<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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $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:
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5) Total fee paid:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] 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 30, 1998
Dear Stockholder:
I am delighted to invite you to attend the 1998 Annual Meeting of
Stockholders of Houghton Mifflin Company on Wednesday, April 29, 1998, at 10:00
A.M. at the Dorothy Quincy Suite, John Hancock Hall, 180 Berkeley Street,
Boston, Massachusetts.
This booklet includes the Notice of Annual Meeting and the Proxy Statement.
The Proxy Statement describes the business that we will conduct at the meeting
and provides information about the Company. After the formal business of the
meeting, we will report to you on Houghton Mifflin's 1997 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 TO VOTE NOW BY COMPLETING, SIGNING, AND
RETURNING THE ENCLOSED PROXY CARD PROMPTLY. If you attend the meeting and prefer
to vote in person, you may do so even if you have returned your proxy card.
Sincerely,
/s/ Nader F. Darehshori
Nader F. Darehshori
Chairman, President, and
Chief Executive Officer
<PAGE> 3
1998 NOTICE OF ANNUAL MEETING
Boston, Massachusetts
March 30, 1998
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 29, 1998, at 10:00 A.M. At the meeting, we
will ask you to:
1. Elect five directors, each for a three-year term;
2. Approve the Company's 1998 Stock Compensation Plan;
3. Ratify the selection of Ernst & Young LLP as independent auditors of the
Company for 1998; and
4. Consider any other matters that may properly come before the meeting and
any adjournments.
By Order of the Board of Directors,
Paul D. Weaver, Clerk
WHETHER OR NOT YOU ATTEND IN PERSON, PLEASE FILL IN AND SIGN THE ENCLOSED
PROXY CARD 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 CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
VOTING...................................................... 1
Who Can Vote........................................... 1
How to Vote............................................ 1
Quorum and Vote Necessary for Action................... 2
BOARD OF DIRECTORS.......................................... 3
Board Structure........................................ 3
Committees of the Board................................ 3
Directors' Compensation................................ 5
PROPOSAL 1 -- ELECTION OF CLASS III DIRECTORS............... 6
Nominees for Class III Directors -- Term Expires in
2001.................................................. 6
Class II Directors Continuing in Office -- Term Expires
in 2000............................................... 7
Class I Directors Continuing in Office -- Term Expires
in 1999............................................... 8
RELATED PARTY TRANSACTIONS WITH DIRECTORS................... 10
STOCK OWNERSHIP............................................. 10
Directors and Officers................................. 10
Principal Stockholders................................. 13
Section 16(a) Beneficial Ownership Reporting
Compliance............................................ 13
COMPENSATION & NOMINATING COMMITTEE'S REPORT TO
STOCKHOLDERS.............................................. 13
Introduction........................................... 13
Determining How to Compensate Executives............... 13
Salary................................................. 14
Incentive Compensation................................. 14
Company Stock.......................................... 15
IRS Limits on Tax Deductibility of Compensation........ 15
STOCK PERFORMANCE GRAPH..................................... 16
EXECUTIVE COMPENSATION...................................... 17
STOCK COMPENSATION PLAN..................................... 18
RETIREMENT PLAN............................................. 19
CHANGE-IN-CONTROL ARRANGEMENTS.............................. 20
Severance Agreements................................... 20
Stock Compensation Plan and Supplemental Benefits
Trust................................................. 21
PROPOSAL 2 -- ADOPTION OF THE 1998 STOCK COMPENSATION
PLAN...................................................... 21
Purpose and Administration............................. 22
Number of Shares Authorized............................ 22
Types of Grants........................................ 22
Payment of Exercise Price.............................. 22
Amendment.............................................. 23
Current Stock Information.............................. 23
New Plan Benefits Table................................ 23
Federal Income Tax Consequences--1998 Plan............. 23
Stock Options.......................................... 23
Restricted Stock and Other Stock Awards................ 24
Approval of the 1998 Plan.............................. 24
PROPOSAL 3 -- RATIFICATION OF INDEPENDENT AUDITORS.......... 24
OTHER INFORMATION........................................... 24
Stockholder Proposals.................................. 24
Expenses of Soliciting Proxies......................... 25
APPENDIX A--1998 STOCK COMPENSATION PLAN.................... A-1
</TABLE>
i
<PAGE> 5
HOUGHTON MIFFLIN COMPANY
222 Berkeley Street
Boston, Massachusetts 02116
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
APRIL 29, 1998
GENERAL INFORMATION
The Board of Directors of Houghton Mifflin Company is soliciting proxies to
be used at the 1998 Annual Meeting. On March 30, 1998, we will begin sending
this Proxy Statement, the attached Notice of Annual Meeting, and the enclosed
proxy card to all stockholders entitled to vote. We are also sending, along with
this Proxy Statement, the Houghton Mifflin 1997 Annual Report, which includes
our financial statements.
