Document:

Exhibit
10.8

 

TRUST
AGREEMENT FOR HOUGHTON MIFFLIN HOLDINGS, INC.

2003
DEFERRED COMPENSATION PLAN

 

This Agreement made as of this 28th day of January 2003, by and between
Houghton Mifflin Holdings, Inc. (“Houghton Mifflin” or the “Company”) with its
principal offices at 222 Berkeley Street, Boston, Massachusetts and Gerald T.
Hughes (the “Trustee”), c/o Houghton Mifflin Company, 222 Berkeley Street,
Boston, MA.

 

WITNESSETH

 

WHEREAS Houghton
Mifflin has adopted a non-qualified deferred compensation plan (the “Plan”) to
provide deferred compensation for certain management or highly compensated
employees of the Company and its subsidiaries and affiliates and their
beneficiaries; and

 

WHEREAS the
Company wishes to establish a trust (the “Trust”) to assist in the payment of
benefits under the Plan;

 

NOW, THEREFORE,
the parties hereby establish the Trust and agree that the Trust shall be
comprised, held and disposed of as follows:

 

SECTION 1.  TRUST FUND

 

(a)  Subject to the claims of the general
creditors of the Company, as set forth in Section 5, the Company hereby
deposits with the Trustee 2,369.14 shares of the Company’s Class A-10 Common
Stock, par value $0.001 per share (the “Class A Common Stock”), and 263.2375 shares
of the Company’s Class L Common Stock, par value $0.001 per share (the “Class L
Common Stock” and, together with the Class A Common Stock, the “Common Stock”),
in trust which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Agreement.

 

(b)  The purpose of the Trust is to pay as they
come due benefits under the Plan to persons who are entitled to such benefits
under the Plan (“Trust Beneficiaries”).

 

(c)  The Trust hereby established shall be
irrevocable.

 

(d)  The Trust is intended to be a trust of which
the Company is treated as the owner under Subpart E of Subchapter J, Chapter 1
of the Internal Revenue Code of 1986, as from time to time amended, and shall
be construed accordingly.

 

(e)  The principal of the Trust which is not returned
to the Company in accordance with the specific provisions of this Agreement or
used to defray the expenses of the Trust shall be used exclusively for the
benefit of Trust Beneficiaries, subject in every case to the provisions of
Section 5 (relating to Insolvency of the Company).  The Trust Beneficiaries shall not have any preferred claim on, or
any beneficial ownership interest in, any assets of the Trust prior to the time
such assets are distributed hereunder, and all rights of Trust Beneficiaries created
under the Plan or this Agreement shall be mere unsecured contractual rights
against the Company.

 

 

SECTION
2.  DEFINITIONS

 

For all purposes of this Agreement, the terms “Change
of Control,” “Majority Investors” and “Qualified Public Offering” shall have
the respective meanings set forth in the stockholders agreement among
Versailles U.S. Holding Inc. (renamed Houghton Mifflin Holdings, Inc.),
Houghton Mifflin Company and certain stockholders of Versailles U.S. Holding
Inc., dated as of December 30, 2002, as amended from time to time (the
“Stockholders Agreement”).

 

SECTION
3.  CONTRIBUTIONS TO THE TRUST

 

(a)  The Company may at any time and from time to
time make additional deposits of cash or other property in trust with the
Trustee in order to pay expenses and to augment the principal to be held,
administered and disposed of by the Trustee as provided in this Agreement.

 

(b)  Amounts transferred to the Trust in respect
of the Plan shall be held in trust until distributed in accordance with this Agreement
and the provisions of the Plan.

 

SECTION 4.  PAYMENTS

 

(a)  The Trustee shall make payments of benefits
to Trust Beneficiaries from the assets of the Trust at the directions of the
person or persons authorized by the Company to direct the Trustee hereunder
(the “Administrator”).

 

(b)  Upon receipt of evidence satisfactory to the
Trustee that a benefit otherwise payable hereunder has been paid by the Company
directly to a Trust Beneficiary, the Trustee shall reimburse the Company, for
such payment if there are sufficient assets in the Trust fund to provide for
such reimbursement.

 

(c)  Upon the occurrence of a Change of Control
(other than in connection with a Qualified Public Offering), all or a portion
of the shares of the Common Stock held herein shall be transferred as directed
by the Administrator in accordance with Section 7(a) of the Plan.

 

(d)  Following the occurrence of a Qualified
Public Offering, all of the shares of Common Stock held herein shall be
transferred to Trust Beneficiaries as directed by the Administrator in
accordance with Section 7(b) of the Plan.

 

(e)  Following the occurrence of a Trust
Beneficiary’s termination of employment, all or a portion of the shares of
Common Stock held herein shall be transferred as directed by the Administrator
in accordance with Section 7(c) of the Plan.

