Exhibit 10.1

 

HOUGHTON MIFFLIN COMPANY

2004 MANAGEMENT INCENTIVE COMPENSATION PLAN

 

Purpose

 

The purpose of the 2004 Management Incentive Plan is to motivate and reward
performance that contributes to the achievement of divisional and corporate
strategy as defined by specified financial and individual objectives. This
year’s plan focuses on two primary financial measures: Cash Flow and EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization).

 

Minimum Performance Requirements

 

Financial Objectives

 

Payment of incentive compensation for achievement of financial objectives may
occur if:

 

  • Company Cash Flow is         % or more of target (Corporate measures)

 

  • Division Cash Flow is         % or more of target (Division measures)

 

Personal Quantitative Objectives

 

Payment of incentive compensation for achievement of individual objectives may
occur if Division Cash Flow is         % or more of target.

 

Payout Formulas

 

Financial Objectives

 

2004 Financial objectives are Company Cash Flow, Company EBITDA, Division Cash
Flow and Division EBITDA.

 

Bonus payments will be calculated based on achievement of financial objectives
against threshold, target and above target performance. Target bonus is earned
as target performance is achieved. Minimum performance levels (threshold) will
result in minimum bonus opportunity for each financial objective. Incremental
performance for each objective will result in additional bonus opportunity.
Please refer to your management plan letter for more details.

 

Individual Objectives

 

Payment of incentive compensation for achievement of personal quantitative
objectives is based on the Division/Department Officer’s assessment of each
participant’s degree of success in achieving the written objectives as
established at the start of the year. Maximum payout for achievement of
Individual Objectives occurs when all Individual Objectives are achieved.

 

Eligibility

 

Participants in this plan include executives, directors, managers, and
professional staff as designated by Senior Executives of Houghton Mifflin.

 

Dates of Employment

 

Individuals who become participants prior to the 15th of the month from January
through September may be eligible to participate on a prorated basis.
Determination of current year participation will be made by the hiring manager
in conjunction with the Human Resources Manager and Compensation Business
Partner. Individuals who become participants in the fourth quarter
(October–December) will be eligible for participation in the management
incentive plan in the following year.

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Voluntary and Involuntary Terminations

 

A participant whose employment terminates, voluntarily or involuntarily, prior
to year-end is not eligible for an incentive award, unless required by law,
except for the following reasons:

 

(1) Retirement after age 55 with at least five years of service,

 

(2) Death, or permanent disability,

 

In the event of retirement, death, or permanent disability, a pro rata share of
the award (based on the number of months of eligible employment during that
year) will be paid to the participant, or his or her heirs, based upon the
extent of partial achievement of applicable objectives. In the event of a leave
of absence during the year, a pro rata share of the award may be paid.

 

(3) Organizational Restructuring, Facility Closings and Reduction in Force

 

In the event of organizational restructuring, facility closings and reduction in
force that occur during the fourth quarter of the year (October–December),
employees may be eligible for a pro-rated bonus payment to be calculated through
the employee’s separation date. The pro-rated payment will be determined by
using a full year of company/business financial results, and individual
performance for the partial year through the employee’s separation date.

 

Transfers

 

If the participant during the year transfers to another position and continues
to participate in the Plan, the employee’s performance will be measured against
the objectives in each position and then prorated on the number of months each
position was held.

 

Performance Standards

 

To be eligible for payment, a participating employee must be in good standing
and considered a satisfactory employee as determined by management (not on
written warning or any disciplinary/performance plan) during the plan year.
Payment of bonus does not imply or construe that performance may not be
addressed at a future date.

 

Amendments and Modifications

 

Nothing contained in the Plan shall be construed to limit in any way the right
of the Company to terminate a participant’s employment, adjust an employee’s
position or salary at any time, or adjust bonus target, or be evidence of any
agreement or understanding, expressed or implied, that any person will be
employed in a particular position or at a particular rate of compensation.
Unless otherwise stated in a written employment agreement between an individual
and the Company, all employees of the Company are employed on an at-will basis.

 

In the event of a Change of Control, this plan shall remain in full effect until
such time as it may be ratified, modified or abolished by the acquiring entity.
Any modifications to or dissolution of this Plan by the acquiring entity may
only occur prospectively and will not affect entitlements or eligibility before
the date of the Change of Control, or such date as it may be modified or
abolished by the acquiring entity.

 

Houghton Mifflin reserves the right to amend the terms of this Plan whenever, in
their best judgment, it is in the best interest of the Company to do so.

 

The Board of Houghton Mifflin approves any payments based on the recommendation
of the CEO of Houghton Mifflin pursuant to the Plan. Any interpretations of the
Plan, including adjustments to the financial objectives under the Plan, shall be
theirs to make. Their determinations shall be final and binding on all
participants.