VOTING
Who Can Vote
Stockholders who owned Houghton Mifflin common stock at the close of
business on March 4, 1998 are entitled to vote. On this record date, there were
30,304,854 shares of Houghton Mifflin common stock outstanding. Common stock is
our only class of voting stock. Each share of Houghton Mifflin common stock that
you own entitles you to one vote. The proxy card shows the number of shares that
you own, including shares employees own through participation in the Company's
401(k) Savings Plan.
How to Vote
You can vote on matters that come before the meeting in two ways:
- You can come to the Annual Meeting and vote there; or
- You can vote by signing and returning the enclosed proxy card. If you
do, the individuals named on the card as proxies will vote your shares
following your directions.
If you sign and return the proxy card but don't make specific choices, we
will vote your shares "for" the election of all nominees for director, "for"
approval of the 1998 Stock Compensation Plan, and "for" ratification of the
selection of independent auditors for 1998. If any other matters are presented
for action at the meeting, we will vote your shares according to our best
judgment. At the time this Proxy Statement was printed, we knew of no matters to
be voted on at the Annual Meeting other than those discussed in this Proxy
Statement.
If you received more than one proxy card, it means that your shares are
registered differently and are in more than one account. You must sign and
return all proxy cards to be sure that all your
<PAGE> 6
shares are voted. To provide better stockholder service and prevent mailing
duplicate materials, we encourage you to have all accounts registered in the
same name and address. You may do this by contacting our transfer agent, Boston
EquiServe, at (800) 730-4001.
You may revoke your proxy after you have signed and returned it at any time
before the proxy is voted at the meeting. There are three ways to revoke your
proxy:
- You may send in another proxy card with a later date;
- You may notify the Company's Clerk in writing before the Annual
Meeting that you have revoked your proxy; or
- You may vote in person at the Annual Meeting.
Whether or not you plan to attend the meeting in person, please fill in and
sign the enclosed proxy card and return it promptly. If you do attend the
meeting, you may, of course, vote your shares even though you have sent in your
proxy card. However, simply attending the meeting will not revoke your proxy if
you do not vote at the meeting.
Quorum and Vote Necessary for Action
A quorum of stockholders is necessary to hold a valid meeting. A majority
of the outstanding shares, present in person or represented by proxy,
constitutes a quorum. If you have returned a properly signed proxy card, you
will be considered present at the meeting and part of the quorum. Abstentions
are counted as shares present at the meeting in determining whether a quorum
exists, and have the effect of a "no" vote on matters other than director
elections.
Under the rules of the New York Stock Exchange, if your broker holds your
shares in its name (or "street" name) the broker may vote on the election of
directors and ratification of auditors even if it does not receive your
instructions. Your broker may not vote for or against approval of the 1998 Stock
Compensation Plan without your direction. Under Massachusetts law and the
Company's By-laws, proxies submitted by brokers that do not indicate a vote for
some or all of the proposals because they do not have discretionary voting
authority and haven't received instructions on how to vote on those proposals
(so-called "broker non-votes") are not considered present at the meeting and
will not affect the outcome of votes taken at the meeting. However, because
these shares do not count as "shares present," they reduce the number of
affirmative votes needed for approval of a proposal. Broker non-votes will have
the effect of a "no" vote on proposals that require approval by a majority of
all outstanding shares.
Directors are elected by a plurality vote of shares present at the meeting,
meaning that the nominee with the most affirmative votes for a particular seat
is elected for that slot. If you do not vote for a particular nominee, or if you
indicate "withhold authority to vote" for a particular nominee on your proxy
card, your vote will not count either "for" or "against" the nominee. A broker
non-vote will also have no effect on the outcome of an uncontested election of
directors because only a plurality of votes actually cast is required to elect a
director.
