EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made by and between Houghton Mifflin Company (the
"Company") and ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Executive").
Whereas, the operations of the Company and its Affiliates are a complex
matter requiring direction and leadership in a variety of arenas, including
financial, strategic planning, regulatory, community relations and others;
Whereas, the Executive is possessed of certain experience and expertise
that qualify him to provide the direction and leadership required by the Company
and its Affiliates; and
Whereas, subject to the terms and conditions hereinafter set forth, the
Company therefore wishes to employ the Executive as its President and Chief
Executive Officer and the Executive wishes to accept such employment;
Now therefore, in consideration of the foregoing premises and the
mutual promises, terms, provisions and conditions set forth in this Agreement,
the parties hereby agree:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment, effective as of October 1, 2003 (the "Employment Date"). In
the event that the Executive fails to commence work hereunder within
ten (10) business days following the Employment Date, this Agreement
shall be void and of no force or effect.
2. Term. Subject to earlier termination as hereafter provided, the
Executive shall be employed hereunder for an original term of three (3)
years commencing on the Employment Date, which term shall be
automatically extended thereafter for successive terms of one year
each, unless either party provides notice to the other at least ninety
(90) days prior to the expiration of the original or any extension term
that this Agreement is not to be extended. The term of the Executive's
employment under this Agreement, as from time to time extended, is
hereafter referred to as "the term of this Agreement" or "the term
hereof."
3. Capacity and Performance.
a. Position. During the term hereof, the Executive shall serve
the Company as its President and Chief Executive Officer. In
such capacity, the Executive will be responsible for the
operations and financial performance and the coordination of
the strategic direction of the Company. The Executive shall
report to the Board of Directors of the Company (the "Board")
and shall have such other powers, duties and responsibilities
as may from time to time be prescribed by the Board. In
addition, and without further compensation, the Executive
shall serve as a director or officer of one or more of the
Company's Affiliates, if so elected or appointed from time to
time.
b. Performance. During the term hereof, the Executive shall be
employed by the Company on a full-time basis. The Executive
shall devote his full business time and his best efforts,
business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and
its Affiliates and to the discharge of his duties and
responsibilities hereunder. Except for business travel
necessary or desirable for the performance of his services
hereunder, the Executive shall provide services hereunder from
the Company's principal place of business in Massachusetts.
The Executive shall not engage in any other business activity
or serve in any industry, trade, professional, governmental or
academic position during the term of this Agreement, except as
may be expressly approved in advance by the Board in writing.
c. Board Membership. The Company agrees to propose to the
shareholders of the Company at each appropriate Annual Meeting
of such shareholders during the term hereof the election or
reelection of the Executive as a member of the Board.
4. Compensation and Benefits. As compensation for all services performed
by the Executive under and during the term hereof and subject to
performance of the Executive's duties and of the obligations of the
Executive to the Company and its Affiliates, pursuant to this Agreement
or otherwise:
a. Base Salary. During the term hereof, the Company shall pay the
Executive a base salary at the rate of not less than Six
Hundred Thousand Dollars ($600,000) per annum, payable in
accordance with the payroll practices of the Company for its
executives and subject to increase from time to time by the
Board, in its sole discretion. Such base salary, as from time
to time increased, is hereafter referred to as the "Base
Salary".
b. Annual Bonus Compensation. Commencing January 1, 2004, each
fiscal year during the term hereof, the Executive shall be
considered by the Board for an annual bonus with a target
equal to one times the Base Salary, pro-rated in accordance
with Section 5 hereof in the event of termination during a
fiscal year. The amount of the bonus shall be determined by
the Board, based on its assessment, in its discretion, of the
Executive's performance and that of the Company against
appropriate and reasonably obtainable goals established
annually by the Board after consultation with the Executive;
which bonus, if any, shall be payable not later than the end
of the first quarter of the fiscal year following that for
which the bonus was earned. Any bonus paid to the Executive
shall be in addition to the Base Salary.
c. Stock Options. As of the Employment Date, the Executive will
be granted options to purchase 14,088 shares of the Class A
Common Stock of the Company's parent corporation ("Parent")
pursuant to the form of Class A Option Certificate attached
hereto as Exhibit A, which options shall be subject to all
terms and provisions of Parent's 2003 Stock Option Plan and
such Stock Option Certificate. The Company hereby represents
and warrants that: (i) the entire authorized and outstanding
capital stock of Parent is as set forth on Schedule 1
- 2 -
and (ii) except as set forth in (A) First Amended and Restated
Stockholders Agreement dated as of January 28, 2003 among
Parent and the Company and the other parties thereto and (B)
as may be granted under Parent's 2003 Stock Option Plan, there
are no outstanding options, warrants, other securities or
other rights of any kind which would obligate Parent or any of
its subsidiaries to issue, deliver or sell shares of its and
their capital stock.
d. Vacations. During the term hereof, the Executive shall be
entitled to earn four (4) weeks of vacation per year, to be
taken at such times and intervals as shall be determined by
the Executive, subject to the reasonable business needs of the
Company. Vacation shall be otherwise governed by the policies
of the Company, as in effect from time to time.
e. Other Benefits. During the term hereof and subject to any
contribution therefor generally required of executives of the
Company, the Executive shall be entitled to participate in any
and all employee welfare and retirement benefit plans from
time to time in effect for executives of the Company
generally, except to the extent such plans are in a category
of benefits otherwise provided to the Executive hereunder
(e.g., severance pay). Such participation shall be subject to
the terms of the applicable plan documents and generally
applicable Company policies. The Company may alter, modify,
add to or delete its employee benefit plans at any time as it,
in its sole judgment, determines to be appropriate.
