<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)
/ /
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] 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:
- --------------------------------------------------------------------------------
<PAGE> 2
[Houghton Mifflin Logo]
March 24, 1997
Dear Stockholder:
I am delighted to invite you to attend the 1997 Annual Meeting of
Stockholders of Houghton Mifflin Company on Wednesday, April 30, 1997, 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 three Class II directors, each for a three-year term,
and the ratification of the selection of the Company's independent public
auditors. 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 1996 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. Dareshori
Nader F. Darehshori
Chairman, President, and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING
TO BE HELD APRIL 30, 1997
Boston, Massachusetts
March 24, 1997
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 30, 1997, at 1:00 p.m. to consider and act on
the following matters:
1. Election of three Class II 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 30, 1997
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, 1996, 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, 1997, 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 14,194,676 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 24, 1997.
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of 11 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 II directors
expire at this meeting.
The Board has voted to fix the number of directors at 11. There are four
incumbent directors in Class I and four in Class III. Consequently, at the
Annual Meeting of Stockholders, three nominees in Class II are standing for
election. These nominees are James O. Freedman, Charles R. Longsworth, and
Alfred L. McDougal, all of whom are presently Class II 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 9 times during 1996. 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 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:
<TABLE>
<CAPTION>
Compensation & Employment Practice &
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 1996
- Reviews the integrity of the Company's financial statements;
- Has direct contact with the Company's internal auditors and its
independent public auditors, and meets separately with each on a regular
basis;
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<PAGE> 6
- Reviews the Company's information, reporting, and compliance systems with
the goal of assuring that such systems are designed to provide timely and
accurate information to senior management and to the Board and to foster
compliance with applicable laws, regulations, and ethics policies;
- Annually considers the qualifications of the independent public auditors
for the Company and makes recommendations to the Board as to their
selection, fee, and the scope of their audit and other services;
- Conducts any necessary investigations into any matters concerning the
integrity of reported facts and figures, ethical conduct, and appropriate
disclosure.
Compensation & Nominating Committee 4 meetings in 1996
- Reviews and recommends compensation plans for the senior management of
the Company;
- Considers and administers stock option grants, other stock award plans,
and incentive compensation for senior management;
- Evaluates performance of the Chief Executive Officer and makes
compensation recommendations to the Board;
- Evaluates the appropriateness of compensation policy for non-employee
directors and makes recommendations to the Board;
- Evaluates the Company's needs and the qualifications of candidates for
director; 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.
Employment Practice & Diversity Committee 1 meeting in 1996
- Reviews and monitors the Company's policies and practices that promote
the Company's goals that: its employees and suppliers represent the
diversity of America's population; that the Company maintain a workplace
characterized by progressive employment practices and by mutual respect
and courtesy; and that the Company's overall employment policies are as
up-to-date and effective as possible.
Executive Committee no meetings in 1996
- Acts for the Board as necessary when the Board is not in session;
- Beginning in 1997, responsible for supervision and review of the
Company's policies and procedures relating to corporate governance and
compliance.
Finance Committee 3 meetings in 1996
- Reviews and makes recommendations relating to offerings of debt and
equity securities, major borrowing commitments, dividend policy, investor
relations activities, risk management policy, 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
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<PAGE> 7
fees. Directors who chair committees receive an additional $2,500 retainer. In
addition to the cash remuneration, non-employee directors receive shares of and
options for Company common stock, each pro-rated for service during the year.
For service in 1996, directors received 500 shares of Company common stock and
options for 1,000 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 1996.
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
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 II 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.
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<PAGE> 8
NOMINEES FOR CLASS II DIRECTORS--TERM EXPIRES IN 2000
[PHOTO] JAMES O. FREEDMAN Age: 61 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 seven honorary degrees, of the William O.
Douglas First Amendment Freedom Award from the Anti-Defamation
League of B'nai B'rith in 1991, and of the Frederic W. Ness
Book Award of the Association of American Colleges and
Universities in 1997.
Committees: Employment Practice & Diversity and Finance.
[PHOTO] CHARLES R. LONGSWORTH Age: 67 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 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: Employment Practice & Diversity (Chair) and
Compensation & Nominating.
