Document:

EXHIBIT 4.8

 

 

HOUGHTON MIFFLIN COMPANY

 

AND

 

THE FIRST NATIONAL BANK OF BOSTON

 

Trustee

 

 

FIRST SUPPLEMENTAL INDENTURE

 

Dated as of July 27, 1995

 

 

Supplemental to Indenture dated as of March
15, 1994

 

 

 

FIRST
SUPPLEMENTAL INDENTURE dated as of July 27, 1995 (this “Supplemental
Indenture”), made and entered into by and between HOUGHTON MIFFLIN COMPANY, a
corporation organized and existing under the laws of the Commonwealth of
Massachusetts having its principal office at 222 Berkeley Street, Boston, Massachusetts
02116 (the “Company”), and THE FIRST NATIONAL BANK OF BOSTON, a national
banking association, as trustee (the “Trustee”).

 

WHEREAS
the Company entered into an Indenture dated as of March 15, 1994 with the
Trustee (the “Indenture”) for the purposes of issuing unsecured debentures,
notes or other evidences of indebtedness to be issued in one or more series
(the “Securities”) in such principal amount or amounts as may from time to time
be authorized by or pursuant to the authority granted in one or more
resolutions of the Board of Directors of the Company; all capitalized terms
used herein and not otherwise defined will have the respective meanings
ascribed thereto in the Indenture; and

 

WHEREAS
the Company has issued pursuant to the Indenture a series of Securities
denominated its 7 1/8% Senior Notes due 2004 in the aggregate principal amount
of $100,000,000 with respect to which The First National Bank of Boston has
been appointed to serve as Trustee; and

 

WHEREAS
the Company proposes to issue a series of Securities consisting of up to
2,000,000 Securities denominated its “6% Exchangeable Notes due 1999”
(individually, a “Stock Appreciation Income Linked Security (SAILS)” or a
“SAILS” and, collectively, the “Stock Appreciation Income Linked Securities
(SAILS)” or the “SAILS”), the principal amount of each of which SAILS at
Maturity is exchangeable or redeemable into shares of common stock, par value
$.01 per share (“INSO Common Stock”), of INSO Corporation, a Delaware
corporation (“INSO”), or, at the option of the Company, cash, in either case at
the Exchange Rate (as defined below); and

 

WHEREAS
Section 901 of the Indenture provides that without the consent of the Holders
of Securities, the Company, when authorized by or pursuant to the authority granted
in a Board Vote, may enter into one or more indentures supplemental to the
Indenture to, among other things, establish the form or terms of Securities of
any series as permitted by Sections 201 and 301 thereof, to cure any ambiguity,
to correct or supplement any provision in the Indenture which may be defective
or inconsistent with any other provision of the Indenture or to make any other
provisions with respect to matters or questions arising under the Indenture
which shall not adversely affect the interests of the Holders of Securities in
any material respect; and

 

WHEREAS
the entry into this Supplemental Indenture by the parties hereto is in all
respects authorized by the provisions of the Indenture; and 

 

2

 

WHEREAS
this Supplemental Indenture has been authorized, adopted and approved by a
Board Vote, and all other things necessary to make this Supplemental Indenture
a valid agreement of the Company in accordance with its terms have been done:

 

NOW,
THEREFORE:

 

In
consideration of the premises and the mutual covenants herein contained and of
the purchase and acceptance of the SAILS by the Holders thereof and for other
valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged, the Company, for itself and its successors, does hereby covenant
and agree to and with the Trustee and its successors in said trust, as follows:

 

SECTION
1. The Indenture is hereby amended as follows:

(a)  By amending Section 101, solely with respect
to a series of Securities that consists of SAILS, to add new definitions
thereto, in the appropriate alphabetical sequence, as follows:

 

“Closing
Price”:  See Section 1301.

 

“Current
Market Price”:  See Section 1301.

 

“Exchange
Rate”:  See Section 1301.

 

“Extraordinary
Cash Dividend”:  See Section 1303.

“Final
Maturity”:  See Section 1301.

 

“Initial
Price”:  See Section 1301.

 

“INSO”:  See Section 1301.

 

“INSO
Common Stock”:  See Section 1301.

 

“INSO
Successor”:  See Section 1303.

 

“NNM”:  See Section 1301.

 

“Notice
Date”:  See Section 1301.

 

“Optional
Redemption Date”:  See Section 1301.

 

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“Reorganization
Event”:  See Section 1303.

 

“Threshold
Appreciation Price”:  See Section 1301.

“Trading
Day”:  See Section 1301.

 

“Transaction
Value”:  See Section 1303.

 

(b)
By amending Section 301 of the Indenture by (i) adding as a new subsection (16)
the following: “(16) the obligation, if any, of the Company to permit the
conversion or exchange of the Securities of such series into other securities
(whether or not issued by, or the obligation of, the Company), and the terms
and conditions upon which such conversion or exchange shall be effected
(including, without limitation, the initial conversion or exchange price or rate,
the conversion or exchange period and any other provision in addition to or in
lieu of those set forth in this Indenture relative to such obligation; and”;
and by (ii) renumbering current subsection (16) of Section 301 to subsection
(17).

 

(c)
By amending Section 902(1) of the Indenture by adding to the end thereof the
following: “change the terms under which the SAILS are exchangeable or
redeemable as set forth in Article XIII of this Indenture, or”

 

(d)
By adding, solely with respect to the series of Securities that consists of the
SAILS, a new Article XIII as follows:

 

ARTICLE XIII

 

EXCHANGE OF SAILS

 

SECTION
1301.     Mandatory Exchange; Optional
Redemption.

 

(a)           Mandatory
Exchange.  Unless previously redeemed by
the Company as provided herein and in the form of SAILS attached hereto  as Exhibit A, on August 1, 1999 or such
earlier date on which the SAILS become due and payable as a result of
acceleration (“Final Maturity”), the principal amount payable with respect to
each SAILS shall be automatically and mandatorily exchanged (subject to Section
1301(d)) into a number of shares of common stock, par value $.01 per share
(“INSO Common Stock”), of INSO Corporation, a Delaware corporation (“INSO”), at
the Exchange Rate (as defined below). As a result of such mandatory exchange,
Holders of the SAILS may receive an amount less than the principal amount
thereof. The “Exchange Rate” is equal to, subject to adjustment as a result of
certain dilution events relating to the INSO Common Stock as provided for in
Section 1303, (i) if the Current Market Price (as defined below) per share of
INSO Common Stock is greater than or equal to $78 7/8 per

 

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share
of INSO Common Stock (the “Threshold Appreciation Price”), 0.8621 shares of
INSO Common Stock per SAILS, (ii) if the Current Market Price is less than the
Threshold Appreciation Price but is greater than $68.00 per share of INSO
Common Stock (the “Initial Price”), a fractional share of INSO Common Stock per
SAILS so that the value thereof (determined at the Current Market Price) is
equal to the Initial Price (such fractional share being calculated to the
nearest 1/10,000th of a share or, if there is no nearest 1/10,000th of a share,
to the next higher 1/10,000th of a share) and (iii) if the Current Market Price
is less than or equal to the Initial Price, one share of INSO Common Stock per
SAILS. On or after Final Maturity, all rights of the Holders of the SAILS will
terminate except the right to receive for each SAILS exchanged, a number of
shares of INSO Common Stock (or, at the Company’s option, cash pursuant to
Section 1301(d)), unless the Company defaults on such exchange or payment. No
fractional shares of INSO Common Stock will be issued at Final Maturity, as
provided in Section 1302. Such mandatory exchange shall be subject to the right
of the Company to redeem the SAILS as provided in Section 1301(b) and in the
form of SAILS attached hereto as Exhibit A.