f. Relocation Expenses. The Executive is expected to relocate
within a reasonable commuting distance of the Company's
headquarters promptly following the Employment Date, but in no
event later than three (3) months following that date. The
Company shall reimburse the Executive for his reasonable
relocation expenses, to a maximum of Fifty Thousand Dollars
($50,000), which expenses shall include the cost of moving
and/or purchasing the Executive's household goods.
g. Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable business and travel expenses
incurred or paid by the Executive in the performance of his
duties and responsibilities hereunder, subject to any maximum
annual limit and other restrictions on such expenses set by
the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to
time.
h. Initial Bonuses.
i. Within ten (10) business days following the
Employment Date, the Company will pay the Executive a
starting bonus in the amount of Two Hundred and
Fifty-Four Thousand, One Hundred Sixty-Seven Dollars
($254,167) (the "Starting Bonus"). The Starting Bonus
is in lieu of any annual bonus for the period from
the Employment Date through December 31, 2003.
- 3 -
ii. To compensation the Executive for the bonus
opportunity which he forewent in accepting employment
hereunder, the Company will pay the Executive the sum
of Three Hundred Thousand Dollars ($300,000) within
ten (10) business days following the Employment Date.
i. Legal Expenses. Upon execution of this Agreement, the Company
will reimburse the Executive his reasonable legal expenses
incurred in the negotiation, execution and delivery of this
Agreement, provided that the Executive provides reasonable
documentation and substantiation of those expenses.
j. Life Insurance. During the term hereof, the Company will pay
the premium cost of term life insurance for the Executive with
a face amount of Three Million Dollars, provided that the
Executive is insurable at normal rates. The Executive agrees
to submit to any medical examinations and comply with any
other requirements of the insurer for coverage.
5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, this Agreement shall terminate prior to
the expiration of the term under the following circumstances:
a. Death. In the event of the Executive's death during the term
hereof, this Agreement shall immediately and automatically
terminate. In such event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has
been designated by the Executive, to his estate, (i) the Base
Salary earned but not paid through the date of termination,
(ii) pay for any vacation time earned but not used through the
date of termination, (iii) any bonus compensation awarded for
the preceding fiscal year but not yet paid on the date of
termination, (iv) the estimated share of annual bonus
compensation under Section 4.b hereof which would have been
payable to the Executive had he been employed for the entire
bonus plan year in which his employment terminated, pro-rated
to the date of termination of his employment, taking into
account achievement of goals (or partial year goals) for such
partial year of employment, but without regard to any other
conditions for payment of such amount and (v) any business
expenses incurred by the Executive but un-reimbursed on the
date of termination, provided that such expenses and required
substantiation and documentation are submitted within thirty
(30) days of termination and that such expenses are
reimbursable under Company policy (all of the foregoing,
"Final Compensation"). The Company shall have no further
obligation to the Executive hereunder.
b. Disability.
i. The Company may terminate this Agreement, upon notice
to the Executive, in the event that the Executive
becomes disabled during the term hereof through any
illness, injury, accident or condition of either a
physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and
responsibilities hereunder, with or without
reasonable accommodation, for one hundred and twenty
(120)
- 4 -
days during any period of three hundred and
sixty-five (365) consecutive calendar days. In the
event of such termination, the Company shall have no
further obligation to the Executive, other than for
payment of Final Compensation.
ii. The Board may designate another employee to act in
the Executive's place during any period of the
Executive's disability. Notwithstanding any such
designation, the Executive shall continue to receive
the Base Salary in accordance with Section 4.a and
benefits in accordance with Section 4.e, to the
extent permitted by the then-current terms of the
applicable benefit plans, until the Executive becomes
eligible for disability income benefits under the
Company's disability income plan, if any, or until
the termination of his employment, whichever shall
first occur.
iii. While receiving disability income payments under the
Company's disability income plan, the Executive shall
not be entitled to receive any Base Salary under
Section 4.a hereof, but shall continue to participate
in Company benefit plans in accordance with Section
4.e and the terms of such plans, until the
termination of his employment.
iv. If any question shall arise as to whether during any
period the Executive is disabled through any illness,
injury, accident or condition of either a physical or
psychological nature so as to be unable to perform
substantially all of his duties and responsibilities
hereunder, the Executive may, and at the request of
the Company shall, submit to a medical examination by
a physician selected by the Company to whom the
Executive or his duly appointed guardian, if any, has
no reasonable objection to determine whether the
Executive is so disabled and such determination shall
for the purposes of this Agreement be conclusive of
the issue. If such question shall arise and the
Executive shall fail to submit to such medical
examination, the Company's determination of the issue
shall be binding on the Executive.
c. By the Company for Cause. The Company may terminate this
Agreement for Cause at any time upon notice to the Executive
setting forth in reasonable detail the nature of such Cause.
The following, as determined by the Board in its reasonable
judgment, shall constitute Cause for termination:
i. Willful failure to perform, or gross negligence in
the performance of, the Executive's duties and
responsibilities relating to the Company and its
Affiliates, which remains uncured or continues after
fifteen (15) days' notice to the Executive specifying
in reasonable detail the nature of such failure or
negligence;
ii. Material breach by the Executive of any of his
obligations under Sections 7, 8 and 9 of this
Agreement;
- 5 -
iii. Fraud, embezzlement or other material dishonesty with
respect to the Company or any of its Affiliates; or
iv. Commission of a felony or other crime involving moral
turpitude.