[PHOTO] ALFRED L. MCDOUGAL Age: 66 Director Since: 1994
Principal Occupation or Employment: Mr. McDougal is President
of ALM Corporation, a business management services
corporation. 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; governor of Yale
University Press; director of Literacy Chicago, Hubbard Street
Dance Company, and Opportunity International.
Committees: Audit and Employment Practice & Diversity.
<PAGE> 9
CLASS I DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1999
[PHOTO] JOSEPH A. BAUTE Age: 69 Director Since: 1982
Principal Occupation or Employment: Mr. Baute is 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, State Street Bank and Trust Company, State
Street Boston Corporation, Spectra, Inc., Cerion Technologies,
and INSO Corporation and past Chairman of the Board of the
Federal Reserve Bank of Boston.
Committees: Audit (Chair) and Executive.
[PHOTO] NADER F. DAREHSHORI Age: 60 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 (Chair).
[PHOTO] GEORGE PUTNAM Age: 70 Director Since: 1985
Principal Occupation or Employment: Mr. Putnam is Chairman of
Putnam Investments and Chairman of the Board of Trustees of
the Putnam Funds.
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
Co., Marsh & McLennan Companies, Inc., and the Rockefeller
Group, Inc.; trustee of the Museum of Fine Arts, Boston, the
Massachusetts General Hospital, McLean Hospital, Vincent
Memorial Hospital, The Jackson Laboratory, and the Trustees of
Reservations; life trustee of the New England Aquarium;
overseer of Northeastern University and the Boston Museum of
Science; member of Council of Advisors, College of the
Atlantic; Chairman of the WGBH Educational Foundation; fellow
of the American Academy of Arts and Sciences; 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.
<PAGE> 10
[PHOTO] DEROY C. THOMAS Age: 71 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 and the Goodspeed Opera; corporator of
St. Francis Hospital, The Institute of Living, and the VNA
Group; former trustee of Fordham University.
Committees: Compensation & Nominating (Chair) and Finance.
CLASS III DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1998
[PHOTO] MARY H. LINDSAY Age: 70 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: Employment Practice & Diversity and Compensation
& Nominating.
[PHOTO] JOHN F. MAGEE Age: 70 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, Emerson Hospital, and Thompson Island Outward Bound
Education Center
Committees: Audit, Finance, and Executive.
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<PAGE> 11
[PHOTO] CLAUDINE B. MALONE Age: 60 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 Massachusetts Institute of Technology; Chairman
of the Federal Reserve Bank of Richmond.
Committees: Finance (Chair), Audit, and Executive.
[PHOTO] RALPH Z. SORENSON Age: 63 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 President
Emeritus 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.
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 has a $30 million participation in a $300
million five-year revolving credit facility maturing October 31, 2000, extended
to the Company by a group of banks, at standard commercial terms. State Street
Bank and Trust Company is also 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
1996 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 30% 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
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, 1997.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2)(3) CLASS
- ------------------------------------------------------------ ------------------ --------
<S> <C> <C>
Joseph A. Baute............................................. 8,214 *
Nader F. Darehshori......................................... 145,028(4) *
Gail Deegan................................................. 30,308(5) *
James O. Freedman........................................... 3,984 *
Mary H. Lindsay............................................. 5,517 *
Charles R. Longsworth....................................... 6,454(6) *
John F. Magee............................................... 8,834 *
Claudine B. Malone.......................................... 5,882(7) *
Alfred L. McDougal.......................................... 3,250(8) *
Julie A. McGee.............................................. 33,970(9) *
George Putnam............................................... 6,052 *
June Smith.................................................. 25,888(10) *
Ralph Z. Sorenson........................................... 7,434(11) *
DeRoy C. Thomas............................................. 6,184 *
William J. Wisneski......................................... 43,563(12) *
All directors and executive officers as a group (24
persons).................................................. 566,632(13) 3.74%
</TABLE>
---------------
* 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. Baute, 334; Mr. Darehshori, 43,334; Ms. Deegan, 10,000; Mr.
Freedman, 334; Ms. Lindsay, 334; Mr. Longsworth, 334; Mr. Magee, 334; Ms.
Malone, 334; Mr. McDougal, 334; Ms. McGee, 15,200; Mr. Putnam, 334; Ms.
Smith, 14,000; Mr. Sorenson, 334; Mr. Thomas, 334; Mr. Wisneski, 15,200;
and all directors and executive officers as a group, 196,741 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 401(k) Savings Plan (formerly
the Retirement Savings Plan) as of December 31, 1996, the most recent date
for which such information is available.
