 1995 includes an after-tax loss of $1.1
million, or $.08 per share, as an adjustment to the previously recorded
estimated gain. Note 11 to the consolidated financial statements describes
these transactions.
In the first quarter of 1994, the Company completed an early redemption of
$25 million of 8.78% senior notes due March 1997. The extraordinary loss of
$1.2 million, or $.09 per share, is net of an income tax benefit of $.8
million. Note 4 to the consolidated financial statements describes the
transaction.
32
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Company
Information with respect to directors is incorporated herein by reference
to the Proxy Statement for the 1996 Annual Meeting of Stockholders (the "1996
Proxy Statement"), and information with respect to Executive Officers is set
forth following Part I, Item 4 of this report under the heading "Executive
Officers of the Company" on pages 4 and 5 herein.
Item 11. Executive Compensation
Incorporated herein by reference to the 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the 1996 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statements and Schedule, and Reports on Form 8-K
(a) 1. Consolidated Financial Statements are listed in the accompanying Index
to Consolidated Financial Statements on page 12.
2. Financial Statement Schedule for the three years ended December 31,
1995:
II -- Consolidated Valuation and Qualifying Accounts Page 34
All other Schedules have been omitted because the required information
is included in the consolidated financial statements or notes thereto
or they are not required submissions.
3. The Exhibits listed in the accompanying Index to Exhibits set forth on
page 36 herein, are filed as part of this Report, and are included
only on the Form 10-K filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K filed in the fourth quarter of 1995
The Registrant filed two reports on Form 8-K in the fourth quarter of
1995:
Report dated October 6, 1995, reporting on the Company's definitive
agreement to acquire D.C. Heath and Company from Raytheon Company.
Report dated November 15, 1995, reporting on the Company's completion
of the acquisition of D.C. Heath and Company from Raytheon Company.
33
<PAGE>
HOUGHTON MIFFLIN COMPANY
SCHEDULE II--CONSOLIDATED VALUATION ACCOUNTS
Years ended December 31, 1995, 1994, and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
Balance at charged Balance
beginning (credited) Acquired at end
of year to income (Retirements) of year
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1995
Allowance for book returns $12,836 $ 2,340 $ 6,522 $21,698
Allowance for authors' advances 11,079 9,557 1,212 21,848
1994
Allowance for book returns $12,325 $ 511 $ -- $12,836
Allowance for authors' advances 11,866 2,593 (3,380) 11,079
1993
Allowance for book returns $16,671 $(4,346) $ -- $12,325
Allowance for authors' advances 9,545 2,466 (145) 11,866
</TABLE>
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOUGHTON MIFFLIN COMPANY
Registrant
By: /s/ Nader F. Darehshori
-------------------------------------
Nader F. Darehshori
Chairman of the Board, President, and
Chief Executive Officer
March 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/Nader F. Darehshori Chairman of the Board, President,
- ------------------------- and Chief Executive Officer, Director March 14, 1996
Nader F. Darehshori
/s/Gail Deegan Executive Vice President,
- ------------------------- Chief Financial Officer, and Treasurer March 14, 1996
Gail Deegan
/s/Michael J. Lindgren Vice President and Controller March 14, 1996
- -------------------------
Michael J. Lindgren
/s/Joseph A. Baute Director March 14, 1996
- -------------------------
Joseph A. Baute
/s/James O. Freedman Director March 14, 1996
- -------------------------
James O. Freedman
/s/Mary H. Lindsay Director March 14, 1996
- -------------------------
Mary H. Lindsay
/s/ Charles R. Longsworth Director March 14, 1996
- -------------------------
Charles R. Longsworth
/s/John F. Magee Director March 14, 1996
- -------------------------
John F. Magee
/s/Claudine B. Malone Director March 14, 1996
- -------------------------
Claudine B. Malone
/s/Alfred L. McDougal Director March 14 1996
- -------------------------
Alfred L. McDougal
/s/George Putnam Director March 14, 1996
- -------------------------
George Putnam
/s/Ralph Z. Sorenson Director March 14, 1995
- -------------------------
Ralph Z. Sorenson
/s/DeRoy C. Thomas
- -------------------------
DeRoy C. Thomas Director March 14, 1996
</TABLE>
35
<PAGE>
HOUGHTON MIFFLIN COMPANY
INDEX TO EXHIBITS
(Item 14(a)(3))
<TABLE>
<CAPTION>
Exhibit No. Description of Document Page Number in this report*
- ------------ ------------------------------------------- --------------------------------------------------
<S> <C> <C>
(3)(i) Restated Articles of Organization of the Filed as Exhibits (4.1) and (4.2) to
Company Registration Statement No. 33-14850 as amended,
and incorporated herein by reference thereto
Amendment to Restated Articles of Page
Organization of the Company in the form
of a certificate of vote of directors
establishing a series of a class of stock
(3)(ii) By-laws of the Company Page
(4) Registration Statement under the Filed on June 20, 1967, and incorporated herein
Securities Exchange Act of 1934 on Form by reference thereto
10 dated June 20, 1967, as amended, with
particular reference to the description
of the common stock of the Company
Rights Agreement between the Company and Page
the First National Bank of Boston, as
Rights Agent
Registration Statement under the Filed September 4, 1992, and incorporated herein
Securities Exchange Act of 1934 on Form by reference thereto
S-3 dated September 4, 1992
Indenture dated as of March 15, 1994 Filed as Exhibit (4.1) to Registration Statement
between the Company and State Street Bank No. 33-51700 as amended, and included herein by
and Trust Company, as successor trustee reference thereto
to the First National Bank of Boston
First Supplemental Indenture dated as of Filed as Exhibit (4.2) to Registration Statement
July 27, 1995 between the Company and No. 33-64903 as amended, and incorporated herein
State Street Bank and Trust Company, as by reference thereto.
successor trustee to the First National
Bank of Boston
Registration Statement under the Filed on December 11, 1995 and incorporated
Securities Act of 1933 on Form S-3 dated herein by reference thereto
December 11, 1995
(10)(ii) Lease between Two Twenty Two Berkeley Filed as Exhibit (ii)(D) to Form 10-K for
(D) Venture, as Landlord, and Houghton the year ended December 31, 1991, and
Mifflin Company, as Tenant incorporated herein by reference thereto
(10)(iii) Benefits Trust Agreement between Houghton Filed as Exhibit (ii)(C) to Form 10-K for
(A) Mifflin Company and State Street Bank and the year ended December 31, 1992, and
Trust Company dated June 3, 1992 incorporated herein by reference thereto
Severance Agreement between the Company Page
and Mr. Darehshori
Form of Senior Executive Severance Page
Agreement
Form of Key Managers' Severance Agreement Page
Agreement and General Release Page
Supplemental Benefits Plan Page
Non-employee Directors Retirement Benefit Page
Plan
36
<PAGE>
Exhibit No. Description of Document Page Number in this report*
- ------------ ------------------------------------------- --------------------------------------------------
Trust Agreement for the Houghton Mifflin Page
Pension Plan with State Street Bank and
Trust Company
1994 Executive Stock Purchase Plan Filed as Exhibit (iii)(A) to Form 10-Q for
the quarter ended September 30, 1994, and
incorporated herein by reference thereto
Form of Option Grant and Exercise Filed as Exhibit (iii)(A) to Form 10-Q for
Agreement the quarter ended September 30, 1994, and
incorporated herein by reference thereto
Non-Employee Directors Stock Purchase Filed as Exhibit (iii)(A) to Form 10-Q for
Plan the quarter ended September 30, 1994, and
incorporated herein by reference thereto
Forms of Stock Purchase Agreement Filed as Exhibit (iii)(A) to Form 10-Q for
the quarter ended September 30, 1994, and
incorporated herein by reference thereto
(12) Computation of Ratio of Earnings to Fixed Page
Charges
(21) List of Subsidiaries Page
(23) Consent of Experts and Counsel Page
(27) Financial Data Schedule Page
</TABLE>
FORM CD-26-5M-8-83
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
No. 04-1456030
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
------------
We, Harold T. Miller, President and
Paul D. Weaver, Clerk of
Houghton Mifflin Company
------------------------
(Name of Corporation)
located at One Beacon Street, Boston, Massachusetts 02108
do hereby certify that at a meeting of the directors of the corporation held on
December 9, 1988, the following vote establishing and designating a series of a
class of stock and determining the relative rights and preferences thereof was
duly adopted:
See continuation sheets 2A through 2K.
NOTE: Votes for which the space provided above is not sufficient
should be set out on continuation sheets to be numbered 2A, 2B,
etc. Continuation sheets must have a left-hand margin 1 inch
wide for binding and shall be 8-1/2" x 11". Only one side should
be used. -----------
<PAGE>
VOTED, that a new series of Preferred Stock of the Corporation is hereby
created, pursuant to the authority vested in the Board of Directors of this
Corporation in accordance with the provisions of its Restated Articles of
Organization, and that the designation and amount of the series of Preferred
Stock and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 20,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the 15th day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$75.00 or (b) subject to the provision for adjustment hereinafter set forth,
1000 times the aggregate per share amount of all cash dividends, and 1000 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of common stock, par
value $1.00 per share, of the Corporation (the "Common Stock") or a subdivision
of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A Junior
Participating Preferred
2A
<PAGE>
Stock. In the event the Corporation shall at any time after December 9, 1988
(the "Rights Declaration Date") (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $75.00 per share on
the Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A Junior
Participating Preferred Stock, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A
2B
<PAGE>
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 1000 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or as required by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued
2C
<PAGE>
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Junior Participating
Preferred Stock then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of Preferred Stock
(including holders of the Series A Junior Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting right of the holders of Series
A Junior Participating Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any
annual meeting of stockholders or special meeting in lieu of an annual meeting,
and thereafter at annual meetings of stockholders or special meetings in lieu of
an annual meeting, provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be exercised unless the holders
of a majority in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Preferred Stock of such
voting right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period, they
shall have the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
Directors or, if such right is exercised at an annual meeting or special meeting
in lieu of an annual meeting, to elect two (2) Directors. If the number which
may be so elected at any special meeting (other than a special meeting in lieu
of an annual meeting) does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari
2D
<PAGE>
passu with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling of
a special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President of the Corporation or the Board of
Directors. Notice of such meeting and of any annual meeting or special meeting
in lieu of an annual meeting at which holders of Preferred Stock are entitled to
vote pursuant to this paragraph (C) (iii) shall be given to each holder of
record of Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 20 days and not later than 60 days after
such order or request or in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), such holders of the
Preferred Stock shall not have the right to call such a special meeting during
the period within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) Directors voting as a class, after
the exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of stock which elected
the Director whose office shall have become
2E
<PAGE>
vacant. References in this paragraph (C) to Directors elected by the holders of
a particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may be
provided for in the Restated Articles of Organization or by-laws as then in
effect irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Restated Articles of
Organization or by-laws as then in effect). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock; or
2F
<PAGE>
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except pursuant to Section 8 or in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A)
2G
<PAGE>
of this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received
$l,200.00 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1000 (as appropriately
adjusted as set forth in subparagraph C below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii) immediately above being referred to as the
"Adjustment Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to one (1) with
2H
<PAGE>
respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in
2I
<PAGE>
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Junior Participating Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. Redemption. The outstanding shares of Series A Junior
Participating Preferred Stock may be redeemed at the option of the Board of
Directors as a whole, but not in part, at any time, or from time to time, at a
cash price per share equal to l05 percent of (i) the product of the Adjustment
Number times the Average Market Value (as such term is hereinafter defined) of
the Common Stock, plus (ii) all dividends which on the redemption date have
accrued on the shares to be redeemed and have not been paid, or declared and a
sum sufficient for the payment thereof set apart, without interest. The "Average
Market Value" is the average of the closing sale prices of the Common Stock
during the 30 day period immediately preceding the date before the redemption
date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock Exchange,
or, if such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed on any
such exchange, the average of the closing sale prices with respect to a share
of Common Stock during such 30 day period, as quoted on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available, the fair market value of the Common
Stock as determined by the Board of Directors in good faith.
Section 9. Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Restated Articles of Organization of the
Corporation shall not be further
2J
<PAGE>
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of a majority or more of the outstanding shares of Series A Junior Participating
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.
2K
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this
Ninth day of December in the year 1988
Harold T. Miller , President
Paul D. Weaver , Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and,
the filing fee in the amount of $________
having been paid, said certificate is hereby filed this
day of ,
19___.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO:
Louis A. Goodman, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Beacon Street
Boston, Massachusetts 02108
Telephone (617) 573-4830
Copy Mailed
As amended through July 25, 1990
BY-LAWS
OF
HOUGHTON MIFFLIN COMPANY
ARTICLE I.
Stockholders
1. Meetings. Meetings of the stockholders may be held at the main
office of the corporation in the City of Boston, County of Suffolk, Commonwealth
of Massachusetts, or at such places within or without the Commonwealth of
Massachusetts as may be specified in the notices of such meetings; provided,
that, when any meeting is convened, the presiding officer may adjourn the
meeting for a period of time not to exceed 30 days if (a) no quorum is present
for the transaction of business or (b) the Board of Directors determines that
adjournment is necessary or appropriate to enable the stockholders (i) to
consider fully information which the Board of Directors determines has not been
made sufficiently or timely available to stockholders or (ii) otherwise to
exercise effectively their voting rights. The presiding officer in such event
shall announce the adjournment and date, time and place of reconvening and shall
cause notice thereof to be posted at the place of meeting designated in the
notice which was sent to the stockholders, and if such date is more than 10 days
after the original date of the meeting the Clerk (or other person authorized by
the By-Laws or by law) shall give notice thereof in the manner provided in
Section 5 of this Article I.
2. Special Meetings. Special meetings of stockholders may be called
by vote of the Board of Directors or by the Chairman of the Board of Directors
or by the Chief Executive Officer, at such date and time as they may determine,
which date and time may subsequently be changed at any time by vote of the Board
of Directors. Application to an officer of the corporation or to a court
pursuant to Section 34(b) of the Business Corporation Law requesting the call of
a special meeting of stockholders may be made only by stockholders who hold 80%
or more in interest of the capital stock entitled to vote at such meeting.
<PAGE>
3. Annual Meeting. The annual meeting of stockholders of the
corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held on such date and
at such time as shall be determined from time to time by vote of the Board of
Directors or by the Chairman of the Board of Directors or by the Chief Executive
Officer, which date and time may subsequently be changed at any time by vote of
the Board of Directors, including the year any such determination occurs. If no
annual meeting is held in accordance with the foregoing provisions, a special
meeting may be held in lieu thereof, and any action taken at such meeting shall
have the same effect as if taken at the annual meeting.
4. Advance Notice. Except as provided in Article II, Section 3, the
only business which may be conducted at any such meeting of the stockholders
shall (a) have been specified in the written notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer (b) have
otherwise been properly brought before the meeting by or at the direction of the
Board of Directors, the Chairman of the Board of Directors or by the Chief
Executive Officer, or (c) have otherwise been properly brought before the
meeting by or on behalf of a stockholder of record who shall have been a
stockholder of record at the time of giving of notice provided for in this
Section 4 and who shall continue to be a stockholder of record on the record
date for such meeting and on the meeting date and who shall be entitled to vote
thereat. In addition to any other applicable requirements, for business to be
properly brought before a meeting by a stockholder, other than a stock holder
proposal included in the proxy statement pursuant to Rule 14a-8 of the
Securities Exchange Act of 1934, the stockholder must have given timely notice
thereof in writing to the Clerk of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation, (a) no fewer than 75 days nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of the stockholders of the corporation or (b) in the case of a
special meeting or in the event that the annual meeting is called for a date
(including any change in a date determined by the Board of Directors pursuant to
Sections 2 or 3 of this Article I) more than 75 days prior to such anniversary
date, notice by the stockholder to be timely given must be so received not later
than the close of business on the 20th day following the day on which notice of
the date of such meeting was mailed or public disclosure of the date of such
meeting was made, whichever first occurs. Such stockholder's notice to the Clerk
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting and the
2
<PAGE>
reasons for conducting such business at the meeting, (b) the name and record
address of the stockholder proposing such business, (c) the class and number of
shares of capital stock of the corporation held of record, owned beneficially or
represented by proxy by such stockholder as of the record date for the meeting
(if such date shall then have been made publicly available) and as of the date
of such notice by the stockholder, (d) a representation that the stockholder
intends to appear in person or by proxy at the meeting to present his proposal
and (e) all other information which would be required to be included in a proxy
statement filed with the Securities and Exchange Commission if, with respect to
any such item of business, such stockholder were a participant in a solicitation
subject to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Proxy Rules").
Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at the meeting except in accordance with the
procedures set forth in this Article I, provided, however, that nothing in this
Article I shall be deemed to preclude discussion by any stockholder of any
business brought before the meeting.
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article I, and if
he should so determine, he shall so declare to the meeting and that business
shall be disregarded.
5. Notice of Meetings. Written notices of the place, date and hour
of all meetings of stockholders stating the purposes of the meeting shall be
given by the Clerk (or other person authorized by the By-Laws or by law) at
least seven days before the meeting to each stockholder entitled to vote thereat
and to each stockholder, who by law, by the Articles of Organization or by the
By-Laws is entitled to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it postage prepaid and
addressed to such stockholder at his address as it appears upon the records of
the corporation. Notice need not be given to a stockholder if a written waiver
of notice, executed before or after the meeting by such stockholder or his
attorney thereunto authorized, is filed with the records of the meeting.
6. Quorum. At any meeting of stockholders the holders of a majority
in interest of all stock issued, outstanding and entitled to vote shall
constitute a quorum, but a lesser interest may adjourn any meeting from
time to time and such meeting may be held as adjourned without further
notice. When a quorum is present, the holders of a majority of the stock
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entitled to vote which is represented thereat, except where a larger vote is
required by law, by the Articles of Organization or by the By-Laws, shall decide
any matter brought before the meeting.
7. Voting and Proxies. Unless otherwise provided by law or by the
Articles of Organization, at any meeting of stockholders, each stockholder shall
have one vote for each share of stock entitled to vote held by him of record
according to the books of the corporation, and a proportionate vote for a
fractional share. Except as otherwise provided by law, stockholders entitled to
vote may vote either in person or by written proxy dated not more than six
months before the meeting named therein. Proxies shall be filed with the Clerk
of the meeting, or of any adjournment thereof, before being voted. Except as
otherwise permitted by law or otherwise limited therein, proxies shall entitle
the persons named therein to vote at any adjournment of such meeting but shall
not be valid after final adjournment of such meeting. Proxies need not be sealed
or attested. A proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of the proxy the corporation receives a specific written notice to the contrary
from any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
ARTICLE II.
Directors
1. Powers. The Board of Directors shall exercise all of the powers
of the corporation, except such as by law, by the Articles of Organization or by
the By-Laws are conferred upon or reserved to the stockholders. In the event of
a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2. Number, Qualification, Election and Term of Office. The Board of
Directors shall be composed of such number as shall be fixed by the Board, by
vote of a majority of the entire Board, pursuant to Section 5 of this Article
II; provided, however that no decrease in the number comprising the entire Board
of Directors made pursuant to this Section shall shorten the term of any
incumbent directors. The Board of Directors shall be divided into three classes,
as nearly equal in number as possible. The Directors need not be stockholders.
At each annual meeting of stockholders, the successors to the class of directors
whose term expires at that meeting shall be elected to hold office for a term
continuing until the annual meeting held in the third year following the year of
their election and until their successors are duly
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elected and qualified or until their earlier resignation, death or removal;
provided, that in the event of failure to hold such an annual meeting or to hold
such election at such meeting, the election of directors may be held at any
special meeting of the stockholders called for that purpose. Directors, except
those appointed by the Board of Directors to fill vacancies, shall be elected by
a plurality vote of the stockholders, voting by ballot either in person or by
proxy. As used in these By-Laws, the expression "entire Board" means the number
of directors in office at a particular time.
Any director may resign by delivering his written resignation to the
corporation at its principal office or to the President, Clerk or Secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
3. Advance Notice. Only persons who are nominated in accordance with
the following procedures shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors at the annual
meeting may be made at the annual meeting of stockholders (a) by or at the
direction of the Board of Directors by any nominating committee or person
appointed by the Board or (b) by or on behalf of a stockholder of record who
shall have been such at the time of giving of notice provided for in this
Section 3 and who shall continue to be a stockholder of record on the record
date for such meeting and on the meeting date and who shall be entitled at the
time of the meeting to vote for the election of Directors and who complies with
the notice procedures set forth in this Section 3 rather than the notice
procedures with respect to other business set forth in Section 4 of Article I.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Clerk of the
corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation (a) no fewer
than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of the stockholders of the corporation or
(b) in the case of a special meeting or in the event that the annual meeting is
called for a date (including any change in a date determined by the Board of
Directors pursuant to Sections 2 or 3 of Article I) more than 75 days prior to
such anniversary date, notice by the stockholder to be timely must be so
received not later than the close of business on the 20th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Clerk shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name, age,
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business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the corporation, if any, which are beneficially owned by the
person, (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to the
Proxy Rules, and (v) the consent of each nominee to serve as a director of the
corporation if so elected; and (b) as to the stockholder giving the notice (i)
the name and record address of the stockholder, (ii) the class and number of
shares of capital stock of the corporation held of record, owned beneficially or
represented by proxy by the stockholder as of the record date for the meeting
(if such date shall then have been made publicly available) and as of the date
of such notice by the stockholder, (iii) a representation that the stockholder
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (iv) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder, and (v) such other information
regarding such stockholder as would be required to be included in a proxy
statement filed pursuant to the Proxy Rules. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as Director. No person shall be eligible for election as a Director unless
nominated in accordance with the procedures set forth herein.
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
4. Vacancies. The Board of Directors may act notwithstanding a
vacancy or vacancies in its membership but if the office of any director shall
become vacant by reason of an increase in size of the board of directors, or the
death, resignation, disqualification or removal of a director or otherwise, such
vacancy or vacancies shall be filled solely by the affirmative vote of the
directors then in office, even though less than a quorum. Any director elected
in accordance with this Section 4 shall hold office for the remainder of the
full term of the class of directors in which the vacancy occurred or the new
directorship was created and until his or her successor is chosen and qualified
or until his or her earlier resignation, death or removal.
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5. Enlargement of the Board. The number of members of the Board of
Directors shall be fixed only by the Board of Directors by a vote of the
majority of the directors then in office.
If at any time the corporation shall no longer be subject to
paragraph (a) of Section 50A of Chapter 156B of the Massachusetts General Laws,
the number of members of the Board of Directors may be increased by the
stockholders at any meeting or by the Board of Directors by vote of a majority
of the directors then in office, provided, however, that between successive
annual meetings of stockholders, the Board of Directors may not increase the
number of its members by more than two.
6. Removal. A director may be removed from office only after
reasonable notice and opportunity to be heard (a) for cause by vote of a
majority of the directors then in office, or (b) for cause by the affirmative
vote of a majority of the shares outstanding and entitled to vote in the
election of directors. "Cause" with respect to the removal of any director by
the stockholders, but not by the directors, shall be limited to (a) conviction
of a felony, (b) declaration of unsound mind by order of court, (c) gross
dereliction of duty, (d) commission of an action involving moral turpitude or
(e) commission of an action which constitutes intentional misconduct or a
knowing violation of law if such action in either event results both in an
improper substantial personal benefit and a material injury to the corporation.
7. Meetings. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. A regular meeting of the Board of Directors may be held
without notice at the same place as the annual meeting of stockholders, or the
special meeting held in lieu thereof, following such meeting of stockholders.
Special meetings of the Board of Directors may be called, orally or
in writing, by the Chairman of the Board of Directors, the Chief Executive
Officer, or the Chief Financial Officer, or, upon request of two or more
directors, by the Clerk, designating the time, date and place thereof.
8. Notice of Meetings. Notice of the time, date and place of all
special meetings of the Board of Directors shall be given to each director by
the Secretary, or if there be no Secretary by the Clerk, or in case of the
death, absence, incapacity or refusal of such persons, by the officer or one of
the directors calling the meeting. Notice shall be given to each director either
personally or by telephone or by telegram
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sent to his business or home address at least twenty-four hours in advance of
the meeting, or by written notice mailed to his business or home address at
least forty-eight hours in advance of the meeting. Notice need not be given to
any director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice of a meeting of the Board of
Directors need not specify the purposes of the meeting.
9. Quorum. At any meeting of the Board of Directors, a majority of
the directors then in office shall constitute a quorum. At any meeting of any
committee of the Board of Directors, a majority of the members thereof shall
constitute a quorum. Less than a quorum may adjourn any meeting from time to
time and the meeting may be held as adjourned without further notice.
10. Action of the Board of Directors. At any meeting of the Board
of Directors or any committee thereof at which a quorum is present, a majority
of those present may take any action on behalf of the Board of Directors or such
committee except to the extent that a larger number is required by law, by the
Articles of Organization or by the By-Laws. Any action by the Board of Directors
or any committee thereof may be taken without a meeting if a written consent
thereto is signed by all the directors or all the members of such committee and
filed with the records of the meetings of the Board of Directors and committees
thereof. Such consent shall be treated as a vote of the Board of Directors or
committee thereof for all purposes.
11. Executive Committee. The Board of Directors may, by vote of a
majority of its entire number, elect from its own number an Executive Committee
of three or more members to which committee may be delegated such duties and
functions as the Board of Directors may by vote prescribe, except those which by
law, by the Articles of Organization or by the By-Laws may not be delegated. The
Executive Committee may make rules not inconsistent herewith for the holding and
conduct of its meetings. A record shall be kept of the proceedings of the
Executive Committee.
The Executive Committee shall report its action to the Board of
Directors. The Board of Directors shall have power to rescind any action of the
Executive Committee, but no such rescission shall be retroactive.