Upon the giving of notice of termination of this Agreement for Cause,
the Company shall have no further obligation to the Executive other
than for Final Compensation (excluding the amount described in Section
5.a.iv above).
d. By the Company Other than for Cause.
(i) The Company may terminate this Agreement at any time
prior to the Employment Date upon notice to the
Executive. In the event of such termination, the
Company will pay to the Executive an amount equal to
the Starting Bonus plus One Million Dollars
($1,000,000) as liquidated damages and shall have no
further obligations to the Executive hereunder.
(ii) The Company may terminate this Agreement other than
for Cause at any time during the term hereof upon
notice to the Executive. In the event of such
termination, in addition to Final Compensation and
provided that no benefits are payable to the
Executive under a separate severance agreement or
severance plan as a result of such termination, the
Company will provide the Executive, as Severance Pay,
eighteen (18) months of Base Salary at the rate in
effect on the date of termination and, subject to any
employee contribution applicable to the Executive on
the date of termination, shall continue to contribute
to the cost of the Executive's participation in the
Company's group medical and dental plans for the
period of eighteen (18) months from the date of
termination or, if less, until he becomes eligible
for coverage under the health plan of another
employer, provided that he is eligible for such
continued participation under applicable law and plan
terms. In the event that Executive is eligible for
benefits under a separate severance agreement or
severance plan, payments provided under this Section
5.d.ii shall be reduced by the amount of such
benefits.
(iii) Any obligation of the Company to the Executive under
this Section 5.d is conditioned upon the Executive
signing a release of claims in the form provided by
the Company (the "Release of Claims") within
twenty-one days (or such greater period as the
Company may specify) following the later of the date
on which the Executive (or, in the case of
termination by the Executive for Good Reason, the
Company) receives notice of termination of this
Agreement or the date the Executive receives a copy
of the Release of Claims and upon the Executive not
revoking the Release of Claims in a timely manner
thereafter. Any Severance Pay to which the Executive
is entitled under Section 5.d.ii shall be payable in
accordance with the normal payroll practices of the
Company for its executives and will begin at the
Company's next regular payday which is at least five
(5)
- 6-
business days following the later of the effective
date of the Release of Claims or the date the Release
of Claims, signed by the Executive, is received by
the Company, but shall be retroactive to the next
business day following the date of termination.
e. By the Executive for Good Reason. The Executive may terminate
this Agreement during the term hereof for Good Reason, upon
notice to the Company setting forth in reasonable detail the
nature of such Good Reason. The following shall constitute
Good Reason for termination by the Executive:
i. Failure of the Company to continue the Executive in
the position of President and Chief Executive Officer
or failure of the Company to cause the Executive to
be elected as a member of the Board at the first
Annual Meeting following the Employment Date or to
cause him to be continued as a member of the Board
thereafter and while his employment hereunder
continues;
ii. Material diminution in the nature or scope of the
Executive's responsibilities, duties or authority;
provided, however, the Company's failure to continue
the Executive's appointment or election as a director
or officer of any of its Affiliates and any
diminution of the business of the Company or any of
its Affiliates, whether by sale of assets or
otherwise, shall not constitute "Good Reason"; or
iii. Material failure of the Company to provide the
Executive compensation in accordance with the terms
of Section 4 hereof, excluding an inadvertent failure
which is cured within ten (10) business days
following notice from the Executive specifying in
detail the nature of such failure.
In the event of termination in accordance with this Section 5.e, the
Executive will be entitled to the same pay and benefits he would have
been entitled to receive had this Agreement been terminated by the
Company other than for Cause in accordance with Section 5.d.ii above
(including the application of any offset for benefits payable to the
Executive under a separate severance agreement or severance plan as a
result of such termination); provided that the Executive satisfies all
conditions to such entitlement, including without limitation the
signing of an effective Release of Claims.
f. By the Executive Other than for Good Reason. The Executive may
terminate this Agreement during the term hereof at any time
upon ninety (90) days' notice to the Company, unless such
termination would violate any obligation of the Executive to
the Company under a separate severance agreement. In the event
of termination of the Executive pursuant to this Section 5.f,
the Board may elect to waive the period of notice, or any
portion thereof, and, if the Board so elects, the Company will
pay the Executive the Base Salary for the notice period (or
for any remaining portion of the period). The Company shall
have no further obligation to the Executive, other than for
any Final Compensation due to him (excluding the amount
described in Section 5.a.iv above).
- 7 -
g. Post-Agreement Employment. In the event the Executive remains
in the employ of the Company or any of its Affiliates
following termination of this Agreement, by the expiration of
the term or otherwise, then such employment shall be at will.
