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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD FROM APRIL 1, 1997 TO JUNE 30, 1997
COMMISSION FILE NUMBER 1-5406
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .............. to ................
-------------------------------------
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
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997:
Class Outstanding at July 31, 1997
- ------------------------------- ----------------------------
Common Stock, $1 par value 30,010,913
Preferred Stock Purchase Rights 30,010,913
<PAGE> 2
HOUGHTON MIFFLIN COMPANY
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
June 30, 1997 and 1996 and December 31, 1996 3 - 4
Consolidated Condensed Statements of Operations
and Retained Earnings -- Three Months Ended
June 30, 1997 and 1996 5
Consolidated Condensed Statements of Operations
and Retained Earnings -- Six Months Ended
June 30, 1997 and 1996 6
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 7
Notes to Unaudited Consolidated Condensed
Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, June 30, December 31,
1997 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,441 $ 5,164 $ 11,534
Marketable securities available
for sale, at fair value 614 604 612
Accounts receivable 208,159 207,335 189,978
Less: allowance for book returns 10,819 9,589 25,166
---------- ---------- ----------
197,340 197,746 164,812
Inventories
Finished goods 165,707 151,826 124,263
Work in process 9,177 11,490 9,162
Raw materials 5,329 7,991 5,122
---------- ---------- ----------
180,213 171,307 138,547
Income taxes 33,581 37,177 20,551
Prepaid expenses 6,950 10,356 1,913
---------- ---------- ----------
Total current assets 423,139 422,354 337,969
Property, plant, and equipment and
book plates (net of accumulated
depreciation and amortization of
$150,418 in 1997, $112,483 in 1996
and $144,648 at December 31, 1996) 125,598 137,081 116,447
Intangible assets, net 473,341 471,709 485,766
Other assets 87,336 80,194 66,260
---------- ---------- ----------
$1,109,414 $1,111,338 $1,006,442
========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, June 30, December 31,
1997 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 70,096 $ 77,803 $ 57,585
Commercial paper 140,187 112,801 --
Short-term debt -- 50,000 --
Royalties 21,745 24,277 38,154
Salaries, wages, and commissions 7,170 4,656 19,408
Other accrued expenses 25,238 26,892 30,783
Current portion of long-term debt 40,000 -- 40,000
---------- ---------- ----------
Total current liabilities 304,436 296,429 185,930
Long-term debt 501,040 550,957 500,999
Accrued royalties 1,810 2,273 1,899
Other liabilities 21,523 17,307 19,666
Accrued postretirement medical benefits 27,955 27,409 27,655
Stockholders' equity
Preferred stock, $1 par value;
500,000 shares authorized, none issued -- -- --
Common stock, $1 par value;
70,000,000 shares authorized;
29,992,336 shares issued in 1997, 29,517,452
shares issued in 1996, and 29,561,852 shares
issued at December 31, 1996 29,992 29,518 29,562
Capital in excess of par value 61,793 36,199 43,476
Retained earnings 220,894 194,488 243,998
---------- ---------- ----------
312,679 260,205 317,036
Less:
Notes receivable from purchase agreement (6,065) (5,766) (5,916)
Unearned compensation related to outstanding
restricted stock (7,773) (1,165) (1,563)
Common shares held in treasury, at cost
(204,852 shares in 1997, 355,032
shares in 1996 and 230,780 shares
at December 31, 1996) (2,491) (3,766) (2,448)
Benefits trust assets, at market (43,700) (32,545) (36,816)
---------- ---------- ----------
Total stockholders' equity 252,650 216,963 270,293
---------- ---------- ----------
$1,109,414 $1,111,338 $1,006,442
========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales by industry segment:
Educational publishing $179,796 $158,754
General publishing 22,525 19,460
-------- --------
202,321 178,214
Costs and expenses:
Cost of sales 93,652 84,341
Selling and administrative 80,898 75,112
-------- --------
174,550 159,453
-------- --------
Operating income 27,771 18,761
Other income (expense):
Gain on sale of INSO Corporation common stock -- 8,707
Net interest expense (10,421) (10,663)
Equity in earnings (losses) of INSO Corporation 678 (404)
Other income 13 --
-------- --------
(9,730) (2,360)
-------- --------
Income before taxes 18,041 16,401
Income tax provision 7,216 6,887
-------- --------
Net income 10,825 9,514
Retained earnings at beginning of period 228,428 203,071
Valuation allowance on noncurrent marketable
equity securities 52 --
Dividends declared (3,415) (3,338)
Two-for-one stock split effected in the form
of a stock dividend (14,996) (14,759)
-------- --------
Retained earnings at end of period $220,894 $194,488
======== ========
Net income per common share $ 0.38 $ 0.34
Average number of common shares 28,456 27,834
Cash dividends paid per common share $ 0.12 $ 0.12
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
5
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales by industry segment:
Educational publishing $231,164 $201,931
General publishing 39,905 39,118
-------- --------
271,069 241,049
Costs and expenses:
Cost of sales 145,874 134,436
Selling and administrative 148,851 131,941
-------- --------
294,725 266,377
-------- --------
Operating loss (23,656) (25,328)
Other income (expense):
Gain on equity transactions of INSO Corporation 14,904 --
Gain on sale of INSO Corporation common stock -- 22,950
Net interest expense (19,799) (20,271)
Equity in earnings of INSO Corporation 2,290 895
Other income 6 --
-------- --------
(2,599) 3,574
-------- --------
Loss before taxes (26,255) (21,754)
Income tax benefit (10,204) (9,138)
-------- --------
Net loss (16,051) (12,616)
Retained earnings at beginning of period 258,779 228,528
Valuation allowance on noncurrent marketable
equity securities (20) --
Dividends declared (6,818) (6,665)
Two-for-one stock split effected in the form
of a stock dividend (14,996) (14,759)
-------- --------
Retained earnings at end of period $220,894 $194,488
======== ========
Net loss per common share $ (0.56) $ (0.45)
Average number of common shares 28,416 27,794
Cash dividends paid per common share $ 0.24 $ 0.24
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
6
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (16,051) $ (12,616)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in (earnings) losses of INSO Corporation (2,290) (895)
Depreciation and amortization 36,225 31,779
Gain on equity transactions of INSO Corporation and
sale of INSO Corporation stock (14,904) (22,950)
Changes in operating assets and liabilities:
Accounts receivable (32,269) (14,902)
Inventories (41,146) (31,380)
Accounts payable 12,511 (16,753)
Royalties (16,314) (16,087)
Deferred and income taxes payable (13,030) (8,705)
Salaries, wages, and commissions (12,238) (14,095)
Other, net (7,431) (18,529)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (106,937) (125,133)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Proceeds from the sales of INSO Corporation stock -- 25,917
Book plate expenditures (25,582) (30,267)
Acquisition of publishing assets (4,437) (15,241)
Property, plant, and equipment expenditures (5,485) (4,646)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (35,504) (24,237)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Dividends paid on common stock (6,818) (6,665)
Issuance (repayment) of commercial paper 140,187 (31,811)
Issuance of short-term financing -- 50,000
Issuance of long-term financing 90,000 224,809
Repayment of long-term financing (90,000) (100,000)
Exercise of stock options 2,157 684
Other (178) 816
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 135,348 137,833
Decrease in cash and cash equivalents (7,093) (11,537)
Cash and cash equivalents at beginning of period 11,534 16,701
--------- ---------
Cash and cash equivalents at end of period $ 4,441 $ 5,164
========= =========
Supplementary disclosure of cash flow information:
Income taxes paid $ 4,771 $ 1,128
Interest paid $ 19,711 $ 17,802
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
7
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HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Houghton Mifflin Company and its subsidiaries ("the Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. All adjustments (consisting of normal recurring accruals)
that, in the opinion of management, are necessary for the fair presentation of
this interim financial information have been included.
Results of interim periods are not necessarily indicative of results to be
expected for the year as a whole. The effect of seasonal business fluctuations
and the occurrence of many costs and expenses in annual cycles require certain
estimations in the determination of interim results.
The information contained in the interim financial statements should be
read in conjunction with the Company's latest Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
Certain reclassifications have been made to prior period financial
statements in order to conform to the presentation used in the 1997 interim
financial statements.
(2) COMMON STOCK SPLIT
On June 25, 1997, the Board of Directors declared a two-for-one split of
the Company's common stock effective in the form of a 100% stock dividend to
shareholders of record on July 11, 1997, which was distributed on July 25,
1997. The effect of the split is presented retroactively within stockholders'
equity at June 30, 1997 by transferring the par value for the additional shares
issued from the retained earnings account to the common stock account. All
share and per share amounts in this report have been restated to reflect the
effect of this stock split.
(3) ACQUISITIONS
On May 12, 1997, the Company acquired the assets of Chapters Publishing
Ltd., predominantly a publisher of cookbooks. The acquisition has been
accounted for as a purchase and the net assets and results of operations are
included in the Company's consolidated financial statements from the date of
the acquisition. Net cash consideration for the acquisition amounts to
approximately $3.2 million, of which approximately $2.1 million had been paid
as of June 30, 1997. The cost of the acquisition was 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 a period of ten years.
(4) INSO CORPORATION
In March 1994, the Company spun off its former Software Division in an
initial public offering. The equity interest in INSO Corporation ("INSO"), the
successor company, was approximately 40% after the offering. The Company's
recognition of earnings from its investment in INSO is based upon the equity
method of accounting. Accordingly, the Company records its pro-rata share of
income and losses and the impact of INSO's equity activities on a quarterly
basis in arrears.
8
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HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- --Continued--
(4) INSO CORPORATION -- continued
In November 1996, INSO completed an additional public offering of 1.2
million shares of common stock at a net offering price of $47.27 for a total
consideration of $56.7 million. A gain of $14.9 million ($8.6 million
after-tax), or $0.30 per share, was recorded in the first-quarter of 1997
representing the Company's portion of the increase in INSO's net equity. As of
June 30, 1997, the Company's equity ownership has been reduced to approximately
27%.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1997 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
Goodwill $511,963 $482,565 $510,500
Publishing rights 16,624 16,649 16,787
Other 4,000 5,731 4,000
Less: accumulated amortization (59,246) (33,236) (45,521)
-------- -------- --------
Total $473,341 $471,709 $485,766
======== ======== ========
</TABLE>
The carrying value of goodwill is periodically reviewed to determine
recoverability based upon projected net cash flows over the remaining life of
the related business unit. If the analysis indicates that impairment has
occurred, the Company will adjust the book value of the intangible asset to the
undiscounted net cash flow amount.
(6) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), which is required to be
adopted for fiscal years ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under SFAS 128, the dilutive effect
of common stock equivalents will be excluded in calculating basic earnings per
share. All dilutive securities will considered in the presentation of diluted
earnings per share under SFAS 128. There is no material impact on earnings per
share for the quarter and six months ended June 30, 1997 and 1996 calculated
under SFAS 128.
(7) DIVIDENDS DECLARED
The Board of Directors, at its June 25, 1997 meeting, declared a quarterly
cash dividend of $0.125 per share, payable on August 27, 1997, to shareholders
of record on August 13, 1997.