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12. Other Committees. The Board of Directors may, from time to time,
appoint one or more committees composed of directors, officers and employees of
the corporation for such purposes and having such powers, responsibilities, and
functions as are conferred by the vote or resolution appointing such committee
and as are permitted by law.
ARTICLE III.
Officers
1. Enumeration. The officers of the corporation shall consist of a
Chief Executive Officer, Chief Financial Officer, President, Treasurer and
Clerk, as well as such other officers, including a Chairman of the Board, one or
more Vice Presidents, Assistant Treasurers, Assistant Clerks, and a Secretary,
as the Board of Directors may determine.
2. Election. The President, the Treasurer and the Clerk shall be
elected annually by the Board of Directors at their first meeting
following the annual meeting of stockholders. Other officers
shall be appointed by the Board of Directors at such meeting
or at any other meeting.
3. Qualification. An officer need not be a stockholder or director.
Any two or more offices may be held by any person, provided that the President
and Clerk shall not be the same person. The Clerk shall be a resident of
Massachusetts unless the corporation has a resident agent appointed for the
purpose of service of process. Any officer may be required by the Board of
Directors to give bond for the faithful performance of his duties in such amount
and with such sureties as the Board of Directors may determine.
4. Tenure. Except as otherwise provided by law, by the Articles of
Organization or by the By-Laws, the President, the Treasurer and the Clerk shall
hold office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and thereafter until their respective successors
are chosen and qualified; and all other officers shall hold office until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and thereafter until their successors are chosen and qualified, or
for such shorter term as the Board of Directors may fix at the time such
officers are chosen. Any officer may resign by delivering his written
resignation to the corporation at its principal office or to the President, the
Clerk or the Secretary, and such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
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5. Removal. The Board of Directors may remove any officer with or
without cause by a vote of a majority of the entire number of directors then in
office; provided that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
6. Vacancies. A vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
7. Chairman of the Board of Directors. The Board of Directors may
elect from its number a Chairman of the Board. The Chairman of the Board shall
preside, when present, at all meetings of the stockholders and of the Board of
Directors unless he shall decline to do so.
8. Chief Executive Officer. Unless the Board of Directors shall
otherwise provide, the President shall be the Chief Executive Officer of the
corporation. The Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors if a Chairman of the Board has not
been elected or if he shall be absent or shall decline to preside. The Chief
Executive Officer shall, subject to the direction of the Board of Directors,
have general supervision and control of the business of the corporation. A11
officers of the corporation shall report to the Chief Executive Officer, or to
such other officer as the Chief Executive Officer may direct.
9. Chief Financial Officer. Unless the Board of Directors shall
otherwise provide, the Treasurer shall be the Chief Financial Officer of the
corporation. The Chief Financial Officer shall have general charge of the
financial affairs of the Corporation.
10. President. The President shall be elected by the Board of
Directors and shall have such powers as are provided by law. The President may
be, but shall not be required to be, a director of the corporation.
11. Treasurer and Assistant Treasurers. The Treasurer shall be
elected by the Board of Directors and shall have such powers as are provided by
law. The Treasurer shall have power to endorse for deposit or collection all
instruments for the payment of money to the corporation and to accept drafts on
its behalf. He shall cause to be kept accurate books of account of the affairs
of the corporation. He shall have custody of all funds, securities and valuable
documents of the corporation except as the Board of Directors may otherwise
provide.
Any Assistant Treasurer shall have such powers as the Board of
Directors may from time to time designate.
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12. Clerk. The Clerk shall be elected by the Board of Directors and
shall have such powers as are provided by law. The Clerk shall keep a record of
the meetings of stockholders and meeting of the Board of Directors. In case a
Secretary is not appointed or is absent, the Clerk shall keep a record of
meetings of the Board of Directors. In the absence of the Clerk from any meeting
of stockholders, a Temporary Clerk designated by the person presiding at the
meeting shall perform the duties of the Clerk.
13. Secretary. The Secretary, if one be appointed, shall keep a
record of the meetings of the Board of Directors. In the absence of the
Secretary and the Clerk, a Temporary Secretary shall be designated by the person
presiding at such meeting to perform the duties of the Secretary.
14. Vice President and Other Officers. The Board of Directors may
appoint one or more Vice-Presidents and such other officers as the Board of
Directors may determine, who shall have such powers and shall perform such
duties as the Chief Executive Officer shall determine.
15. Other Powers and Duties. Each officer shall, subject to the
By-Laws, have in addition to the duties and powers specifically set forth in the
By-Laws, such duties and powers as are customarily incident to his office, and
such duties and powers as the Board of Directors may from time to time
designate. The exercise of any power which by law, by the Articles of
Organization or by the By-Laws, or under any vote of the stockholders or the
Board of Directors, may be exercised by an officer of the corporation only in
the event of absence of another officer or any other contingency, shall bind the
corporation in favor of anyone relying thereon in good faith, whether or not
such absence or contingency existed.
ARTICLE IV.
Capital Stock
1. Certificates of Stock. Each stockholder shall be entitled to a
certificate of ownership of capital stock of the corporation in such form as
shall, in conformity with the law, be prescribed from time to time by the Board
of Directors. This certificate shall be signed by the Chairman of the Board, the
President or a Vice President, and by the Treasurer or an Assistant Treasurer.
These signatures may be facsimiles if the certificate is also signed by a
transfer agent or registrar who is not a director, officer, or employee of the
corporation. If an officer whose facsimile signature appears on a certificate
has ceased to hold office before the certificate is issued, that certificate
shall, nonetheless, be valid and may be issued
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by the corporation. Any certificate of ownership of shares of stock which is
subject to a restriction on transfer shall carry such legend with respect to
that restriction as may be required by law. If the corporation is authorized to
issue more than one class or series of stock, then such legend with regard to
that class or series as may be required by law shall appear on that certificate.
2. Transfers. Subject to the restrictions, if any, noted on the stock
certificates, shares of stock may be transferred on the books of the corporation
by the surrender to the corporation or its Transfer Agent of the certificate
therefor properly endorsed or accompanied by a written assignment and power of
attorney properly executed, with transfer stamps (if necessary) affixed, and
with such proof of the authenticity of signature as the corporation or its
Transfer Agent may reasonably require.
3. Holder of Record. Except as may be otherwise required by law, by
the Articles of Organization or by the By-Laws, the corporation shall be
entitled to treat the holder of stock of record as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of the By-Laws. It shall
be the duty of each stockholder to notify the corporation of his post office
address.
4. Record Dates. The Board of Directors may in advance fix a date not
more than sixty days preceding the date of any meeting of stockholders or the
date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
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6. Issue of Stock. Except as otherwise voted by the stockholders, the
whole or any part of any unissued balance of the authorized capital stock of the
corporation may be issued pursuant to vote of the Board of Directors to such
persons, for such consideration, whether cash, property, good will, services or
expenses, or as a stock dividend, and on such terms as the Board of Directors
may determine from time to time and without first offering the same for
subscription to stockholders of the corporation.
7. Control Share Acquisition. Until such time as this section shall
be repealed or the By-Laws shall be amended to provide otherwise, in each case
in accordance with Article VII of the By-Laws, the provisions of Chapter ll0D of
the Massachusetts General Laws shall not apply to "control share acquisitions"
of the Company within the meaning of said Chapter ll0D.
ARTICLE V.
Indemnification
To the full extent permitted by law, each director, officer and
employee shall be indemnified by the corporation against all expenses actually
and reasonably incurred by him in connection with any proceeding, in which he is
involved by reason of being or having been a director, officer or employee, or
at the request of this corporation, a director, officer, employee or other agent
of any other organization or in any capacity with respect to any employee
benefit plan, except with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interests of the corporation, or to the
extent that such matter relates to service with respect to any employee benefit
plan, in the best interests of the plan participants or beneficiaries of such
employee benefit plan. In the event of settlement of any such proceeding or in
the event that the Board of Directors cannot determine whether he has been so
adjudicated, such director, officer or employee shall be entitled to such
indemnification unless, in the opinion of (i) independent counsel (who may be
the counsel regularly employed by the corporation) or (ii) a majority of the
Directors or a committee thereof who are not parties to the proceeding, such
director, officer or employee did not act in good faith in the reasonable belief
that his action was in the best interests of the corporation, or to the extent
that such matter relates to service with respect to any employee benefit plan,
in the best interests of the plan participants or beneficiaries of such employee
benefit plan.
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To the extent authorized by the Board of Directors or the
stockholders, this corporation may pay indemnification in advance of final
disposition of a proceeding, upon receipt of an undertaking by the person
indemnified to repay such indemnification if it shall be established that he is
not entitled to indemnification by an adjudication under the foregoing
paragraph, which undertaking may be accepted without reference to the financial
ability of such person to make repayment.
As used in this Article, the words "director," "officer" and
"employee" shall mean and include each person who is serving or has served as a
director, officer or employee of this corporation, and each person who, at the
request of this corporation is serving or has served as a director, officer or
employee or other agent of any other organization or in any capacity with
respect to any employee benefit plan; the word "corporation" shall mean and
include any corporation, trust, association or other organization; the word
"proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and any
claim which could be the subject of a proceeding; and the word "expenses" shall
include any liability fixed by a judgment, order, decree or award in a
proceeding, any amount reasonably paid in settlement of a proceeding and any
professional fees and other disbursements reasonably incurred in a proceeding
and shall also include any taxes or penalties imposed on such director, officer
or employee with respect to his actions in connection with any employee benefit
plan, and any amount in connection with the successful enforcement of rights
under this Article.
Any rights of indemnification hereunder shall not be deemed
exclusive, shall be in addition to any other right which a director, officer or
employee may have or obtain, and shall accrue to his estate.
All provisions of this Article shall be deemed to be independent and
any invalidity of any of said provisions shall in no way affect the validity of
the Article as a whole or of any other provisions contained herein.
No repeal or modification of these By-Laws shall adversely affect any
such rights or obligations then existing with respect to any state of facts then
or theretofore brought based in whole or in part upon any such state of facts.
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ARTICLE VI.
Miscellaneous Provisions
1. Fiscal Year. Except as from time to time otherwise
determined by the Board of Directors, the fiscal year of the
corporation shall be the twelve months ending December 31.
2. Seal. The Board of Directors shall have power to adopt
and alter the seal of the corporation.
3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations authorized to be executed by an
officer of the corporation in its behalf shall be signed by the President or the
Treasurer except as the Board of Directors may generally or in particular cases
otherwise determine.
4. Voting of Securities. Except as the Board of Directors may
otherwise designate, the President or Treasurer may waive notice of and act on
behalf of the corporation, or appoint any person or persons to act as proxy or
attorney in fact for this corporation (with or without discretionary power
and/or power of substitution) at any meeting of stockholders of any other
corporation or organization, any of the securities of which may be held by this
corporation.
5. Corporate Records. The original, or attested copies, of the
Articles of Organization, By-Laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in Massachusetts at the principal office of
the corporation, or at an office of its transfer agent, Clerk or resident agent,
and shall be open at all reasonable times to the inspection of any stockholder
for any proper purpose, but not to secure a list of stockholders or other
information for the purpose of selling said list or information or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
6. Evidence of Authority. A certificate by the Clerk, a Temporary
Clerk or the Secretary as to any action taken by the stockholders, directors or
any officer or representative of the corporation shall, as to all persons who
rely thereon in good faith, be conclusive evidence of such action.
7. Ratification. Any action taken on behalf of the corporation by the
directors or any officer or representative of the corporation which requires
authorization by the
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stockholders of the directors of the corporation shall be deemed to have been
authorized if subsequently ratified by the stockholders entitled to vote or by
the directors, as the case may be, at a meeting held in accordance with the
By-Laws.
8. Articles of Organization. All references in the By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to
time.
ARTICLE VII.
Amendments
The By-Laws may be amended or repealed by vote of the stockholders at
any annual or special meeting or by the Board of Directors at any regular or
special meeting, provided that:
(a) The Board of Directors may not amend or repeal any provision of the
By-Laws which by law, by the Articles of Organization or by the By-Laws
requires action by the stockholders;
(b) Not later than the time of giving notice of the meeting of stockholders
next following the amending or repealing by the Board of Directors of any of
the By-Laws, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the By-Laws;
(c) Any amendment or repeal of the By-Laws by the Board of Directors and any
by-law adopted by the Board of Directors may be amended or repealed by the
stockholders;
(d) The Board of Directors may not amend or repeal, or adopt any by-law
inconsistent with, the provisions of Article II, Section 5 of the
By-Laws relating to enlargement of the Board of Directors; and
(e) Notice of any change of the date fixed by the Board of Directors for the
annual meeting of the stockholders shall be given to all stockholders at
least seven days before the new date fixed for such meeting.
YP-4353/H
CR .002
8/1/90
16
HOUGHTON MIFFLIN COMPANY
and
THE FIRST NATIONAL BANK OF BOSTON,
Rights Agent
Rights Agreement
Dated as of December 9, 1988
<PAGE>
Table of Contents
Section Page
- ------- ----
1 Certain Definitions .................................................... 1
2 Appointment of Rights Agent ............................................ 8
3 Issuance of Rights Certificates ........................................ 8
4 Form of Rights Certificates ............................................ 11
5 Countersignature and Registration ...................................... 12
6 Transfer, Split Up, Combination and
Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates .......................... 13
7 Exercise of Rights; Purchase Price;
Expiration Date of Rights .............................................. 14
8 Cancellation and Destruction of
Rights Certificates .................................................... 17
9 Reservation and Availability of Capital Stock .......................... 17
10 Preferred Stock Record Date ............................................ 19
11 Adjustment of Purchase Price, Number and
Kind of Shares or Number of Rights ..................................... 20
12 Certificate of Adjusted Purchase Price or
Number of Shares ....................................................... 35
13 Consolidation, Merger or Sale or
Transfer of Assets or Earning Power .................................... 35
14 Fractional Rights and Fractional Shares ................................ 39
15 Rights of Action ....................................................... 41
16 Agreement of Rights Holders ............................................ 41
17 Rights Certificate Holder Not Deemed a
Stockholder ............................................................ 42
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Section Page
- ------- ----
18 Concerning the Rights Agent ............................................ 43
19 Merger or Consolidation or Change of Name
of Rights Agent ........................................................ 43
20 Duties of Rights Agent ................................................. 44
21 Change of Rights Agent ................................................. 47
22 Issuance of New Rights Certificates .................................... 49
23 Redemption and Termination ............................................. 49
24 Notice of Certain Events ............................................... 51
25 Notices ................................................................ 52
26 Supplements and Amendments ............................................. 53
27 Successors ............................................................. 54
28 Determinations and Actions by the Board of
Directors, etc. ........................................................ 54
29 Benefits of this Agreement ............................................. 55
30 Severability ........................................................... 55
31 Governing Law .......................................................... 56
32 Counterparts ........................................................... 56
33 Descriptive Headings ................................................... 56
Exhibit A -- Certificate of Vote of Directors Establishing a
Series of a Class of Stock
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
ii
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RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of December 9, 1988, between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and The First
National Bank of Boston, a national banking association (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on December 9, 1988 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of Common Stock (as hereinafter
defined) of the Company outstanding at the Close of Business on December 19,
1988 (the "Record Date"), and has authorized the issuance of one Right (as such
number may hereinafter be adjusted pursuant to the provisions of Section ll(p)
hereof) for each share of Common Stock of the Company issued between the Record
Date (whether originally issued or delivered from the Company's treasury) and
the Distribution Date, each Right initially representing the right to purchase
one one-thousandth of a share of Series A Junior Participating Preferred Stock
of the Company having the rights, powers and preferences set forth in the form
of Certificate of Vote of Directors Establishing a Series of a Class of Stock
attached hereto as Exhibit A, upon the terms and subject to the conditions
hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding, but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or of any Subsidiary of the Company or (iv) any
Person or entity organized, appointed or
<PAGE>
established by the Company for or pursuant to the terms of any such plan.
(b) "Act" shall mean the Securities Act of 1933, as amended and as
in effect on the date of this Agreement.
(c) "Adjustment Shares" shall have the meaning set forth in Section
ll(a)(ii) hereof.
(d) "Adverse Person" shall mean any Person declared to be an
Adverse Person by the Continuing Directors (with the concurrence of the Outside
Directors) upon determination that the criteria set forth in Section
ll(a)(ii)(D) apply to such Person.
(e) "Adverse Person Event" shall mean the determination by the
Continuing Directors (with the concurrence of the Outside Directors) pursuant to
the criteria set forth in Section ll(a)(ii)(D) hereof, that a Person is an
Adverse Person.
(f) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
(g) "Agreement" shall mean this Rights Agreement as originally
executed or as it may from time to time be supplemented or amended pursuant to
the applicable provisions hereof.
(h) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (whether or not in writing)
or upon the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to
2
<PAGE>
"beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, or (B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event, or (C) securities issuable
upon exercise of Rights from and after the occurrence of a Triggering Event
which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to
Section ll(i) hereof in connection with an adjustment made with respect to
any Original Rights;
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," any security under this subparagraph (ii) as
a result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises solely
from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act, and
(B) is not also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in
3
<PAGE>
writing), for the purpose of acquiring, holding, voting (except pursuant to
a revocable proxy as described in the proviso to subparagraph (ii) of this
paragraph (h)) or disposing of any voting securities of the Company;
provided, however, that nothing in this paragraph (h) shall cause a person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
person's participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such acquisition.
(i) "Board" means the Board of Directors of the Company.
(j) "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in the Commonwealth of Massachusetts are
authorized or obligated by law or executive order to close.
(k) "Close of Business" on any given date shall mean 5:00 P.M.,
Boston, Massachusetts time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 P.M., Boston, Massachusetts time, on
the next succeeding Business Day.
(1) "Common Stock" shall mean the common stock, par value $1.00 per
share, of the Company, except that "Common Stock" when used with reference to
any Person other than the Company shall mean the class of capital stock of such
Person with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(m) "Common Stock Equivalents" shall have the meaning set forth in
Section ll(a)(iii) hereof.
(n) "Company" shall mean the Person named as the "Company" in the
first paragraph of this Agreement until a successor corporation shall have
become such or until a Principal Party shall assume, and thereafter be liable
for, all obligations and duties of the Company hereunder, pursuant to the
applicable provisions of this
4
<PAGE>
Agreement, and thereafter "Company" shall mean such successor corporation or
Principal Party.
(o) "Continuing Director" shall mean:
(i) any member of the Board, while such Person is a member of
the Board, who is not an Acquiring Person or an Adverse Person, or an
Affiliate or Associate of an Acquiring Person or an Adverse Person, or a
representative of an Acquiring Person or an Adverse Person or of any such
Affiliate or Associate, and was a member of the Board prior to the date of
this Agreement; or
(ii) any Person who subsequently becomes a member of the
Board, while such Person is a member of the Board, who is not an Acquiring
Person or an Adverse Person, or an Affiliate or Associate of an Acquiring
Person or an Adverse Person, or a representative of an Acquiring Person or
an Adverse Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved
by a majority of the Continuing Directors.
(p) "Current Market Price" shall have the meaning set forth in
Section ll(d) hereof.
(q) "Current Value" shall have the meaning set forth in Section
ll(a)(iii) hereof.
(r) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(s) "Equivalent Preferred Stock" shall have the meaning set forth
in Section ll(b) hereof.
(t) "Exchange Act" shall have the meaning set forth in Section l(f)
hereof.
(u) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(v) "Final Expiration Date" shall mean the Close of Business on
December 18, 1998.
5
<PAGE>
(w) "Outside Directors" shall mean the Continuing Directors who are
not officers of the Company.
(x) "Original Rights" shall have the meaning set forth in Section
l(h)(i) hereof.
(y) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(z) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company, and,
to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of Preferred Stock, par value $1.00 per share, of
the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Junior Participating Preferred Stock.
(aa) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(bb) "Purchase Price" shall have the meaning set forth in Section
4(a) hereof.
(cc) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.
(dd) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(ee) "Rights" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.
(ff) "Rights Agent" shall mean the Person named as the "Rights
Agent" in the first paragraph of this Agreement until a successor Rights Agent
shall have become such pursuant to the applicable provisions hereof, and
thereafter "Rights Agent" shall mean such successor Rights Agent. If at any time
there is more than one Person appointed by the Company as Rights Agent pursuant
to the applicable provisions of this Agreement, "Rights Agent" shall mean and
include each such Person.
6
<PAGE>
(gg) "Rights Certificates" shall have the meaning set forth in
Section 3(a) hereof.
(hh) "Rights Dividend Declaration Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of the Agreement.
(ii) "Section ll(a)(ii) Event" shall mean any event described in
Section ll(a)(ii) (A), (B), (C) or (D) hereof.
(jj) "Section ll(a)(ii) Trigger Date" shall have the meaning set
forth in Section ll(a)(iii) hereof.
(kk) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(11) "Spread" shall have the meaning set forth in Section
ll(a)(iii) hereof.
(mm) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(nn) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(oo) "Substitution Period" shall have the meaning set forth in
Section ll(a)(iii) hereof.
(pp) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
(qq) "Trading Day" shall have the meaning set forth in Section
ll(d)(i) hereof.
(rr) "Triggering Event" shall mean any Section ll(a)(ii) Event or
any Section 13 Event.
7
<PAGE>
(ss) "Unit" shall mean one-thousandth of a share of Preferred
Stock.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earliest of (i) the Close of Business on the tenth
day after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the Close of Business on the
Record Date), (ii) the Close of Business on the tenth Business Day (or, if such
tenth Business Day occurs before the Record Date, the Close of Business on the
Record Date), or such specified or unspecified later date on or after the Record
Date as may be determined by action of a majority of the Continuing Directors,
after the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would be the Beneficial Owner of 30% or more of the shares
of Common Stock then outstanding or (iii) immediately after the occurrence of an
Adverse Person Event (the earliest of (i), (ii) and (iii) being herein referred
to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will
8
<PAGE>
send by first-class, insured, postage prepaid mail, to each record holder of the
Common Stock as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more rights
certificates, in the form specified in Section 4 hereof (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section
ll(p) hereof, at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the form
attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage
prepaid mail, to each record holder of the Common Stock as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for the Common Stock outstanding as
of the Record Date, until the Distribution Date, the Rights will be evidenced by
such certificates for the Common Stock and the registered holders of the Common
Stock shall also be the registered holders of the associated Rights. Until the
earlier of the Distribution Date or the Expiration Date, the transfer of any
certificates representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Rights shall also be issued to the extent provided in Section
22 in respect of all shares of Common Stock which are issued (whether originally
issued or from the Company's treasury) after the Distribution Date and prior to
the Expiration Date. Certificates representing such shares of Common Stock in
9
<PAGE>
respect of which Rights are issued pursuant to the first sentence of this
Section 3(c) shall also be deemed to be certificates for Rights, and shall bear
the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between Houghton
Mifflin Company (the "Company") and The First National Bank of Boston (the
"Rights Agent") dated as of December 9, 1988 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a copy
of the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held
by, any Person who is, was or becomes an Acquiring Person, an Adverse Person
or any Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of such Person or
by any subsequent holder, may become null and void. The Rights shall not be
exercisable, and shall be void so long as held, by a holder in any
jurisdiction where the requisite qualification to the issuance to such
holder, or the exercise by such holder, of the Rights in such jurisdiction
shall not have been obtained or be obtainable.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
10
<PAGE>
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment and related certificates to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of Units as shall be
set forth therein at the price set forth therein (such exercise price per Unit,
the "Purchase Price"), but the amount and type of securities purchasable upon
the exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person, an Adverse Person or any Associate or Affiliate of an Acquiring Person
or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person or the Adverse Person becomes such or (iii) a transferee of
an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate)
who becomes a transferee prior to or concurrently with the Acquiring Person or
the Adverse Person becoming such and receives such Rights pursuant to either (A)
a transfer (whether or not for consideration) from the Acquiring Person or the
Adverse Person to holders of equity interests in such Acquiring Person or
Adverse Person or to any Person with whom such Acquiring Person or Adverse
Person has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which a majority of the Continuing
Directors has determined is part of a plan, arrangement or understanding which
has as a primary purpose or effect the avoidance of Section 7(e) hereof, and any
Rights Certificate issued
11
<PAGE>
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend (modified to apply
to an Acquiring Person or an Adverse Person, as applicable):
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an [Acquiring] [Adverse] Person or an
Affiliate or Associate of an [Acquiring] [Adverse] Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate and
the Rights represented hereby may become null and void in the circumstances
specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Clerk or
any Assistant Clerk or the Treasurer or any Assistant Treasurer of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificates may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office
12
<PAGE>
designated as the appropriate place for surrender of Rights Certificates upon
exercise or transfer, books for registration and transfer of the Rights
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates and the date of each of
the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of Units (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case may be)
as the Rights Certificate or Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged at the office of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
13
<PAGE>
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section ll(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase set
forth on the reverse side thereof and the certificate contained therein duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price with respect
to the total number of Units (or other shares, securities, cash or other assets,
as the case may be) as to which such surrendered Rights are then exercisable, at
or prior to the earliest of (i) the Final Expiration Date, (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof or (iii) the time
at which the Rights expire pursuant to Section 13(d) hereof (the earliest of
(i), (ii) and (iii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each Unit pursuant to the exercise of a
Right shall initially be $125, and shall be subject to adjustment from time to
time as provided in Sections 11 and 13(a) hereof and shall be payable in
accordance with paragraph (c) below.
