Document:

Exhibit 10.6

 

AMENDMENT NO. 1

TO

SHARE PURCHASE AGREEMENT

 

THIS AMENDMENT
NO. 1 to Share Purchase Agreement (this “Amendment”) is entered into as
of this 29th day of December, 2002, by and among Vivendi Universal S.A., a société anonyme organized under the laws
of France (“Parent”), Vivendi Communications North America, Inc., a
Delaware corporation (“Seller”), and Versailles Acquisition Corporation,
a Delaware corporation (“Purchaser”).

 

WITNESSETH:

 

WHEREAS,
Parent, Seller and Purchaser have previously entered into that certain Share
Purchase Agreement by and among them dated November 4, 2002 (the “Purchase
Agreement”);

 

WHEREAS,
pursuant to Section 10.5 of the Purchase Agreement, the Purchase
Agreement may be amended and supplemented by a written instrument signed by the
parties to the Purchase Agreement; and

 

WHEREAS,
Parent, Seller and Purchaser wish to amend the Purchase Agreement and make
certain other agreements with respect thereto.

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as follows:

 

SECTION 1.   Definitions.  Capitalized terms used but not defined
herein shall have the meaning given to them in the Purchase Agreement.

 

SECTION 1.   Amendments
to Purchase Agreement. The Purchase Agreement and the Disclosure Schedules
pursuant thereto are hereby amended as of the date hereof as follows:

 

(a)   The definition of
“Indebtedness” contained in Section 1.1 of the Purchase Agreement is
hereby amended and restated in its entirety to state as follows:

 

“Indebtedness”
shall mean, with respect to any Company at the Reference Date, without
duplication: (a) all indebtedness of such Company for borrowed money, (b) all
obligations of such Company for the deferred purchase price of property or
services (other than current trade payables incurred in the ordinary course of
such Company’s business), (c) all obligations of such Company evidenced by
notes, bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Company (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (e) all
obligations of such Company that are required to be classified and accounted
for as capital leases on a balance sheet of such Company under GAAP in effect
as of the Reference Date, (f) the liquidation value of all redeemable preferred
capital stock of such Company, (g) all guarantee obligations of such Company in
respect of obligations

 

 

of any other Person (other than another Company) of the kind referred
to in clauses (a) through (f) above, (h) all obligations of the kind referred
to in clauses (a) through (g) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including accounts and contract rights) owned by such
Company, whether or not such Company has assumed or become liable for the
payment of such obligation, (i) liabilities for retention incentive payments,
retention bonuses and like payments in an amount equal to $25,000,000 and (j)
all obligations of such Company in respect of Swap Agreements, in each case
referred to in clauses (a) through (i) above including all accrued but unpaid
interest, penalties, premium, fees and expenses relating thereto), it being
understood that Indebtedness shall include the liquidation value of the AMPS,
accrued dividends on the AMPS, the principal balance and accrued interest under
the HMC Loan Note and all other amounts outstanding under the AMPS Investment
Agreement and the HMC Loan Note Purchase Agreement, except to the extent that such
amounts are no longer outstanding and owed by any Company on the Closing Date,
and shall not include any Intercompany Indebtedness. For purposes of this
definition, “Swap Agreement” shall mean any agreement with respect to
any swap, forward, future or derivative transaction or option or similar
agreement involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions. For
purposes of this definition, Indebtedness of any Companies which are less than
100% owned, directly or indirectly, by Seller on the Reference Date (“Consolidated
Companies”) shall equal the product of (x) the sum of such obligations
multiplied by (y) the percentage ownership (expressed as a decimal rounded
upwards) of such Consolidated Company held, directly or indirectly, by Seller
on the Reference Date (such product “Proportionate Indebtedness”); provided,
however, that if any Company may be held liable for the Indebtedness of
a Consolidated Company in excess of the relevant Proportionate Indebtedness,
then 100% of such Consolidated Company’s Indebtedness shall be applied towards
the calculation of the aggregate Indebtedness of the Companies.”

 

(b)   Section 2.2(a) of the
Purchase Agreement is hereby amended and restated in its entirety to state as
follows:

 

“(a) Subject
to the last sentence of Section 2.5(b), the aggregate consideration to
be paid for the Shares will be $1,659,050,000 (the “Purchase Price” and,
as such Purchase Price may be adjusted in accordance with the following
provisions of this Section 2.2, the “Adjusted Purchase Price”).”

