<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
--------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
HOUGHTON MIFFLIN COMPANY
(Name of Registrant as Specified In Its Charter)
LOIS M. NOVOTNY
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
[LOGO]
March 27, 1995
Dear Stockholder:
I am delighted to invite you to attend the 1995 Annual Meeting of
Stockholders of Houghton Mifflin Company on Wednesday, April 26, 1995, at 1:00
P.M. at the Dorothy Quincy Suite, John Hancock Hall, 180 Berkeley Street,
Boston, Massachusetts.
The formal business to be considered and acted upon by stockholders at this
meeting is the election of four Class III directors, each for a three-year term,
the adoption of the 1995 Stock Compensation Plan, and the ratification of the
selection of the Company's independent public accountants. These matters are
described in detail in the accompanying Notice of Annual Meeting and Proxy
Statement. We shall also use this opportunity to report to you on Houghton
Mifflin's 1994 performance and outlook for the future.
It is important that your shares be represented whether or not you are able
to be there in person. I urge you, therefore, to register your vote now by
completing, signing, and returning the enclosed proxy card promptly.
Sincerely,
/s/ N. F. Darehshori
Nader F. Darehshori
Chairman, President, and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING
TO BE HELD APRIL 26, 1995
Boston, Massachusetts
March 27, 1995
To the Stockholders of Houghton Mifflin Company:
The Annual Meeting of Stockholders of Houghton Mifflin Company will be held
at the Dorothy Quincy Suite, John Hancock Hall, 180 Berkeley Street, Boston,
Massachusetts, on Wednesday, April 26, 1995, at 1:00 P.M. to consider and act on
the following matters:
1. Election of four Class III directors, each for a three-year term;
2. Approval of the Houghton Mifflin Company 1995 Stock Compensation Plan;
3. Ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for the current year; and
4. Any other matter that may properly come before the meeting or any
adjournment thereof.
By Order of the Board of Directors,
Paul D. Weaver, Clerk
WHETHER OR NOT YOU ATTEND IN PERSON, IT WOULD BE APPRECIATED IF YOU WOULD
FILL IN AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY, OF COURSE, VOTE YOUR SHARES EVEN
THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE> 4
HOUGHTON MIFFLIN COMPANY
222 Berkeley Street
Boston, Massachusetts 02116
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 1995
GENERAL INFORMATION
This statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of Houghton Mifflin Company, hereinafter called the
"Company." The cost of soliciting Proxies will be borne by the Company. The
solicitation of Proxies by mail may be followed by personal solicitation of
certain stockholders by officers or employees of the Company. In addition, the
Company has retained Hill and Knowlton, Inc. as a proxy solicitor at an
estimated cost of $6,000 plus expenses. The enclosed Proxy, if executed and
returned, may be revoked at any time before it has been exercised.
The Annual Report for the year ended December 31, 1994, is enclosed or has
been furnished previously under separate cover.
Stock transfer books will not be closed, but the Board of Directors has
fixed the close of business on March 3, 1995, as the record date for determining
the stockholders entitled to notice of, and to vote at, this meeting and any
adjournment thereof. On that date there were outstanding 14,445,546 shares of
common stock (par value $1 per share), and the holders thereof will be entitled
to one vote for each share held by them.
This Proxy Statement and enclosed form of Proxy are first being sent or
given to security holders on or about March 27, 1995.
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of 13 members. The
Board is divided into three classes as nearly equal in number as possible, with
one class elected each year at the Annual Meeting of Stockholders. The directors
in each class serve for a term of three years and until their successors are
duly elected and qualified. The terms of office for the Class III directors
expire at this meeting.
The Board has voted to fix the number of directors at 12. There are four
incumbent directors in Class I and four in Class II. Consequently, at the Annual
Meeting of Stockholders, four nominees in Class III are standing for election.
These nominees are Mary H. Lindsay, John F. Magee, Claudine B. Malone, and Ralph
Z. Sorenson, all of whom are presently Class III directors. Stephen O. Jaeger,
who is a Class III director, has resigned from the Company and is not standing
for re-election.
<PAGE> 5
The affirmative vote of a plurality of shares present and voting at the
Annual Meeting of Stockholders is necessary to elect a director. With regard to
the election of directors, votes may be cast in favor of or withheld from each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect on the election of directors. Abstentions may be specified
on proposals other than the election of directors and will be counted as present
for purposes of determining the existence of a quorum regarding the item on
which the abstention is noted and will have the effect of a vote against
proposals that require a majority of either the outstanding shares or the shares
present in person or by proxy and entitled to vote on the matter. Under the
rules of the New York Stock Exchange, brokers who hold shares in street name
have the authority to vote on certain items when they have not received
instructions from beneficial owners. Brokers who do not receive instructions are
entitled to vote on the election of directors. Under applicable Massachusetts
law and the Company's By-laws, broker non-votes will have no effect on the
outcome of the election of directors or proposals that require a majority of the
shares present in person or by proxy and entitled to vote on the matter involved
but would have the effect of a negative vote on proposals that require a
majority of the outstanding shares.
The Board met 11 times during 1994. All incumbent directors attended at
least 75% of the aggregate number of meetings of the Board of Directors and
committees of which they were members.
Committees of the Board
The Board of Directors has appointed the following five standing committees
elected from its own members.
The Executive Committee. The principal duty of the Committee is to act for
the Board when the Board is not in session. The Committee did not meet during
1994. Messrs. Darehshori, Baute, Magee, Putnam, and Ms. Malone are members of
the Committee.
The Compensation & Nominating Committee. This Committee is made up
exclusively of non-employee directors. The duties of the Committee are (i) to
review and approve compensation plans for the Company, (ii) to consider and
administer stock option grants, other stock award plans, and incentive
compensation, and (iii) to fix the compensation of directors employed by the
Company and certain officers. The Committee also submits to the Board names of
persons it believes should be considered for election as directors of the
Company. The Committee will consider timely recommendations for nominations
submitted by stockholders. Any stockholder wishing to make a recommendation
should submit it in writing to the attention of the Clerk of the Company at its
executive offices. The Committee met four times during 1994. Messrs. Baute,
Freedman, Putnam, Thomas, and Mrs. Lindsay are members of the Committee.
The Audit Committee. This Committee is made up exclusively of non-employee
directors. The purpose of the Committee is to review the integrity of the
Company's financial statements. The Company's internal auditors and its
independent public accountants have direct access to the Committee. The
Committee annually considers the qualifications of the independent public
accountants for the Company and makes recommendations to the Board as to their
selection, fee, and the scope of their audit and other services. The Committee
is empowered to conduct investigations into any matters concerning the integrity
of reported facts and figures, ethical conduct, and appropriate disclosure. The
Committee met five times during 1994. Ms. Deegan, Mr. Freedman, Mrs. Lindsay,
Mr. Longsworth, Mr. McDougal, and Dr. Sorenson are members of the Committee.
2
<PAGE> 6
The Finance Committee. This Committee reviews and makes recommendations
relating to offerings of debt and equity securities, major borrowing
commitments, dividend policy, investor relations activities, and other
significant financial matters. The Committee met twice during 1994. Messrs.
Longsworth, Putnam, Thomas, Ms. Malone, and Ms. Deegan are members of the
Committee.
The Diversity Committee. This Committee reviews and monitors the Company's
policies and practices, with specific attention to the Company's commitment to
ensuring that its employees and suppliers represent the diversity of America's
population. The Committee met twice during 1994. Its members are Messrs.
Longsworth, Magee, McDougal, and Dr. Sorenson.
Directors' Compensation
Directors who are not employees of the Company receive an annual $10,000
retainer, $700 for each Board meeting attended, and $500 for each committee
meeting attended. Members of the Executive Committee receive an annual retainer
of $4,000 in lieu of Executive Committee attendance fees. Directors who chair
committees receive an additional $2,500 retainer. In addition to the cash
remuneration, non-employee directors receive shares of Company common stock
pro-rated for service during the year. For service in 1994, directors received
500 shares. Directors who are employees receive no compensation for attendance
at Board or committee meetings.
The Company maintains a deferred compensation plan for non-employee
directors under which such directors may defer all or a portion of their cash
compensation until retirement from the Board. Interest is credited on deferred
balances annually at the average sixty-day Treasury-bill yield. No directors
participated in the plan during 1994.
The Company also maintains a Non-Employee Directors' Retirement Benefit
Plan, under which non-employee directors or their beneficiaries shall receive,
after service as a director has terminated, one-and-one-half times the annual
directors' cash retainer in effect at the time of such termination, for a period
equal to the time of service as a director.
1. ELECTION OF CLASS III DIRECTORS
Information regarding nominees and directors is set forth below. Except as
noted, each of the nominees and directors has held his or her principal position
for at least five years.
It is believed that each of the nominees will be able to serve. If any one
or more of the nominees should be unable to serve, the individuals named in the
enclosed Proxy may vote in favor of such other person or persons as the Board of
Directors at the time recommends.
NOMINEES FOR CLASS III DIRECTORS--TERM EXPIRES IN 1998
MARY H. LINDSAY has served as a director since 1975 and is
Chairman of the Audit Committee and a member of the
Compensation & Nominating Committee. Mrs. Lindsay, who is 68
years old, also is a member of the President's Council of the
Museum of the City of New York and the Board of Directors of
Theatre Development Fund, Inc.
3
<PAGE> 7
JOHN F. MAGEE is Chairman of Arthur D. Little, Inc., a
contract research and consulting firm. Mr. Magee, who is 68
years old, has served as a director since 1976 and is a member
of the Diversity and Executive Committees. He is also a
director of John Hancock Mutual Life Insurance Company. In
addition, he is a member of the Boards of Trustees of Bowdoin
College, the New England Aquarium, the Boston Museum of
Science, Emerson Hospital, and Thompson Island Outward Bound
Education Center.
CLAUDINE B. MALONE is President of Financial & Management
Consulting, Inc. Ms. Malone, who is 58 years old, has served
as a director since 1982 and is Chairman of the Finance
Committee and a member of the Executive Committee. She is also
a director of The Union Pacific; The Limited, Inc.; Scott
Paper Company; Hasbro, Inc.; Dell Computer Corporation; SAIC;
Mallinckrodt Group Inc.; Lafarge Corporation; and Hannaford
Brothers, Inc.; and a trustee of the Penn Mutual Life
Insurance Company and Massachusetts Institute of Technology.
In addition, she is Deputy Chairman of the Federal Reserve
Bank of Richmond.
RALPH Z. SORENSON is a Professor at the College of Business
and Administration at the University of Colorado, Boulder,
where he was named Dean in 1992. He resigned the position of
Dean in 1993. He had been an Adjunct Professor of Management
at the Harvard University Graduate School of Business since
1989. He was formerly Chairman and Chief Executive Officer of
Barry Wright Corporation, a diversified industrial company.