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<PAGE>
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per Unit (or other shares, securities, cash or other assets, as the case
may be) to be purchased as set forth below and an amount equal to any applicable
transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of Units to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit the total number
of shares of Preferred Stock issuable upon exercise of the Rights hereunder with
a depositary agent, requisition from the depositary agent depositary receipts
representing such number of Units as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder, and (iv) after
receipt thereof, deliver such cash, if any, to or upon the order of the
registered holder of such Rights Certificate. The payment of the Purchase Price
(as such amount may be reduced pursuant to Section ll(a)(iii) hereof) shall be
made in cash or by certified check, cashier's check or bank draft payable to the
order of the Company. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash and/or distribute
other property pursuant to Section ll(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evi-
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dencing Rights equivalent to the Rights remaining unexercised shall be issued by
the Rights Agent and delivered to, or upon the order of, the registered holder
of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of an event described in Section
ll(a)(ii)(A) or (C) and from and after the tenth day after the occurrence of an
event described in Section ll(a)(ii)(B) or (D), any Rights beneficially owned by
(i) an Acquiring Person, an Adverse Person or an Affiliate or Associate of an
Acquiring Person or an Adverse Person, which a majority of the Continuing
Directors, in their sole discretion, determines is or was involved in or caused
or facilitated, directly or indirectly (including through any change in the
Board), such Section ll(a)(ii) Event, (ii) a transferee of any such Acquiring
Person or Adverse Person (or of any such Affiliate or Associate) who becomes a
transferee after such Acquiring Person or Adverse Person becomes such, or (iii)
a transferee of any such Acquiring Person or Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
such Acquiring Person or Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from such
Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom such Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Continuing Directors has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action, and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or Adverse Person or any of their respective Affiliates, Associates or
transferees hereunder.
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(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. A11
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section ll(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
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(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Triggering Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with this Agreement, a
registration statement under the Act, with respect to the Common Stock or other
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. Upon any suspension of
exercisability of the Rights referred to in this Section 9(c), the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable, and shall be
void so long as held, by a holder in any jurisdiction where the requisite
qualification to
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the issuance to such holder, or the exercise by such holder, of the Rights in
such jurisdiction shall not have been obtained or be obtainable, or the exercise
thereof shall not be permitted under applicable law or a registration statement
shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Units (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of Units (or Common Stock
and/or other securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
Person other than, or the issuance or delivery of a number of Units (or Common
Stock and/or other securities, as the case may be) in respect of a name other
than that of, the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of
Units (or Common Stock and/or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for a number of Units (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of
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<PAGE>
the Purchase Price (and all applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of shares,
or (D) issue any shares of its capital stock in a reclassification of the
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section ll(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exer-
20
<PAGE>
cised after such time shall be entitled to receive, upon payment of the
aggregate adjusted Purchase Price then in effect necessary to exercise a
Right in full, the aggregate number and kind of shares of Preferred Stock or
capital stock, as the case may be, which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock (or
other capital stock, as the case may be) transfer books of the Company were
open, he would have owned upon such exercise and by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which would
require an adjustment under both this Section ll(a)(i) and Section ll(a)(ii)
hereof, the adjustment provided for in this Section ll(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section ll(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement, directly or
indirectly, (1) shall merge into the Company or otherwise combine with the
Company and the Company shall be the continuing or surviving corporation of
such merger or combination and the Common Stock of the Company shall remain
outstanding and unchanged, (2) shall merge or otherwise combine with any
Subsidiary of the Company, (3) shall, in one transaction or a series of
transactions, transfer any assets to the Company or to any of its
Subsidiaries in exchange (in whole or in part) for shares of Common Stock,
for shares of other equity securities of the Company or any Subsidiary of
the Company, or for securities exercisable for or convertible into shares
of equity securities of the Company or any Subsidiary of the Company
(Common Stock or otherwise) or otherwise obtain from the Company, with or
without consideration, any additional shares of equity securities or
securities exercisable for or convertible into shares of equity securities
(other than pursuant to a pro rata distribution to all holders of Common
Stock, or upon the
21
<PAGE>
exercise of a convertible security of the Company or any Subsidiary of the
Company in accordance with its terms), (4) shall sell, purchase, lease,
exchange, mortgage, pledge, transfer or otherwise acquire or dispose of, in
one transaction or a series of transactions, to, from or with (as the case
may be) the Company or any of its Subsidiaries, assets on terms and
conditions less favorable to the Company than the Company would be able to
obtain in arm's-length negotiation with an unaffiliated third party, other
than pursuant to a transaction set forth in Section 13(a) hereof, (5) shall
sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise
acquire or dispose of in one transaction or a series of transactions, to,
from or with (as the case may be) the Company or any of the Company's
Subsidiaries (other than incidental to the lines of business, if any,
engaged in as of the date hereof between the Company and such Acquiring
Person or Associate or Affiliate) assets having an aggregate fair market
value of more than $5,000,000, other than pursuant to a transaction set
forth in Section 13(a) hereof, (6) shall receive any compensation from the
Company or any of the Company's Subsidiaries other than compensation for
full-time employment as a regular employee at rates in accordance with the
Company's (or its Subsidiaries') past practices or (7) shall receive the
benefit, directly or indirectly (except proportionately as a stockholder and
except if resulting from a requirement of law or governmental regulation),
of any loans, advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantage provided by the Company or any of its
Subsidiaries, or
(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan), alone or
together with its Affiliates and Associates, shall, at any time after the
Rights Dividend Declaration Date, become
22
<PAGE>
the Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding, unless the event causing the 30% threshold to be crossed is a
transaction set forth in Section 13(a) hereof, or is an acquisition of
shares of Common Stock pursuant to a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by
at least a majority of the Outside Directors after receiving advice from one
or more investment banking firms, to be (a) at a price which is fair to
stockholders (taking into account all factors which such Outside Directors
deem relevant including, without limitation, prices which could reasonably
be achieved if the Company or its assets were sold on an orderly basis
designed to realize maximum value) and (b) otherwise in the best interests
of the Company and its stockholders, or
(C) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse stock
split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries or any other transaction or
series of transactions involving the Company or any of its Subsidiaries,
other than a transaction or transactions to which the provisions of Section
13(a) apply (whether or not with or into or otherwise involving an Acquiring
Person) which has the effect, directly or indirectly, of increasing by more
than 1% the proportionate share of the outstanding shares of any class of
equity securities of the Company or any of its Subsidiaries which is
directly or indirectly beneficially owned by any Acquiring Person or any
Associate or Affiliate of any Acquiring Person, or
(D) the Continuing Directors shall declare any Person to be
an Adverse Person, upon a determination that such Person, alone or together
with its Affiliates and Associates, has, at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of an amount of
Common Stock which the Continuing Directors determine to be substan-
23
<PAGE>
tial (which amount shall in no event be less than 15% of the shares of
Common Stock then outstanding) and a majority of the Outside Directors
determines, after reasonable inquiry and investigation, which may include a
review of the public record regarding such Person and any information such
directors may request from such Person and consultation with such persons as
such directors shall deem appropriate, that (1) such Beneficial Ownership by
such Person is intended to cause the Company to repurchase the Common Stock
beneficially owned by such Person or to cause pressure on the Company to
take action or enter into a transaction or series of transactions intended
to provide such Person with short-term financial gain under circumstances
where such directors determine that the best long-term interests of the
Company and its stockholders would not be served by taking such action or
entering into such transaction or series of transactions at that time or (2)
such Beneficial Ownership is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, impairment of the
Company's relationships with its authors or customers or its ability to
maintain its competitive position) on the business or prospects of the
Company,
proper provision shall be made so that immediately upon the occurrence of any
event described in Section ll(a)(ii)(A) or (C) hereof, and ten (10) days after
the occurrence of any event described in Section ll(a)(ii)(B) or (D) hereof,
each holder of a Right (except as provided below and in Section 7(e) hereof)
shall thereafter have the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, in lieu
of a number of Units, such number of shares of Common Stock of the Company as
shall equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of Units for which a Right was or would have been
exercisable immediately prior to the first occurrence of a Section ll(a)(ii)
Event, whether or not such Right was then exercisable, and (y) dividing that
product (which, following such first occurrence, shall thereafter be referred to
as the "Purchase Price" for each Right and for all purposes of this Agreement)
by 50% of the Current Market Price per
24
<PAGE>
share of Common Stock on the date of such first occurrence (such number of
shares being referred to as the "Adjustment Shares").
(iii) In lieu of issuing shares of Common Stock in accordance
with Section ll(a)(ii), if the Board determines that the action described
below in this Section ll(a)(iii) is necessary or appropriate and not
contrary to the interests of the holders of Rights (other than any Acquiring
Person, any Adverse Person and any Affiliate or Associate of any such
Person), the Company may: (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current
Value") over (2) the Purchase Price (such excess being referred to as the
"Spread"), and (B) with respect to each Right (subject to Section 7(e)
hereof), make adequate provision to substitute for the Adjustment Shares,
upon the exercise of a Right and payment of the applicable Purchase Price,
(1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock which the Board has deemed to have the
same value as shares of Common Stock (such shares of preferred stock being
referred to as "Common Stock Equivalents")), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value
has been determined by the Board based upon the advice of a nationally
recognized investment banking firm selected by the Board which has
theretofore performed no services for the Company or any Subsidiary of the
Company in the past five years; provided, however, that if the Company shall
not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the later of (x) the first
occurrence of a Section ll(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the "Section ll(a)(ii) Trigger
Date"), then the
25
<PAGE>
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If, after the
occurrence of a Section ll(a)(ii) Event, the number of shares of Common
Stock that are authorized by the Company's Articles of Organization but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the
Rights in accordance with Section ll(a)(ii) hereof and the Board determines
in good faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the Rights,
the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section ll(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for
the authorization of such additional shares (such thirty (30) day period, as
it may be extended, is herein called the "Substitution Period"). To the
extent that action is to be taken pursuant to the preceding provisions of
this Section ll(a)(iii), the Company (x) shall provide, subject to Section
7(e) hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek such stockholder
approval for such authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence
and to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement
at such time as the suspension is no longer in effect. For purposes of this
Section ll(a)(iii), the value of the Common Stock shall be the Current
Market Price per share of the Common Stock on the Section ll(a)(ii) Trigger
Date and the per share or per unit value of any
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<PAGE>
Common Stock Equivalent shall be deemed to equal the Current Market Price
per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred
Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or
per share of Equivalent Preferred Stock (or having a conversion price per share,
if a security convertible into Preferred Stock or Equivalent Preferred Stock)
less than the Current Market Price per share of Preferred Stock on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Preferred Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of shares
of Preferred Stock or Equivalent Preferred Stock (or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Market Price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock or Equivalent Preferred Stock to be offered
for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be paid
by delivery of consideration part or all of which may be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the holders of the Rights. Shares of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such rights or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which
27
<PAGE>
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section ll(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such Current Market Price per share of Preferred
Stock. Such adjustments shall be made successively whenever such a record date
is fixed, and in the event that such distribution is not so made, the Purchase
Price shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section ll(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days immediately prior to such date, and for
purposes of computations made pursuant to Section ll(a)(iii) hereof, the
Current Market Price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices per share of such Common Stock
for the ten (10) consecutive Trading Days immediately following such date;
provided, however,
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<PAGE>
that in the event that the Current Market Price per share of the Common
Stock is determined during a period following the announcement by the issuer
of such Common Stock of (A) a dividend or distribution on such Common Stock
payable in shares of such Common Stock or securities convertible into shares
of such Common Stock (other than the Rights), or (B) any subdivision,
combination or reclassification of such Common Stock, and prior to the
expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the Current Market Price
shall be properly adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Common Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other system
then in use, or, if on any such date the shares of Common Stock are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board. If on any such date no market maker is
making a market in the Common Stock, the fair value of
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<PAGE>
such shares on such date as determined in good faith by the Board shall be
used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are listed
or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, a Business Day. If the Common Stock is not publicly
held or not so listed or traded, Current Market Price per share shall mean
the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
Current Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of this
Section ll(d) (other than the last sentence thereof). If the Current Market
Price per share of Preferred Stock cannot be determined in the manner
provided above or if the Preferred Stock is not publicly held or listed or
traded in a manner described in clause (i) of this Section ll(d), the
Current Market Price per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 1,000 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date
of this Agreement) multiplied by the current market price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, Current Market Price per share of the
Preferred Stock shall mean the fair value per share as determined in good
faith by the Board, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes. For
all purposes of this Agreement, the Current Market Price of a Unit shall be
equal to the Current Market Price of one share of Preferred Stock divided by
1,000.
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(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
ll(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one-millionth of a share of Preferred Stock, as
the case may be. Notwithstanding the first sentence of this Section ll(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three (3) years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
ll(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections ll(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Units purchasable from
time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section ll(i) hereof, upon each adjustment of the Purchase Price as
a result of the calculations made in Sections ll(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
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Units (calculated to the nearest one-millionth) obtained by (i) multiplying (x)
the number of Units covered by a Right immediately prior to this adjustment, by
(y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of Units purchasable upon the exercise of a Right. Each
of the Rights outstanding after the adjustment in the number of Rights shall be
exercisable for the number of Units for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one-ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10) days later than
the date of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section ll(i), the
Company shall as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record
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of Rights Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Units issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per Unit and the number of Units which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the number
of Units issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable such
number of Units at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that
an adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Units and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the number of Units and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in its good faith judgment the Board shall
determine to be advisable in order that any (i) consolidation or subdivision of
the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred
Stock at less than the Current Market Price, (iii) issuance wholly for cash of
shares of Preferred Stock or securities which by their terms are con-
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vertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at
any time after the Distribution Date, (i) consolidate with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section ll(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section ll(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company or any of its Subsidiaries in one or more transactions
each of which complies with Section ll(o) hereof), if (x) at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine
the
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outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(q) The failure by the Continuing Directors to declare (or
the Outside Directors to concur therewith) a Person to be an Adverse Person
following such Person becoming the Beneficial Owner of 15% or more or the
outstanding Common Stock shall not imply that such Person is not an Adverse
Person or limit such directors' right at any time in the future to declare such
Person to be an Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merqer or Sale or Transfer of Assets
or Earning Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the
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Company shall consolidate with, or merge with and into, any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
ll(o) hereof), and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (y) any Person (other than a
Subsidiary of the Company in a transaction which complies with Section ll(o)
hereof) shall consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger and, in connection with such consolidation or merger, all or part of
the outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property, or
(z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary of the
Company in one or more transactions each of which complies with Section ll(o)
hereof), then, and in each such case (except as may be contemplated by Section
13(d) hereof), proper provision shall be made so that: (i) each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party, not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of
Units for which a Right is exercisable immediately prior to the first occurrence
of a Section 13 Event (or, if a Section ll(a)(ii) Event has occurred prior to
the first occurrence of a Section 13 Event, multiplying the number of such Units
for which a Right was exercisable immediately prior to the first occurrence of a
Section ll(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price per share of the Common Stock of such Principal Party on the date
of consummation of such
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Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the obligations and duties
of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section ll(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a) hereof, the Person that is
the issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no securities
are so issued, the Person that is the other party to such merger or
consolidation; and
(ii) in the case of any transaction described in clause
(z) of the first sentence of Section 13(a) hereof, the Person that is the
party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person,
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the Common Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized shares
of its Common Stock which have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any such Section 13
Event, the Principal Party will
(i) prepare and file a registration statement under the
Act, with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and will use its best efforts to cause
such registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
which comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section ll(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a) hereof.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) hereof if (i) such transaction is
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consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which complies with the provisions of Section ll(a)(ii)(B) hereof
(or a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose shares
were purchased pursuant to such tender offer or exchange offer and (iii) the
form of consideration being offered to the remaining holders of shares of Common
Stock pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer or exchange offer. Upon consummation of any such
transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section ll(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such
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<PAGE>
other system then in use or, if on any such date the Rights are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights selected
by the Board. If on any such date no such market maker is making a market in the
Rights the fair value of the Rights on such date as determined in good faith by
the Board shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one Unit) upon exercise of the Rights or to distribute certificates which
evidence fractional shares of Preferred Stock (other than fractions which are
integral multiples of one Unit). In lieu of fractional shares of Preferred Stock
that are not integral multiples of one Unit, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Unit. For purposes of this Section 14(b), the current market
value of one Unit shall be one one-thousandth of the closing price of a share of
Preferred Stock (as determined pursuant to Section ll(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common Stock. For
purposes of this Section 14(c), the current market value of one share of Common
Stock shall be the closing price of one share of Common Stock (as determined
pursuant to Section ll(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
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Section 15. Rights of Action. All rights of action in respect of
this Agreement, except the rights of action vested in the Rights Agent pursuant
to Section 18 and Section 20 hereof, are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the
registered holders of the Common Stock); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Stock), without
the consent of the Rights Agent or of the holder of any other Rights Certificate
(or, prior to the Distribution Date, of the Common Stock), may, in his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer, with the form of assignment set
forth on the reverse side thereof and the certificate contained therein duly
completed and executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Com-
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mon Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Rights Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Units or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. The indemnity provided
for hereunder shall survive the expiration of the Rights and the termination of
this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible
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for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of
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Current Market Price) be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the Chairman of
the Board, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Clerk or any Assistant Clerk of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock will,
when so
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issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Clerk, any
Assistant Clerk, the Treasurer or any Assistant Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer. Any application
by the Rights Agent for written instructions from the Company may, at the option
of the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Agreement and the date on or after
which such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission of, the Rights
Agent in accordance with a proposal included in any such application on or after
the date specified in such application (which date shall not be less than five
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instruction in response to such application specifying the action to be taken or
omitted.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall pre-
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clude the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate contained in the form
of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has either not been completed or indicates an
affirmative response to clause 1 or 2 thereof, the Rights Agent shall not take
any further action with respect to such requested exercise of transfer without
first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall
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<PAGE>
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States, the Commonwealth of Massachusetts
or the State of New York (or any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
Commonwealth of Massachusetts or the State of New York), in good standing,
having a principal office in the Commonwealth of Massachusetts or the State of
New York, which is authorized under such laws to exercise stock transfer or
corporate trust powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000 or (b) an Affiliate of a
corporation described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
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Section 22. Issuance of New Rights Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by the Board to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date (other than
upon exercise of a Right) and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination.
(a) The Board may, at its option, at any time prior to the
earlier of (i) the Close of Business on the tenth day following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to
the Record Date, the Close of Business on the tenth day following the Record
Date), or (ii) the Final Expiration Date, redeem all but not less than all of
the then outstanding Rights at a redemption price of $.05 per Right, as such
amount may be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"); provided, however,
that the Board may not redeem any Rights following an Adverse Person Event; and
provided further that, if the Board authorizes redemption of
49
<PAGE>
the Rights in either of the circumstances set forth in clauses (i) and (ii)
below, then there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such Continuing
Directors: (i) such authorization occurs on or after the time a Person becomes
an Acquiring Person, or (ii) such authorization occurs on or after the date of a
change (resulting from a proxy or consent solicitation effected in compliance
with applicable law and the requirements of any national securities exchange on
which the Common Stock is listed) in a majority of the directors in office at
the commencement of such solicitation if any Person who is a participant in such
solicitation has stated (or, if upon the commencement of such solicitation, the
Board has determined in good faith) that such Person (or any of its Affiliates
or Associates) intends to take, or may consider taking, any action which would
result in such Person becoming an Acquiring Person or which would cause the
occurrence of a Triggering Event unless, concurrently with such solicitation,
such Person (or one or more of its Affiliates or Associates) is making a cash
tender offer pursuant to a Schedule 14D-1 (or any successor form) filed under
the Exchange Act for all outstanding shares of Common Stock not beneficially
owned by such Person (or by its Affiliates or Associates). If, following the
occurrence of a Stock Acquisition Date and following the expiration of the
Company's right of redemption set forth in the preceding sentence but prior to
any Triggering Event, (i) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Stock in one
or more transactions, not directly or indirectly involving the Company or any of
its Subsidiaries, which did not result in the occurrence of a Triggering Event
such that such Person is thereafter a Beneficial Owner of less than 10% of the
outstanding shares of Common Stock, (ii) there are no other Persons, immediately
following the occurrence of the event described in clause (i), who are Acquiring
Persons, and (iii) the Board (with the concurrence of a majority of the
Continuing Directors) shall so approve, then the Company's right of redemption
set forth in the preceding sentence shall be reinstated and thereafter be
subject to the provisions of this Section 23. Notwithstanding anything contained
in this Agreement to the contrary, the Rights shall not be exercisable after the
first occurrence of a Section ll(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option, pay
the Redemp-
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tion Price in cash, shares of Common Stock (based on the Current Market Price of
the Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board.
(b) Immediately upon the action of the Board ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price for each Right so held.
Promptly after the action of the Board ordering the redemption of the Rights,
the Company shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to all such
holders at each holder's last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section ll(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company
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<PAGE>
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Company or any of its Subsidiaries in one or more transactions each of
which complies with Section ll(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section ll(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible, in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section ll(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
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<PAGE>
Houghton Mifflin Company
One Beacon Street
Boston, Massachusetts 02108
Attention: Corporate Clerk
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
The First National Bank of Boston
P.O. Box 1865
Boston, Massachusetts 02105
Attention: Shareholder Services Division
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry records of the Company.
Section 26. Supplements and Amendments. Prior to the
Distribution Date and subject to the penultimate sentence of this Section 26,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock. From and after the
Distribution Date and subject to the penultimate sentence of this Section 26,
the Company and the Rights Agent shall at any time and from time to time, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Rights
53
<PAGE>
Certificates (other than an Acquiring Person, an Adverse Person or an Affiliate
or Associate of any such Person); provided, however, that this Agreement may not
be supplemented or amended (A) whether before or after the Distribution Date, to
lengthen a time period relating to when the Rights may be redeemed or to modify
the ability (or inability) of the Board to redeem the Rights, in either case at
such time as the Rights are not then redeemable or (B) after the Distribution
Date, to lengthen, pursuant to clause (iii) of this sentence, any other time
period unless such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of or the benefits to the holders of Rights (other than an
Acquiring Person, an Adverse Person or an Affiliate or Associate of any such
Person). Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 26, the Rights Agent shall execute such
supplement or amendment. Notwithstanding anything contained in this Agreement to
the contrary, no supplement or amendment shall be made which changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
Units for which a Right is exercisable. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Stock.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board (with, where specifically
provided for herein, the concurrence of the Continuing Directors or Outside
Directors) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board (with, where specifically provided for herein, the concurrence of the
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<PAGE>
Continuing Directors or Outside Directors) or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including without limitation a determination
to redeem or not redeem the Rights, to declare that a Person is an Adverse
Person or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for the purpose of clause (y)
below, all omissions with respect to the foregoing) which are done or made by
the Board (with, where specifically provided for herein, the concurrence of the
Continuing Directors or Outside Directors) in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject any director to any liability
to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board determines
in its good faith judgment that severing the invalid language from this
Agreement would materially and adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the Close
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<PAGE>
of Business on the tenth day following the date of such determination by the
Board.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the Commonwealth of Massachusetts and for all purposes shall be
governed by and construed in accordance with the laws of such Commonwealth
applicable to contracts made and to be performed entirely within such
Commonwealth.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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.
Attest: HOUGHTON MIFFLIN COMPANY
By /s/ Paul D. Weaver By /s/ Harold T. Miller
Name: Paul D. Weaver Name: Harold T. Miller
Title: Clerk, Secretary Title: Chairman of the Board,
and General Counsel President and Chief
Executive Officer
Attest: THE FIRST NATIONAL BANK OF BOSTON,
as Rights Agent
By /s/ James P. Mitchell By /s/ Darlene M. DioDato
Name: James P. Mitchell Name: Darlene M. DioDato
Title: Assistant Vice President Title: Vice President
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<PAGE>
EXHIBIT A
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
Filed as Exhibit 3(i) to Form 10-K for the year ended
December 31, 1995
<PAGE>
Exhibit B
[Form of Rights Certificate]
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER DECEMBER 18, 1998 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.05 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON AN ADVERSE
PERSON OR AN AFFILIATE OR ASSOCIATE OF ANY SUCH PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE EXERCISABLE, AND SHALL BE VOID SO
LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION
TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN
SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN [ACQUIRING] [ADVERSE] PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
HOUGHTON MIFFLIN COMPANY
This certifies that ______________________ , or registered assigns, is the
registered owner of the number
- ------------
* The portion of the legend in brackets shall be inserted only if applicable,
shall be modified to apply to an Acquiring Person or an Adverse Person, as
applicable, and shall replace the preceding sentence.
<PAGE>
of Rights set forth above, each of which entitles the owner thereof, subject to
the terms, provisions and conditions of the Rights Agreement, dated as of
December 9, 1988, (the "Rights Agreement"), between Houghton Mifflin Company, a
Massachusetts corporation (the "Company"), and The First National Bank of
Boston, a national banking corporation (the "Rights Agent"), to purchase from
the Company at any time prior to 5:00 P.M. (Boston time) on December 18, 1998,
at the office of the Rights Agent, or its successors as Rights Agent, designated
for such purpose, one one-thousandth of a fully paid, non-assessable share (a
"Unit") of Series A Junior Participating Preferred Stock (the "Preferred Stock")
of the Company, at a purchase price of $125 per Unit of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase set forth on the reverse hereof and the Certificate
contained therein duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of Units which may be purchased upon exercise
thereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of _______________ ___, 198_, based on the Preferred Stock
as constituted at such date.
From and after the occurrence of an event described in
Section ll(a)(ii)(A) or (C) of the Rights Agreement and from and after the tenth
day after the
2
<PAGE>
occurrence of an event described in Section ll(a)(ii)(B) or (D) of the Rights
Agreement, if the Rights evidenced by this Rights Certificate are beneficially
owned by (i) an Acquiring Person, an Adverse Person or an Associate or Affiliate
of any such Person (as such terms are defined in the Rights Agreement), which
the Continuing Directors (as defined in the Rights Agreement), in their sole
discretion, determines is or was involved in or caused or facilitated, directly
or indirectly (including through any change in the Board), such Section
ll(a)(ii) Event, (ii) a transferee of any such Acquiring Person, Adverse Person,
Associate or Affiliate who becomes a transferee after such Acquiring Person,
Adverse Person, Associate or Affiliate becomes such, or (iii) under certain
circumstances specified in the Rights Agreement, a transferee of any such
Acquiring Person, Adverse Person, Associate or Affiliate who becomes a
transferee prior to or concurrently with such Acquiring Person or Adverse Person
becoming such, such Rights shall become null and void and no holder hereof shall
have any right with respect to such Rights from and after the occurrence of such
Section ll(a)(ii) Event.