 

(c)   Section 2.5(a) of the
Purchase Agreement is hereby amended and restated in its entirety to state as
follows:

 

“(a) Seller
and Purchaser agree that, upon the Closing, all cash generated by the Companies
as from October 1, 2002 (inclusive) (as determined in accordance with Section
2.5(b)), excluding the net cash proceeds of the sale of Sunburst Technology
Corporation (which shall include funds received or receivable by HMC or its
Subsidiaries resulting from receivables due to Educational Resources LLC from
Microsoft), shall accrue for the benefit of Purchaser in the manner set forth
in Section 2.5(b). Without limiting the foregoing, Seller shall not
permit the Companies to make any cash payments of any kind or otherwise
distribute any cash to Parent or

 

2

 

any of its Affiliates other than the Companies, except for the net cash
proceeds of the sale of Sunburst Technology Corporation (which shall include
funds received or receivable by HMC or its Subsidiaries resulting from receivables
due to Educational Resources LLC from Microsoft) and (x) pursuant to readily
identifiable payments made under written lawful cash pooling arrangements
presently existing in Seller’s group (“Cash Pooling Arrangements”), (y)
pursuant to the Contracts for goods and services listed on Schedule 2.5(a)
in accordance with the terms thereof or (z) to repay Intercompany Indebtedness
or other obligations solely from the proceeds of capital contributions made by
Parent or its Affiliates (other than HMC or any of its Subsidiaries) at or
prior to Closing (for example, in connection with the purchase of Kingfisher).
From and after the Closing, (i) Parent will indemnify and hold harmless
Purchaser and HMC from and against any Losses arising out of or relating to
that certain Microsoft Receivables Agreement dated as of October 2, 2000,
between HMC and Educational Resources and (ii) Purchaser shall cause Parent and
its Affiliates to have access, during normal business hours and upon reasonable
advance notice, to the books, records and personnel of HMC to assist Parent in
evaluating any such claims for Losses.”

 

(d)   Section 2.5(b) of the
Purchase Agreement is hereby amended and restated in its entirety to state as
follows:

 

“(b) Seller
and Purchaser agree that at the Closing, Seller shall pay to Purchaser on
behalf, and for the account, of the Companies an amount (the “Stub Amount”)
calculated for each currency in which payments were made under the Cash Pooling
Arrangements between the Companies and Parent and its Affiliates (other than
the Companies) equal to (i) the excess of (x) the aggregate amount of all cash
payments denominated in such currency made by each of the Companies to Parent
or any of its Affiliates (other than the Companies) from October 1, 2002 (inclusive)
through three (3) Business Days prior to the Closing Date pursuant to Cash
Pooling Arrangements over (y) the aggregate amount of all cash payments
denominated in such currency made by Parent or any of its Affiliates (other
than the Companies) to each such Company from October 1, 2002 (inclusive)
through the Closing Date pursuant to Cash Pooling Arrangements (such excess
amount being referred to herein as the “Section 2.5(b) Amount”) minus
(ii) the net intercompany balance resulting from Cash Pooling Arrangements
repaid by Parent or its Affiliates to HMC prior to the Closing (the “Intercompany
Balance Amount”). For purposes of this Section 2.5(b), Seller shall
three (3) Business Days prior to the Closing Date (x) cease all payments under
Cash Pooling Arrangements and (y) deliver to Purchaser a certificate duly
executed by an Authorized Representative setting forth the balance of cash
payments made by each of the Companies, on the one hand, and Parent and its
Affiliates (other than the Companies), on the other hand, pursuant to Cash
Pooling Arrangements after the Reference Date through the Closing Date,
together with detailed information in respect of all such payments (the “Cash
Transfers Certificate”). The Cash Transfers Certificate identifies the
Section 2.5(b) Amount to be $93,863,577. For purposes of the Closing, the
Intercompany Balance Amount is $71,547,218, resulting in a Stub Amount of
$22,316,359. If, after the Closing Date, Seller or Purchaser becomes aware of
any error or errors in the Cash Transfers Certificate (including the
calculation of the Section 2.5(b) Amount) or the calculation of the
Intercompany Balance Amount, the net result of which resulted in an
under-payment or over-payment at Closing pursuant to this Section 2.5,
then, within three (3) Business Days of the determination and agreement between
the parties of the amount of the under-payment or over-payment, the party who
underpaid shall pay the amount of the under-payment to the other party or the
party who

 

