Document:

Exhibit 10.28

 

FORM
OF

 

EMPLOYMENT SECURITY AGREEMENT

 

This Agreement (the
“Agreement”) is made as of
[              ]
2003 (the “Effective Date”) by and between Houghton Mifflin Company (the
“Company”) and [                         ]
(the “Executive”).

 

WHEREAS,
the Company considers it desirable to foster the continuous employment of the
Executive by providing the Executive with the severance, confidentiality, and
non-competition arrangement set forth herein; and

 

WHEREAS,
the Board of Directors of Houghton Mifflin Holdings, Inc. (“Holdings”), the
Company’s ultimate parent company, has determined to grant the Executive
options to purchase the Class A Common Stock, $0.001 par value per share, of
Holdings in consideration of the Executive entering into this Agreement
pursuant to a Class A Option Certificate agreement between Holdings and the
Executive and Holdings’ 2003 Stock Option Plan as from time to time in effect
(the “Plan”);

 

NOW
THEREFORE, in consideration of such option grant and the mutual
promises, terms, provisions, and conditions set forth in this Agreement, the
parties hereby agree:

 

1.                                       Effectiveness;
Definitions.

 

a.                                       Term.  The “term” of this Agreement shall commence
on the Effective Date and continue in effect while the Executive is employed by
the Company and for a period of three hundred and sixty-five (365) days after
his or her employment terminates; provided, however, that any
provision of this agreement that should by its nature survive such expiration
to accomplish its purpose shall so survive, including without limitation
Sections 4 and 5 hereof.  Expiration of
this Agreement shall not relieve either party from any liability arising from
breach of this Agreement.

 

b.                                      Definitions.  Words or phrases that are initially
capitalized or are within quotation marks shall have the meanings provided in
this Agreement, certain of which are defined in Section 10 of this
Agreement.

 

2.                                       Severance
Benefits.

 

a.                                       Termination
By the Company Other than for Cause. 
In the event that the Company terminates the Executive’s employment with
the Company other than for Cause, in addition to any base salary earned but not
paid through the date of termination and any incentive bonus payment accrued
and earned but not yet paid to Executive under the Company’s Management
Incentive Plan (if any) for work performed in the calendar year immediately
prior to the calendar year in which the Executive was terminated, and provided
that no benefits are payable to the Executive under a separate severance
agreement or severance plan as a result of

 

 

such termination, the Company shall provide the Executive, as severance
pay, twelve (12) months of salary continuation of the Executive’s base salary
at the higher of (i) the rate in effect on the date of termination, or (ii) the
rate in effect on the Effective Date. 
In the event that Executive is eligible for benefits under a separate
agreement to provide severence or severance plan, payments provided under this
Section 2.a. shall be reduced by the amount payable to Executive under the
separate agreement or plan.

 

b.                                      Termination By
the Executive for Good Reason.  In
the event the Executive terminates his or her employment with the Company for
Good Reason (defined below), the Executive shall be entitled to receive such
severance pay as he or she would have been entitled to receive had his or her
employment been terminated by the Company other than for Cause in accordance
with Section 2.a. above (including the application of any offset for
benefits payable to the Executive under a separate severance agreement or
severance plan as a result of such termination); provided that the Executive
satisfies all conditions to such entitlement, including, without limitation,
the execution, delivery and non-revocation of an effective Release of Claims.

 

c.                                       Termination
for Cause or Other than Good Reason. 
In the event that the Company terminates Executive’s employment with the
Company for Cause, or the Executive terminates Executive’s employment with the
Company other than for Good Reason, the Company shall have no obligation to the
Executive in respect of severance pay or other termination benefits other than
any base salary earned but not paid through the date of termination.

 

d.                                      Employment at
Will.  Nothing in this Agreement is
to be construed as giving the Executive rights to employment or continued
employment with the Company.  Moreover,
in the event of a termination of the Executive’s employment on any basis other
than those set forth in clauses (a) through (c) of this Section 2, e.g.,
as a result of death, disability, resignation, or otherwise, no severance pay
or other termination benefits are payable under this Agreement.

 

e.                                       Release of
Claims; Severance Practices.  Any
obligation of the Company to the Executive under Section 2.a. or 2.b. is
conditioned upon the Executive signing a release of claims in the form provided
by the Company (the “Release of Claims”) within twenty-one days (or such
greater period as the Company may specify) following the later of the date on
which the Executive’s employment terminates or the date on which the Executive
receives a copy of the Release of Claims and upon the Executive not revoking
the Release of Claims in a timely manner thereafter.   Any severance pay to which the Executive is entitled under
Section 2.a. or 2.b. shall be payable as salary continuation in accordance
with the normal payroll practices of the Company for its executives and shall
begin at the Company’s next regular payday which is at least five (5) business
days following the date the Release of Claims shall be effective and
irrevocable, but shall be retroactive to the next business day following the
date of termination of the Executive’s employment.