Dr. Sorenson, who is 61 years old, has served as a director
since 1976 and is Chairman of the Diversity Committee and a
member of the Audit Committee. He is also a director of Eaton
Vance Corporation; Polaroid Corporation; Exabyte Corporation;
Whole Foods Market, Inc.; and Sweetwater Inc. In addition, he
is a member and former chairman of the Board of Trustees of
the Boston Museum of Science; overseer emeritus of The Boston
Symphony Orchestra; and a member of the corporations of
Massachusetts General Hospital and Babson College.
CLASS I DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1996
JOSEPH A. BAUTE is a principal in Baute & Baute, a consulting
firm for family businesses. He retired in 1992 as Chairman and
Chief Executive Officer of Markem Corporation, which provides
systems, supplies, and services to mark customers' products.
Mr. Baute, who is 67 years old, has served as a director since
1982 and is Chairman of the Compensation & Nominating
Committee and a member of the Executive Committee. He is also
a director of Markem Corporation, Amsterdam Printing &
Lithography, Dead River Group, Nashua Corporation, State
Street Bank and Trust Company, State Street Boston
Corporation, and InfoSoft International, Inc.; and past
Chairman of the Board of the Federal Reserve Bank of Boston.
4
<PAGE> 8
NADER F. DAREHSHORI has been Chairman of the Board and Chief
Executive Officer of the Company since 1990 and was named
President in October 1991. Mr. Darehshori became Senior Vice
President, College Division, in 1987; he was promoted to
Executive Vice President and then to Vice Chairman in 1989.
Mr. Darehshori, who is 58 years old, has served as a director
since 1989 and is Chairman of the Executive Committee. Mr.
Darehshori is a director of Commercial Union Corporation,
State Street Bank and Trust Company, State Street Boston
Corporation, the U.S. Chamber of Commerce, and the Boston
Public Library Foundation. He is a trustee of Wellesley
College, the New England Aquarium, and the WGBH Educational
Foundation. Mr. Darehshori is a member of the National
Executive Board of the National Conference of Christians and
Jews and also serves on the board of The Boston Symphony
Orchestra.
GEORGE PUTNAM is Chairman of the Putnam Investment Management
Company, Inc.; Chairman and President of each of the Putnam
Group Funds; and a director of The Putnam Advisory Company,
Inc., and Putnam Financial Services Company, Inc. Mr. Putnam,
who is 68 years old, has served as a director since 1985 and
is a member of the Compensation & Nominating, Finance, and
Executive Committees. He is also a director of The Boston
Company and The Boston Safe Deposit & Trust Company
(subsidiaries of Mellon Bank Corporation); Freeport-McMoRan,
Inc.; General Mills, Inc.; Marsh & McLennan Companies, Inc.;
and the Rockefeller Group, Inc. In addition, he serves as a
trustee of the Museum of Fine Arts, Boston; the Massachusetts
General Hospital; McLean Hospital; The Jackson Laboratory; and
the Trustees of Reservations; as a life trustee of the New
England Aquarium; as an overseer of Northeastern University;
and as Chairman of the WGBH Educational Foundation. He is also
a past Governor and past Chairman of The Investment Company
Institute; and a past Public Governor of The National
Association of Securities Dealers, Inc.
DEROY C. THOMAS is a partner in the law firm of LeBoeuf, Lamb,
Greene & MacRae. He retired from The Hartford Insurance Group
as Chairman and Chief Executive Officer in 1988, having served
in various capacities since 1964. He was elected Vice Chairman
of ITT Corporation in 1985, and President and Chief Operating
Officer in 1988. He served in that capacity until his
retirement in 1991. Mr. Thomas, who is 69 years old, has
served as a director since 1990 and is a member of the Finance
and Compensation & Nominating Committees. He is a director of
Hartford Insurance Group, Connecticut Natural Gas Corporation,
The Bushnell, the Old State House Association, the World
Affairs Council, and Goodspeed Opera House. He is Chairman of
Connecticut Health System and a corporator of St. Francis
Hospital, The Institute of Living, and the VNA Group, and a
trustee of Fordham University.
5
<PAGE> 9
CLASS II DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1997
GAIL DEEGAN became Senior Vice President - Regulatory and
Government Affairs, of NYNEX - New England in 1995, having
served as Vice President and Chief Financial Officer of New
England Telephone, a wholly-owned subsidiary of NYNEX, since
1991. From 1990 until mid-1991, she was Senior Vice President,
Chief Financial Officer, and Chief Administrative Officer of
Eastern Enterprises, the parent of companies involved in barge
operations, natural gas distribution, and manufacturing and
distribution of water systems and components. Ms. Deegan, who
is 48 years old, has served as a director since 1989 and is a
member of the Audit and Finance Committees. She is a member of
the Board of Overseers, Wellesley College Center for Research
on Women.
JAMES O. FREEDMAN has been President of Dartmouth College
since 1987. Mr. Freedman, who is 59 years old, has served as a
director since 1991 and is a member of the Audit and
Compensation & Nominating Committees. He is the author of
Crisis and Legitimacy: The Administrative Process and American
Government, published by Cambridge University Press in 1978,
and is a member of the American Law Institute, the Jacob K.
Javits Fellowship Board, the Board of Trustees of the Jewish
Publication Society of America, and the Board of Directors of
the Salzburg Seminar. He is also a life member of Clare Hall,
Cambridge University, and the recipient of six honorary
degrees. In 1991, Mr. Freedman received the William O. Douglas
First Amendment Freedom Award from the Anti-Defamation League
of B'nai B'rith.
CHARLES R. LONGSWORTH is Chairman Emeritus of the Colonial
Williamsburg Foundation in Williamsburg, Virginia. Mr.
Longsworth, who is 65 years old, has served as a director
since 1985 and is a member of the Audit, Diversity, and
Finance Committees. He is also a director of FlightSafety
International; Public Radio International; Roadway Services,
Inc.; Saul Centers, Inc.; Crestar Bank and Bank Shares, Inc.;
the Center for Public Resources; and the Virginia Eastern
Shore Corporation; and is Chairman of the Board of Trustees of
Amherst College and President Emeritus of Hampshire College.
ALFRED L. MCDOUGAL was Chairman and Chief Executive Officer of
McDougal, Littell & Company until its acquisition by the
Company in March 1994. Mr. McDougal, who is 64 years old, has
served as a director since 1994. He is a past Chairman of the
Northern Illinois Business Association and of the School
Division of the Association of American Publishers, and a
former director of the Association of American Publishers. Mr.
McDougal also serves as a director of Literacy Chicago and the
Youth Job Center, Evanston, Illinois, where he was formerly
the Chairman, and as a Governor of Opportunity International.
6
<PAGE> 10
Mr. Darehshori and Mr. Baute are directors of State Street Boston
Corporation and its principal subsidiary, State Street Bank and Trust Company.
State Street Bank and Trust Company is the Trustee of the Company's Pension Plan
and Benefits Trust, and provided $50 million in bridge financing to the Company
in connection with the acquisition of McDougal, Littell & Company in 1994.
Arthur D. Little, Inc., of which Mr. Magee is Chairman, provided consulting
services to the Company during 1994 at standard commercial terms. InfoSoft
International, Inc. ("InfoSoft"), of which Mr. Baute is a director, was formed
to succeed to the business of the Company's Software Division; the Company holds
approximately 40% of InfoSoft's common stock, and has licensed rights to certain
reference publications to InfoSoft, at rates that the Company believes are
commercially reasonable.
The following table shows information furnished by the persons listed as to
the beneficial ownership of common stock of the Company by each of the directors
and nominees, by the individuals named in the Summary Compensation Table, and by
all directors and executive officers as a group, as of January 31, 1995.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2)(3) OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
Joseph A. Baute............................................... 6,393(4) *
Nader F. Darehshori........................................... 74,188(5) *
Gail Deegan................................................... 3,150(6) *
James O. Freedman............................................. 2,650(6) *
Stephen O. Jaeger............................................. 33,500(7) *
Mary H. Lindsay............................................... 4,183 *
Charles R. Longsworth......................................... 5,220(8) *
John F. Magee................................................. 7,500(4) *
Claudine B. Malone............................................ 4,359(6) *
Alfred L. McDougal............................................ 1,916(6) *
John H. Oswald................................................ 13,845(9) *
George Putnam................................................. 4,718 *
Ralph Z. Sorenson............................................. 6,100(4) *
DeRoy C. Thomas............................................... 4,850 *
Paul D. Weaver................................................ 22,017(10) *
William J. Wisneski........................................... 24,473(11) *
All directors and executive officers as a group (24 persons).. 318,550(12) 2.3%
<FN>
---------------
* Less than one percent
(1) Unless otherwise noted, the holder has sole voting and investment power over the shares listed.
(2) Includes shares subject to options exercisable within sixty days as follows: Mr. Darehshori, 17,534; Mr. Jaeger, 8,100;
Mr. Wisneski, 6,800; Mr. Weaver, 3,200; Mr. Oswald, 4,400; and all executive officers as a group, 75,968 shares. For
purposes of calculating the "percent of class" with respect to each such individual and the group, the shares subject to such
options have been treated as if they were issued and outstanding.
(3) Includes vested interest in shares under the Retirement Savings Plan (formerly the Employees' Savings and Thrift Plan) as
of December 31, 1994, the most recent date for which such information is available.
</TABLE>
7
<PAGE> 11
(4) Includes 2,000 shares purchased pursuant to the 1994 Non-Employee Director
Stock Purchase Plan, as to which there is a one-year restriction on
disposition.
(5) Includes 2,018 restricted shares as to which Mr. Darehshori has sole voting
power only, and 26,686 shares purchased pursuant to the 1994 Executive
Stock Purchase Plan, as to which there is a one-year restriction on
disposition.
(6) Includes 1,000 shares purchased pursuant to the 1994 Non-Employee Director
Stock Purchase Plan, as to which there is a one-year restriction on
disposition.
(7) Includes 886 restricted shares as to which Mr. Jaeger has sole voting power
only, and 12,575 shares purchased pursuant to the 1994 Executive Stock
Purchase Plan, as to which there is a one-year restriction on disposition.
(8) Includes 450 shares owned by Mr. Longsworth's wife, as to which he
disclaims beneficial ownership, and 2,000 shares purchased pursuant to the
1994 Non-Employee Director Stock Purchase Plan, as to which there is a
one-year restriction on disposition.
(9) Includes 9,150 shares purchased pursuant to the 1994 Executive Stock
Purchase Plan, as to which there is a one-year restriction on disposition.