3

 

was over-paid shall pay the amount of the over-payment to the other
party, as the case may be, to an account notified by the receiving party to the
paying party. Each of Seller and Purchaser shall provide such information and
documents reasonably requested by the other with a view to resolving any
disagreement with respect to whether and to what extent an over-payment or
under-payment exists. Notwithstanding anything in this Agreement to the
contrary, Purchaser may offset all or any portion of the Stub Amount against
the Closing Date Payment; provided that any such offset of the
Stub Amount against the Closing Date Payment shall in no way limit the effect
of the previous two sentences of this Section 2.5(b). The parties hereto
agree that Purchaser may use (i) the Stub Amount (to the extent it has not been
offset against the Closing Date Payment) and (ii) all other cash available to
HMC on the Closing Date, including, without limitation, the Intercompany
Balance Amount, to fund a portion of the Closing Date Payment.”

 

(e)   Section 2.6 of the
Purchase Agreement is hereby amended and restated in its entirety to state as
follows:

 

“2.6 Related Party
Agreements.

 

All
Intercompany Indebtedness outstanding at the time of the Closing, if any, and
all liabilities and obligations of Seller and its Affiliates (other than the
Companies) to the Companies outstanding at the time of the Closing, if any,
shall be offset against each other and the net amount of Intercompany
Indebtedness remaining after such offsetting (“Net Intercompany Indebtedness”)
shall be cancelled and treated as a contribution to the capital of HMC except
as otherwise provided in this Agreement and except for (x) the Contracts set
forth on Schedule 2.5(a), (y) the Cash Pooling Arrangements which shall
be settled pursuant to Section 2.5(b) and (z) the repayment prior to the
Closing of any indebtedness owed by Parent or its Affiliates to HMC, including
the Intercompany Balance Amount and the repayment of obligations owed by HMC to
Parent and its Affiliates solely with the proceeds of capital contributions
made by Parent or its Affiliates (other than HMC or any of its Subsidiaries) at
or prior to Closing (for example, in connection with the purchase of
Kingfisher). At the Closing, Seller shall deliver, or cause its applicable
Affiliate to deliver, to Purchaser written evidence satisfactory to Purchaser
executed by Seller or such Affiliate confirming that the Companies have been
irrevocably released from all further obligations to pay such Intercompany
Indebtedness (subject to the exceptions above in this Section 2.6).”

 

(f)    Section 3.6 of the
Purchase Agreement is hereby amended to add a new subsection (g) to state as
follows:

 

“(g) The Kingfisher Financial Statements (as hereinafter defined) have
been prepared in accordance with generally accepted accounting principles in
the United Kingdom (“UK GAAP”) and present fairly, in all material
respects in accordance with UK GAAP, the consolidated financial condition and
consolidated results of operations of Kingfisher Publications plc (“Kingfisher”)
as of the date thereof and for the period which they relate. As used in this
Agreement, the term “Kingfisher Financial Statements” means the audited
consolidated balance sheet of Kingfisher as of December 31, 2001 and the
audited consolidated profit and loss statement and audited consolidated cash
flow statement of Kingfisher for the year ended on December 31, 2001 (together
with all accompanying notes and appendices). The internal management reports
for Kingfisher for the nine months ended September 30, 2002 and prepared

 

4

 

by Parent or one or more of its Affiliates were prepared on a basis
consistent with Parent’s internal accounting policies and controls.”

 

(g)   Section 5.11 is
hereby amended and restated in its entirety to state as follows:

 

“5.11. Transition Services. For a period of one
(1) day following the Closing Date, Parent shall continue to provide to
Sunburst Technology Corporation the risk management services that Parent
currently provides to Sunburst Technology Corporation in exchange for the fees
or costs assessed by HMC to Sunburst Technology Corporation for the provision
of such services; provided, however, that from and after the
Closing Purchaser will indemnify and hold harmless Parent from and against any
Losses arising out of or relating to its provision of such services for such
one (1) day period, including any self-retention or deductible amounts paid by
Parent. “

 

(h)   A new Section 5.20 is
added to state as follows:

 

“5.20. Cooperation in Consolidation of Financial
Information. Purchaser shall provide, and shall cause HMC to provide
reasonable access, during normal business hours and upon reasonable advance
notice, to the employees and accountants of the Companies and such supporting
documentation as Parent may reasonably request, in connection only with the
inclusion and consolidation of the results of operations, financial position
and other financial information of the Companies as of and for the year ended
December 31, 2002 in the consolidated financial statements of Parent and
Parent’s regulatory reporting obligations for the year ended December 31, 2002.
In any event, Purchaser shall use reasonable efforts to furnish to Parent by
January 8, 2003 (but in any event no later than January 13, 2003), the
financial information to be included in the Carat consolidation process of the
type and in the form in which HMC currently provides such information to
Parent. Parent shall provide all necessary personnel to allow Purchaser to
furnish to Parent the financial information to be included in the Carat
consolidation. Under no circumstances shall HMC or Purchaser be obligated to
provide such cooperation after June 1, 2003.”

