<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)
[LOGO]
(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
[COMPANY LOGO]
March 21, 1996
Dear Stockholder:
I am delighted to invite you to attend the 1996 Annual Meeting of
Stockholders of Houghton Mifflin Company on Wednesday, April 24, 1996, 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 I directors, each for a three-year term,
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 1995 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/ Nader F. Darehshori
Nader F. Darehshori
Chairman, President, and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING
TO BE HELD APRIL 24, 1996
Boston, Massachusetts
March 21, 1996
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 24, 1996, at 1:00 p.m. to consider and act on
the following matters:
1. Election of four Class I directors, each for a three-year term;
2. Ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for the current year; and
3. 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 24, 1996
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, 1995, 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 4, 1996, 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 14,526,661 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 21, 1996.
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of 11 members.
Gail Deegan, a Class II director, resigned from the Board on February 26, 1996,
to become Executive Vice President and Chief Financial Officer of the Company.
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 I
directors expire at this meeting.
The Board has voted to fix the number of directors at 11. There are three
incumbent directors in Class II and four in Class III. Consequently, at the
Annual Meeting of Stockholders, four nominees in Class I are standing for
election. These nominees are Joseph A. Baute, Nader F. Darehshori, George
Putnam, and DeRoy C. Thomas, all of whom are presently Class I directors.
<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 1995. 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.
<TABLE>
COMMITTEES OF THE BOARD
The Board of Directors has appointed five standing committees elected from
its own members. All committees are composed of independent, non-employee
directors, with the exception of the Executive Committee, of which Mr.
Darehshori is a member. Actions taken by any standing committee are reported to
the Board, usually at its next meeting. Current membership of each committee is
as follows:
<CAPTION>
Compensation &
Audit Nominating Diversity
<S> <C> <C>
Mr. Baute, Chair Mr. Thomas, Chair Mr. Longsworth, Chair
Mr. Magee Mrs. Lindsay Mr. Freedman
Ms. Malone Mr. Longsworth Mrs. Lindsay
Mr. McDougal Mr. Putnam Mr. McDougal
Dr. Sorenson Dr. Sorenson
</TABLE>
<TABLE>
<CAPTION>
Executive Finance
<S> <C>
Mr. Darehshori, Chair Ms. Malone, Chair
Mr. Baute Mr. Freedman
Mr. Magee Mr. Magee
Ms. Malone Mr. Putnam
Mr. Putnam Mr. Thomas
</TABLE>
Audit Committee 4 meetings in 1995
- Reviews the integrity of the Company's financial statements;
- Has direct contact with the Company's internal auditors and its
independent public accountants;
- 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;
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<PAGE> 6
- Empowered to conduct investigations into any matters concerning the
integrity of reported facts and figures, ethical conduct, and appropriate
disclosure.
Compensation & Nominating Committee 3 meetings in 1995
- Reviews and approves compensation plans for the Company;
- Considers and administers stock option grants, other stock award plans,
and incentive compensation;
- Fixes the compensation of directors employed by the Company and certain
officers;
- Submits to the Board names of persons it believes should be considered
for election as directors of the Company;
- Considers timely recommendations for nominations to the Board submitted
by stockholders.
Diversity Committee 2 meetings in 1995
- 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.
Executive Committee 1 meeting in 1995
- Acts for the Board when the Board is not in session.
Finance Committee 2 meetings in 1995
- 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.
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 1995, 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 1995.
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.
As part of its overall program to promote charitable giving, the Company
has established a planned gift program for directors funded by life insurance
policies on directors. Upon the retirement of a director, the Company will
donate $500,000, in twenty annual installments, to one or more qualifying
charitable organizations recommended by the individual director. The Company has
3
<PAGE> 7
purchased life insurance on the directors, naming the Company as beneficiary,
which is expected to recover, over time, the costs of the contributions and of
the premium payments. Individual directors derive no financial benefit from this
program since all charitable deductions accrue solely to the Company.