9
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's principal business is publishing, and its operations are
classified into two industry segments: (1) textbooks and other educational
materials ("instructional 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 the school market, the process by which elementary and secondary
schools select and purchase new instructional materials is referred to as the
"adoption" process. The term "adopted", or "adoption" may be used in either of
two ways: (1) to describe a state governing body's approval process, or (2) to
describe a school or school district's selection and purchase of instructional
material. Twenty-two states, or approximately one-half of the United States
school population, adopts new instructional materials on a statewide basis for
a particular subject approximately every five to seven years. These twenty-two
states are referred to as "adoption states." Generally, a school or school
district within an adoption state must use state monies to purchase
instructional materials from the list of programs which have been approved by
the particular state's governing body. In the other states, referred to as
"open territories," individual schools or school districts make the purchasing
decisions.
The adoption cycle improves in 1997 versus 1996, offering greater sales
opportunities due to an increase in the number of states expected to adopt
elementary and secondary school products.
Textbook purchasing patterns are seasonal; the majority of educational
publishing revenues occur in the second and third quarters of the year when
textbook purchases are made for the coming school year. Textbook publishers
tend to incur operating losses in the first and fourth quarters of the year,
and the first-quarter losses are reflected in the results for the first
six months.
On June 25, 1997, the Board of Directors declared a two-for-one split of the
Company's common stock effected in the form of a 100% stock dividend to
shareholders. All per share amounts have been retroactively restated in this
report to reflect the effect of the stock split.
SECOND-QUARTER 1997 COMPARED TO SECOND-QUARTER 1996
- ---------------------------------------------------
Consolidated net income for the quarter ended June 30, 1997 was $10.8 million,
or $0.38 per share, compared to net income of $9.5 million, or $0.34 per share,
for the same period in 1996. Included in the second-quarter of 1997 was a
one-time charge of $0.5 million ($0.3 million after-tax), or $0.01 per share,
related to INSO's acquisition of Mastersoft products from Adobe Systems
Incorporated. The second-quarter of 1996 included a gain of approximately $8.7
million ($5.1 million after-tax), or $0.18 per share, on the sale of 194,500
shares of INSO common stock, and a one-time charge of $1.4 million ($0.8
million after-tax), or $0.03 per share, related to INSO's acquisition of
ImageMark Software Labs.
Excluding these non-recurring items, net income for the second-quarter of 1997
would have been $11.1 million, or $0.39 per share, compared to net income of
$5.3 million, or $0.19 per share, in the second-quarter of 1996. The primary
reasons for the increase in net income in 1997 were higher sales and
improvement in the gross margin.
Net sales:
Net sales for the quarter ended June 30, 1997 were $202.3 million, an increase
of 14% from the $178.2 million reported in the second-quarter of 1996.
Educational publishing net sales increased $21.0 million, or 13%, to $179.8
million in the second-quarter of 1997, from last year's second-quarter net
sales of $158.8 million. All educational publishing divisions reported higher
sales with the largest increases reported by the School Division and McDougal
Littell. Sales in both divisions increased as both divisions benefited from
sales opportunities in adoption states and open territories and
earlier-than-anticipated textbook ordering by a number of school districts. The
School Division had strong sales in adoption states and open territories from
the reading program, Houghton Mifflin Reading: Invitations to Literacy (C)1996,
1997, and the social studies program, We The People (C)1997. McDougal Littell,
the Company's secondary school division, gained significant market share in
adoption states and
10
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open territories with the language arts program, The Language of Literature
(C)1997, the Spanish language program, Dime! (C)1997, and the social studies
program, The Americans (C)1998. Riverside Publishing's sales increased over the
same period last year as a result of increases in custom contract sales and
sales of group assessment materials and clinical tests. Great Source's sales
increased over the second-quarter of 1996 principally as a result of increased
Write Source product sales.
The general publishing segment's second-quarter net sales of $22.5 million
increased $3.1 million, or 16%, from 1996's second-quarter net sales of
$19.5 million. The gain was due to increased sales of adult books and
dictionary products, partially offset by lower sales of publishing rights and
lower distribution income. The most significant growth occurred in the adult
business, as both newly published titles and Mariner Books, the Trade &
Reference Division's new paperback imprint, contributed strong sales.
Cost of sales:
Primarily as a result of higher sales, cost of sales of $93.7 million in the
second-quarter of 1997 increased $9.3 million, or 11%, from $84.3 million in
1996. Cost of sales as a percent of sales decreased to 46% in 1997 from 47% in
1996. One of the reasons for this improvement was lower editorial expenses as a
percent of sales. By combining the acquisitions of D.C. Heath and Company
("Heath") and McDougal Littell & Company with in-house development of new
products, the Company has built a wide spectrum of products which are
positioned to compete in the large number of state adoption and open territory
sales opportunities in 1997, 1998 and 1999. Although management does not expect
editorial expenses in 1997 to decline in absolute dollars, these costs are
expected to decline as a percent of sales as the Company supports the existing
product base. The improvement was also due to lower manufacturing and royalty
costs as a percent of sales, which decreased primarily as a result of a shift
in product mix to higher gross margin products. Higher plate amortization
partially offset these decreases, reflecting the higher plate capitalization
costs incurred in 1996 relating to the completion of a number of projects in
preparation for state adoption and open territory sales opportunities over the
next three years.
11
<PAGE> 12
Selling and administrative:
Selling and administrative expenses in the second-quarter of 1997 were $80.9
million, an increase of $5.8 million, or 8%, from $75.1 million in the
second-quarter of 1996. This increase was primarily due to higher selling
costs. Sales and advertising expense increased, reflecting, in part, the
addition of freelance personnel to expand the sales force and increased sample
expense. Both increases are the result of the large number of sales
opportunities in adoption states and open territories in 1997.
Other income and expense:
In the second-quarter of 1997, the Company recorded a one-time charge of $0.5
million ($0.3 million after-tax), or $0.01 per share, related to INSO's
acquisition of Mastersoft products from Adobe System Incorporated. The
second-quarter of 1996 included a gain of approximately $8.7 million ($5.1
million after-tax), or $0.18 per share, on the sale of 194,500 shares of INSO
common stock, and a one-time charge of $1.4 million ($0.8 million after-tax),
or $0.03 per share, related to INSO's acquisition of ImageMark Software Labs.
Net interest expense of $10.4 million for the second-quarter of 1997 decreased
$0.2 million from the same period in 1996. The reduction is primarily a result
of lower working capital borrowings in the second-quarter of 1997 compared to
the second-quarter of 1996, offset by higher interest rates in 1997.
12
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Income taxes:
The tax provision increased $0.3 million, or 5%, over the same period last year.
This increase is the result of the higher operating income in 1997, partially
offset by a decrease in the tax rate to 40% in 1997 from 42% in 1996.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
- ---------------------------------------
Consolidated net loss for the six months ended June 30, 1997 was $16.1 million,
or $0.56 per share, compared to a net loss of $12.6 million, or $0.45 per share,
for the same period in 1996. During the six months ended June 30, 1997 the
Company recorded a gain of $14.9 million ($8.6 million after-tax), or $0.30 per
share, as the result of INSO's offering of common stock and a one-time charge of
$0.5 million ($0.3 million after-tax), or $0.01 per share, related to the equity
investment in INSO. During the six months ended June 30, 1996, the Company
recorded a gain of approximately $23.0 million ($13.3 million after-tax), or
$0.48 per share, on the sale of 537,500 shares of INSO common stock and a
one-time charge related to the equity investment in INSO of $1.4 million ($0.8
million after-tax), or $0.03 per share.
Excluding these non-recurring items, the seasonal net loss for the six months
ended June 30, 1997 would have been $24.4 million, or $0.86 per share, compared
to a net loss of $25.1 million, or $0.90 per share, in the first six months of
1996. The decrease in the net loss was due to higher revenues, partially offset
by higher selling costs, primarily related to 1997 state adoption and open
territory sales opportunities.
13
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Net sales:
Net sales for the six months ended June 30, 1997 were $271.1 million, an
increase of 12% from the $241.0 million reported in the same period in 1996.
Educational publishing net sales increased $29.3 million, or 14%, to $231.2
million in the six months ended June 30, 1997, from net sales of $201.9 million
in the same period in 1996. All educational publishing divisions reported
higher sales with the largest increases reported by the School Division and
McDougal Littell. Sales in both divisions benefited from the sales opportunities
in adoption states and open territories and earlier-than-anticipated textbook
ordering by a number of school districts.
The general publishing segment's net sales of $39.9 million in the six months
ended June 30, 1997 increased $0.8 million, or 2%, from net sales of $39.1
million during the same period in 1996. This increase was due to increased sales
of adult books and dictionary products, partially offset by lower sales of
publishing rights and lower distribution income.
Cost of sales:
Primarily as a result of higher sales, cost of sales of $145.9 million in the
six months ended June 30, 1997 increased $11.5 million, or 9%, from $134.4
million during the same period in 1996. Cost of sales as a percent of sales for
the six months ended June 30, 1997 decreased to 54% from 56% during the same
period in 1996. The primary reason for this improvement was lower editorial
expenses, principally reflecting efficiencies associated with the Heath and
McDougal Littell acquisitions. Although management does not expect editorial
expenses in 1997 to decline in absolute dollars, this cost is expected to
decline as a percent of sales as the Company supports the existing product
base. The improvement was also due to lower manufacturing and royalty costs as
a percent of sales, primarily as a result of a favorable shift in product mix
to higher gross margin products. Higher plate amortization partially offset
these decreases, reflecting higher capitalization of costs incurred in 1996
relating to the completion of a number of projects in preparation for state
adoption and open territory sales opportunities over the next three years.
14
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Selling and administrative:
Selling and administrative expenses during the six months ended June 30, 1997
were $148.9 million, an increase of $17.0 million, or 13%, from $131.9 million
recorded in the same period in 1996. This increase was primarily due to higher
selling costs. Sales and advertising expense increased, reflecting, in part, the
addition of freelance personnel to expand the sales force and increased sample
expense. Both increases are the result of the large number of sales
opportunities in adoption states and open territories in 1997.
Other income and expense:
In the first-quarter of 1997, the Company recognized a gain of $14.9 million
($8.6 million after-tax), or $0.30 per share, representing the Company's portion
of the increase in INSO's net equity as a result of INSO's completion of a
public offering of 1.2 million shares of common stock at a net offering price of
approximately $47 per share in the fourth-quarter of 1996. In the second-quarter
of 1997, the Company recorded a one-time charge of $0.5 million ($0.3 million
after-tax), or $0.01 per share, related to INSO's acquisition of Mastersoft
products from Adobe Systems Incorporated. During the six months ended June 30,
1996, the Company recorded a gain of approximately $23.0 million ($13.3 million
after-tax), or $0.48 per share, on the sale of 537,500 shares of INSO common
stock and a one-time charge related to the equity investment in INSO of $1.4
million ($0.8 million after-tax), or $0.03 per share.
Net interest expense of $19.8 million for the six months ended June 30, 1997
decreased $0.5 million from the same period in 1996. The reduction was primarily
a result of lower working capital borrowings during the six months ended June
30, 1997 compared to the same period in 1996, offset by higher interest rates in
1997.
Income taxes:
The tax benefit increased $1.1 million, or 12%, during the six months ended June
30, 1997 over the same period last year. This increase was the result of the
higher operating loss in 1997, partially offset by a decrease in the tax rate to
39% in 1997 from 42% in 1996.
