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Exhibit (10(iii)(A)
Form of Senior Executive Severance Agreement
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
AGREEMENT made this [___] day of [__________], 2000, between Houghton
Mifflin Company, a Massachusetts corporation (the "Company"), and [_________]
(the "Executive") (the "Agreement"), which amends and restates the prior
agreement between the Company and the Executive made [____________, _____].
WHEREAS the Company considers it essential to the best interests of its
stockholders to ▇▇▇▇▇▇ the continuous employment of its key management
personnel; and
WHEREAS the Board of Directors of the Company (the "Board") recognizes that
the uncertainty engendered by any potential change in control may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement (if not provided where a capitalized term initially appears) are
provided in the last Section hereof.
2. TERM OF AGREEMENT. The term of this Agreement (the "Term") will
commence on the date hereof and end on December 31, [2003], unless further
extended as hereinafter provided. Commencing on January 1, [2002] and each
January 1 thereafter, the Term shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Company (upon authorization by the Board) or the Executive shall have given
notice not to extend this Agreement; provided,
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however, if a Change in Control shall have occurred during the Term, this
Agreement shall continue in effect (and the Term shall be extended) until at
least the end of the Change-in-Control Protective Period.
3. COMPANY'S COVENANTS SUMMARIZED. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the pro rata bonus amount
described in Section 5(c) hereof if a Change in Control occurs during the Term
(and the Executive remains in the employ of the Company immediately prior to the
Change in Control) and to pay the Executive the "Severance Payments" described
in Section 7(a) hereof and the other payments and benefits described herein if
there is a qualifying termination of the Executive's employment with the Company
following a Change in Control and during the Term. Except as provided in Section
5(c) hereof, no amount or benefit shall be payable under this Agreement unless
there shall have been (or, under the terms hereof, there shall be deemed to have
been) a termination of the Executive's employment with the Company following a
Change in Control. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right to
be retained in the employ of the Company.
4. THE EXECUTIVE'S COVENANTS. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason), by
reason of death, Disability or Retirement, or (iv) the termination by the
Company of the Executive's employment for any reason.
5. PRE-TERMINATION COMPENSATION RELATED TO DISABILITY OR OTHER
TERMINATION.
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(a) Following a Change in Control and during the Term, during any period
that the Executive fails to perform the Executive's full-time duties with the
Company as a result of incapacity due to physical or mental illness, the Company
shall pay the Executive's full salary to the Executive at the rate in effect at
the commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period, until the
Executive's employment is terminated by the Company for Disability; provided,
however, that such salary payments shall be reduced by the sum of the amounts,
if any, payable to the Executive at or prior to the time of any such salary
payment under disability benefit plans of the Company or under the Social
Security disability insurance program, which amounts were not previously applied
to reduce any such salary payment.
(b) If the Executive's employment shall be terminated for any reason
(other than Disability) following a Change in Control and during the Term, the
Company shall pay the Executive's full salary (to the Executive or in accordance
with Section 10(b) hereof if the Executive's employment is terminated by the
Executive's death) through the Date of Termination at the higher of the rate in
effect at the time the Notice of Termination is given or the rate in effect
immediately prior to the Change in Control, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period.
(c) If a Change in Control occurs during the Term and the Executive
remains in the employ of the Company immediately prior to the Change in Control,
then, notwithstanding any other provision herein or in the Incentive
Compensation Plan in which the Executive is participating immediately prior to
the Change in Control, as soon as practicable after the occurrence of the Change
in Control and in lieu of any other annual bonus payment under such Incentive
Compensation Plan with respect to the Company's fiscal year in which the Change
in Control occurs, the Company shall pay the Executive a pro rata bonus
determined by multiplying (i) the Executive's target bonus for such fiscal year
by (ii) a fraction, the numerator of which shall be the number of days in such
fiscal year up to and including the day
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the Change in Control occurred and the denominator of which shall be three
hundred-and-sixty-five (365).
6. NORMAL POST-TERMINATION PAYMENTS UPON TERMINATION OF EMPLOYMENT. If
the Executive's employment shall be terminated for any reason following a Change
in Control and during the Term, the Company shall pay the Executive's normal
post-termination compensation and benefits to the Executive as such payments
become due. Subject to Section 7(a) hereof, such post-termination compensation
and benefits shall be determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or benefit plans,
programs and arrangements (other than this Agreement).