The Rights evidenced by this Rights Certificate shall not be
exercisable, and shall be void so long as held, by a holder in any jurisdiction
where the requisite qualification to the issuance to such holder, or the
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<PAGE>
exercise by such holder, of the Rights in such jurisdiction shall not have been
obtained or be obtainable.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events (as such term is defined in the Rights Agreement).
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Rights Agent.
4
<PAGE>
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of Units as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall
have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may (unless the Continuing Directors shall have
made a determination pursuant to Section ll(a)(iii)(c) of the Rights Agreement
that a Person is an Adverse Person) be redeemed by the Company at its option at
a redemption price of $.05 per Right at any time prior to the earlier of the
close of business on (i) the tenth day following the Stock Acquisition Date (as
such time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date (as defined in the Rights Agreement). Under certain
circumstances set forth in the Rights Agreement, the decision to redeem shall
require
5
<PAGE>
the concurrence of a majority of the Continuing Directors. After the expiration
of the redemption period, the Company's right of redemption may be reinstated if
an Acquiring Person reduces his beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the Company, and such reinstatement is approved by the Company's
Board of Directors (with the concurrence of a majority of the Continuing
Directors).
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one Unit, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled
to vote or receive dividends or be deemed for any purpose the holder of shares
of Preferred Stock or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof,
6
<PAGE>
or to give or withhold consent to any corporate action, or, to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
7
<PAGE>
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of ___________ __, 19__
ATTEST: HOUGHTON MIFFLIN COMPANY
__________________________ By ___________________________
Secretary Title:
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON, as Rights Agent
By _______________________
Authorized Signature
8
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
- ----------------------------------------------------
(Please print name and address of transferee)
- ----------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ____________________ , 19__
________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being
sold, assigned and transferred by or on behalf of a Person who is
or was an Acquiring Person, an Adverse Person
<PAGE>
or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person, an
Adverse Person or an Affiliate or Associate of any such Person.
Dated: ____________________ , 19__
________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To HOUGHTON MIFFLIN COMPANY:
The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be
issued in the name of and delivered to:
___________________________________________________________
(Please print name and address)
___________________________________________________________
Please insert social security or
other identifying number:__________________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
<PAGE>
___________________________________________________________
(Please print name and address)
___________________________________________________________
___________________________________________________________
Please insert social security or
other identifying number:__________________________________
Dated: _________________________ , 19__
________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person,
an Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person
<PAGE>
who is, was or became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of any such Person.
Dated: _________________________ , 19__
________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On December 9, 1988, the Board of Directors of Houghton Mifflin
Company (the "Company") declared a dividend distribution of one Right for each
outstanding share of Houghton Mifflin Common Stock to stockholders of record at
the close of business on December 19, 1988. Each Right, when exercisable,
entitles the registered holder to purchase from the Company a unit consisting of
one one-thousandth of a share (a "Unit") of Series A Junior Participating
Preferred Stock, par value $1.00 per share (the "Preferred Stock") at a Purchase
Price of $125 per Unit, subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and The First National Bank of Boston, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common Stock
and a Distribution Date will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of Common Stock
(the "Stock Acquisition Date"), or (ii) 10 business days following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 30% or more of such outstanding shares of Common
Stock or (iii) immediately after the Continuing Directors (as defined below)
declare any Person to be an Adverse Person, upon a determination that such
person, alone or together with its affiliates and associates, has become the
beneficial owner of an amount of Common Stock which the Continuing Directors
determine to be substantial (which amount shall in no event be less than 15% of
the shares of Common Stock then outstanding) and a determination by the Outside
Directors (as defined below), after reasonable inquiry and investigation,
including consultation with such
<PAGE>
persons as such directors shall deem appropriate, that (a) such beneficial
ownership by such person is intended to cause the Company to repurchase the
Common Stock beneficially owned by such person or to cause pressure on the
Company to take action or enter into a transaction or series of transactions
intended to provide such person with short-term financial gain under
circumstances where such directors determine that the best long-term interests
of the Company and its stockholders would not be served by taking such action or
entering into such transactions or series of transactions at that time or (b)
such beneficial ownership is causing or reasonably likely to cause a material
adverse impact (including, but not limited to, impairment of relationships with
authors or customers or impairment of the Company's ability to maintain its
competitive position) on the business or prospects of the Company.
Until the Distribution Date, (i) the Rights will be evidenced
by the Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after
December 19, 1988 will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on December 18, 1998, unless earlier
redeemed by the Company as described below. The Rights will not be exercisable
by a holder in any jurisdiction where the requisite qualification to the
issuance to such holder, or the exercise by such holder, of the Rights has not
been obtained or is not obtainable.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
2
<PAGE>
In the event that the Continuing Directors (with the concurrence
of the Outside Directors) determine that a person is an Adverse Person or, at
any time following the Distribution Date, (i) the Company is the surviving
corporation in a merger with an Acquiring Person and its Common Stock is not
changed or exchanged, (ii) a Person becomes the beneficial owner of 30% or more
of the then outstanding shares of Common Stock (except pursuant to an offer for
all outstanding shares of Common Stock which the Outside Directors determine to
be fair to and otherwise in the best interests of the Company and its
stockholders), (iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time as
there is an Acquiring Person, an event occurs which results in such Acquiring
Person's ownership interest being increased by more than 1% (e.g., a reverse
stock split), each holder of a Right will thereafter have the right to receive,
upon exercise, Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right. Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or an Adverse Person will be null and
void. However, Rights are not exercisable following the occurrence of either of
the events set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $125 per Right, each Right
not owned by an Acquiring Person or an Adverse Person (or by certain related
parties) following an event set forth in the preceding paragraph would entitle
its holder to purchase $250 worth of Common Stock (or other consideration, as
noted above) for $125. Assuming that the Common Stock had a per share value of
$50 at such time, the holder of each valid Right would be entitled to purchase 5
shares of Common Stock for $125.
In the event that, at any time following the Stock Acquisition
Date, (i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation (other than a
merger described in the second preceding paragraph or a merger which follows an
offer described in subparagraph
3
<PAGE>
(ii) of the second preceding paragraph), or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the Right, e.g., common
stock of the acquiring company having a value of $250 for the $125 exercise
price.
The Purchase Price payable, and the number of Units of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments amount to at least 1% of the
Purchase Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred Stock
on the last trading date prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but not
in part, at any time until ten days following the Stock Acquisition Date, at a
price of $.05 per Right (payable in cash, Common Stock or other consideration
deemed appropriate by the Board of Directors). Under certain circumstances set
forth in the Rights Agreement, the decision to redeem shall require the
concurrence of a majority of the Continuing Directors. The Company may not
redeem the Rights if the Continuing Directors have previously declared a person
to be an Adverse Person. After the redemption period has expired, the Company's
right of redemption may be reinstated (with the concurrence of the Continuing
Directors) if an Acquiring Person reduces its beneficial ownership to 10% or
less of the outstanding shares of Common Stock in a
4
<PAGE>
transaction or series of transactions not involving the Company and there are no
other Acquiring Persons. Immediately upon the action of the Board of Directors
ordering redemption of the Rights, with, where required, the concurrence of the
Continuing Directors, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.05 per Right redemption price.
The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of the
Rights Agreement, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors, but shall not include an Acquiring Person, an Adverse Person or an
affiliate or associate of an Acquiring Person or an Adverse Person, or a
representative of any of the foregoing entities. The term "Outside Directors"
means Continuing Directors who are not officers of the Company.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock (or other consideration) of the
Company or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic
terms of the Rights, any of the provisions of the Rights Agreement may be
amended by the Board prior to the Distribution Date. After the Distribution
Date, the provisions of the Rights Agreement may be amended by the Board in
order to cure any ambiguity, to make changes which do not adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring Person
or any Adverse Person), or to shorten or lengthen any time period under the
Rights Agreement; however no supplement or amendment to adjust the time period
governing redemption may be made if the Rights are not then redeemable.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A dated
5
<PAGE>
_______________ __, 198_. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is incorporated herein by reference.
6
Exhibit 10(iii)(A)
Agreement with Mr. Darehshori
AGREEMENT
AGREEMENT made this 8th day of December, 1995, between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and Nader F.
Darehshori (the "Executive").
WHEREAS the Company considers it essential to the best interests
of its stockholders to foster the continuous employment of its key management
personnel; and
WHEREAS the Board of Directors of the Company (the "Board")
recognizes that the uncertainty engendered by any potential change in control
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
NOW THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used in
this Agreement (if not provided where a capitalized term initially appears) are
provided in the last Section hereof.
2. Term of Agreement. The term of this Agreement (the "Term")
will commence on the date hereof and end on December 31, 1998, unless further
extended as hereinafter provided. Commencing on January 1, 1997 and each January
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company (upon
authorization by the Board) or the Executive shall have given notice not to
extend this Agreement; provided, however, if a Change in Control shall have
occurred during the Term, this Agreement shall continue in effect (and the Term
shall be extended) until at least the end of the Change-in-Control Protective
Period.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants
<PAGE>
set forth in Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the "Severance Payments" described in
Section 7(a) hereof and the other payments and benefits described herein in the
event the Executive's employment with the Company is terminated following a
Change in Control and during the term of this Agreement. No amount or benefit
shall be payable under this Agreement unless there shall have been (or, under
the terms hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control. This
Agreement shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
the Company, the Executive shall not have any right to be retained in the employ
of the Company.
4. The Executive's Covenants. The Executive agrees that, subject
to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the term of this Agreement, the Executive will remain
in the employ of the Company until the earliest of (i) a date which is six (6)
months from the date of such Potential Change of Control, (ii) the date of a
Change in Control, (iii) the date of termination by the Executive of the
Executive's employment for Good Reason (determined by treating the Potential
Change in Control as a Change in Control in applying the definition of Good
Reason), by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Pre-Termination Compensation Related to Disability or Other
Termination.
(a) Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability; provided, however, that such
2
<PAGE>
salary payments shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such salary payment under
disability benefit plans of the Company or under the Social Security disability
insurance program, which amounts were not previously applied to reduce any such
salary payment.
(b) If the Executive's employment shall be terminated for any
reason (other than Disability) following a Change in Control and during the
Term, the Company shall pay the Executive's full salary (to the Executive or in
accordance with Section 10(b) hereof if the Executive's employment is terminated
by the Executive's death) through the Date of Termination at the higher of the
rate in effect at the time the Notice of Termination is given or the rate in
effect immediately prior to the Change in Control, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period.
6. Normal Post-Termination Payments upon Termination of
Employment. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Subject to Section 7(a) hereof, such
post-termination compensation and benefits shall be determined under, and paid
in accordance with, the Company's retirement, insurance and other compensation
or benefit plans, programs and arrangements (other than this Agreement).
7. Severance Payments.
(a) The Company shall pay the Executive the payments described in
this Section 7(a) (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and prior to the end of the
Term, in addition to any required payments and benefits described in Sections 5
and 6 hereof, unless such termination is (i) by the Company for Cause, (ii) by
reason of death, Disability or Retirement, or (iii) by the Executive without
Good Reason; provided, however, that, during the six-month period beginning with
the ninety-first (91st) day immediately following the Change
3
<PAGE>
in Control, the Executive can terminate his employment for any reason (a "Window
Period Termination") and the Company shall pay the Executive the Severance
Payments in accordance with this Section 7(a). For purposes of the immediately
preceding sentence, if a termination of the Executive's employment occurs prior
to a Change in Control, but following a Potential Change in Control in which a
Person has entered into an agreement with the Company the consummation of which
will constitute a Change in Control, such termination shall be deemed to have
followed a Change in Control and to have been (i) by the Company without Cause,
if the Executive's employment is terminated without Cause with the encouragement
of, or at the direction of, such Person, or (ii) by the Executive with Good
Reason, if the Executive terminates the Executive's employment with Good Reason
and the act (or failure to act) which constitutes Good Reason occurs following
such Potential Change in Control and occurs with the encouragement of, or at the
direction of, such Person.
i) In lieu of any further salary payments to the
Executive for period subsequent to the Date of Termination and in lieu
of any other severance benefits to which the Executive might otherwise
be entitled, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to three (3) times the sum of
(X) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance
upon which the Notice of Termination is based or the Executive's
annual base salary in effect immediately prior to the Change in
Control, and
(Y) the higher of (I) the amount (if any) paid to the Executive
pursuant to the Incentive Compensation Plan in the Company's
fiscal year immediately preceding that in which the Date of
Termination occurs and (II) the average amount so paid in the
Company's three fiscal years immediately preceding that in which
the Change in Control occurs.
ii) Notwithstanding any provision of the Incentive
Compensation Plan, the Company shall
4
<PAGE>
pay to the Executive a lump sum amount, in cash, equal to the sum of any
incentive compensation which has been allocated or awarded to the
Executive for any completed fiscal year preceding the Date of
Termination under the Incentive Compensation Plan but has not yet been
either paid or deferred pursuant to an agreement with the Company;
iii) In addition to all other amounts payable to
the Executive under this Section 7(a), the Executive shall be entitled
to receive from the Company not later than the fifth day following the
Date of Termination, an amount in cash equal to, with respect to the
Executive's interests in the Supplemental Benefits Plan, the sum of (i)
the Executive's Supplemental ESTP Benefit (as defined therein) and (ii)
a lump sum equal to the actuarial equivalent of the excess of the
defined benefit pension described in the following clause (X) over the
defined benefit pension described in the following clause (Y):
(X) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which would have accrued to the
Executive under the terms of the Pension Plan and the
Supplemental Benefits Plan (without regard to any amendment to
either plan made subsequent to a Change in Control of the Company
and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement
benefits thereunder), determined as if the Executive were fully
vested thereunder, had accumulated (after the Date of
Termination) three additional years of service credit thereunder
(but in no event shall the Executive be deemed to have
accumulated additional years of service credit after the
Executive's sixty-fifth birthday); and
(Y) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which had then accrued to the
Executive pursuant to the provisions of the Pension Plan and will
be paid pursuant to the provisions thereof.
5
<PAGE>
For purposes of clause (X), the Supplemental Pension Benefit shall be
calculated as if the Executive were three years older at the Date of
Termination and shall use the assumption as to the annual rate of salary
increase used for funding purposes in the most recent actuarial report
prepared by the Pension Plan's actuary with respect to such plan prior
to the Change in Control. For purposes of this Section 7(a)(iii),
"actuarial equivalent" shall be determined using the same methods and
assumptions utilized under the Pension Plan immediately prior to the
Change in Control of the Company. Upon the making of, and to the extent
of, such cash payment, the Company's obligations to the Executive under
the Supplemental Benefits Plan shall be cancelled.
iv) For the three-year period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive with life, disability, accident and health insurance benefits
substantially similar to those which the Executive is receiving
immediately prior to the Notice of Termination (without giving effect to
any reduction in such benefits subsequent to a Change in Control if such
reduction constitutes Good Reason). Benefits otherwise receivable by the
Executive pursuant to this Section 7(a)(iv) shall be reduced to the
extent comparable benefits are actually received by or made available to
the Executive without cost during the three-year period following the
Executive's termination of employment (and any such benefits actually
received by the Executive shall be reported to the Company by the
Executive).
(b) In the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including the
Severance Payments, being hereinafter called "Total Payments") would be subject
(in whole or part), to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after
6
<PAGE>
deduction of any Excise Tax on the Severance Payments and any federal, state and
local income tax and Excise Tax upon the payment provided for by this Section
7(b), shall be equal to the Total Payments. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) any payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any Person whose actions result
in a Change in Control or any Person affiliated with the Company or such Person)
shall be treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors and reasonably acceptable to the Executive such other payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments
which shall be treated as subject to the Excise Tax shall be equal to the amount
of excess parachute payments within the meaning of section 280G(b)(l) of the
Code (after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the Date of Termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account
7
<PAGE>
hereunder at the time of termination of the Executive's employment, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax and/or a federal, state or
local income tax deduction) plus interest on the amount of such repayment at the
rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder at the time
of the termination of the Executive's employment (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Severance Payments.
(c) The payments provided for in Sections 7(a) and 7(b) hereof
(other than Section 7(a)(iv)) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Company, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in section
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1274(b)(2)(B) of the Code). At the time that payments are made under this
Section, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations, including, without limitation, any opinions or other
advice the Company has received from outside counsel, auditors or consultants
(and any such opinions or advice which are in writing shall be attached to the
statement).
(d) The Company also shall pay to the Executive all legal fees
and expenses incurred, in good faith, by the Executive as a result of a
termination (including all such fees and expenses, if any, incurred in disputing
any such termination or in seeking to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder). Such payments shall be made within five
(5) business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
8. Termination Procedures.
(a) Notice of Termination. Following any Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 11
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the
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Executive was guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof in detail.
(b) Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment following a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated by the Executive's death, the date of the Executive's death, (ii) if
the Executive's employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive's duties during such
thirty (30) day period), and (iii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 8(c)), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term, and such termination
is disputed in accordance with Section 8(c) hereof, the Company shall continue
to pay the Executive the full compensation in
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effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 8(c) hereof. Amounts paid
under this Section 8(d) are in addition to all other amounts due under this
Agreement (other than those due under Section 5(b) hereof) and shall not be
offset against or reduce any other amounts due under this Agreement.
9. No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated following a Change in Control and during
the Term, the Executive is not required to seek other employment or to attempt
in any way to reduce any amounts payable to the Executive by the Company
hereunder. Further, the amount of any payment or benefit provided for hereunder
(other than pursuant to Section 7(a)(iv) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
10. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
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(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
11. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or on the fifth business day
after the day on which mailed, if mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth below, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
To the Company:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
Attention: Corporate Secretary
To the Executive:
Nader F. Darehshori
44 Carisbrooke Road
Wellesley, Massachusetts 02181
12. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any
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prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. This Agreement
sets forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and cancelled. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, without regard to its
conflicts of law principles. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections. There shall be withheld from any payments provided for hereunder any
amounts required to be withheld under federal, state or local law and any
additional withholding amounts to which the Executive has agreed. The
obligations under this Agreement of either the Company or the Executive which by
their nature and terms require satisfaction after the end of the Term shall
survive such event and shall remain binding upon such party.
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a
13
<PAGE>
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Board a decision of
the Board within sixty (60) days after notification by the Board that the
Executive's claim has been denied. To the extent permitted by applicable law,
any further dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Boston, Massachusetts
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
16. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(a) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" for termination by the Company of the Executive's
employment, for purposes of this Agreement, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 8(a)) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise, or (iii) material breach by the Executive of any of the material
terms or conditions of this Agreement coupled with failure to correct such
breach within thirty (30) days after notice from the Company specifying the
breach. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not
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<PAGE>
in good faith and without reasonable belief that the Executive's act, or failure
to act, was in the best interest of the Company.
(d) A "Change in Control" of the Company shall be deemed to have
occurred if any of the following occurs:
i) any "Person" (as defined in this
Section) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
ii) during any period of no more than two
consecutive years beginning after the date hereof individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company) whose election by the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or whose nomination for election was previously
so approved or recommended, cease for any reason to constitute at least a
majority thereof;
iii) there occurs a merger or consolidation of the
Company or a subsidiary thereof with or into any other entity, other than (x) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) more than 75% of the combined voting
power of the voting securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or consolidation or (y)
a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires 25% or more of the
combined
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voting power of the Company's then outstanding securities; or
iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
(e) "Change-in-Control Protective Period" shall mean the period
from the occurrence of a Change in Control until the second anniversary of such
Change in Control.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Company" shall mean Houghton Mifflin Company and any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise (except in determining, under
Section 16(d) hereof, whether or not any Change in Control of the Company has
occurred in connection with such succession).
(h) "Date of Termination" shall have the meaning stated in
Section 8(b) hereof.
(i) "Disability" shall be deemed the reason for the termination
by the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days or for an aggregate period of two-hundred-ten (210) days during
a consecutive period of two-hundred-seventy (270) days, the Company shall have
given the Executive a Notice of Termination for Disability, and the Executive
shall not have returned to the full-time performance of the Executive's duties
within thirty (30) days after such Notice of Termination is given.
(j) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(k) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
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(l) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or after any Potential
Change in Control under the circumstances described in the second sentence of
Section 7(a) hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (III), (V) or (VI) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as an executive officer
of the Company or any substantial diminution, without the
Executive's consent, in the Executive's reporting
responsibilities, powers, titles or offices as in effect
immediately prior to the Change in Control of the Company (other
than any such diminution primarily attributable to the fact that
the Company may no longer be a public company);
(II) any reduction in Base Salary, except for
across-the-board salary reductions similarly affecting all
executives of the Company and all executives of any person in
control of the Company,
(III) any substantial reduction in the additional
compensation and benefits received by the Executive unless any
such reduction shall be generally applicable to executive
personnel and all executives of any person in control of the
Company,
(IV) any requirement by the Company or of any person in
control of the Company that the Executive be based at a location
outside the metropolitan area in which the Executive was located
immediately prior to the Change in Control,
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<PAGE>
(V) any requirement by the Company or of any person in
control of the Company that the Executive travel with an
overnight stay in excess of 30% of the work days in any calendar
year, or
(VI) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8(a) hereof
(and, if applicable, the requirements of Section 16(c)); for
purposes of the Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(m) "Gross-Up Payment" shall have the meaning stated in Section
10(b) hereof.
(n) "Incentive Compensation Plan" shall mean the Houghton Mifflin
Company 1995 Senior Executive Incentive Compensation Plan or any successor
annual bonus or incentive compensation plan.
(o) "Notice of Termination" shall have the meaning stated in
Section 8(a) hereof.
(p) "Pension Plan" shall mean the Houghton Mifflin Pension Plan
or any successor plan.
(q) "Person" has the meaning given such term in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excludes (a) the Company or any of its subsidiaries, (b) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company (or of any subsidiary of the Company), (c) any corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company and (d) an
underwriter temporari-
18
<PAGE>
ly holding securities pursuant to an offering of such securities.
(r) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied during the Term:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person (x) is or becomes the Beneficial
Owner, directly or indirectly, (y) discloses directly or
indirectly to the Company (or publicly) a plan or intention to
become the Beneficial Owner, directly or indirectly, or (z) makes
a filing under the Hart- Scott-Rodino Antitrust Improvements Act
of 1976, as amended, with respect to securities to become the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 9.9% or more of the combined voting power of
the Company's then outstanding securities; or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(s) "Retirement" shall be deemed the reason for the termination
by the Company or the Executive of the Executive's employment if such employment
is terminated (i) with the Executive's prior written consent, as a result of
which the Executive is immediately eligible for retirement benefits under the
Pension Plan or (ii) in accordance with any retirement arrangement established
with the Executive's prior written consent with respect to the Executive.
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(t) "Severance Payments" shall mean those payments described in
Section 7(a) hereof.
(u) "Supplemental Benefits Plan" shall mean the Houghton Mifflin
Company Supplemental Benefits Plan or any successor plan.
(v) "Term" shall have the meaning stated in Section 2 hereof.
(w) "Total Payments" shall mean those payments so described in
Section 7(b) hereof.
IN WITNESS WHEREOF the parties hereto have hereunto set their
hands and seals on the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By /s/ Gary L. Smith
________________________________
Name: Gary L. Smith
Title: Senior Vice President,
Administration
/s/ Nader F. Darehshori
________________________________
Nader F. Darehshori
0103164.02-01S6a
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Exhibit 10(iii)(A)
Form of Senior Executive Severance Agreement
AGREEMENT
AGREEMENT made this day of , 199 , between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and
(the "Executive").
WHEREAS the Company considers it essential to the best interests
of its stockholders to foster the continuous employment of its key management
personnel; and
WHEREAS the Board of Directors of the Company (the "Board")
recognizes that the uncertainty engendered by any potential change in control
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
NOW THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used in
this Agreement (if not provided where a capitalized term initially appears) are
provided in the last Section hereof.
2. Term of Agreement. The term of this Agreement (the "Term")
will commence on the date hereof and end on December 31, 1998, unless further
extended as hereinafter provided. Commencing on January 1, 1997 and each January
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company (upon
authorization by the Board) or the Executive shall have given notice not to
extend this Agreement; provided, however, if a Change in Control shall have
occurred during the Term, this Agreement shall continue in effect (and the Term
shall be extended) until at least the end of the Change-in-Control Protective
Period.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants
<PAGE>
set forth in Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the "Severance Payments" described in
Section 7(a) hereof and the other payments and benefits described herein in the
event the Executive's employment with the Company is terminated following a
Change in Control and during the term of this Agreement. No amount or benefit
shall be payable under this Agreement unless there shall have been (or, under
the terms hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control. This
Agreement shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
the Company, the Executive shall not have any right to be retained in the employ
of the Company.
4. The Executive's Covenants. The Executive agrees that, subject
to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the term of this Agreement, the Executive will remain
in the employ of the Company until the earliest of (i) a date which is six (6)
months from the date of such Potential Change of Control, (ii) the date of a
Change in Control, (iii) the date of termination by the Executive of the
Executive's employment for Good Reason (determined by treating the Potential
Change in Control as a Change in Control in applying the definition of Good
Reason), by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Pre-Termination Compensation Related to
Disability or Other Termination.
(a) Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability; provided, however, that such
2
<PAGE>
salary payments shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such salary payment under
disability benefit plans of the Company or under the Social Security disability
insurance program, which amounts were not previously applied to reduce any such
salary payment.
(b) If the Executive's employment shall be terminated for any
reason (other than Disability) following a Change in Control and during the
Term, the Company shall pay the Executive's full salary (to the Executive or in
accordance with Section 10(b) hereof if the Executive's employment is terminated
by the Executive's death) through the Date of Termination at the higher of the
rate in effect at the time the Notice of Termination is given or the rate in
effect immediately prior to the Change in Control, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period.