(10) Includes 645 restricted shares as to which Mr. Weaver has sole voting power
only, and 4,974 shares purchased pursuant to the 1994 Executive Stock
Purchase Plan, as to which there is a one-year restriction on disposition.
(11) Includes 808 restricted shares as to which Mr. Wisneski has sole voting
power only, and 12,200 shares purchased pursuant to the 1994 Executive
Stock Purchase Plan, as to which there is a one-year restriction on
disposition.
(12) Six members of this group share with others voting and investment power
over 7,052 of the shares listed, and with respect to 122,985 shares the
holder has sole voting power only.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and the New York Stock Exchange. Officers, directors, and greater than
10% shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company and
written representations that no other reports were required during the fiscal
year ended December 31, 1994, all Section 16(a) filing requirements applicable
to its executive officers, directors, and greater than 10% beneficial owners
were satisfied.
Compensation & Nominating Committee's Report to Stockholders
The Company's executive compensation program is administered by the
Compensation & Nominating Committee of the Board of Directors (the "Committee"),
which is composed of the individuals listed below, none of whom is an employee
of the Company. The Committee approves compensation plans for the Company's
senior management.
The Company's executive compensation program has been designed to attract,
motivate, retain, and reward highly qualified senior management by providing a
competitive total compensation opportunity based on performance. The components
of compensation for Mr. Darehshori and the other executive officers of the
Company include salary, incentive compensation awards for the achievement of
annual financial and nonfinancial performance goals, and long-term stock-based
8
<PAGE> 12
incentive opportunities which strengthen the mutuality of interest between
senior management and the Company's stockholders by increasing the equity
interest of Company management.
Base salaries are initially established with reference to an independently
designed system, which provides a mechanism for evaluating the relative value of
positions within the Company. The procedure involves a consideration of the
accountabilities and job requirements of each position. Salary ranges are
derived from the evaluations and incorporate market compensation data. In
addition, the Committee is periodically advised by an independent compensation
consultant who relies in part on survey data garnered from many companies. Data
about the pay levels determined by the survey are a factor used by the Committee
in developing its compensation data. During 1994, the Company's targets for
total compensation for, and the actual compensation paid to, Mr. Darehshori and
the other senior executives were in the second quartile of the surveyed
companies, which included the Publishing Peer Group, a comparator group for
purposes of the Stock Performance Graph on page 11. The surveyed companies also
included 15 companies in other industries with similar characteristics, such as
total revenue and recent financial performance. The Committee annually reviews
the salaries of Mr. Darehshori and the other executive officers of the Company.
Adjustments to base salaries of executive officers are based on the Committee's
review of Mr. Darehshori's assessment of each executive officer's contribution,
and the financial performance of the Company as a whole and of the business unit
for which the executive was responsible during the prior year. Adjustments to
Mr. Darehshori's base salary are based upon the Committee's independent review
of similar factors. Although the Company's financial performance does not have a
quantifiable correlation to the establishment of base salaries for Mr.
Darehshori of the other senior executives, the Committee views the Company's
financial performance as an important factor in determining or reviewing salary
adjustments for executives. Salary adjustments generally are effective April 1.
In determining Mr. Darehshori's salary for 1994, the Committee reviewed the
Company's operating and financial performance for 1993. The Company's financial
results for the year included improved revenue and net income and above budget
cash flow performance. The March 1994 acquisition of McDougal, Littell was
instrumental in achieving the Company's strategic goal of increasing its
presence in the profitable secondary school market. In addition, the Company
completed the successful public offering of the Company's Software Division as
InfoSoft International, Inc. The Committee also considered Mr. Darehshori's
achievements in accomplishing certain objectives which had been set in
discussions with the Committee early in 1994. After considering these factors,
the Committee increased Mr. Darehshori's salary from $410,000 to $455,000.
Annual incentive compensation for Mr. Darehshori and other senior
executives for 1994 was determined pursuant to the terms of the 1994 Senior
Executive Incentive Compensation Plan ("Incentive Plan"), which was approved by
the Committee early in 1994. The Incentive Plan rewards division heads primarily
on the basis of the performance of the division for which they are responsible;
senior corporate staff executives are rewarded on overall Company performance.
Awards up to targeted levels (50% of salary for Mr. Darehshori and 40% for other
participants) are paid in cash. Mr. Darehshori and senior corporate staff
officers earn their awards in part (40% for Mr. Darehshori and 30% for other
participants) based on the quantified extent of achievement of budgeted net
income, cash flow, and return on capital employed. The remaining 10% of the
target award is based on Mr. Darehshori's determination of the extent to which
each executive has achieved operating objectives determined early in the year.
In Mr. Darehshori's case, the remaining 10% of the target award is based on the
Committee's determination of the extent to which he has achieved his operating
objectives, which also are set early in the year. In addition, division heads
have a revenue target for their business unit. The weight accorded to each
financial factor varies
9
<PAGE> 13
depending on the strategy for each division. In order to earn incentive
compensation for a given financial objective, at least 80% of budget for that
objective must be achieved and the weighted average achievement of all financial
factors must exceed 70% of budget. Incentive compensation may be paid for
achievement of operating objectives so long as overall corporate financial
performance is at least 50% of budgeted earnings per share. Any amounts earned
in excess of target are paid in three-year restricted common stock of the
Company. The maximum payment under the Incentive Plan is 100% of salary. Mr.
Darehshori's incentive award pursuant to the Incentive Plan for 1994 was
$227,527 in cash and 1,553 shares of three-year restricted common stock of the
Company.
The Committee also seeks to strengthen the mutuality of interest between
senior management and the Company's stockholders by increasing the equity
interest of Company management by means of performance share awards and option
grants pursuant to the Company's 1992 Stock Compensation Plan to Mr. Darehshori
and other named officers on the Summary Compensation Table.* The Committee
believes that it is important for Mr. Darehshori and the other executive
officers of the Company to hold equity stakes in the Company, in part to insure
that they have a financial interest in the long-term success of the Company, and
that stock options and performance shares provide good vehicles for executives
to attain equity ownership.
In 1994, the Committee received the results of a study it had commissioned
by an independent consultant which reviewed the long-term incentive practices of
many companies, including those which comprise the Publishing Peer Group. After
reviewing the results of that study, the Committee decided to issue annual
grants of options and make annual performance share awards in order to maintain
Mr. Darehshori's total compensation in the target range of the second quartile
of the companies surveyed, which were the same companies surveyed with respect
to total compensation practices, as described above. The Committee believes that
long-term awards should be more significant than salary and annual incentive
compensation. Mr. Darehshori's compensation meets that objective in that less of
his total compensation is based on salary and annual incentive compensation than
was the case with the median of the survey participants. The awarding of stock
options and performance shares supports this Committee policy and also more
closely aligns Mr. Darehshori's interests with those of the Company's
stockholders, which the Committee believes to be in the stockholders' best
interest.
The number and mix of grants between performance shares and stock options
are based upon the Committee's judgment and the advice of an independent
consultant, as well as recommendations by Mr. Darehshori for all officers except
himself. Criteria include an evaluation of each executive's total compensation
compared to his or her responsibilities and performance and consideration of the
appropriate mix of compensation between annual salary, annual incentive, and
long-term equity opportunity, and among types of equity opportunity. The mix
between stock options and performance shares approximates the median of the
companies surveyed.
The SEC requires that this report comment upon the Company's policy with
respect to Section 162(m) of the Internal Revenue Code of 1986, as amended,
which limits the deductibility on the Company's tax return of taxable
compensation over $1 million to any of the named executive officers of the
Company unless, in general, the compensation is paid pursuant to a plan which is
performance-related, non-discretionary, and has been approved by the Company's
stockholders. The Committee's policy with respect to Section 162(m) is to make
every reasonable effort to insure
---------------
* Performance share awards and options granted are set forth on the tables on
pages 19 and 18, respectively.
10
<PAGE> 14
that compensation is deductible to the extent permitted while simultaneously
providing Company executives with appropriate rewards for their performance.
This report is submitted by the Company's Compensation & Nominating
Committee, the members of which are Mr. Baute (the Chairman), Mr. Freedman, Mrs.
Lindsay, Mr. Putnam, and Mr. Thomas.
STOCK PERFORMANCE GRAPH
The line graph below compares the yearly percentage change in cumulative
total stockholder return on the Company's common stock, assuming an investment
of $100 on December 31, 1989, and reinvestment of dividends, with the cumulative
total return of the Standard & Poor's MidCap 400 Index and a peer group index
composed of the publicly traded common stocks of eight companies with
significant publishing activities, for the period from December 31, 1989, to
December 31, 1994. The companies in the peer group are CCH Incorporated;
Harcourt General Inc.; McGraw-Hill, Inc.; Viacom, Inc.; Thomas Nelson, Inc.;
Waverly, Inc.; Western Publishing Group, Inc.; and John Wiley & Sons, Inc. The
returns of each common stock in the peer group have been weighted to reflect
relative stock market capitalization. The price of Houghton Mifflin Company's
common stock was $30.875 on December 29, 1989, and $45.375 on December 30, 1994.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
HOUGHTON MIFFLIN COMPANY, S&P MIDCAP 400 INDEX, AND PUBLISHING PEER GROUP
<TABLE>
<CAPTION>
HOUGHTON
MEASUREMENT PERIOD MIFFLIN S & P MIDCAP PUBLISHING
(FISCAL YEAR COVERED) COMPANY 400 INDEX PEER GROUP
<S> <C> <C> <C>
1989 100 100 100
1990 82.38 94.83 89.05
1991 97.57 141.99 115.99
1992 139.98 158.87 133.27
1993 174.06 180.94 109.79
1994 165.53 174.52 96.22
<FN>
Total return data provided by S&P's Compustat Services, Inc.