(4) Includes 40,967 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) Includes 15,000 restricted shares as to which Ms. Deegan has sole voting
power only.
(6) Includes 550 shares owned by Mr. Longsworth's wife, as to which he
disclaims beneficial ownership.
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<PAGE> 13
(7) Includes 266 shares owned by a corporation of which Ms. Malone is sole
stockholder.
(8) Includes 416 shares owned by a trust of which Mr. McDougal is trustee.
(9) Includes 12,222 restricted shares as to which Ms. McGee has sole voting
power only.
(10) Includes 10,438 restricted shares as to which Ms. Smith has sole voting
power only.
(11) Includes 4,100 shares owned by a trust of which Dr. Sorenson is trustee.
(12) Includes 10,808 restricted shares as to which Mr. Wisneski has sole voting
power only.
(13) Six members of this group share with others voting and investment power
over 12,022 of the shares listed, and with respect to 155,572 shares the
holder has sole voting power only.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 regulations 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, 1996, all Section 16(a) filing requirements applicable
to its executive officers, directors, and greater than 10% beneficial owners
were satisfied other than an annual report on Form 5 reporting dividend
reinvestment plan acquisitions, gifts, and exempt 401(k) plan transactions by
each of Mr. Darehshori, Ms. Doherty, Ms. Hacking, Mr. Lindgren, Ms. McGee, Mr.
Oswald, Mr. Smith, Ms. Smith, Mr. Weaver, and Mr. Wisneski, which was filed one
day late due to weather-related delays.
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.
Salaries are established on the basis of data prepared by an independent
compensation consultant who relies in part on survey data 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
five of the six included in the Publishing Peer Group, a comparator group for
purposes of the Stock Performance Graph on page 14. The surveyed publishing
companies are not identical to those in the Publishing Peer Group because a
company which the Committee believes is appropriate for purposes of compensation
comparison was not eligible for inclusion in the Publishing Peer Group due to
the unavailability of public information for the requisite
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<PAGE> 14
period of time. The surveyed companies also include 16 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 performance
as an important factor in determining salary adjustments for executives. Salary
adjustments generally are effective April 1.
In determining Mr. Darehshori's salary for 1996, the Committee reviewed the
Company's operating and financial performance for 1995. The acquisition of D.C.
Heath & Company strengthened the College Division and McDougal Littell and
enabled the Company to establish a new supplemental division, Great Source
Education Group. Led by sales of the Company's new reading program, Invitations
to Literacy, which doubled its revenue budget, the School Division, the
Company's largest unit, had an excellent year. The College Division and The
Riverside Publishing Company showed good financial performance. Most of the
senior management of the Trade & Reference Division was changed to improve
profitability and bring greater focus to its publishing strategy. The launch of
the Trade & Reference Division's technology effort, Houghton Mifflin
Interactive, provided the Company with an entree into the fast-growing home
market. Sales management at Riverside was improved significantly with the hiring
of three new regional sales managers. After considering these factors, the
Committee increased Mr. Darehshori's salary from $500,000 to $525,000.
Annual incentive compensation for Mr. Darehshori and other senior
executives was determined pursuant to the terms of the 1996 Senior Executive
Incentive Compensation Plan (1996 Plan), which was approved by the Committee
early in 1996. The 1996 Plan was similar in many respects to the plans which had
been in effect in prior years, except that the payout at targeted levels of
financial performance was reduced by 10% for 1996 for all participants,
including Mr. Darehshori. The 1996 Plan provided for operating executives to
earn up to 20% of salary if budgeted levels of revenue, income, and cash flow
for the division they manage were achieved. Senior staff also could earn 20% of
salary upon achievement of budgeted levels of corporate net income, cash flow,
and return on average capital employed. Mr. Darehshori could earn up to 30% of
salary if the Company achieved budgeted levels of net income, cash flow, and
return on average capital employed. In addition, all executives, including Mr.