 

2

 

 

3.                                       Termination
After Change of Control.  Notwithstanding
any contrary provision in the Plan or in any option grant agreement between
Holdings and the Executive pursuant to which Executive’s Options are granted,
in the event that the Company or its successor in interest terminates
Executive’s employment other than for Cause within three hundred and sixty-five
(365) days following a Change of Control (other than a Change of Control
resulting from a Public Offering) that is consummated prior to July 1,
2007, then within thirty (30) days of Executive’s termination of employment,
Holdings or its successors in interest, at Holdings’ or its successor’s option,
either:

 

a.                                       shall pay to
Executive an amount of cash equal to the product of:

 

i.                                          the remainder
of (x) the number of Options held by Executive that were not vested upon the
consummation of such Change of Control but would have been vested but for
insufficient passage of time (“Time Unvested Options”), minus (y) the
number of Time Unvested Options (if any) that survived such Change of Control
or were replaced with substitute awards that, in either case, vested prior to
or upon the termination of Executive’s employment, and (z) the number of Time
Unvested Options (if any) for which Executive was paid in cash or other
property (other than substitute awards) upon the consummation of such Change of
Control (such remainder being referred to herein as the Executive’s “Unvested
Change of Control Options”), multiplied by

 

ii.                                       the remainder of
(x) the Fair Value of Consideration per share of Holdings Class A Common Stock,
$0.001 par value per share, received by the Investors in the Change of Control
transaction minus (y) the per share exercise price of the Unvested
Change of Control Options (such remainder being referred to herein as the
“Option Spread Amount”); or

 

b.                                      shall issue or
transfer to Executive Consideration having a Fair Value equal to the
Executive’s Unvested Change of Control Options multiplied by the Option Spread
Amount.

 

All
Unvested Change of Control Options held by the Executive shall immediately
terminate upon the payment, issuance, or transfer to the Executive of the cash
or Consideration required pursuant to paragraph a. or b. above.

 

4.                                       Confidential
Information.

 

a.                                       The Executive
acknowledges that the Company and the Company Affiliates continually develop
Confidential Information; that the Executive may have developed and may develop
hereafter Confidential Information for the Company or any Company Affiliate;
and that the Executive may learn of Confidential Information during the course
of employment.  The Executive shall
comply with the policies and procedures of the Company and the Company
Affiliates for protecting Confidential Information and shall not disclose to
any Person or use, other than as required by applicable law or for the proper performance
of his or

 

3

 

her or her duties and responsibilities to the Company and the Company
Affiliates, any Confidential Information obtained by the Executive incident to
his or her employment or any other associations with the Company or any of the
Company Affiliates.  The Executive
understands that this restriction shall continue to apply after his or her
employment terminates, regardless of the reason for such termination.

 

b.                                      All documents,
records, tapes, and other media of every kind and description relating to the
business, present or otherwise, of the Company and the Company Affiliates and
any copies, in whole or in part, thereof (the “Documents”), whether or not
prepared by the Executive, shall be the sole and exclusive property of the
Company and the Company Affiliates.  The
Executive shall safeguard all Documents and shall surrender to the Company at
the time his or her employment terminates, or at such earlier time or times as
the Company may specify, all Documents then in the Executive’s possession or
control.

 

5.                                       Assignment
of Rights to Intellectual Property. 
The Executive shall promptly and fully disclose all Intellectual
Property to the Company.  The Executive
hereby assigns and agrees to assign to the Company (or as otherwise directed by
the Company) all the Executive’s rights, title, and interests in and to all
Intellectual Property and all claims or causes of action arising therefrom or
relating thereto, and waives and agrees to waive any moral rights or other
special rights which Executive may have or accrue therein.  The Executive agrees to execute any and all
applications for domestic and foreign patents, copyrights, or other proprietary
rights and to do such other acts requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights, or other proprietary rights to the Intellectual Property,
including, without limitation, the execution and delivery of instruments of assignment,
further assurance, or confirmation, and the provision of good faith testimony
by affidavit, in-person, or otherwise. 
The Executive shall not charge the Company for time spent in complying
with these obligations.  All
copyrightable works that the Executive creates shall be considered “work made
for hire.”