</TABLE>
11
<PAGE> 15
Summary Compensation Table
The following table sets forth compensation paid to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company during 1994, for each of the three years ended December
31, 1992, 1993, and 1994, for services rendered in all capacities to the Company
and its subsidiaries. Information is furnished for each full fiscal year during
which such persons were executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
---------------------------------- -------------------------
AWARDS
-------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) (#) ($)(2)
----------------------- ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori.... 1994 $443,750 $267,652 $ 33,853(3) $ 63,673(4) 46,686 $332,188(5)
Chairman, President, 1993 397,500 205,011 435,319(6) 20,983 10,000 8,994
and Chief Executive 1992 353,750 180,000 0 0 0 8,728
Officer
Stephen O. Jaeger(7).. 1994 258,250 123,264 13,264(3) 28,126(8) 24,575 43,749(9)
Executive Vice 1993 231,000 94,000 217,660(6) 9,025 4,000 8,994
President and Chief 1992 212,417 72,270 0 0 0 8,372
Financial Officer
William J. Wisneski.... 1994 257,000 104,022 0 33,128(10) 24,200 31,889(11)
Executive Vice 1993 246,000 81,460 307,023(12) 0 4,000 8,994
President 1992 195,333 79,200 57,425(13) 0 0 7,050
Paul D. Weaver......... 1994 209,250 100,853 13,541(3) 21,197(14) 14,974 45,804(15)
Senior Vice President 1993 198,500 80,400 108,830(6) 5,776 3,000 7,674
1992 189,750 57,300 0 0 0 6,671
John H. Oswald......... 1994 192,564 81,500 0 0 21,150 18,429(16)
Executive Vice 1993 177,500 23,375 0 0 3,000 0
President 1992 70,833 0 0 0 0 0
---------------
<FN>
(1) The restricted shares awarded for 1993 were awarded on January 25, 1994 as part of the 1993 bonus; the
restricted shares awarded for 1994 were awarded on January 24, 1995 as part of the 1994 bonus. These shares
will vest three years from the date of award provided that the recipient remains employed by the Company.
Dividends are paid on all restricted stock at the same rate as are paid to all shareholders. The value shown
is the fair market value at date of grant.
(2) This column includes premiums paid for split-dollar life insurance policies. The ownership of the policies
is structured so that, upon the earlier of the death or retirement of the executive, the Company will be
reimbursed for the cumulative total of all premiums paid plus an interest factor to cover the cost of providing
capital. The result is that over the life of the program there is minimal cost to the Company. The Company
retains the right to borrow against its investment in the policies at any time.
(3) Payment to cover estimated tax liability in connection with the award of bonus shares.
(4) As of December 31, 1994, restricted shares held or to be awarded for the year then ended totaled 2,018 shares,
having a then-current market value of $91,567. Of this amount, $70,467 was attributable to 1,553 shares awarded
on January 24, 1995 as part of the bonus for the year ended December 31, 1994.
</TABLE>
12
<PAGE> 16
(5) Includes $4,500 in Company contributions to the Retirement Savings Plan
(formerly the Employees' Savings and Thrift Plan); $4,740 under the defined
contribution component of the Supplemental Benefits Plan; $37,941 as the
term portion of split-dollar life insurance premiums; and $285,007 as the
non-term portion of such premium.
(6) Payment to cover estimated tax liability in connection with the vesting of
restricted shares awarded in 1991.
(7) Mr. Jaeger resigned from the Company on March 15, 1995.
(8) As of December 31, 1994, restricted shares held or to be awarded for the
year then ended totaled 886 shares, having a then-current market value of
$40,202. Of this amount, $31,127 was attributable to 686 shares awarded on
January 24, 1995 as part of the bonus for the year ended December 31, 1994.
(9) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$4,740 under the defined contribution component of the Supplemental
Benefits Plan; $4,976 as the term portion of split-dollar life insurance
premiums; and $29,533 as the non-term portion of such premium.
(10) As of December 31, 1994, restricted shares to be awarded for the year then
ended totaled 808 shares, having a then-current market value of $36,663.
This amount was attributable to shares awarded on January 24, 1995 as part
of the bonus for the year ended December 31, 1994.
(11) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$4,740 under the defined contribution component of the Supplemental
Benefits Plan; $3,449 as the term portion of split-dollar life insurance
premiums; and $19,200 as the non-term portion of such premium.
(12) Includes $122,688 for relocation expenses and payments totaling $75,505 to
cover estimated tax liability with respect to such expenses; and $108,830
to cover estimated tax liability in connection with the vesting of
restricted shares awarded in 1991.
(13) Includes $40,289 for relocation expenses and payments totaling $17,136 to
cover estimated tax liability with respect to such expenses.
(14) As of December 31, 1994, restricted shares held totaled 645 shares, having
a then-current market value of $29,267. Of this amount, $23,459 was
attributable to 517 shares awarded on January 24, 1995 as part of the bonus
for the year ended December 31, 1994.
(15) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$3,128 under the defined contribution component of the Supplemental
Benefits Plan; $5,799 as the term portion of split-dollar life insurance
premiums; and $32,377 as the non-term portion of such premium.
(16) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$2,400 under the defined contribution component of the Supplemental
Benefits Plan; $2,074 as the term portion of split-dollar life insurance
premiums; and $9,455 as the non-term portion of such premium.
The Company created the Executive and Non-Employee Director Stock Purchase
Plans in 1994 to encourage the Company's directors and executive officers to
increase their ownership of the Company's common stock. Pursuant to these plans,
9 directors and 12 executive officers purchased a total of 116,122 shares. The
plans provide generally that shares may not be sold for one year from date of
purchase. The Executive Stock Purchase Plan provides that if any shares
purchased under the plan are sold after the first anniversary of purchase but
before the third anniversary, the employee-participant is responsible for 100%
of any loss, and the Company is entitled to 50% of any gain; for shares sold
after the third anniversary but before the fifth anniversary, the Company will
bear 50% of any loss and the employee-participant is entitled to receive 100% of
any gain. In the event of an employee-participant's death or disability, or a
change in control, as defined in the plan, the employee-participant will not be
responsible for any loss on the sale of such shares, and will be entitled to
receive 100% of any gain. In the case of involuntary termination of employment,
the employee-participant is entitled to 100% of any gain, and the Company will
bear such portion of any
13
<PAGE> 17
loss as is determined by the Committee, while in the case of voluntary
termination of employment, the employee-participant is responsible for 100% of
any loss and the Company is entitled to 50% of any gain. The Non-Employee
Director Stock Purchase Plan provides that upon sale of shares purchased under
the plan before the third anniversary of purchase, the Company shall be entitled
to 50% of any gain; the director-participant may keep 100% of any gain on shares
sold after such anniversary or in the event of a change in control, as defined
in the plan. The Company shall bear 100% of any loss in the event of sale of
such shares after the death or disability of a director-participant but prior to
the fifth anniversary of purchase.
In connection with these plans, the Company entered into loan agreements
with some participants. All loans, which must be repaid on sale of the shares,
bear interest at the rate of 8% per annum, and contain prepayment penalties if
the loan is repaid prior to the fifth anniversary of purchase. Loans to
employee-participants are secured by the shares. The highest amount outstanding
under such loans to the following directors and executive officers since January
1, 1994 is the same as the amount currently outstanding. Directors: Mr. Baute,
$87,577; Mr. Jaeger, $550,641; Mr. Longsworth, $87,577; Dr. Sorenson, $87,577.
Director and executive officer: Mr. Darehshori, $1,168,542. Executive officers:
Ms. Doherty, $269,650; Ms. Hacking, $272,759; Mr. Kanon, $339,011; Ms. McGee,
$277,357; Mr. Oswald, $400,665; Mr. Smith, $204,449; Mr. Tyler, $184,919; Mr.
Weaver, $217,804; Mr. Wisneski, $534,220. Interim loans to two directors, Mr.
Magee and Mr. Thomas, each in the amount of $85,729, bore interest at the rate
of 5.4% per annum and were repaid on September 30, 1994.
Pension Plan
The Company maintains the Houghton Mifflin Pension Plan (the "Pension
Plan") for the benefit of its non-union employees and those of its domestic
subsidiaries. Under the Pension Plan, each eligible employee is entitled to an
annual retirement benefit equal to a multiple of the employee's years of service
and average annual earnings for the five highest consecutive years of service in
the 15 calendar years preceding retirement, less a portion of estimated annual
Social Security benefits. Benefits are reduced if the employee retires and
begins receiving pension payments prior to age 65. An employee whose employment
terminates with less than five years of service has no vested pension benefit.
For purposes of calculating the Company's contribution to the Pension Plan,
remuneration consists primarily of salary, wages, commissions, and annual
incentive compensation earned by and paid to participants. The following table
sets forth a range of the estimated annual retirement benefits under the Pension
Plan and the Supplemental Benefits Plan at the normal retirement age of 65
(calculated as of January 1, 1995).
14
<PAGE> 18
<TABLE>
PENSION PLAN TABLE
<CAPTION>
AVERAGE ANNUAL ESTIMATED ANNUAL BENEFIT FUNDED BY THE COMPANY
COMPENSATION FOR YEARS OF PARTICIPATION INDICATED
FOR FIVE HIGHEST (SINGLE LIFE ANNUITY AFTER SOCIAL SECURITY OFFSET)(2)
CONSECUTIVE --------------------------------------------------------------------------
YEARS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$125,000........... $ 27,800 $ 36,900 $ 46,300 $ 55,500 $ 58,600 $ 61,800
150,000........... 34,000 45,300 56,800 68,000 71,800 75,500
175,000........... 40,300 53,600 67,200 80,500 84,900 89,300
200,000........... 46,500 61,900 77,600 93,000 98,000 103,000
225,000........... 52,800 70,200 88,000 105,500 111,100 116,800
250,000........... 59,000 78,600 98,500 118,000 124,300 130,500
300,000........... 71,500 95,200 119,300 143,000 150,500 158,000
400,000........... 96,500 128,500 161,000 193,000 203,000 213,000
450,000........... 109,000 145,200 181,900 218,000 229,300 240,500
500,000........... 121,500 161,800 202,700 243,000 255,500 268,000
550,000........... 134,000 178,500 223,600 268,000 281,800 295,500
600,000........... 146,500 195,100 244,400 293,000 308,000 323,000
650,000........... 159,000 211,800 265,300 318,000 334,300 350,500
700,000........... 171,500 228,400 286,100 343,000 360,500 378,000
<FN>
---------------
(1) As of December 31, 1994, Mr. Darehshori, Mr. Jaeger, Mr. Wisneski, Mr.
Weaver, and Mr. Oswald were credited with 29, 8, 5, 16, and 3 years,
respectively, and, for the fiscal year ended December 31, 1994, the
compensation that will be taken into account by the Pension Plan and the
Supplemental Benefits Plan (described in note (2) below) for Mr.
Darehshori, Mr. Jaeger, Mr. Wisneski, Mr. Weaver, and Mr. Oswald is
$648,888, $352,377, $338,587, $289,747, and $244,864, respectively.
Differences between these amounts and those shown in the Summary
Compensation Table on page 12 reflect differences in accounting for
incentive compensation payments, which for purposes of pension calculations
are included in the year paid.
(2) Effective January 1, 1995, the Internal Revenue Code limits the annual
benefit payable under the Pension Plan at normal retirement to $120,000 and
the amount of 1995 compensation that can be considered under the Pension
Plan to $150,000. The Company has a non-qualified Supplemental Benefits
Plan with a defined benefit component under which eligible employees
receive supplemental pension payments equal to the difference between the
maximum annual benefit which the law allows to be paid under the Pension
Plan and their regular pension as calculated under the formula above.