Darehshori, covered by the 1996 Plan could earn up to 10% of salary depending on
the extent of achievement of specific individual operating objectives which were
agreed upon early in 1996. In order to earn incentive compensation for a given
financial objective, at least 80% of that objective must be achieved and the
weighted average achievement for all financial factors must exceed 70% of
budget. If the results for any financial factor exceed budget, additional
amounts may be earned. The maximum payment under the Plan is 100% of salary. All
amounts earned in excess of 40% of salary are paid in three-year restricted
common stock of the Company. Mr. Darehshori's incentive award pursuant to the
1996 Plan was $202,125.
11
<PAGE> 15
During 1996, the Committee considered appropriate remuneration for Mr.
Darehshori with respect to the INSO spinoff and SAILS transactions. These
transactions provided the Company with the financial resources to purchase
McDougal Littell and D.C. Heath & Company, acquisitions which are considered
integral to the Company's future growth and continued success. Based on
information provided by its independent compensation consultant, the Committee
awarded Mr. Darehshori 14,414 shares of restricted common stock of the Company.
The stock is subject to forfeiture for three years, and is further subject to
acceleration or deferral of vesting under certain circumstances.
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 directors and other
executive officers of the Company to hold meaningful equity stakes in the
Company, in part to ensure 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 prior years, the Committee's primary method of increasing the equity
ownership of Mr. Darehshori and the other members of senior management was
through the grant of options to purchase the Company's stock and performance
share awards. In 1994, the Company granted Mr. Darehshori and the other senior
executives of the Company performance shares which are to be earned depending on
the compound rate of appreciation of pre-tax operating income, including
interest costs, during the period 1995-1997. Each performance share represents
the right to receive a sum based on the value of the Company's stock, half of
which is payable in common stock of the Company and half of which is payable in
cash. No payment will be made if the threshold set under the plan is not
achieved.
Late in 1996 the Company reviewed the results of a study, prepared by its
independent compensation consultant, of the effectiveness of its stock option
program in increasing the share ownership of Mr. Darehshori and the other senior
executives. After reviewing the study, the Committee decided to award shares of
performance restricted stock to Mr. Darehshori and the other executives
effective early in 1997, in lieu of stock options for the years 1996 and 1997.
Depending on the extent to which specified levels of financial plans are
achieved, the shares may vest at the end of 1998; if the specified level of
financial performance is not achieved at that date, the shares will vest at end
of the year 2001, provided in either case that the executive remains in the
Company's employ through that date.
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.
12
<PAGE> 16
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, 1991, 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 six companies with significant
publishing activities, for the period from December 31, 1991, to December 31,
1996. The companies in the peer group are Golden Books Family Entertainment,
Inc. (successor to Western Publishing Group, Inc.); Harcourt General Inc.;
McGraw-Hill, Inc.; Thomas Nelson, Inc.; Waverly, 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 $28.50 on December 31, 1991, and $56.625 on December
31, 1996.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HOUGHTON MIFFLIN COMPANY, S&P MIDCAP 400 INDEX, AND PUBLISHING PEER GROUP
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD HOUGHTON MIFFLIN S & P MIDCAP 400
(FISCAL YEAR COVERED) COMPANY INDEX PEER GROUP
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 143.46 111.81 141.25
1993 178.39 127.53 158.28
1994 169.65 122.96 157.40
1995 164.08 161.00 199.40
1996 220.46 191.91 219.61
</TABLE>
Total return data provided by S&P's Compustat Services, Inc.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company during 1996, for each of the three years ended December
31, 1994, 1995, and 1996, for services rendered to the
13
<PAGE> 17
Company and its subsidiaries. Information is furnished for each full fiscal year
during which such persons were executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL
COMPENSATION AWARDS
-------------------------------- ------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) (#) ($)(2)
- -------------------------- ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori....... 1996 $518,750 $202,125 $ 0 $599,983(3) 0 $193,385(4)
Chairman, President, 1995 488,750 150,000 0 0 20,000 202,032
and Chief Executive 1994 443,750 267,652 33,853(5) 63,673 46,686(6) 332,188
Officer
William J. Wisneski....... 1996 285,750 43,500 0 0 0 25,440(7)
Executive Vice 1995 269,750 84,570 0 0 12,000 27,174
President 1994 257,000 104,022 0 33,128(8) 24,200(6) 31,889
Julie A. McGee............ 1996 230,000 94,030 0 85,745(9) 0 38,567(10)
Executive Vice 1995 210,000 25,050 0 0 12,000 47,927
President 1994 93,750 65,000 0 27,266 22,334(6) 38,097
June Smith................ 1996 228,750 93,998 0 24,090(11) 0 32,651(12)
Executive Vice 1995 207,500 51,000 0 0 12,000 36,850
President 1994 164,157 31,534 0 0 13,173(6) 38,587
Gail Deegan............... 1996 246,111 70,083 0 216,250(13) 15,000 41,343(14)
Executive Vice (15)
President and
Chief Financial
Officer
</TABLE>
- ---------------
(1) The restricted shares awarded for 1994 were awarded on January 24, 1995 as
part of the 1994 bonus; the restricted shares awarded for 1996 (other than
those awarded to Mr. Darehshori and Ms. Deegan) were awarded on January 28,
1997 as part of the 1996 bonus. All restricted 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 shares at the same rate as is
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) As of December 31, 1996, restricted shares held totaled 16,432 shares,
having a then-current market value of $930,462.