15
<PAGE> 16
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, and the Company usually incurs operating
losses in those quarters.
This sales seasonality 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 of the year. The deficit is funded through the
draw-down of cash and marketable securities, supplemented by short-term
borrowings, principally commercial paper. During the six months ended June 30,
1997, the Company used $7.1 million of cash on hand at year-end 1996 as well as
$140.2 million of net borrowings to cover its seasonal operating loss and
working capital needs and to fund publishing and capital investments. During the
six months ended June 30, 1996, the Company used $11.5 million of cash on hand
at year-end 1995 and proceeds of $25.9 million from the sale of INSO stock, as
well as $143.0 million of net borrowings to cover its seasonal operating loss
and working capital needs and to fund publishing and capital investments.
Net cash used in operating activities was $106.9 million during the six months
ended June 30, 1997, an $18.2 million decrease from $125.1 million in cash used
in operations during the same period in 1996. Excluding the equity earnings of
INSO, depreciation and amortization, and gain on the equity transaction of INSO
and sale of INSO stock, earnings increased $7.7 million. Changes in operating
assets and liabilities used $10.5 million less cash during the six months ended
June 30, 1997 over the same period in 1996, primarily due to improved working
capital management.
Cash required for investing activities was $35.5 million during the six months
ended June 30, 1997, an increase of $11.3 million from $24.2 million required
during the same period in 1996. Excluding the $25.9 million in proceeds the
Company received from the sale of shares of INSO common stock during the six
16
<PAGE> 17
months ended June 30, 1996, cash required for investing activities decreased by
$14.6 million, principally due to a $4.7 million decrease in bookplate
expenditures and a $10.8 million decrease in acquisition of publishing assets
for the six months ended June 30, 1997 compared to the same period in 1996.
Net proceeds from financing decreased by $2.5 million during the six months
ended June 30, 1997 from the same period in 1996, primarily due to lower working
capital requirements. In March 1996, the Company completed the refinancing of
the debt incurred in conjunction with the Heath acquisition by replacing
short-term bank financing with $125 million of long-term debt and $100 million
of medium-term notes. Proceeds from these issuances were used to repay $125
million of commercial paper and $100 million of the five-year credit facility
drawn upon in conjunction with the Heath acquisition.
The Company expects that cash flows from operations for the full year 1997 will
be sufficient to provide adequate financing resources to support operational
needs and to fund capital expenditures, dividend payments, and paydown by
year-end a portion of the debt outstanding at the beginning of 1997.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
This report includes forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," and similar expressions identify
forward-looking statements. Reliance should not be placed on forward-looking
statements because they are subject to a variety of risks, uncertainties, and
other 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 seasonal and cyclical nature of the
Company's educational sales; (ii) variable funding in school systems throughout
the nation, which may result 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) strength of the retail market for general-interest publications
and market acceptance of front-list titles and new electronic products; and (vi)
other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
17
<PAGE> 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Stockholders' Meeting on April 30, 1997, at which a
quorum was present, the stockholders approved the following
proposals by the number of shares of common stock voted as noted:
Proposal #1 - Election of Class I Directors for a three-year term:
<TABLE>
<CAPTION>
Number of Shares
Voted For Against
----------------- ---------
<S> <C> <C>
James O. Freedman 12,903,822 28,058
Charles R. Longsworth 12,904,609 27,270
Alfred L. McDougal 12,903,414 28,464
</TABLE>
The following directors continued their term in office: Joseph A.
Baute, Mrs. John V. Lindsay, John F. Magee, Claudine B. Malone,
George Putnam, Ralph Z. Sorenson, and DeRoy C. Thomas.
Proposal #2 - Ratification of Ernst & Young LLP as independent
auditors for the fiscal year ended December 31,
1997.
<TABLE>
<S> <C>
For 12,912,328
Against 11,134
Abstained 8,416
</TABLE>
Proposal #3 - Transaction of Other Business:
<TABLE>
<S> <C>
For 9,810,124
Against 2,764,911
Abstained 356,844
</TABLE>
The aggregate number of broker non-votes is approximately
1,911,570.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. (4) Renewed Rights Agreement between the Company and
BankBoston, N.A., as Rights Agent
Exhibit No. (10)(iii)(A) 1997 Senior Executive Incentive
Compensation Plan
1997-1998 Restricted Share Plan
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUGHTON MIFFLIN COMPANY
--------------------------------------
Registrant
Dated: August 12, 1997 /s/ Gail Deegan
--------------------------------------
Gail Deegan
Executive Vice President,
Chief Financial Officer, and Treasurer
Dated: August 12, 1997 /s/ David R. Caron
--------------------------------------
David R. Caron
Vice President, Controller
19
<PAGE> 20
Houghton Mifflin Company
Index To Exhibits
Item 6(a)
Exhibit No. Description of Document Page Number in This Report*
- ----------- ----------------------- ---------------------------
(4) Renewed Rights Agreement between 21
the Company and BankBoston, N.A.,
as Rights Agent
(10)(iii)(A) 1997 Senior Executive Incentive 128
Compensation Plan
1997-1998 Restricted Share Plan 132
(27) Financial Data Schedule 139
* Page number refers to sequentially numbered copy.
20
<PAGE> 1
Exhibit (4)
HOUGHTON MIFFLIN COMPANY
and
BANKBOSTON, N.A.,
Rights Agent
Renewed Rights Agreement
Dated as of July 30, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
1 Certain Definitions .............................................. 2
2 Appointment of Rights Agent ...................................... 9
3 Issuance of Rights Certificates .................................. 9
4 Form of Rights Certificates ...................................... 12
5 Countersignature and Registration ................................ 14
6 Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates ..................................................... 14
7 Exercise of Rights; Purchase Price; Expiration Date
of Rights ........................................................ 16
8 Cancellation and Destruction of Rights Certificates .............. 19
9 Reservation and Availability of Capital Stock .................... 19
10 Record Date for Securities Issued Upon Exercise .................. 22
11 Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights ................................................. 22
12 Certificate of Adjusted Purchase Price or Number of Shares ....... 39
13 Consolidation, Merger or Sale or Transfer of Assets or
Earning Power .................................................... 40
14 Fractional Rights and Fractional Shares .......................... 45
<PAGE> 3
15 Rights of Action ................................................. 46
16 Agreement of Rights Holders ...................................... 47
17 Rights Certificate Holder Not Deemed a Stockholder ............... 48
18 Concerning the Rights Agent ...................................... 48
19 Merger or Consolidation or Change of Name of Rights Agent ........ 49
20 Duties of Rights Agent ........................................... 50
21 Change of Rights Agent ........................................... 53
22 Issuance of New Rights Certificates .............................. 55
23 Redemption and Termination ....................................... 55
24 Notice of Certain Events ......................................... 56
25 Notices .......................................................... 58
26 Supplements and Amendments ....................................... 58
27 Successors ....................................................... 59
28 Determinations and Actions by the Board, etc. .................... 59
29 Benefits of this Agreement ....................................... 60
30 Severability ..................................................... 60
31 Governing Law .................................................... 61
32 Counterparts ..................................................... 61
33 Descriptive Headings ............................................. 61
<PAGE> 4
EXHIBIT A -- Form of Certificate of Vote of Directors
EXHIBIT B -- Form of Rights Certificate
<PAGE> 5
RENEWED RIGHTS AGREEMENT
RENEWED RIGHTS AGREEMENT, dated as of July 30, 1997, between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and BankBoston,
N.A., a national banking association (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on December 9, 1988, the Board of Directors of the Company (the
"Board") adopted a stockholder rights plan (the "Existing Rights Plan") and
executed a Rights Agreement, dated as of December 9, 1988 between the Company
and the Rights Agent (the "1988 Agreement");
WHEREAS, the Existing Rights Plan is scheduled to expire on December 18,
1998;
WHEREAS, on July 30, 1997, the Board determined it desirable and in the
best interests of the Company and its stockholders for the Company to renew the
Existing Rights Plan upon its expiration and to implement such renewal by
executing this Agreement (as hereinafter defined) and declaring the dividend
distribution referred to in the fourth WHEREAS clause herein;
WHEREAS, on July 30, 1997, (the "Rights Dividend Declaration Date"),
the Board authorized and declared a dividend distribution of one Right for each
share of Common Stock of the Company outstanding upon the "Expiration Date"
under the 1988 Agreement (the "Record Date") and authorized the issuance of one
Right (as such number may hereafter be adjusted pursuant to the provisions of
Section 11(i) or Section 11(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 (as hereinafter defined),
and under certain circumstances
<PAGE> 6
thereafter, each Right initially representing the right to purchase one
ten-thousandth of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereby agree as follows:
S1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as hereinafter
defined) who or which, together with all Affiliates and Associates (as
hereinafter defined) of such Person, shall be the Beneficial Owner (as
hereinafter defined) of 20% or more of the shares of Common Stock of the Company
then outstanding, but shall not include an Exempt Person (as hereinafter
defined).
(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Adjustment Shares" shall have the meaning set forth in
Section 11(a)(ii) hereof.
(d) "Adverse Person" shall mean any Person declared to be an
Adverse Person by the Board (with the concurrence of the Outside Directors) upon
determination that the criteria set forth in Section 11(a)(ii)(D) apply to such
Person.
(e) "Adverse Person Event" shall mean the determination by
the Board (with the concurrence of the Outside Directors) pursuant to the
criteria set forth in Section 11(a)(ii)(D) hereof, that a Person is an Adverse
Person.
<PAGE> 7
(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 Exchange Act (as hereinafter defined).
(g) "Agreement" shall mean this Renewed Rights Agreement as
originally executed or as it may from time to time be supplemented, amended,
renewed, restated or extended 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, owns or 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, rights, warrants, options or
otherwise; PROVIDED, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by or on behalf of
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 (as hereinafter defined), or (C)
securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights are Original Rights (as
hereinafter defined) or securities issued pursuant to Section 11(i) or
Section
<PAGE> 8
11(p) 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 (whether or not in writing) to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy or consent 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
statement); 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 writing), for the purpose of acquiring, hold ing, voting (except
pursuant to a revocable proxy as described in clause (A) of the proviso
to subparagraph (ii) of this paragraph (h)) or
<PAGE> 9
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 be deemed to "beneficially own," any securities acquired or which that
Person has the right to acquire through such Person's participation in good
faith in a firm commitment underwriting until the expiration of 40 days after
the date of such acquisition.
(i) "Board" shall have the meaning set forth in the first
"WHEREAS" clause at the beginning of this Agreement.
(j) "Business Day" shall mean any day other than a Saturday,
Sunday or day on which banking institutions in the Commonwealth of Massachusetts
are authorized or obligated by law or executive order to close.
(k) "Certificate of Vote" shall mean the Certificate of Vote
of Directors Establishing a Series of a Class of Stock substantially in the form
attached hereto as Exhibit A.
(l) "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.