6. Effect of Termination. The provisions of this Section 6 shall apply to
any termination, whether due to the expiration of the term hereof,
pursuant to Section 5 or otherwise.
a. Payment by the Company of any contributions to the cost of the
Executive's continued participation in the Company's group
health and dental plans and other amounts that may be due the
Executive in each case under the applicable termination
provision of Section 5 shall constitute the entire obligation
of the Company to the Executive. The Executive shall promptly
give the Company notice of all facts necessary for the Company
to determine the amount and duration of its obligations in
connection with any termination pursuant to Section 5.d or 5.e
hereof.
b. Except for medical and dental plan coverage continued pursuant
to Section 5.d or 5.e hereof, benefits shall terminate
pursuant to the terms of the applicable benefit plans based on
the date of termination of the Executive's employment without
regard to any continuation of Base Salary or other payment to
the Executive following such date of termination.
c. Provisions of this Agreement shall survive any termination if
so provided herein or if necessary or desirable to accomplish
the purposes of other surviving provisions, including without
limitation the obligations of the Executive under Sections 7,
8 and 9 hereof. The obligation of the Company to make payments
to or on behalf of the Executive under Section 5.d or 5.e
hereof is expressly conditioned upon the Executive's continued
full performance of obligations under Sections 7, 8 and 9
hereof. The Executive recognizes that, except as expressly
provided in Section 5.d, 5.e or 5.f hereof, no compensation is
earned after termination of employment.
7. Confidential Information.
a. The Executive acknowledges that the Company and its Affiliates
continually develop Confidential Information; that the
Executive may develop Confidential Information for the Company
or its Affiliates; and that the Executive may learn of
Confidential Information during the course of employment. The
Executive will comply with the policies and procedures of the
Company and its Affiliates for protecting Confidential
Information and shall not disclose to any Person or use, other
than as required by applicable law or for the proper
performance of his duties and responsibilities to the Company
and its Affiliates, any Confidential Information obtained by
the Executive incident to his employment or any other
associations with the Company or any of its Affiliates. The
Executive understands that this restriction shall continue to
apply after his employment terminates, regardless of the
reason for such termination.
- 8 -
b. All documents, records, tapes and other media of every kind
and description relating to the business, present or
otherwise, of the Company or its Affiliates and any copies, in
whole or in part, thereof (the "Documents"), whether or not
prepared by the Executive, shall be the sole and exclusive
property of the Company and its Affiliates. The Executive
shall safeguard all Documents and shall surrender to the
Company at the time his employment terminates, or at such
earlier time or times as the Board or its designee may
specify, all Documents then in the Executive's possession or
control.
8. Assignment of Rights to Intellectual Property. The Executive shall
promptly and fully disclose all Intellectual Property to the Company.
The Executive hereby assigns and agrees to assign to the Company (or as
otherwise directed by the Company) the Executive's full right, title
and interest in and to all Intellectual Property. The Executive agrees
to execute any and all applications for domestic and foreign patents,
copyrights or other proprietary rights and to do such other acts
(including without limitation the execution and delivery of instruments
of further assurance or confirmation) requested by the Company to
assign the Intellectual Property to the Company and to permit the
Company to enforce any patents, copyrights or other proprietary rights
to the Intellectual Property. The Executive will not charge the Company
for time spent in complying with these obligations. All copyrightable
works that the Executive creates shall be considered "work made for
hire".
9. Restricted Activities. The Executive agrees that some restrictions on
his activities during and after his employment are necessary to protect
the goodwill, Confidential Information and other legitimate interests
of the Company and its Affiliates:
a. While the Executive is employed by the Company and for a
period of twelve (12) months after his employment terminates
(in the aggregate, the "Non-Competition Period"), the
Executive shall not, directly or indirectly, whether as owner,
partner, investor, consultant, agent, employee, co-venturer or
otherwise, compete with the Company or any of its Affiliates
within the United States or in any other country in which the
Company or any of its Affiliates is doing business or
undertake any planning for any business competitive with the
Company or any of its Affiliates. Specifically, but without
limiting the foregoing, the Executive agrees not to engage in
any manner in any activity that is directly or indirectly
competitive or potentially competitive with the business of
the Company or any of its Affiliates as conducted or under
consideration at any time during the Executive's employment or
other associations with the Company or any of its Affiliates.
For the purposes of this Section 9, (i) "Affiliates" shall
include only those Affiliates of the Company with respect to
which the Executive has provided services or has had access to
Confidential Information during his employment, or any other
association, with the Company or any of its Affiliates and
(ii) the business of the Company and its Affiliates shall
include all Products and the Executive's undertaking shall
encompass all items, products and services that may be used in
substitution for Products.
- 9 -
b. The Executive agrees that, during his employment with the
Company, he will not perform any consulting services and that
he will not undertake any other outside activity, whether or
not competitive with the business of the Company or its
Affiliates, that could reasonably give rise to a conflict of
interest or otherwise interfere with his duties and
obligations to the Company or any of its Affiliates.
c. The Executive further agrees that while he is employed by the
Company and during the Non-Competition Period, the Executive
will not hire or attempt to hire any employee of the Company
or any of its Affiliates, assist in such hiring by any Person,
encourage any such employee to terminate his or her
relationship with the Company or any of its Affiliates, or
solicit or encourage any customer or independent contractor of
the Company or any of its Affiliates to terminate or diminish
its relationship with them, or to conduct with any Person any
business or activity which such customer or independent
contractor conducts or could conduct with the Company or any
of its Affiliates.
10. Notification Requirement. During the Non-Competition Period, the
Executive shall give notice to the Company of each new business
activity he plans to undertake, at least fifteen (15) business days
prior to beginning any such activity. Such notice shall state the name
and address of the Person for whom such activity is undertaken and the
nature of the Executive's business relationship(s) and position(s) with
such Person. The Executive shall provide the Company with such other
pertinent information concerning such business activity as the Company
may reasonably request in order to determine the Executive's continued
compliance with his obligations under Sections 7, 8 and 9 hereof.