7. SEVERANCE PAYMENTS.
(a) The Company shall pay the Executive the payments described in this
Section 7(a) (the "Severance Payments") upon the termination of the Executive's
employment following a Change in Control and prior to the end of the Term, in
addition to any required payments and benefits described in Sections 5 and 6
hereof, unless such termination is (i) by the Company for Cause, (ii) by reason
of death, Disability or Retirement, or (iii) by the Executive without Good
Reason. For purposes of the immediately preceding sentence, if a termination of
the Executive's employment occurs prior to a Change in Control, but following a
Potential Change in Control in which a Person has entered into an agreement with
the Company the consummation of which will constitute a Change in Control, such
termination shall be deemed to have followed a Change in Control and to have
been (i) by the Company without Cause, if the Executive's employment is
terminated without Cause with the encouragement of, or at the direction of, such
Person, or (ii) by the Executive with Good Reason, if the Executive terminates
the Executive's employment with Good Reason and the act (or failure to act)
which constitutes Good Reason occurs following such Potential Change in Control
and with the encouragement of, or at the direction of, such Person.
i) In lieu of any further salary payments to the Executive for
period subsequent to the Date of Termination and in lieu of any other
severance benefits to which the Executive might otherwise be entitled, the
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Company shall pay to the Executive a lump sum severance payment, in cash,
equal to three (3) times the sum of
(X) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or the Executive's annual
base salary in effect immediately prior to the Change in Control, and
(Y) the higher of (I) the sum of the amounts (if any) which were paid
to the Executive pursuant to the Incentive Compensation Plan (whether
in cash or in restricted shares) in the Company's fiscal year
immediately preceding that in which the Date of Termination occurs and
which would have been so paid in such year but for the Executive's
prior deferral election, and (II) the average amounts so paid or
deferred in the Company's three fiscal years immediately preceding
that in which the Change in Control occurs; provided, however, that,
if, as the result of the Executive's having only recently been
employed by the Company, the amount determined under this clause (Y)
would be zero, there shall be substituted an amount equal to the
Executive's annual target bonus for the Company's fiscal year in which
the Change in Control occurred (or, if none, the annual target bonus
which would have been established for the Executive, given the
Executive's position in the Company, if the Executive had been
employed by the Company at the beginning of such fiscal year).
ii) Notwithstanding any provision of the Incentive Compensation
Plan, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the sum of any incentive compensation which has been allocated or
awarded to the Executive for any completed fiscal year preceding the Date
of Termination under the Incentive Compensation Plan but has not yet been
either paid or deferred pursuant to an agreement with the Company;
iii) In addition to all other amounts payable to the Executive
under this Section 7(a), the Executive shall be entitled to receive from
the Company not
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later than the fifth day following the Date of Termination, an amount in
cash equal to, with respect to the Executive's interest in the SERP, the
excess of the amount described in the following clause (X) over the amount
described in the following clause (Y):
(X) the lump sum equivalent of the straight life annuity commencing
at age sixty-two which would have accrued to the Executive under the
terms of the SERP (without taking into account any offset required for
the Pension Plan benefits), calculated as if the Executive were fully
vested thereunder and had accumulated (after the Date of Termination)
three additional years of benefit service credit thereunder (but in no
event shall the Executive be deemed to have accumulated additional
years of benefit service credit after the Executive's sixty-fifth
birthday). Such calculation shall be made without regard to any
amendment to any such plan made subsequent to a Change in Control and
on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder and shall be determined as; and
(Y) the lump sum value accrued to the Executive pursuant to the
provisions of the Pension Plan which will be paid pursuant to the
provisions thereof.
For purposes of clause (X), the lump sum equivalent of the straight life
annuity shall be calculated as if the Executive were three years older at
the Date of Termination and for purposes of granting the three additional
years of benefit service shall also reflect three additional years of pay
with the assumption that base pay increases on each April 1 by the annual
increase in pay assumed for funding purposes in the most recent actuarial
report prepared by the Pension Plan's actuary with respect to such plan
prior to the Change in Control and that 100% of target bonus will be
payable in each February during that three year period. For purposes of
this Section 7(a)(iii), "lump sum equivalent" shall be determined using the
same assumptions utilized under the Pension Plan immediately prior to the
Change in Control. Upon the making of, and to the extent of, such cash
payment, the Company's obligations to the
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Executive under the SERP shall be cancelled. Notwithstanding the foregoing
provisions of this Section 7(a)(iii), if the Executive is at least age 62
when the Executive's termination of employment occurs and if the "age 65
minimum benefit" under the SERP applies in accordance with the SERP's terms
to the Executive's termination of employment when the additional three
years of age are reflected and the Executive's split dollar insurance is
adjusted in connection with the Change in Control (if a split dollar life
insurance policy remains in force for the Executive at such termination),
the references in clauses (X) and (Y) to "the lump sum equivalent of the
straight life annuity commencing at age sixty-two" shall be deemed to refer
to "the lump sum equivalent of the straight life annuity commencing at age
sixty-five"; provided, however, that in no event will the "age 65 minimum
benefit" apply to reduce the lump sum amount otherwise payable pursuant to
this Section 7(a)(iii).
iv) For the three-year period immediately following the Date of
Termination, the Company shall arrange to provide the Executive with life,
disability, accident and health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control if such reduction constitutes Good
Reason). Benefits otherwise receivable by the Executive pursuant to this
Section 7(a)(iv) shall be reduced to the extent comparable benefits are
actually received by or made available to the Executive without cost during
the three-year period following the Executive's termination of employment
(and any such benefits actually received by the Executive shall be reported
to the Company by the Executive).