(4) Includes $4,500 in Company contributions to the 401(k) Savings Plan
(formerly the Retirement Savings Plan); $5,000 under the defined
contribution component of the Supplemental Benefits Plan; $13,847 as the
term portion of split-dollar life insurance premiums; and $170,038 as the
non-term portion of such premium.
14
<PAGE> 18
(5) Payment to cover estimated tax liability in connection with the award of
bonus shares.
(6) Includes options granted pursuant to the Company's Executive Stock Purchase
Plan, which were exercisable only on the date of grant.
(7) Includes $4,297 in Company contributions to the 401(k) Savings Plan; $4,070
under the defined contribution component of the Supplemental Benefits Plan;
$3,590 as the term portion of split-dollar life insurance premiums; and
$13,483 as the non-term portion of such premium.
(8) As of December 31, 1996, restricted shares held totaled 808 shares, having
a then-current market value of $45,753.
(9) As of December 31, 1996, restricted shares held or to be awarded for the
year then ended totaled 2,222 shares, having a then-current market value of
$125,821. Of this amount, $88,278 was attributable to 1,559 shares awarded
on January 28, 1997 as part of the bonus for the year ended December 31,
1996.
(10) Includes $4,500 in Company contributions to the 401(k) Savings Plan; $2,400
under the defined contribution component of the Supplemental Benefits Plan;
$4,522 as the term portion of split-dollar life insurance premiums; and
$27,145 as the non-term portion of such premium.
(11) As of December 31, 1996, restricted shares held or to be awarded for the
year then ended totaled 438 shares, having a then-current market value of
$24,802, all of which was attributable to the shares awarded on January 28,
1997 as part of the bonus for the year ended December 31, 1996.
(12) Includes $4,500 in Company contributions to the 401(k) Savings Plan; $833
under the defined contribution component of the Supplemental Benefits Plan;
$2,829 as the term portion of split-dollar life insurance premiums; and
$24,489 as the non-term portion of such premium.
(13) As of December 31, 1996, restricted shares held totaled 5,000 shares,
having a then-current market value of $283,125.
(14) Includes $4,808 as the term portion of split-dollar life insurance
premiums; and $36,535 as the non-term portion of such premium.
(15) Ms. Deegan became Executive Vice President and Chief Financial Officer in
February 1996.
The Company created the Executive and Non-Employee Director Stock Purchase
Plans in August 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%
15
<PAGE> 19
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, 1996 is the same as the amount currently outstanding. Directors: Mr. Baute,
$95,892; Mr. Longsworth, $95,892; Dr. Sorenson, $95,892. Director and executive
officer: Mr. Darehshori, $1,279,476. Executive officers: Ms. Doherty, $295,249;
Ms. Hacking, $298,653; Ms. McGee, $303,687; Mr. Oswald, $438,702; Mr. Smith,
$223,858; Mr. Weaver, $238,481; Mr. Wisneski, $584,936.
PENSION PLAN
Through December 31, 1996, the Company maintained 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 was 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 fifteen 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 fewer than five years of
service has no vested pension benefit.