11. Enforcement of Covenants. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this
Agreement, including the restraints imposed upon him pursuant to
Sections 7, 8 and 9 hereof. The Executive agrees that said restraints
are necessary for the reasonable and proper protection of the Company
and its Affiliates and that each and every one of the restraints is
reasonable in respect to subject matter, length of time and geographic
area. The Executive further acknowledges that, were he to breach any of
the covenants contained in Sections 7, 8 or 9 hereof, the damage to the
Company would be irreparable. The Executive therefore agrees that the
Company, in addition to any other remedies available to it, shall be
entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by the Executive of any of said covenants,
without having to post bond and for the recovery of reasonable
attorneys' fees incurred in the enforcement of its rights hereunder.
The parties further agree that, in the event that any provision of
Section 7, 8 or 9 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over
too great a time, too large a geographic area or too great a range of
activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.
12. Representations.
a. The Executive hereby represents and warrants that he has
furnished to the Company or its designated representative a
true, correct and complete copy of any
- 10 -
and all agreements to which he is party or is bound which
could restrict, in any way, his provision of services to the
Company or any of its Affiliates and that he is not now
subject to any other restrictions that could limit or
otherwise affect his performance hereunder. The Executive will
not disclose to or use on behalf of the Company or any of its
Affiliates any proprietary information of a third party
without such party's consent.
b. The Executive hereby represents, warrants and agrees that he
will be able to, and will, comply in a timely manner with the
requirements of the Immigration Reform and Control Act or any
successor law.
13. Definitions. Words or phrases which are initially capitalized or are
within quotation marks shall have the meanings provided in this Section
and as provided elsewhere herein. For purposes of this Agreement, the
following definitions apply:
a. "Affiliates" means all persons and entities directly or
indirectly controlling, controlled by or under common control
with the Company, where control may be by management authority
or equity interest.
b. "Confidential Information" means any and all information of
the Company and its Affiliates that is not generally known by
others with whom they compete or do business, or with whom any
of them plans to compete or do business, and any and all
information, publicly known in whole or in part or not, which,
if disclosed by the Company or its Affiliates would assist in
competition against them. Confidential Information includes
without limitation such information relating to (i) the
development, research, testing, marketing and financial
activities of the Company and its Affiliates, (ii) the
Products, (iii) the costs, sources of supply, financial
performance and strategic plans of the Company and its
Affiliates, (iv) the identity and special needs of the
customers of the Company and its Affiliates and (v) the people
and organizations with whom the Company and its Affiliates
have business relationships and nature and substance of those
relationships. Confidential Information also includes any
information that the Company or any of its Affiliates have
received, or may receive hereafter, belonging to customers or
others with any understanding, express or implied, that the
information would not be disclosed.
c. "Intellectual Property" means inventions, discoveries,
developments, methods, processes, compositions, works,
concepts and ideas (whether or not patentable or copyrightable
or constituting trade secrets) conceived, made, created,
developed or reduced to practice by the Executive (whether
alone or with others, whether or not during normal business
hours or on or off Company premises) during the Executive's
employment that relate to either the Products or any
prospective activity of the Company or any of its Affiliates
or that make use of Confidential Information or any of the
equipment or facilities of the Company or any of its
Affiliates.
- 11 -
d. "Person" means an individual, a corporation, a limited
liability company, an association, a partnership, an estate, a
trust and any other entity or organization, other than the
Company or any of its Affiliates.
e. "Products" mean printed and electronic materials and all other
products planned, researched, developed, tested, manufactured,
sold, licensed, leased or otherwise distributed or put into
use by the Company or any of its Affiliates, together with all
services provided or planned by the Company or any of its
Affiliates, during the Executive's employment.
14. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by
the Company under applicable law.
15. Assignment. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other;
provided, however, that the Company may assign its rights and
obligations under this Agreement without the consent of the Executive
in the event that the Executive is transferred to a position with any
of the Affiliates or in the event that the Company hereafter shall
effect a reorganization, consolidate with, or merge into, any Person or
transfer all or substantially all of its properties or assets to any
Person. This Agreement shall inure to the benefit of and be binding
upon the Company and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.
16. Severability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
17. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this
Agreement, or the waiver by either party of any breach of this
Agreement, shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
18. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and
shall be effective when delivered in person, consigned to a reputable
national courier service for overnight delivery or deposited in the
United States mail, postage prepaid, registered or certified, and
addressed to the Executive at his last known address on the books of
the Company or, in the case of the Company, to the Chair of the Board
at the Company's principal place of business or to such other address
as either party may specify by notice to the other actually received.
- 12 -
19. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and, by the parties' mutual agreement, supersedes
all prior communications, agreements and understandings, written or
oral, with respect to the terms and conditions of the Executive's
employment.
20. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by an expressly authorized
representative of the Company.
21. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content
of any provision of this Agreement.
22. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
23. Governing Law. This is a Massachusetts contract and shall be construed
and enforced under, and governed in all respects, by the laws of The
Commonwealth of Massachusetts, without regard to the conflict of laws
principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Executive, as of the date on which this Agreement is signed by the second of the
parties hereto.