Under Massachusetts law and the Company's By-laws the affirmative vote of a
majority of the shares present at the meeting is required to approve the 1998
Stock Compensation Plan. In addition, the rules of the New York Stock Exchange
require that a majority of the outstanding shares must actually vote on this
proposal (with abstentions counting as shares voted, but broker non-votes not
counting as shares voted), and "yes" votes must constitute a majority of the
quorum. The affirmative vote of a majority of the shares present at the meeting
is required to ratify the selection of the independent auditor. If you abstain
from voting, it has the same effect as a vote against each of these proposals.
2
<PAGE> 7
BOARD OF DIRECTORS
Board Structure
The Board of Directors oversees the Company's business and affairs and
monitors the performance of management, but is not involved with day-to-day
operations. The directors meet regularly with the Chairman, other key senior
executives, and our independent auditors; read reports and other materials that
we send them; and participate in Board and committee meetings.
The Board currently consists of 12 members, divided into three classes with
one class elected each year at the Annual Meeting for a term of three years. The
terms of office for the Class III directors expire at this meeting. The Board
voted to increase its size to 12 in January 1998 in preparation for the
retirement of DeRoy C. Thomas, a Class I director, by electing Robert J. Tarr,
Jr. as a Class III director. Under the Company's retirement policy, Mr. Thomas
will be retiring from the Board at the Annual Meeting. The Board decided to add
a director prior to Mr. Thomas's retirement to help ensure a smooth transition,
and determined that the new director should join Class III both to permit the
stockholders the opportunity to vote as soon as possible and to provide greater
Board continuity.
The Board has voted to fix the number of directors for 1998 at 11. At this
Annual Meeting, five nominees in Class III are up for election. These nominees
are Mary H. Lindsay, John F. Magee, Claudine B. Malone, Ralph Z. Sorenson, and
Robert J. Tarr, Jr. Each of the nominees is now a member of the Board of
Directors.
The Board met 9 times during 1997. All directors attended at least 75% of
the combined number of meetings of both the Board and of committees on which
they served.
Committees of the Board
The Board of Directors has appointed five standing committees elected from
its own members. Except for the Executive Committee, which Mr. Darehshori
chairs, all committees are composed of independent, non-employee directors.
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>
<S> <C> <C>
Compensation & Employment Practice &
Audit Nominating Diversity
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
Mr. Tarr
Executive Finance
Mr. Darehshori, Chair Ms. Malone, Chair
Mr. Baute Mr. Freedman
Mr. Magee Mr. Magee
Ms. Malone Mr. Putnam
Mr. Putnam Mr. Thomas
Mr. Tarr
</TABLE>
3
<PAGE> 8
Audit Committee 5 meetings in 1997
- 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;
- Reviews the Company's information, reporting, and internal control
systems with the goal of assuring that these 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; and
- Conducts any necessary investigations into any matters concerning the
integrity of reported facts and figures, ethical conduct, and appropriate
disclosure.
Compensation & Nominating Committee 3 meetings in 1997
- Reviews and recommends compensation plans for the Company's senior
management;
- 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; and
- Considers timely recommendations for nominations to the Board submitted
by stockholders.
Employment Practice & Diversity Committee 2 meetings in 1997
- 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 1 meeting in 1997
- Acts for the Board as necessary when the Board is not in session; and
- Supervises and reviews the Company's policies and procedures relating to
corporate governance and legal compliance.
Finance Committee 3 meetings in 1997
- 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.
4
<PAGE> 9
Directors' Compensation
We compensate directors who are not employees of the Company as follows:
<TABLE>
<S> <C>
Annual Retainer: $10,000
Attendance Fees: $700 for each Board meeting
$500 for each committee meeting
Executive Committee Retainer: $4,000 annually instead of meeting fees
Committee Chair Retainer: $2,500 annually
Stock Compensation 1,000 shares annually
Options for 2,000 shares annually
</TABLE>
Shares of Company stock and stock options are prorated for less than
full-year service on the Board. Directors who are employees receive no
compensation for attendance at Board or committee meetings.
Under the Company's deferred compensation plan for non-employee directors,
directors may defer all or a portion of their cash compensation until they
retire from the Board. Interest is credited on deferred balances annually at the
average 60-day Treasury-bill yield. No directors participated in the plan during
1997.