 

(f)  In the event of a Tag Along Event (as
defined in the Plan), Common Stock held herein shall be transferred as directed
by the Administrator in accordance with Section 7(d) of the Plan.

 

(g)  In the
event that the Majority Investors propose to transfer Common Stock in
accordance with Section 4.2 of the Stockholders Agreement, Common Stock held
herein shall be transferred as directed by the Administrator in accordance with
Section 7(e) of the Plan.

 

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(h)  On January 30, 2013 all remaining Common
Stock held herein shall be transferred to Trust Beneficiaries in accordance
with Section 7(f) of the Plan.

 

SECTION 5.  TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARIES WHEN MEMBER OF COMPANY GROUP INSOLVENT

 

(a)  For purposes of this Agreement, “Insolvent”
shall mean, as to any person or entity, that (i) such person or entity is
unable to pay its debts as they mature, or (ii) such person or entity is
subject to a pending proceeding as a debtor under the U.S. Bankruptcy Code.

 

(b)  At all times during the continuance of this
Trust, the principal of the Trust shall be subject to claims of general
creditors of the Company.  If at any
time the Trustee has actual knowledge, or has determined, that the Company is
Insolvent, the Trustee shall deliver any undistributed principal in the Trust
to satisfy such claims as a court of competent jurisdiction may direct.  The Board of Directors and the Chief
Executive Officer, or, if the responsibility has been delegated to the Chief
Financial Officer, the Chief Financial Officer of the Company, shall have the
duty to inform the Trustee of the Company’s Insolvency.  If the Company, or a person claiming to be a
creditor of the Company alleges in writing to the Trustee that the Company has
become Insolvent, the Trustee shall independently determine, within thirty (30)
days after receipt of such notice, whether the Company is Insolvent and,
pending such determination, shall discontinue payments of benefits to affected
Trust Beneficiaries (as hereinafter defined), shall hold the Trust assets for
the benefit of the Company’s general creditors, and shall resume payments of
benefits to such affected Trust Beneficiaries in accordance with Section 4 of
this Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent, if the Trustee initially determined the
Company, to be Insolvent).  Unless the
Trustee has actual knowledge of the Insolvency of the Company, or has received
an allegation of Insolvency as provided in the preceding sentence, the Trustee
shall have no duty to inquire whether the Company is Insolvent.  The Trustee may in all events rely on such
evidence concerning the solvency of the Company as may be furnished to the
Trustee which will give the Trustee a reasonable basis for making a
determination concerning the solvency of the Company.  Nothing in this Agreement shall in any way diminish any rights of
any Trust Beneficiary to pursue his or her rights as a general creditor of the
Company with respect to his or her benefits hereunder or otherwise.

 

(c)  Provided there are sufficient assets, if the
Trustee discontinues payments of benefits from the Trust and subsequently
resumes such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments which would have been made to
Trust Beneficiaries during the period of such discontinuance, less the
aggregate amount of payments made to Trust Beneficiaries by the Company in lieu
of the payments provided for hereunder during any such period of
discontinuance.

 

SECTION 6.  INVESTMENT OF PRINCIPAL

 

It is intended that the assets of the Trust shall be
invested in Common Stock, except as may be necessary or appropriate to
effectuate the payment of benefits contemplated by the Plan.  The Trustee shall invest the principal of
the Trust in accordance with such investment directions 

 

3

 

as the
Company shall provide.  The Trustee
shall have no duty to inquire into or review the aforesaid investment
directions, objectives, policies, or restrictions, or the investments made
pursuant to the directions of the Administrator or an investment manager
appointed by the Company.

 

SECTION 7.  DISPOSITION OF PRINCIPAL

 

During the term of
this Trust, all principal amounts contributed to the Trust, net of expenses,
shall be accumulated and invested for the purposes herein provided excepting
amounts invested in the Cash Subaccounts. 
Subject to the provisions of Sections 4 and 12, the Company shall not
have the right or power to direct the Trustee to return to the Company, or to
direct to others, any of the Trust assets before all payments of benefits payable
under the Trust have been made to Trust Beneficiaries.  Upon payment of all such benefits and legal
expenses, the Trustee shall return to the Company all amounts, if any, then
remaining in the Trust.

 

SECTION 8.  ACCOUNTING BY THE TRUSTEE

 

The Trustee shall
keep accurate and detailed records of all investments, receipts, disbursements,
and all other transactions required to be done, including such specific records
as shall be agreed upon in writing between the Company and the Trustee.  All such accounts, books and records shall
be open to inspection and audit at all reasonable times by the Company.  Within sixty (60) days following the close
of each calendar year and within sixty (60) days after the removal or resignation
of the Trustee, the Trustee shall deliver to the Company a written account of
its administration of the Trust during such year or during the period from the
close of the last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year
or as of the date of such removal or resignation, as the case may be.