1. ELECTION OF CLASS I 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 I DIRECTORS--TERM EXPIRES IN 1999
JOSEPH A. BAUTE Age: 68 Director Since: 1982
Principal Occupation or Employment: Mr. Baute is Chairman of
Nashua Corporation, which manufactures toners, paper labels,
and specialty papers and provides mail-order photo processing
services, and a principal in Baute & Baute, a consulting firm
for family businesses. He retired in 1993 as Chairman and
Chief Executive Officer of Markem Corporation, which provides
systems, supplies, and services to mark customers' products.
Other Business Affiliations: Director of Markem Corporation,
Dead River Group, Nashua Corporation, State Street Bank and
Trust Company, State Street Boston Corporation, and INSO
Corporation and past Chairman of the Board of the Federal
Reserve Bank of Boston.
Committees: Audit (Chair) and Executive Committees.
NADER F. DAREHSHORI Age: 59 Director Since: 1989
Principal Occupation or Employment: Mr. 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.
Other Business Affiliations: Director of Commercial Union
Corporation, Massachusetts Business Roundtable, State Street
Bank and Trust Company, State Street Boston Corporation, and
the Boston Public Library Foundation; trustee of Wellesley
College, the WGBH Educational Foundation and The Boston
Symphony Orchestra; member of the National Executive Board of
the National Conference of Christians and Jews and the
Dana-Farber National Advisory Council for the Women's Cancers
Program.
Committees: Executive Committee (Chair).
4
<PAGE> 8
GEORGE PUTNAM Age: 69 Director Since: 1985
Principal Occupation or Employment: Mr. 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.
Other Business Affiliations: Director of The Boston Company
and The Boston Safe Deposit & Trust Company (subsidiaries of
Mellon Bank Corporation), Freeport-McMoRan, Inc.,
Freeport-McMoRan Copper and Gold, Inc., McMoRan Oil and Gas,
Inc., General Mills, Inc., Marsh & McLennan Companies, Inc.,
and the Rockefeller Group, Inc.; trustee of the Museum of Fine
Arts, Boston, the Massachusetts General Hospital, McLean
Hospital, The Jackson Laboratory, and the Trustees of
Reservations; life trustee of the New England Aquarium;
overseer of Northeastern University; Chairman of the WGBH
Educational Foundation, past Governor and past Chairman of The
Investment Company Institute; past Public Governor of The
National Association of Securities Dealers, Inc.
Committees: Compensation & Nominating, Finance, and Executive
Committees.
DEROY C. THOMAS Age: 70 Director Since: 1990
Principal Occupation or Employment: Mr. Thomas 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.
Other Business Affiliations: Director of The Hartford
Insurance Group, Connecticut Natural Gas Corporation, Rayioner
Timberlands, Inc., and MedSpan, Inc.; chairman of The Old
State House Association, the Goodspeed Opera, and the
Connecticut Health System; corporator of St. Francis Hospital,
The Institute of Living, and the VNA Group; former trustee of
Fordham University.
Committees: Compensation & Nominating (Chair) and Finance
Committees.
5
<PAGE> 9
CLASS II DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1997
JAMES O. FREEDMAN Age: 60 Director Since: 1991
Principal Occupation or Employment: Mr. Freedman has been
President of Dartmouth College since 1987.
Other Business Affiliations: Past President of the University
of Iowa and past Dean of the University of Pennsylvania Law
School; 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; life member of Clare Hall, Cambridge
University; author of Crisis and Legitimacy: The
Administrative Process and American Government, published by
Cambridge University Press in 1978, and Idealism and Liberal
Education, published by the University of Michigan Press in
1996; recipient of six honorary degrees and, in 1991, the
William O. Douglas First Amendment Freedom Award from the
Anti-Defamation League of B'nai B'rith.
Committees: Diversity and Finance Committees.
CHARLES R. LONGSWORTH Age: 66 Director Since: 1985
Principal Occupation or Employment: Mr. Longsworth is
Chairman Emeritus of the Colonial Williamsburg Foundation in
Williamsburg, Virginia.