We provide non-employee directors or their beneficiaries with a retirement
benefit of one-and-one-half times the directors' annual cash retainer in effect
at the time of retirement, for a period equal to the time of service as a
director.
As part of our support of charitable giving, we have established a planned
gift program for directors funded by life insurance policies on directors. Upon
the retirement of a director, we will donate $500,000, in 20 annual
installments, to one or more qualifying charitable organizations recommended by
the individual director. The program is funded by life insurance policies on the
directors purchased by the Company, payable to the Company as beneficiary.
Individual directors derive no financial benefit from this program.
5
<PAGE> 10
PROPOSAL 1 -- ELECTION OF CLASS III DIRECTORS
The shares represented by your proxy card will be voted "for" the election
of the Class III nominees named below, unless you withhold authority to vote. If
any of the nominees should become unavailable, your shares will be voted for
another nominee proposed by the Board.
Except as noted, each of the nominees and directors has held his or her
principal position for at least five years.
NOMINEES FOR CLASS III DIRECTORS--TERM EXPIRES IN 2001
[PHOTO]
MARY H. LINDSAY Age: 71 Director Since: 1975
Other Business Affiliations: Member of the President's Council of the Museum of
the City of New York and ex officio member of the Board of
Directors of Theatre Development Fund, Inc.
Committees: Employment Practice & Diversity and Compensation & Nominating.
[PHOTO]
JOHN F. MAGEE Age: 71 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.
[PHOTO]
CLAUDINE B. MALONE Age: 61 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.
6
<PAGE> 11
[PHOTO]
RALPH Z. SORENSON Age: 64 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, and Whole Foods
Market, 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.
[PHOTO]
ROBERT J. TARR, JR. Age: 54 Director Since: 1998
Principal Occupation or Employment: Mr. Tarr was President, Chief Executive
Officer, and Chief Operating Officer of Harcourt General, Inc.
and The Neiman Marcus Group from 1991 through January 1997.
Other Business Affiliations: Director of John Hancock Mutual Life Insurance
Company.
Committees: Compensation & Nominating and Finance.
CLASS II DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 2000
[PHOTO]
JAMES O. FREEDMAN Age: 62 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.
7
<PAGE> 12
[PHOTO]
CHARLES R. LONGSWORTH Age: 68 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: 67 Director Since: 1994
Principal Occupation or Employment: Mr. McDougal is President of ALM
Corporation, a business management services company. 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.
CLASS I DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 1999
[PHOTO]
JOSEPH A. BAUTE Age: 70 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, INSO
Corporation, and Metrika Corporation, and past Chairman of the
Board of the Federal Reserve Bank of Boston.
Committees: Audit (Chair) and Executive.
8
<PAGE> 13
[PHOTO]
NADER F. DAREHSHORI Age: 61 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 Dana-Farber National Advisory Council for the
Women's Cancers Program.
Committees: Executive (Chair).
[PHOTO]
GEORGE PUTNAM Age: 71 Director Since: 1985
Principal Occupation or Employment: Mr. Putnam is Chairman of Putnam
Investment Management Co. and Chairman and President of each
of the Putnam Funds.
Other Business Affiliations: Director of Freeport-McMoRan Copper and Gold, Inc.
and Marsh & McLennan Companies, Inc.; trustee of the Museum of
Fine Arts, Boston, the Massachusetts General Hospital, McLean
Hospital, Vincent Memorial Hospital, 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.
[PHOTO]
DEROY C. THOMAS Age: 72 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, Hartford
Life Inc., Rayioner Timberlands, Inc., and MedSpan, Inc.;
chairman of 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.
Mr. Thomas will retire as a director after the Annual Meeting.
9
<PAGE> 14
RELATED PARTY TRANSACTIONS WITH DIRECTORS
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 Retirement Trust and
Benefits Trust, and is Trustee under the Company's Indenture relating to the
issuance of debt securities. William Mercer Inc., a subsidiary of Marsh &
McLennan Companies, Inc., of which Mr. Putnam is a director, provided consulting
services to the Company during 1997 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
27% of INSO's common stock, and has licensed rights to certain reference
publications to INSO, at rates that we believe are commercially reasonable.