 

SECTION 9.  RESPONSIBILITY OF THE TRUSTEE

 

(a)  The Trustee shall act with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like aims; provided,
however, that the Trustee shall incur no liability to anyone for any
action reasonably taken in accordance with a written direction, request, or
approval given by the Company or by an investment manager appointed by the
Company that is contemplated by and complies with the terms of this Agreement,
including distributions made in accordance with directions of the
Administrator, and to that extent shall be relieved of the prudent person rule
for investments.

 

(b)  The Trustee shall execute and become a party
to the Stockholders Agreement as a holder of Management shares thereunder, and
the Trustee shall vote shares of Common Stock held in Trust solely in
accordance therewith.  To the extent
that the Stockholders Agreement does not mandate the manner in which shares of
Common Stock are to be voted, the Trustee shall vote the shares of Common Stock
in the same manner as and in proportion with the shares

 

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voted by the Majority Investors. 
The Trustee shall abstain from any vote to elect any member of the Board
of Directors of the Company.

 

(c)  The Company agrees to indemnify the Trustee
against all loss or expense incurred by the Trustee under this Agreement, if
the Trustee acted in good faith and in a manner such Trustee reasonably
believed to be in or not opposed to the best interests of the Trust, and with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful.  Without
limiting the foregoing, the Trustee shall not be required to undertake or to
defend on behalf of any person any litigation arising in connection with this
Agreement, unless the Trustee be first indemnified by the Company against his
or her prospective costs, expenses and liability.

 

(d)  The Trustee may consult with legal counsel
(who may also be counsel for the Trustee generally) with respect to any of his
or her duties or obligations hereunder, including any determination as to
whether a Change of Control has occurred or as to whether the Company or an
Affiliate is Insolvent, and shall not be held responsible for acting or
refraining from acting in accordance with the advice of any such counsel
selected with reasonable care.

 

(e)  The Trustee may hire agents, legal counsel,
accountants, actuaries, investment managers and financial consultants.

 

(f)  The Trustee shall have, without exclusions,
all powers conferred on trustees by applicable law unless expressly provided
otherwise herein.

 

(g)  Nothing in this Agreement shall be construed
as constituting the Trustee plan “administrator,” as that term is defined in
Section 3(16) of ERISA, of any plan or arrangement pursuant to which benefits
are provided hereunder.

 

SECTION 10.  COMPENSATION AND EXPENSES OF THE TRUSTEE

 

The Trustee’s
compensation from the Company shall be deemed to include compensation for his
or her services as the Trustee.  The
Company, and not the Trustee, shall pay all expenses of the Trust and all
reasonable expenses incurred by the Trustee with respect to the administration
of the Trust.

 

SECTION 11.  REPLACEMENT OF THE TRUSTEE

 

The Trustee may be
removed by the Company, or may resign at any time, in either case by notice in
writing.  Upon the removal or the
resignation of the Trustee, a new trustee, which shall be an individual or a
bank or trust company, shall be appointed by the Company and such successor
trustee shall automatically accede to all rights, duties and obligations of the
Trustee hereunder.  If the Company fails
to appoint a successor trustee following the resignation or removal of the
present Trustee, then the present Trustee may apply to a court of competent
jurisdiction for the appointment of a successor trustee.

 

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SECTION
12.  AMENDMENT OR TERMINATION

 

(a)  This Agreement may be amended by a written
instrument executed by the Company or the Administrator.  Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan nor shall make the Trust
revocable.

 

(b)  The Trust shall not terminate until the date
on which Plan participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plan. 
Upon written approval of all participants and beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Company may
terminate the Trust prior to the time all benefit payments have been made.

 

(c)  Upon termination of the Trust, any assets
remaining in the Trust shall be returned to the Company.

 

SECTION 13.  SEVERABILITY AND ALIENATION

 

(a)  Any provision of this Agreement prohibited
by law shall be ineffective to the extent of any such prohibition without
invalidating the remaining provisions hereof.

 

(b)  Benefits payable to Trust Beneficiaries
under this Agreement may not be anticipated, assigned (either at law or in
equity), alienated or subject to attachment, garnishment, levy, execution or
other legal or equitable process and no benefit actually paid to Trust
Beneficiaries by the Trustee shall be subject to any claim for repayment by the
Company or the Trustee.

 

SECTION 14.  GOVERNING LAW

 

This Agreement and all claims arising out of or based
upon this Agreement or relating to the subject matter hereof shall be governed
by and construed in accordance with the domestic substantive laws of The
Commonwealth of Massachusetts without giving effect to any choice or conflict
of law provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.