Other Business Affiliations: Director of FlightSafety
International, Public Radio International, Caliber Systems,
Inc., Saul Centers, Inc., Crestar Financial Corporation, the
Center for Public Resources, and the Virginia Eastern Shore
Corporation; Chairman of the Board of Trustees of Amherst
College; President Emeritus of Hampshire College.
Committees: Diversity (Chair) and Compensation & Nominating
Committees.
ALFRED L. MCDOUGAL Age: 65 Director Since: 1994
Principal Occupation or Employment: Mr. McDougal was Chairman
and Chief Executive Officer of McDougal, Littell & Company
until its acquisition by the Company in March 1994.
Other Business Affiliations: 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; director of ALM
Corporation, Yale University Press, Literacy Chicago, Hubbard
Street Dance Company, and Opportunity International.
Committees: Audit and Diversity Committees.
6
<PAGE> 10
CLASS III DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1998
MARY H. LINDSAY Age: 69 Director Since: 1975
Other Business Affiliations: 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.
Committees: Diversity and Compensation & Nominating
Committees.
JOHN F. MAGEE Age: 69 Director Since: 1976
Principal Occupation or Employment: Mr. Magee is Chairman of
Arthur D. Little, Inc., a contract research and consulting
firm.
Other Business Affiliations: Director of John Hancock Mutual
Life Insurance Company; member of the Boards of Trustees of
Woods Hole Oceanographic Institution, the New England
Aquarium, the Boston Museum of Science, Emerson Hospital, and
Thompson Island Outward Bound Education Center.
Committees: Audit, Finance, and Executive Committees.
CLAUDINE B. MALONE Age: 59 Director Since: 1982
Principal Occupation or Employment: Ms. Malone is President
of Financial & Management Consulting, Inc.
Other Business Affiliations: Director of The Union Pacific
Resources Corp., The Limited, Inc., Lowe's Companies, Hasbro,
Inc., Dell Computer Corporation, SAIC, Mallinckrodt Group
Inc., Lafarge Corporation, and Hannaford Brothers, Inc.;
trustee of the Penn Mutual Life Insurance Company and
Massachusetts Institute of Technology; Chairman of the Federal
Reserve Bank of Richmond.
Committees: Finance (Chair), Audit, and Executive Committees.
7
<PAGE> 11
RALPH Z. SORENSON Age: 62 Director Since: 1976
Principal Occupation or Employment: Dr. Sorenson is Professor
Emeritus at the College of Business and Administration at the
University of Colorado, Boulder, where he served as Dean from
1992 to 1993. From 1989 to 1992 he was an Adjunct Professor of
Management at the Harvard University Graduate School of
Business.
Other Business Affiliations: Past Chairman and Chief
Executive Officer of Barry Wright Corporation and past
President of Babson College, Wellesley, Massachusetts;
director of Eaton Vance Corporation, Polaroid Corporation,
Exabyte Corporation, Whole Foods Market, Inc., Sweetwater Inc.
and Xenometrix, Inc.; 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.
Committees: Audit and Compensation & Nominating Committees.
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 Benefits
Trust, and is Trustee under the Company's Indenture relating to the issuance of
debt securities. Arthur D. Little, Inc., of which Mr. Magee is Chairman, and
William Mercer Inc., a subsidiary of Marsh & McLennan Companies, Inc., of which
Mr. Putnam is a director, each provided consulting services to the Company
during 1995 at standard commercial terms. INSO Corporation ("INSO"), of which
Mr. Baute is a director, was formed to succeed to the business of the Company's
Software Division; the Company holds approximately 36% of INSO's common stock,
and has licensed rights to certain reference publications to INSO, at rates that
the Company believes are commercially reasonable.
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<PAGE> 12
<TABLE>
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, 1996.