STOCK OWNERSHIP
Directors and Officers
The following table shows how much Company stock each director, nominee,
executive named in the Summary Compensation Table, and all directors and
executive officers as a group owned as of January 31, 1998. The term "beneficial
ownership" includes shares held both directly and indirectly (such as through a
trust), shares which a director or officer may vote or transfer (even if these
powers are shared), options which are exercisable currently or within 60 days,
and, under some circumstances, shares held by family members. We expect
directors and executive officers to establish and maintain a meaningful stock
ownership position in the Company that reflects the common interest they share
with stockholders in the Company's performance.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2)(3) OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
Joseph A. Baute............................................. 18,346 *
Albert Bursma, Jr. ......................................... 52,854 *
Nader F. Darehshori......................................... 309,627(4) 1.02%
Gail Deegan................................................. 73,695 *
James O. Freedman........................................... 10,302 *
Mary H. Lindsay............................................. 13,368 *
Charles R. Longsworth....................................... 15,142(5) *
John F. Magee............................................... 20,002 *
Claudine B. Malone.......................................... 14,123(6) *
Alfred L. McDougal.......................................... 8,834(7) *
Julie A. McGee.............................................. 82,876 *
George Putnam............................................... 14,438 *
June Smith.................................................. 65,802 *
Ralph Z. Sorenson........................................... 17,202 *
Robert J. Tarr, Jr.......................................... 2,500 *
DeRoy C. Thomas............................................. 14,702 *
*
All directors and executive officers as a group (26
persons).................................................. 1,259,355 4.11%
</TABLE>
- ---------------
* Less than one percent
10
<PAGE> 15
(1) Except as described in this note, the holder has sole voting and investment
power over the shares listed. The following list shows the officers holding
restricted shares; the holder has only sole voting power over the listed
shares, but does not have investment power.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Mr. Darehshori.......................................... 81,398
Ms. Deegan.............................................. 30,920
Ms. McGee............................................... 23,824
Ms. Smith............................................... 21,977
Mr. Bursma.............................................. 20,000
</TABLE>
Three members of the group composed of all directors and executive officers
share with others voting and investment power over 17,406 of the shares
listed, and the holder has sole voting power only over 332,922 of the
shares listed.
(2) Includes shares that may be acquired upon exercise of stock options that
were exercisable on January 31, 1998, or that will become exercisable within
60 days after January 31, 1998. The following list shows the number of
shares.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Mr. Baute............................................... 2,002
Mr. Bursma.............................................. 30,000
Mr. Darehshori.......................................... 100,000
Ms. Deegan.............................................. 30,000
Mr. Freedman............................................ 2,002
Ms. Lindsay............................................. 2,002
Mr. Longsworth.......................................... 2,002
Mr. Magee............................................... 2,002
Ms. Malone.............................................. 2,002
Mr. McDougal............................................ 2,002
Ms. McGee............................................... 41,600
Mr. Putnam.............................................. 2,002
Ms. Smith............................................... 37,600
Mr. Sorenson............................................ 2,002
Mr. Thomas.............................................. 2,002
All directors and executive officers as a group (26
persons).............................................. 455,620
</TABLE>
In calculating the "percent of class," the shares subject to these options
have been treated as if they were issued and outstanding.
(3) Includes shares held as a participant in the 401(k) Savings Plan as of
December 31, 1997, the most recent date for which such information is
available.
(4) Includes 622 shares owned by Mr. Darehshori's wife and 311 shares held by
Mr. Darehshori's wife as custodian for a minor child.
(5) Mr. Longsworth has reported and disclaimed beneficial ownership of 1,200
shares owned by his wife.
(6) All shares are owned by a corporation of which Ms. Malone is sole
stockholder.
(7) Includes 2,832 shares owned by a trust of which Mr. McDougal is trustee.
11
<PAGE> 16
We created the Executive and Non-Employee Director Stock Purchase Plans in
August 1994 to encourage our directors and executive officers to increase their
ownership of the Company's common stock. Under these plans, nine directors and
twelve 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 will 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 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 can decide what portion, if any, we will
bear of a loss, 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 is 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 will bear 100% of any loss in the event of sale of these shares after
the death or disability of a director-participant but before the fifth
anniversary of purchase.