THE EXECUTIVE: THE COMPANY
Houghton Mifflin Company
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Director
Date: September 1, 2003
Date: September 17, 2003
- 13 -
Schedule 1
Class A* Class L
-------- -------
Common Stock
----------------------------
▇▇▇▇ Capital VII Coinvest Fund, LLC 65,475.0000 7,275.0000
▇▇▇▇ Capital Integral Investors, LLC 178,792.3000 19,446.1290
BCIP TCV, LLC 1,732.7000 612.2043
▇▇▇▇▇▇ ▇. ▇▇▇ Equity Fund V, L.P. 189,615.98 21,068.4422
▇▇▇▇▇▇ ▇. ▇▇▇ Parallel Fund V, L.P. 49,197.75 5,466.4162
▇▇▇▇▇▇ ▇. ▇▇▇ (Caymen) Fund V, L.P. 2,612.65 290.2940
▇▇▇▇▇▇ Investments Holdings, L.P. 1,481.05 164.5613
▇▇▇▇▇▇ Employees' Securities Company I 1,273.04 141.4493
▇▇▇▇▇▇ Employees' Securities Company II 1,136.65 126.2940
1997 ▇▇▇▇▇▇ ▇. ▇▇▇ Trust 449.55 49.9503
▇▇▇▇▇▇ ▇. ▇▇▇ Investors Limited Partnership 233.33 25.9259
Blackstone Capital Partners III Merchant Ban 102,635.5100 11,403.9450
Blackstone Offshore Capital Partners III L.P 19,442.0000 2,160.2217
Blacksone Familiy Investment Partnership III 922.5000 102.5000
Management Shares (including to be issued) 4,837.1510 537.4612
------------ ------------
Total 619,837.1610 68,870.7944
* Includes Class A-1 through Class A-10 Common Stock
EXHIBIT A
Optionee: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Grant Date: [EMPLOYMENT DATE]
This Option and any securities issued upon exercise of this Option are
subject to restrictions on voting and transfer and requirements of sale and
other provisions as set forth in the First Amended and Restated Stockholders
Agreement (the "Stockholders Agreement") among Houghton Mifflin Holdings, Inc.,
Houghton Mifflin Company, and certain other investors, dated as of January 28,
2003, as amended from time to time (this Option and any securities issued upon
exercise of this Option constitute Management Shares as defined therein).
HOUGHTON MIFFLIN HOLDINGS, INC.
STOCK OPTION
CLASS A OPTION CERTIFICATE
This stock option (the "Agreement") is granted by Houghton Mifflin
Holdings, Inc., a Delaware corporation ("Holdings"), to the Optionee, pursuant
to Holdings' 2003 Stock Option Plan, as amended from time to time (the "Plan").
1. GRANT OF OPTION. This certificate evidences the grant by Holdings on
the Grant Date to the Optionee of an option to purchase (the "Option"),
in whole or in part, on the terms provided herein and in the Plan, the
following shares of Class A-10 Common Stock of Holdings as set forth
below in the following prices per share.
(a) 4,696 shares of Class A-10 Common Stock of Holdings, par value
$.001 per share, at $100.00 per share (the "Tranche 1
Options");
(b) 4,696 shares of Class A-10 Common Stock of Holdings, par value
$.001 per share, at $100.00 per share (the "Tranche 2
Options");
(c) 4,696 shares of Class A-10 Common Stock of Holdings, par value
$.001 per share, at $100.00 per share (the "Tranche 3 Options"
and together with the Tranche 1 Options and Tranche 2 Options,
the "Options").
The Option evidenced by this certificate is not intended to qualify as
an incentive stock option under Section 422 of the Internal Revenue Code (the
"Code").
2. VESTING.
(a) The Tranche 1 Options will vest and become exercisable in
equal annual installments on the first, second, third and
fourth anniversaries of the Grant Date.
(b) The Tranche 2 Options will become eligible to vest in equal
annual installments on the first, second, third and fourth
anniversaries of the Grant Date. Tranche 2 Options which are
(or thereafter become) eligible to vest shall vest and become
exercisable upon the earlier of (i) a Tranche 2 Vesting Event
or (ii) the seventh anniversary of the Grant Date.
(c) The Tranche 3 Options will become eligible to vest in equal
annual installments on the first, second, third and fourth
anniversaries of the Grant Date. Tranche 3 Options which are
(or thereafter become) eligible to vest shall vest and become
exercisable upon the earlier of (i) a Tranche 3 Vesting Event
or (ii) the seventh anniversary of the Grant Date.
Notwithstanding any provision of the Plan or the forgoing provisions of
this Section 2, if Optionee's employment with the Company or its
Subsidiaries is terminated either (x) by the Company or its
Subsidiaries other than for Cause or (y) by the Optionee for "Good
Reason" (as defined in the Optionee's employment agreement with
[_________] dated as of [__________]) at any time after a Change of
Control and before the fourth anniversary of the Grant Date, (x) all
Tranche 1 Options will immediately become vested and exercisable and
(y) all Tranche 2 Options and Tranche 3 Options will immediately become
eligible to vest.
3. Exercise of Option. Each election to exercise this Option shall be
subject to the terms and conditions of the Plan and shall be in
writing, signed by the Optionee or by his or her executor or
administrator or by the person or persons to whom this Option is
transferred by will or the applicable laws of descent and distribution
(the "Legal Representative"), and made pursuant to and in accordance
with the terms and conditions set forth in the Plan. The latest date on
which this Option may be exercised (the "Final Exercise Date") is the
date which is the tenth (10th) anniversary of the Grant Date, subject
to earlier termination in accordance with the terms and provisions of
the Plan and this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
Optionee represents and warrants that:
(a) Authorization. Optionee has full legal capacity, power and
authority to execute and deliver this Agreement and to perform
Optionee's obligations hereunder. This Agreement has been duly
executed and delivered by Optionee and is the legal, valid and
binding obligation of Optionee enforceable against Optionee in
accordance with the terms hereof.