 

6.                                       Restricted
Activities.  The Executive agrees
that some restrictions on his or her activities during and after his or her
employment are reasonable and necessary to protect the goodwill, Confidential
Information and other legitimate interests of the Company and the Company
Affiliates and accordingly agrees as follows:

 

a.                                       While the
Executive is employed by the Company and for a period of three hundred and
sixty-five (365) days after his or her employment terminates (in the aggregate,
the “Non-Competition Period”), the Executive shall not, directly or indirectly,
whether as owner, partner, investor, consultant, agent, employee, co-venturer,
or otherwise, engage in any business which is the same as or similar to or
otherwise competes with the business of the Company or any of the Company
Affiliates within the United States or in any other country in which the
Company or any of the Company Affiliates is doing any such business or
undertake any planning for any such business. 
Specifically, but without limiting the foregoing, the Executive agrees
not to engage in any manner in any activity that is directly or 

 

4

 

indirectly competitive or potentially competitive with the business of
the Company or any Company Affiliate as conducted or under consideration at any
time during the Executive’s employment or other associations with the Company
or any Company Affiliate.  It will not
be a violation of this Section 6.a. for the Executive to own less than 1%
of the outstanding publicly-traded securities of a competitor of the Company or
its Affiliates through a mutual fund or other passive investment vehicle not
managed by the Executive.  For the purposes of this
Section 6, the business of the Company and the Company Affiliates shall
include without limitation all Products and the Executive’s undertaking shall
encompass all items, products and services that may be used in substitution for
Products.

 

b.                                      The Executive
agrees that, during his or her or her employment with the Company, he or she
shall not perform any consulting services and that during such employment he or
she shall not undertake any other outside activity, whether or not competitive
with the business of the Company or the Company Affiliates, that could
reasonably give rise to a conflict of interest or otherwise interfere with his
or her or her duties and obligations to the Company or any of the Company
Affiliates.

 

c.                                       The Executive
further agrees that during the Non-Competition Period, other than as required
by the Executive’s duties for the Company and the Company Affiliates during his
or her employment, the Executive shall not, and shall not assist anyone else
to, directly or indirectly (A) solicit for hiring any employee of the
Company or any Company Affiliate or seek to persuade any employee of the
Company or any Company Affiliate to discontinue employment or (B) solicit or
encourage any independent contractor or other Person doing business with the
Company or any Company Affiliate at any time during the Executive’s employment
to terminate or diminish its relationship with the Company or any Company
Affiliate or to violate any agreement of such independent contractor or other
Person with the Company or any Company Affiliate.  For the purposes of this Agreement, an “employee” of the Company
or any Company Affiliate is any Person who is then in their employ or who was
so employed at any time within the preceding one hundred and eighty (180) days.

 

[If the Executive has a retention agreement
with the Company, the Executive’s customized agreement will contain a provision
that states that Section 6.a. will not take effect until June 30,
2004, and that the non-compete provisions of the retention agreement will
remain in effect until this date.]

 

7.                                       Notification
Requirement.  During the
Non-Competition Period, the Executive shall give notice to the Company of each
new business activity he or she plans to undertake, at least fifteen (15)
business days prior to beginning any such activity.  Such notice shall state the name and address of the Person for
whom such activity is undertaken and the nature of the Executive’s business
relationship(s) and position(s) with such Person.  The Executive shall provide the Company with such other pertinent
information concerning such business activity as the Company may reasonably
request in order to determine the

 

5

 

Executive’s continued compliance with his or her or her obligations
under Sections 4, 5, and 6 hereof.

 

8.                                       Enforcement
of Covenants.  The Executive
acknowledges that he or she has carefully read and considered all the terms and
conditions of this Agreement, including, without limitation, the restraints
imposed upon him or her pursuant to Sections 4, 5, and 6 hereof.  The Executive agrees that said restraints
are necessary for the reasonable and proper protection of the Company and the
Company Affiliates and that each and every one of the restraints is reasonable
in respect to subject matter, length of time, geographic area, and
otherwise.  The Executive further
acknowledges that, were he or she to breach any of the covenants contained in
Sections 4, 5, or 6 hereof, the damage to the Company would be
irreparable.  The Executive therefore
agrees that the Company, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by the Executive of any of said covenants, without
having to post bond and for the recovery of reasonable attorneys’ fees incurred
in the enforcement of its rights hereunder. 
The parties further agree that, in the event that any provision of
Section 4, 5, or 6 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great
a time, too large a geographic area or too great a range of activities or
otherwise, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.

 

9.                                       Condition.  The obligation of the Company to make
payments to the Executive under Section 2 and Section 3 hereof is
expressly conditioned upon the Executive’s continued full performance of
obligations under Sections 4, 5, 6 and 7 hereof.

 

10.                                 Definitions.  Words or phrases that are initially
capitalized or are within quotation marks shall have the meanings provided in
this Section and as provided elsewhere herein.  For purposes of this Agreement, the following definitions apply:

 

“Affiliates”
means, as to any Person other than the Company, all persons and entities
directly or indirectly controlling, controlled by or under common control with
such Person, where control may be by management authority, equity interest or
otherwise.

 

“Cause”
means 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)
after a written demand for substantial performance is delivered to the
Executive by the Company, which demand specifically identifies the manner in
which the Company believes that the Executive has failed to substantially
perform the Executive’s duties; or the willful engaging by the Executive in
conduct which is demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise; or the Executive’s being convicted of a
felony.  However, no act, or failure to
act, on the Executive’s part shall be deemed “willful” if it was done, or
omitted to be done, by the Executive in good faith and with reasonable belief
that the Executive’s act, or failure to act, was in the best interests of the
Company.