 

(i)    Item 2 of Schedule 1.1
(a) is hereby amended to add a new paragraph to read as follows:

 

“Notwithstanding anything to the contrary contained in
the Agreement or this Schedule 1.1(a), the EBITDA of Kingfisher and its
Subsidiaries will be included in Adjusted EBITDA as if such companies were
Subsidiaries of HMC for the entire Reference Period.”

 

(j)    Item 1 under the
sub-heading “Inventory” of Schedule 1.1(b) is hereby amended and
restated in its entirety as follows:

 

“1.  Obtain a
copy of 25 of the Company’s September 2002 cycle count results and compare the
counts to the adjusted perpetual results.”

 

(k)   Appendix A of Schedule
1.1(e) is hereby amended to add the following Account:

 

“2032   Withholding employee stock purchase
program    $1,761,010 (CR)”

 

5

 

(l)    Schedule 2.5(a) is
hereby amended to add the following items:

 

“16. Publishing License
Agreement (F&L # 107455) dated as of November 8, 2001, by and between
Kingfisher Publications Plc and Universal Studio Publishing Rights, Inc.
granting Kingfisher the license to use characters of the motion picture “E.T.
The Extra-terrestrial” to create, print, manufacture, publish, distribute and
sell four (4) non-fiction books entitled “ET Discovers.”

 

17. Publishing License Agreement
(F&L # 107453) dated as of November 8, 2001, by and between Kingfisher Plc
and Universal Studio Publishing Rights, Inc. granting Kingfisher the license to
use characters of the motion picture “The Mummy” to create, print, manufacture,
publish, distribute and sell four (4) non-fiction books about the history of
the world.

 

18. Publishing License
Agreement (F&L # 107452) dated as of November 8, 2001, by and between
Kingfisher Plc and Universal Studios Publishing Rights, Inc. granting
Kingfisher the license to use the animated characters, “Woody Woodpecker and
Friends,” to create, manufacture, publish, distribute and sell four (4)
non-fiction books about the animal kingdom.

 

19. Kingfisher Publications
Plc is a party to a joint venture with Les Editions Nathan dated January 21,
2001, for the distribution of Kingfisher publications in France.

 

20. Kingfisher Publications
Plc is a party to a distribution and selling agreement with Vivendi Universal
Publishing, dated as of September 19, 2001, for the distribution of Kingfisher
publications to French language schools.

 

21. License Contract of On
Line Electronic Rights, dated as of September 16, 2001, by and between
Kingfisher Publications Plc and Vivendi Universal Interactive Publishing
International S.A. relating to the use by Vivendi Universal Interactive
Publishing International of certain rights of Kingfisher regarding four (4)
Hands on Science titles for on-line electronic exploitation.

 

22. Share Purchase Agreement dated December
   , 2002, between Vivendi Universal Publishing, S.A. and
Houghton Mifflin Company (Kingfisher).”

 

(m)  Schedule 3.5 is hereby
amended to add the following item:

 

“7. The execution and delivery of the Agreement will
give ECS the right to terminate the Technology Finance Agreement dated as of
June 30, 1999, by and between Kingfisher Publications Plc and ECS United
Kingdom Plc.”

 

(n)   Schedule 3.10(c) is
hereby amended to add the following item:

 

“(k) John Richards
Employment Agreement dated August 4, 1988, by and between Grisewood & Dempsey
Limited and John Richards.”

 

6

 

(o)   Schedules 3.2(a) and 3.2(b)
are each hereby amended to add the following item:

 

“The Renewed Rights Agreement, by and between the Company and Fleet
National Bank, formerly known as BankBoston, N.A., as rights agent, as amended
by the Amendment to Rights Agreement, pursuant to which the Company issued
rights to purchase shares of the Company’s Series A Junior Participating
Preferred Stock.”

 

(g)   Schedule 5.2 is hereby
amended to add the following item:

 

“10. Repurchase of
outstanding Rights issued pursuant to the Renewed Rights Agreement, by and
between the Company and Fleet National Bank, formerly known as BankBoston,
N.A., as rights agent, as amended by the Amendment to Rights Agreement for an
aggregate purchase price of $10.00.”