 

(b)           Optional
Redemption. The SAILS are not redeemable by the Company prior to August 1,
1998. At any time on or after August 1, 1998 and before Final Maturity, the
Company may, at its option, redeem up to fifty percent (50%) of the then
Outstanding SAILS upon mailing of notice of such redemption to Holders of SAILS
to be redeemed not less than 30 nor more than 60 days prior to the date fixed
for redemption by the Company (the “Optional Redemption Date”), in accordance
with the terms of the Indenture; provided, however, that the Company shall have
the right to redeem the SAILS on only one occasion prior to Final Maturity.
Upon such redemption, the Company will deliver to the Holders thereof in
exchange for each of the SAILS so redeemed, (i) subject to Section 1301(d), a
number of shares of INSO Common Stock at the Exchange Rate and (ii) cash in an
amount equal to all accrued and unpaid interest thereon to the Optional
Redemption Date; provided, however , that if the Optional Redemption Date falls
on an Interest Payment Date or between a Regular Record Date and the next succeeding
Interest Payment Date, then the interest payable on such Interest Payment Date
shall be paid to the Holder of record on the next preceding Regular Record
Date. On and after the Optional Redemption Date, all rights of the Holders of
the SAILS called for redemption will terminate except the right to receive, for
each SAILS redeemed, a number of shares of INSO Common Stock or, at the
Company’s option, cash pursuant to Section 1301(d), unless the Company defaults
on such redemption or payment. No fractional shares of INSO Common Stock will
be issued on the Optional Redemption Date, as provided in Section 1302.

 

(c)           Current
Market Price.  The “Current Market
Price” for purposes of determining the Exchange Rate at Final Maturity shall be
the average Closing Price per share of INSO Common Stock on the 20 Trading Days
(as defined below) immediately

 

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prior
to, but not including, Final Maturity. The “Current Market Price” for purposes
of determining the Exchange Rate on the Optional Redemption Date shall be the
lesser of (i) the Closing Price on the second Trading Day preceding the Notice
Date (as defined below) or, if such day is not a Trading Day, on the last
Trading Day immediately prior to such day and (ii) the average Closing Price
per share of INSO Common Stock on the 20 Trading Days immediately prior to, but
not including, the second Trading Day preceding the Notice Date. The “Notice
Date” in connection with the optional redemption of the SAILS is defined as the
date on which first occurs either the public announcement of such redemption or
the commencement of mailing of a notice of redemption to the Holders of the
SAILS. The “Closing Price” of any security on any date of determination means
the closing sale price (or, if no closing sale price is reported, the last
reported sale price) of such security on the Nasdaq National Market (“NNM”) on
such date or, if such security is not listed on the NNM on any such date, as
reported by the principal United States securities exchange on which such
security is so traded, or if such security is not so traded on a United States
national or regional securities exchange, as otherwise reported by The Nasdaq
Stock Market, Inc., or, if such security is not so reported, the last quoted
bid price for such security in the over-the-counter  market as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of such
security on such date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company. A “Trading
Day” is defined as any day that is not a Saturday, Sunday or a day on which the
NNM is closed or banking institutions or trust companies in the City of New
York or the City of Boston are authorized or obligated by law or executive
order to close and on which the security the Closing Price of which is being
determined (i) is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at the close of
business and (ii) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security.

 

(d)           Notwithstanding
anything to the contrary in this Section 1301, the Company may, at its option,
in lieu of delivering shares of INSO Common Stock at Maturity, deliver cash in
an amount (calculated to the nearest 1/100th of a dollar per SAILS or, if there
is not a nearer 1/100th of a dollar, then to the next higher 1/100th of a
dollar) equal to the value of the number of shares of INSO Common Stock
otherwise deliverable by the Company in exchange for the SAILS pursuant to
Section 1301(a) or 1301(b), as the case may be, at the Current Market Price. In
addition, the Company may, at its option, deliver cash in lieu of INSO Common
Stock to beneficial Holders of any SAILS in any jurisdiction where delivery of
shares of INSO Common Stock would require registration or qualification of such
shares under applicable securities or similar laws or subject the Company to
other regulatory requirements in connection with such delivery.

 

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SECTION
1302.     No Fractional Shares.

 

No fractional shares or scrip representing
fractional shares of INSO Common Stock shall be issued or delivered upon the
mandatory exchange or optional redemption at Maturity of any SAILS. If more
than one SAILS shall be surrendered for mandatory exchange or optional
redemption at one time by the same Holder, the number of full shares of INSO
Common Stock which shall be delivered upon mandatory exchange or optional
redemption, in whole or in part, as the case may be, shall be computed on the
basis of the aggregate number of SAILS so surrendered at Maturity. Instead of
any fractional shares of INSO Common Stock which would otherwise be deliverable
upon mandatory exchange or optional redemption of any SAILS at Maturity, the
Company, through any applicable Paying Agent, shall make a cash payment in
respect of such fractional interest in an amount equal to the value of such
fractional shares at the Current Market Price. The Company shall, upon
mandatory exchange or optional redemption of any SAILS, provide cash to any applicable
Paying Agent in an amount equal to the cash payable with respect to any
fractional shares of INSO Common Stock deliverable upon mandatory exchange or
optional redemption of such SAILS, and the Company shall retain such fractional
shares of INSO Common Stock.

 

SECTION 1303.     Adjustment of Exchange Rate.

 

(a)           The
Exchange Rate shall be subject to adjustment from time to time as follows:

 

(i)            If INSO shall:

 

(A)                              pay a
dividend or make a distribution with respect to the INSO Common Stock in shares
of such stock,

 

(B)                                subdivide
or split the outstanding shares of INSO Common Stock into a greater number of
shares,

 

(C)                                combine the
outstanding shares of INSO Common Stock into a smaller number of shares, or

 

(D)                               issue by
reclassification of shares of INSO Common Stock any shares of capital stock of
INSO,

 

then,
in any such event, the Exchange Rate in effect immediately prior to such event
shall be adjusted so that the Holder of any SAILS shall thereafter be entitled
to receive, upon mandatory exchange or optional redemption of the principal
amount of such SAILS at Maturity, as set forth in Section 1301, the number of

 

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shares
of INSO Common Stock which such Holder would have owned or been entitled to
receive immediately following any event described above had such SAILS been
exchanged or redeemed immediately prior to such event or any record date with
respect thereto. Each such adjustment shall become effective at the opening of
business on the business day next following the record date for determination
of stockholders of INSO Common Stock entitled to receive such dividend or
distribution in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
split, combination or reclassification. Each such adjustment shall be made
successively.