 

6

 

“Change
of Control” means (a) any change in the ownership of the capital stock of
Holdings if, immediately after giving effect thereto, any Person (or group of
Persons acting in concert) other than the Investors and their Affiliates shall
have the direct or indirect power to elect a majority of the members of the
board of directors of Holdings or (b) any change in the ownership of the
capital stock of Holdings if, immediately after giving effect thereto, the
Investors and their Affiliates shall own less than 25% of the outstanding
common stock of Holdings on a fully-converted basis (i.e., including all
outstanding options, warrants or convertible securities that may at the time be
exercised, converted or exchanged).

 

“Company
Affiliates” means Holdings, Holdings’ officers and directors, any Person
directly or indirectly controlled by Holdings (including without limitation the
Company), and the officers, directors, stockholders, members, partners or other
owners of Persons directly or indirectly controlled by Holdings.

 

“Consideration”
means securities or other property (as is the case) paid to the Investors on
consummation of a transaction that causes a Change of Control.

 

“Confidential
Information” means any and all information of the Company and the Company Affiliates
that is not generally known by others with whom they compete or do business, or
with whom any of them plans to compete or do business, and any and all
information, publicly known in whole or in part or not, which, if disclosed by
the Company or the Company Affiliates would assist in competition against
them.  Confidential Information includes
without limitation such information relating to (i) the development, research,
testing, marketing, and financial activities of the Company and the Company
Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial
performance and strategic plans of the Company and the Company Affiliates, (iv)
the identity and special needs of the customers of the Company and the Company
Affiliates, and (v) the people and organizations with whom the Company and the
Company Affiliates have business relationships and nature and substance of
those relationships.  Confidential
Information also includes any information that the Company or any Company
Affiliate has received, or may receive hereafter, belonging to customers or
others with any understanding, express or implied, that the information would
not be disclosed.

 

“Good
Reason” means a reduction in the Executive’s base salary, the Executive’s
annual bonus opportunity or the Executive’s benefits that is not cured within
ten business days following notice from the Executive specifying the nature of
such reduction (excluding in each instance any reduction which applies
across-the-board to similarly situated executives of the Company and its
Affiliates); or a relocation of more than seventy-five (75) miles of the
Executive’s current primary working location; or a failure to provide
perquisites, working space and facilities comparable to that provided to
similarly situated executives of the Company and its Affiliates that is not
cured within ten business days following notice from the Executive specifying
the nature of such failure.

 

“Fair
Value” means (i) when the Consideration is Publicly Traded Securities, the
Market Value of such Publicly Traded Securities at the time of the consummation
of the Change

 

7

 

of
Control transaction, and (ii) when the Consideration is securities or other
property other than Publicly Traded Securities, the fair market value of such
Consideration at the time of the consummation of the Change of Control
transaction, as determined in good faith by the board of directors of Holdings
or its successor.

 

“Intellectual
Property” means inventions, discoveries, developments, methods, processes,
compositions, works of authorship, concepts, and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed, or reduced to practice by the Executive (whether alone or
with others, whether or not during normal business hours or on or off Company
premises) during the Executive’s employment that relate to either the Products
or any prospective activity of the Company, any Company Affiliate, or any
Investor or that make use of 
Confidential Information or any of the equipment or facilities of the
Company or any Company Affiliate.

 

“Investors” has the
meaning given to it in the Stockholders Agreement.

 

“Market
Value” means with respect to any Publicly Traded Security, the number of shares
of such securities multiplied by the closing price of the Publicly Traded
Security on the exchange or market on which it is traded or quoted on the day
on which the Market Value is being measured, or if such day is a weekend or holiday,
the closing price of the Publicly Traded Security on the most recent full
trading day on the exchange or market on which such security is traded or
quoted.  The closing price for any day
shall be the last reported sale price or, in the case no such reported sale
takes place on such day, the average of the closing bid and asked prices for
such day, in each case (i) on the principal national securities exchange on
which such security is listed or to which such shares are admitted to trading,
or (ii) if such security is not listed or admitted to trading on a national
securities exchange, on the Nasdaq National Market or any comparable system, as
applicable.

 

“Options”
means those options to purchase Class A Common Stock, $0.001 par value per
share, of Holdings granted to Executive pursuant to an option grant agreement
between Holdings and the Executive dated as of the Effective Date.

 

“Person”
means an individual, a corporation, a limited liability company, an
association, a partnership, an estate, a trust, and any other entity or
organization.

 

“Products”
means printed and electronic materials and all other products planned,
researched, developed, written, edited, tested, manufactured, published, sold,
licensed, leased, or otherwise distributed or put into use by the Company or any Company
Affiliate, together with all services provided or planned by the Company
or any Company Affiliate, during the Executive’s employment.