6. Normal Post-Termination Payments upon Termination of
Employment. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Subject to Section 7(a) hereof, such
post-termination compensation and benefits shall be determined under, and paid
in accordance with, the Company's retirement, insurance and other compensation
or benefit plans, programs and arrangements (other than this Agreement).
7. Severance Payments.
(a) The Company shall pay the Executive the payments described in
this Section 7(a) (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and prior to the end of the
Term, in addition to any required payments and benefits described in Sections 5
and 6 hereof, unless such termination is (i) by the Company for Cause, (ii) by
reason of death, Disability or Retirement, or (iii) by the Executive without
Good Reason. For purposes of the immediately preceding sentence, if a
termination of the Executive's employment occurs prior to a Change in Con-
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<PAGE>
trol, but following a Potential Change in Control in which a Person has entered
into an agreement with the Company the consummation of which will constitute a
Change in Control, such termination shall be deemed to have followed a Change in
Control and to have been (i) by the Company without Cause, if the Executive's
employment is terminated without Cause with the encouragement of, or at the
direction of, such Person, or (ii) by the Executive with Good Reason, if the
Executive terminates the Executive's employment with Good Reason and the act (or
failure to act) which constitutes Good Reason occurs following such Potential
Change in Control and with the encouragement of, or at the direction of, such
Person.
i) In lieu of any further salary
payments to the Executive for period subsequent to the Date of
Termination and in lieu of any other severance benefits to which the
Executive might otherwise be entitled, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to three (3)
times the sum of
(X) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance
upon which the Notice of Termination is based or the Executive's
annual base salary in effect immediately prior to the Change in
Control, and
(Y) the higher of (I) the amount (if any) paid to the Executive
pursuant to the Incentive Compensation Plan in the Company's
fiscal year immediately preceding that in which the Date of
Termination occurs and (II) the average amount so paid in the
Company's three fiscal years immediately preceding that in which
the Change in Control occurs.
ii) Notwithstanding any provision of
the Incentive Compensation Plan, the Company shall pay to the Executive
a lump sum amount, in cash, equal to the sum of any incentive
compensation which has been allocated or awarded to the Executive for
any completed fiscal year preceding the Date of Termination under the
Incentive Compensation Plan but has not yet been either paid or deferred
pursuant to an agreement with the Company;
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iii) In addition to all other amounts payable to
the Executive under this Section 7(a), the Executive shall be entitled
to receive from the Company not later than the fifth day following the
Date of Termination, an amount in cash equal to, with respect to the
Executive's interests in the Supplemental Benefits Plan, the sum of (i)
the Executive's Supplemental ESTP Benefit (as defined therein) and (ii)
a lump sum equal to the actuarial equivalent of the excess of the
defined benefit pension described in the following clause (X) over the
defined benefit pension described in the following clause (Y):
(X) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which would have accrued to the
Executive under the terms of the Pension Plan and the
Supplemental Benefits Plan (without regard to any amendment to
either plan made subsequent to a Change in Control of the Company
and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement
benefits thereunder), determined as if the Executive were fully
vested thereunder, had accumulated (after the Date of
Termination) three additional years of service credit thereunder
(but in no event shall the Executive be deemed to have
accumulated additional years of service credit after the
Executive's sixty-fifth birthday); and
(Y) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which had then accrued to the
Executive pursuant to the provisions of the Pension Plan and will
be paid pursuant to the provisions thereof.
For purposes of clause (X), the Supplemental Pension Benefit shall be
calculated as if the Executive were three years older at the Date of
Termination and shall use the assumption as to the annual rate of salary
increase used for funding purposes in the most recent actuarial report
prepared by the Pension Plan's actuary with respect to such plan prior
to the Change in Control. For purposes of this Section
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7(a)(iii), "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Pension Plan immediately
prior to the Change in Control of the Company. Upon the making of, and
to the extent of, such cash payment, the Company's obligations to the
Executive under the Supplemental Benefits Plan shall be cancelled.
iv) For the three-year period imme-
diately following the Date of Termination, the Company shall arrange to
provide the Executive with life, disability, accident and health
insurance benefits substantially similar to those which the Executive is
receiving immediately prior to the Notice of Termination (without giving
effect to any reduction in such benefits subsequent to a Change in
Control if such reduction constitutes Good Reason). Benefits otherwise
receivable by the Executive pursuant to this Section 7(a)(iv) shall be
reduced to the extent comparable benefits are actually received by or
made available to the Executive without cost during the three-year
period following the Executive's termination of employment (and any such
benefits actually received by the Executive shall be reported to the
Company by the Executive).
(b) In the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including the
Severance Payments, being hereinafter called "Total Payments") would be subject
(in whole or part), to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Severance Payments and
any federal, state and local income tax and Excise Tax upon the payment provided
for by this Section 7(b), shall be equal to the Total Payments. For purposes of
determining whether any of the Total Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (i) any payments or benefits received or to
be received by the Executive in connection with a Change in Control or
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the Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(l) of the Code shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable to the Executive such
other payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of Section 280G(b)(4)(A) of the Code, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered, within the meaning of section
280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such
reasonable compensation, or are otherwise not subject to the Excise Tax, (ii)
the amount of the Total Payments which shall be treated as subject to the Excise
Tax shall be equal to the amount of excess parachute payments within the meaning
of section 280G(b)(l) of the Code (after applying clause (i), above), and (iii)
the value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of the Executive's employment, the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
federal, state and local income tax imposed on the Gross-Up Payment being repaid
by the Executive to the
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<PAGE>
extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive and
the Company shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Severance Payments.
(c) The payments provided for in Sections 7(a) and 7(b) hereof
(other than Section 7(a)(iv)) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Company, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations, including, without limitation,
any opinions or other advice the Company has received from outside counsel,
auditors or consultants (and
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any such opinions or advice which are in writing shall be attached to the
statement).
(d) The Company also shall pay to the Executive all legal fees
and expenses incurred, in good faith, by the Executive as a result of a
termination (including all such fees and expenses, if any, incurred in disputing
any such termination or in seeking to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder). Such payments shall be made within five
(5) business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
8. Termination Procedures.
(a) Notice of Termination. Following any Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 11
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
(b) Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment following a Change in
Control and
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during the Term, shall mean (i) if the Executive's employment is terminated by
the Executive's death, the date of the Executive's death, (ii) if the
Executive's employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive's duties during such
thirty (30) day period), and (iii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 8(c)), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term, and such termination
is disputed in accordance with Section 8(c) hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, salary) and continue
the Executive as a participant in all compensation, benefit and insurance plans
in which the Executive was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance with
Section 8(c) hereof. Amounts paid under
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this Section 8(d) are in addition to all other amounts due under this Agreement
(other than those due under Section 5(b) hereof) and shall not be offset against
or reduce any other amounts due under this Agreement.
9. No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated following a Change in Control and during
the Term, the Executive is not required to seek other employment or to attempt
in any way to reduce any amounts payable to the Executive by the Company
hereunder. Further, the amount of any payment or benefit provided for hereunder
(other than pursuant to Section 7(a)(iv) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
10. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the
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Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
11. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or on the fifth business day
after the day on which mailed, if mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth below, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
To the Company:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
Attention: Corporate Secretary
To the Executive:
12. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. This Agreement sets forth the entire agreement of the parties hereto
in respect of the subject matter contained herein and supersedes all prior
agree-
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ments, promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and cancelled. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the Commonwealth of Massachusetts, without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. There shall be withheld from any payments provided for hereunder
any amounts required to be withheld under federal, state or local law and any
additional withholding amounts to which the Executive has agreed. The
obligations under this Agreement of either the Company or the Executive which by
their nature and terms require satisfaction after the end of the Term shall
survive such event and shall remain binding upon such party.
13. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in
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Boston, Massachusetts in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
16. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(a) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" for termination by the Company of the Executive's
employment, for purposes of this Agreement, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 8(a)) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise, or (iii) material breach by the Executive of any of the material
terms or conditions of this Agreement coupled with failure to correct such
breach within thirty (30) days after notice from the Company specifying the
breach. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(d) A "Change in Control" of the Company shall be deemed to have
occurred if any of the following occurs:
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i) any "Person" (as defined in this
Section) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
ii) during any period of no more
than two consecutive years beginning after the date hereof individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the directors
of the Company) whose election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or whose nomination for
election was previously so approved or recommended, cease for any reason to
constitute at least a majority thereof;
iii) there occurs a merger or con-
solidation of the Company or a subsidiary thereof with or into any other entity,
other than (x) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) more than 75% of the
combined voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation or (y) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
acquires 25% or more of the combined voting power of the Company's then
outstanding securities; or
iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
(e) "Change-in-Control Protective Period" shall mean the period
from the occurrence of a Change in
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Control until the second anniversary of such Change in Control.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Company" shall mean Houghton Mifflin Company and any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise (except in determining, under
Section 16(d) hereof, whether or not any Change in Control of the Company has
occurred in connection with such succession).
(h) "Date of Termination" shall have the meaning stated in
Section 8(b) hereof.
(i) "Disability" shall be deemed the reason for the termination
by the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days or for an aggregate period of two-hundred-ten (210) days during
a consecutive period of two-hundred- seventy (270) days, the Company shall have
given the Executive a Notice of Termination for Disability, and the Executive
shall not have returned to the full-time performance of the Executive's duties
within thirty (30) days after such Notice of Termination is given.
(j) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(k) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(l) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or after any Potential
Change in Control under the circumstances described in the second sentence of
Section 7(a) hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in
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the case of any act or failure to act described in paragraph (I), (III), (V) or
(VI) below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as an executive officer
of the Company or any substantial diminution, without the
Executive's consent, in the Executive's reporting
responsibilities, powers, titles or offices as in effect
immediately prior to the Change in Control of the Company (other
than any such diminution primarily attributable to the fact that
the Company may no longer be a public company);
(II) any reduction in Base Salary, except for
across-the-board salary reductions similarly affecting all
executives of the Company and all executives of any person in
control of the Company,
(III) any substantial reduction in the additional
compensation and benefits received by the Executive unless any
such reduction shall be generally applicable to executive
personnel and all executives of any person in control of the
Company,
(IV) any requirement by the Company or of any person in
control of the Company that the Executive be based at a location
outside the metropolitan area in which the Executive was located
immediately prior to the Change in Control,
(V) any requirement by the Company or of any person in
control of the Company that the Executive travel with an
overnight stay in excess of 30% of the work days in any calendar
year, or
(VI) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8(a) hereof
(and,
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if applicable, the requirements of Section 16(c)); for purposes
of the Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(m) "Gross-Up Payment" shall have the meaning stated in Section
10(b) hereof.
(n) "Incentive Compensation Plan" shall mean the Houghton Mifflin
Company 1995 Senior Executive Incentive Compensation Plan or any successor
annual bonus or incentive compensation plan.
(o) "Notice of Termination" shall have the meaning stated in
Section 8(a) hereof.
(p) "Pension Plan" shall mean the Houghton Mifflin Pension Plan
or any successor plan.
(q) "Person" has the meaning given such term in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excludes (a) the Company or any of its subsidiaries, (b) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company (or of any subsidiary of the Company), (c) any corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company and (d) an
underwriter temporarily holding securities pursuant to an offering of such
securities.
(r) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied during the Term:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
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(II) the Company or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person (x) is or becomes the Beneficial
Owner, directly or indirectly, (y) discloses directly or
indirectly to the Company (or publicly) a plan or intention to
become the Beneficial Owner, directly or indirectly, or (z) makes
a filing under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, with respect to securities to become the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 9.9% or more of the combined voting power of
the Company's then outstanding securities; or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(s) "Retirement" shall be deemed the reason for the termination
by the Company or the Executive of the Executive's employment if such employment
is terminated (i) with the Executive's prior written consent, as a result of
which the Executive is immediately eligible for retirement benefits under the
Pension Plan or (ii) in accordance with any retirement arrangement established
with the Executive's prior written consent with respect to the Executive.
(t) "Severance Payments" shall mean those payments described in
Section 7(a) hereof.
(u) "Supplemental Benefits Plan" shall mean the Houghton Mifflin
Company Supplemental Benefits Plan or any successor plan.
(v) "Term" shall have the meaning stated in Section 2 hereof.
(w) "Total Payments" shall mean those payments so described in
Section 7(b) hereof.
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IN WITNESS WHEREOF the parties hereto have hereunto set their
hands and seals on the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By ______________________________
Name: Nader F. Darehshori
Title: President and
Chief Executive Officer
- -----------------------
[ ]
0102719.02-01S6a
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Exhibit 10(iii)(A)
Form of Key Managers' Severance Agreement
AGREEMENT
AGREEMENT made this ____ day of December, 1995, between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and
(the "Executive").
WHEREAS the Company considers it essential to the best interests
of its stockholders to foster the continuous employment of its key management
personnel; and
WHEREAS the Board of Directors of the Company (the "Board")
recognizes that the uncertainty engendered by any potential change in control
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
NOW THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used in
this Agreement (if not provided where a capitalized term initially appears) are
provided in the last Section hereof.
2. Term of Agreement. The term of this Agreement (the "Term")
will commence on the date hereof and end on December 31, 1998, unless further
extended as hereinafter provided. Commencing on January 1, 1997 and each January
1 thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company (upon
authorization by the Board) or the Executive shall have given notice not to
extend this Agreement; provided, however, if a Change in Control shall have
occurred during the Term, this Agreement shall continue in effect (and the Term
shall be extended) until at least the end of the Change-in-Control Protective
Period.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants
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set forth in Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the "Severance Payments" described in
Section 7(a) hereof and the other payments and benefits described herein in the
event the Executive's employment with the Company is terminated following a
Change in Control and during the term of this Agreement. No amount or benefit
shall be payable under this Agreement unless there shall have been (or, under
the terms hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control. This
Agreement shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
the Company, the Executive shall not have any right to be retained in the employ
of the Company.
4. The Executive's Covenants. The Executive agrees that, subject
to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the term of this Agreement, the Executive will remain
in the employ of the Company until the earliest of (i) a date which is six (6)
months from the date of such Potential Change of Control, (ii) the date of a
Change in Control, (iii) the date of termination by the Executive of the
Executive's employment for Good Reason (determined by treating the Potential
Change in Control as a Change in Control in applying the definition of Good
Reason), by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Pre-Termination Compensation.
(a) Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability; provided, however, that such salary payments shall be reduced by the
sum of the
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amounts, if any, payable to the Executive at or prior to the time of any such
salary payment under disability benefit plans of the Company or under the Social
Security disability insurance program, which amounts were not previously applied
to reduce any such salary payment.
(b) If the Executive's employment shall be terminated for any
reason (other than Disability) following a Change in Control and during the
Term, the Company shall pay the Executive's full salary (to the Executive or in
accordance with Section 10(b) hereof if the Executive's employment is terminated
by the Executive's death) through the Date of Termination at the higher of the
rate in effect at the time the Notice of Termination is given or the rate in
effect immediately prior to the Change in Control, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period.
(c) If a Change in Control occurs during the Term and the
Incentive Compensation Plan in which the Executive is participating on the day
immediately preceding such Change in Control is not the annual incentive
compensation plan which covers the Company's top tier of executives, then,
notwithstanding any other provision herein or in the Incentive Compensation
Plan, as soon as practicable after the occurrence of such Change in Control, the
Company shall pay the Executive a pro rata bonus determined by multiplying
thirty percent (30%) of his or her salary on the day immediately preceding the
Change in Control by a fraction, the numerator of which shall be the number of
days in the then-current fiscal year up to and including the day the Change in
Control occurred and the denominator of which shall be three hun-
dred-and-sixty-five (365); such payment shall be in lieu of any other payment
under the then-current Incentive Compensation Plan with respect to such fiscal
year.
6. Normal Post-Termination Payments upon Termination of
Employment. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Subject to Section 7(a) hereof, such
post-termination
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compensation and benefits shall be determined under, and paid in accordance
with, the Company's retirement, insurance and other compensation or benefit
plans, programs and arrangements (other than this Agreement).
7. Severance Payments.
(a) Subject to Section 7(b) hereof, the Company shall pay the
Executive the payments described in this Section 7(a) (the "Severance Payments")
upon the termination of the Executive's employment following a Change in Control
and prior to the end of the Term, in addition to any required payments and
benefits described in Sections 5 and 6 hereof, unless such termination is (i) by
the Company for Cause, (ii) by reason of death, Disability or Retirement, or
(iii) by the Executive without Good Reason. For purposes of the immediately
preceding sentence, if a termination of the Executive's employment occurs prior
to a Change in Control, but following a Potential Change in Control in which a
Person has entered into an agreement with the Company the consummation of which
will constitute a Change in Control, such termination shall be deemed to have
followed a Change in Control and to have been (i) by the Company without Cause,
if the Executive's employment is terminated without Cause with the encouragement
of, or at the direction of, such Person, or (ii) by the Executive with Good
Reason, if the Executive terminates the Executive's employment with Good Reason
and the act (or failure to act) which constitutes Good Reason occurs following
such Potential Change in Control and with the encouragement of, or at the
direction of, such Person.
i) In lieu of any further salary
payments to the Executive for period subsequent to the Date of
Termination and in lieu of any other severance benefits to which the
Executive might otherwise be entitled, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to two (2) times
the sum of
(X) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance
upon which the Notice of Termination is based or the Executive's
annual base salary in effect immediately prior to the Change in
Control, and
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(Y) the higher of (I) the amount (if any) paid to the Executive
pursuant to the Incentive Compensation Plan in the Company's
fiscal year immediately preceding that in which the Date of
Termination occurs and (II) the average amount so paid in the
Company's three fiscal years immediately preceding that in which
the Change in Control occurs.
ii) Notwithstanding any provision of
the Incentive Compensation Plan, the Company shall pay to the Executive
a lump sum amount, in cash, equal to the sum of any incentive
compensation which has been allocated or awarded to the Executive for
any completed fiscal year preceding the Date of Termination under the
Incentive Compensation Plan but has not yet been either paid or deferred
pursuant to an agreement with the Company;
iii) In addition to all other
amounts payable to the Executive under this Section 7(a), the Executive
shall be entitled to receive from the Company not later than the fifth
day following the Date of Termination, an amount in cash equal to, with
respect to the Executive's interests in the Supplemental Benefits Plan,
the sum of (i) the Executive's Supplemental ESTP Benefit (as defined
therein) and (ii) a lump sum equal to the actuarial equivalent of the
excess of the defined benefit pension described in the following clause
(X) over the defined benefit pension described in the following clause
(Y):
(X) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which would have accrued to the
Executive under the terms of the Pension Plan and the
Supplemental Benefits Plan (without regard to any amendment to
either plan made subsequent to a Change in Control of the Company
and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement
benefits thereunder), determined as if the Executive were fully
vested thereunder, had accumulated (after the Date of
Termination) two additional years of service credit thereunder
(but in no event shall the
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<PAGE>
Executive be deemed to have accumulated additional years of
service credit after the Executive's sixty-fifth birthday); and
(Y) the retirement pension (determined as a straight life annuity
commencing at age sixty-five) which had then accrued to the
Executive pursuant to the provisions of the Pension Plan and will
be paid pursuant to the provisions thereof.
For purposes of clause (X), the Supplemental Pension Benefit shall be
calculated as if the Executive were two years older at the Date of
Termination and shall use the assumption as to the annual rate of salary
increase used for funding purposes in the most recent actuarial report
prepared by the Pension Plan's actuary with respect to such plan prior
to the Change in Control. For purposes of this Section 7(a)(iii),
"actuarial equivalent" shall be determined using the same methods and
assumptions utilized under the Pension Plan immediately prior to the
Change in Control of the Company. Upon the making of, and to the extent
of, such cash payment, the Company's obligations to the Executive under
the Supplemental Benefits Plan shall be cancelled.
iv) For the two-year period immedi-
ately following the Date of Termination, the Company shall arrange to
provide the Executive with life, disability, accident and health
insurance benefits substantially similar to those which the Executive is
receiving immediately prior to the Notice of Termination (without giving
effect to any reduction in such benefits subsequent to a Change in
Control if such reduction constitutes Good Reason). Benefits otherwise
receivable by the Executive pursuant to this Section 7(a)(iv) shall be
reduced to the extent comparable benefits are actually received by or
made available to the Executive without cost during the two-year period
following the Executive's termination of employment (and any such
benefits actually received by the Executive shall be reported to the
Company by the Executive). If the benefits provided to the Executive
under this Section 7(a)(iv) shall result in a decrease, pursuant to
Section 7(b), in the Severance Payments and these
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Section 7(a)(iv) benefits are thereafter reduced pursuant to the
immediately preceding sentence because of the receipt of comparable
benefits, the Company shall, at the time of such reduction, pay to the
Executive the lesser of (a) the amount of the decrease made in the
Severance Payments pursuant to Section 7(b), or (b) the maximum amount
which can be paid to the Executive without being, or causing any other
payment to be, nondeductible by reason of section 280G of the Code.
(b) Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part),
by the Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), (A) the cash
Severance Payments shall first be reduced (if necessary, to zero), and (B) all
other non-cash Severance Payments shall next be reduced (if necessary, to zero).
For purposes of this limitation (i) no portion of the Total Payments the receipt
or enjoyment of which the Executive shall have effectively waived in writing
prior to the Date of Termination shall be taken into account, (ii) no portion of
the Total Payments shall be taken into account which in the opinion of tax
counsel selected by the Company's independent auditors and reasonably acceptable
to the Executive does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of
the Code, (iii) the Severance Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(i) or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of
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<PAGE>
section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance
as deductions under section 280G of the Code, in the opinion of the tax counsel
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Company in applying the terms of this Section 7(b), the
aggregate "parachute payments" paid to or for the Executive's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of section 280G of the Code, then the Executive shall have
an obligation to pay the Company upon demand an amount equal to the sum of (i)
the excess of the aggregate "parachute payments" paid to or for the Executive's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Executive's benefit without any portion of such "parachute payments" not
being deductible by reason of section 280G of the Code; and (ii) interest on the
amount set forth in clause (i) of this sentence at the rate provided in section
1274(b)(2)(B) of the Code from the date of the Executive's receipt of such
excess until the date of such payment.
(c) The payments provided for in Section 7(a) hereof (other than
Section 7(a)(iv)) shall be made not later than the fifth (5th) day following the
Date of Termination; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
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<PAGE>
fifth (5th) business day after demand by the Company (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations, including, without limitation,
any opinions or other advice the Company has received from outside counsel,
auditors or consultants (and any such opinions or advice which are in writing
shall be attached to the statement).
(d) The Company also shall pay to the Executive all legal fees
and expenses incurred, in good faith, by the Executive as a result of a
termination (including all such fees and expenses, if any, incurred in disputing
any such termination or in seeking to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder). Such payments shall be made within five
(5) business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
8. Termination Procedures.
(a) Notice of Termination. Following any Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 11
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with
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<PAGE>
the Executive's counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.
(b) Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment following a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated by the Executive's death, the date of the Executive's death, (ii) if
the Executive's employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive's duties during such
thirty (30) day period), and (iii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 8(c)), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term, and such termination
is disputed in
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accordance with Section 8(c) hereof, the Company shall continue to pay the
Executive the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with Section 8(c)
hereof. Amounts paid under this Section 8(d) are in addition to all other
amounts due under this Agreement (other than those due under Section 5(b)
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
9. No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated following a Change in Control and during
the Term, the Executive is not required to seek other employment or to attempt
in any way to reduce any amounts payable to the Executive by the Company
hereunder. Further, the amount of any payment or benefit provided for hereunder
(other than pursuant to Section 7(a)(iv) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
10. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on
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which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
11. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or on the fifth business day
after the day on which mailed, if mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth below, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
To the Company:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
Attention: Corporate Secretary
To the Executive:
12. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition
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or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement sets forth the entire agreement of the parties hereto in respect
of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and cancelled. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the Commonwealth of Massachusetts, without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. There shall be withheld from any payments provided for hereunder
any amounts required to be withheld under federal, state or local law and any
additional withholding amounts to which the Executive has agreed. The
obligations under this Agreement of either the Company or the Executive which by
their nature and terms require satisfaction after the end of the Term shall
survive such event and shall remain binding upon such party.
13. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific
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reasons for the denial and the specific provisions of this Agreement relied
upon. The Board shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to
appeal to the Board a decision of the Board within sixty (60) days after
notification by the Board that the Executive's claim has been denied. To the
extent permitted by applicable law, any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
16. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" for termination by the Company of the Executive's
employment, for purposes of this Agreement, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 8(a)) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise, or (iii) material breach by the Executive of any of the material
terms or conditions of this Agreement coupled with failure to correct such
breach within thirty (30) days after notice from the Company specifying the
breach. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the
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Executive's act, or failure to act, was in the best interest of the Company.
(c) A "Change in Control" of the Company shall be deemed to have
occurred if any of the following occurs:
i) any "Person" (as defined in this
Section) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
ii) during any period of no more
than two consecutive years beginning after the date hereof individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the directors
of the Company) whose election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or whose nomination for
election was previously so approved or recommended, cease for any reason to
constitute at least a majority thereof;
iii) there occurs a merger or consolidation of
the Company or a subsidiary thereof with or into any other entity, other than
(x) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) more than 75% of the combined voting
power of the voting securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or consolidation or (y)
a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires 25% or more of the
combined voting power of the Company's then outstanding securities; or
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iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(d) "Change-in-Control Protective Period" shall mean the period
from the occurrence of a Change in Control until the second anniversary of such
Change in Control.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Company" shall mean Houghton Mifflin Company and any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise (except in determining, under
Section 16(c) hereof, whether or not any Change in Control of the Company has
occurred in connection with such succession).
(g) "Date of Termination" shall have the meaning stated in
Section 8(b) hereof.