 

(ii)           If
INSO shall, after the date hereof, issue rights or warrants to all stockholders
of INSO Common Stock entitling them to subscribe for or purchase shares of INSO
Common Stock (other than rights to purchase INSO Common Stock pursuant to a
plan for the reinvestment of dividends or interest) at a price per share less
than the current market price of INSO Common Stock (determined for purposes of
this clause (ii) as the average Closing Price per share of INSO Common Stock on
the 20 Trading Days immediately prior to the date such rights or warrants are
issued), then in each case the Exchange Rate shall be adjusted by multiplying
the Exchange Rate in effect immediately prior to the date of issuance of such
rights or warrants, by a fraction, of which the numerator shall be the number
of shares of INSO Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance, plus the number of
additional shares of INSO Common Stock offered for subscription or purchase
pursuant to such rights or warrants, and of which the denominator shall be the
number of shares of INSO Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance, plus the number of
additional shares of INSO Common Stock which the aggregate offering price of
the total number of shares of INSO Common Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase at such current
market price (calculated as the average Closing Price per share of INSO Common
Stock on the 20 Trading Days immediately prior to the date such rights or
warrants are issued), which shall be determined by multiplying such total
number of shares by the exercise price of such rights or warrants and dividing
the product so obtained by such current market price. Such adjustment shall
become effective at the opening of business on the business day next following
the record date for the determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of INSO Common Stock are not
delivered after the expiration of such rights or warrants, the Exchange Rate
shall be readjusted to the Exchange Rate which would then be in effect had such
adjustments for the issuance of such rights or warrants been made upon the
basis of delivery of only the

 

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number
of shares of INSO Common Stock actually delivered. Each such adjustment shall
be made successively.

 

(iii)          If
INSO shall pay a dividend or make a distribution to all stockholders of INSO
Common Stock of evidences of its indebtedness or other assets (excluding any
dividends or distributions referred to in subparagraph (i) above or any
ordinary periodic cash dividends that do not constitute Extraordinary Cash
Dividends (as defined in clause (vi) below) or shall issue to all stockholders
of INSO Common Stock rights or warrants to subscribe for or purchase any of its
securities (other than those referred to in subparagraph (ii) above), then in
each such case, the Exchange Rate shall be adjusted by multiplying the Exchange
Rate in effect on the record date mentioned below, by a fraction of which the
numerator shall be the current market price per share of INSO Common Stock on
the record date for the determination of stockholders entitled to receive such
dividend or distribution (such current market price being determined for
purposes of this clause (iii) as the average Closing Price per share of INSO
Common Stock on the 20 Trading Days immediately prior to such record date), and
of which the denominator shall be such current market price per share of INSO
Common Stock less the fair market value (as determined by the Board of
Directors of the Company, whose determination shall be conclusive, and
described in a resolution adopted with respect thereto) as of such record date
of the portion of the assets or evidences of indebtedness so distributed or of
such subscription rights or warrants applicable to one share of INSO Common
Stock. Each such adjustment shall become effective on the opening of business
on the business day next following the record date for the determination of
stockholders entitled to receive such dividend or distribution. Each such
adjustment shall be made successively.

 

(iv)          Any
shares of INSO Common Stock issuable in payment of a dividend shall be deemed
to have been issued immediately prior to the close of business on the record date
for such dividend for purposes of calculating the number of outstanding shares
of INSO Common Stock under subparagraph (ii) above.

 

(v)           All
adjustments to the Exchange Rate shall be calculated to the nearest 1/10,000th
of a share of INSO Common Stock (or if there is not a nearest 1/10,000th of a
share to the next lower 1/10,000th of a share). No adjustment in the Exchange
Rate shall be required unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which by reason of this clause (v) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
If an adjustment is made to the Exchange Rate pursuant to subparagraph (i),
(ii) or (iii) of this Section 1303(a), an adjustment shall also be made to the
Current Market

 

9

 

Price
solely to determine which of paragraphs (a), (b) or (c) of the definition of
Exchange Rate in Section 1301 will apply at Maturity. The required adjustment
shall be determined by multiplying the Current Market Price by the reciprocal
of the number determined under subparagraph (i), (ii) or (iii) by which the
then existing Exchange Rate was multiplied to adjust such rate. This
subparagraph (v) shall be so used to adjust the definition of Current Market
Price only as such term is used for the first time in each of subparagraphs
(a), (b) and (c) of the definition of Exchange Rate.

 

(vi)          For
purposes of the foregoing, the term “Extraordinary Cash Dividend” shall mean,
with respect to any consecutive 365-day period, any cash dividend with respect
to INSO Common Stock the amount of which, together with the aggregate amount of
all other such cash dividends on the INSO Common Stock occurring in such
365-day period, exceeds on a per share basis 10% of the average of the Closing
Prices per share of the INSO Common Stock for each Trading Day during such
365-day period, and for purposes of applying the formula set forth in clause
(iii) above, the fair market value of such dividend being calculated pursuant
to such clause (iii) shall be equal to (x) the aggregate amount of such cash
dividend together with the amounts of such other cash dividends occurring in
such period minus (y) the aggregate amount of such other cash dividends
occurring in such period for which a prior adjustment in the Exchange Rate was
previously made under this Section 1303(a). In making the determinations
required by the foregoing sentence, the amount of cash dividends paid on a per
share basis shall be appropriately adjusted to reflect the occurrence during
such period of any event described in this Section 1303(a).

 

(b) In the event of (i) any consolidation
or merger of INSO, or any surviving entity or subsequent surviving entity of
INSO (an “INSO Successor”), with or into another entity (other than a merger or
consolidation in which INSO is the continuing corporation and in which the INSO
Common Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of INSO or another
corporation), (ii) any sale, transfer, lease or conveyance to another
corporation of the property of INSO or any INSO Successor as an entirety or
substantially as an entirety, (iii) any statutory exchange of securities of
INSO or any INSO Successor with another corporation (other than in connection
with a merger or acquisition) or (iv) any liquidation, dissolution or winding
up of INSO or any INSO Successor (any such event, a “Reorganization Event”),
the Exchange Rate used to determine the amount payable upon exchange or
redemption at Maturity for each SAILS will be adjusted to provide that each
Holder of SAILS will receive at Maturity cash in an amount equal to (a) if the
Transaction Value (as defined below) is greater than or equal to the Threshold
Appreciation Price, 0.8621 multiplied by the Transaction Value, (b) if the
Transaction Value is less than the Threshold Appreciation Price but greater
than the Initial Price, the

 

10

 

Initial
Price or (c) if the Transaction Value is less than or equal to the Initial
Price, the Transaction Value. “Transaction Value” means (x) for any cash
received in any such Reorganization Event, the amount of cash received per
share of INSO Common Stock, (y) for any property other than cash or securities
received in any such Reorganization Event, an amount equal to the market value
at Maturity of such property received per share of INSO Common Stock as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Company and (z) for any securities received in
any such Reorganization Event, an amount equal to the average Closing Price per
share of such securities on the 20 Trading Days immediately prior to Maturity,
multiplied by the number of such securities received for each share of INSO
Common Stock. Notwithstanding the foregoing, in lieu of delivering cash as
provided above, the Company may at its option deliver an equivalent value of
securities or other property received in such Reorganization Event, determined
in accordance with clause (y) or (z) above, as applicable. The kind and amount
of securities into which the SAILS shall be exchangeable after consummation of
such transaction shall be subject to adjustment as described in paragraph (a)
above following the date of consummation of such transaction.