(b) In the event that any payment or benefit received or to be received by
the Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments
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and benefits, including the Severance Payments, being hereinafter called "Total
Payments") would be subject (in whole or part), to the Excise Tax, the Company
shall pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any Excise Tax
on the Severance Payments and any federal, state and local income tax and Excise
Tax upon the payment provided for by this Section 7(b), shall be equal to the
Total Payments. For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) any
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by the Company's independent auditors and
reasonably acceptable to the Executive such other payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the amount of excess parachute
payments within the meaning of section 280G(b)(l) of the Code (after applying
clause (i), above), and (iii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination, net
of the maximum reduction in federal income
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taxes which could be obtained from deduction of such state and local taxes. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Severance
Payments.
(c) The payments provided for in Sections 7(a) and 7(b) hereof (other than
Section 7(a)(iv)) shall be made not later than the fifth (5th) day following the
Date of Termination; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand
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by the Company (together with interest at the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments are made under this
Section, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations, including, without limitation, any opinions or other
advice the Company has received from outside counsel, auditors or consultants
(and any such opinions or advice which are in writing shall be attached to the
statement).
(d) The Company also shall pay to the Executive all legal fees and
expenses incurred, in good faith, by the Executive as a result of a termination
(including all such fees and expenses, if any, incurred in disputing any such
termination or in seeking to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder). Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
8. TERMINATION PROCEDURES.
(a) NOTICE OF TERMINATION. Following any Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 11 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
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guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
(b) DATE OF TERMINATION. "Date of Termination", with respect to any
purported termination of the Executive's employment following a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated by the Executive's death, the date of the Executive's death, (ii) if
the Executive's employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive's duties during such
thirty (30) day period), and (iii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
(c) DISPUTE CONCERNING TERMINATION. If within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this Section 8(c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the Term, and such termination is
disputed in accordance with Section 8(c) hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to,
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salary) and continue the Executive as a participant in all compensation, benefit
and insurance plans in which the Executive was participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with Section 8(c) hereof. Amounts paid under this Section 8(d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
9. NO MITIGATION. The Company agrees that, if the Executive's employment
by the Company is terminated following a Change in Control and during the Term,
the Executive is not required to seek other employment or to attempt in any way
to reduce any amounts payable to the Executive by the Company hereunder.
Further, the amount of any payment or benefit provided for hereunder (other than
pursuant to Section 7(a)(iv) hereof) shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
10. SUCCESSORS; BINDING AGREEMENT.
(a) In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal
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representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
11. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or on the fifth business day after
the day on which mailed, if mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon actual receipt:
To the Company:
Houghton Mifflin Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Secretary
To the Executive:
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12. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
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otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement sets forth the entire agreement of the parties hereto in respect
of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and cancelled. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the Commonwealth of Massachusetts, without regard to
its conflicts of law principles. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor provisions to such
sections. There shall be withheld from any payments provided for hereunder any
amounts required to be withheld under federal, state or local law and any
additional withholding amounts to which the Executive has agreed. The
obligations under this Agreement of either the Company or the Executive which by
their nature and terms require satisfaction after the end of the Term shall
survive such event and shall remain binding upon such party.
13. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board
and shall be in writing. Any denial by the Board of a claim for benefits under
this Agreement shall be delivered to the Executive in writing and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Board shall afford a reasonable opportunity to the
Executive for a review of the decision denying a claim and shall further allow
the Executive to appeal to the Board a decision of the Board
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within sixty (60) days after notification by the Board that the Executive's
claim has been denied. To the extent permitted by applicable law, any further
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Boston, Massachusetts in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
16. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings indicated below:
(a) "Base Amount" shall have the meaning defined in section 280G(b)(3) of
the Code.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" for termination by the Company of the Executive's employment,
for purposes of this Agreement, shall mean (i) the willful and continued failure
by the Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the Executive's incapacity
due to physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 8(a)) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has not substantially
performed the Executive's duties, (ii) the willful engaging by the Executive in
conduct which is demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise, or (iii) material breach by the Executive
of any of the material terms or conditions of this Agreement coupled with
failure to correct such breach within thirty (30) days after notice from the
Company specifying the breach. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act, or failure to act, was
in the best interest of the Company.