(h) "Disability" shall be deemed the reason for the termination
by the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days or for an aggregate period of two-hundred-ten (210) days during
a consecutive period of two-hundred- seventy (270) days, the Company shall have
given the Executive a Notice of Termination for Disability, and the Executive
shall not have returned to the full-time performance of the Executive's duties
within thirty (30) days after such Notice of Termination is given.
(i) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(j) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or after any Potential
Change in Control under the circumstances described in the second sentence of
Section 7(a) hereof (treating
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all references in paragraphs (I) through (VII) below to a "Change in Control" as
references to a "Potential Change in Control"), of any one of the following acts
by the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (III), (V) or (VI) below, such
act or failure to act is corrected prior to the Date of Termination specified in
the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as an executive officer
of the Company or any substantial diminution, without the
Executive's consent, in the Executive's reporting
responsibilities, powers, titles or offices as in effect
immediately prior to the Change in Control of the Company (other
than any such diminution primarily attributable to the fact that
the Company may no longer be a public company);
(II) any reduction in Base Salary, except for
across-the-board salary reductions similarly affecting all
executives of the Company and all executives of any person in
control of the Company,
(III) any substantial reduction in the additional
compensation and benefits received by the Executive unless any
such reduction shall be generally applicable to executive
personnel and all executives of any person in control of the
Company,
(IV) any requirement by the Company or of any person in
control of the Company that the Executive be based at a location
outside the metropolitan area in which the Executive was located
immediately prior to the Change in Control,
(V) any requirement by the Company or of any person in
control of the Company that the Executive travel with an
overnight stay in excess of 30% of the work days in any calendar
year, or
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<PAGE>
(VI) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8(a) hereof
(and, if applicable, the requirements of Section 16(b)); for
purposes of the Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(k) "Incentive Compensation Plan" shall mean the Houghton Mifflin
Company annual incentive compensation plan in which the Executive participates
at the relevant time or any successor annual bonus or incentive compensation
plan.
(l) "Notice of Termination" shall have the meaning stated in
Section 8(a) hereof.
(m) "Pension Plan" shall mean the Houghton Mifflin Pension Plan
or any successor plan.
(n) "Person" has the meaning given such term in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, but excludes (a) the Company or any of its subsidiaries, (b) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company (or of any subsidiary of the Company), (c) any corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company and (d) an
underwriter temporarily holding securities pursuant to an offering of such
securities.
(o) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied during the Term:
(I) the Company enters into an agreement, the
consummation of which would
18
<PAGE>
result in the occurrence of a Change in Con- trol;
(II) the Company or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person (x) is or becomes the Beneficial
Owner, directly or indirectly, (y) discloses directly or
indirectly to the Company (or publicly) a plan or intention to
become the Beneficial Owner, directly or indirectly, or (z) makes
a filing under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, with respect to securities to become the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 9.9% or more of the combined voting power of
the Company's then outstanding securities; or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(p) "Retirement" shall be deemed the reason for the termination
by the Company or the Executive of the Executive's employment if such employment
is terminated (i) with the Executive's prior written consent, as a result of
which the Executive is immediately eligible for retirement benefits under the
Pension Plan or (ii) in accordance with any retirement arrangement established
with the Executive's prior written consent with respect to the Executive.
(q) "Severance Payments" shall mean those payments described in
Section 7(a) hereof.
(r) "Supplemental Benefits Plan" shall mean the Houghton Mifflin
Company Supplemental Benefits Plan or any successor plan.
(s) "Term" shall have the meaning stated in Section 2 hereof.
0102713.03-01S6a
19
<PAGE>
(t) "Total Payments" shall mean those payments so described in
Section 7(b) hereof.
IN WITNESS WHEREOF the parties hereto have hereunto set their
hands and seals on the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By _____________________________________
Name: Nader F. Darehshori
Title: President and
Chief Executive Officer
- --------------------------
[ ]
0102713.03-01S6a
20
<PAGE>
AGREEMENT AND GENERAL RELEASE
Houghton Mifflin Company (the "Company") and Joseph A. Kanon (the
"Employee") agree that the following sets out their complete agreement and
understanding regarding the separation of the Employee from the Company's
employ:
1. The Company and the Employee agree that the Employee's employment with
the Company shall terminate effective June 30, 1995.
2. The status of the Employee's benefits at separation from employment,
including severance pay, are as set forth on the attached page entitled
"Separation Benefits - Joseph Kanon" and in the attached memorandum from
Margaret M. Doherty dated June 21, 1995.
3. The consideration from the Company set forth in Paragraph 2 above
constitutes full settlement of any and all claims that the Employee may
have against the Company, its successors, assigns, affiliates, or any of
its officers, directors, shareholders, employees, agents, or
representatives, for compensation or otherwise.
4. In consideration for the promises made by the Company in this Agreement,
the Employee, on behalf of himself, his agents, assignees, attorneys,
heirs, executors, and administrators, fully releases the Company, and its
successors, assigns, parents, subsidiaries, divisions, affiliates,
officers, directors, shareholders, employees, agents and representatives,
from any and all liability, claims, demands, actions, causes of action,
suits, grievances, debts, sums of money, controversies, agreements,
promises, damages, back and front pay, costs, expenses, attorneys' fees,
and remedies of any type, by reason of any matter, cause, act or omission
arising out of or in connection with his employment or separation from
employment with the Company, including without limiting the generality of
the foregoing, claims, demands or actions under Title VII of the Civil
Rights Act of 1964; the Age Discrimination in Employment Act of 1967; as
amended; the Rehabilitation Act of 1973; the Civil Rights Act of 1866;
the Massachusetts Fair Employment Practices Act; any other federal,
state, or local statute or regulation regarding employment,
discrimination in employment, or the termination of employment; and the
common law of any state relating to employment contracts, wrongful
discharge, or any other matter.
5. The Employee understands and agrees that the existence and terms of this
Agreement and General Release are confidential and that the Employee
shall not disclose such information to any third party, other than the
Employee's spouse, attorney, and financial advisor, without the written
consent of the Company.
<PAGE>
2
6. The existence and execution of this Agreement and General Release shall
not be considered, and shall not be admissible in any proceeding, as an
admission by the Company, or its agents or employees, of any liability,
error, violation or omission.
7. This Agreement and General Release shall be binding upon and shall be for
the benefit of the Company and the Employee, as well as their respective
heirs, personal representatives, successors and assigns.
8. The provisions of this Agreement and General Release shall be severable,
and the invalidity of any provision shall not affect the validity of the
other provisions.
9. The Employee also acknowledges that during the course of his employment
with the Company, he has acquired confidential information about the
Company, including but not limited to information about its business and
publishing plans, operations, customers, suppliers, and operations. The
Employee agrees not to disclose any such confidential information to
anyone without the written consent of the Company.
lO. The Employee acknowledges that the Company advised him in writing to
consult with an attorney before executing this Agreement, that he was
given a period of 21 days within which to consider the consideration for
this Agreement, that he had an adequate opportunity to review the
Agreement with an attorney, that he fully understands its terms, that he
was not coerced into signing it, and that he has signed it knowingly and
voluntarily.
ll. The Employee agrees to cooperate with the Company in connection with any
litigation currently pending or which is threatened or instituted in the
future and the Company agrees to indemnify the Employee for any costs or
damages incurred by the Employee in connection with such matters on the
same basis as applied during his term of employment.
12. The Employee agrees not to publicly disparage the Company or its officers
and Board members.
13. This Agreement and General Release shall take effect seven days after the
Employee executes it. The Employee has the right to revoke this Agreement
during a period of seven days following his execution of this Agreement.
In order to revoke the Agreement, he must notify Gary L. Smith, Senior
Vice President, of the Company, in writing of his decision to revoke, and
said notice must be received by Mr. Smith no later than seven days
following the execution of this Agreement. If he revokes this Agreement,
he shall promptly repay to the Company all consideration paid under this
Agreement to which he is not otherwise entitled.
<PAGE>
3
HOUGHTON MIFFLIN COMPANY NAME:
BY /s/ Gary L. Smith /s/ Joseph A. Kanon
DATED: 6/30/95 DATED: 6/28/95
Subscribed and sworn before me
this 28th day of June, 1995.
Notary Public /s/ Kathleen A. Rideout
Commission expires: 7/27/95
<PAGE>
SEPARATION BENEFITS -- JOSEPH KANON
1. The Company will pay $229,000 to Mr. Kanon, such payment to be made in a
single payment on June 30, 1995. In addition to withholdings for federal
and state income taxes, the Company will deduct estimated premiums for
health insurance through July 31, 1996. In the event that Mr. Kanon
cancels his health insurance coverage prior to July 31, 1996, any
remaining premium will be refunded to him.
2. The Company will recommend that Board of Directors:
a. Cancel Mr. Kanon's outstanding options (whether or not vested) to
purchase Houghton Mifflin Company common stock (4,200 shares at
$23.875 per share, 4,000 shares at $44.625 per share, and 12,000
shares at $45.75 per share) and pay to Mr. Kanon on June 30, 1995 the
difference between the option price and $51 per share which totals
$202,425.
b. Remove, effective July 1, 1995, the restrictions on the 156 shares of
Houghton Mifflin common stock awarded to Mr. Kanon in January 1994
pursuant to the 1993 Senior Executive Incentive Compensation Plan.
3. Pursuant to the provisions of the Houghton Mifflin Company Executive
Stock Purchase Plan, ("Plan"), the Company will repurchase the 7,742
shares of Houghton Mifflin common stock purchased by Mr. Kanon pursuant
to the Plan and Mr. Kanon will repay his debt to the Company pursuant to
that Plan. The Company will pay Mr. Kanon $59,152, representing the
surplus of the proceeds of the sale over the amount due the Company on
June 30, 1996.
4. The Company will pay Mr. Kanon $30,000, less applicable withholdings,
which is in lieu of outplacement services, on June 30, 1995.
<PAGE>
Memorandum
TO: Joseph Kanon
FROM: Margaret M. Doherty
Senior Vice President, Human Resources
DATE: June 21, 1995
SUBJECT: Employee Benefits at Separation from Houghton Mifflin Company
You will be separating from service on June 30, 1995.
Health, Dental, and Vision Insurance
Your family John Hancock medical, dental, and vision coverage will continue
through July 31, 1996. You will then be eligible for 12 months of COBRA coverage
at 100% of the actual cost and an additional 6 months of COBRA coverage at 102%
of the actual cost. The Benefits Office will provide you with additional
information at a later date.
Life Insurance
You did not elect.
Accident Insurance (AD&D)
You have elected $250,000 family AD&D coverage. Coverage is extended an
additional 31 days beyond your separation date through July 31, 1995, unless you
are similarly covered elsewhere, in which case coverage will cease on your
separation date. Under the AD&D contract there are no provisions for conversion.
Long-Term Disability Insurance
In accordance with the Long-Term Disability (LTD) insurance plan provisions,
your coverage ends on your last day worked. Under the LTD contract there are no
provisions for conversion.
<PAGE>
Retirement Savings Plan
Contributions to your Retirement Savings Plan will cease as of your last regular
paycheck. If you would like a distribution from the Plan, please contact
Fidelity directly at 1(800)835-5087. In the interim, your balances will
continue to be invested as described in the Retirement Savings Plan literature
sent to you.
Pension Plan
You are vested in the Houghton Mifflin Pension Plan. I am requesting your
assistance in obtaining from the Social Security Administration official
information about your year-by-year "covered" earnings, including money earned
before your employment with Houghton Mifflin Company. The enclosed form
authorizes the Social Security Administration to release that information to the
Company. Please sign, date, and return it to me. Houghton Mifflin will pay the
filing fee charged by Social Security.
cc: COBRA
Benefit File
Vested File
Employment File
<PAGE>
Exhibit (10)(iii)(A)
Houghton Mifflin Company
Compensation of Non-Employee Directors Policy
A. Each Director of Houghton Mifflin Company who is not an employee shall
receive compensation from the Company with respect to each calendar year in
amounts and payable as follows:
1. A retainer of $10,000 per year, payable in cash quarterly. With respect to
Directors who have retired, resigned or been elected during the year, the
retainer shall be prorated based on the portion of the year served as a
Director.
Cash compensation in addition to the retainer shall be payable as follows:
each Director shall receive $700 for attendance at each Board meeting;
Directors who serve on Board committees shall receive $500 for each
committee meeting attended; Directors who are committee chairmen shall
receive an additional $2,500 annual retainer; and such Directors who are
members of the Executive Committee shall receive an additional annual
retainer of $4,000 in lieu of fees for attendance at Executive Committee
meetings.
Plus:
2. 500 shares of common stock of the Company. The shares shall be issued at
their fair market value as determined on a trading date selected by the
Chief Executive Officer or his designee not later than sixty days
following the close of the calendar year with respect to which said shares
are payable. With respect to Directors who have retired, resigned or been
elected during the year, the number of shares shall be prorated based on
the portion of the year served as a Director. In lieu of receiving the
shares for a calendar year, a Director may elect, by written notice to the
Company prior to January l of the year with respect to which these shares
are payable, to receive cash equal to the fair market value of the shares
determined as of the aforesaid trading date.
B. All or a portion of the compensation payable under A.1. above may be deferred
at the option of each Director pursuant to a Deferred Compensation Agreement
with the Company.
C. As an element of the compensation of Directors who are not employees of
Houghton Mifflin Company, such Directors shall receive the following
retirement and/or death benefit after leaving service as a Director:
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-2-
1. The benefit shall be an amount equal to 1.5 times* the regular quarterly
cash retainer in effect at the time of the Directors's departure from the
Houghton Mifflin Company Board of Directors, payable for a number of
quarters equal to the number of quarters (or fraction thereof) for which
the Director served as a regular Director of the Company. The benefit will
be paid quarterly to coincide with the quarterly retainer fee payments to
active Directors.
2. The benefit shall be payable only to outside Directors who leave service
as a Director after the date of adoption of this plan and have not been
removed for cause.
3. No benefit will be paid to a former Director who, without the consent of
Houghton Mifflin Company, is engaged in or affiliated with any business
entity or activity which directly or indirectly competes with Houghton
Mifflin Company or any of its subsidiaries.
4. For a Director who retires or resigns from the Board, the benefit shall be
payable commencing upon the later of (a) the date of the Director's
departure from the Board or (b) the date the Director becomes 65 years of
age. The Compensation & Nominating Committee may, in its discretion, make
the benefit payable at such earlier date and with such commuted value
adjustment, if any, as the Committee may determine.
5. If a Director dies in service, before commencement of payment of the
benefit, or before completion of all payments due, the retirement benefit
shall be paid in quarterly payments, commencing immediately, to the
Director's designated beneficiary or, if none, to the Director's estate in
one lump sum with such commuted value adjustment, if any, as the Committee
may determine.
6. Accrued and unpaid benefits under this plan will be an unfunded and
unsecured obligation of Houghton Mifflin Company. The Board of Directors
may amend, suspend, or terminate this retirement plan or any benefit under
it at any time, but no amendment, suspension, or termination shall,
without the consent of a Director, impair the rights of the Director in
any benefits theretofore accrued under the plan.
* Effective for Non-Employee Directors who leave service on or after January 1,
1989. Non-Employee Directors whose service terminated after January 1, 1987
but before January 1, 1989 receive a benefit amount equal to 1.0 times the
regular quarterly retainer then in effect.
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<PAGE>
Exhibit 10(iii)(A)
HOUGHTON MIFFLIN COMPANY SUPPLEMENTAL BENEFITS PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
There is hereby established by the Company a plan which shall be known as the
"HOUGHTON MIFFLIN COMPANY SUPPLEMENTAL BENEFITS PLAN". The Plan is established,
and shall be maintained, solely for the purpose of providing (a) benefits for
certain Employees in excess of the limitations imposed by Sections 415 and/or
401(a)(17) of the Code on benefits payable to those Employees under the Houghton
Mifflin Pension Plan, and (b) benefits for certain Employees to make up for such
Employee's loss of Additional Company Contributions solely by reason of the
limitations imposed by Section 401(a)(17) of the Code on the amount of
Compensation which can be taken into account under the Houghton Mifflin Company
Retirement Savings Plan.
ARTICLE II
DEFINITIONS
Whenever used in this Plan, unless the context clearly indicates otherwise,
the following terms shall have the following meaning:
2.01 "Actuarial Equivalent" shall have the same meaning as set forth in the
Pension Plan.
1
<PAGE>
2.02 "Additional Company Contributions" shall mean the additional (i.e.,
matching) Company contributions which are provided for under Section 4.02 of the
RSP.
2.03 "Board of Directors" shall mean the Board of Directors of Houghton
Mifflin Company in office from time to time.
2.04 "Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
2.05 "Company" shall mean Houghton Mifflin Company, and its participating
subsidiaries under the Pension Plan and/or the RSP.
2.06 "Eligible Employee" shall mean any Employee (a) who is a participant in
the Pension Plan and/or the RSP, (b) whose benefits under the Pension Plan are
limited by the provisions of that plan which are designed to comply with Section
415 and/or 401(a)(17) of the Code and/or whose Additional Company Contributions
under the RSP are limited by the provisions of that plan which are designed
solely to comply with Section 401(a)(17) of the Code, and (c) who is a
management or highly compensated employee within the meaning of Section 201(2)
of the Employee Retirement Income Security Act of 1974, as amended.
2.07 "Employee" shall mean any person who is receiving remuneration directly
from the Company for personal services rendered to the Company as a common law
employee.
2
<PAGE>
2.08 "RSP" shall mean the provisions of the Houghton Mifflin Company
Retirement Savings Plan as in effect from time to time.
2.09 "Supplemental Pension Benefit" shall mean that amount determined in
accordance with Section 4.01.
2.10 "Supplemental RSP Benefit" shall mean the amount determined in
accordance with Section 7.02.
2.11 "Pension Plan" shall mean the provisions of the Houghton Mifflin Pension
Plan as in effect from time to time.
2.12 "Plan" shall mean the Houghton Mifflin Company Supplemental Benefits
Plan as set forth herein, together with any and all amendments and supplements
hereto.
2.13 "Pension Plan Benefit" shall mean that amount payable under the
applicable provisions of the Pension Plan.
ARTICLE III
EFFECTIVE DATE OF PLAN
3.01 Effective Date. This amended and restated Plan shall be effective as of
January 1, 1989. The amended and restated Plan shall apply to Employees who
retire or terminate their employment with the Company on or after said effective
date. Employees who retired or terminated their employment with the Company
prior to said effective date shall be covered by the terms of the Plan as in
effect prior to this amendment and restatement.
3
<PAGE>
ARTICLE IV
AMOUNT OF SUPPLEMENTAL PENSION BENEFIT
4.01 Supplemental Pension Benefit. The monthly amount of an Eligible
Employee's Supplemental Pension Benefit shall be equal to the excess, if any, of
(i) the amount of the Pension Plan Benefit that would be payable to such
Eligible Employee under the Pension Plan if the provisions of that plan were
administered without regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code, over (ii) the amount of the Pension Plan Benefit payable
to such Eligible Employee under the Pension Plan. Except as otherwise provided
by Section 4.02, such Supplemental Pension Benefit shall be determined at the
time the Eligible Employee's Pension Plan Benefit is payable under the Pension
Plan and shall reflect the form of benefit payable to such Eligible Employee.
Nothing in this Plan shall be construed to cut back or reduce any benefit
payable to an Eligible Employee under the Pension Plan. The sole purpose and
intent of this Article IV is to provide to Eligible Employees those benefits
which would have been payable under the Pension Plan but for the limitations
imposed upon that plan by Sections 415 and 401(a)(17) of the Code.
4.02 Post-Retirement Adjustments. If after the date an Eligible Employee's
Pension Plan Benefit becomes payable under the Pension Plan, the amount of his
Pension Plan Benefit under the Pension Plan is adjusted to reflect an increase
in the maximum benefit limitation imposed by Section 415 of the Code
4
<PAGE>
or the limitations imposed by Section 401(a)(17) of the Code, then such Eligible
Employee's Supplemental Pension Benefit hereunder shall be reduced by an amount
equal to the amount of such increase in his Pension Plan Benefit. Any such
reduction in an Eligible Employee's Supplemental Pension Benefit hereunder shall
be made coincident with the date of any increase in such Eligible Employee's
Pension Plan Benefit.
ARTICLE V
FORM OF SUPPLEMENTAL PENSION BENEFIT
5.01 Normal Form. The normal form of benefit payable to an Eligible Employee
under Article IV shall be a monthly benefit, payable on a single life basis
commencing as of the first day of the month next following the Eligible
Employee's sixty-fifth (65th) birthday or his actual retirement, (whichever is
later) but in no event later than his seventieth (70th) birthday, which is
Actuarially Equivalent to such Eligible Employee's Supplemental Pension Benefit.
5.02 Optional Forms. Prior to the commencement of payment of the Supplemental
Pension Benefit hereunder and under the Pension Plan, an Eligible Employee may
make a written request to the Company that his Supplemental Pension Benefit
under this Plan be paid in the same form and at the same time as his Pension
Plan Benefit is to be paid under the Pension Plan, with appropriate adjustment
to assure that such benefit payments are Actuarially Equivalent to such Eligible
Employee's Supplemental
5
<PAGE>
Pension Benefit. The Company shall determine, in its sole discretion, whether to
allow such optional form of benefit, and any allowance of an optional form of
benefit may be revoked by the Company at any time prior to the death of the
Eligible Employee. Notwithstanding any provision herein to the contrary, (i) the
Company, in its sole discretion, may require that an Eligible Employee's
Supplemental Pension Benefit under this Plan be paid in the same form and at the
same time as his Pension Plan Benefit is paid under the Pension Plan, and (ii)
any monthly benefit payable hereunder (including benefits payable to a surviving
spouse or beneficiary pursuant to Article VI) which is less than a minimum
amount established by the Company from time to time may be paid in an
Actuarially Equivalent amount, either quarterly, semi-annually, annually or by
means of a lump sum settlement, as the Company shall determine in its sole
discretion.
ARTICLE VI
PRE-RETIREMENT DEATH BENEFITS
6.01 General. If the surviving spouse or beneficiary of an Eligible Employee
who dies prior to the commencement of Pension Plan Benefit payments under the
Pension Plan is entitled to receive a benefit under the applicable provisions of
the Pension Plan (as set forth in Articles VII and VIII thereof), then such
surviving spouse or beneficiary shall be entitled to receive a benefit hereunder
equal to the excess, if
6
<PAGE>
any, of (i) the amount of the benefit that would be payable to such surviving
spouse or beneficiary under the Pension Plan if the provisions of that plan were
administered without regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code, over (ii) the amount of the benefit actually payable to
such surviving spouse or beneficiary under the Pension Plan. Except as otherwise
provided in Section 5.02, the benefit payable under this Plan to such surviving
spouse or beneficiary shall be paid in the same form and at the same time as the
benefit payable under the Pension Plan to such surviving spouse or beneficiary.
ARTICLE VII
SUPPLEMENTAL RSP BENEFITS
7.01 Eligible Employee Accounts.
As of December 31 of each calendar year, the Company shall credit to a
bookkeeping account for each Eligible Employee an amount equal to the excess, if
any, of
(a) the lesser of --
(1) the limitation on elective deferrals for the year imposed by Section
402(g) of the Code or
(2) the aggregate Additional Company Contribution which would have been
credited to such Eligible Employee's Account under the RSP for the
calendar year ending on such December 31 but for the limitations imposed
by
(i) Section 401(a)(17) of the Code on the amount of such Eligible
Employee's compensation which can be taken into account under the
RSP, and
(ii) the limitation on elective deferrals for the year imposed by
Section 402(g) of the Code,
over
(b) the Additional Company Contributions actually credited to such Eligible
Employee's Company Account under the RSP for such year.
In addition, the average of the amount credited to the Eligible Employee's
account as of such December 31 (after the credit referred to in the preceding
sentence for such year) and as of the next preceding December 31 shall be
credited with interest equivalents as of such December 31 at
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<PAGE>
a rate that would have been earned on an investment in the Company's common
stock, including dividends, held during such calendar year.
7.02 Supplemental RSP Benefit. Upon termination of employment with the
Company (for retirement, death or any other reason), an Eligible Employee will
be entitled to receive a Supplemental RSP Benefit equal to the full amount
credited to such Eligible Employee's account established under Section 7.01,
determined as of the December 31 coincident with or next following such
termination of employment. Such Supplemental RSP Benefit will be paid in a
single lump sum cash payment within thirty (30) days after said December 31.
Payment shall be made to the Eligible Employee if he is then living; otherwise
payment shall be made to the person (or persons) to whom payments are to be made
under the RSP in the event of such Eligible Employee's death.
ARTICLE VIII
UNFUNDED PLAN
8.01 No Funding Required. There is no fund associated with this Plan. The
Company shall be required to make payments only as benefits become due and
payable. No Employee, Eligible Employee or any surviving spouse or any
beneficiary thereof
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<PAGE>
shall have any right, other than the right of an unsecured general creditor,
against the Company in respect of the benefits payable, or which may be payable,
to such Employee, Eligible Employee, surviving spouse or beneficiary hereunder.
If the Company, acting in its sole discretion, establishes a reserve or other
fund associated with this Plan, then, except as may otherwise be provided in the
instrument pursuant to which such reserve or fund is established, no Employee,
Eligible Employee, surviving spouse or any beneficiary thereof shall have any
right to or interest in any specific amount or asset of such reserve or fund by
reason of amounts which may be payable to such person under this Plan, nor shall
such person have any right to receive any payment under this Plan except as and
to the extent expressly provided in this Plan.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Non-Guarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and any Employee or
Eligible Employee, or as a right of any such Employee or Eligible Employee to be
continued in the employment of the Company, or as a limitation of the right of
the Company to deal with any Employee or Eligible Employee, as to their hiring,
discharge, layoff, compensation, and all other conditions of employment in all
respects as though this Plan did not exist.