 

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IN WITNESS WHEREOF, the Company and the Trustee have
executed this Agreement as of the date first above written.

 

	
   

  	
  HOUGHTON MIFFLIN HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/  Lois
  Novotny

  
	
   

  	
   

  	
  Name:  Lois
  Novotny

  
	
   

  	
   

  	
  Title:  
   Vice President and Assistant Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  Gerald T. Hughes, as Trustee

  

 

7Exhibit
10.9

 

HOUGHTON MIFFLIN HOLDINGS, INC. 2003 DEFERRED COMPENSATION
PLAN

 

1.             Purpose.  The purpose of the Houghton Mifflin
Holdings, Inc. 2003 Deferred Compensation Plan is to permit a select group of
highly compensated employees of Houghton Mifflin Holdings, Inc. and its
subsidiaries and affiliates to accumulate capital through the deferral of
certain compensation paid to them for their services.

 

2.             Definitions.

 

(a)           “Account”
means the deferred compensation bookkeeping account established for each Participant
pursuant to Section 5(a).

 

(b)           “Agreement”
means, with respect to each Participant, the agreement specified in each
Participant’s Election, under which certain retention bonus payments were
deferred or may be earned, and which has, in relevant part, been replaced by
this Plan.

 

(c)           “Beneficiary”
means the person(s) designated by a Participant pursuant to Section 9
to receive payment of his or her Account in the event of the Participant’s
death.

 

(d)           “Board”
means the board of directors of the Company.

 

(e)           “Call
Option” means the right of the Company to repurchase any or all Common Shares
distributed in connection with the Plan.

 

(f)            “Cash
Subaccount” means the portion of a Participant’s Account that represents cash.

 

(g)           “Change
of Control” has the meaning assigned to it under the Stockholders Agreement.

 

(h)           “Class
A Shares” means shares of the Company’s Class A-10 Common Stock, par value
$0.001 per share.

 

(i)            “Class
L Shares” means shares of the Company’s Class L Common Stock, par value $0.001 per
share.

 

(j)            “Committee”
means the Compensation Committee of the Board.

 

(k)           “Common
Share” or “Common Shares” means a share or shares of Class A Shares and/or
Class L Shares.

 

(l)            “Company”
means Houghton Mifflin Holdings, Inc.

 

(m)          “Company
Group” means the Company, its subsidiaries, and its affiliates.

 

(n)           “Drag Along Event” has the meaning
assigned to it in Section 7(e).

 

 

(o)           “Effective
Date” means January 28, 2003.

 

(p)           “Election”
means an instrument by which a Participant has waived his or her rights to
receive compensation under an Agreement and has elected specified amounts to be
allocated to his or her Account.

 

(q)           “Expiration
Date” has the meaning assigned to it in Section 7(f).

 

(r)            “Fair
Market Value” means, as of any date, as to any Common Share or Stock Unit, the
Board’s good faith determination of the fair value of such Common Share or
Stock Unit as of the applicable reference date.  On the Effective Date, the Fair Market Value of one Stock Unit
shall be $9000.

 

(s)           “Majority
Investors” has the meaning assigned to it under the Stockholders Agreement.

 

(t)            “Participant”
means an employee or former employee of any member of the Company Group
participating in the Plan as provided in Section 3.

 

(u)           “Plan”
means the Houghton Mifflin Holdings, Inc. 2003 Deferred Compensation Plan as
set forth herein, as amended from time to time.

 

(v)           “Qualified
Public Offering” has the meaning assigned to it under the Stockholders
Agreement.

 

(w)          “Stock
Subaccount” means the deferred compensation bookkeeping account established for
the Participant pursuant to Section 5.

 

(x)            “Stock
Unit” means a bookkeeping entry of which one Stock Unit is the equivalent of
nine Class A Shares and one Class L Share. 
A fraction of a Stock Unit would be the equivalent of such fraction
multiplied by nine Class A Shares and such fraction multiplied by one Class L
Share.

 

(y)           “Stock
Unit Commitment Amount” means the amount that a Participant has elected to be
allocated to his or her Stock Subaccount, subject to adjustment as set forth in
Section 4.

 

(z)            “Stockholders
Agreement” means the stockholders agreement among Versailles U.S. Holding Inc.
(renamed Houghton Mifflin Holdings, Inc.), Houghton Mifflin Company and certain
stockholders of Versailles U.S. Holding Inc., dated as of December 30, 2002, as
amended from time to time.

 

(aa)         “Tag
Along Event” has the meaning assigned to it in Section 7(d).

 

(bb)         “Termination
of Employment” means the termination of a Participant’s employment with each
member of the Company Group by which the Participant is employed.