As of January 1, 1997, the Company amended the Pension Plan, which was
renamed the Houghton Mifflin Retirement Plan (the "Retirement Plan"), to provide
retirement benefits to employees using a different method of calculating the
benefit. A Retirement Plan account has been established for each employee based
on his or her earnings under the Pension Plan. The Company will credit each
employee's account with additional credits based on service and earnings, and
for interest on the accumulated balance. When an employee retires or leaves the
Company, he or she has the option to convert this account to an annuity benefit,
to leave the account in the Retirement Plan where it will continue to accumulate
interest, or to take the account balance as a lump sum payment for rollover to
an outside retirement investment. An employee whose employment terminates with
fewer than five years of service has no vested pension benefit under the
Retirement Plan.
For purposes of calculating the Company's contribution to both the Pension
Plan and the Retirement 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, 1997).
16
<PAGE> 20
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFIT FUNDED BY THE COMPANY
AVERAGE ANNUAL FOR YEARS OF PARTICIPATION INDICATED
COMPENSATION (SINGLE LIFE ANNUITY AFTER SOCIAL SECURITY OFFSET)(2)
FOR FIVE HIGHEST --------------------------------------------------------------------------
CONSECUTIVE YEARS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- ---------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$125,000.................... $ 27,300 $ 36,300 $ 45,500 $ 54,500 $ 57,600 $ 60,800
150,000.................... 33,500 44,700 56,000 67,000 70,800 74,500
175,000.................... 39,800 53,000 66,400 79,500 83,900 88,300
200,000.................... 46,000 61,300 76,800 92,000 97,000 102,000
225,000.................... 52,300 69,600 87,200 104,500 110,100 115,800
250,000.................... 58,500 78,000 97,700 117,000 123,300 129,500
300,000.................... 71,000 94,600 118,500 142,000 149,500 157,000
400,000.................... 96,000 127,900 160,200 192,000 202,000 212,000
450,000.................... 108,500 144,600 181,100 217,000 228,300 239,500
500,000.................... 121,000 161,200 201,900 242,000 254,500 267,000
550,000.................... 133,500 177,900 222,800 267,000 280,800 294,500
600,000.................... 146,000 194,500 243,600 292,000 307,000 322,000
650,000.................... 158,500 211,200 264,500 317,000 333,300 349,500
700,000.................... 171,000 227,800 285,300 342,000 359,500 377,000
750,000.................... 183,500 244,500 306,200 367,000 385,800 404,500
800,000.................... 196,000 261,100 327,000 392,000 412,000 432,000
850,000.................... 208,500 277,800 347,000 417,000 438,300 459,500
<FN>
- ---------------
(1) As of December 31, 1996, Mr. Darehshori, Mr. Wisneski, Ms. McGee, Ms. Smith,
and Ms. Deegan were credited with 31, 7, 3, 5, and 11 years, respectively,
and, for the fiscal year ended December 31, 1996, the compensation that will
be taken into account by the Pension Plan, the Retirement Plan, and the
Supplemental Benefits Plan (described in note (2) below) for Mr. Darehshori,
Mr. Wisneski, Ms. McGee, Ms. Smith, and Ms. Deegan is $690,339, $379,730,
$253,992, $287,399, and $253,269, 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, 1997, the Internal Revenue Code limits the annual
benefit payable under the Retirement Plan at normal retirement to $125,000
and the amount of 1997 compensation that can be considered under the
Retirement Plan to $160,000. 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
Retirement Plan and their regular pension as calculated under the formula
above.
</TABLE>
CHANGE-IN-CONTROL ARRANGEMENTS
Senior Executives' Severance Agreements. Fifteen executive officers,
including the executive officers named in the Summary Compensation Table, have
severance agreements with the Company. These agreements expire on December 31,
1998, and are automatically extended on an
17
<PAGE> 21
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 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 managers' 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-
18
<PAGE> 22
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.
Restricted Stock. All restricted stock subject to vesting periods,
including shares held by the executive officers named in the Summary
Compensation Table, shall vest immediately upon a change of control, defined in
a manner similar to the definition in the Senior Executives' Severance
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.
19
<PAGE> 23
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, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- 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>
Gail Deegan.......... 15,000 9.03% $ 43.25 2/25/01 $ 179,238 $ 396,068
<FN>
- ---------------
* No grants were made to the other officers named in the Summary Compensation
Table.