9
<PAGE>
9.02 Rights Under Pension Plan and RSP. Nothing in this Plan shall be
construed to limit, broaden, restrict, or grant any right to an Employee,
Eligible Employee, surviving spouse or any beneficiary thereof under the Pension
Plan or the RSP, nor to grant any additional rights to any such Employee,
Eligible Employee, surviving spouse or beneficiary thereof under the Pension
Plan or the RSP, nor in any way to limit, modify, repeal or otherwise affect the
Company's right to amend or modify the Pension Plan and the RSP.
9.03 Amendments/Termination. The Company reserves the right to make from time
to time amendments to or terminate this Plan by vote duly adopted by the Board
of Directors (or any duly authorized committee thereof), provided, however, that
no such amendment or termination shall cause a reduction or cessation of the
Supplemental Pension Benefits of any former Eligible Employee who has retired or
otherwise terminated employment with the Company prior to the adoption of such
vote of amendment or termination, provided further that no such amendment or
termination shall cause the Supplemental Pension Benefit of any active Eligible
Employee to be less than the lesser of (a) the Supplemental Pension Benefit to
which the Eligible Employee would have been entitled hereunder if such Eligible
Employee had terminated employment with the Company immediately prior to the
adoption of such vote of amendment or termination or (b) the Supplemental
Pension Benefit to which the Eligible Employee would have been entitled
hereunder had
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<PAGE>
the Plan continued in effect, without amendment, to the date of such Eligible
Employee's actual retirement or other termination of employment, and provided
further that no such amendment or termination shall adversely affect the amount
of Supplemental RSP Benefit payable to any Eligible Employee on account of
amounts credited to such Eligible Employee's account hereunder pursuant to the
first sentence of Section 7.01 prior to the adoption of such amendment or
termination.
9.04 Non-Assignability. The benefits payable under this Plan shall not be
subject to alienation, assignment, pledge, garnishment, execution or levy of any
kind and any attempt to cause any Supplemental Pension Benefit or Supplemental
RSP Benefit to be so subjected shall not be recognized.
9.05 Plan Administration. The Plan shall be operated and administered by the
Board of Directors (or by any person or committee duly authorized by the Board)
whose decision on all matters involving the interpretation and administration of
the Plan shall be final and binding.
9.06 Suspension of Supplemental Pension Benefits. Payment of Supplemental
Pension Benefits under this Plan to a retired Eligible Employee who is
reemployed by the Company prior to age seventy (70) will be suspended on the
first day of the month coinciding with or next following completion of 1,000
"hours of service" (as that term is defined in the Pension Plan) during a
calendar year. The payment of a Supplemental Pension Benefit hereunder will
resume on the earlier of the following dates:
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<PAGE>
(a) first day of the month coinciding with or next following termination of
employment;
(b) first day of the month coinciding with or next following attainment of
age seventy (70);
(c) the July 1 coinciding with or next following a reduction in the Eligible
Employee's work schedule such that the Eligible Employee will be credited
with less than 1000 "hours of service" in a calendar year; or
(d) as of the first of the month during which a reduction in the Eligible
Employee's work schedule is such that payment of Pension Plan Benefits is
mandated by law.
At the time of resumption of payments to such Eligible Employee, his
Supplemental Pension Benefit hereunder shall be recomputed, provided that the
Company may, in its sole discretion, reduce the amount so computed in such
manner as it determines to be necessary to avoid any duplication of benefits
hereunder.
9.07 Withholding of Taxes, etc. All amounts payable hereunder shall be
reduced for the amounts required to be withheld pursuant to any applicable
governmental law or regulation with respect to taxes or any similar provisions.
9.08 Successor Company. In the event of the dissolution, merger,
consolidation or reorganization of the Company, provision may be made by which a
successor to all or a major portion of the Company's property or business shall
continue
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the Plan, and the successor shall have all of the powers, duties and
responsibilities of the Company under the Plan.
9.09 Governing Law. This Plan shall be construed and enforced in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts.
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<PAGE>
TRUST AGREEMENT FOR THE
HOUGHTON MIFFLIN PENSION PLAN
Between
HOUGHTON MIFFLIN COMPANY
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. TRUST FUND ............................................................. 2
1.1 Receipt of Assets .................................................. 2
1.2 Employers .......................................................... 3
1.3 Plan ............................................................... 3
1.4 Accounting for a Plan's Undivided Interest
in the Trust Fund .................................................. 3
1.5 No Trustee Duty Regarding Contributions ............................ 4
2. DISBURSEMENTS FROM THE TRUST FUND ...................................... 4
3. RESPONSIBILITIES RELATING TO INVESTMENT FUNDS
AND INVESTMENT ACCOUNTS ................................................ 6
3.1 Investment Manager Appointment ..................................... 6
3.2 Company Directed Investment Accounts ............................... 8
3.3 Trustee Directed Investment Accounts ............................... 9
4. POWERS OF THE TRUSTEE .................................................. 9
4.1 Investment Power of the Trustee .................................... 9
4.2 Administrative Powers of the Trustee ............................... 14
5. INDEMNIFICATION ........................................................ 15
6. SECURITIES AND OTHER PROPERTY .......................................... 16
7. COMPUTERIZED REPORTING SERVICES ........................................ 16
7.1 Protection of Equipment, Confidential or
Proprietary Programs and Information ............................... 16
7.2 Company Acknowledgment ............................................. 18
8. SECURITY CODES ......................................................... 18
9. TAXES .................................................................. 18
9.1 Trustee Compensation and Expense ................................... 19
10. ACCOUNTS OF THE TRUSTEE ............................................... 19
11. RELIANCE ON COMMUNICATIONS ............................................ 22
12. RESIGNATION AND REMOVAL OF TRUSTEE .................................... 22
13. AMENDMENT ............................................................. 23
14. TERMINATION ........................................................... 23
<PAGE>
15. MISCELLANEOUS ......................................................... 24
15.1 Governing Law ................................................... 24
15.2 No Reversion to Employers ....................................... 24
15.3 Non-Alienation of Benefits ...................................... 25
15.4 Duration of Trust ............................................... 26
15.5 No Guarantees ................................................... 26
15.6 Duty to Furnish Information ..................................... 26
15.7 Withholding ..................................................... 26
15.8 Parties Bound ................................................... 27
15.9 Necessary Parties to Disputes ................................... 27
15.10 Unclaimed Benefit Payments ...................................... 28
15.11 Severability .................................................... 28
15.12 References ...................................................... 28
15.13 Headings ........................................................ 28
15.14 No Liability for Acts of Predecessor and
Successor Trustees .............................................. 28
15.15 Counterparts .................................................... 28
<PAGE>
HOUGHTON MIFFLIN PENSION PLAN
TRUST AGREEMENT
Agreement made as of April 1, 1990, by and between HOUGHTON MIFFLIN COMPANY a
corporation organized under the laws of Massachusetts (hereinafter referred to
as the "Company") and STATE STREET BANK AND TRUST COMPANY, a trust company
organized under the laws of the Commonwealth of Massachusetts (hereinafter
referred to as the "Trustee").
WITNESSETH:
WHEREAS, the Company maintains the Houghton Mifflin Pension Plan,
(hereinafter referred to as the "Plan") which Plan was established effective as
of July 1, 1953 and was most recently amended and restated in its entirety
effective as of July 1, 1988, and which Plan is funded by a trust under a Trust
Agreement (the "Retirement Trust") with Bank of New England as Trustee under a
restated Retirement Trust document executed March 1, 1983, as amended by an
amendment executed May 27, 1987 for the exclusive benefit of certain of its
employees;
WHEREAS, the authority to conduct the general operation and administration of
the Plan is vested in the Retirement Committee (referred to herein as the
"Administrator" of the Plan) which shall have the authorities and shall be
subject to the duties with respect to the trust specified in the Plan and in
this Trust Agreement;
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WHEREAS, the Company has appointed State Street Bank and Trust Company as
successor trustee to Bank of New England, effective April 1, 1990; and
WHEREAS, the Company and the Trustee desire to amend and restate the
Retirement Trust in its entirety by substituting therefor the provisions of this
Trust Agreement effective as of April 1, 1990;
NOW, THEREFORE, the Company and the Trustee do hereby amend and restate the
said Retirement Trust and continue the trust as the funding vehicle for the
Plan, upon the terms and conditions hereinafter set forth, effective April 1,
1990:
1. TRUST FUND
1.1 Receipt of Assets. The Trustee shall receive and accept for the purposes
hereof all sums of money and other property paid to it by or at the direction of
the Company or any Employer, and pursuant to the terms of this Trust Agreement
shall hold, invest, reinvest, manage, administer and distribute such monies and
other property and the increments, proceeds, earnings and income thereof for the
exclusive benefit of members (hereinafter "Members") in the Plan and their
beneficiaries. The Trustee need not inquire into the source of any money or
property transferred to it nor into the authority or right of the transferor of
such money or property to transfer such money or property to the Trustee. All
assets held by the Trustee in the trust pursuant to the provisions of this Trust
Agreement at the time of reference are referred to herein as the "Trust Fund".
2
<PAGE>
1.2 Employers. For purposes of this Trust Agreement the term "Employer" means
any corporation which is a member of a controlled group of corporations of which
the Company is a member as determined under Section 1563(a) of the Internal
Revenue Code of 1986, as amended without regard to Section 1563(a)(4) and
Section 1563(e)(3)(C) of such Code, and which corporation has adopted this Trust
Agreement with the consent of the Company and the Trustee.
1.3 Plan. References in this Trust Agreement to the "Plan" shall, unless the
context indicates to the contrary, mean the "Houghton Mifflin Pension Plan".
The Company shall be responsible for verifying that while any assets of the
Plan are held in the Trust Fund, that Plan (i) is "qualified" within the meaning
of Section 401(a) of the Code; (ii) is permitted by existing or future rulings
of the United States Treasury Department to pool its funds in a group trust; and
(iii) permits its assets to be commingled for investment purposes with the
assets of other plans by investing such assets in this Trust Fund whether or not
its assets will in fact be held in a separate Investment Fund.
1.4 Accounting for a Plan's Undivided Interest in the Trust Fund. All
transfers to, withdrawals from, and other transactions regarding the Trust Fund
shall be conducted in such a way that the proportionate interest in the Trust
Fund of each Plan and the fair market value of that interest may be determined
at any time. Whenever the assets of more than one Plan are commingled in the
Trust Fund or in any Investment Fund, the undivided interest
3
<PAGE>
therein of that Plan shall be debited or credited (as the case may be) (i) for
the entire amount of every contribution received on behalf of that Plan, every
benefit payment, or other expense attributable solely to that Plan, and every
other transaction relating only to that Plan; and (ii) for its proportionate
share of every item of collected or accrued income, gain or loss, and general
expense; and other transactions attributable to the Trust Fund or that
Investment Fund as a whole. As of each date when the fair market value of the
investments held in the Trust Fund or an Investment Fund are determined as
provided for in Article 10, the Trustee shall adjust the value of each Plan's
interest therein to reflect the net increase or decrease in such values since
the last such date. For all of the foregoing purposes, fractions of a cent may
be disregarded.
1.5 No Trustee Duty Regarding Contributions. The Trustee shall not be under
any duty to require payment of any contributions to the Trust Fund, or to see
that any payment made to it is computed in accordance with the provisions of the
Plan, or otherwise be responsible for the adequacy of the Trust Fund to meet and
discharge any liabilities under the Plan.
2. DISBURSEMENTS FROM THE TRUST FUND.
The Trustee shall from time to time on the directions of the Administrator or
other authorized person make payments out of the Trust Fund to such persons,
including the Administrator, or any member of the Retirement Committee in such
manner, in such amounts and for such purposes as may be specified in the
directions of the Administrator.
4
<PAGE>
The Administrator shall be responsible for insuring that any payment directed
under this Article conforms to the provisions of the Plan, this Trust Agreement,
and the provisions of the Employee Retirement Income Security Act of 1974, as
amended (referred to herein as "ERISA"). Each direction of the Administrator
shall be in writing and shall be deemed to include a certification that any
payment or other distribution directed thereby is one which the Administrator is
authorized to direct, and the Trustee may conclusively rely on such
certification without further investigation. Payments by the Trustee may be made
by its check to the order of the payee. Payments or other distributions
hereunder may be mailed to the payee at the address last furnished to the
Trustee by the Administrator or if no such address has been so furnished, to the
payee in care of the Administrator. The Trustee shall not incur any liability or
other damage on account of any payments or other distributions made by it in
accordance with the written directions of the Administrator.
Notwithstanding the preceding two paragraphs of this Section 2, the Trustee
will not make payments directed by the Administrator following a "Change in
Control" (as defined in Section 13.036 of the Plan document), which directions
are given pursuant to a Plan amendment adopted in violation of Section 13.012,
13.013, or 13.036 of the Plan document (or a similar provision of any subsequent
version of the Plan document). The Administrator shall notify the Trustee of the
occurrence of a Change in Control and shall attach to its notice a certified
copy
5
<PAGE>
of the Plan (including all amendments thereto) as it existed immediately prior
to the Change in Control. The Trustee may rely on the Administrator's notice or
on any other actual notice, satisfactory to the Trustee, of a Change in Control
which the Trustee may receive. Absent any notice from the Administrator, the
Trustee shall have no obligation or duty to determine if or when a change in
Control has occurred.
3. RESPONSIBILITIES RELATING TO INVESTMENT FUNDS AND INVESTMENT ACCOUNTS.
3.1 Investment Manager Appointment. The Administrator from time to time may
appoint one or more independent Investment Managers, pursuant to a written
investment management agreement describing the powers and duties of the
Investment Manager, to direct the investment and reinvestment of all or a
portion of the Trust Fund (hereinafter referred to as an "Investment Account").
The Administrator shall be responsible for ascertaining that while each
Investment Manager is acting in that capacity hereunder, the following
requirements are satisfied:
(a) The Investment Manager is either (i) registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, (ii) a bank as
defined in that Act or (iii) an insurance company qualified to perform
the services described in (b) below under the laws of more than one
state.
(b) The Investment Manager has the power to manage, acquire or dispose of any
assets of the Plan for which it is responsible hereunder.
(c) The Investment Manager has acknowledged in writing to the Administrator
and the Trustee that he or it is a fiduciary with respect to the Plans
within the meaning of Section 3(21)(A) of ERISA.
6
<PAGE>
The Administrator shall furnish the Trustee with written notice of the
appointment of each Investment Manager hereunder, and of the termination of any
such appointment. Such notice shall specify the assets which shall constitute
the Investment Account. The Trustee shall be fully protected in relying upon the
effectiveness of such appointment and the Investment Manager's continuing
satisfaction of the requirements set forth above until it receives written
notice from the Administrator to the contrary.
The Trustee shall conclusively presume that each Investment Manager, under
its investment management agreement, is entitled to act, in directing the
investment and reinvestment of the Investment Account for which it is
responsible, in its sole and independent discretion and without limitation,
except for any limitations which from time to time the Administrator and the
Trustee agree (in writing) shall modify the scope of such authority.
The Trustee shall have no liability (i) for the acts or omissions of any
Investment Manager; (ii) for following directions, including investment
directions of an Investment Manager or the Administrator, which are given in
accordance with this Trust Agreement; or (iii) for any loss of any kind which
may result by reason of the manner of division of the Trust Fund or Investment
Fund into Investment Accounts.
An Investment Manager shall certify, at the request of the Trustee, the value
of any securities or other property held in any Investment Account managed by
such Investment Manager, and
7
<PAGE>
such certification shall be regarded as a direction with regard to such
valuation. The Trustee shall be entitled to conclusively rely upon such
valuation for all purposes under this Trust Agreement.
3.2 Company Directed Investment Accounts. The Trustee shall, if so directed
in writing by the Administrator, segregate all or a portion of the Trust Fund
held by it into one or more separate investment accounts to be known as Company
Directed Accounts, with respect to which the Administrator shall have the powers
and duties granted to an Investment Manager under this Agreement. The
Administrator, by written notice to the Trustee, may at any time relinquish its
powers under this Section 3.2 and direct that a Company Directed Account shall
no longer be maintained. In addition, during any time when there is no
Investment Manager with respect to an Investment Account (such as before an
investment management agreement takes effect or after it terminates), the
Administrator shall direct the investment and reinvestment of such Investment
Account. Whenever the Administrator is directing the investment and reinvestment
of an Investment Account or a Company Directed Account, the Administrator shall
have the powers and duties which an Investment Manager would have under this
Trust Agreement if an Investment Manager were then serving and the Trustee shall
be protected in relying on the Administrator's directions without reviewing
investments or making suggestions to the same extent as it would be protected
under this Trust Agreement if it had relied on the directions of an Investment
Manager.
8
<PAGE>
3.3 Trustee Directed Investment Accounts. The Trustee shall have no duty or
responsibility to direct the investment and reinvestment of the Trust Fund or
any Investment Account unless expressly agreed to in writing between the Trustee
and the Administrator. In the event that the Trustee enters into such an
agreement, it shall have the powers and duties of an Investment Manager under
this Trust Agreement with regard to such Investment Account.
4. POWERS OF THE TRUSTEE.
4.1 Investment Powers of the Trustee. The Trustee shall have and exercise the
following powers and authority (i) over Investment Accounts where it has express
investment management discretion as provided in Section 3.3 or (ii) upon
direction of the Investment Manager of an Investment Account or (iii) upon
direction of the Administrator for a Company Directed Account:
(a) To purchase, receive, or subscribe for any securities or other property
and to retain in trust such securities or other property.
(b) To acquire and hold qualifying employer securities and qualifying
employer real property, as such investments are defined in Section 407(d)
of ERISA.
(c) To sell for cash or on credit, to grant options, convert, redeem,
exchange for other securities or other property, to enter into standby
agreements for future investment, either with or without a standby fee,
or otherwise to dispose of any securities or other property at any time
held by it.
(d) To settle, compromise or submit to arbitration any claims, debts, or
damages, due or owing to or from the trust, to commence or defend suits
or legal proceedings and to represent the trust in all suits or legal
proceedings in any court of law or before any other body or tribunal.
(e) To trade in financial options and futures, including index options and
options on futures and to execute in connection therewith such account
agreements and other
9
<PAGE>
(f) To exercise all voting rights, tender or exchange rights, any conversion
privileges, subscription rights and other rights and powers available in
connection with any securities or other property at anytime held by it;
to oppose or to consent to the reorganization, consolidation, merger, or
readjustment of the finances of any corporation, company or association,
or to the sale, mortgage, pledge or lease of the property of any
corporation, company or association any of the securities which may at
any time be held by it and to do any act with reference thereto,
including the exercise of options, the making of agreements or
subscriptions and the payment of expenses, assessments or subscriptions,
which may be deemed necessary or advisable by the Investment Manager or
Administrator in connection therewith, and to hold and retain any
securities or other property which it may so acquire; and to deposit any
property with any protective, reorganization or similar committee, and to
pay and agree to pay part of the expenses and compensation of any such
committee and any assessments levied with respect to property so
deposited.
(g) To borrow money in such amounts and upon such terms and conditions as
shall be deemed advisable or proper by the Administrator or Investment
Manager to carry out the purposes of the trust and to pledge any
securities or other property for the repayment of any such loan.
(h) To invest all or a portion of the Trust Fund in contracts issued by
insurance companies, including contracts under which the insurance
company holds Plan assets in a separate account or commingled separate
account managed by the insurance company. The Trustee shall be entitled
to rely upon any written directions of the Administrator or the
Investment Manager under this Section 4.1, and the Trustee shall not be
responsible for the terms of any insurance contract that it is directed
to purchase and hold or for the selection of the issuer thereof or for
performing any functions under such contract (other than the execution
of any documents incidental thereto) on the instructions of the
Administrator or the Investment Manager.
(i) To manage, administer, operate, lease for any number of years, develop,
improve, repair, alter, demolish, mortgage, pledge, grant options with
respect to, or otherwise deal with any real property or interest therein
at any time held by it, and to hold any such real property in its own
name or in the name of a nominee, with or without the addition of words
indicating that such property is held in a fiduciary capacity (provided
that the Trustee's records shall show that such property is part of the
Trust Fund), all upon such terms and conditions as may be deemed
advisable by the Investment Manager or Administrator.
10
<PAGE>
(j) To renew, extend or participate in the renewal or extension of any
mortgage, upon such terms as may be deemed advisable by the Investment
Manager or Administrator, and to agree to a reduction in the rate of
interest on any mortgage or of any guarantee pertaining thereto in any
manner and to any extent that may be deemed advisable by the Investment
Manager or Administrator for the protection of the Trust Fund or the
preservation of the value of the investment; to waive any default,
whether in the performance of any covenant or condition of any mortgage
or in the performance of any guarantee, or to enforce any such default in
such manner and to such extent as may be deemed advisable by the
Investment Manager or Administrator; to exercise and enforce any and all
rights of foreclosure, to bid on property on foreclosure, to take a deed
in lieu of foreclosure with or without paying consideration therefor, and
in connection therewith to release the obligation on the bond secured by
such mortgage, and to exercise and enforce in any action, suit or
proceeding at law or in equity any rights or remedies in respect to any
such mortgage or guarantee.
(k) To hold part or all of the Trust Fund uninvested.
(l) To employ suitable agents and counsel and to pay their reasonable and
proper expenses and compensation.
(m) To purchase and sell foreign exchange and contracts for foreign exchange,
including transactions entered into with State Street Bank and Trust
Company, its agents or subcustodians.
(n) To form corporations and to create trusts to hold title to any securities
or other property, all upon such terms and conditions as may be deemed
advisable by the Investment Manager or Administrator.
(o) To register any securities held by it hereunder in its own name or in the
name of a nominee with or without the addition of words indicating that
such securities are held in a fiduciary capacity and to hold any
securities in bearer form and to deposit any securities or other property
in a depository or clearing corporation (provided that the Trustee's
records shall show that such securities or deposit receipts are part of
the Trust Fund).
(p) To make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases, or other instruments in
writing necessary or desirable for the accomplishment of any of the
foregoing powers.
(q) To invest at State Street Bank and Trust Company (i) in any type of
interest bearing investments (including, but not limited to savings
accounts, money market accounts,
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<PAGE>
certificates of deposit and repurchase agreements) and (ii) in
noninterest bearing accounts (including but not limited to checking
accounts).
(r) To invest in collective investment funds maintained by State Street Bank
and Trust Company or by others for the investment of the assets of
employee benefit plans qualified under Section 401 of the Code, whereupon
the instruments establishing such funds, as amended, shall be deemed a
part of this Trust Agreement and incorporated by reference herein.
Except as otherwise provided in this Trust Agreement, the Investment Manager
of an Investment Account or the Administrator in the case of a Company Directed
Account shall have the power and authority, to be exercised in its sole
discretion at any time and from time to time, to issue orders for the purchase
or sale of securities directly to a broker. Written notification of the issuance
of each such order shall be given promptly to the Trustee by the Investment
Manager or the Administrator and the confirmation of each such order shall be
confirmed to the Trustee by the broker. Unless otherwise directed by the
Administrator or Investment Manager, such notification shall be authority for
the Trustee to pay for securities purchased or to deliver securities sold as the
case may be. Upon the direction of the Investment Manager or the Administrator,
the Trustee will execute and deliver appropriate trading authorizations, but no
such authorization shall be deemed to increase the liability or responsibility
of the Trustee under this Trust Agreement.
The Trustee shall transmit promptly to the Administrator or the Investment
Manager, as the case may be, all notices of conversion, redemption, tender,
exchange, subscription, class action, claim in insolvency proceedings or other
rights or powers
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<PAGE>
relating to any of the securities in the Trust Fund, which notices are received
by the Trustee from its agents or custodians, from issuers of the securities in
question and from the party (or its agents) extending such rights. The Trustee
shall have no obligation to determine the existence of any conversion,
redemption, tender, exchange, subscription, class action, claim in insolvency
proceedings or other right or power relating to any of the securities in the
Trust Fund of which notice was given prior to the purchase of such securities by
the Trust Fund, and shall have no obligation to exercise any such right or power
unless the Trustee is informed of the existence of the right or power.
The Trustee shall not be liable for any untimely exercise or assertion of
such rights or powers described in the paragraph immediately above in connection
with securities or other property of the Trust Fund at any time held by it
unless (i) it or its agents or custodians are in actual possession of such
securities or property and (ii) it receives directions to exercise any such
rights or powers from the Administrator or the Investment Manager, as the case
may be, and both (i) and (ii) occur at least three business days prior to the
date on which such rights or powers are to be exercised, or unless it failed to
transmit such notices or other information or materials properly in accordance
with the preceding paragraph.
If the Trustee is directed by the Administrator or an Investment Manager to
purchase securities issued by any foreign government or agency thereof, or by
any corporation or other
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<PAGE>
entity domiciled outside of the United States, it shall be the responsibility of
the Administrator or Investment Manager, as the case may be, to advise the
Trustee in writing with respect to any laws or regulations of any foreign
countries or any United States territory or possession which shall apply in any
manner whatsoever to such securities, including, without limitation, receipt by
the Trustee of dividends, interest or other distributions on such securities.
4.2 Administrative Powers of the Trustee. Notwithstanding the appointment of
an Investment Manager, the Trustee shall have the following powers and
authority, to be exercised in its sole discretion, with respect to the Trust
Fund:
(a) To employ suitable agents, custodians and counsel and to pay their
reasonable expenses and compensation.
(b) To appoint ancillary trustees to hold any portion of the assets of the
trust and to pay their reasonable expenses and compensation.
(c) To register any securities held by it hereunder in its own name or in the
name of a nominee with or without the addition of words indicating that
such securities are held in a fiduciary capacity and to hold any
securities in bearer form and to deposit any securities or other property
in a depository or clearing corporation (provided that the Trustee's
records shall show that such securities or deposit receipts are part of
the Trust Fund).
(d) To make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing
necessary or desirable for the accomplishment of any of the foregoing
powers.
(e) Generally to do all ministerial acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable in carrying
out its duties under this Trust Agreement.