(b) No Conflicts. The execution, delivery and performance by
Optionee of this Agreement and the consummation by Optionee of
the transactions contemplated hereby will not, with or without
the giving of notice or lapse of time, or both (i) violate any
provision of law, statute, rule or regulation to which
Optionee is subject, (ii) violate any order, judgment or
decree applicable to Optionee, or (iii) conflict with, or
result in a breach of default under, any term or condition of
any agreement or other instrument to which Optionee is a party
or by which Optionee is bound.
(c) No Other Agreements. Except as provided by this Agreement, the
Stockholders Agreement and the Plan, Optionee is not a party
to or subject to any agreement or
-2-
arrangement with respect to the voting or transfer of this
Option or the shares of common stock issued upon exercise
hereof.
(d) Thorough Review, etc. Optionee has thoroughly reviewed the
Plan and this Agreement in their entirety. Optionee has had an
opportunity to obtain the advice of counsel (other than
counsel to Holdings, Houghton Mifflin Company or their
Affiliates) prior to executing this Agreement, and fully
understands all provisions of the Plan and this Agreement.
5. OTHER AGREEMENTS; CALL OPTION.
(a) In addition to the terms and provisions of this Option and the
Plan, this Option and any shares received upon the exercise of
this Option shall be subject to certain rights, restrictions
and obligations set forth in the Stockholders Agreement.
(b) Optionee acknowledges and agrees that the shares received upon
exercise of this Option shall be subject to the Stockholders
Agreement and the transfer and other restrictions set forth
therein, and Optionee further acknowledges that, as a
condition to receiving this Option, Optionee must execute,
join and become party to the Stockholders Agreement as a
Manager (as such term is defined in the Stockholders
Agreement).
(c) Notwithstanding any provision of the Plan, Holdings will
satisfy its payment obligation upon any exercise of the Call
Option in cash unless such payment would:
(i) constitute, result in or give rise to any breach or
violation of, or any default or right or cause of
action under, any agreement relating to debt for
borrowed money to which Holdings or any of its
Subsidiaries are, from time to time, a party, or
(ii) leave Holdings and its Subsidiaries with less cash
than, in the good faith judgment of the Board, is
necessary to operate the business of Holdings and its
Subsidiaries in the ordinary course of business,
in which case, Holdings may satisfy its payment obligation by
issuing a promissory note in the aggregate principal amount of
such payment, the principal amount of which would be due and
payable in three consecutive, equal annual installments
beginning on the first anniversary of the issuance of such
note, and interest would accrue thereon at a rate equal to the
prime rate as published in the Money Rates section of The Wall
Street Journal at the time such note is issued and be payable
annually in arrears.
-3-
6. LEGENDS. Certificates evidencing any shares issued upon exercise of the
Option granted hereby may bear the following legends, in addition to
any legends which may be required by the Stockholders Agreement or any
agreement referred to in the immediately preceding paragraph:
"The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of
1933, as amended (the "Act"), and may not be sold, assigned, pledged or
otherwise transferred in the absence of an effective registration under
the Act covering the transfer or an opinion of counsel, satisfactory to
the issuer, that registration under the Act is not required."
7. WITHHOLDING. No shares will be transferred pursuant to the exercise of
this Option unless and until the person exercising this Option shall
have remitted to Holdings an amount sufficient to satisfy any federal,
state or local withholding tax requirements, or shall have made other
arrangements satisfactory to Holdings with respect to such taxes.
8. NONTRANSFERABILITY OF OPTION. This Option is not transferable by the
Optionee other than by will or the applicable laws of descent and
distribution, and is exercisable during the Optionee's lifetime only by
the Optionee.
9. STATUS CHANGE. Upon the termination of the Optionee's employment with,
or other service to, Holdings or its Subsidiaries, this Option shall
continue or terminate, as provided in the Plan or, to the extent
applicable, in the last paragraph of Section 2.
10. EFFECT ON EMPLOYMENT. Neither the grant of this Option, nor the
issuance of shares upon exercise of this Option, shall give the
Optionee any right to be retained in the employ of Holdings, Houghton
Mifflin Company or their Affiliates, affect the right of Holdings,
Houghton Mifflin Company or their Affiliates to discharge or discipline
such Optionee at any time, or affect any right of such Optionee to
terminate his or her employment at any time.
11. INDEMNITY. Optionee hereby indemnifies and agrees to hold Holdings
harmless from and against all losses, damages, liabilities and expenses
(including without limitation reasonable attorneys fees and charges)
resulting from any breach of any representation, warranty or agreement
of Optionee in this Agreement or any misrepresentation of Optionee in
this Agreement.
12. PROVISIONS OF THE PLAN. This Option is subject in its entirety to the
provisions of the Plan, which are incorporated herein by reference. A
copy of the Plan as in effect on the date of the grant of this Stock
Option has been furnished to the Optionee. By exercising all or any
part of this Stock Option, the Optionee agrees to be bound by the terms
of the Plan and this Option In the event of any conflict between the
terms of this Option and the Plan, the terms of this Option shall
control.