 

“Public
Offering” means a public offering and sale of common stock or other voting securities
of Holdings for cash pursuant to an effective registration statement under the
Securities Act.

 

8

 

“Publicly
Traded Securities” means any security that is publicly traded on the New York
Stock Exchange, American Stock Exchange, the Nasdaq National Market, or any
other national exchange or comparable national over-the-counter system.

 

“Stockholders
Agreement” means the Stockholders Agreement between and among Holdings, the
Company, and certain investors in Holdings, dated as of December 30, 2002,
as from time to time in effect.

 

11.                                 Withholding.  All payments made by the Company under this
Agreement shall be reduced by any tax or other amounts required to be withheld
by the Company under applicable law.

 

12.                                 Assignment.  Neither the Company nor the Executive may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of the Executive in the event that the Executive
is transferred to a position with any Company Affiliate or in the event that
the Company hereafter shall effect a reorganization, consolidate with, or merge
into, any Person or transfer all or substantially all of its properties or
assets to any Person.  This Agreement
shall inure to the benefit of and be binding upon the Company and the
Executive, their respective successors, executors, administrators, heirs, and
permitted assigns.

 

13.                                 Waiver.  No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party.  The failure of either party to require the
performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.

 

14.                                 Notices.  Any and all notices, requests, demands, and
other communications provided for by this Agreement shall be in writing and
shall be effective when delivered in person, consigned to a reputable national
courier service for overnight delivery or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
or her or her last known address on the books of the Company or, in the case of
the Company, to the General Counsel at the Company’s principal place of
business or to such other address as either party may specify by notice to the
other actually received.

 

15.                                 Entire
Agreement.  This Agreement
constitutes the entire agreement between the parties and, by the parties’
mutual agreement, except as expressly provided herein supersedes all prior
communications, agreements, and understandings, written or oral, with respect
to the subject matter hereof, excluding only [the
Executive’s Retention Agreement (other than the non-competition provisions
thereof, which are superseded to the extent expressly provided herein)]  any existing agreement between
the Executive and the Company or any Company Affiliate with respect to
confidentiality, non-competition, non-solicitation, assignment of intellectual
property or the like (each an “Employee Agreement”), any loans outstanding from
the Company or any Company Affiliate or any

 

9

 

benefit plan on the Effective Date and the existing rights and
obligations of Holdings and the Executive with respect to the options and
securities of Holdings, all of which shall remain in full force and effect in
accordance with their terms.  If there
is a conflict after the Effective Date between the obligations of the Executive
under an Employee Agreement and the Executive’s obligations hereunder, the
terms of this Agreement shall control.

 

16.                                 Amendment.  This Agreement may be amended or modified
only by a written instrument signed by the Executive and by an expressly
authorized representative of the Company.

 

17.                                 Headings.  The headings and captions in this Agreement
are for convenience only and in no way define or describe the scope or content
of any provision of this Agreement.

 

18.                                 Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.

 

19.                                 Governing
Law.  This Agreement, the rights of
the parties and all Actions (as defined in Section 20 below) arising in
whole or in part under or in connection herewith, 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 laws of any other
jurisdiction.

 

20.                                 Jurisdiction.  By Executive’s execution of this Agreement
Executive (a) hereby irrevocably submits to the non-exclusive jurisdiction of
the state courts of The Commonwealth of Massachusetts and the United States
District Court located in The Commonwealth of Massachusetts for the purpose of
any action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation (“Action”) between the parties arising in
whole or in part under or in connection with this Agreement, and (b) hereby
waives to the extent not prohibited by applicable law, and agrees not to
assert, by way of motion, as a defense, or otherwise, in any such Action, any
claim that Executive is not subject personally to the jurisdiction of the
above-named courts.

 

[Signature
Page Follows.]

 

10

 

IN WITNESS WHEREOF, this
Agreement has been executed as a sealed instrument by the Company, by its duly
authorized representative, and by the Executive, as of the date on which this
Agreement is signed by the second of the parties hereto.

 

	
  THE EXECUTIVE:

  	
  THE COMPANY

  
	
   

  	
  Houghton Mifflin Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
						

 

11Exhibit 10.29

 

[FORM OF OPTION CERTIFICATE]

 

Optionee:

 

This
Option and any securities issued upon exercise of this Option are subject to
restrictions on voting and transfer and requirements of sale and other
provisions as set forth in the Stockholders Agreement  among Houghton Mifflin Holdings, Inc., Houghton Mifflin Company,
and certain other investors, dated as of December 30, 2002, as amended from
time to time (the “Stockholders Agreement”) (this Option and any securities
issued upon exercise of this Option constitute Management Shares as defined
therein).

HOUGHTON MIFFLIN
HOLDINGS, INC.