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2)(3) OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
Joseph A. Baute.......................................... 7,278 *
Nader F. Darehshori...................................... 105,535(4) *
Gail Deegan(5)........................................... 3,650 *
James O. Freedman........................................ 3,150 *
Mary H. Lindsay.......................................... 4,683 *
Charles R. Longsworth.................................... 5,670(6) *
John F. Magee............................................ 8,000 *
Claudine B. Malone....................................... 4,968 *
Alfred L. McDougal....................................... 2,416(7) *
John H. Oswald........................................... 18,554 *
George Putnam............................................ 5,218 *
June Smith............................................... 11,347 *
Ralph Z. Sorenson........................................ 6,600(8) *
DeRoy C. Thomas.......................................... 5,350 *
Paul D. Weaver........................................... 26,286(9) *
William J. Wisneski...................................... 27,609(10) *
All directors and executive officers as a group (25 persons).. 369,450(11) 2.65%
<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, 30,001; Mr. Wisneski, 9,600; Mr. Weaver, 7,800;
Ms. Smith, 10,000; Mr. Oswald, 9,000; and all executive officers as a
group, 135,136 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 as of
December 31, 1995, the most recent date for which such information is
available.
(4) Includes 16,432 restricted shares as to which Mr. Darehshori has sole
voting power only, 300 shares owned by Mr. Darehshori's wife, and 150
shares held by Mr. Darehshori's wife as custodian for a minor child.
(5) Ms. Deegan resigned as a director on February 26, 1996 to become Executive
Vice President and Chief Financial Officer of the Company.
(6) Includes 500 shares owned by Mr. Longsworth's wife, as to which he
disclaims beneficial ownership.
(7) Includes 416 shares owned by a trust of which Mr. McDougal is trustee.
(8) Includes 4,100 shares owned by a trust of which Dr. Sorenson is trustee.
(9) Includes 645 restricted shares as to which Mr. Weaver has sole voting power
only and 1,702 shares held by Mr. Weaver's wife as custodian for minor
children.
(10) Includes 808 restricted shares as to which Mr. Wisneski has sole voting
power only.
</TABLE>
9
<PAGE> 13
(11) Seven members of this group share with others voting and investment power
over 11,770 of the shares listed, and with respect to 21,092 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, 1995, all Section 16(a) filing requirements applicable
to its executive officers, directors, and greater than 10% beneficial owners
were satisfied other than one report on Form 4 relating to a transfer to a
family trust which was filed late by Dr. Sorenson.
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
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. The surveyed companies include the
Publishing Peer Group, a comparator group for purposes of the Stock Performance
Graph on page 14. The surveyed companies also include 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 subjective 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 or the
other senior executives, the Committee views the Company's financial perform-
10
<PAGE> 14
ance as an important factor in determining salary adjustments for executives.
Salary adjustments generally are effective April 1.
In determining Mr. Darehshori's salary for 1995, the Committee reviewed the
Company's operating and financial performance for 1994. The Company's financial
results for the year included improved revenue and matched budgeted net income
projections. The acquisition and smooth integration of McDougal Littell
strengthened the Company's editorial and sales and marketing operations in both
the elementary and secondary school markets. A separate secondary unit, McDougal
Littell, was created. The proceeds from the INSO initial public offering were
greater than anticipated. Sales of the School Division's critically acclaimed
technology products more than tripled. 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 $455,000 to
$500,000.
Annual incentive compensation for Mr. Darehshori and other senior
executives was determined pursuant to the 1995 Senior Executive Incentive
Compensation Plan, which was similar in most respects to the plans which were in
effect for 1993 and 1994. The Plan provided for operating executives to earn 30%
of salary if budgeted levels of revenue, income, and cash flow for the divisions
they manage were achieved. Senior staff executives also could earn 30% of salary
(40% in the case of Mr. Darehshori) upon achievement of budgeted levels of net
income, cash flow, and return on average capital employed for the Company. In
addition, executives covered by the Plan could earn up to 10% of salary
depending on the extent of achievement of specific operating objectives agreed
upon early in 1995. The Plan also required that 100% of the Company's net income
budget be earned in order for payments to be made pursuant to the elements of
the Plan determined by financial results. The maximum payment under the Plan was
100% of salary. All amounts paid in excess of 40% of salary are paid in
three-year restricted stock. Because 100% of the Company's net income budget was
not earned, no payments were made pursuant to the portion of the Plan determined
by financial results.