In connection with these plans, we 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% annually. Loans to employee-participants are secured
by the shares. The following list shows the highest amount outstanding under any
of these loans that exceeds $60,000 since January 1, 1997, which is the same as
the amount currently outstanding. Directors: Mr. Baute, $101,881; Mr.
Longsworth, $101,881; Dr. Sorenson, $101,881. Director and executive officer:
Mr. Darehshori, $1,359,402. Executive officers: Ms. Doherty, $313,692; Ms.
Hacking, $317,309; Mr. Logue, 223,476; Ms. McGee, $322,658; Mr. Oswald,
$466,107; Mr. Smith, $237,842; Mr. Weaver, $253,379.
12
<PAGE> 17
Principal Stockholders
The following table shows, as of December 31, 1997, all persons we know to
be beneficial owners of more than 5% of the Company's common stock. This
information is based on Schedule 13G reports filed with the Securities and
Exchange Commission ("SEC") by each of the firms listed in the table. These
reports have additional information about the beneficial ownership by these
firms; you may obtain copies from the SEC.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER PERCENT OF CLASS BENEFICIAL OWNERSHIP
------------------- ---------------- --------------------
<S> <C> <C>
Franklin Resources, Inc. 12.0% 3,633,200 shares -- sole voting power and
777 Mariners Island Blvd. dispositive power
San Mateo, CA 94404
Morgan Stanley, Dean Witter, 8.33% 2,375,911 shares -- shared voting power
Discover & Co. 2,512,611 shares -- shared dispositive
1585 Broadway power
New York, N.Y. 10036
State Street Bank and Trust 5.0% 1,504,671 shares -- sole voting power
Company, Trustee 400 shares -- shared voting power
225 Franklin Street 165,701 shares -- sole dispositive power
Boston, MA 02110 1,341,970 shares -- shared dispositive
power
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers and directors and greater-than-10% stockholders to file reports of
their beneficial ownership of the Company's common stock, and to provide us with
copies of all reports they file. The rules of the SEC require us to disclose in
this Proxy Statement any late filings of these reports. Based on our review of
these reports and certifications given to us, we believe that there were no late
filings in 1997.
COMPENSATION & NOMINATING COMMITTEE'S REPORT TO STOCKHOLDERS
Introduction
The Compensation & Nominating Committee of the Board of Directors
administers compensation plans for Mr. Darehshori and the other executive
officers. The members of the Committee are all independent, non-employee
directors. The Committee believes that
- in order to attract, motivate, retain, and reward highly qualified
executives, it is necessary to offer financial opportunities
comparable to those provided by the Company's competitors and industry
in general;
- executives should own stock in the Company so that they can better
identify with stockholders' interests; and
- the financial and operating performance of the Company is important in
determining the amount of cash and stock compensation that executives
receive.
Determining How to Compensate Executives
Compensation for executives includes salary, annual bonus, and stock. In
determining how much of each element to provide executives, the Committee
considers information on how the
13
<PAGE> 18
Company's competitors and comparable companies in general industry compensate
executives with comparable positions. An independent compensation consultant
provides the Committee with information about other companies' pay practices.
The surveyed companies include six of the seven included in the Publishing Peer
Group, a comparator group for purposes of the Stock Performance Graph on page
16.
Salary
Each year the Committee reviews the salaries of Mr. Darehshori and the
other executive officers. The Committee considers Mr. Darehshori's
recommendations about each executive's performance, the Company's financial and
operating performance, and the financial and operating performance of the unit
for which the executive is responsible. Salary adjustments are usually effective
April 1.
The Committee considers comparable factors when reviewing Mr. Darehshori's
salary. In determining Mr. Darehshori's 1997 salary, the Committee considered
the Company's operating and financial performance for 1996. Key factors were:
- the Company achieved its 1996 budgeted earnings;
- the Company successfully integrated the employees, authors, and
publications of D.C. Heath & Company, which the Company purchased in
1995;
- new education programs were published to position the Company to
capitalize on 1997 adoption opportunities;
- a new management team in the Trade & Reference Division developed a
plan to improve the division's financial performance;
- the Company continued to support the strategic start-up businesses of
Great Source and Houghton Mifflin Interactive and maintain significant
product development essential to the Company's long-term growth;
- the marketing and sales efforts of the School Division's 1996 reading
and McDougal Littell's 1997 literature programs were very successful
and contributed significantly to 1996 financial results; and
- the Company sold the College Division's computer science list, a
non-strategic asset.