(m) "Common Stock" when used in reference to the Company
shall mean the common stock, par value $1.00 per share, of the Company or any
other shares of capital stock of the Company into which such stock shall be
reclassified or changed. "Common Stock" when used with reference to any Person
other than the Company
<PAGE> 10
organized in corporate form shall mean (i) the capital stock or other equity
interest in such Person with the greatest voting power, (ii) the equity
securities or other equity interest having power to control or direct the
management of such Person or (iii) if such Person is a Subsidiary (as
hereinafter defined) of another Person, the capital stock, equity securities of
or other equity interest in the Person or Persons which ultimately control such
first-mentioned Person and which has issued any such outstanding capital stock,
equity securities or equity interest. "Common Stock" when used with reference to
any Person not organized in corporate form shall mean units of beneficial
interest which (x) represent the right to participate generally in the profits
and losses of such Person (including without limitation any flow-through tax
benefits resulting from an ownership interest in such Person) and (y) are
entitled to exercise the greatest voting power of such Person or, in the case of
a limited partnership, have the power to remove the general partner or partners.
(n) "Common Stock Equivalents" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(o) "Company" shall have the meaning set forth in the first
paragraph of this Agreement until a successor corporation or entity shall have
become such or until a Principal Party (as hereinafter defined) shall assume,
and thereafter be liable for, all obligations and duties of the Company
hereunder pursuant to the applicable provisions of this Agreement, and
thereafter, "Company" shall mean such successor or Principal Party,
respectively.
(p) "Current Market Price" shall have the meaning set forth
in Section 11(d)(i) hereof.
(q) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
<PAGE> 11
(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 11(b) hereof.
(t) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(u) "Exempt Person" shall mean (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan or employee stock
plan of the Company or of any Subsidiary of the Company, (iv) any Person or
entity organized, appointed, established or holding Common Stock of the Company
by the Company for or pursuant to the terms of any employee benefit plan or
employee stock plan, or (v) a Person who, together with its Affiliates and
Associates, becomes the Beneficial Owner of 20% or more of the shares of Common
Stock of the Company then outstanding solely as a result of a reduction in the
number of shares of Common Stock of the Company outstanding due to the
repurchase of shares of Common Stock of the Company by the Company, unless and
until such time as such Person shall purchase or otherwise become (as a result
of actions taken by such Person or its Affiliates or Associates) the Beneficial
Owner of additional shares of Common Stock of the Company constituting 1% or
more of the then outstanding shares of Common Stock of the Company.
(v) "Existing Rights Plan" shall have the meaning set forth
in the first "WHEREAS" clause hereof.
(w) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(x) "Final Expiration Date" shall mean the Close of Business
on July 30, 2007.
<PAGE> 12
(y) "Original Rights" shall mean Rights acquired by a Person
or such Person's Affiliates or Associates prior to the Distribution Date or
securities issued pursuant to Section 3(a) or Section 22 hereof.
(z) "Outside Directors" shall mean the members of the Board
who are not officers of the Company or any of its Subsidiaries and who are not
Acquiring Persons, Adverse Persons or representatives, nominees, Affiliates or
Associates of Acquiring Persons or Adverse Persons.
1a) "Person" shall mean any individual, firm, corporation,
partnership, trust or other entity and includes without limitation an
unincorporated group of persons who, by formal or informal agreement or
arrangement (whether or not in writing), have embarked on a common purpose or
act.
2b) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights, powers and preferences set forth in the Certificate of Vote, 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.
3c) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
4d) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
<PAGE> 13
5e) "Record Date" shall have the meaning set forth in the
fourth "WHEREAS" clause at the beginning of this Agreement.
6f) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
7g) "Rights" shall have the meaning set forth in the fourth
"WHEREAS" clause at the beginning of this Agreement.
8h) "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.
9i) "Rights Certificate" shall have the meaning set forth in
Section 3(a) hereof.
10j) "Rights Dividend Declaration Date" shall have the
meaning set forth in the fourth "WHEREAS" clause at the beginning of this
Agreement.
11k) "Section 11(a)(ii) Event" shall have the meaning set
forth in Section 11(a)(ii) hereof.
12l) "Section 11(a)(ii) Trigger Date" shall have the meaning
set forth in Section 11(a)(iii) hereof.
13m) "Section 13 Event" shall have the meaning set forth in
Section 13(a) hereof.
<PAGE> 14
14n) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
15o) "Stock Acquisition Date" shall mean the first date of
public announcement by the Company that an Acquiring Person has become such.
16p) "Subsidiary" shall mean, with reference to any Person,
any corporation or other entity of which securities or other ownership interest
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions of such corporation or other entity are at the time directly or
indirectly beneficially owned or otherwise controlled by such Person and any
Affiliate or Associate of such Person.
17q) "Substitution Period" shall have the meaning set forth
in Section 11(a)(iii) hereof.
18r) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
19s) "Trading Day" shall have the meaning set forth in
Section 11(d)(i) hereof.
20t) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
21u) "Unit" shall mean one ten-thousandth of a share of
Preferred Stock.
22v) "1988 Agreement" shall have the meaning set forth in the
first "WHEREAS" clause at the beginning of this Agreement.
2 APPOINTMENT OF RIGHTS AGENT. The Company has appointed the
Rights Agent to act as agent for the
<PAGE> 15
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 of
the Company) 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, upon ten days'
prior written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and in no event shall be liable for, the acts or omissions of any
such Co-Rights Agent. In the event that the Company appoints one or more
Co-Rights Agents, the respective duties of the Rights Agent and any Co-Rights
Agents shall be as the Company shall determine, and any actions which may be
taken by the Rights Agent pursuant to the terms of this Agreement may be taken
by any such Co-Rights Agent.
3 ISSUANCE OF RIGHTS CERTIFICATES.
1) Until the earliest of (i) the Close of Business on the
tenth Business Day (or such specified or unspecified later date as may be
determined by the Board before the occurrence of a Distribution Date) after the
Stock Acquisition Date (or, if the tenth Business Day after the Stock
Acquisition Date (or such later 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 such specified or unspecified later date as may be determined
by the Board before the occurrence of a Distribution Date) after the date that a
tender or exchange offer by any Person (other than an Exempt Person) 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 Common Stock of the
Company 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
<PAGE> 16
Rights will be evidenced (subject to the provisions of paragraphs (b) and (c) of
this Section 3) by the certificates for the Common Stock of the Company
registered in the names of the holders thereof (which certificates 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 of the Company (including a transfer to the
Company). As soon as practicable after the Distribution Date, the Rights Agent
will send by first-class, insured, postage prepaid mail, to each record holder
of the Common Stock of the Company 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, substantially in the form attached
hereto as Exhibit B (the "Rights Certificates"), evidencing one Right for each
share of Common Stock of the Company so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock of the Company has been made pursuant to Section 11(i) or Section
11(p) hereof, at the time of distribution of the Rights Certificates, the
Company shall not be required to issue Rights Certificates evidencing fractional
Rights, but may, in lieu thereof, 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.
2) The Company sent a copy of a Summary of Rights, in
substantially the form attached as Exhibit C to the 1988 Agreement (the "Summary
of Rights"), by first-class, postage prepaid mail, to each record holder of the
Common Stock of the Company as of the Close of Business on December 19, 1988, at
the address of such holder then shown on the records of the Company. With
<PAGE> 17
respect to certificates for the Common Stock of the Company outstanding as of
the Record Date, as set forth in paragraph (a) above, until the earlier of the
Distribution Date or the Expiration Date, the Rights will be evidenced by (i)
such certificates for the Common Stock of the Company with or without a copy of
the Summary of Rights attached or (ii) certificates for the Common Stock of the
Company as legended pursuant to the terms of the 1988 Agreement, and the
registered holders of the Common Stock of the Company 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 of the Company in respect of which Rights
have been issued shall also constitute the transfer of the Rights associated
with such shares of Common Stock of the Company.
3) Rights shall be issued in respect of all shares of
Common Stock of the Company 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, and to the extent provided in Section
22 hereof, in respect of shares of Common Stock of the Company issued after the
Distribution Date and prior to the Expiration Date. Certificates representing
such shares of Common Stock of the Company shall also be deemed to be
certificates for Rights, and shall, as promptly as practicable following the
Record Date, bear the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Renewed Rights Agreement between
Houghton Mifflin Company (the "Company") and BankBoston, N.A. (the
"Rights Agent") dated as of July 30, 1997, as the same may be amended,
restated, renewed or extended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein
<PAGE> 18
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 beneficially owned (as such term is defined in
the Rights Agreement) 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 of the Company represented by such certificates
shall be evidenced by such certificates alone, and registered holders of Common
Stock of the Company 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 of the Company
represented by such certificates.
<PAGE> 19
4 FORM OF RIGHTS CERTIFICATES.
1) The Rights Certificates (and the forms of election to
purchase, assignment and certificate contained therein to be printed on the
reverse thereof) shall each be substantially in the form attached hereto as
Exhibit B 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 exercise price set forth therein (such
exercise price per Unit, as adjusted from time to time hereunder, 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.
2) 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
<PAGE> 20
(whether or not for consideration) from the Acquiring Person or the Adverse
Person to holders of equity interests in the Acquiring Person or the Adverse
Person or to any Person with whom the Acquiring Person or the Adverse Person has
any continuing agreement, arrangement or understanding (whether or not in
writing) regarding the transferred Rights or (B) a transfer which the Board, in
its sole discretion, has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of the
provisions of Section 7(e) hereof, and any Rights Certificate issued 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 Renewed 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.
<PAGE> 21
5 COUNTERSIGNATURE AND REGISTRATION.
1) The Rights Certificates shall be executed under seal on
behalf of the Company by its Chairman of the Board, its President or any Vice
President, either manually or by facsimile signature, and by the Treasurer or
any Assistant Treasurer of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by an
authorized signatory of 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 an authorized signatory of the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by an authorized signatory of 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 Certificate 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.
2) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices 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.
<PAGE> 22
6 TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
<PAGE> 23
1) 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 Rights Certificates may be transferred, split
up, combined or exchanged for another Rights Certificate or Rights Certificates,
entitling the registered holder to purchase a like number of Units (or,
following the occurrence of a Triggering Event, Common Stock of the Company,
other shares, securities, cash or other assets, as the case may be) as the
Rights Certificate or Rights 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
Rights Certificates shall make such request in writing delivered to the Rights
Agent and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged, with the forms of assignment and
certificate contained therein duly executed, at the principal office or offices
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 or Rights Certificates 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 or
Rights Certificates 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 1 nd
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 from the holder of a Rights Certificate of a sum sufficient to cover any
tax or governmental charge that may be imposed
<PAGE> 24
in connection with any transfer, split up, combination or exchange of Rights
Certificates.
2) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a valid 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.
7 EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
1) 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 11(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 and
the certificate contained therein duly executed, to the Rights Agent at the
principal office or offices 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, following the occurrence of a Triggering Event, Common
Stock of the Company, other 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 and (iii) the
<PAGE> 25
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").
2) The Purchase Price for each Unit pursuant to the
exercise of a Right shall initially be $125, 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.
3) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
contained therein duly executed, accompanied by payment, with respect to each
Right so exercised, of the Purchase Price, as such amount may be reduced
pursuant to Section 11(a)(iii) hereof, per Unit (or, following a Triggering
Event, for Common Stock of the Company, other 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 Sections 7(f)
and 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
<PAGE> 26
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
11(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 or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities, cash
or other property are available for distribution by the Rights Agent, if and
when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock would be
issued.
4) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing 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.
5) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, 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 the
Board, in its sole
<PAGE> 27
discretion, determines is or was involved in or caused or facilitated, directly
or indirectly (including through any change in the Board), such Section
11(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 (whether or
not in writing) regarding the transferred Rights or (B) a transfer which the
Board 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 an Adverse Person or any
of their respective Affiliates, Associates or transferees hereunder.
6) 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 of any Rights
Certificate upon the occurrence of any purported assignment or exercise as set
forth in this Section 7 unless
<PAGE> 28
such registered holder shall have (i) completed and signed the certificate
contained in the form of assignment or election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such assignment or
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.
8 CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All 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.
9 RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
1) 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 or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
<PAGE> 29
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock of the Company or other securities, as the case may be) that, as provided
in this Agreement (including Section 11(a)(iii) hereof), will be sufficient to
permit the exercise in full of all outstanding Rights.
2) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock or other securities, as the
case may be) issuable and deliverable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use all reasonable
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.
3) The Company shall use all reasonable efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Triggering Event in which the consideration to be delivered by
the Company upon exercise of the Rights has been determined in accordance with
this Agreement, or as soon as required by law following the Distribution Date,
as the case may be, a registration statement under the Act on an appropriate
form with respect to the Common Stock or other securities purchasable upon
exercise of the Rights, (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 and other jurisdictions in connection with the exercisability of
the Rights. The Company may,
<PAGE> 30
acting by resolution of the Board, temporarily suspend, for a period of time not
to exceed 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 the event
of any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended and shall
issue a public announcement at such time as the suspension is no longer in
effect. In addition, if the Company shall determine that a registration
statement is required in other circumstances following the Distribution Date,
the Company may similarly temporarily suspend the exercisability of the Rights
until such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, or the exercise thereof shall
not otherwise be permitted under applicable law or a registration statement
shall not have been declared effective.
4) 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 or other securities, as the case
may be) 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.
5) The Company further covenants and agrees that, except as
set forth in Section 6(a) hereof and this Section 9(e), 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
<PAGE> 31
for a number of Units (or Common Stock 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 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, nor shall the Company
be required to issue or deliver any certificates for a number of Units (or
Common Stock 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.
10 RECORD DATE FOR SECURITIES ISSUED UPON EXERCISE. Each Person in
whose name any certificate for a number of Units (or Common Stock 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 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 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 transfer books for the Preferred Stock (or Common Stock or other
securities, as the case may be) 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 transfer books for the Preferred Stock (or Common Stock or other
securities,
<PAGE> 32
as the case may be) of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate, as such, shall not be
entitled to any rights of a stockholder of the Company (or the Principal Party)
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 (or the Principal Party),
except as provided herein.
11 ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares, or
fractions thereof, purchasable upon exercise of 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 or split the outstanding Preferred
Stock, (C) combine or consolidate 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 11(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, split,
combination, consolidation or reclassification, and the number and kind of
shares of Preferred Stock (or other capital stock, as the case may be) issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Purchase Price
<PAGE> 33
then in effect, 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, whether or not such Right was then exercisable,
and at a time when the transfer books for the Preferred Stock (or other capital
stock, as the case may be) of the Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, split, combination, consolidation or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
(i) In the event (a "Section 11(a)(ii) Event") that:
(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 or consolidate with the Company in
such a manner that 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 no
shares thereof shall be changed into or exchanged for stock or
other securities of the Company or of any other Person or cash
or any other property, (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 or property to
the Company or to any of its Subsidiaries in exchange (in whole
<PAGE> 34
or in part) for shares of Common Stock of the Company or any
Subsidiary of the Company, 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
or any of its Subsidiaries, 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 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
(including securities) on terms and conditions less favorable to
the Company or such Subsidiary than the Company or such
Subsidiary 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,
<PAGE> 35
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, or fees for serving as a
director, at rates in accordance with the Company's (or such
Subsidiary's) 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 on terms and conditions less favorable to the
Company or such Subsidiary than the Company or such Subsidiary
would be able to obtain in arm's-length negotiation with an
unaffiliated third party,
(B) any Person (other than an Exempt
Person), alone or together with its Affiliates and Associates,
shall, at any time after the Rights Dividend Declaration Date,
become the Beneficial Owner of 30% or more of the shares of
Common Stock of the Company 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 of the
<PAGE> 36
Company pursuant to a tender offer or an exchange offer for all
outstanding shares of Common Stock of the Company 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 (x) at a price that is fair to stockholders
(taking into account all factors which such members of the Board
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 (y)
otherwise in the best interests of the Company and its
stockholders,
(C) during such time as there is an
Acquiring Person, there shall be any reclassification of
securities (including any reverse stock split) of the Company,
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 or any Affiliate or Associate of such 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 or of securities exercisable for or convertible
into securities of the Company or any of its
<PAGE> 37
Subsidiaries which is directly or indirectly beneficially owned
by any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, or
(D) the Board (with the concurrence of a
majority of the Outside 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 Board
(with the concurrence of a majority of the Outside Directors)
determines to be substantial (which amount shall in no event be
less than 15% of the shares of Common Stock then outstanding)
and which the Board (with the concurrence of 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 (x) 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
<PAGE> 38
or entering into such transaction or series of transactions at
that time or (y) such Beneficial Ownership is causing or
reasonably likely to cause a material adverse impact (including
without limitation 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),
then, promptly after the date of occurrence of an event described in Section
11(a)(ii)(A) or (C), and ten days after the date of occurrence of an event
described in 11(a)(ii)(B) or (D), proper provision shall be made so that 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 exercisable immediately prior to
the first occurrence of a Section 11(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 share of Common Stock of the Company on the date of such first occurrence
(such number of shares being referred to as the "Adjustment Shares").
(i) In lieu of issuing any shares of Common Stock of
the Company in accordance with Section 11(a)(ii) hereof, the Company,
acting by resolution of the Board, may, and in the event that the number
of shares of Common
<PAGE> 39
Stock of the Company which 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 is not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company, acting by
resolution of the Board, shall: (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 attributable to each
Right (such excess being referred to as the "Spread"), and (B) with
respect to all or a portion of each Right (subject to Section 7(e)
hereof), make adequate provision to substitute for the Adjustment
Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) equity securities of the Company
other than Common Stock 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 of the Company
(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 which, when added to any shares of
Common Stock of the Company issued upon such exercise, has 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; PROVIDED, however, that
if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within 30 days following the later of (x)
the first occurrence of a Section 11(a)(ii) Event
<PAGE> 40
and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) hereof, as such date may be delayed pursuant to Section
23(a) hereof or otherwise amended pursuant to Section 26 hereof, expires
(the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the 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 of the
Company (to the extent available) and then, if necessary, cash, which
shares and cash have an aggregate value equal to the Spread. If the
Board shall determine in good faith that it is likely that sufficient
additional shares of Common Stock of the Company could be authorized for
issuance upon exercise in full of the Rights, the 30-day period set
forth above may be extended to the extent necessary, but not more than
90 days after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company determines that some action
need be taken pursuant to the first or second sentences of this Section
11(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 any authorization
of additional shares 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
<PAGE> 41
exercisability of the Rights has been temporarily suspended and a public
announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the Common Stock of
the Company shall be the Current Market Price per share of the Common
Stock of the Company on the Section 11(a)(ii) Trigger Date and the value
of any Common Stock Equivalent shall be deemed to have the same value as
the Common Stock of the Company on such date.
(a) 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 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 sum of (i) the number of
shares of Preferred Stock or Equivalent Preferred Stock outstanding on such
record date, (ii) the number of shares of Preferred Stock or Equivalent
Preferred Stock underlying securities outstanding on such record date which are
convertible into Preferred Stock or Equivalent Preferred Stock and (iii) the
number of shares of Preferred Stock which the aggregate subscription price of
the total number of shares of Preferred Stock or Equivalent Preferred Stock so
to be offered (or the
<PAGE> 42
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 sum of (i) the number of shares of Preferred Stock
outstanding on such record date, (ii) the number of shares of Preferred Stock or
Equivalent Preferred Stock underlying securities outstanding on such record date
which are convertible into Preferred Stock or Equivalent Preferred Stock and
(iii) 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, which determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes. 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, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(b) 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, periodic 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
<PAGE> 43
Section 11(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, which determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes) 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 11(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 30 consecutive Trading Days immediately prior to such
date, and for purposes of computations made pursuant to Section
11(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 10 consecutive Trading Days
immediately following such date; PROVIDED, however, 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
<PAGE> 44
convertible into shares of such Common Stock (other than the Rights) or
(B) any subdivision, combination, consolidation, reverse stock split or
reclassification of such Common Stock, and prior to the expiration of
the requisite 30-Trading Day or 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, consolidation,
reverse stock split 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 or as quoted by the Nasdaq National Market with respect
to securities listed or admitted to trading on another national
securities exchange or quoted by the Nasdaq National Market,
respectively, or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange or quoted by the
Nasdaq National Market, 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 Nasdaq Stock Market or such other quotation
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
the Common Stock is not publicly held or not so
<PAGE> 45
listed, admitted to trading or quoted, and no market maker is making a
market in such Common Stock, Current Market Price shall mean the fair
value of such shares on such date as determined in good faith by the
Board, which determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes. 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.
(i) 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 11(d) (other than the penultimate 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 admitted to trading or quoted in
a manner described in clause (i) of this Section 11(d), the Current
Market Price per share of Preferred Stock shall be conclusively deemed
to be an amount equal to 10,000 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalization 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 admitted to trading or quoted, the
Current Market Price per share of the Preferred Stock shall mean the
fair value per share as determined
<PAGE> 46
in good faith by the Board, which 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 10,000.
(a) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease in the Purchase Price of at least one percent;
PROVIDED, however, that any adjustments which by reason of this Section 11(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 one cent or to the nearest one ten-thousandth of a share of
Common Stock or other share or one one-hundred-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which mandates
such adjustment or (ii) the Expiration Date.
(b) If as a result of an adjustment made pursuant to Section
11(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 (or the number of Rights)
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 11(a), (b), (c), (e), (g), (h), (i), (j), (k), (l)
and (m) hereof, and the provisions of Sections
<PAGE> 47
7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on
like terms to any such other shares; provided, however, that the Company shall
not be liable for its inability to reserve and keep available for issuance upon
exercise of the Rights pursuant to Section 11(a)(ii) hereof a number of shares
of Common Stock of the Company greater than the number then authorized by the
Company's articles of organization, but not outstanding or reserved for any
other purpose.
(c) 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.
(d) Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as
a result of the calculations made in Sections 11(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
Units (calculated to the nearest one one-hundred-millionth of a share of
Preferred Stock) 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.
(e) 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
<PAGE> 48
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 that number of Rights shall become the
number of Rights (calculated to the nearest one ten-thousandth of a Right)
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 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 11(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 of Rights Certificates on the
record date specified in the public announcement.
<PAGE> 49
(f) 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.
(g) 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 use all
reasonable efforts to 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.
(h) 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
of 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.
(i) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such adjustments in the
Purchase Price, in addition to those adjustments expressly required by this
<PAGE> 50
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 convertible
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.
(j) 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 11(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(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 11(o) hereof) if (x) at the time of or
immediately after such consolidation, merger, sale or transfer 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, sale or transfer, 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
<PAGE> 51
owned by such Person or any of its Affiliates and Associates.
(k) 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 otherwise eliminate the benefits intended to be afforded by the
Rights.