Incentive compensation payments for 1995 were made based on the Committee's
review of the performance of the executives covered by the Plan, including
specifically the extent of each executive's involvement in the D.C. Heath
acquisition, which makes the Company's largest and most profitable business
segment much more competitive and positions the Company for continued growth.
The Committee also noted a number of performance objectives which were
accomplished in 1995 by Mr. Darehshori and the other executives, including the
following:
- The School Division, the Company's largest division, had an excellent
year in 1995.
- The College Division and The Riverside Publishing Company had good
financial performance.
- Invitations to Literacy, the Company's new elementary school reading
program, doubled its 1995 revenue budget.
- The acquisition of D.C. Heath strengthened the College Division and
McDougal Littell and enabled the Company to establish a new supplemental
division, Great Source Education Group.
- Most of the senior management of the Trade & Reference Division was
changed to improve the division's profitability and bring greater focus
to its publishing strategy.
- The launch of the Trade & Reference Division's technology effort,
Houghton Mifflin Interactive, provides the Company with an entree into
the fast-growing home entertainment market.
11
<PAGE> 15
In addition to the seven compact discs from HMI, the College and School
Divisions and McDougal Littell also developed several new and exciting
technology products.
- Sales management at Riverside was improved significantly with the hiring
of three new regional managers and the development of new selling
strategies.
Considering these achievements, the objectives of the compensation program,
and recommendations by Mr. Darehshori, the Committee authorized special awards
to the Plan participants reporting to Mr. Darehshori. The total amount earned
under the Plan in 1995 by those participants was 40% of the amount earned under
the Plan in 1994. The committee then reviewed the performance of Mr. Darehshori,
noting especially the strategic importance of the D.C. Heath acquisition and its
importance in improving the Company's competition position and potential for
growth, and awarded Mr. Darehshori incentive compensation in the amount of
$150,000.
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 1995 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.
The Performance Share Plan for the years 1993-1995 provided executives an
opportunity to earn from 1,000 to 3,000 shares of Company stock, payable half in
stock and half in cash. The threshold for an award under the Plan was a compound
average increase in total shareholder return over the years 1993-1995 of 15%.
Because the threshold was not met, no awards were earned under the Plan.
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 or biannual 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.
12
<PAGE> 16
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 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. Thomas (Chairman), Mrs. Lindsay, Mr.
Longsworth, Mr. Putnam, and Dr. Sorenson.
13
<PAGE> 17
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, 1990, 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 seven companies with
significant publishing activities, for the period from December 31, 1990, to
December 31, 1995. The companies in the peer group are Harcourt General Inc.;
McGraw-Hill, Inc.; Thomas Nelson, Inc.; Viacom, 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 $24.75
on December 31, 1990, and $43.00 on December 29, 1995.
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HOUGHTON MIFFLIN COMPANY, S&P MIDCAP 400 INDEX, AND PUBLISHING PEER GROUP
<CAPTION>
MEASUREMENT PERIOD HOUGHTON MIFFLIN S & P MIDCAP PUBLISHING
(FISCAL YEAR COVERED) COMPANY 400 INDEX PEER GROUP
<S> <C> <C> <C>
1990 100 100 100
1991 118.44 149.48 123.29
1992 169.91 167.25 161.39
1993 211.29 190.48 176.53
1994 200.93 183.72 167.39
1995 194.34 240.42 201.65
</TABLE>
Total return data provided by S&P's Compustat Services, Inc.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company during 1995, for each of the three years ended December
31, 1993, 1994, and 1995, for services rendered in all
14
<PAGE> 18
capacities to the Company and its subsidiaries. Information is furnished for
each full fiscal year during which such persons were executive officers.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL
COMPENSATION AWARDS
---------------------------------- -------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) (#) ($)(2)
- --------------------- ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori.. 1995 $488,750 $150,000 0 0 20,000 202,032(3)
Chairman, President, 1994 443,750 267,652 33,853(4) 63,673(5) 46,686(6) 332,188
and Chief Executive 1993 397,500 205,011 435,319(7) 20,983 10,000 8,994
Officer
William J.