 

SECTION 1304.     Notice of Adjustments and Certain Other Events.

 

(a)           Whenever the Exchange Rate is
adjusted as herein provided, the Company shall:

 

(i)            forthwith
compute the adjusted Exchange Rate in accordance with Section 1303 and prepare
an Officers’ Certificate setting forth the adjusted Exchange Rate, the method
of calculation thereof in reasonable detail, and the facts requiring such
adjustment and upon which such adjustment is based, which Officers’ Certificate
shall be conclusive, final and binding evidence of the correctness of the
adjustment, and file such certificate forthwith with the Trustee for the SAILS;
and

 

(ii)           within
10 Business Days following the occurrence of an event that requires an
adjustment to the Exchange Rate pursuant to Section 1303 (or if the Company is
not aware of such occurrence, as soon as practicable after becoming so aware),
provide written notice to the Trustee and to the Holders of the Outstanding
SAILS of the occurrence of such event and a statement in reasonable detail
setting forth the method by which the adjustment to the Exchange Rate was
determined and setting forth the revised Exchange Rate per SAILS.

 

(b)           In case at any time while any of the
SAILS are Outstanding the Company receives notice that:

 

 

11

 

 

(i)            INSO
shall declare a dividend (or any other distribution) on or in respect of the
INSO Common Stock to which Section 1303(a)(i) or (ii) shall apply (other than
any cash dividends and distributions, if any, paid from time to time by INSO
that do not constitute Extraordinary Cash Dividends);

 

(ii)           INSO
shall authorize the issuance to all stockholders of INSO Common Stock of rights
or warrants to subscribe for or purchase shares of INSO Common Stock or of any
other subscription rights or warrants;

 

(iii)          there
shall occur any conversion or reclassification of INSO Common Stock (other than
a subdivision or combination of outstanding shares of such INSO Common Stock)
or any consolidation, merger or reorganization to which INSO is a party and for
which approval of any stockholders of INSO is required, or the sale or transfer
of all or substantially all of the assets of INSO; or

 

(iv)          there
shall occur the voluntary or involuntary dissolution, liquidation or winding up
of INSO; 

then
the Company shall promptly cause to be delivered to the Trustee and any
applicable Paying Agent and filed at the office or agency maintained for the
purpose of mandatory exchange or optional redemption of SAILS at Maturity in
the Borough of Manhattan, in the City of New York by the Trustee (or any
applicable Paying Agent), and shall promptly cause to be mailed to the Holders
of SAILS at their last addresses as they shall appear upon the registration
books of the Security Registrar, at least 10 days before the date hereinafter
specified (or the earlier of the dates hereinafter specified, in the event that
more than one is specified), an Officers’ Certificate stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution or
grant or rights or warrants, or, if a record is not to be taken, the date as of
which the stockholders of INSO Common Stock of record to be entitled to such
dividend, distribution or grant of rights or warrants are to be determined, or
(y) the date, if known by the Company, on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
is expected to become effective.

 

(c)           On
or prior to seven Business Days preceding Final Maturity or any Optional
Redemption Date, as the case may be, the Company will provide notice to the
Holders of record of the SAILS and to the Trustee and will publish a notice in
a daily newspaper of national circulation stating whether the Company has
irrevocably elected to deliver INSO Common Stock pursuant to Section 1301(a) or
(b), as the case may be, or cash pursuant to Section 1301(d) (or any other
property or securities that may be delivered pursuant to Section 1303(b)) at
Final Maturity or, with respect to SAILS called for redemption, on the Optional
Redemption Date, as the case may be.

 

12

 

(d)           The
Trustee may rely without inquiry on any Officers’ Certificate or written notice
furnished to it pursuant to this Section 1304 and shall not be deemed to have
knowledge of any adjustment or other event described herein unless it shall
have received such Officers’ Certificate or notice.

 

SECTION 1305. Taxes.

 

(a)           The
Company will pay any and all documentary, stamp, transfer or similar taxes that
may be payable in respect of the transfer and delivery of INSO Common Stock
pursuant hereto; provided, however, that the Company shall not be required to
pay any such tax which may be payable in respect of any transfer involved in
the delivery of INSO Common Stock in a name other than that in which the SAILS
so exchanged or redeemed were registered, and no such transfer or delivery
shall be made unless and until the Person requesting each transfer has paid to
the Company the amount of any such tax, or has established, to the satisfaction
of the Company, that such tax has been paid.

 

(b)           The
parties hereto hereby agree, and each Holder of a SAILS by its purchase of a
SAILS hereby agrees:

 

(i)            to
treat, for U.S. federal income tax purposes, each SAILS as a unit (the “unit
characterization”) consisting of (x) an exchange note (the “Exchange Note”),
which is a debt obligation with a fixed principal amount and issue price equal
to the principal amount of the SAILS, bearing interest at the stated interest
rate, and with the principal amount unconditionally payable at Maturity, and
(y) a forward purchase contract (the “Purchase Contract”) pursuant to which the
Holder agrees to use the principal payment due on the Exchange Note to
purchase, at Maturity, the INSO Common Stock which the Holder is entitled to
receive at that time (subject to the Company’s right to deliver cash in lieu of
such INSO Common Stock pursuant to Section 1301(d)), which treatment will
require, among other things, the Holder to include in income as interest, in
accordance with its method of accounting, payments made with respect to the
SAILS that are denominated as interest;

 

(ii)           in
the case of an initial purchase, to allocate the entire purchase price of a
SAILS to the Exchange Note and to allocate no part thereof to the Purchase
Contract; and

 

(iii)          to
file all U.S. federal, state and local income and franchise tax returns
consistent with the unit characterization (unless required otherwise by an
applicable taxing authority).

 

13

 

SECTION 1306.     Shares Free and Clear.

 

The Company hereby warrants that upon
exchange or redemption of a SAILS for INSO Common Stock at Maturity pursuant to
this Indenture, the Holder of a SAILS shall receive all rights held by the
Company in the INSO Common Stock for which such SAILS is at such time
exchangeable or redeemable pursuant to this Indenture, free and clear of any
and all liens, claims, charges and encumbrances other than any liens, claims,
charges and encumbrances which may have been placed on any INSO Common Stock by
the owner thereof prior to the time such INSO Common Stock was acquired by the
Company.  Except as provided in Section
1305(a), the Company will pay all taxes and charges with respect to the
delivery of  INSO Common Stock delivered
in exchange for the SAILS hereunder.

 

SECTION 1307.     Cancellation of Security.

Upon receipt by the Trustee of the SAILS
delivered to it for mandatory exchange or optional redemption under this
Article XIII, the Trustee shall cancel and dispose of the same as provided in
Section 309.

 

SECTION 1308.     Limitations on Trading During Certain Days.