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(d) A "Change in Control" of the Company shall be deemed to have occurred
if any of the following occurs:
i) any "Person" (as defined in this Section) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities;
ii) during any period of no more than two consecutive years
beginning after the date hereof individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of
the Company) whose election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or whose
nomination for election was previously so approved or recommended, cease
for any reason to constitute at least a majority thereof;
iii) there occurs a merger or consolidation of the Company or a
subsidiary thereof with or into any other entity, other than (x) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) more than 75% of the combined
voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation or (y) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
acquires 25% or more of the combined 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
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agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(e) "Change-in-Control Protective Period" shall mean the period from the
occurrence of a Change in Control until the second anniversary of such Change in
Control.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Company" shall mean Houghton Mifflin Company and any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise (except in determining, under Section 16(d)
hereof, whether or not any Change in Control of the Company has occurred in
connection with such succession).
(h) "Date of Termination" shall have the meaning stated in Section 8(b)
hereof.
(i) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days or for an aggregate period of two-hundred-ten (210) days during
a consecutive period of two-hundred-seventy (270) days, the Company shall have
given the Executive a Notice of Termination for Disability, and the Executive
shall not have returned to the full-time performance of the Executive's duties
within thirty (30) days after such Notice of Termination is given.
(j) "Excise Tax" shall mean any excise tax imposed under section 4999 of
the Code.
(k) "Executive" shall mean the individual named in the first paragraph of
this Agreement.
(l) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or after any Potential Change in Control
under the
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circumstances described in the second sentence of Section 7(a) hereof (treating
all references in paragraphs (I) through (VII) below to a "Change in Control" as
references to a "Potential Change in Control"), of any one of the following acts
by the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (III), (V) or (VI) below, such
act or failure to act is corrected prior to the Date of Termination specified in
the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent
with the Executive's status as an executive officer of the Company or any
substantial diminution, without the Executive's consent, in the Executive's
reporting responsibilities, powers, titles or offices as in effect
immediately prior to the Change in Control of the Company (other than any
such diminution primarily attributable to the fact that the Company may no
longer be a public company);
(II) any reduction in Base Salary, except for across-the-board
salary reductions similarly affecting all executives of the Company and all
executives of any person in control of the Company,
(III) any substantial reduction in the additional compensation
and benefits received by the Executive unless any such reduction shall be
generally applicable to executive personnel and all executives of any
person in control of the Company,
(IV) any requirement by the Company or of any person in control
of the Company that the Executive be based at a location outside the
metropolitan area in which the Executive was located immediately prior to
the Change in Control,
(V) any requirement by the Company or of any person in control
of the Company that the Executive travel with an overnight stay in excess
of 30% of the work days in any calendar year, or
(VI) any purported termination of the Executive's employment
which is not effected pursuant
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to a Notice of Termination satisfying the requirements of Section 8(a)
hereof (and, if applicable, the requirements of Section 16(c)); for
purposes of the Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(m) "Gross-Up Payment" shall have the meaning stated in Section 10(b)
hereof.
(n) "Incentive Compensation Plan" shall mean the Houghton Mifflin Company
annual bonus or incentive compensation plan in which the Executive is
participating in the relevant year, or any successor annual bonus or incentive
compensation plan.
(o) "Notice of Termination" shall have the meaning stated in Section 8(a)
hereof.
(p) "Pension Plan" shall mean the Houghton Mifflin Retirement Plan, as
amended from time to time, or any successor plan.
(q) "Person" has the meaning given such term in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange
Act, but excludes (a) the Company or any of its subsidiaries, (b) any trustee or
other fiduciary holding securities under an employee benefit plan of the Company
(or of any subsidiary of the Company), (c) any corporation owned, directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company and (d) an underwriter
temporarily holding securities pursuant to an offering of such securities.
(r) "Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied during the Term:
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(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would constitute
a Change in Control;
(III) any Person (x) is or becomes the Beneficial Owner, directly
or indirectly, (y) discloses directly or indirectly to the Company (or
publicly) a plan or intention to become the Beneficial Owner, directly or
indirectly, or (z) makes a filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, with respect to securities to become
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 9.9% or more of the combined voting power of the Company's
then outstanding securities; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(s) "Retirement" shall be deemed the reason for the termination by the
Company or the Executive of the Executive's employment if such employment is
terminated (i) with the Executive's prior written consent, as a result of which
the Executive is immediately eligible for retirement benefits under the Pension
Plan or (ii) in accordance with any retirement arrangement established with the
Executive's prior written consent with respect to the Executive.
(t) "Severance Payments" shall mean those payments described in Section
7(a) hereof.
(u) "Supplemental Executive Retirement Plan" or "SERP" shall mean the
Houghton Mifflin Supplemental Executive Retirement Plan authorized by the
Compensation and Nominating Committee on October 26, 1999, as amended from time
to time, or any successor plan.
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(v) "Term" shall have the meaning stated in Section 2 hereof.
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(w) "Total Payments" shall mean those payments so described in Section
7(b) hereof.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals on the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: President and
Chief Executive Officer
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