Wisneski........... 1995 269,750 84,570 0 0 12,000 27,174(8)
Executive Vice 1994 257,000 104,022 0 33,128(9) 24,200(6) 31,889
President 1993 246,000 81,460 307,023(10) 0 4,000 8,994
Paul D. Weaver....... 1995 218,375 38,743 0 0 10,000 34,647(11)
Senior Vice President 1994 209,250 100,853 13,541(4) 21,197(12) 14,974(6) 45,804
1993 198,500 80,400 108,830(7) 5,776 3,000 7,674
June Smith........... 1995 207,500 51,000 0 0 12,000 36,850(13)
Executive Vice 1994 164,157 31,534 0 0 13,373(6) 38,587
President 1993 136,250 21,000 12,406(14) 0 2,000 0
John H. Oswald....... 1995 207,500 36,800 0 0 12,000 18,341(15)
Executive Vice 1994 192,564 81,500 0 0 21,150(6) 19,325
President 1993 177,500 23,375 12,469(14) 0 3,000 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) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$4,740 under the defined contribution component of the Supplemental
Benefits Plan; $12,783 as the term portion of split-dollar life insurance
premiums; and $180,009 as the non-term portion of such premium.
(4) Payment to cover estimated tax liability in connection with the award of
bonus shares.
(5) As of December 31, 1995, restricted shares held totaled 2,018 shares,
having a then-current market value of $86,774.
</TABLE>
15
<PAGE> 19
(6) Includes options granted pursuant to the Company's Executive Stock Purchase
Plan, which were exercisable only on the date of grant.
(7) Payment to cover estimated tax liability in connection with the vesting of
restricted shares awarded in 1991.
(8) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$4,740 under the defined contribution component of the Supplemental
Benefits Plan; $3,808 as the term portion of split-dollar life insurance
premiums; and $14,126 as the non-term portion of such premium.
(9) As of December 31, 1995, restricted shares held totaled 808 shares, having
a then-current market value of $34,744.
(10) 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.
(11) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$4,740 under the defined contribution component of the Supplemental
Benefits Plan; $3,952 as the term portion of split-dollar life insurance
premiums; and $21,455 as the non-term portion of such premium.
(12) As of December 31, 1995, restricted shares held totaled 645 shares, having
a then-current market value of $27,735.
(13) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$3,500 under the defined contribution component of the Supplemental
Benefits Plan; $2,809 as the term portion of split-dollar life insurance
premiums; and $26,041 as the non-term portion of such premium.
(14) Payment to cover relocation expenses.
(15) Includes $4,500 in Company contributions to the Retirement Savings Plan;
$3,500 under the defined contribution component of the Supplemental
Benefits Plan; $2,209 as the term portion of split-dollar life insurance
premiums; and $8,132 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 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.
16
<PAGE> 20
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, 1995 is the same as the amount currently outstanding.
Directors: Mr. Baute, $92,000; Mr. Longsworth, $92,000; Dr. Sorenson, $92,000.
Director and executive officer: Mr. Darehshori, $1,227,600. Executive officers:
Ms. Doherty, $283,300; Ms. Hacking, $286,600; Ms. McGee, $291,400; Mr. Oswald,
$420,900; Mr. Smith, $54,000; Mr. Tyler, $194,300; Mr. Weaver, $228,800; Mr.
Wisneski, $561,200.
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.
<TABLE>
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, 1996).