<PAGE> 52
(l) 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 of the Company payable in
shares of Common Stock of the Company, (ii) subdivide the outstanding shares of
Common Stock of the Company in a manner not covered by clause (i) of this
Section 11(p) or (iii) combine or consolidate the outstanding shares of Common
Stock of the Company into a smaller number of shares, the number of Rights
associated with each share of Common Stock of the Company 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 of the Company following any such event shall equal
the result obtained by multiplying the number of Rights associated with each
share of Common Stock of the Company immediately prior to such event by a
fraction, the numerator of which shall be the total number of shares of Common
Stock of the Company outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares of Common
Stock of the Company outstanding immediately following the occurrence of such
event. The adjustments provided for in this Section 11(p) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected. If an event occurs which would require
an adjustment under Section 11(a)(ii) hereof and this Section 11(p), the
adjustments provided for in this Section 11(p) shall be in addition and prior to
any adjustment required pursuant to Section 11(a)(ii) hereof.
(m) The failure by the Board to declare (or the failure of
the Outside Directors to concur therewith) a Person to be an Adverse Person
following such Person becoming the Beneficial Owner of 15% or more of the
outstanding Common Stock shall not imply that such
<PAGE> 53
Person is not an Adverse Person or limit the Board's (or the Outside Directors')
right at any time in the future to declare such Person to be an Adverse Person.
S1. 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 of the Company, a copy of such certificate
and (c) mail a brief summary thereof to each record holder of a Rights
Certificate (or, if prior to the Distribution Date, to each record holder of a
certificate representing shares of Common Stock of the Company) in accordance
with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of
the Company to prepare such certificate or statement or make such filings or
mailings shall not affect the validity of, or the force or effect of, the
requirement for such adjustment. 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 such adjustment unless and until it
shall have received such certificate.
S2. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event (a "Section 13 Event") that, on or after
the Stock Acquisition Date, directly or indirectly, (x) the Company shall
consolidate or otherwise combine with, or merge with or into, any other Person
or Persons (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) and the Company shall not be the continuing
or surviving corporation of such consolidation, combination or
merger, (y) any Person or Persons (other than a Subsidiary
<PAGE> 54
of the Company in a transaction which complies with Section 11(o) hereof) shall
consolidate or otherwise combine with, or merge with or into, the Company and
the Company shall be the continuing or surviving corporation of such
consolidation, combination or merger and, in connection with such consolidation,
combination or merger, all or part of the outstanding shares of Common Stock of
the Company shall be changed into or exchanged for stock or other securities of
any other Person or Persons 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 and calculated on the
basis of the Company's most recent regularly prepared financial statements) 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 11(o) hereof);
PROVIDED, however, that this clause (z) of Section 13(a) hereof shall not apply
to the pro rata distribution by the Company of assets (including securities) of
the Company or any of its Subsidiaries to all holders of Common Stock of the
Company; 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, on or after the later
of (A) the date of the first occurrence of any such Section 13 Event or (B) the
date of the expiration of the period within which the Rights may be redeemed
pursuant to Section 23 hereof (as the same may be amended as provided in Section
26 hereof), 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, nonassessable and
freely tradeable shares of Common Stock of the Principal Party, not subject to
any liens, encumbrances, rights of
<PAGE> 55
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 11(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 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and (2) 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 50% of the
Current Market Price per share of the Common Stock of such Principal Party on
the date of consummation of such Section 13 Event; (ii) the shares of Common
Stock of such Principal Party received by each holder of a Right upon exercise
of that Right shall be fully paid and nonassessable; (iii) 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;
(iv) 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; (v) such Principal Party shall take such steps (including
without limitation 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 (vi) the
provisions of Section 11(a)(ii) hereof shall be of no effect following the first
occurrence of any Section 13 Event.
<PAGE> 56
(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, (A) the
Person that is the issuer of any securities into which shares of Common
Stock of the Company are converted, changed or exchanged in such merger,
consolidation or combination (or, if there is more than one such issuer,
the issuer the Common Stock of which has the greatest market value) or
(B) if no securities are so issued, the Person that is the other party
to such merger (and survives the merger), consolidation or combination
(or, if there is more than one such Person, the Person the Common Stock
of which has the greatest market value), or if the other party to the
merger does not survive the merger, the Person that does survive the
merger (including the Company, if it survives); 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
or, if each Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred
or if the Person receiving the greatest portion of the assets or earning
power cannot be determined, whichever of such Persons is the issuer of
Common Stock having the greatest market value;
<PAGE> 57
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 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; (2)
if the Common Stock of such Person is not and has not been so registered and
such Person is a Subsidiary, directly or indirectly, of more than one Person,
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; and (3) if the Common
Stock of such Person is not and has not been so registered and such Person is
owned, directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules set
forth in (1) and (2) above shall apply to each of the chains of ownership having
an interest in such joint venture as if such party were a Subsidiary of both or
all of such joint venturers, and the Principal Parties in each such chain shall
bear the obligations set forth in this Section 13 in the same ratio as their
direct or indirect interests in such Person bear to the total of such interests.
(c) The Company shall not consummate any such 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 confirming
that the requirements of Section 13(a) and Section 13(b) hereof shall promptly
be performed in accordance with their terms and that such Section 13 Event shall
not result in a default by the Principal
<PAGE> 58
Party under this Agreement as the same shall have been assumed by the Principal
Party pursuant to Section 13(a) and Section 13(b) hereof 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 to similarly comply with applicable state securities
laws;
(ii) use its best efforts to list or obtain quotation
of (or continue the listing or quotation of) the Rights and the
securities purchasable upon exercise of the Rights on a national
securities exchange or by an automated quotation service;
(iii) 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 (or any successor form) under the Exchange Act; and
(iv) use its best efforts to obtain waivers of any
rights of first refusal or preemptive rights in respect of the shares of
Common Stock of the Principal Party subject to purchase upon exercise of
outstanding Rights.
<PAGE> 59
The provisions of this Section 13 shall similarly apply to successive mergers,
consolidations, combinations or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a Section
11(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 hereof shall not be applicable to a transaction described
in subparagraph (x) or (y) of Section 13(a) hereof if (i) such transaction is
consummated with a Person or Persons (or a wholly owned Subsidiary of any such
Person or Persons) who acquired shares of Common Stock of the Company pursuant
to a tender offer or exchange offer for all outstanding shares of Common Stock
of the Company which complies with the exception provided for in Section
11(a)(ii) hereof, (ii) the price per share of Common Stock of the Company
offered in such transaction is not less than the price per share of Common Stock
of the Company paid to all holders of shares of Common Stock of the Company
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 of the Company 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.
S3. 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 11(i) and
Section 11(p) hereof, or to distribute Rights Certificates which evidence
fractional Rights. In lieu of any such fractional
<PAGE> 60
Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such 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 Trading 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 or the Nasdaq National Market with respect to securities
listed on another national securities exchange or quoted by the Nasdaq National
Market, respectively, or if the Rights are not listed or admitted to trading
on any national securities exchange or quoted by the Nasdaq National Market,
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 Nasdaq Stock
Market or such other quotation 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
<PAGE> 61
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 ten-thousandth of the closing price of a share of Preferred Stock, or if
unavailable, the appropriate alternative price (in each case, as determined
pursuant to Section 11(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 of
the Company upon exercise of the Rights or to distribute certificates which
evidence fractional shares of Common Stock of the Company. In lieu of fractional
shares of Common Stock of the Company, 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 share of Common Stock of the Company. For purposes of this Section
14(c), the current market value of one share of Common Stock of the Company
shall be the closing price of one share of Common Stock of the Company or, if
unavailable, the appropriate alternative price (in each case, as determined
pursuant to Section 11(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 that Right
expressly waives such holder's right to receive any fractional Rights or any
fractional shares
<PAGE> 62
upon exercise of a Right, except as permitted by this Section 14.
S4. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent in Section 18
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 of the Company); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Stock of the
Company), 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 of
the Company), may, in the holder's own behalf and for the holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, the holder's 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.
S5. 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 shares of Common Stock of
the Company;
<PAGE> 63
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates contained therein duly 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
certificate for Common Stock of the Company) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Rights Certificate or the associated certificate for
Common Stock of the Company 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 by reason of any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; PROVIDED, however, that the Company
must use its reasonable efforts to have any such order, decree or ruling lifted
or otherwise overturned as soon as possible.
<PAGE> 64
S6. 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 upon 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.
S7. 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, reimbursement for 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 gross 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.
<PAGE> 65
(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
good faith in connection with its administration of this Agreement in reliance
upon any Rights Certificate or certificate for Common Stock of the Company or
for other securities of the Company or upon any instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document reasonably believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
S8. 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 corporate trust or 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 for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. If 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 if 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
<PAGE> 66
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) If 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 if 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.
S9. 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 Current Market Price) be proved or
established by the Company prior to taking or suffering any action hereunder,
such
<PAGE> 67
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 gross 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, nor shall it 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
thereon); 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 receipt of a
<PAGE> 68
certificate describing 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 of the Company or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock of the Company or Preferred Stock will, when so
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 Treasurer, any
Assistant Treasurer, the Clerk or any Assistant Clerk 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 by, or
omission of, the Rights Agent under this 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 the Company actually
<PAGE> 69
receives such application, unless the Company shall have consented in writing to
an earlier date) unless, prior to taking any such action (or prior to the
effective date in the case of an omission), the Rights Agent shall have received
written instructions 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, become pecuniarily interested in any
transaction in which the Company may be interested, contract with or lend money
to the Company or otherwise act as fully and freely as though the Rights Agent
were not Rights Agent under this Agreement. Nothing herein shall preclude 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 (other than internal costs
incurred by the Rights Agent in providing services to the Company in the
ordinary course of its business as Rights Agent) 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.
<PAGE> 70
(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 form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1 or
clause 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise or transfer without first consulting with the
Company.
S1. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company and to each transfer agent of the
Common Stock of the Company and Preferred Stock by registered or certified mail
and to the holders of the Rights Certificates, if any, by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 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 of the Company and
Preferred Stock by registered or certified mail and to the holders of the Rights
Certificates, if any, by first-class mail. If the Rights Agent shall 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 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.
If no successor Rights Agent shall have been appointed within 30 days from the
effectiveness of such removal, resignation
<PAGE> 71
or incapacity and no registered holder of any Rights Certificate has applied
pursuant to this Agreement for the appointment of a new Rights Agent, the
Company automatically shall be designated as successor Rights Agent. Any
successor Rights Agent 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
or of any state of the United States, in good standing, which is authorized to
do business as a banking institution in such state, is authorized under such
laws to exercise corporate trust powers, is subject to supervision or
examination by federal or state authority and has at the time of its appointment
as Rights Agent a combined capital and surplus of at least $100,000,000 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 shall execute and deliver any further assurance, conveyance,
act or deed necessary for that 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 of the
Company and the Preferred Stock, and shall 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.
S2. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights Certificates to the contrary, the
Company may, at its option, issue new Rights Certificates
<PAGE> 72
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 of the Company
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock of the
Company 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 hereafter 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.