The Company hereby agrees that it will not,
and it will cause each of its Subsidiaries not to, buy or sell shares of INSO
Common Stock for their own account during the 20 Trading Days prior to Maturity
of the SAILS.

 

(e)           By amending the table of contents of
the Indenture to reflect the additions described in subsections (a) and (d) of
this Section 1.

 

SECTION
2.           The form of SAILS attached
hereto as Exhibit A is hereby adopted, pursuant to Section 201 of the
Indenture, as a form of Securities of a series that consists of the SAILS.

 

SECTION
3.           The Indenture, as
supplemented and amended by this Supplemental Indenture and all other
indentures supplemental thereto, is in all respects ratified and confirmed and
approved, and the Indenture, this Supplemental Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same
instrument.

 

SECTION
4.           If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in this Supplemental Indenture by any of the provisions of the
Trust Indenture Act, such required provision shall control.

 

14

 

SECTION
5.           All covenants and agreements
in this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.

 

SECTION
6.           In case any provision in this
Supplemental Indenture or in the Securities of any series shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions (or of the other series of Securities) shall not in any
way be affected or impaired thereby.

 

SECTION
7.           Nothing in this Supplemental
Indenture, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Holders of each series
of Securities any benefit or any legal or equitable right, remedy or claim
under this Supplemental Indenture.

 

SECTION
8.           This Supplemental Indenture
and each Security of any series shall be deemed to be a contract made under the
laws of the State of New York and this Supplemental Indenture and each such
Security for all purposes shall be governed by and construed in accordance with
the laws of the State of New York.

 

SECTION
9.           All terms used in this
Supplemental Indenture not otherwise defined herein that are defined in the
Indenture shall have the meanings set forth therein.

 

SECTION  10.        This
Supplemental Indenture may be executed in one or more counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.

 

SECTION
11.         The recitals contained herein
and in the Securities, except the certificate of authentication of the Trustee
thereon, shall be taken as statements of the Company, and the Trustee assumes
no responsibility for their correctness. 
The Trustee makes no representations as to the validity or sufficiency
of the Indenture, this Supplemental Indenture or of the Securities and shall
not be accountable for the use or application by the Company of the Securities
or the proceeds thereof.

 

[END OF TEXT]

 

15

 

IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.

 

	
   

  	
  HOUGHTON
  MIFFLIN COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  NADER F. DAREHSHORI

  
	
   

  	
   

  	
  Name:  Nader F. Darehshori

  
	
   

  	
   

  	
  Title:   
  Chairman, President and Chief

  Executive Officer   [Seal]

  

 

Attest:

 

	
  /s/
  LOIS M. NOVOTNY

  	
   

  	
   

  
	
  Name:
  Lois M. Novotny

  	
   

  
	
  Title:  Assistant Clerk

  	
   

  

 

 

	
   

  	
  THE FIRST NATIONAL BANK OF

  BOSTON, as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  DONNA GERMANO

  
	
   

  	
   

  	
  Name:  Donna Germano

  
	
   

  	
   

  	
  Title:   
  Account Manager   [Seal]

  

 

Attest:

 

 

	
  /s/
  CARLA A. MASTROMATTEO

  	
   

  	
   

  
	
  Name:
  Carla A. Mastromatteo

  	
   

  
	
  Title:  Account Manager

  	
   

  

 

16

 

	
  COMMONWEALTH
  OF MASSACHUSETTS

  	
  )

  
	
   

  	
  )  ss.:

  
	
  COUNTY
  OF SUFFOLK

  	
  )

  

 

On
the second day of August, 1995, before me personally came Nader F. Darehshori,
to me known, who, being by me duly sworn, did depose and say that he is
Chairman of the Board, President and Chief Executive Officer of Houghton
Mifflin Company, one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation, and that he signed his
name thereto by like authority.

 

	
   

  	
  /s/
  KATHLEEN A. RIDEOUT

  	
    [Seal]

  
	
  Notary
  Public, Commonwealth of Massachusetts

  	
   

  
	
   

  	
  Qualified in Suffolk County

  
	
   

  	
  Commission Expires:   6/28/02

  

 

17

 

	
  COMMONWEALTH
  OF MASSACHUSETTS

  	
  )

  
	
   

  	
  )  ss.:

  
	
  COUNTY
  OF SUFFOLK

  	
  )

  

 

 

On
the second day of August, 1995, before me personally came Donna L. Germano, to
me known, who, being by me duly sworn, did depose and say that she is an
Account Manager of The First National Bank of Boston, a national banking
association described in and which executed the foregoing instrument; that she
knows the seal of said association; that the seal affixed to said instrument is
such association seal; that it was so affixed by authority of the Board of
Directors of said association, and that she signed her name thereto by like
authority.

 

	
   

  	
  /s/
  KECIA R. BANKS

  	
    [Seal]

  
	
  Notary
  Public, Commonwealth of Massachusetts

  	
   

  
	
   

  	
  Qualified in Massachusetts

  
	
   

  	
  Commission Expires:   July 18,
  2002

  

 

18

 

EXHIBIT A

 

[Form of Face of SAILS]

 

	
  No.
  [R-          ]

  	
   

  	
  CUSIP NO. 441560AC3

  

 

UNLESS
THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER (AS DEFINED BELOW) OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

HOUGHTON MIFFLIN COMPANY

 

                        SAILS(SM)*

 

(Stock Appreciation Income Linked
Securities (SAILS)(SM)*)

6% Exchangeable Note due 1999

 

(Subject to Exchange at Maturity

into Shares of Common Stock, Par Value $.01

Per Share, of INSO Corporation)

 

HOUGHTON
MIFFLIN COMPANY, a corporation duly organized and existing under the laws of
the Commonwealth of Massachusetts (hereinafter called the “Company”, which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to                                          
or registered assigns, the principal sum of                                          
Dollars (or Sixty Eight Dollars per Stock Appreciation Income Linked Security
(each a “SAILS”)) on August 1, 1999 (subject to the mandatory exchange
provisions at Final Maturity described below), subject to prior redemption by
the Company on or after August 1, 1998 as hereinafter provided, and to pay
interest (computed on the basis of a 360-day year of twelve 30-day months)
thereon from August 2, 1995 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, quarterly in arrears on
February 1, May 1, August 1 and November 1 in each year, commencing November 1,
1995 at the rate per annum specified in the title of this note computed
quarterly, until the principal hereof is paid or made available for
payment.  The interest so

 

A-1

 

payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in said Indenture, be paid to the Person in whose name this SAILS (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the January 15, April
15, July 15 or October 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. 
Except as otherwise provided in the Indenture, any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in
whose name this SAILS (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of the SAILS not less than 10 days prior to such Special Record Date,
or be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the SAILS may be listed, and
upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.