 

2

 

(cc)         “Trustee”
has the meaning assigned to it under the Trust Agreement for Houghton Mifflin
Holdings, Inc. 2003 Deferred Compensation Plan.

 

(dd)         “Valuation
Date” means the date on which a Value Realizing Event under Section 7 herein
occurs and any other date determined by the Committee in its discretion.

 

(ee)         “Value
Realizing Event” means a Change of Control, a Qualified Public Offering, a
Termination of Employment, a Tag Along Event, a Drag Along Event or the
Expiration Date.

 

(ff)           “Withholding
Rate” means the minimum tax withholding rate, as required by law.

 

3.             Participation.

 

(a)           An employee of any member of the
Company Group who is listed on Schedule A attached hereto, as amended from time
to time by the Committee, and who has completed an Election pursuant to Section
4 shall be a Participant.

 

(b)           A
Participant’s participation in the Plan shall continue until the entire balance
in the Participant’s Cash Subaccount and the entire balance in the
Participant’s Stock Subaccount have been paid in full.

 

4.             Elections.

 

(a)           A
Participant’s Election must be in a form prescribed by the Company.  The Participant’s election form will specify
the date or dates on which amounts subject to the Election may be credited to
the Participant’s Account.

 

(b)          
The Election will indicate the Stock Unit Commitment Amount. The minimum amount
of the Stock Unit Commitment Amount is $10,000.

 

(c)           The
maximum Stock Unit Commitment Amount is the total amount that a Participant
would be entitled to receive were the Participant to remain employed by the
Company until all retention bonus payments had been earned under the Agreement.

 

(d)           In
the event that a Participant elects to have less than all of his or her
retention bonus payments under the Agreement allocated to the Stock Subaccount,
the Participant will be treated as having elected to allocate all retention
bonus payments first earned to the Stock Subaccount, up to the Stock Unit
Commitment Amount, and the remaining retention bonus payments will be allocated
to the Cash Subaccount.

 

(e)           In
the event that a Participant terminates employment prior to earning all or any
portion of the Stock Unit Commitment Amount, then the maximum Stock Unit
Commitment Amount will be reduced automatically to the balance of the Stock
Unit Subaccount at the date of Termination of Employment.

 

3

 

(f)            All
retention bonus payments otherwise due and payable to a Participant under the
Agreement and not credited to the Stock Subaccount or otherwise forfeited under
the terms of the Election or Agreement (to the extent not superseded by the
Plan), will be credited to the Cash Subaccount.

 

(g)           The
Election is irrevocable and must occur prior to the first date on which the
Participant would be entitled to receive any retention bonus payment under the
Agreement, and in any event no later than January 28, 2003.

 

5.             Accounts.

 

(a)           The Company shall, for each
Participant listed on Schedule A, establish an Account consisting of a Stock
Subaccount and a Cash Subaccount.

 

(b)           Stock
Subaccount.

 

(i)              Each
Participant’s Stock Subaccount shall initially consist of zero Stock Units and
shall be adjusted in accordance with the following:

 

(A)          Stock
Units shall be credited to the Participant’s Stock Subaccount in the amount and
at the date or dates set forth in the Participant’s Election on the terms and
conditions set forth in such Election and the Plan;

 

(B)           additional
Stock Units may be credited to the Participant’s Stock Subaccount by the
Committee, in its sole discretion, from time to time;

 

(C)           if
the outstanding Common Shares shall at any time be changed by recapitalization,
consolidation, combination, stock dividend or split, conversion, or similar
change in capitalization, the Committee shall make appropriate equitable
adjustments in the number and nature of Stock Units then credited to the
Participant’s Stock Subaccount consistent with the changes being made to nine
Class A Shares and one Class L Share; and

 

(D)          the
number of Stock Units allocated to the Participant’s Stock Subaccount shall be
reduced by the amount of any distributions of Common Shares to such Participant
(expressed as a reduction in an appropriate number of Stock Units) made pursuant
to this Plan.

 

(ii)             On
each Valuation Date, the balance of a Participant’s Stock Subaccount shall be
determined by multiplying the number of Stock Units in the Participant’s Stock
Subaccount by the Fair Market Value of a Stock Unit;

 

4

 

(iii)            The
Stock Units do not carry voting rights and no Participant has rights as a
stockholder of the Company by virtue of participation in the Plan.

 

(c)           Cash Subaccount.