S3. 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 Business Day (or such
specified or unspecified later date as may be determined by the Board before the
Rights cease being redeemable) 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 Business Day following the Record Date) or (ii) the
Final Expiration Date, direct the Company to, and if directed, the Company
shall, redeem all but not
<PAGE> 73
less than all of the then outstanding Rights at a redemption price of $.01 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. The Company may, at its option, pay the Redemption Price in shares
of Common Stock of the Company (based on the Current Market Price of the Common
Stock of the Company at the time of redemption), cash or any other form of
consideration deemed appropriate by the Board. Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a)(ii) Event until such time as the
Company's right of redemption hereunder has expired.
(b) Immediately upon the action of the Board directing the
Company to make 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 directing the Company
to make 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 each record holder of the Common Stock of the Company at
the address of such holder shown on the records of the Company. 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.
S4. NOTICE OF CERTAIN EVENTS.
<PAGE> 74
(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 periodic cash dividend out of earnings or
retained earnings of the Company), (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, (iii) to effect any reclassification of the Preferred Stock
(other than a reclassification involving only the subdivision or split of
outstanding shares of Preferred Stock), (iv) to effect any consolidation,
combination or merger into or with any other Person or Persons (other than a
Subsidiary of the Company in a transaction which complies with Section 11(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 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 11(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, combination, 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)
<PAGE> 75
or (ii) above at least 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 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 Section 11(a)(ii) Event 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 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock of the
Company or, if appropriate, other securities.
S5. 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:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
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
<PAGE> 76
prepaid, addressed (until another address is filed in writing with the Company)
as follows:
BankBoston, N.A.
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
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 any certificate representing
shares of Common Stock of the Company) shall be sufficiently given or made if
sent by first-class mail, insured, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Company.
S6. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date, the
Company and the Rights Agent shall, if the Board so directs, supplement or amend
any provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock of the Company. From and after
the Distribution Date, the Company and the Rights Agent shall, if the Board 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 Certificates (other than an
Acquiring Person, an Adverse Person or an Affiliate or Associate of an Acquiring
Person or an Adverse Person); PROVIDED, that this Agreement may not be
<PAGE> 77
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) 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) 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 an Acquiring Person or
an Adverse 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. 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 of the Company.
S7. 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.
S8. DETERMINATIONS AND ACTIONS BY THE BOARD, ETC. For all purposes
of this Agreement, any calculation of the number of shares of Common Stock of
the Company outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of the Company 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 shall have the exclusive power
and authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including
<PAGE> 78
without limitation the right and power to (a) interpret the provisions of this
Agreement and (b) 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 this Agreement). All such actions, calculations,
interpretations and determinations (including without limitation for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board, the Outside Directors or the Company 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 the Board or the Outside
Directors to any liability to the holders of the Rights.
<PAGE> 79
S9. 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 of the Company) 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 of the Company).
S10. 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 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 of Business on the tenth Business Day following the date of such
determination by the Board. Without limiting the foregoing, if any provision of
this Agreement requiring that a determination be made by the Outside Directors
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, such determination shall then be made by the Board in
accordance with applicable law and the articles of organization and by-laws of
the Company.
<PAGE> 80
S11. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract under seal made
under the laws of the Commonwealth of Massachusetts, and for all purposes this
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts applicable to contracts made and to be performed
entirely within the Commonwealth of Massachusetts.
S12. 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.
S13. 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.
<PAGE> 81
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 ______________________________ By ________________________________
Name: Name:
Title: Title:
Attest: BANKBOSTON, N.A., as Rights Agent
By ______________________________ By ________________________________
Name: Name:
Title: Title:
<PAGE> 82
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, as amended, 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:
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 5,000.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders
of any shares of any series of preferred stock of the Corporation ("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,
10,000 times the
<PAGE> 83
aggregate per share amount of all cash dividends, and 10,000 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 Stock. In the event the Corporation shall at any time
after July 30, 1997 (the "Rights Dividend 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 of 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.
1) 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
<PAGE> 84
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2) 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 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.
(1). 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
<PAGE> 85
Junior Participating Preferred Stock shall entitle the holder thereof to 10,000
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 Dividend
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.
<PAGE> 86
(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 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 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
quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two Directors.
(i) 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
<PAGE> 87
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 Directors or, if such right is exercised at an
annual meeting or special meeting in lieu of an annual meeting, to elect
two 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 PASSU with the Series A Junior Participating
Preferred Stock.
1 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 of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special
<PAGE> 88
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 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.
2 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 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
<PAGE> 89
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 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.
3 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 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 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.
(A)) 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
<PAGE> 90
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
(2). 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
(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
1 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
<PAGE> 91
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
2 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.
2) 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) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
2. 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
<PAGE> 92
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.
1. 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 liquidations, 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 $1,200.00 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) 10,000 (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
<PAGE> 93
remaining assets to be distributed in the ratio of the Adjustment Number to one
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(A) 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.
1) In the event the Corporation shall at any time
after the Rights Dividend 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.
2. 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
<PAGE> 94
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 10,000 times the aggregate amount of stock,
securities, cash 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 Dividend
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 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.
1. 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 105 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,
<PAGE> 95
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.
2. 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.
3. AMENDMENT. The articles of organization of the
Corporation shall not be further 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.
1. 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.
<PAGE> 96
EXHIBIT B
---------
[Form of Rights Certificate]
Certificate No. R- ______ Rights
NOT EXERCISABLE AFTER JULY 30, 2007, SUBJECT TO EARLIER REDEMPTION
OR EXPIRATION PURSUANT TO THE RENEWED RIGHTS AGREEMENT. THE RIGHTS
ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RENEWED RIGHTS AGREEMENT. THE
RIGHTS EVIDENCED BY THIS CERTIFICATE SHALL NOT BE EXERCISABLE, AND
SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE
THE REQUISITE QUALIFICATION FOR 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. 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
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 RENEWED 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.]*
- ----------------
* 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> 97
Rights Certificate
HOUGHTON MIFFLIN COMPANY
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Renewed Rights Agreement, dated as of July 30, 1997, as amended, restated,
renewed or extended from time to time (the "Rights Agreement"), between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and BankBoston,
N.A., a national banking association (the "Rights Agent"), to purchase from the
Company at any time prior to 5:00 P.M. (Boston, Massachusetts time) on July 30,
2007, at the office or offices of the Rights Agent, or its successors as Rights
Agent, designated for such purpose, one ten-thousandth of a fully paid,
nonassessable share (a "Unit") of Series A Junior Participating Preferred Stock
of the Company (the "Preferred Stock"), at a purchase price of $125 per Unit
(the "Purchase Price"), upon presentation
<PAGE> 98
and surrender of this Rights Certificate with the Form of Election to Purchase
and included Certificate duly completed and 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 ______________,
______________, based on the Preferred Stock as constituted at such date. The
Company reserves the right to require prior to the occurrence of a Triggering
Event (as such term is defined in the Rights Agreement) that a number of Rights
be exercised so that only whole shares of Preferred Stock will be issued.
As more fully set forth in the Rights Agreement, from and after the
first occurrence of a Section 11(a)(ii) Event (as such term is defined in 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
<PAGE> 99
of an Acquiring Person or an Adverse Person (as such terms are defined in the
Rights Agreement), which the Board (as defined in the Rights Agreement) in its
sole discretion, determines is or was involved in or caused or facilitated,
directly or indirectly (including through a change in the Board), such Section
11(a)(ii) Event, (ii) a transferee of such Acquiring Person or an Adverse Person
(or of any such Associate or Affiliate) or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of such Acquiring Person or an
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, such Rights shall become null and void without any further action, and no
holder hereof shall have any right with respect to such Rights whether under the
Rights Agreement or otherwise.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of
<PAGE> 100
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
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.
Reference is also made to the Rights Agreement for definitions of capitalized
terms used and not defined herein. Copies of the Rights Agreement are
<PAGE> 101
on file at the above-mentioned office of the Rights Agent and are also available
upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates upon
surrender at the 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 be redeemed by the Company at its option at a redemption
<PAGE> 102
price of $.01 per Right at any time prior to the earlier of (i) the Close of
Business on the tenth Business 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); provided, however, that
the Company may not redeem any Rights following an Adverse Person Event (as
defined in the Rights Agreement).
If the Company so determines, 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
<PAGE> 103
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, 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 dividend 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.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
<PAGE> 104
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of ___________ ___, _____
ATTEST: HOUGHTON MIFFLIN COMPANY
By ______________________________ By ______________________________
Secretary Title:
Countersigned:
BANKBOSTON, N.A.
By ______________________________
Authorized Signature
<PAGE> 105
[Form of Reverse Side of Rights Certificate]
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 herein, 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: ___________ ___, _______
_______________________________________
Signature
Signature Guaranteed:
<PAGE> 106
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 or an Affiliate or Associate of any such Acquiring Person or
Adverse Person (as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [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 an Acquiring Person or
Adverse Person.
Dated: ___________ ___, _______ _______________________________________
Signature
Signature Guaranteed:
NOTICE
The signatures 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> 107
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 or such other assets
which may be deliverable upon the exercise of the Rights) and requests that
certificates for any such shares or securities 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:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
Please insert social security
or other identifying number: __________________________________________________
Dated: ___________ ___, _______ _______________________________________
Signature
Signature Guaranteed:
<PAGE> 108
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 Acquiring
Person or Adverse Person (as such terms are defined in the Rights Agreement);
and
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person, an
Adverse Person or an Affiliate or Associate of an Acquiring Person or Adverse
Person.
Dated: ___________ ___, _______ _______________________________________
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> 1
Exhibit (10)(iii)(A)
March, 1997
HOUGHTON MIFFLIN COMPANY
1997 SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
A. PURPOSE. The purpose of the Plan is to motivate and reward performance that
contributes to the achievement of divisional and corporate strategy.
B. PAYMENT THRESHOLDS. Payment of incentive compensation may occur if the
targets on the attached schedule have been met.
C. PAYMENTS.
1. FINANCIAL OBJECTIVES. Payment of incentive compensation for
achievement of financial objectives is based on the degree to which those
financial objectives are achieved.
a. Payment of incentive compensation is determined by the
extent to which budgeted corporate and operating unit financial performance is
achieved.
b. Achievement in excess of budgeted corporate and operating
unit financial performance for all financial objectives permits payment in cash
of up to 30% of the participant's December 31, 1997 salary as incentive
compensation.
c. If the weighted average achievement of all financial
factors exceeds 120%, additional incentive compensation may be earned.
2. OPERATING OBJECTIVES. Payment of incentive compensation for
achievement of operating objectives is based on the Chief Executive Officer's
assessment of each participant's degree of success in achieving operating
objectives. Maximum payment for achievement of operating objectives is 10% of
the participant's December 31, 1997 salary.