</TABLE>
Severance Agreements and Related Agreements
Severance Agreements. Eleven executive officers, including the executive
officers named in the Summary Compensation Table other than Mr. Jaeger, have
severance agreements with the Company. These agreements expire on December 31,
1995, and are automatically extended on an annual basis for an additional
twelve-month period unless the Company gives the executive at least eighteen
months' notice that the agreement will not be extended.
Severance benefits under the senior executives' severance agreements are
payable if, within two years after a "change in control" of the Company, the
executive terminates his or her employment for "good reason" as defined in the
agreement or the Company terminates the
15
<PAGE> 19
executive's employment other than for certain permitted reasons. A change in
control of the Company is defined (for purposes of the agreements) to include
the acquisition by any "person" of 25% or more of the voting power of the
Company's outstanding securities; a change, over a two-year period, of a
majority of the members of the Company's Board of Directors, so that persons who
constitute the Board at the beginning of such period (and their successors as
recommended by at least two-thirds of the directors who were in office at the
beginning of such period) fail to constitute a majority of the Board at the end
of the period; certain mergers or consolidations; or liquidation of the Company
or sale of substantially all of its assets.
The agreements provide for the following severance benefits: (i) a lump sum
payment of an amount equal to three times annual compensation (i.e., salary plus
any incentive compensation under the Incentive Compensation Plan in the same
amount as paid in the preceding year), (ii) all amounts earned but previously
deferred and not yet distributed to the executive under the Incentive
Compensation Plan, (iii) an amount equal to any unvested portion of the
executive's account under the Retirement Savings Plan, (iv) cash payments in
lieu of certain stock options, (v) an amount equal to the aggregate present
value of benefits under the Company's Supplemental Benefits Plan, and (vi) the
present value of additional retirement benefits which would have been earned by
the executive under existing retirement plans had he or she remained in the
Company's employ for an additional thirty-six months. In addition, the
agreements require the Company to maintain certain insurance benefits for the
executive for a period of thirty-six months following termination of employment.
The Company also agrees to reimburse employees for legal fees incurred in
enforcing the terms of the agreements and certain tax liabilities resulting from
payments under the agreements.
Key Editors' Severance Benefit Plan. The Company recognizes that certain
key editors are critical to the success of its business. The identification of
promising authors, the ability to work with them to develop ideas into
properties of value, and the process of bringing these works to market all
depend upon the insight, judgment, and management skills of these individuals.
The Key Editors' Severance Benefit Plan (the "Editors' Plan") is designed to
encourage this essential group to remain with the Company despite concerns about
a possible change in control of the Company. The Editors' Plan is designed to
shield this group from distractions and threats to editorial integrity by
providing a cushion against the financial and career impacts which a change in
control might entail.
The editor will be entitled to severance benefits if his or her employment
is terminated for any reason by the editor or by the Company within one year of
a change in control. A change in control of the Company is defined (for purposes
of the Editors' Plan) to include the acquisition by any "person" of 25% or more
of the voting power of the Company's outstanding securities (other than by the
Company or any of its employee benefit plans); or a change, over a two-year
period, of a majority of the members of the Company's Board of Directors, so
that persons who constitute the Board at the beginning of such period (and their
successors as recommended by at least two-thirds of the directors who were in
office at the beginning of such period) fail to constitute a majority of the
Board at the end of the period.
Severance benefits under the Editors' Plan include (i) a lump sum payment
of an amount equal to one and one-half times annual compensation (i.e., salary
plus any incentive compensation under the Incentive Compensation Plan in the
same amount as paid in the preceding year); (ii) cash payments in lieu of
certain stock options; (iii) an amount equal to the difference between the
present value of any editor's benefits under the Retirement Savings Plan and
Pension Plan, determined as if such editor had retired on the date of
termination of employment, and the present value of such editor's actual
benefits under such plans; and (iv) an amount equal to the aggregate present
value of the editor's benefits under the Company's Supplemental Benefits Plan
and the
16
<PAGE> 20
Company's Incentive Compensation Plan determined as if the editor had retired on
the date of termination of employment. In addition, the Editors' Plan requires
the Company to maintain certain insurance benefits for the participant for a
period of eighteen months following termination of employment. Any amounts
received as compensation for other employment in the eighteen months following
termination of employment will reduce the amount otherwise payable under clause
(i) of this paragraph. Severance payments received by the editor pursuant to the
Editors' Plan following a change in control may not exceed the amount that the
Company may deduct for federal income tax purposes.
At the present time, no executive officers are enrolled in the Editors'
Plan. The Editors' Plan covers any change in control which may occur before
September 30, 1995.
Stock Option Agreements. The option agreements between the Company and all
employees, including the executive officers named in the Summary Compensation
Table, provide that all options shall vest immediately upon a change in control,
as defined in the option agreements.
Pension Plan. The Pension Plan was amended, effective December 7, 1994, to
provide that, in the event of a termination of the Pension Plan within two years
of a change in control of the Company which occurs prior to December 31, 1997,
all surplus assets of the Pension Plan, not required by law to satisfy
liabilities to eligible employees, shall be first applied, to the extent
permissible under applicable law and in the following order of priority, to the
purchase of retiree medical insurance benefits; the purchase of retiree life
insurance benefits; unfunded non-qualified deferred compensation obligations;
and any other benefit obligations. A change in control of the Company is defined
(for purposes of the Pension Plan) to include the acquisition, prior to December
31, 1997, of 50% or more of the Company's voting securities (without the
approval of the Board of Directors of the Company) or a change, over a two-year
period, of a majority of the members of the Company's Board of Directors, so
that persons who constitute the Board at the beginning of such period (and their
successors as recommended by at least two-thirds of the directors who were in
office at the beginning of such period) fail to constitute a majority of the
Board at the end of the period.
Supplemental Benefit Trust. The Company has established a Supplemental
Benefit Trust in connection with the Supplemental Benefits Plan, Non-Employee
Directors' Retirement Benefits Plan, and Deferred Compensation Agreements with
its employees and directors, to preserve the benefits earned thereunder in the
event of a change in control. The Board may designate payments under additional
employee plans to be covered by the Supplemental Benefit Trust. Upon the
occurrence of any "potential change in control," as defined in the Supplemental
Benefit Trust, the Company will contribute additional cash and property to the
Supplemental Benefit Trust which will be sufficient to pay, in accordance with
the terms of the covered plans, the benefits authorized under such plans.
However, the assets in the Supplemental Benefit Trust will become available to
the Company's creditors if the Company becomes insolvent or bankrupt. If the
funds in the Supplemental Benefit Trust are insufficient to pay amounts due
under the covered plans, the Company remains obligated to pay any deficiency.
17
<PAGE> 21
Stock Compensation Plan
The following table shows, with respect to each individual named below,
information with respect to options granted to each during the year ended
December 31, 1994:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------ ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori........... 26,686(1) 5.43% $42.625 8/24/94 0(1) 0(1)
20,000 4.07 45.75 10/24/99 $252,798 $558,617
Stephen O. Jaeger............. 12,575(1) 2.56 42.625 8/24/94 0(1) 0(1)
12,000 2.44 45.75 10/24/99 151,679 335,170
William J. Wisneski........... 12,200(1) 2.48 42.625 8/24/94 0(1) 0(1)
12,000 2.44 45.75 10/24/99 151,679 335,170
Paul D. Weaver................ 4,974(1) 1.01 42.625 8/24/94 0(1) 0(1)
10,000 2.03 45.75 10/24/99 126,399 279,308
John H. Oswald................ 9,150(1) 1.86 42.625 8/24/94 0(1) 0(1)
12,000 2.44 45.75 10/24/99 151,679 335,170
<FN>
---------------
(1) Represents options granted pursuant to the Company's Executive Stock Purchase Plan. Options were exercisable only on the
date of grant.
</TABLE>
The following table shows, with respect to each individual named below,
information concerning the exercise of options during the year ended December
31, 1994, and unexercised options held as of December 31, 1994:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
SHARES FY-END(#) FY-END($)
ACQUIRED VALUE -------------- --------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#)(1) ($)(1)(2) UNEXERCISABLE UNEXERCISABLE
---- ------------ --------- -------------- --------------
<S> <C> <C> <C> <C>
Nader F. Darehshori......... 37,186 $167,437 17,534/16,666 $95,300/$2,499
Stephen O. Jaeger........... 12,575 0 8,100/12,000 $89,350/$1,800
William J. Wisneski......... 12,200 0 6,440/12,360 $48,160/$9,540
Paul D. Weaver.............. 4,974 0 3,200/9,800 $ 900/$1,350
John H. Oswald.............. 10,750 17,200 4,400/13,000 $9,000/$17,550
<FN>
---------------
(1) Includes shares acquired under the Executive Stock Purchase Plan, under options exercised on the date granted.
(2) Market value of underlying securities at exercise or year-end, minus the exercise or base price.
</TABLE>
18
<PAGE> 22
The following table provides information concerning performance share
awards made during the year ended December 31, 1994 under the Company's Stock
Compensation Plan. Each performance share represents the right to receive on the
payout date an amount half in cash and half in shares of the Company's common
stock. The amount of the award will depend on the compound rate of appreciation
of pre-tax operating income, including interest costs and excluding
extraordinary items, during the period 1995-1997. The base period is 1994. There
will be no payout unless the threshold targeted rate of appreciation has been
met.
<TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
SHARES, UNITS OTHER PERIOD PLANS
OR OTHER UNTIL MATURATION ---------------------------
NAME RIGHTS OR PAYMENT THRESHOLD TARGET MAXIMUM
---- ------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Nader F. Darehshori.............. 8,000 1/1/95-12/31/97 4,000 6,000 8,000
Stephen O. Jaeger................ 4,000 1/1/95-12/31/97 2,000 3,000 4,000
William J. Wisneski.............. 4,000 1/1/95-12/31/97 2,000 3,000 4,000
Paul D. Weaver................... 3,000 1/1/95-12/31/97 1,500 2,250 3,000
John H. Oswald................... 4,000 1/1/95-12/31/97 2,000 3,000 4,000
</TABLE>
2. ADOPTION OF THE HOUGHTON MIFFLIN COMPANY 1995 STOCK COMPENSATION PLAN
The Board of Directors believes that it is important to encourage employees
whose efforts are important to the continued success and growth of the Company
to acquire a proprietary interest in the Company through ownership of the
Company's stock. To encourage this ownership, the Company has granted options to
employees to purchase its common stock through the Houghton Mifflin Company 1982
Incentive Stock Option Plan (the "ISO Plan"), the Houghton Mifflin Company 1987
Stock Compensation Plan (the "1987 Plan") which replaced the ISO Plan, and the
Houghton Mifflin Company 1992 Stock Compensation Plan (the "1992 Plan") which
replaced the 1987 Plan.