 

Unless
previously redeemed by the Company as provided herein and in the Indenture, at
Final Maturity the principal amount of this SAILS will be mandatorily exchanged
into a number of shares of common stock, par value $.01 per share (“INSO Common
Stock”), of INSO Corporation, a Delaware corporation (“INSO”), at the Exchange
Rate (as defined below) and, as a result, the Holder of this SAILS may receive
an amount less than the principal amount hereof.  The “Exchange Rate” is equal to, subject to adjustment as a
result of certain dilution events relating to the INSO Common Stock as provided
for in the Indenture, (i) if the Current Market Price (as defined below) per
share of INSO Common Stock is greater than or equal to $78 7/8 per share of
INSO Common Stock (the “Threshold Appreciation Price”), 0.8621 shares of INSO
Common Stock per SAILS, (ii) if the Current Market Price is less than the
Threshold Appreciation Price but is greater than $68.00 per share of INSO
Common Stock (the “Initial Price”), a fractional share of INSO Common Stock per
SAILS so that the value thereof (determined at the Current Market Price) is
equal to the Initial Price or (iii) if the Current Market Price is less than or
equal to the Initial Price, one share of INSO Common Stock per SAILS.  Notwithstanding the foregoing, as provided
in the Indenture, the Company may, at its option, in lieu of delivering shares
of INSO Common Stock at Maturity, deliver cash in an amount (calculated to the
nearest 1/100th of a dollar per SAILS or, if there is not a nearer 1/100th of a
dollar, then to the next higher 1/100th of a dollar) equal to the value of the
number of shares of INSO Common Stock otherwise deliverable by the Company in
exchange for the SAILS pursuant to Section 1301(a) or 1301(b) of the Indenture,
as the case may be, at the Current Market Price.  In addition, the Company may, at its option, deliver cash in lieu
of INSO Common Stock to beneficial Holders of any SAILS in any jurisdiction
where delivery of shares of INSO Common Stock would require registration or
qualification of such shares under applicable securities or similar laws or
subject the Company to other regulatory requirements in connection with such
delivery.  No fractional shares of INSO
Common Stock will be issued at Final Maturity, as provided in the
Indenture.  Such mandatory exchange
shall be subject to the

 

A-2

 

right
of the Company to redeem up to fifty percent (50%) of the SAILS then
Outstanding on or after August 1, 1998, and before Final Maturity, as described
herein and in the Indenture.

 

On
a single occasion on or after August 1, 1998 and before Final Maturity, the
Company may, at its option, redeem up to fifty percent (50%) of the then
Outstanding SAILS upon mailing of notice of such redemption to Holders of the
SAILS to be redeemed not less than 30 nor more than 60 days prior to the date
fixed for redemption by the Company (the “Optional Redemption Date”), in
accordance with the terms of the Indenture. 
The Company may not redeem the SAILS prior to August 1, 1998.  Upon any such redemption, the Company will
deliver to the Holder thereof in exchange for each of the SAILS so redeemed,
(i) a number of shares of INSO Common Stock (or, at the option of the Company,
cash as provided in Section 1301(d) of the Indenture) at the Exchange Rate and
(ii) cash in an amount equal to all accrued and unpaid interest thereon to the
Optional Redemption Date; provided, however, that if the Optional Redemption
Date falls on an Interest Payment Date or between a Regular Record Date and the
next succeeding Interest Payment Date, then the interest payable on such
Interest Payment Date shall be paid to the Holder of record on the next
preceding Regular Record Date.  On and
after the Optional Redemption Date, all rights of the Holders of the SAILS
called for redemption will terminate except the right to receive for each SAILS
redeemed a number of shares of INSO Common Stock (or, at the Company’s option,
cash as provided in Section 1301(d) of the Indenture), unless the Company
defaults on such exchange or payment. 
No fractional shares of INSO Common Stock will be issued on the Optional
Redemption Date, as provided in the Indenture.

 

The
“Current Market Price” for purposes of determining the Exchange Rate at Final
Maturity shall be the average Closing Price per share of INSO Common Stock on
the 20 Trading Days immediately prior to, but not including, Final
Maturity.  The “Current Market Price”
for purposes of determining the Exchange Rate on the Optional Redemption Date
shall be the lesser of (i) the Closing Price on the second Trading Day
preceding the Notice Date (as defined below) or, if such day is not a Trading
Day, on the last Trading Day immediately prior to such day and (ii) the average
Closing Price per share of INSO Common Stock on the 20 Trading Days immediately
prior to, but not including, the second Trading Day preceding the Notice
Date.  The “Notice Date” in connection
with the optional redemption of the SAILS is defined as the date on which first
occurs either the public announcement of such redemption or the commencement of
mailing of a notice of redemption to the Holders of the SAILS. The “Closing
Price” of any security on any date of determination means the closing sale
price (or, if no closing sale price is reported, the last reported sale price)
of such security on the Nasdaq National Market (“NNM”) on such date or, if such
security is not listed on the NNM on any such date, as reported by the
principal United States securities exchange on which such security is so
listed, or if such security is not so listed on a United States national or
regional securities exchange, as otherwise reported by The Nasdaq Stock Market,
Inc.,  or, if such security is not so
reported, the last quoted bid price for such security in the over-the-counter
market as reported by the National Quotation Bureau or similar organization,
or, if such bid price is not available, the market value of such

 

A-3

 

security
on such date as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company.  A “Trading Day” is defined as any day that
is not a Saturday, Sunday or a day on which the NNM is closed or  banking institutions or trust companies in
the City of New York or the City of Boston are authorized or obligated by law
or executive order to close and on which the security the Closing Price of
which is being determined (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security.

 

Interest
on this SAILS will be payable, and delivery of INSO Common Stock (or, at the
Company’s option, cash in an amount equal to the value of such INSO Common
Stock) in exchange for the principal amount of this SAILS at Maturity will be
made upon surrender of this SAILS, at the office or agency of the Company
maintained for that purpose in the City of New York, New York, and payment of
interest on (and, if the Company elects not to deliver INSO Common Stock upon
exchange at Maturity, the cash equivalent thereof payable upon exchange for the
principal amount of) this SAILS will be made in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register or by
wire transfer to an account maintained by such Person with a bank in The City
of New York (so long as the Company has received proper transfer instructions
in writing).

 

ADDITIONAL
PROVISIONS OF THIS SAILS ARE CONTAINED ON THE REVERSE HEREOF AND SUCH
PROVISIONS SHALL HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH IN THIS PLACE.

 

Unless
the certificate of authentication hereon has been executed by the Trustee
referred to on the reverse hereof, directly or through an Authenticating Agent,
by manual signature of an authorized signatory, this SAILS shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

 

*“SAILS”
and “Stock Appreciation Income Linked Securities” are service marks of CS First
Boston, Inc.

 

A-4

 

IN
WITNESS WHEREOF, HOUGHTON MIFFLIN COMPANY has caused this instrument to be duly
executed under its corporate seal.

 

Dated:

 

	
   

  	
  HOUGHTON
  MIFFLIN COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

 

This
SAILS is one of the Securities of

the series designated herein and 

referred to in the within-mentioned 

Indenture.