3. PAYMENTS IN EXCESS OF 40% OF DECEMBER 31, 1997 SALARY. If the total
incentive compensation earned exceeds 40% of a participant's December 31, 1997
salary, the excess amount is paid in shares of Houghton Mifflin Company
restricted common stock.
a. The number of shares awarded will be determined on the
basis of the average closing price of Houghton Mifflin Company common stock on
the New York Stock Exchange during the last calendar quarter.
b. Full ownership of the restricted stock will occur after
three years, provided that the recipient is still employed by Houghton Mifflin
Company on that date. If
<PAGE> 2
2
the recipient ceases to be employed by the Company prior to the expiration of
the restrictions, all shares are forfeited to the Company without payment to the
recipient.
c. During the period of restriction, the recipient is entitled
to vote any restricted shares awarded and to receive any dividends paid on the
shares. Any additional shares issued with respect to the restricted shares
(e.g., as a result of a stock split, dividend, or other distribution) shall be
subject to the same restrictions as the underlying shares.
d. The recipient may not sell, assign, transfer, exchange,
pledge, hypothecate, or otherwise encumber any of the shares until the
restrictions lapse.
e. The shares shall be held by the Registrar and Transfer
Agent until the restrictions lapse.
f. In the event of retirement pursuant to the terms of the
Houghton Mifflin Pension Plan, death, or permanent disability during the period
of restriction, the recipient, or his or her heirs, shall be entitled to
receive, free of restrictions, a pro rata number of shares based on a fraction,
the numerator of which is the number of whole months from January 1 of the year
the shares were awarded, and the denominator of which is 36.
g. All restrictions shall lapse in the event of a "Change of
Control" as defined in this Plan.
h. The Compensation and Nominating Committee of the Board of
Directors, or the Board of Directors, acting by a majority of its directors who
are not employees of the Company, may at any time accelerate the time at which
the restrictions lapse.
4. MAXIMUM PAYMENT. The maximum amount of incentive compensation,
including any restricted stock portion, which may be awarded to any participant
is 100% of the participant's December 31, 1997 salary.
D. ELIGIBILITY.
1. Participants in this plan include executive vice presidents,
division heads, and corporate staff senior executives as designated by the Chief
Executive Officer. Individuals who become participants after the beginning of
the year participate on a prorated basis.
2. In the event of retirement, death, or permanent disability, a pro
rata share of the award (based on the number of months of eligible employment
during that year) will be paid to the participant, or his or her heirs, based
upon the extent of partial achievement of applicable objectives. In the event of
a leave of absence during the year, a pro rata share of the award may be paid.
<PAGE> 3
3
3. A participant whose employment terminates, voluntarily or
involuntarily, for reasons other than retirement pursuant to the terms of the
Houghton Mifflin Pension Plan, death, or permanent disability, is not eligible
for an incentive award.
4. The eligibility of a participant whose participation ceases during
the year will be determined by the Chief Executive Officer.
5. If the participant during the year transfers to another position and
continues to participate in the Plan, the employee's performance will be
measured against the objectives in each position and then prorated on the number
of months each position was held.
6. Nothing contained in the Plan shall be construed to limit in any way
the right of the Company to terminate a participant's employment or to adjust an
employee's position or salary at any time, or be evidence of any agreement or
understanding, expressed or implied, that any person will be employed in a
particular position or at a particular rate of compensation.
7. The Compensation and Nominating Committee of the Board of Directors
reserves the right to amend the terms of this Plan whenever in its best judgment
it is in the best interest of the Company to do so.
E. INTERPRETATION. The Compensation and Nominating Committee of the Board of
Directors ("Committee") shall administer this plan and approve any payments
pursuant to the Plan. Any interpretations of the Plan, including adjustments to
the financial objectives under the Plan, shall be made by the Committee.
Determinations of the Committee shall be final and binding on all participants.
F. CHANGE IN CONTROL.
1. For purposes of the Plan, 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 F) 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 of this Amendment and Restatement 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
<PAGE> 4
4
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
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.
2. For purposes of the Plan, "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.
<PAGE> 5
Exhibit (10)(iii)(A)
HOUGHTON MIFFLIN COMPANY
LONG-TERM INCENTIVE COMPENSATION
1997-1998 RESTRICTED SHARE PLAN
1. This Plan sets forth certain terms and conditions of awards made as of
January 2, 1997, by the Compensation and Nominating Committee (the
"Committee") pursuant to the Committee's authority under Sections 2
and 3 of the Houghton Mifflin Company 1995 Stock Compensation Plan, as
amended through January 2, 1997 (as so amended, the "1995 Plan"). The
awards are subject to all applicable provisions of the 1995 Plan.
Unless otherwise provided herein, capitalized terms used herein and
set forth in the 1995 Plan shall have the meanings ascribed to them in
the 1995 Plan.
2. The awards are to be made in restricted shares of the Company Stock
("Restricted Shares"). The Committee determines the number and
identity of the participants and the number of Restricted Shares to be
awarded to each participant. The "Award Period" for each award of
Restricted Shares hereunder shall be January 2, 1997 through
December 31, 2001.
3. Subject to the provisions of this Section and Sections 5, 6 and 12
hereof, the restrictions on any Restricted Shares held by any
participant hereunder on December 31, 2001 will lapse as of such date,
if the participant is still employed by the Company (or any Subsidiary
thereof) on such date. However, the restrictions on some or all of the
Restricted Shares held by any participant hereunder on December 31,
1998 will lapse as of such earlier date, if the Company has attained
at least an average ninety-five percent (95%) of the three financial
targets set forth on Attachment A hereto ("Target 1", "Target 2",
and "Target 3"; collectively, the "Targets") as of such date:
In computing the Company's average percentage attainment, its
achievement with respect to each of the Targets shall be given equal
weight. The defi-
<PAGE> 6
nitions of Target 1, Target 2 and Target 3 shall be determined by the
Committee in its sole discretion and the calculation of the Company's
attainment with respect to each of the Targets shall be made by the
Committee in its sole discretion.
4. The percentage of a participant's Restricted Shares held hereunder by
the participant on December 31, 1998, as to which restrictions lapse
as of such date shall be calculated with reference to the Company's
average percentage level of achievement of the Targets as of
December 31, 1998, as follows:
Company's Average Restricted Shares
Level of As to Which
Achievement Restrictions Lapse
----------------- ------------------
a. Less than 95% -0-
b. 95% 50%
c. Between 95% Prorated between 50%
and 100% and 100%
d. 100% or more 100%
If restrictions do not lapse on 100% of the participant's Restricted
Shares hereunder as of December 31, 1998, the remaining Restricted
Shares shall continue to be held during the Award Period subject to
the terms hereof.
5. In the event a termination of a participant's employment during the
Award Period, while the participant holds Restricted Shares
hereunder, results from (i) the participant's death, or (ii) the
participant's becoming "permanently and totally disabled" (as defined
in Section 22 of the Code), the participant (or, in the event of the
participant's death, his or her estate) shall be entitled to receive,
free of restrictions, the number of whole shares of Company Stock
determined by multiplying the number of Restricted Shares held
hereunder by the participant on the date of such death or disability
by a fraction, the numerator of which shall be the number of days in
the Award Period up to and including the day the death or disability
occurred, and the denominator of which shall be the total number of
days in the Award Period. If a distribution is made to a participant
2
<PAGE> 7
(or his or her estate) pursuant to this Section 5, the participant
will have no right to any additional payment or distribution under
this Plan.
6. If a Change in Control (as defined in Section 9 hereof) of the Company
occurs during the Award Period, while the participant holds Restricted
Shares (or Restricted Share Units, as defined in Section 12 hereof)
hereunder, then, immediately prior to (and subject to the occurrence
of) the Change in Control, all restrictions shall lapse on such
Restricted Shares and the participant shall also be entitled to
receive, free of restrictions, the number of whole shares of Company
Stock equal to the number of Restricted Share Units held hereunder
by the participant immediately prior to the Change in Control. If a
distribution is made to a participant pursuant to this Section 6, the
participant will have no right to any additional payment or
distribution under this Plan.
7. A participant shall not sell, assign, transfer, exchange, pledge,
hypothecate, or otherwise encumber any of the participant's Restricted
Shares until the restrictions lapse (or any of the participant's
Restricted Share Units outstanding hereunder until restrictions lapse
and payment is made). The Restricted Shares shall be held by the
Registrar and Transfer Agent designated by the Company until the
restrictions lapse.
8. During the Award Period and while a participant's Restricted Shares
are outstanding hereunder, the participant shall be entitled to vote
the Restricted Shares and to receive any dividends paid on the
Restricted Shares. Any additional shares of Company Stock (or other
securities) issued hereunder with respect to the Restricted Shares
(e.g., as a result of a stock split, dividend, or other distribution
or corporate transaction or event) shall be subject to the same
restrictions (and other provisions hereof) as the underlying
Restricted Shares.
9. a. For purposes of this Plan, a "Change in Control" of the Company
shall be deemed to have occurred if any of the following occurs:
3
<PAGE> 8
(i) any "Person" (as defined below) 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 of this Amendment and Restatement 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
4
<PAGE> 9
(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.
b. For purposes of this Plan, "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.
10. This Plan will be administered by the Committee, which will make any
needed determination under, or interpretation of, any provisions of
this Plan. Any of the actions taken by the Committee shall be final
and conclusive. Without the consent of the affected participant,
however, no amendment or other action with respect to any outstanding
award hereunder may impair or adversely affect the rights of the
participant holding the award.
Subject to the conditions set forth in the 1995 Plan, the Committee
may amend this Plan as it may deem proper and in the best interest of
the Company. However, no such action shall adversely affect or impair
any award previously granted under this Plan without the consent of
the respective participant.
11. Any Restricted Shares outstanding hereunder are shares of the Company
Stock and are subject to adjustment as provided in Section 9 of the
1995 Plan. Any Restricted Share Units outstanding hereunder shall be
subject to adjustment in a similar manner.
12. Notwithstanding the foregoing provisions, if, while Restricted Shares
are outstanding hereunder during
5
<PAGE> 10
the Award Period, the Committee determines that the Company may lose
its federal income tax deduction in connection with the future lapsing
of restrictions on such Restricted Shares because of the deductibility
cap of Section 162(m) of the Code, the Committee, in its discretion at
such time, may convert some or all of such Restricted Shares into an
equal number of Restricted Share Units, as to which payment will be
postponed until the first day that the payment will not cause the
Company to lose its federal income tax deduction for such payment
under Section 162(m). Until payment of the Restricted Share Units is
made, if any dividends are paid on Company Stock, the participant will
be credited with dividend equivalents on the participant's respective
Restricted Share Units outstanding hereunder (and if any Company Stock
or other securities are issued with respect to the outstanding Company
Stock (e.g., as a result of a stock split, dividend, or other
distribution or corporate transaction or event), the participant will
be credited with equitable equivalents on the Restricted Share Units).
All dividend and other equivalents will be converted into additional
Restricted Share Units, which shall be subject to the same
restrictions (and other provisions hereof) as the underlying
Restricted Share Units. When payment of any Restricted Share Units is
made, it will be made in the same number of unrestricted shares of
Company Stock.
Notwithstanding the foregoing, the Committee, or the Board of
Directors, acting by a majority of its directors who are not employees
of the Company, may at any time accelerate the time at which the
restrictions lapse on Restricted Shares or Restricted Share Units and
payment of Restricted Share Units is made.
Further, notwithstanding the foregoing, all restrictions with respect
to the Restricted Shares or Restricted Share Units shall lapse (and
payment of Restricted Share Units shall be made) immediately prior to
(and subject to the occurrence of) a "Change in Control" (as defined
in Section 9 hereof) of the Company.
6
<PAGE> 11
ATTACHMENT A
TARGET 1:
[Omitted for reasons of Company confidentiality]
TARGET 2:
[Omitted for reasons of Company confidentiality]
TARGET 3:
[Omitted for reasons of Company confidentiality]
7
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0
0
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