13. DEFINITIONS. The initially capitalized terms Optionee and Grant Date
shall have the meanings set forth on the first page of this Agreement;
initially capitalized terms not otherwise defined herein shall have the
meaning provided in the Plan and the
-4-
Stockholders Agreement and, as used herein, the following terms shall
have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under
common control with such Person.
"Cash Value" shall mean in the case of cash the actual amount
of such cash and in the case of Publicly Traded Securities, the Market
Value of such Publicly Traded Securities at the time of the closing of
the Sale Transaction.
"Consideration" shall mean cash and/or Publicly Traded
Securities.
"Equity Purchase Price" shall mean [$619,837,151.00].
"Initial Public Offering" shall mean the occurrence of each of
(i) the effectiveness of a registration statement under the Securities
Act of 1933, as amended, covering the common stock of Holdings, and
(ii) the completion of a sale of such common stock thereunder, which
sale results in (x) Holdings becoming a reporting company under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
(y) such Common Stock being traded on the New York Stock Exchange
("NYSE") or the American Stock Exchange, or being quoted on the Nasdaq
Stock Market or being traded or quoted on any other national stock
exchange or securities system.
"Market Value" shall mean with respect to any security
publicly traded on a national exchange or the Nasdaq National Market or
any comparable system, the number of shares of such securities
multiplied by the average of the daily closing prices for 20
consecutive trading days ending on the last full trading day on the
exchange or market on which Holdings' Capital Stock is traded or
quoted. The closing price for any day shall be the last reported sale
price or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices for such day, in each case
(i) on the principal national securities exchange on which the shares
of Common Stock are listed or to which such shares are admitted to
trading, or (ii) if the Common Stock is not listed or admitted to
trading on a national securities exchange, on the Nasdaq National
Market or any comparable system, as applicable.
"Option Shares" shall mean, from time to time, the aggregate
number of (i) shares of Class A-10 Common Stock that are then the
subject of vested Options under the Plan and (ii) shares of Class A-10
Common Stock that are then outstanding as the result of the exercise of
Options under the Plan (equitably adjusted to take account of any stock
dividend or other similar distribution (whether in the form of stock or
other securities or other property), stock split or combination of
shares, recapitalization, conversion, reorganization, consolidation,
split-up, spin-off, combination, repurchase, merger, exchange of stock
or other transaction or event that affects Holdings' capital stock
occurring after the date of issuance).
"Original Investor Shares" shall mean the Investor Shares
originally issued to Financiere Versailles S.a.r.l., a Luxembourg
corporation ("Luxco"), at the Closing and distributed by Luxco to the
Investors (equitably adjusted to take account of any stock
-5-
dividend or other similar distribution (whether in the form of stock or
other securities or other property), stock split or combination of
shares, recapitalization, conversion, reorganization, consolidation,
split-up, spin-off, combination, repurchase, merger, exchange of stock
or other transaction or event that affects Holdings' capital stock
occurring after the date of issuance).
"Person" shall mean any individual, partnership, corporation,
association, trust, joint venture, unincorporated organization or other
entity.
"Publicly Traded Securities" shall mean any security that is
traded on the New York Stock Exchange, American Stock Exchange or the
Nasdaq National Market.
"Sale Transaction" shall mean: (i) any change in the ownership
of the capital stock of the Company (whether by way of sale of stock,
merger, or otherwise) if, immediately after giving effect thereto, any
Person (or group of Persons acting in concert) other than the Investors
and their Affiliates will have the direct or indirect power to elect a
majority of the members of the Board, or (ii) a sale or transfer of all
or substantially all of the Company's assets.
"Tranche 2 Vesting Event" shall mean (i) a Sale Transaction in
which the Cash Value of the net Consideration with respect to Original
Investor Shares and Option Shares equals or exceeds two times (2x) the
Equity Purchase Price, (ii) an Initial Public Offering in which the
initial public offering price is equal to or greater than two times
(2x) the amount obtained by dividing the Equity Purchase Price by the
sum of (x) the number of Original Investor Shares and (y) the number of
Option Shares, or (iii) the first day after the Initial Public Offering
on which the Market Value of the Original Investor Shares and the
Option Shares equals or exceeds two times (2x) the Equity Purchase
Price.
"Tranche 3 Vesting Event" shall mean (i) a Sale Transaction in
which the Cash Value of the net Consideration with respect to Original
Investor Shares and Option Shares equals or exceeds three times (3x)
the Equity Purchase Price, (ii) an Initial Public Offering in which the
initial public offering price is equal to or greater than three times
(3x) the amount obtained by dividing the Equity Purchase Price by the
sum of (x) the number of Original Investor Shares and (y) the number of
Option Shares, or (iii) the first day after the Initial Public Offering
on which the Market Value of the Original Investor Shares and the
Option Shares equals or exceeds three times (3x) the Equity Purchase
Price.
14. GENERAL. For purposes of this Option and any determinations to be made
by the Board of Directors of Holdings hereunder, the determinations by
the Board of Directors of Holdings shall be binding upon the Optionee
and any transferee.
-6-
IN WITNESS WHEREOF, Holdings has caused this Option to be executed
under its corporate seal by its duly authorized officer. This Option shall take
effect as a sealed instrument.
HOUGHTON MIFFLIN HOLDINGS, INC.
By:___________________________
Name:
Title:
Dated:
Acknowledged and Agreed
_______________________