 

(i)              Each Participant’s Cash Subaccount
shall initially consist of zero dollars and shall be adjusted in accordance
with the following:

 

(A)          cash
shall be credited to the Participant’s Cash Subaccount at the date or dates set
forth in the Participant’s Election on terms and conditions set forth in such
Election and the Plan;

 

(B)           in
the event of the Participant’s Termination of Employment with the Company prior
to the date on which amounts would otherwise be required to be credited to the
Stock Subaccount pursuant to the Election, no further amounts will be credited
to the Stock Subaccount and instead such amounts, to the extent due and owing
to the Participant, will be credited to the Cash Subaccount;

 

(C)           additional
amounts of cash may be credited to the Participant’s Cash Subaccount by the
Committee, in its sole discretion, from time to time; and

 

(D)          the
amount of cash allocated to the Participant’s Cash Subaccount shall be reduced
by the amount of any cash distributions made pursuant to this Plan.

 

(d)           In
addition to the foregoing, the Company shall pay to each Participant an amount
in cash equal to the product obtained by multiplying all cash dividends
declared by the Company from time to time on nine Class A Shares and one Class
L Share by the number of Stock Units in such Participant’s Stock Subaccount.  Payment to each Participant, if any, shall
be made by the Company within sixty (60) days from the date of payment of such
dividend by the Company.

 

(e)           Amounts
actually credited to a Participant’s Stock Subaccount or Cash Subaccount shall
both be nonforfeitable, except as otherwise provided in the Election or in the
Participant’s Agreement (to the extent not superseded by the Plan).

 

6.             Distributions of Cash Subaccount.  Any amount credited to the Cash Subaccount
will be paid to the Participant within ten days of the date it is so credited,
or otherwise at the time and in the manner set forth in the Participant’s
Election.

 

7.             Distributions of Stock
Subaccount.

 

(a)           Change
of Control of the Company.  In the
event of a proposed Change of Control, then, immediately prior to and
contingent on the consummation of the Change of 

 

5

 

Control, the Company shall distribute to each
Participant that number of Common Shares as is represented by the number of
Stock Units credited to such Participant’s Stock Subaccount in full payment
thereof.

 

(b)           Qualified
Public Offering.  On the date that
is 181 days after a Qualified Public Offering, the Company shall deliver to the
Participant that number of Common Shares as is represented by the number of
Stock Units credited to such Participant’s Stock Subaccount in full payment
thereof.

 

(c)           Termination
of Employment.  As soon as
reasonably practicable following his or her Termination of Employment, the
Company shall distribute to a Participant that number of Common Shares as is
represented by the Stock Units credited to such Participant’s Stock Subaccount
in full payment thereof.  The Company
may exercise the Call Option with respect to all or any portion of the Common
Shares delivered to the Participant by the Company.  The Company may exercise the Call Option by giving written notice
to the Participant at any time after the date that is 180 days after the date
of  the Company’s delivery of Common
Shares to the Participant.  The
repurchase price per Common Share shall be payable in cash and will be equal to
the greater of (i) the Fair Market Value of such Common Share on the date of
notice of exercise by the Company, or (ii) the value of such Common Share on
the Effective Date, which is $100 per Class A Share and $8,100 per Class L
Share.  The closing of the repurchase
shall occur on a date specified by the Company. The Board may, in its sole
discretion, elect to assign or transfer any of the rights of the Company
pursuant to this Subsection (c) to any person or entity.  Any Common Shares that are not purchased
pursuant to the Call Option shall remain subject to all of the provisions of
the Plan (including without limitation the Call Option) and the Stockholders
Agreement. The Call Option may not be exercised after the occurrence of a
Qualified Public Offering or a Change of Control or a transfer of the shares
other than to a Permitted Transferee (as defined in the Stockholders
Agreement).

 

(d)           Tag
Along.  In the event that a Tag
Along Notice (as defined in the Stockholders Agreement) is issued pursuant to
Section 4.1 of the Stockholders Agreement and the Committee instructs the
Trustee to distribute Common Shares from the Plan (a “Tag Along Event”), then
the Company shall distribute to each Participant that number of Common Shares
as is represented by the percentage of the Stock Units credited to the
Participant’s Stock Subaccount that equals the Tag Along Sale Percentage (as
defined in the Stockholders Agreement) or such greater or lesser percentage as
may be determined by the Committee. Each Participant shall sell the Common
Shares so distributed at the same time and on the same basis as the other
Participating Sellers (as defined in the Stockholders Agreement) pursuant to
the Stockholders Agreement.

 

(e)           Drag
Along.  In the event that the
Majority Investors (as defined in the Stockholders Agreement) request that a
specified percentage of the Common Shares, if any, held pursuant to the Trust
Agreement for Houghton Mifflin Holdings, Inc. 2003 Deferred Compensation Plan,
be sold in accordance with Section 4.2 of the Stockholders Agreement (a “Drag
Along Event”), then the Company shall distribute to each Participant that
number of Common Shares represented by the percentage of the Stock Units
credited to the Participant’s Stock Subaccount that equals the Drag Along Sale
Percentage (as 

 

6

 

defined in the Stockholders Agreement).  The Common Shares so distributed shall be
sold in the transaction at the same time and on the same basis as the Majority
Investors pursuant to the Stockholders Agreement.