 

THE
FIRST NATIONAL BANK OF BOSTON, as Trustee

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signatory

  

 

A-5

 

[Form of Reverse of SAILS]

 

HOUGHTON MIFFLIN COMPANY

 

                       SAILS(SM)*

Stock Appreciation Income Linked Securities
(SAILS)(SM)*)

6% Exchangeable Note due 1999

 

(Subject to Exchange at Maturity

into Shares of Common Stock, Par Value $.01

Per Share, of INSO Corporation)

 

This
note is one of a duly authorized issue of debentures, notes or other evidence
of indebtedness (hereinafter called the “Securities”) of the Company of the
series hereinafter specified, which series is limited to 2,000,000 SAILS, all
such Securities issued and to be issued under an indenture dated as of March
15, 1994, between the Company and The First National Bank of Boston, as Trustee
as supplemented by a First Supplemental Indenture dated as of July 27, 1995 (as
supplemented, the “Indenture”), pursuant to which the Company has designated
The First National Bank of Boston as Trustee for the SAILS, to which Indenture
and all other Indentures supplemental hereto or thereto reference is hereby
made for a statement of the rights and limitation of rights thereunder of the
Holders of the Securities and of the rights, obligations, duties and immunities
of the Trustee for each series of Securities and of the Company, and the terms
upon which the Securities are and are to be authenticated and delivered.  As provided in the Indenture and subject to
certain limitations therein set forth, Registered Securities of this series are
exchangeable for a like aggregate principal amount of Registered Securities of
this series and of like tenor of any authorized denominations, as requested by
the Holder surrendering the same, upon surrender of the Registered Security or
Registered Securities to be exchanged at any office or agency described below
where Registered Securities of this series may be presented for registration of
transfer.  This note is one of a series
of the Securities designated 6% Exchangeable Notes due 1999 (referred to herein
as the “SAILS”).

 

If
an Event of Default with respect to the SAILS, as defined in the Indenture,
shall occur and be continuing, the principal of all the SAILS may be declared
due and payable and therefore will result in the mandatory exchange of the
principal amount thereof for INSO Common Stock (or, at the Company’s option,
cash as provided in Section 1301(d) of the Indenture), all in the manner and
with the effect provided in the Indenture.

 

The
Indenture permits, with certain exceptions as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders of the Securities of each series to be affected under
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of a majority in principal amount of

 

A-6

 

the
Securities at the time Outstanding of each series to be affected.  The Indenture also contains provisions
permitting the Holders of specified percentages in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of
all the Securities of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences with respect to such series.  Any such consent or waiver by the Holder of
this SAILS shall be conclusive and binding upon such Holder and upon all future
Holders of this SAILS and of any SAILS issued upon the transfer hereof or in
exchange herefor or in lieu thereof, whether or not notation of such event or
waiver is made upon this SAILS.

 

As
set forth in, and subject to, the provisions of the Indenture, no Holder of any
SAILS will have any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, unless such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default
with respect to the SAILS, the Holders of not less than 25% in principal amount
of the Outstanding SAILS shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall have received from the Holders of a majority in principal
amount of the Outstanding SAILS a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days; provided,
however, that such limitations do not apply to a suit instituted by the Holder
hereof for the enforcement of payment of the principal of or interest on this
SAILS on or after the respective due dates expressed herein.

 

No
reference herein to the Indenture and no provision of this SAILS or of the
Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this SAILS
at the times, place and rate, and in the manner, herein prescribed.

 

As
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this SAILS is registrable in the Security Register, upon
surrender of this SAILS for registration of transfer at the office or agency of
the Company to be maintained for that purpose in the City of New York, or at
any other office or agency of the Company maintained for that purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or more
new SAILS of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.

 

No
service charge shall be made for any such transfer or exchange, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection with the registration of such transfer or charge,
other than certain exchanges not involving any transfer.

 

A-7

 

Certain
terms used in this SAILS which are defined in the Indenture have the meanings
set forth therein.

 

The
Indenture and this SAILS shall for all purposes be governed by, and construed
in accordance with, the laws of the State of New York.

 

Prior
to due presentment of this SAILS for registration of transfer, the Company, the
Trustee for the SAILS and any agent of the Company or such Trustee may treat
the Person in whose name this SAILS is registered as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this SAILS be overdue, and neither the Company, the Trustee nor
any such agent shall be affected by notice to the contrary.

 

A-8

 

ABBREVIATIONS

 

The
following abbreviations, when used in the inscription on the face of this
instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

 

 

	
  TEN
  COMM

  	
  —

  	
  as tenants in common

  	
   

  	
  UNIF
  GIFT MIN ACT —

  	
   

  	
   

  
	
  TEN
  ENT

  	
  —

  	
  as tenants by the entireties

  	
   

  	
   

  	
  Custodian

  	
   

  
	
  JT
  TEN

  	
  —

  	
  as joint tenants with right of

  	
   

  	
   

  
	
   

  	
   

  	
  survivorship and not as

  	
   

  	
  (Cust)

  	
  (Minor)

  
	
   

  	
   

  	
  tenants in common

  	
   

  	
  Under
  Uniform Gifts to Minors Act

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (State)

  	
   

  
											

 

 

Additional
abbreviations may also be used though not in the above list.

 

 

Social
Security or taxpayer I.D. or other identifying number of assignee

 

 

FOR
VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

 

 

(name and address of assignee)

 

the
within SAILS and all rights thereunder, hereby irrevocably constituting and
appointing, attorney to transfer said SAILS on the books kept for registration
thereof, with full power of substitution in the premises.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

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EXHIBIT 4.9  

 
 

SECOND SUPPLEMENTAL INDENTURE    
    

        SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture") is dated as of December 30, 2002, by
and among Houghton Mifflin Company, a Massachusetts company (the "Company"), and State Street Bank and Trust Company, as successor to The First National
Bank of Boston (the "Trustee"). 

WITNESSETH:  

        WHEREAS, the Company and the Trustee have entered into an Indenture, dated as of March 15, 1994, as supplemented by the First Supplemental Indenture, dated
as of July 27, 1995 (the "Indenture"), relating to, among other things, the issuance of $100,000,000 aggregate principal amount of 7.125% Senior
Notes due 2004 (the "2004 Notes"); 

        WHEREAS,
Section 902 of the Indenture provides that provisions in the Indenture relating to the 2004 Notes may be changed, supplemented or amended with the consent of the holders
of not less than a majority in principal amount of the outstanding 2004 Notes (the "Requisite Consents"); 

        WHEREAS,
the Company has offered to purchase for cash all of the outstanding 2004 Notes (the "Tender Offer") upon the terms and subject to
the conditions set forth in the Offer to Purchase and Consent Solicitation Statement, dated November 26, 2002, as amended or supplemented from time to time (the "Offer
to Purchase"), and the Letter of Transmittal and Consent, dated November 26, 2002, as amended or supplemented from time to time, and in connection therewith has
solicited consents from holders of the 2004 Notes to proposed amendments (the "Amendments") to the Indenture as described in the Offer to Purchase; 

        WHEREAS,
the Tender Offer, and the effectiveness of this Second Supplemental Indenture and the Amendments, is conditioned upon, among other things, obtaining of the Requisite Consents to
the
Amendments by the Consent Payment Deadline (as defined in the Offer to Purchase) and consummation of the Proposed Acquisition (as described and defined in the Offer to Purchase); 

        WHEREAS,
the Company has received and delivered to the Trustee the Requisite Consents relating to amendments to the Indenture with respect to the 2004 Notes; 

        WHEREAS,
the Company has been authorized by a resolution of its Board of Directors to execute, deliver and perform its obligations under this Second Supplemental Indenture; and 

        NOW,
THEREFORE, in consideration of the premises and covenants and agreements contained herein, and for other good and valuable consideration the receipt of which is hereby acknowledged,
and for the benefit of the holders of the 2004 Notes, and no other series of securities which may be issued under the Indenture, the Company and the Trustee hereby agree as follows: 

ARTICLE ONE  

        Section 1.1    Definitions.    