Notwithstanding anything in the Plan or this Trust Agreement to the contrary,
the Trustee shall not be required by the
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<PAGE>
Company, the Administrator or any Investment Manager to engage in any action,
nor make any investment which constitutes a prohibited transaction or is
otherwise contrary to the provisions of ERISA or which is otherwise contrary to
law or to the terms of the Plans or this Trust Agreement.
The Trustee may consult with expert legal counsel concerning any question
which may arise with reference to this Trust Agreement and its powers and duties
hereunder (which counsel may be counsel to the Company). The written opinion of
such counsel shall be full and complete protection of the Trustee in respect to
any action taken or suffered by the Trustee hereunder in good faith reliance on
said opinion.
5. INDEMNIFICATION.
The Company shall indemnify and save harmless the Trustee for and from any
loss or expense (including reasonable attorneys' fees) arising (a) out of any
matter as to which this Trust Agreement provides that the Trustee is protected,
not liable, or not responsible, or (b) by reason of any breach of any statutory
or other duty owed to the Plan by the Company, any Employer, the Administrator,
any Investment Manager, except the Trustee acting as Investment Manager, or any
delegate of any of them (and for the purposes of this sentence the Trustee shall
not be considered to be such a delegate), whether or not the Trustee may also be
considered liable for that other person's breach under the provisions of Section
405(a) of ERISA; provided, however, that the Company shall not indemnify the
Trustee for any loss or
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<PAGE>
expense arising out of or by reason of the Trustee's own negligence.
6. SECURITIES OR OTHER PROPERTY.
The words "securities or other property", used in this Trust Agreement, shall
be deemed to refer to any property, real or personal, or part interest therein,
wherever situated, including, without limitation, governmental, corporate or
personal obligations, trust and participation certificates, partnership
interests, annuity or investment contracts issued by an insurance company,
leaseholds, fee titles, mortgages and other interests in realty, preferred and
common stocks, certificates of deposit, financial options and futures or any
other form of option, evidences of indebtedness or ownership in foreign
corporations or other enterprises or indebtedness of foreign governments, and
any other evidences of indebtedness or ownership, including securities or other
property of the Company, even though the same may not be legal investment for
trustees under any law other than ERISA.
7. COMPUTERIZED REPORTING SERVICES.
7.1 Protection of Equipment, Confidential or Proprietary Programs and
Information. The Company agrees to use the equipment, computer programs and
other information supplied by the Trustee under this Trust Agreement solely for
its own internal use and benefit and not for resale or other transfer or
disposition to, or use by or for the benefit of, any other person or
organization without the prior written approval of the
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Trustee.
The Company acknowledges that the data bases, computer programs, screen
formats, screen designs, report formats, interactive design techniques, and
other information furnished to the Company by the Trustee constitute copyrighted
material or trade secrets or proprietary information of substantial value to the
Trustee. Such data bases, programs and other information are collectively
referred to below as "Proprietary Information". The Company agrees that it shall
treat all Proprietary Information as proprietary to the Trustee and that it
shall not divulge any Proprietary Information to any person or organization
except as expressly permitted hereunder, or as required by a court or other
order. Without limiting the foregoing, except as otherwise permitted by the
Trustee, the Company agrees for itself and its employees and agents:
(a) to use such programs and data bases (i) solely on the Trustee's
computers, (ii) solely from equipment at Company locations agreed to
between the Company and the Trustee and (iii) solely in accordance with
the Trustee's applicable user documentation;
(b) to use equipment supplied by the Trustee solely with programs supplied by
the Trustee and no other programs or software;
(c) to refrain from copying or duplicating in any way (other than in the
normal course of performing processing on Trustee's computers) any part
of any Proprietary Information;
(d) to refrain from obtaining unauthorized access to any programs, data or
other information not owned by the Company, and if such access is
accidentally obtained, to respect and safeguard the same as Proprietary
Information;
(e) to refrain from causing or allowing information transmitted from the
Trustee's computer to the Company's terminals to be retransmitted to
another computer, terminal or other device;
17
<PAGE>
(f) that the Company shall have access to only those authorized transactions
as agreed to between the Company and the Trustee;
(g) to honor reasonable written requests made by the Trustee to protect at
the Trustee's expense the rights of the Trustee in Proprietary
Information at common law, under the Federal copyright statutes and under
other Federal and state statutes.
7.2 Company Acknowledgment. The Company hereby acknowledges that the data and
information it will be accessing from Trustee is unaudited and may not be
accurate due to inaccurate pricing of securities, delays of a day or more in
updating the Account and other causes for which Trustee will not be liable to
the Company.
8. SECURITY CODES.
If the Trustee has issued to the Company, or to any Investment Manager
appointed by the Company, security codes or passwords in order that the Trustee
may verify that certain transmissions of information, including directions or
instructions, have been originated by the Company or the Investment Manager, as
the case may be, the Trustee shall be kept indemnified by and be without
liability to the Company for any action taken or omitted by it in reliance upon
receipt by the Trustee of transmissions of information with the proper security
code or password, including communications purporting to be directions or
instructions, which the Trustee reasonably believes to be from the Company or
Investment Manager.
9. TAXES.
The Trustee shall pay out of the Trust Fund all real and personal property
taxes, income taxes and other taxes of any and
18
<PAGE>
all kinds levied or assessed under existing or future laws against the Trust
Fund. Until advised to the contrary by the Administrator, the Trustee shall
assume that the Trust is exempt from Federal, State and local income taxes, and
shall act in accordance with that assumption. The Administrator shall timely
file all Federal, State and local tax and information returns relating to the
Plans and Trust except that the Trustee will prepare and file with Members and
the Internal Revenue Service (and any other relevant taxing authority) the
required tax reporting forms on distributions made through the Trustee.
9.1 Trustee Compensation and Expenses. The Trustee shall be paid such
reasonable compensation as from time to time shall be agreed upon by the Company
and the Trustee. Unless paid by the Company, such Trustee compensation shall,
upon reasonable advance written notice from the Trustee to the Company, be
withdrawn by the Trustee out of the Trust Fund. The Trustee may make payments to
others or reimburse itself for payments made to others for reasonable and
necessary expenses of the administration of the Trust, including counsel fees,
provided that all such payments shall be accounted for to the Company, including
expenses relating to the handling of securities or to its duties as Trustee.
Such compensation and expenses shall be paid by the Company if the same cannot
by operation of law be withdrawn from the Trust Fund.
10. ACCOUNTS OF THE TRUSTEE.
19
<PAGE>
The Trustee shall maintain or cause to be maintained suitable records, data
and information relating to its functions hereunder.
The Trustee shall keep accurate and detailed accounts of all investments,
receipts, disbursements, and other actions hereunder. Its books and records
relating thereto shall be open to inspection and audit at all reasonable times
by the Administrator or its duly authorized representatives and each Investment
Manager. The Trustee shall be entitled to reimbursement of its reasonable
expenses incurred in connection with such audits or inspections.
Within sixty days after the close of each fiscal year of the trust and at
more frequent intervals if agreed to by the parties hereto, and within sixty
days after the removal or resignation of the Trustee as provided hereunder, the
Trustee shall render to the Company a written statement and account showing in
reasonable summary the investments, receipts, disbursements, and other
transactions engaged in during the preceding fiscal year or period, and setting
forth the assets and liabilities of the trust. Unless the Company shall have
filed with the Trustee written exceptions or objections to any such statement
and account within sixty days after receipt thereof, the Company shall be deemed
to have approved such statement and account, and in such case or upon written
approval by the Administrator of any such statement and account, the Trustee
shall be released and discharged with respect to all matters and things set
forth in such statement and account as though it had been settled by a
20
<PAGE>
decree of a court of competent jurisdiction in an action or proceeding in which
the Company, all other necessary parties and all persons having any beneficial
interest in the Trust Fund were parties.
The Trustee shall determine the fair market value of assets of the Trust Fund
based upon valuations provided by Investment Managers, information and financial
publications of general circulation, statistical and valuation services, records
of security exchanges, appraisals by qualified persons, transactions and bona
fide offers in assets of the type in question and other information customarily
used in the valuation of property.
The Company or its delegate, the Administrator, each Investment Manager, and
the Trustee shall file such descriptions and reports and make such other
publications, disclosures, registrations and other filings as are required of
them respectively by ERISA or other applicable law.
Nothing contained in this Trust Agreement or in the Plans shall deprive the
Trustee of the right to have a judicial settlement of its account. In any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the trust, the only necessary party thereto in
addition to the Trustee shall be the Company, and no member or other person
having or claiming any interest in the Trust Fund shall be entitled to any
notice or service of process (except as required by law). Any judgment, decision
or award entered in any such proceeding or action shall be conclusive upon all
interested persons.
21
<PAGE>
11. RELIANCE ON COMMUNICATIONS.
The Trustee may rely upon a certification of the Administrator or other
authorized person with respect to any instruction, direction or approval of such
Administrator and may rely upon a certification of the Company as to the
membership of the Administrator as it then exists, and may continue to rely upon
such certification until a subsequent certification is filed with the Trustee.
Subject to the last paragraph of Section 2 hereof, the Trustee shall be fully
protected in acting upon any instrument, certificate, or paper of the Company,
its Board of Directors or the Administrator believed by it to be genuine and to
be signed or presented by any authorized person, and the Trustee shall be under
no duty to make any investigation or inquiry as to any statement contained in
any such writing but may accept the same as fully authorized by the Company, its
Board of Directors or the Administrator, as the case may be.
The Trustee shall be further protected in relying upon a certification from
any Investment Manager appointed by the Company as to the person or persons
authorized to give instructions or directions on behalf of such Investment
Manager and may continue to rely upon such certification until a subsequent
certification is filed with Trustee.
12. RESIGNATION AND REMOVAL OF TRUSTEE.
Any Trustee acting hereunder may resign at any time by giving sixty days'
prior written notice to the Company, which notice may be waived by the Company.
The Company may remove the
22
<PAGE>
Trustee at any time upon sixty days' prior written notice to the Trustee, which
notice may be waived by the Trustee. In case of the resignation or removal of
the Trustee, the Company shall appoint a successor Trustee. Any successor
Trustee shall have the same powers and duties as those conferred upon the
Trustee named in this Trust Agreement. The removal of a Trustee and the
appointment of a new Trustee shall be by a written instrument delivered
to the Trustee. Upon the appointment of a successor Trustee, the resigning or
removed Trustee shall transfer or deliver the Trust Fund to such successor
Trustee.
13. AMENDMENT.
This Trust Agreement may be amended by agreement between the Trustee and the
Company at any time or from time to time and in any manner, and the provisions
of any such amendment may be applicable to the Trust Fund as constituted at the
time of the amendment as well as to the part of the Trust Fund subsequently
acquired.
14. TERMINATION.
This Trust Agreement and the trust created hereby may be terminated at any
time by the Company, and upon such termination or upon the dissolution or
liquidation of the Company, in the event that a successor to the Company by
operation of law or by the acquisition of its business interests shall not elect
to continue the Plan and the trust, the Trust Fund shall be paid out by the
Trustee after the settlement of its final account when directed by the
Administrator. Notwithstanding the foregoing, The Trustee shall not be required
to pay out any assets of the
23
<PAGE>
Trust Fund upon termination of the Trust until the Trustee has received written
certification from the Administrator: (i) that all provisions of law with
respect to such termination have been complied with; and (ii) (after the Trustee
has made a determination of the fair market value of the Plan's assets) that the
Plan's assets are sufficient to discharge when due all obligations of the Plan
required by law. Subject to the last paragraph of Section 2 hereof, the Trustee
shall rely conclusively on such written certification, and shall be under no
obligation to investigate or otherwise determine its propriety.
15. MISCELLANEOUS.
15.1 Governing Law. To the extent not inconsistent with ERISA, as heretofore
or hereafter amended, the provisions of this Trust Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
15.2 No Reversion to Employers. Except as provided herein, no portion of the
principal or the income of the Trust Fund shall revert to or be recoverable by
the Company or any Employer or ever be used for or diverted to any purpose other
than for the exclusive benefit of Members in the Plan and persons claiming under
or through them pursuant to the Plan, provided, however, that:
(a) if a contribution is conditioned upon the deductibility of the
contribution under Section 404 of the Code, then, to the extent the
deduction is disallowed, the Trustee shall, upon written request of the
affected Employer or the Company, return such amounts as may be permitted
by law to such Employer or the Company, as appropriate, within one year
after the date the deduction is disallowed; and
24
<PAGE>
(b) if a contribution or any portion thereof is made by the Company or an
Employer by a mistake of fact, the Trustee shall, upon written request of
the Company or such Employer, return such amounts as may be permitted by
law to the Company or such Employer, as appropriate, within one year
after the date of payment to the Trustee; and
(c) if a contribution is conditioned upon the qualification of the Plan and
Trust under Section 401 and 501 of the Code, the contributions of the
Company or an Employer to the Trust for all Plan Years, with the gains
and losses thereon, shall be returned by the Trustee to the Company or
such Employer, as appropriate, within one year in the event that the
Commissioner of Internal Revenue fails to rule that the Plan and Trust
were as of such date qualified and tax-exempt (within the meaning of
Sections 401 and 501 of the Code); and
(d) in the event that the Plan is terminated, assets of the Plan may be
returned to the Employer if all liabilities to Members and beneficiaries
of the Plan have been satisfied; and
(e) assets may be returned to the Company or an Employer to the extent that
the law permits such transfer.
The Trustee shall be under no obligation to return any part of the Trust Fund
as provided in this Section 15.2 until the Trustee has received a written
certification from the Administrator that such return is in compliance with this
Section 15.2, the Plans and the requirements of the law. Subject to the last
paragraph of Section 2 hereof, the Trustee shall rely conclusively on such
written certification and shall be under no obligation to investigate or
otherwise determine its propriety.
15.3 Non-Alienation of Benefits. No benefit to which a member or his
beneficiary is or may become entitled under the Plan shall at any time be
subject in any manner to alienation or encumbrance, nor be resorted to,
appropriated or seized in any proceeding at law, in equity or otherwise except
for a qualified domestic relations order as defined in Code Section 414(p)
issued
25
<PAGE>
by a court of competent jurisdiction (as determined to be such by the
Administrator). No member or other person entitled to receive a benefit under
the Plan shall, except as specifically provided in the Plan, have power in any
manner to transfer, assign, alienate or in any way encumber such benefit under
the Plan, or any part thereof, and any attempt to do so shall be void.
15.4 Duration of Trust. Unless sooner terminated, the trust created under
this Trust Agreement shall continue for the maximum period of time which the
laws of the Commonwealth of Massachusetts shall permit.
15.5 No Guarantees. Neither the Company, nor any Employer, nor the Trustee
guarantees the Trust Fund from loss or depreciation, nor the payment of any
amount which may become due to any person under the Plan or this Trust
Agreement.
15.6 Duty to Furnish Information. Both the Company and the Trustee shall
furnish to the other any documents, reports, returns, statements, or other
information that the other reasonably deems necessary to perform its duties
imposed under the Plan or this Trust Agreement or otherwise imposed by law.
15.7 Withholding. The Trustee shall withhold any tax which by any present or
future law is required to be withheld from any payment under the Plan, unless
the Trustee and the Company shall have agreed in writing that the Trustee will
not do so. The Administrator shall provide all information reasonably requested
by the Trustee to enable the Trustee to so withhold.
26
<PAGE>
15.8 Parties Bound. This Trust Agreement shall be binding upon the parties
hereto, all Members in the Plan and persons claiming under or through them
pursuant to the Plan, and, as the case may be, the heirs, executors,
administrators, successors, and assigns of each of them. The provisions of
Articles 5, 7 and 8 shall survive termination of the Trust created under this
Trust Agreement or resignation or removal of the Trustee for any reason.
In the event of the merger or consolidation of the Company or any Employer or
other circumstances whereby a successor person, firm or company shall continue
to carry on all or a substantial part of its business, and such successor shall
elect to carry on the provisions of the Plan, as therein provided, such
successor shall be substituted hereunder for the Company or such Employer, as
the case may be, upon the filing in writing of its election so to do with the
Trustee. The Trustee may, but need not, rely on the certification of an officer
of the Company, and a certified copy of a resolution of the Board of Directors
of such successor, reciting the facts, circumstances and consummation of such
succession and the election of such successor to continue the Plan as conclusive
evidence thereof, without requiring any additional evidence.
15.9 Necessary Parties to Disputes. Necessary parties to any accounting,
litigation or other proceedings shall include only the Trustee, the Company and
any appropriate Employers and the settlement or judgment in any such case in
which the Company, the appropriate Employers and the Trustee are duly served or
27
<PAGE>
cited shall be binding upon all Members in the Plan and their beneficiaries and
estates, and upon all persons claiming by, through or under them.
15.10 Unclaimed Benefit Payments. If any check or share certificate in
payment of a benefit hereunder which has been mailed by regular US mail to the
last address of the payee furnished the Trustee by the Company is returned
unclaimed, the Trustee shall notify the Company and shall discontinue further
payments to such payee until it receives the further instruction of the Company.
15.11 Severability. If any provisions of this Trust Agreement shall be held
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions of this Trust Agreement shall continue to be fully
effective.
15.12 References. Unless the context clearly indicates to the contrary, a
reference to a statute, regulation, document or provision shall be construed as
referring to any subsequently enacted, adopted or executed counterpart.
15.13 Headings. Headings and subheadings in this Trust Agreement are inserted
for convenience of reference only and are not to be considered in the
construction of its provisions.
15.14 No Liability for Acts of Predecessor and Successor Trustees. The
Trustee shall have no liability for the acts or omissions of any predecessors or
successors in office.
15.15 Counterparts. This Trust Agreement may be executed in one or more
counterparts, each of which shall constitute an
28
<PAGE>
original.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.
ATTEST: HOUGHTON MIFFLIN COMPANY
/s/ Wendy Essigmann BY: /s/ James E. Evans
TITLE: Vice President
STATE STREET BANK AND TRUST COMPANY
ATTEST: /s/ Michael S. Smith, BY: /s/ Anne Louise VanNostrand
Assistant Secretary Vice President
29
<PAGE>
NOTICE OF APPOINTMENT
OF
INVESTMENT MANAGERS
HOUGHTON MIFFLIN COMPANY, (the "Company"), certifies to STATE STREET BANK AND
TRUST COMPANY (the "Trustee"), through the duly authorized person whose
signature appears below, that the firms whose names are set forth below have
been appointed as Investment Managers with respect to the Trust Agreement for
the Houghton Mifflin Pension Plan between the Company and the Trustee dated as
of April 1, 1990 with authority over the portions of its assets indicated
opposite their names. The Company further certifies that the Trustee may rely
upon this certificate until such time as it receives another certificate bearing
a later date.
INVESTMENT MANAGER PORTION OF ASSETS
Sanford C. Bernstein & Co., Inc. As maintained in a separate
Constitution Capital Management Co. account for each manager.
Consistent Asset Management Company
Northern Capital Management
Incorporated
/s/ James E. Evans
HOUGHTON MIFFLIN COMPANY
BY: James E. Evans
TITLE: Vice President
DATE: December 5, 1990
<PAGE>
FIRST AMENDMENT TO THE
TRUST AGREEMENT FOR THE HOUGHTON MIFFLIN PENSION PLAN
BETWEEN HOUGHTON MIFFLIN COMPANY AND
STATE STREET BANK AND TRUST COMPANY
MADE AS OF APRIL 1, 1990
WHEREAS, the Houghton Mifflin Company (hereinafter called the "Company") has
in effect for certain employees the Houghton Mifflin Pension Plan (the "Plan");
and
WHEREAS, the Company has entered into a Trust Agreement for the Plan between
the Company and State Street Bank and Trust Company, effective as of April 1,
1990 (the "Trust Agreement"); and
WHEREAS, the Company desires to amend the Trust Agreement in certain
respects;
NOW, THEREFORE, pursuant to the power of amendment contained in Section 13 of
the Trust Agreement, the Trust Agreement is hereby amended as follows, effective
as of January 1, l992:
1. The last paragraph of Section 2 of the Trust Agreement is amended to read,
in its entirety, as follows:
"Notwithstanding the preceding two paragraphs of this Section 2, the
Trustee will not make payments directed by the Administrator following a
"Change in Control" (as defined in Section 13.06(f) of the Plan or a similar
provision of any revision of the Plan adopted prior to the occurrence of any
such Change in
<PAGE>
Control), which directions are given pursuant to a Plan amendment adopted in
violation of Section 13.03, 13.04, 13.06(f) or 13.09 of the Plan (or a
similar provision of any revision of the Plan adopted prior to the occurrence
of a Change in Control). The Administrator shall notify the Trustee of the
occurrence of a Change in Control and shall attach to its notice a certified
copy of the Plan (including all amendments thereto) as it existed immediately
prior to the change in Control. The Trustee may rely on the Administrator's
notice or on any other actual notice, satisfactory to the Trustee, of a
Change in Control which the Trustee may receive. Absent any notice from the
Administrator, the Trustee shall have no obligation or duty to determine if
or when a Change in Control has occurred."
2. The following new Section 3.4 is added to Section 3 of the Trust
Agreement:
"3.4 Notwithstanding the preceding provisions of this Section 3, after the
occurrence of a Change in Control, no securities shall be acquired or held in
violation of Section 13.09 of the Plan (or a similar provision of any
revision of the Plan adopted prior to the occurrence of a Change in Control)
and no directions to the Trustee by an Investment Manager or by the
Administrator which are in violation of such Section 13.09 shall be
followed".
3. The first sentence of Section 4.1 of the Trust Agreement shall be amended
by the addition of the following phrase at the beginning thereof: "Subject to
Section 13.09 of the Plan (or a similar provision of any revision of the Plan
adopted prior to the occurrence of a Change in Control),".
2
<PAGE>
4. A new Section 4.3 is added to Section 4 of the Trust Agreement:
"4.3 Notwithstanding the provisions of Sections 4.1 and 4.2 hereof, after
the occurrence of a Change in Control, no power given the Trustee, the
Administrator or any Investment Manager shall be exercised in violation of
Section 13.09 of the Plan (or a similar provision of any revision of the Plan
adopted prior to the occurrence of a Change in Control)."
5. The first sentence of Section 14 of the Trust Agreement is amended by the
addition of the following at the end thereof: "and such payment shall be made in
accordance with Article XIII of the Plan (including, if applicable, provisions
regarding such payment after the occurrence of a Change in Control)."
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
the Trust Agreement to be executed by their duly authorized officers effective
as of January 1, 1992.
ATTEST: HOUGHTON MIFFLIN COMPANY
/s/ Kathleen A. Rideout BY: /s/ James E. Evans
TITLE: Vice President Financial Administration
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ Michael S. McCarthy BY: /s/ Donald D. Perry V.P.
Vice President
HOUGHTON MIFFLIN COMPANY
EXHIBIT 12--COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1995(C) 1994(B) 1993(A) 1992 1991
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) before fixed charges:
Net income (loss) before extraordinary item
and cumulative effect of accounting changes ($ 7.2) $52.4 $31.4 $19.0 $25.1
Provision (benefit) for income taxes (4.2) 32.7 17.7 9.4 15.3
----- ----- ----- ----- -----
Income (loss) from continuing operations before
taxes, extraordinary item, and cumulative
effect of accounting changes (11.4) 85.1 49.1 28.4 40.4
Interest expense 15.2 7.7 3.6 4.4 6.1
Interest portion of rental expense* 3.8 3.4 3.3 3.7 3.7
----- ----- ----- ----- -----
Earnings (loss) before fixed charges $ 7.6 $96.2 $56.0 $36.5 $50.2
Fixed charges:
Interest expense $15.2 $ 7.7 $ 3.6 $ 4.4 $ 6.1
Interest portion of rental expense* 3.8 3.4 3.3 3.7 3.7
----- ----- ----- ----- -----
Total fixed charges $19.0 $11.1 $ 6.9 $ 8.1 $ 9.8
Ratio of earnings to fixed charges .4 8.6 8.1 4.5 5.1
</TABLE>
(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 $.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 $.8 million.
This extraordinary loss is excluded from earnings before fixed charges and
interest expense in calculating the ratio of earnings to fixed charges.
(C) The Company would have needed $11.4 million in additional income to
cover its fixed charges in 1995.
* Includes the portion of rent expense for each period presented that is
deemed by management to be the interest component of such rentals.
EXHIBIT 21
List of Subsidiaries
All of the subsidiaries of the Company, all of which are directly
or indirectly wholly owned by the Company, including those significant
subsidiaries listed below, are included in the consolidated financial
statements.
1. McDougal Littell Inc., a Delaware corporation.
2. The Riverside Publishing Company, a Delaware corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-64903 and Forms S-8 No. 2-69298, 33-59015, and 33-51098)
and related prospectuses of our report dated January 23, 1996, except
for Note 4, as to which the date is March 7, 1996, with respect to the
consolidated financial statements and schedule of Houghton Mifflin Company
included in the Annual Report (Form 10-K) for the year ended December 31, 1995.
/S/ERNST&YOUNG LLP
Boston, Massachusetts
March 25,1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<CASH> $16,701
<SECURITIES> 604
<RECEIVABLES> 204,542
<ALLOWANCES> 21,698
<INVENTORY> 139,927
<CURRENT-ASSETS> 371,200
<PP&E> 246,991
<DEPRECIATION> 123,891
<TOTAL-ASSETS> 1,046,798
<CURRENT-LIABILITIES> 342,383
<BONDS> 0
0
0
<COMMON> 14,759
<OTHER-SE> 218,935
<TOTAL-LIABILITY-AND-EQUITY> 1,046,798
<SALES> 529,022
<TOTAL-REVENUES> 529,022
<CGS> 271,036
<TOTAL-COSTS> 542,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,008
<INCOME-PRETAX> (11,444)
<INCOME-TAX> (4,201)
<INCOME-CONTINUING> (7,243)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,243)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