 

SECTION 3.  Other
Agreements.

 

The parties
hereto acknowledge and agree that pursuant to Section 9.1 of the
Purchase Agreement, Seller is obligated to indemnify Purchaser Indemnitees for
$8,419,741 of Losses resulting from the payment of amounts due with respect to
the settlement agreement with the Internal Revenue Service relating to interest
deductions claimed with respect to corporate owned life insurance policies
purchased in periods prior to the Reference Date (the “COLI Liability”)
and that Purchaser shall be entitled to offset from the Closing Date Payment,
the amount of the COLI Liability. The parties acknowledge that additional
claims, if any, relating to the COLI Liability may be asserted pursuant to Section
9.1.

 

SECTION 4.  No
Implied Amendments.  Except as
herein provided, the Purchase Agreement shall remain in full force and effect
and is ratified in all respects. On and after the effectiveness of this
Amendment, each reference in the Purchase Agreement to “this Agreement,”
“hereunder,” “hereof,” “herein” or words of like import, and each reference to
the Purchase Agreement in any other agreements, documents or instruments
executed and delivered pursuant to the Purchase Agreement, shall mean and be a
reference to the Purchase Agreement, as amended by this Amendment.

 

SECTION 5.   Counterparts.  This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

 

[Signatures Follow]

 

7

 

IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Amendment as of the date first written above.

 

 

	
   

  	
  VIVENDI UNIVERSAL S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VIVENDI COMMUNICATIONS
  NORTH AMERICA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERSAILLES ACQUISITION
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

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Exhibit 10.7  

Dear                        :

        You
have recently entered into a retention agreement with the Company. With this letter we are offering to continue your health benefits after a qualifying termination of employment and
also clarifying how your Total Retention Bonus and pro-rata bonus work. 

Continuation of Health Benefits  

        If your employment is terminated during the "Term" of your retention agreement by the Company without "Cause" or by you with "Good Reason" (as those terms are
defined in your retention agreement), then, for the three-year period immediately following the termination of your employment (the "Benefit Period"), the Company will provide you with
medical, dental and vision benefits substantially similar to those which are provided to the active employees of the Company from time to time in accordance with the cost schedule which applies to
those employees from time to time. To the extent comparable benefits are made available to you at comparable cost (or less) during the Benefit Period, the benefits you would otherwise receive from the
Company will be reduced (and you are to report any such benefits to the Company). 

Total Retention Bonus  

        In calculating your Total Retention Bonus, your entire bonus with respect to 2001 (both the portion paid in July 2001 and the portion, if any, paid in
February or March 2002) will be treated as paid in 2002, and not in 2001. If the term "Total Transaction Bonus" appears in your retention agreement, "Total Retention Bonus" (as defined in
Section 2 of your retention agreement) is hereby substituted for that term. 

Pro-Rata Bonus  

        If your retention agreement provides for a pro-rata bonus calculated with reference to "the Executive's target bonus for the plan year in which the
Transaction Date occurs," the pro-rata bonus shall instead be calculated with reference to "one hundred percent (100%) of the Executive's "target incentive opportunity' (as defined in the
Executive's Incentive Compensation Plan participation letter for the plan year in which the Transaction Date occurs)." 

Clarification as to Severance  

        Section 2(B) of your retention agreement is restated in its entirety as follows: 

        Earlier Payment (or Forfeiture) of Retention Amounts.    An amount equal to three (3) times the Total Retention Bonus,
reduced by any portion of the Total Retention Bonus which has already been paid to the Executive, shall be paid to the Executive, within the ten days immediately following the relevant event, in the
event the employment of the Executive is terminated during the Term by the Company without "Cause" or by the Executive for "Good Reason," or if the Executive dies or becomes totally and permanently
disabled (as confirmed by a physician selected by the Company) during the Term. Any unpaid portion of the Total Retention Bonus shall be permanently forfeited by the Executive, however, in the event
the employment of the Executive is terminated by the Company for "Cause" or by the Executive without "Good Reason." 

        If
you agree to modify your retention agreement in accordance with this letter, please sign the enclosed copy of the letter where indicated and return it to the Company in the enclosed
stamped pre-addressed envelope. 