</TABLE>
The following table shows, with respect to each individual named below,
information concerning the exercise of options during the year ended December
31, 1996, and unexercised options held as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
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........... 0 $ 0 43,334/ 6,666 $527,926/$ 93,324
William J. Wisneski........... 0 0 15,200/12,800 $185,200/$163,300
Julie A. McGee................ 0 0 14,400/13,600 $168,600/$168,400
June Smith.................... 1,600 18,200 14,000/12,400 $174,400/$158,450
Gail Deegan................... 0 0 5,000/10,000 $ 67,500/$135,000
<FN>
- ---------------
(1) Market value of underlying securities at exercise or year-end, minus the exercise or base price.
</TABLE>
The following table provides information concerning performance share
awards made during the year ended December 31, 1996 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.
20
<PAGE> 24
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD --------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME* RIGHTS(#) OR PAYMENT (#) (#) (#)
----- ------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Gail Deegan................ 2,500 1/1/95-12/31/97 1,250 1,875 2,500
<FN>
- ---------------
*No awards were made to the other officers named in the Summary Compensation Table.
</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, 1997. The Board believes, however, that it is desirable
to obtain stockholder ratification of the selection of the Company's independent
auditors. During 1996 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.
PRINCIPAL STOCKHOLDERS
The following table shows the beneficial ownership of common stock of the
Company as of December 31, 1996 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, including the beneficial ownership by Franklin Resources, Inc. and its
related group members and Morgan Stanley Group Inc. and its subsidiary, Morgan
Stanley Asset Management Limited.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER PERCENT OF CLASS BENEFICIAL OWNERSHIP
------------------- ---------------- --------------------
<S> <C> <C>
Franklin Resources, Inc. 6.4% 935,200 shares -- sole voting power
777 Mariners Island Blvd. and dispositive power
San Mateo, CA 94404
Morgan Stanley Group Inc. 5.09% 693,600 shares -- shared voting power
1585 Broadway 744,850 shares -- shared dispositive
New York, N.Y. 10036 power
State Street Bank and Trust 5.1% 741,785 shares -- sole voting power
Company, Trustee 8,000 shares -- shared voting power
225 Franklin Street 63,700 shares -- sole dispositive
Boston, MA 02110 power
686,085 shares -- shared dispositive
power
</TABLE>
21
<PAGE> 25
PROPOSALS OF STOCKHOLDERS FOR CONSIDERATION AT THE 1998 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 1998, it must be
received at the Company's executive offices in Boston on or before November 23,
1997. 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 1998 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
31, 1997, and February 13, 1998. In the case of a special meeting, or if the
Annual Meeting is called for a date prior to February 13, 1998, 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
PROXY
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
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 30, 1997, 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 1996 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 |
<PAGE> 27
To our shareholders:
This proxy card consolidates all registered shares owned by you, whether those
shares were accumulated through purchase, through the Houghton Mifflin Company
401(k) Plan (formerly known as the Retirement Savings Plan or the Employee
Savings and Thrift Plan), or through the Employee Stock Ownership Plan (ESOP)
which was in effect during the years 1981 through 1983 under the 401(k) Plan.
Shares which you have purchased through a broker and are held in street name
are not included in this proxy; your broker will solicit your vote on those
shares directly.
It is important that your shares be represented whether or not you attend the
Company's annual meeting on April 30, 1997. Therefore, we urge you to register
your vote now by completing, signing, and returning the enclosed proxy card
promptly.
The following legend describes the codes used below to identify the source of
your shares. If you have any questions concerning the codes or the share
ownership shown below, please contact the transfer agent, Bank of Boston, at
(800) 730-4001.
CODE DESCRIPTION
---- -----------
COM Common Stock
HM1 401(k) Plan stock; employee's contribution
HM2 401(k) Plan stock; employer's contribution
HM3 401(k) Plan stock; acquired through ESOP
INS 401(k) Plan stock; held in INSO Corporation 401(k) Plan
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. Election Class II Directors for a three-year term.
NOMINEES: James O. Freedman, Charles R. Longsworth,
Alfred L. McDougal
FOR WITHHELD
[ ] [ ]
[ ]__________________________________________
For all nominees except as noted above.
Signature: _________________________________________ Date: __________________
FOR AGAINST ABSTAIN
2. Ratify Ernst & Young LLP as [ ] [ ] [ ]
independent auditors for 1997.
3. Transact such other business as [ ] [ ] [ ]
may properly come before the
Meeting.
MARK HERE [ ] MARK HERE [ ]
FOR ADDRESS IF YOUR 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: __________________