At its February 22, 1995 meeting, the Board of Directors voted to recommend
to the Company's stockholders that they approve the Houghton Mifflin Company
1995 Stock Compensation Plan (the "1995 Plan"), which authorizes the granting of
options, restricted or bonus stock, and other performance awards for up to
900,000 shares of common stock over a ten-year period. The 1995 Plan will become
effective when it is approved by the stockholders. The full text of the 1995
Plan is attached to this Proxy Statement as Appendix A, and the following
description of its terms is qualified in its entirety by reference to
Appendix A.
The 1995 Plan, when effective, will replace the 1992 Plan. After the
effective date of the 1995 Plan, no further grants will be made under the 1992
Plan, but grants made prior to the effective date of the 1995 Plan will remain
in effect until they expire. As of January 31, 1995, options and grants for
approximately 70,374 and 544,600 shares are outstanding under the 1987 Plan and
the 1992 Plan, respectively. All grants made under the ISO Plan have expired.
The 1995 Plan is similar to the 1992 Plan in that it provides the Board of
Directors with great flexibility in determining the terms of the options or
grants to employees to better meet changing circumstances.
19
<PAGE> 23
In general terms, the 1995 Plan permits the granting of options, restricted
or bonus stock, or other performance awards to employees of the Company and its
subsidiaries whose services are important, as determined by the Compensation &
Nominating Committee of the Board of Directors (the "Committee"), to the
continued success and growth of the Company. Approximately 300 employees are now
eligible to receive employee grants under the 1995 Plan. Subject to certain
limitations, the terms and conditions of grants to individual employees,
including the exercise price of options and the number of shares of common stock
subject to each grant, will be determined by the Committee. The stock that may
be issued to any one individual under the Plan may not exceed, in the aggregate,
250,000 shares. Except to the extent that an individual option agreement may
expressly permit certain limited transferability, options will not be
transferable otherwise than by will or the laws of descent and distribution, and
an option will be exercisable during the optionee's lifetime only by the
optionee.
The 1995 Plan also provides for an annual grant of 500 shares of common
stock as compensation to each non-employee member of the Board of Directors for
each full calendar year of service. A grant to a non-employee director for a
partial year of service will be prorated. Currently, 11 non-employee directors
would be eligible to receive these formula grants under the 1995 Plan.
The Committee may make grants to employees under the 1995 Plan in the form
of stock options (incentive stock options or non-qualified options); restricted
stock, performance shares, or performance units, which may be subject to
forfeiture if specified requirements, including continued employment or
performance goals, as specified in an individual's grant documents, are not met;
stock which is part of an employee's incentive compensation; or stock awards or
bonuses. The 1995 Plan allows the Committee to make cash payments to compensate
employees for tax liability resulting from awards other than stock options.
Payment for shares purchased upon exercise of each option granted under the
1995 Plan will be in cash and/or in shares of the Company's common stock
previously owned by the optionee, having a fair market value equal to the
purchase price of the optioned shares.
The number of shares subject to the 1995 Plan and the terms of the grants
may be equitably adjusted by the Committee to prevent dilution or enlargement of
the rights of participants under the 1995 Plan caused by any dividend or other
distribution (whether in the form of cash, Company stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event.
No amendment which requires stockholder approval in order for the
exemptions available pursuant to Rule 16b-3 under the Securities and Exchange
Act of 1934, as amended, to be applicable to the 1995 Plan (including any
amendment which would materially increase either the benefits accruing to
participants in the 1995 Plan or the number of shares of Company common stock
issuable under the 1995 Plan) can become effective unless it receives the
requisite stockholder approval. The closing price of the Company's common stock
on March 3, 1995, was $42.50 per share on the New York Stock Exchange.
20
<PAGE> 24
Because of the flexibility which the 1995 Plan provides, the cost of the
1995 Plan will vary depending on the terms of the individual grants awarded to
employees. Neither (i) the amount of future benefits to be allocated to any
individual employee or group of individual employees under the 1995 Plan nor
(ii) the amount of benefits which would have been allocated to any individual
employee or group of individual employees for fiscal 1994 (if the 1995 Plan had
been in effect) is determinable. The table below shows annual awards to be made
to all non-employee directors as a group under the 1995 Plan.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($) NUMBER OF UNITS
----------------- --------------- ---------------
<S> <C> <C>
Non-Executive Director Group Fair market value at date of grant 5,500
</TABLE>
The affirmative vote of the holders of a majority of common stock
represented in person or by proxy and entitled to vote at the meeting is
required to approve the 1995 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL TWO.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES--1995 PLAN
Incentive Stock Options ("ISOs")
All ISOs granted under the 1995 Plan are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986 (the "Code"). The Company has been advised that the federal income tax
consequences of ISOs are generally as follows. An employee receiving an ISO will
not be in receipt of taxable income upon the grant of the ISO or upon its timely
exercise. Exercise of an ISO will be timely if made during its term and if the
optionee remains an employee of the Company or a subsidiary at all times during
the period beginning on the date of grant of the ISO and ending on the date
three months before the date of exercise (or one year before the date of
exercise in the case of a disabled employee). Exercise of an ISO will also be
timely if made at any time (provided it is exercisable by its terms) by the
legal representative of an employee who dies (i) while in the employ of the
company or a subsidiary or (ii) within three months after termination of
employment. Upon ultimate sale of the stock received upon such exercise, except
as noted below, if the stock is a capital asset of the employee, the employee
will recognize a long-term capital gain or loss equal to the difference between
the amount realized upon such sale and the option price. The Company, under
these circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the ISO or the sale of such stock by the
employee.
However, if the stock acquired pursuant to such exercise of an ISO is
disposed of by the employee prior to the expiration of two years from the date
of grant of the ISO or within one year from the date such stock is transferred
to the employee upon exercise (a "disqualifying disposition"), any gain realized
by the employee generally will be taxable at the time of such disqualifying
disposition as follows: (i) at ordinary income rates to the extent of the
difference between the option price and the lesser of the fair market value of
the stock on the date the ISO is exercised or the amount realized on such
disqualifying disposition, and (ii) if the stock is a capital asset of the
employee, as short-term or long-term capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the fair market value
of the stock on the date which governs the determination of the employee's
ordinary income. In such case, the Company may claim a federal income tax
deduction at the time of such disqualifying disposition for the amount taxable
to the employee as ordinary income.
21
<PAGE> 25
The amount by which the fair market value of the stock on the exercise date
of an ISO exceeds the option price will be included in alternative minimum
taxable income of employees for purposes of the alternative minimum tax imposed
by the Code.
Non-Qualified Options ("NQOs")
In the case of NQOs, the Company has been advised that generally the
employee will not be taxed upon grant of such option. Rather, at the time of
exercise of such NQO, the employee, except as noted below, will realize ordinary
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares purchased over the option price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the employee realizes ordinary income. If stock so acquired is later
sold or exchanged, then the difference between the amount realized and the fair
market value of such stock on the date of exercise of the option is generally
taxable as long-term or short-term capital gain or loss.
However, in the case of the exercise of NQOs by an employee whose sale of
shares at a profit within six months after grant of such NQOs could subject the
employee to suit under Section 16(b) of the Securities and Exchange Act of 1934,
realization of income is postponed so long as a sale of the shares would expose
the employee to suit, unless the employee elects under Code Section 83(b) within
30 days after exercise to be taxed as of the exercise date in the manner
described above.
Exercise with Shares
According to a published ruling of the Internal Revenue Service, an
employee who pays the option price upon exercise of a NQO, in whole or in part,
by delivering shares of the Company's stock already owned by the employee will
realize no gain or loss for federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above
for NQOs. With respect to shares acquired upon exercise that are equal in number
to the shares surrendered, the basis of such shares will be equal to the basis
for the shares surrendered, and the holding period of such shares will include
the holding period of the shares surrendered. The basis of additional shares
received upon exercise will be equal to the fair market value of such shares on
the date that governs the optionee's recognition of ordinary income, and the
holding period for or such additional shares will commence on such date.
If the shares surrendered in payment of the exercise price of an ISO are
"statutory option stock" and if, at the date of surrender, the applicable
holding period for such shares has not been met, surrender will constitute a
"disqualifying disposition," and any gain realized on such transfer will be
taxable to the optionee, as discussed above.
With this exception, in general, when shares of the Company's stock are
surrendered upon exercise of an ISO, (i) no gain or loss will be recognized as a
result of the exchange, (ii) a number of shares received which are equal in
number to the shares surrendered will have a basis equal to the shares
surrendered, and (except for purposes of determining whether a disposition will
be a disqualifying disposition) will have a holding period which includes the
holding period of the shares exchanged, and (iii) any additional shares received
will have a zero basis and will have a holding period which begins on the date
of the exchange. If any of the shares received are disposed of within two years
of the date of grant of the ISO or within one year after exercise, the shares
with the lowest basis (i.e., a zero basis) will be deemed to be disposed of
first, and such disposition will be a disqualifying disposition giving rise to
ordinary income as discussed above.
22
<PAGE> 26
Restricted Stock
In the case of a restricted stock award, the Company has been advised that
generally an employee will not be taxed upon grant of any such award. Rather the
employee will realize ordinary income in an amount equal to the fair market
value of the Company common stock at the time (the "Forfeiture Lapse Date") the
shares are no longer subject to a substantial risk of forfeiture (as defined in
the Code). The Company will be entitled to a federal income tax deduction at the
time and in the amount that the employee realizes ordinary income. If the shares
of stock are later sold or exchanged, then the difference between the amount
realized and the fair market value of such shares on the Forfeiture Lapse Date
is generally taxable as long-term or short-term capital gain or loss.
As noted above, generally income is realized by an employee on the
Forfeiture Lapse Date. However, an employee may elect (no later than thirty days
after acquiring such shares) pursuant to Section 83(b) of the Code to realize
ordinary income at the time the restricted stock is awarded in an amount equal
to the fair market value of such shares at the time, notwithstanding the fact
that such shares are subject to restrictions and a substantial risk of
forfeiture. If an election is made, no additional taxable income will be
recognized by the employee at the time the restrictions lapse. The fair market
value of the shares on the date of an election under Code Section 83(b) will
also govern for purposes of the Company's deduction and for determining the
employee's gain or loss upon subsequent disposition of the shares. If, however,
shares in respect of which an election was made are later forfeited, no federal
income tax deduction is allowable to the employee for the forfeited shares, and
the Company will be deemed to realize ordinary income equal to the amount of the
federal income tax deduction previously allowed to the Company at the time of
the election in respect of such forfeited shares.