Sincerely
yours, 

/s/  HANS GIESKES      

Hans
Gieskes

President and Chief Executive Officer 

Agreed
by Executive: 

 
 

FORM OF SENIOR EXECUTIVE RETENTION AGREEMENT    
    

        THIS SENIOR EXECUTIVE RETENTION AGREEMENT (this "Agreement") is made as
of                        , 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, who is employed in the Company's Promissor Division; and 

        WHEREAS,
the Company believes that making retention payments and other enhancements available to the Executive will provide an incentive for the Executive to remain employed by the
Company; 

        NOW
THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows: 

        Section
1.    Term of Agreement.    The "Term" of this Agreement shall commence on the date hereof and shall continue
in effect through the later of December 31, 2004 or the second anniversary of the "Transaction Date." 

        Section
2.    Transaction Retention Payments.    

        (A)    Transaction Retention Payments.    If the Executive remains employed by the Company through a "Relevant Date,"
the Company shall pay the Executive, within the ten days immediately following the Relevant Date, a lump sum installment payment (a "Transaction Retention Payment"), in cash, on account of the "Total
Retention Bonus." The Total Retention Bonus shall be an amount equal to 2, multiplied by the sum of (a) the Executive's annual base salary in effect on the date hereof, and (b) the
higher of (i) the sum of the amounts (if any) which were paid to the Executive pursuant to the "Incentive Compensation Plan" in the Company's fiscal year ending in 2002 (including amounts which
would have been so paid in such year but for the Executive's prior deferral election), and (ii) the average amounts so paid or deferred in the Company's fiscal years ended in 2001, 2000 and
1999; provided, however, that (A) any compensation paid in the form of shares of the common stock of the Company during the applicable year shall be taken into account at its fair market value
at the time of its award in determining the amounts specified in clauses (i) and (ii), and (B) to the extent that the Executive was not eligible to receive a payment in an applicable
year, the period of the average
specified in clause (ii) shall be adjusted accordingly. The three Relevant Dates and the amount of the Transaction Retention Payment with respect to each Relevant Date are as follows:
(i) the one-month anniversary of the "Transaction Date"—twenty percent (20%) of the Total Retention Bonus; (ii) the six-month anniversary of the
Transaction Date—thirty percent (30%) of the Total Retention Bonus; and (iii) the eighteen-month anniversary of the Transaction Date—fifty percent (50%) of the Total
Retention Bonus. 

        (B)    Earlier Payment (or Forfeiture) of Retention Amounts.    Any unpaid portion of the Total Transaction Bonus
shall be paid (within the ten days immediately following the relevant event) in the event the employment of the Executive is terminated by the Company without "Cause" or by the Executive for "Good
Reason," or if the Executive dies or becomes totally and permanently disabled (as confirmed by a physician selected by the Company). Any unpaid portion of the Total Transaction Bonus shall be
permanently forfeited by the Executive, however, in the event the employment of the Executive is terminated by the Company for "Cause" or by the Executive without "Good Reason." 

        (C)    Definitions.    

        (1)   "Incentive
Compensation Plan" shall mean: the Houghton Mifflin Company annual bonus or incentive compensation plan in which the Executive is participating in the
relevant year or any successor annual bonus or incentive compensation plan. 

 

        (2)   "Cause"
shall mean: 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 not substantially performed 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" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the
Company. 

        (3)   "Good
Reason" shall mean: a reduction in the Executive's base salary, the Executive's annual bonus opportunities or the Executive's benefits (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 failure to provide perquisites, working space and facilities comparable to that provided to similarly situated executives of the Company and its affiliates. 

        (4)   "Transaction
Date" shall mean: the date during the Term on which Vivendi Universal ceases to own, directly or indirectly, more than fifty percent (50%) of the Company's
voting stock or ceases to own, directly or indirectly, more than thirty percent (30%) of the Company's assets (measured on the basis of the gross revenues produced by such assets in the Company's most
recent fiscal year completed prior to the date hereof). Additionally, if the preamble of this Agreement indicates that the Executive is employed in a Division of the Company, a Transaction Date shall
have occurred at any earlier date during the Term when both the Company and Vivendi Universal cease to own, directly or indirectly, substantially all of the applicable Division's assets (measured as
of September 1, 2002) or more than fifty percent (50%) of the Division's voting stock, if the Division is a subsidiary of the Company. 

        Section
3.    Pro-Rata Bonus.    If a Transaction Date shall occur during the Term and the Executive
remains employed by the Company through the Transaction Date, the Company shall pay the Executive, within the ten days immediately following the Transaction Date, a pro-rata bonus with
respect to the Incentive Compensation Plan, which shall be calculated by multiplying the Executive's target bonus for the plan year in which the Transaction Date occurs by a fraction the numerator of
which shall be the days within such plan year up to and including the Transaction Date and the denominator of which shall be 365. 