STOCK OPTION

CLASS A OPTION CERTIFICATE

This stock option (the “Agreement”) is granted by
Houghton Mifflin Holdings, Inc., a Delaware corporation (“Holdings”), to the Optionee,
pursuant to Holdings’ 2003 Stock Option Plan, as amended from time to time (the
“Plan”).  For the purpose of this
Agreement, the “Grant Date” shall mean July 1, 2003, regardless of the date on
which this Agreement is entered into.

1.                                      Grant of Option.  This certificate evidences the grant by Holdings on the Grant Date to the
Optionee of an option to purchase (the “Option”), in whole or in part, on the
terms provided herein and in the Plan, the following shares of Class A-10
Common Stock of Holdings as set forth below in the following prices per share.

(a)                                  [               ] shares of Class A-10 Common
Stock of Holdings, par value $.001 per share, at $100.00 per share (the
“Tranche 1 Options”);

(b)                                 [               ] shares of Class A-10 Common
Stock of Holdings, par value $.001 per share, at $100.00 per share (the
“Tranche 2 Options”); and

(c)                                  [               ] shares of Class A-10 Common
Stock of Holdings, par value $.001 per share, at $100.00 per share (the
“Tranche 3 Options” and together with the Tranche 1 Options and Tranche 2
Options, the “Options”).

The Option evidenced by this certificate is not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code (the “Code”).

2.                                      Vesting.

(a)                                  The Tranche 1 Options will vest and
become exercisable in equal annual installments on the first, second, third,
and fourth anniversaries of the Grant Date.

(b)                                 The Tranche 2 Options will become
eligible to vest in equal annual installments on the first, second, third, and
fourth anniversaries of the Grant Date. 
Tranche 2 Options which are eligible to vest shall vest and become
exercisable upon the earlier of (i) a Tranche 2 Vesting Event or (ii) the
seventh anniversary of the

 

 

Grant Date. 
Tranche 2 Options not eligible to vest on the date of a Tranche 2
Vesting Event shall automatically vest and become exercisable as they become
eligible to vest.

(c)                                  The Tranche 3 Options will become
eligible to vest in equal annual installments on the first, second, third, and
fourth anniversaries of the Grant Date. 
Tranche 3 Options which are eligible to vest shall vest and become
exercisable upon the earlier of (i) a Tranche 3 Vesting Event or (ii) the
seventh anniversary of the Grant Date. 
Tranche 3 Options not eligible to vest on the date of a Tranche 3
Vesting Event shall automatically vest and become exercisable as they become
eligible to vest.

3.                                      Exercise of Option.  Each election to exercise this Option shall be subject to the terms and
conditions of the Plan and shall be in writing, signed by the Optionee or by
his or her executor or administrator or by the person or persons to whom this
Option is transferred by will or the applicable laws of descent and
distribution (the “Legal Representative”), and made pursuant to and in
accordance with the terms and conditions set forth in the Plan.  The latest date on which this Option may be
exercised (the “Final Exercise Date”) is the date which is the tenth (10th)
anniversary of the Grant Date, subject to earlier termination in accordance
with the terms and provisions of the Plan and this Agreement.  

4.                                      Representations and Warranties of
Optionee.

Optionee
represents and warrants that:

(a)                                  Authorization. 
Optionee has full legal capacity, power, and authority to execute and
deliver this Agreement and to perform Optionee’s obligations hereunder.  This Agreement has been duly executed and
delivered by Optionee and is the legal, valid, and binding obligation of
Optionee enforceable against Optionee in accordance with the terms hereof.

(b)                                 No Conflicts. 
The execution, delivery, and performance by Optionee of this Agreement
and the consummation by Optionee of the transactions contemplated hereby will
not, with or without the giving of notice or lapse of time, or both
(i) violate any provision of law, statute, rule or regulation to which
Optionee is subject, (ii) violate any order, judgment or decree applicable to
Optionee, or (iii) conflict with, or result in a breach of default under, any
term or condition of any agreement or other instrument to which Optionee is a
party or by which Optionee is bound.

(c)                                  No Other Agreements. 
Except as provided by this Agreement, the Stockholders Agreement and the
Plan, Optionee is not a party to or subject to any agreement or arrangement
with respect to the voting or transfer of this Option or the shares of common
stock issued upon exercise hereof.

(d)                                 Thorough Review, etc. 
Optionee has thoroughly reviewed the Plan and this Agreement in their
entirety.  Optionee has had an
opportunity to obtain the advice of counsel (other than counsel to Holdings,
Houghton Mifflin Company or their

 

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Affiliates) prior to executing this Agreement, and
fully understands all provisions of the Plan and this Agreement.

5.                                      Other Agreements.  Optionee acknowledges and agrees that the shares received upon exercise
of this Option shall be subject to the Stockholders Agreement and the transfer
and other restrictions, rights, and obligations set forth therein, and Optionee
further acknowledges that, as a condition to receiving this Option, Optionee
must execute, join and become party to the Stockholders Agreement as a Manager
(as such term is defined in the Stockholders Agreement).