3. SELECTION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
selected Ernst & Young LLP to continue as independent auditors for the fiscal
year ending December 31, 1995. The Board believes, however, that it is desirable
to obtain stockholder ratification of the selection of the Company's independent
auditors. During 1994 Ernst & Young LLP provided services to the Company that
included auditing the Company's consolidated statements, consulting in
connection with unaudited quarterly financial information, and advising the
Company on various accounting, tax, and regulatory matters.
Ratification will require the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote at the
meeting. If the stockholders do not ratify the selection of the Company's
independent auditors, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP will be present at the meeting with the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL THREE.
23
<PAGE> 27
PRINCIPAL STOCKHOLDERS
The following table shows the beneficial ownership of common stock of the
Company by the only persons who are known by the Company to be the beneficial
owners of more than 5% of such stock. The information has been obtained solely
from such persons and the Schedule 13G filed by the persons listed with the
Securities and Exchange Commission. Such Schedules contain fuller information as
to beneficial ownership of shares by the persons listed therein.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER PERCENT OF CLASS BENEFICIAL OWNERSHIP
--------------------------------- ----------------- --------------------------------
<S> <C> <C>
Valenzuela Capital 5.3% As of Dec. 31, 1994
Management, Inc. 767,333 shares:
1270 Avenue of the Americas 201,000 shares--sole
New York, NY 10020 voting power
0 shares--shared
voting power
767,333 shares--sole
investment power
0 shares--shared
investment power
State Street Bank and Trust 5.1% As of Dec. 31, 1994
Company, Trustee 733,466 shares:
225 Franklin Street 730,550 shares--sole
Boston, MA 02110 voting power
1,316 shares--shared
voting power
70,850 shares--sole
investment power
1,316 shares--shared
investment power
</TABLE>
PROPOSALS OF STOCKHOLDERS FOR CONSIDERATION AT THE 1996 ANNUAL MEETING
In order for a proposal by a stockholder to be included in the Board of
Directors' Proxy Statement for the Company's Annual Meeting in 1996, it must be
received at the Company's executive offices in Boston on or before November 26,
1995. Such a proposal must also comply with the requirements as to form and
substance established by applicable laws and regulations in order to be included
in the Proxy Statement and should be directed to the Clerk of the Company.
Stockholders wishing to present business for action, other than proposals
included in the Board of Directors' Proxy Statement, or to nominate candidates
for election as directors at a meeting of the Company's stockholders, must do so
in accordance with the Company's By-laws. The By-laws provide that in order to
be presented at the 1996 Annual Meeting such stockholder proposals or
nominations may be made only by a stockholder of record who shall have given
notice of the proposed business or nomination to the Company between January 2,
1996, and February 16, 1996. In the case of a special meeting, or if the Annual
Meeting is called for a date prior to February 16, 1996, the notice must be
received not later than the close of business on the 20th day following the day
on which notice of the date of the meeting was mailed or public disclosure was
made, whichever occurs first. The notice must also contain certain background
information concerning the stockholder making the proposal or nomination, the
stockholder's ownership of the Company's capital
24
<PAGE> 28
stock, and, in the case of nominations, background and stock ownership
information with respect to each nominee. Stockholders are referred to the
By-laws for further information.
VOTING OF PROXIES
The persons named in the enclosed Proxy will vote as directed in the Proxy,
and in the absence of such direction will vote to elect the nominees for the
Board of Directors and in favor of the actions specified in Items 2 and 3 of the
enclosed Proxy.
The Board of Directors of the Company is not aware of any other matters
which may come before the meeting. The persons named in the enclosed Proxy
intend to vote the Proxy in accordance with their best judgment if any other
matters shall properly come before the meeting including, for example, a motion
to adjourn the meeting to a later date for the purpose of continuing to solicit
proxies.
Whether or not you attend the meeting in person, please fill in and sign
the enclosed Proxy and return it promptly. If you attend the meeting, you may,
of course, vote your shares even though you have sent in your Proxy.
25
<PAGE> 29
APPENDIX A
HOUGHTON MIFFLIN COMPANY
1995 STOCK COMPENSATION PLAN
The primary purpose of this Plan is to attract, retain, and motivate the
employees of Houghton Mifflin Company (the "Company") and of any subsidiary
corporation of which more than 50% of the outstanding voting stock is owned by
the Company (a "Subsidiary") who will most assist the Company or its
Subsidiaries in achieving the Company's long-term goals and objectives, and to
provide an opportunity for these employees to acquire an interest in the Company
through the granting of options or restricted or bonus stock or other
performance awards, as herein provided. Additionally, Section 13 of the Plan is
intended to provide an incentive to non-employee members of the Board of
Directors of the Company ("director-participants") to increase their efforts for
the success of the Company by increasing their proprietary interest in the
Company, through the receipt of shares of the Company's common stock. To achieve
those purposes, the Plan amends and restates the 1992 Stock Compensation Plan
(the "1992 Plan"). The Plan is intended to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the Rule
may be amended and applicable from time to time ("Rule 16b-3"), and shall be
construed and interpreted so as to comply with Rule 16b-3.
1. SHARES OF STOCK SUBJECT TO THE PLAN
The stock that may be issued under the Plan shall not exceed, in the
aggregate, 900,000 shares of the Company's common stock ("Company Stock"), which
may be (i) authorized but unissued shares, (ii) treasury shares, (iii) shares
previously reserved for issue upon exercise of options under the Plan, which
options have expired or been terminated, or (iv) subject to any applicable
limitations under Rule 16b-3, shares previously reserved for issue of restricted
stock under the Plan or for issue in connection with Performance Awards under
the Plan, which shares have been forfeited. The stock that may be issued under
the Plan to any one individual between the Plan's Effective Date (as defined in
Section 10 hereof) and its termination shall not exceed, in the aggregate,
250,000 shares of the Company Stock. The number of shares subject to the Plan
and the number of shares which can be issued to any one individual thereunder
shall, however, be subject to adjustment as provided in Section 9 hereof.
On and after the Effective Date of the Plan, no further grants of options
or restricted stock shall be made under the 1992 Plan. Options and other awards
granted under either the 1992 Plan or the 1987 Stock Compensation Plan (the
"1987 Plan") which are outstanding on and after the Effective Date shall be
subject to and governed by the terms and conditions of the Plan. The actual
provisions of any such outstanding option agreement or other award agreement,
however, shall not be altered unless an amendment thereto is approved by the
Committee and (if the affected participant's approval is required by the 1992
Plan, the 1987 Plan, the Plan, the appropriate agreement, or applicable law)
approved by the affected participant.
2. ELIGIBILITY
Except as provided in Section 13 hereof with respect to
director-participants, awards will be granted only to persons who are employees
of the Company or a Subsidiary whose efforts are important to the continued
success and growth of the Company ("employee-participants") and, in the case of
incentive stock options, who are eligible to receive an incentive stock option
under the Internal Revenue Code of 1986, as amended from time to time (the
"Code"). The Board of Directors of the Company (the "Board") shall appoint a
committee to administer the Plan (the
A-1
<PAGE> 30
"Committee"). The Committee shall consist of two or more directors of the
Company, each of whom is a "disinterested person" within the meaning of Rule
16b-3 and an "outside director" within the meaning of Section 162(m) of the
Code. Except as provided in Section 13 hereof, the Committee, acting by a
majority of its members, shall determine the participants in the Plan to whom
grants will be made, the number of shares subject to each grant, and the terms
of the grant, consistent with the provisions of this Plan.
3. TYPES OF GRANTS
The Committee may make grants under this Plan in the form of Stock Options
[either incentive Stock Options ("ISOs") or Non-Qualified Options ("NQOs")],
Restricted Stock, Bonus Stock, or Performance Awards, each as defined below.
Unless prohibited by law or regulation, the Committee may make grants under this
Plan (except ISO grants) "in tandem" (i.e. , the participant may be given the
right to select the form in which the grant is exercised). The Committee may
also make cash awards (i) in connection with, or as part or all of, a
Performance Award or (ii) pursuant to Section 8 hereof with respect to any Bonus
Stock or Restricted Stock. (Notwithstanding the foregoing, grants can be made to
director-participants hereunder only in accordance with Section 13 hereof.)
- Incentive Stock Options
ISOs are a right to buy shares of Company Stock in the future at the market
price at the time of grant, subject to the requirements of Section 422 of the
Code. A stock option intended to be an ISO shall be designated as an ISO in
its grant. The aggregate fair market value (determined at the time the ISO is
granted) of the Company Stock with respect to which ISOs are exercisable for
the first time by an optionholder during any calendar year (under all plans of
the Company and any Subsidiary) shall not exceed $100,000.
- Non-Qualified Options
NQOs are stock options (i) which do not meet the ISO restrictions, either in
the grant itself or as the participant treats the grant, or (ii) the terms of
which provide that the options will not be treated as ISOs. NQOs do not
receive the special tax consequences given ISOs by the Code.
- Restricted Stock
Restricted Stock is a grant of Company Stock to an individual subject to
forfeiture if specific requirements (including continued employment or
performance goals) described in the grant documents are not met for the
restriction period.
- Bonus Stock
Bonus Stock is a grant of Company Stock to an individual which is made free of
any restrictions. Bonus Stock may be granted as a bonus or instead of cash
under other compensatory arrangements of the Company or a Subsidiary.
- Performance Awards
Performance Awards are awards granted, subject to applicable law, with value,
payment, or other terms contingent upon performance of the Company or
specified Subsidiaries or any other factors designated by the Committee.
Performance Awards, in whole or in part, may be (i) denominated or payable in
cash, (ii) denominated or payable in, valued by reference to, or otherwise
based on, or related to Company Stock, or (iii) denominated or payable in,
valued by reference to, or otherwise based on, or related to, either Company
Stock or cash, to be determined in the discretion of the Committee.
A-2
<PAGE> 31
4. GRANTS
Grants may be made under this Plan to employee-participants by the
Committee at any scheduled or unscheduled meeting. In making a grant to an
employee-participant under this Plan, the Committee will specify (either at the
time of grant or thereafter) the terms and conditions of the grant, all of which
shall be subject to the terms and conditions of this Plan (including Section 11
hereof). Unless the Committee specifies otherwise (with respect to grants
hereunder other than grants under Section 13 hereof) or applicable law requires
otherwise, with respect to any grant to an individual of Restricted Stock or
Bonus Stock or of Company Stock in connection with a Performance Award, past
services of that individual equal to the aggregate par value of Company Stock
subject to such grant shall constitute the only consideration paid upon the
issuance of such stock. If at any time, consideration other than past services
is required by applicable law with respect to a grant, such consideration shall
be paid within the sixty (60) days immediately following such grant.