 

(f)            Plan
Expiration.   On January 30, 2013
the Company shall deliver to the Participant that number of Common Shares as is
represented by the number of Stock Units credited to such Participant’s Stock
Subaccount in full payment thereof (the “Expiration Date”).

 

8.             Conditions on Distributions.  Notwithstanding anything in this Plan to the
contrary, distributions otherwise allowed under this Plan are subject to all of
the terms and conditions set forth in a Participant’s Election.

 

9.             Designation of Beneficiary.  Each Participant may designate or change the
designation of a Beneficiary or Beneficiaries to receive any payments due
hereunder upon his or her death by filing a designation form with the
Committee, on a form approved by it, at any time prior to his or her
death.  The Committee shall be bound by
the last designation form filed with it by the Participant.  In the absence of such designation of a
Beneficiary by a Participant, or if no Beneficiary shall survive him or her,
the Participant’s Beneficiary shall be his or her estate.  A Beneficiary or Beneficiaries shall be
bound by all the terms and conditions that applied to the Participant under the
Plan, including without limitation, the Call Option and the requirement to
execute a joinder to the Stockholders Agreement.

 

10.           Withholding.  Notwithstanding anything else in this Plan,
whenever Common Shares are distributed under this Plan, the Company shall
reduce the number of Common Shares distributed by a number of Common Shares
with a Fair Market Value equal to the Withholding Rate on the Fair Market Value
of all of the Common Shares that would otherwise be distributed to the
Participant but for this Section 10, or, alternatively, make other mutually
satisfactory arrangements to provide the Company with cash to make withholding
tax payments at the Withholding Rate. 
Common Shares not distributed by operation of this Section 10 shall be
deemed for all other purposes of this Plan to have been distributed to the
Participant and/or his or her Beneficiaries. 
In addition, the Company shall withhold amounts for tax purposes at the
Withholding Rate in connection with distributions from the Cash Subaccount; any
such amount so withheld shall be deemed distributed for all purposes hereof.

 

11.           Joinder.  Notwithstanding any other provision of this
Plan, as a condition to participating in the Plan, each Participant shall be
required to execute a joinder to the Stockholders Agreement with respect to
Common Shares distributed or to be distributed in connection with the Plan, in
a form satisfactory to the Company, and/or to satisfy any other or additional
requirements as may be imposed by the Committee or the Company.

 

12.           Contractual Obligation.  The obligations of the Company and any of
its subsidiaries or affiliates whose employees are participating in the Plan to
make payments hereunder shall be contractual only and all such payments shall
be made from the general assets of the Company and such subsidiaries or
affiliates.  Each Participant,
Beneficiary and any other person or persons having or claiming a right to
payments hereunder shall rely solely on the unsecured promise of the Company
and such subsidiaries or affiliates, and nothing herein shall

 

7

 

be construed to give the
Participant, Beneficiary or any other person or persons any right, title,
interest or claim in or to any specific asset, fund, reserve, account or
property of any kind whatsoever owned by the Company or its subsidiaries or
affiliates or in which it may have any right, title or interest now or in the
future, including, without limitation, any investments that may be made by the
Company or its subsidiaries and affiliates to hedge the obligations of the
Company.

 

13.           Administration.  The Plan is administered by the
Committee.  The Committee shall have the
authority to establish, amend and revoke from time to time rules and
regulations relating to the Plan. Any decision by the Committee concerning the
Participant’s Election, or terms and conditions thereof, that is disputed or
objected to by a Participant shall be resolved pursuant to Section 14
below.  Otherwise, the Committee has the
complete authority to construe the terms of the Plan and make all other
determinations and take all other actions assigned to the administrator under
the Plan.   The Committee has the
authority to interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the Plan.  Determinations of the Committee are
conclusive and binding on all parties. 
No member of the Committee shall be personally liable for any action or
determination under the Plan to the extent permitted by law.  The Board may remove any member of the
Committee at any time and for any reason.

 

14.           Claims Procedure.

 

(a)           Claim.  Any Participant or person making a claim for
a benefit, requesting an interpretation or ruling under the Plan, or requesting
information under the Plan shall present the request in writing to the
Committee, which shall respond in writing as soon as practicable.