6.                                      Legends.  Certificates evidencing any shares issued upon exercise of the Option
granted hereby may bear the following legends, in addition to any legends which
may be required by the Stockholders Agreement:

“The securities represented by this certificate were
issued in a private placement, without registration under the Securities Act of
1933, as amended (the “Act”), and may not be sold, assigned, pledged, or
otherwise transferred in the absence of an effective registration under the Act
covering the transfer or an opinion of counsel, satisfactory to the issuer, that
registration under the Act is not required.”

7.                                      Withholding.  No shares will be transferred pursuant to the exercise of this Option
unless and until the person exercising this Option shall have remitted to
Holdings an amount sufficient to satisfy any federal, state, or local
withholding tax requirements, or shall have made other arrangements
satisfactory to Holdings with respect to such taxes.

8.                                      Nontransferability of Option.  This Option is not transferable by the Optionee other than by will or the
applicable laws of descent and distribution, and is exercisable during the
Optionee’s lifetime only by the Optionee.

9.                                      Status Change.  Upon the
termination of the Optionee’s employment with, or other service to, Holdings or
its Subsidiaries, this Option shall continue or terminate, as and to the extent
provided in the Plan.

10.                               Effect on Employment.  Neither the grant of this Option, nor the issuance of shares upon
exercise of this Option, shall give the Optionee any right to be retained in
the employ of Holdings, Houghton Mifflin Company or their Affiliates, affect
the right of Holdings, Houghton Mifflin Company or their Affiliates to
discharge or discipline such Optionee at any time, or affect any right of such
Optionee to terminate his or her employment at any time.

11.                               Indemnity.  Optionee hereby
indemnifies and agrees to hold Holdings harmless from and against all losses,
damages, liabilities and expenses (including without limitation reasonable
attorneys fees and charges) resulting from any breach of any representation,
warranty, or agreement of Optionee in this Agreement or any misrepresentation
of Optionee in this Agreement.

 

-3-

 

12.                               Provisions of the Plan.  This Option is subject in its entirety to the provisions of the Plan,
which are incorporated herein by reference. 
A copy of the Plan as in effect on the date of the grant of this Stock
Option has been furnished to the Optionee. 
By exercising all or any part of this Stock Option, the Optionee agrees
to be bound by the terms of the Plan and this Option.  In the event of any conflict between the terms of this Option and
the Plan, the terms of this Option shall control.

13.                               Definitions.  The initially capitalized terms Optionee and Grant Date shall have the
meanings set forth on the first page of this Agreement; initially capitalized
terms not otherwise defined herein shall have the meaning provided in the Plan
and the Stockholders Agreement, and, as used herein, the following terms shall
have the meanings set forth below:

“Affiliate” shall mean,
with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person.

“Cash Value” shall mean
in the case of cash the actual amount of such cash, and in the case of Publicly
Traded Securities, the closing price of such Publicly Traded Securities on the
day of the closing of the Sale Transaction, or if such day is a weekend or
holiday, the closing price of the Publicly Traded Security on the most recent
full trading day on the exchange or market on which the Publicly Traded
Securities are traded or quoted.  The
closing price of a Publicly Traded Security for any day shall be the last
reported sale price or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices for such day, in each case (i)
on the principal national securities exchange on which the Publicly Traded
Securities are listed or to which the Publicly Traded Securities are admitted
to trading, or (ii) if the Publicly Traded Securities are not listed or
admitted to trading on a national securities exchange, on the Nasdaq National
Market or any comparable system, as applicable.

“Consideration” shall
mean cash and/or Publicly Traded Securities.

“Equity Purchase Price”
shall mean $619,837,151.

“Initial Public Offering”
shall mean the occurrence of each of (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, covering
the common stock of Holdings, and (ii) the completion of a sale of such
common stock thereunder, which sale results in (x) Holdings becoming a
reporting company under Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended, and (y) such Common Stock being traded on the New York Stock
Exchange (“NYSE”) or the American Stock Exchange, or being quoted on the Nasdaq
Stock Market or being traded or quoted on any other national stock exchange or
securities system.

“Market Value” shall mean
with respect to any security publicly traded 
on a national exchange or the Nasdaq National Market or any comparable
system, the number of shares of such securities multiplied by the average of
the daily closing prices for 20 consecutive trading days ending on the last
full trading day on the exchange or market on which Holdings’ Capital Stock is
traded or quoted.  The closing price for
any day shall

 

-4-

 

be the last
reported sale price or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices for such day, in each case (i)
on the principal national securities exchange on which the shares of Common
Stock are listed or to which such shares are admitted to trading, or (ii) if
the Common Stock is not listed or admitted to trading on a national securities
exchange, on the Nasdaq National Market or any comparable system, as
applicable.