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........... $ 27,600 $ 36,600 $ 45,900 $ 55,000 $ 58,100 $ 61,300
150,000........... 33,800 45,000 56,400 67,500 71,300 75,000
175,000........... 40,100 53,300 66,800 80,000 84,400 88,800
200,000........... 46,300 61,600 77,200 92,500 97,500 102,500
225,000........... 52,600 79,900 87,600 105,000 110,600 116,300
250,000........... 58,800 78,300 98,100 117,500 123,800 130,000
300,000........... 71,300 94,900 118,900 142,500 150,000 157,500
400,000........... 96,300 128,200 160,600 192,500 202,500 212,500
450,000........... 108,800 144,900 181,500 217,500 228,800 240,000
500,000........... 121,300 161,500 202,300 242,500 255,000 267,500
550,000........... 133,800 178,200 223,200 267,500 281,300 295,000
600,000........... 146,300 194,800 244,000 292,500 307,500 322,500
650,000........... 158,800 211,500 264,900 317,500 333,800 350,000
700,000........... 171,300 228,100 285,700 342,500 360,000 377,500
</TABLE>
17
<PAGE> 21
- ---------------
(1) As of December 31, 1995, Mr. Darehshori, Mr. Wisneski, Mr. Weaver, Ms.
Smith, and Mr. Oswald were credited with 30, 6, 17, 3, and 4 years,
respectively, and, for the fiscal year ended December 31, 1995, 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. Wisneski, Mr. Weaver, Ms. Smith, and Mr. Oswald is
$722,152, $375,522, $304,995, $240,325, and $289,977, respectively.
Differences between these amounts and those shown in the Summary
Compensation Table on page 15 reflect differences in accounting for
incentive compensation payments, which for purposes of pension calculations
are included in the year paid.
(2) Effective January 1, 1996, the Internal Revenue Code limits the annual
benefit payable under the Pension Plan at normal retirement to $120,000 and
the amount of 1996 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.
Change-In-Control Arrangements
Senior Executives' Severance Agreements. Fourteen executive officers,
including the executive officers named in the Summary Compensation Table, have
severance agreements with the Company. These agreements expire on December 31,
1996, 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 executive's employment other than for
certain permitted reasons. Under the terms of the agreement between Mr.
Darehshori and the Company, severance benefits are payable under the same
conditions as for the senior executives, or if Mr. Darehshori leaves voluntarily
within the six-month period beginning three months after a change in control. 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
the greater of (a) any incentive compensation paid in the preceding year or (b)
the average incentive compensation paid in the past three years], (ii) all
incentive compensation earned but previously deferred and not yet distributed to
the executive, (iii) an amount equal to the aggregate present value of benefits
under the Company's Supplemental Benefits Plan, and (iv) 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
18
<PAGE> 22
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 Managers' Severance Agreements. The Company recognizes that certain
key managers 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, the process of bringing these works to market, and the
proper and efficient operation of the Company's business all depend upon the
insight, judgment, and management skills of these individuals. The key managers'
severance agreements are designed to encourage this essential group to remain
with the Company despite concerns about a possible change in control of the
Company. The key managers' severance agreements are 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.
Severance benefits are payable under the same circumstances as they are
pursuant to the senior executives' severance agreements. Severance benefits
under the key manager's agreements include (i) a lump sum payment of an amount
equal to two times annual compensation [i.e., salary plus the greater of (a) any
incentive compensation paid in the preceding year or (b) the average incentive
compensation paid in the past three years]; (ii) all incentive compensation
earned but previously deferred and not yet distributed to the executive; (iii)
an amount equal to the aggregate present value of benefits under the Company's
Supplemental Benefits Plan; and (iv) 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 twenty-
four months. In addition, the key managers' severance agreements require the
Company to maintain certain insurance benefits for the participant for a period
of twenty-four months following termination of employment. Severance payments
received pursuant to the key managers' severance agreements 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 parties to a key managers'
severance agreement.
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.
19
<PAGE> 23
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.
<TABLE>
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, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS(1)
-------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EXERCISE OR TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- --------- ------------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nader F.
Darehshori......... 20,000 6.73% $42.75 10/23/00 $236,221 $f521,986
William J.