5. PERIOD OF OPTION AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE
Each stock option grant shall be exercisable at such time or times as the
Committee shall from time to time determine, but in no event after the
expiration of ten years from the date of grant. The delivery of certificates
representing shares under any stock option grant will be contingent upon receipt
by the Company from the optionholder (or a purchaser acting in his or her stead,
in accordance with the provisions of the grant) of the full purchase price for
such shares in the form of cash and/or shares of Company Stock previously owned
by the optionholder, the total value of which is equal to the total purchase
price of the optioned shares (to be exchanged for the previously owned shares)
and the fulfillment of any other requirements contained in the option or
applicable provisions of law. No optionholder or person entitled to exercise the
stock option grant shall be deemed to be a holder of any shares subject to the
grant for any purpose until certificates for such shares are issued to him or
her under the terms of the grant and the Plan.
6. NON-TRANSFERABILITY OF CERTAIN OPTIONS
If the grant of an option under the Plan is intended to be exempt from
Section 16(b) of the Exchange Act pursuant to "former Rule 16b-3" during the
"Phase-in Period" for compliance with the substantive conditions of new Rule
16b-3 (currently extended until September 1, 1995), such option shall not be
transferable other than as permitted by former Rule 16b-3(d)(1)(ii).
During the Phase-in Period, the Committee, in its discretion, may also
grant transferable options or amend outstanding options to make them
transferable (collectively, "Transferable Options"). The option agreement with
respect to a Transferable Option shall provide that (i) the optionholder can
transfer the Transferable Option to (x) members of his or her immediate family
(i.e., children, grandchildren or spouse), (y) trusts for the benefit of such
family members, and (z) partnerships whose only partners are such family
members; (ii) no consideration can be paid for the transfer of the Transferable
Option; and (iii) the transferee of a Transferable Option is subject to all
conditions applicable to the Transferable Option prior to its transfer.
The option agreement with respect to any option granted hereunder after the
Phase-in Period shall state the transferability restrictions for such option
determined by the Committee.
The rights and obligations of the Company under the Plan and any grant may
be assigned by the Company to a successor to the whole or any part of its
business if the successor assumes in writing all of such rights and obligations.
A-3
<PAGE> 32
7. WITHHOLDING
The Company may defer making payment or delivery of any shares of Company
Stock to a participant under the Plan until satisfactory arrangements have been
made for the payment of any federal, state, or local income taxes required to be
withheld with respect to such payment or delivery. Each such participant who is
subject to the reporting requirements of Section 16(a) of the Exchange Act shall
be entitled to elect irrevocably, at least six months prior to the date such
shares would otherwise be delivered hereunder, to have the Company withhold
shares of Company Stock having an aggregate value equal to the amount required
to be withheld. If no such election is in effect, the Company shall nevertheless
have the right to impose a mandatory withholding of such shares. The value of
fractional shares remaining after payment of the withholding taxes shall be paid
to such participant in cash. Shares so withheld shall be valued at fair market
value on the regular business day immediately preceding the date such shares
would otherwise be delivered hereunder.
8. CASH AWARDS
If the payment or delivery of (or lapsing of restrictions with respect to)
any Bonus Stock or Restricted Stock awarded to an employee-participant under
this Plan, the 1992 Plan or the 1987 Plan (the "Stock Payment") shall be subject
to the imposition of any federal, state, or local income tax, the Committee, in
its discretion, either at the time the award is granted or thereafter, may also
grant the employee-participant a cash award. The cash award may be in any amount
up to an amount such that the value retained by the employee-participant (from
the total of the Stock Payment and the related cash award) after payment of any
such income taxes imposed on the Stock Payment and any such income taxes imposed
on the cash award itself shall be equal to the Stock Payment.
9. EQUITABLE ADJUSTMENTS
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Company Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Company Stock in such a way
that an adjustment is appropriate in order to prevent dilution or enlargement of
the rights of participants under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems appropriate and, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares of
stock of the Company (or other securities) which may thereafter be issued in
connection with grants under the Plan (including, without limitation, grants
pursuant to Section 13 hereof), (ii) the number and kind of shares of stock of
the Company (or other securities) issued or issuable in respect of outstanding
grants, and (iii) the exercise price, grant price, or purchase price relating to
any grant.
10. EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Effective Date of the Plan shall be the date the Plan is approved by
the stockholders of the Company. Until the Effective Date of the Plan, the 1992
Plan shall continue in full force and effect in accordance with its terms.
A-4
<PAGE> 33
11. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Committee, as provided in Section 2
hereof, which (except as otherwise provided in Section 13 hereof) shall make the
grants under the Plan, determine the form of options or other awards to be
granted in each case (either at the time of grant or thereafter), and make any
other determination under or interpretation of any provisions of the Plan.
Any of the actions taken by the Committee shall be final and conclusive.
Without the consent of the affected participant, however, no amendment or other
action with respect to any outstanding award hereunder may impair or adversely
affect the rights of the participant holding the award.
The Board may amend the Plan as it may deem proper and in the best interest
of the Company. However, no such action shall adversely affect or impair any
options or other awards previously granted under the Plan, the 1992 Plan or the
1987 Plan without the consent of the grantee, and no amendment which requires
stockholder approval in order for the exemptions available under Rule 16b-3 to
be applicable to the Plan and the participants or in order for the Plan to
comply with the requirements of Section 162(m) of the Code shall be effective
unless that amendment shall be approved by the stockholders of the Company
entitled to vote thereon as required by Rule 16b-3 or Section 162(m), as the
case may be; and, provided further, that the provisions of Section 13 hereof
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
12. EXPIRATION AND TERMINATION OF THE PLAN
Unless earlier terminated by the Board, the Plan shall terminate on the
tenth anniversary of its Effective Date. Grants may be made under the Plan at
any time, or from time to time, prior to the termination of the Plan. The Plan
may be abandoned or terminated at any time prior to the tenth anniversary of its
Effective Date by the Board, except with respect to any awards then outstanding.
13. GRANTS TO DIRECTOR-PARTICIPANTS
Each individual who has served as a non-employee member of the Board during
any calendar year shall be a director-participant in the Plan with respect to
such year. Director-participants shall be eligible only for grants made pursuant
to this Section 13. With respect to each calendar year each director-participant
shall be granted, as compensation, 500 shares of Company Stock as of the first
trading day following the close of such calendar year; provided, however, that
the number of shares so granted shall be prorated in the case of any
director-participant whose service on the Board began during such year or who
retired or resigned from the Board during such year. The proration shall be
based on the portion of such year the director-participant served as a member of
the Board.
A-5
<PAGE> 34
P
R
O HOUGHTON MIFFLIN COMPANY
X
Y PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1995 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Nader F. Darehshori and Elizabeth L.
Hacking, and each of them, Proxies with power of substitution to vote for and
on behalf of the undersigned at the Annual Meeting of Stockholders of Houghton
Mifflin Company to be held at the Dorothy Quincy Suite, John Hancock Hall, 180
Berkeley Street, Boston, Massachusetts, on Wednesday, April 26, 1995, at
1:00 p.m. and at any adjournment thereof, hereby granting full power and
authority to act on behalf of the undersigned at said meeting or any
adjournment thereof.
The undersigned hereby revokes any Proxy previously given, and
acknowledges receipt of notice of said meeting, the related Proxy Statement,
and a copy of the 1994 Annual Report.
(continued and to be signed on reverse side)
UNLESS OTHERWISE INSTRUCTED THIS PROXY WILL BE VOTED
IN FAVOR OF THE PROPOSALS SET FORTH ON THE REVERSE SIDE
------------------
/SEE REVERSE SIDE/
------------------
Please mark
/x/ votes as in
this example.
<TABLE>
1. Election of Class III Directors for a three-year term.
<S> <S> <C> <C> <C>
FOR AGAINST ABSTAIN
NOMINEES: Mary H. Lindsay, John F. Magee 2. Approve Houghton Mifflin
Claudine B. Malone, Ralph Z. Sorenson Company 1995 Stock / / / / / /
FOR WITHHELD Compensation Plan.
ALL FROM ALL
NOMINEES NOMINEES 3. Ratify Ernst & Young LLP as
/ / / / independent auditors for / / / / / /
1995.
/ / 4. Transact such other business
-------------------- as may properly come before / / / / / /
For all nominees except as noted above. the Meeting.
MARK HERE MARK HERE
FOR ADDRESS / / IF YOU PLAN / /
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
PLEASE SIGN IN THE SAME FORM AS NAME APPEARS
HEREON. FIDUCIARIES AND CORPORATE OFFICERS
SHOULD INDICATE THEIR TITLE.
Signature Date
-------------------------------- ---------------------
Signature Date
-------------------------------- ---------------------
</TABLE>
<PAGE> 35
PROXY
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1995 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Nader F. Dareshon and Elizabeth L.
Hacking, and each of them. Proxies with power of substitution to vote for and
on behalf of the undersigned at the Annual Meeting of Stockholders of Houghton
Mifflin Company to be held at the Dorothy Quincy Suite, John Hancock Hall, 180
Berkeley Street, Boston, Massachusetts, on Wednesday, April 26, 1995, at 1:00
p.m. and at any adjournment thereof, hereby granting full power and authority
to act on behalf of the undersigned at said meeting or any adjournment thereof.
The undersigned hereby revokes any Proxy previously given, and
acknowledges receipt of notice of said meeting, the related Proxy Statement,
and a copy of the 1994 Annual Report.
UNLESS OTHERWISE INSTRUCTED THIS PROXY
WILL BE VOTED IN FAVOR OF THE PROPOSALS
SET FORTH ON THE REVERSE SIDE
PLEASE SIGN IN THE SAME FORM AS NAME
APPEARS HEREON. FIDUCIARIES AND
CORPORATE OFFICERS SHOULD INDICATE
THEIR TITLE.
Signature:____________ Date:___________
Signature:____________ Date:___________
_
PLEASE MARK VOTES /X/
AS IN THIS EXAMPLE.
1. Election of Class III Directors for FOR ALL WITHHELD FROM
a three-year term. NOMINEES ALL NOMINEES
NOMINEES: Mary H. Lindsay, John F. Magee, / / / /
Claudine B. Malone, Ralph Z.
Sorenson
For all nominees except as noted below.
/ / _______________________________________ FOR AGAINST ABSTAIN
2. Approve Houghton Mifflin Company 1995 / / / / / /
Stock Compensation Plan.
3. Ratify Ernst & Young LLP as independent / / / / / /
auditors for 1995.
4. Transact such other business as may / / / / / /
properly come before the Meeting.
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT / /
MARK HERE IF YOU PLAN TO
ATTEND THE MEETING / /