 

(b)           Denial
of Claim.  If the claim or request
is denied and the denial is based on the terms and conditions of the Election,
the written notice of denial shall state:

 

(1)           the
reasons for denial, with specific reference to the Election provisions on which
the denial is based;

 

(2)           a
description of any additional material or information required and an
explanation of why it is necessary; and

 

(3)           an
explanation of the Plan’s claim review procedure.

 

(c)           Review
of Claim.  Any person whose claim or
request described in Subsection (b) is denied may request binding arbitration
before a single arbitrator in Boston, Massachusetts, in accordance with the
rules of JAAMS/ENDDISPUTE then in effect. 
Judgment may be entered on the arbitrator’s award in any court of
competent jurisdiction; provided, however that either the Participant or the Company
will be entitled to seek, without the need to post bond, equitable relief.  The non-prevailing party will pay
arbitration fees and expenses.

 

8

 

(d)           If
a claim or request is not described in Subsection (b), the Committee shall
respond in writing.  Except as described
above, the Committee has the authority to interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in
connection with the Plan. 
Determinations of the Committee are conclusive and binding on all
parties.

 

15.           Rabbi Trust.   The Company intends to establish a trust
(the “Trust”) and to contribute to the Trust assets that shall be held therein,
subject to the claims of the creditors of the Company and its subsidiaries and
affiliates whose employees are participating in the Plan, in the event of
insolvency of the Company and/or such subsidiaries or affiliates, until paid to
Participants and their Beneficiaries in such manner and at such times as
specified herein.  The Trust shall
constitute an unfunded arrangement (for tax and ERISA purposes) and shall not
affect the status of the Plan as an unfunded plan maintained for the purpose of
providing deferred compensation for the Participants listed herein.

 

16.           No Assignment.  No right or benefit or payment under the
Plan shall be subject to assignment (except to a successor(s) in interest of
the Company or of a member of the Company Group), sale or other transfer nor
shall it be liable or subject in any manner to attachment, garnishment or
execution.

 

17.           No Right to Continued Employment.  Neither the provisions of the Plan nor any
action taken thereunder shall be construed to give any Participant any right to
be retained in the employ of the Company or any member of the Company Group.

 

18.           Amendment or Termination.  The Board may amend or terminate the Plan at
any time in its discretion, provided, that any amendment of the Plan
shall not adversely affect the rights of any Participant to receive benefits
under the Plan in accordance with its terms as in effect prior to such
amendment; in particular, no amendment may be made which reduces the amounts
then payable under the Plan. 
Notwithstanding anything contained herein to the contrary, in the event
of the termination of the Plan, amounts payable under the Plan to Participants
shall be equal to the balance then in their Accounts, and the Company shall
direct that such amounts under the Plan be paid to Participants as soon as
practicable.

 

19.           Termination of Previous Plans.  Except as set forth in the Election or as
otherwise specifically provided in the Plan, the Plan is intended to supersede
in its entirety any and all prior plans, agreements and understandings with
respect to deferred compensation paid under the Agreement.

 

20.           Governing Law.  The Plan and all claims arising out of or
based upon this Plan or relating to the subject matter hereof shall be governed
by and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to any choice of law or conflict of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction, except as preempted by the Employee Retirement
Income Security Act of 1974, as amended.

 

9

 

IN WITNESS WHEREOF, a duly authorized officer of the
Company has executed this Plan effective as of the Effective Date set forth
herein.

 

 

	
   

  	
  HOUGHTON MIFFLIN HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Lois
  Novotny

  	
   

  
	
   

  	
   

  	
  Name: Lois Novotny

  
	
   

  	
   

  	
  Title:   Vice
  President and Assistant Secretary

  

 

10

 

Schedule A

 

 

Participant List

 

	
  Sally Baer

  
	
  Anita Constant

  
	
  Soma Coulibaly

  
	
  Susan Cowden

  
	
  Larry Hoce

  
	
  Gerald Hughes

  
	
  Theresa Kelly

  
	
  C. Edward Kennedy

  
	
  James Kennedy

  
	
  Mary Anne Kennedy

  
	
  George Logue

  
	
  Clifford Manko

  
	
  Kirby Mansfield

  
	
  Bridget Marmion

  
	
  Eileen McCrossan

  
	
  Ian McCurrach

  
	
  Sylvia Metayer

  
	
  Christine Miller

  
	
  Lois Novotny

  
	
  Rita Schaeffer

  
	
  Susan Schaffrath

  
	
  Sue Schultz

  
	
  David Serbun

  
	
  Ray Shepard

  
	
  Janet Silver

  
	
  June Smith

  
	
  Marilyn Stevens

  
	
  Iwan Streichenberger

  
	
  Allice Sullo

  
	
  Patricia Tutunjian

  
	
  David Walker

  
	
  Garret White

  
	
  Alison Zetterquist

  

 

11

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