“Option Shares” shall mean, from time to time, the
aggregate number of (i) shares of Class A-10 Common Stock that are then
the subject of vested Options under the Plan and (ii) shares of Class A-10
Common Stock that are then outstanding as the result of the exercise of Options
under the Plan (equitably adjusted to take account of any stock dividend or
other similar distribution (whether in the form of stock or other securities or
other property), stock split or combination of shares, recapitalization,
conversion, reorganization, consolidation, split-up, spin-off, combination,
repurchase, merger, exchange of stock or other transaction or event that
affects Holdings’ capital stock occurring after the date of issuance).

“Original Investor
Shares” shall mean the Investor Shares originally issued to Financière
Versailles S.a.r.l., a Luxembourg corporation (“Luxco”), at the Closing
and distributed by Luxco to the Investors (equitably adjusted to take account
of any stock dividend or other similar distribution (whether in the form of
stock or other securities or other property), stock split or combination of
shares, recapitalization, conversion, reorganization, consolidation, split-up,
spin-off, combination, repurchase, merger, exchange of stock or other
transaction or event that affects Holdings’ capital stock occurring after the
date of issuance).

 “Person” shall mean any individual,
partnership, corporation, association, trust, joint venture, unincorporated
organization or other entity.

“Publicly Traded
Securities” shall mean any security that is traded on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market.

“Sale Transaction” shall
mean:  (i) any change in the ownership
of the capital stock of the Company (whether by way of sale of stock, merger,
or otherwise) if, immediately after giving effect thereto, any Person (or group
of Persons acting in concert) other than the Investors and their Affiliates
will have the direct or indirect power to elect a majority of the members of
the Board, or (ii) a sale or transfer of all or substantially all of the
Company’s assets.

“Tranche 2 Vesting Event”
shall mean (i) a Sale Transaction in which the Cash Value of the net
Consideration from such Sale Transaction with respect to Original Investor
Shares and Option Shares plus all other net Consideration paid with respect to
the Original Investor Shares and Option Shares pursuant to any previous
transaction(s) and/or cash dividend(s) of Holdings equals or exceeds two times
(2x) the Equity Purchase Price, (ii) an Initial Public Offering in which the
sum of (x) the product of initial public offering price multiplied by the
number of Original Investor Shares and Option Shares plus (y) the aggregate
amount of any net Consideration paid with respect

 

-5-

 

to the Original
Investor Shares and Option Shares pursuant to any previous transaction(s)
and/or Holdings cash dividend(s), equals or exceeds two times (2x) the Equity
Purchase Price, or (iii) the first day after the Initial Public Offering on
which the sum of (x) the Market Value of the Original Investor Shares and the
Option Shares plus (y) the aggregate amount of any net Consideration paid with
respect to the Original Investor Shares and Option Shares pursuant to any
previous transaction(s) and/or Holdings cash dividend(s), equals or exceeds two
times (2x) the Equity Purchase Price. 
For the purposes of this definition references to any “cash dividend(s)”
shall include, without limitation, the dividend paid by Holdings on or about
October 3, 2003 to the holders of its Class L Common Stock.

“Tranche 3 Vesting Event”
shall mean (i) a Sale Transaction in which the Cash Value of the net
Consideration from such Sale Transaction with respect to Original Investor
Shares and Option Shares plus all other net Consideration paid with respect to
the Original Investor Shares and Option Shares pursuant to any previous
transaction(s) and/or cash dividend(s) of Holdings equals or exceeds three
times (3x) the Equity Purchase Price, (ii) an Initial Public Offering in which
the sum of (x) the product of initial public offering price multiplied by the
number of Original Investor Shares and Option Shares plus (y) the aggregate
amount of any net Consideration paid with respect to the Original Investor
Shares and Option Shares pursuant to any previous transaction(s) and/or
Holdings cash dividend(s), equals or exceeds three times (3x) the Equity
Purchase Price, or (iii) the first day after the Initial Public Offering on
which the sum of (x) the Market Value of the Original Investor Shares and the
Option Shares plus (y) the aggregate amount of any net Consideration paid with
respect to the Original Investor Shares and Option Shares pursuant to any
previous transaction(s) and/or Holdings cash dividend(s), equals or exceeds
three times (3x) the Equity Purchase Price. 
For the purposes of this definition references to any “cash dividend(s)”
shall include, without limitation, the dividend paid by Holdings on or about
October 3, 2003 to the holders of its Class L Common Stock.

14.                               General.  For purposes of this Option and any determinations to be made by the
Board of Directors of Holdings hereunder, the determinations by the Board of
Directors of Holdings shall be binding upon the Optionee and any transferee.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

-6-

 

IN WITNESS WHEREOF, Holdings has caused this Option to
be executed under its corporate seal by its duly authorized officer.  This Option shall take effect as a sealed
instrument.

 

	
   

  	
  HOUGHTON MIFFLIN
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Acknowledged and Agreed

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