        Capitalized
terms used in this Second Supplemental Indenture and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Indenture. 

 

ARTICLE TWO  

        Section 2.1    Amendments.    

        Effective
upon the Settlement Date (as defined below), the following provisions of the Indenture are hereby amended solely with respect to the 2004 Notes: 

        (a)   Section 101
of the Indenture solely as it relates to the 2004 Notes shall be amended by deleting the definition of "Officers' Certificate" in its entirety and
substituting in lieu thereof the following: 

        ""Officers'
Certificate" means a certificate signed by the Chairman of the Board and the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary and
Clerk or by an Assistant Clerk, of the Company, and delivered to the Trustee." 

        (b)   Section 102
of the Indenture solely as it relates to the 2004 Notes shall be amended by deleting the second paragraph of Section 102 and substituting in
lieu thereof the following: 

        "Every
certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: 

        (1)   a
statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto: 

        (2)   a
brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are
based; 

        (3)   a
statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been complied with; and 

        (4)   a
statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with." 

        (c)   Section 403
of the Indenture solely as it relates to the 2004 Notes shall be amended as follows: 

          (i)  by
deleting Section 403(4) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

         (ii)  by
deleting Section 403(5) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

        (iii)  by
deleting Section 403(6) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

        (iv)  by
deleting Section 403(7) in its entirety and substituting in lieu thereof the following: 

        "(7) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of the entire indebtedness on all Outstanding Securities of any such series have been complied with." 

        (d)   Section 501
of the Indenture solely as it relates to the 2004 Notes shall be amended as follows: 

          (i)  by
deleting Section 501(4) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

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         (ii)  by
deleting Section 501 (5) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

        (e)   Section 801
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (f)    Section 802
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (g)   Section 901
of the Indenture solely as it relates to the 2004 Notes shall be amended as follows: 

          (i)  by
deleting Section 901(5) in its entirety and substituting in lieu thereof the following: 

        "(5) to
secure the Securities; or" 

         (ii)  by
deleting Section 901(7) in its entirety and substituting in lieu thereof the following: 

        "(7) to
comply with Section 607; or" 

        (h)   Section 902
of the Indenture solely as it relates to the 2004 Notes shall be amended by deleting the second paragraph of Section 902(1) in its entirety and
substituting in lieu thereof the following: 

        "(1) change
the Stated Maturity of the principal of or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change any obligation of the Company to pay additional amounts pursuant to Section 1004 (except as permitted by
Section 901(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 502 or change the coin or currency in which any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or" 

        (i)    Section 1003
of the Indenture solely as it relates to the 2004 Notes shall be amended by deleting the first, second, third and fourth paragraphs in their
entirety. 

        (j)    Section 1005
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (k)   Section 1007
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (l)    Section 1008
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (m)  Section 1009
of the Indenture solely as it relates to the 2004 Notes shall be eliminated in its entirety and be replaced with the words "INTENTIONALLY OMITTED." 

        (n)   Section 1011
of the Indenture solely as it relates to the 2004 Notes shall be amended as follows: 

          (i)  by
deleting Section 1011(4) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

3

 

         (ii)  by
deleting Section 1011(5) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

        (iii)  by
deleting Section 1011(6) in its entirety and replacing it with the words "INTENTIONALLY OMITTED;" 

        (iv)  by
deleting Section 1011(7) in its entirety and substituting in lieu thereof the following: 

        "(7) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to
the defeasance contemplated in this Section have been complied with." 

ARTICLE THREE  

        Section 3.1    Effectiveness; Termination.    

        (a)   This
Second Supplemental Indenture is entered into pursuant to and consistent with Section 902 of the Indenture. 

        (b)   This
Second Supplemental Indenture shall become effective and binding on the Company, the Trustee and the holders of the 2004 Notes upon the execution and delivery by
the parties to this Second Supplemental Indenture; provided, however, that the Amendments to the Indenture referred to in Article Two above will remain
in effect in the form they existed prior to the execution of this Second Supplemental Indenture, the deletions and amendments of the Amendments will not become operative, and the terms of the
Indenture will not be amended, modified or deleted, in each case unless and until the date (the "Settlement Date") that the Company has accepted for payment the tender of 2004 Notes and such payment
has been made. On the Settlement Date, the Amendments will automatically be deleted or amended as contemplated by Article Two above. 

        Section 3.2    Miscellaneous.    

        (a)   On
and after the Settlement Date, each reference in the Indenture to "the Indenture," "this Indenture," "hereunder," "hereof" or "herein" shall mean and be a reference
to the Indenture as supplemented by this Second Supplemental Indenture unless the context otherwise requires. 

        (b)   Except
as specifically amended above, the Indenture shall remain in full force and effect and is hereby ratified and confirmed, and no Amendments will affect any series
of notes issued under the Indenture other than the 2004 Notes, including any outstanding 7.00% Senior Notes due 2006 and any outstanding 7.20% Senior Notes due 2011 of the Company. 

        (c)   This
Second Supplemental Indenture shall be construed and enforced in accordance with, and interpreted under, the internal laws of the State of New York. 

        (d)   This
Second Supplemental Indenture may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties, notwithstanding
that all parties have not signed the same counterpart. 

        (e)   Section
titles are for descriptive purposes only and shall not control or alter the meaning of this Second Supplemental Indenture as set forth in the text. 

        (f)    Each
of the Company and the Trustee hereby confirms and reaffirms the Indenture in every particular respect except as amended by this Second Supplemental Indenture. 

4

 

        (g)   All
agreements of the Issuer in this Second Supplemental Indenture shall bind its successors and assigns whether so expressed or not. All agreements of the Trustee in
this Supplemental Indenture shall bind its successors and assigns whether so expressed or not. 

        (h)   In
case any provision in this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. 

        (i)    Nothing
in this Second Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors under the Indenture and
the holders of the 2004 Notes, any benefit or any legal or equitable right, remedy or claim under the Indenture. 

        (j)    This
Second Supplemental Indenture shall be interpreted to comply in every respect with the Trust Indenture Act of 1939, as amended (the "TIA"). If any provision of this
Second Supplemental Indenture limits, qualifies or conflicts with the duties imposed by the TIA, the imposed duties shall control and remain obligatory. 

        IN
WITNESS WHEREOF, the Company and the Trustee have caused this Second Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized as of the day
and year first written above. 

	 	 	HOUGHTON MIFFLIN COMPANY
	    	 	 	 	 	 	 
	

 	
 	

By:	
 	

 	
 	

 
	 	 	 	 	

	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	 	 	STATE STREET BANK AND TRUST

COMPANY
	    	 	 	 	 	 	 
	

 	
 	

By:	
 	

	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 

5

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