Wisneski........... 12,000 4.04 42.75 10/23/00 141,732 313,192
Paul D. Weaver....... 10,000 3.36 42.75 10/23/00 118,110 260,993
June Smith........... 12,000 4.04 42.75 10/23/00 141,732 313,192
John H. Oswald....... 12,000 4.04 42.75 10/23/00 141,732 313,192
</TABLE>
20
<PAGE> 24
<TABLE>
The following table shows, with respect to each individual named below,
information concerning the exercise of options during the year ended December
31, 1995, and unexercised options held as of December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
SHARES FY-END(#) FY-END($)
ACQUIRED VALUE -------------- ------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(1)
- ---------------------------- ------------ --------- -------------- ------------------
<S> <C> <C> <C> <C>
Nader F. Darehshori......... 4,200 $74,550 30,001/19,999 $ 0/$0
William J. Wisneski......... 2,800 43,700 9,600/18,400 $ 0/$0
Paul D. Weaver.............. 0 0 7,800/15,200 $ 0/$0
June Smith.................. 0 0 10,000/18,000 $11,800/$2,950
John H. Oswald.............. 1,600 9,200 9,000/18,800 $ 0/$5,900
<FN>
- ---------------
(1) Market value of underlying securities at exercise or year-end, minus the
exercise or base price.
</TABLE>
2. 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, 1996. The Board believes, however, that it is desirable
to obtain stockholder ratification of the selection of the Company's independent
auditors. During 1995 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 TWO.
21
<PAGE> 25
<TABLE>
PRINCIPAL STOCKHOLDERS
The following table shows the beneficial ownership of common stock of the
Company by the only person who is known by the Company to be the beneficial
owner of more than 5% of such stock. The information has been obtained solely
from such person and the Schedule 13G filed by the person listed with the
Securities and Exchange Commission. Such Schedule contains fuller information as
to beneficial ownership of shares by the person listed therein.
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER PERCENT OF CLASS BENEFICIAL OWNERSHIP
- ------------------------------ ---------------- -------------------------
<S> <C> <C>
Heine Securities Corporation 5.3% As of February 1, 1996
51 John F. Kennedy Parkway 767,700 shares -- sole
Short Hills, N.J. 07078 voting power and
investment power
</TABLE>
PROPOSALS OF STOCKHOLDERS FOR CONSIDERATION AT THE 1997 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 1997, it must be
received at the Company's executive offices in Boston on or before November 21,
1996. 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 1997 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 December
25, 1996, and February 8, 1997. In the case of a special meeting, or if the
Annual Meeting is called for a date prior to February 8, 1997, 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 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 action specified in Item 2 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.
22
<PAGE> 26
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
P
R
O
X
Y
The undersigned herby appoints Nader F. Darehshori and Gail Deegan, 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 24, 1996, 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 1995 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
-----------
<TABLE>
PLEASE MARK
/ X / VOTES AS IN
THIS EXAMPLE.
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Election Class I Directors for a three-year term. 2. Ratify Ernst & Young LLP as
NOMINEES: Joseph A. Baute, Nader F. Darehshori, George independent auditors for / / / / / /
Putnam, DeRoy C. Thomas 1996.
FOR WITHHOLD 3. Transact such other business
/ / / / as may properly come before / / / / / /
the Meeting.
/ /
------------------------------------- MARK HERE MARK HERE
For all nominees except as noted above 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 TITLES.
Signature Date Signature Date
--------------------- ------------ --------------------- ------------
</TABLE>
<PAGE> 27
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
P
R
O
X
Y
The undersigned hereby appoints Nader F. Darehshori and Gail Deegan,
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 24, 1996, 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 1995 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 TITLES.
Signature: Date:
--------------------------- ---------
Signature: Date:
--------------------------- ---------
<TABLE>
PLEASE MARK VOTES / X /
AS IN THIS EXAMPLE.
<S> <C> <C> <C>
1. Election of Class I Directors for a three-year term. FOR ALL WITHHELD FROM
NOMINEES: Joseph A. Baute, Nader F. Darehshori, George Putnam, DeRoy C. Thomas NOMINEES ALL NOMINEES
For all nominees except as noted below. / / / /
/ /
------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratify Ernst & Young LLP as independent auditors for 1996. / / / / / /
3. 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 / /
</TABLE>