        Section
4.    Supplemental Retirement Enhancement.    As used in this paragraph, "Supplemental Retirement Plan" shall
mean: the Houghton Mifflin Supplemental Executive Retirement Plan ("SERP"), if the Executive is a participant therein, or, if not, the Houghton Mifflin Excess Retirement Plan. If the Executive's
employment is terminated during the Term by the Company without "Cause" or by the Executive for "Good Reason," or because the Executive dies or becomes totally and permanently disabled (as confirmed
by a physician selected by the Company) during the Term, the Executive shall have a vested right to receive from the Company within the ten days immediately following such termination, an amount in
cash, with respect to the Executive's interest in the Supplemental Retirement Plan, representing the excess of (a) the benefit amount (in the case of the SERP, the lump sum equivalent of the
straight life annuity commencing at age 62) which would have accrued to the Executive under the terms of the Supplemental Retirement Plan, without taking into account any offset required under
the Supplemental Retirement Plan for the Houghton Mifflin Retirement Plan (the "Pension Plan") benefits, calculated as if the Executive were fully vested thereunder and had accumulated as of the date
of such termination two additional years of benefit service credit thereunder, over (b) the lump sum value accrued to the Executive as of the date of such 

2

 

termination
pursuant to the provisions of the Pension Plan. For purposes of clause (a), the lump sum equivalent of the straight life annuity shall be calculated as if the Executive were two
years older as of the date of termination and for purposes of granting the two additional years of benefit service shall reflect two additional years of pay and shall be calculated with the
assumptions utilized in the actuarial report prepared by the Pension Plan's actuary for the last plan year completed prior to July 2001 except that it shall be assumed that base pay increases
by six percent (6%) on each April 1 (beginning with April 1, 2003). Upon the making of, and to the extent of such cash payment, the benefit that would have been payable under the
Supplemental Retirement Plan without the application of this paragraph shall be considered to be fully paid. 

        Section
5.    Gross-up Payment.    (A) In the event that any payment or benefit received or to be
received by the Executive (whether pursuant to the terms of this Agreement or otherwise) would be subject (in whole, or part), to the tax (the "Excise Tax") imposed by section 280G of the
Internal Revenue Code of 1986 (the "Code") (all such payments and benefits being hereinafter called "Total Payments"), the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income or employment taxes
and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) any payments or benefits received or to be received by the Executive (whether pursuant to the terms of this Agreement or otherwise) in connection with
a "change" described in section 280G(b)(2)(A)(i) of the Code or the Executive's termination of employment shall be treated as "parachute payments" within the meaning of
section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the
amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the amount of excess parachute payments within the meaning of section 280G(b)(1) of the Code
(after applying clause (i) above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors
in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's residence on the date of the termination of the Executive's employment (or if there is no such termination, then the date
on which the Gross-Up Payment is calculated for purposes of this Section 5(A)), net of the maximum reduction in federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the
Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount initially taken into account hereunder (including by reason of any payment the
existence or amount of which cannot be 

3

 

determined
at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 

        (B)  The
Gross-up Payment shall be made not later than the fifth (5th) day following the date of termination of the Executive's employment (or if there is no such
termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 5(A) hereof); provided, however, that if the amount of the Gross Up Payment cannot be
finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payment to which the
Executive is clearly entitled and shall pay the remainder of such payment (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after the first required payment date. In the event that the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided
in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which
such payments were calculated and the basis for such calculations, including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants
(and any such opinions or advice which are in writing shall be attached to the statement). 

        Section
6.    Confidentiality.    The Executive will not, at any time during or after the Executive's employment by
the Company, make any unauthorized disclosure of any confidential information or trade secrets of the Company or its subsidiaries except in the carrying out of the Executive's employment
responsibilities to the Company. Upon termination of the Executive's employment with the Company for any reason, the Executive shall promptly deliver to the Company all documents and other materials
in the Executive's possession containing such trade secrets or confidential information. Notwithstanding the foregoing, the Executive may disclose the Company's confidential information or trade
secrets if such disclosure is necessary in order to comply with applicable federal, state, local, or foreign law or other regulations (including, without limitation, any such information that the
Executive is legally compelled to disclose as a result of depositions, interrogatories, request for documents, subpoenas, civil investigative demands, or similar processes). For purposes of this
Section 6, confidential information shall not include information that (i) was known to the Executive prior to the commencement of his employment by the Company; (ii) was
independently, made available to the Executive by a third party under circumstances where such disclosure did not constitute a breach of any duty of confidentiality owed to the Company or a
subsidiary; (iii) is, at the time of disclosure, generally available to the public; or (iv) was independently developed by the Executive without the use of confidential information or
trade secrets of the Company or its subsidiaries. 

        Section
7.    Noncompetition and Nonsolicitation.    In the event that the Executive's employment with the Company is
(i) terminated by the Executive without Good Reason following the receipt by the Executive of at least one of the payments provided by Section 2 hereof, but prior to the receipt of all
of such payments, or (ii) terminated by the Company for Cause, then, for the one year period commencing on the date of such a termination of the Executive's employment, (the "Restricted
Period") the Executive shall not, within any geographic region of the United States of America in which the Company then conducts business, (i) enter into the employ of, or otherwise render any
services to, whether directly or indirectly, any person, firm, corporation or other entity which directly competes with the Company with respect to any business conducted by the Company at the time of
the 

4

 

termination
of the Executive's employment (a "Competitor"), or (ii) become interested, directly or indirectly, in any Competitor as a partner, shareholder, director, officer, principal, agent,
employee, consultant or advisor. Notwithstanding the foregoing, the ownership of up to five percent (5%) of any class of the outstanding securities of any Competitor that is a publicly traded
corporation shall not be deemed to constitute an interest in such Competitor which violates clause (ii) of the immediately preceding sentence. In addition, during the Restricted Period, the
Executive shall not (A) attempt, directly or indirectly, to induce any individual then employed by the Company to be employed or perform services elsewhere, or (B) solicit, directly or
indirectly, the customers of the Company for the purpose of encouraging them to terminate (or reduce or detrimentally alter) their respective relationships with the Company. 

        Section
8.    Prior Agreements.    This Agreement supercedes and renders null and void any and all agreements between
the Executive and the Company (and any and all promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of
the Company) relating to compensation, benefits, termination, severance, or any terms of employment. Any prior agreement of the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled. Notwithstanding the immediately preceding sentence, following any termination of the Executive's employment, the Executive shall be entitled to the Executive's normal
post-termination compensation and benefits as they become due, as determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit
plans, programs and arrangements, except that the Executive shall not be entitled to any benefits under the Houghton Mifflin Severance Policy. 

        Section
9.    Arbitration.    The Executive shall have the right and option to elect to have any good faith dispute or
controversy arising under of in connection with this agreement settled by litigation or arbitration. If arbitration is elected, such proceeding shall be conducted by final and binding arbitration
before a panel of three arbitrators in accordance with the rules, and under the administration of, the American Arbitration Association. 

        Section
10.    Legal Fees.    In the event that it shall be necessary or desirable for the Executive to retain legal
counsel and/or to incur other costs and expenses in connection with the enforcement of any or all of the Executive's rights under this Agreement, the Company shall pay (or the Executive shall be
entitled to recover from the Company) the Executive's attorneys' fees, costs and expenses in connection with a good faith enforcement of the Executive's rights, including the enforcement of any
arbitration
award, or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code. This shall include, without limitation, court costs and
attorneys' fees incurred by the Executive as a result of any good faith claim, action or proceeding, including any such action against the Company arising out of this Agreement. 

        Section
11.    Payment Obligations.    The Company's obligation to make the payments provided for herein shall be
absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense or other right which the Company may have
against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever. The Executive shall not be obligated to
seek other employment in mitigation of the amounts payable under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's
obligations to make the payments required to be made hereunder. 

        Section
12.    Miscellaneous.    No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Company. Any provision of this 

5

 

Agreement
which by its nature may require performance after the termination of this Agreement shall survive such termination. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not
expressly set forth in this Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts, without regard to its conflicts of law principles. There shall be withheld from any
payments provided for hereunder any amounts required to be withheld under Federal, state or local law and any additional withholding amounts to which the Executive has agreed. The invalidity or
unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. This
Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 

        IN
WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals on the day and year first above written. 

	 	 	HOUGHTON MIFFLIN COMPANY
	

 	
 	

 	

 
	

 	
 	

By:	

/s/  HANS GIESKES      
 Name: Hans Gieskes

Title: President and Chief Executive Officer
	

[EXECUTIVE]	
 	

 	

 
	

 	
 	

 	

 
	

	
 	

 	

 

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FORM OF SENIOR EXECUTIVE RETENTION AGREEMENT

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