After considering these factors, the Committee increased Mr. Darehshori's
salary from $525,000 to $560,000.
Incentive Compensation
Each year the Committee approves an annual bonus plan early in the year.
The 1997 plan was similar to the plans which have been in effect for several
years. If the Company met its budgeted financial objectives in the areas
designated in the plan, executives would earn 30% (40% for Mr. Darehshori) of
their salary. Executives could earn up to an additional 10% of their salary if
they met the operating objectives set early in the year. The maximum payment
under the plan was 100% of salary. Up to 40% (50% for Mr. Darehshori) is payable
in cash. Amounts earned in excess of 40% of salary (50% for Mr. Darehshori) are
paid in restricted Company stock, which cannot be sold or transferred for three
years, and may be forfeited if the employee leaves the Company within the
three-year period. Mr. Darehshori's 1997 bonus was $280,000 and 2,570 shares of
restricted stock.
14
<PAGE> 19
Company Stock
The Committee believes that it is important for Company stock to be a
significant element in executive compensation so that the Company's executives
have a common interest with stockholders in the long-term success of the
Company. The Committee also believes that the best ways to provide executives
with stock ownership opportunities are stock options, restricted stock, and
performance shares, which depend on achievement of specified financial goals.
Early in 1997, after reviewing the results of a study by its independent
consultant of the Company's executive stock ownership practices, the Committee
awarded shares of performance restricted stock, which cannot be transferred or
sold, to the officers named in the Summary Compensation Table and nine other
executive officers. Depending on the extent the Company achieves specified
financial objectives, some or all of these shares may become transferable at the
end of 1998. Any shares which do not become transferable at that time will
become transferable at the end of 2001, as long as the executive is still
employed by the Company.
IRS Limits on Tax Deductibility of Compensation
Under Section 162(m) of the Internal Revenue Code, the Company may not
deduct certain forms of compensation in excess of $1 million paid to an
executive officer listed in the Summary Compensation Table. This provision did
not affect the Company in 1997.
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.
15
<PAGE> 20
STOCK PERFORMANCE GRAPH
SEC rules require proxy statements to contain a performance graph
comparing, over a five-year period, the performance of the Company's common
stock with a broad market index and either a published industry or
line-of-business index or a group of peer companies. We have compared the
Company's performance with the Standard & Poor's MidCap 400 Index and a peer
group composed of the publicly traded common stocks of seven companies with
significant publishing activities. The companies in the peer group are Golden
Books Family Entertainment, Inc. (successor to Western Publishing Group, Inc.);
Harcourt General Inc.; McGraw-Hill, Inc.; Scholastic Corporation; Thomas Nelson,
Inc.; Waverly, Inc.; and John Wiley & Sons, Inc. The returns of each stock in
the peer group have been weighted to reflect relative stock market
capitalization. The graph below shows the five years from December 31, 1992, to
December 31, 1997, and assumes an initial investment of $100 and quarterly
reinvestment of dividends. The price of the Company's common stock was $19.9375
on December 31, 1992, and $38.375 on December 31, 1997. The information in the
graph reflects the Company's two-for-one stock split effective in July 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HOUGHTON MIFFLIN COMPANY, S&P MIDCAP 400 INDEX, AND PUBLISHING PEER GROUP
[GRAPH OMITTED]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD HOUGHTON MIFFLIN S & P MIDCAP PUBLISHING PEER
(FISCAL YEAR COVERED) COMPANY 400 INDEX GROUP
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 124.35 113.95 113.48
1994 118.25 109.87 114.58
1995 114.38 143.86 148.16
1996 153.67 171.49 158.76
1997 211.51 226.80 215.50
</TABLE>
Total return data provided by S&P's Compustat Services, Inc.
16
<PAGE> 21
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid the Chairman,
President, and Chief Executive Officer and the four other most highly
compensated executive officers during the last three years. Ms. Deegan did not
become an executive officer until February 1996, and Mr. Bursma did not become
an executive officer until November 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ----------------------------------
AWARDS PAYOUTS
----------------------- --------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) (#) ($)(2) ($)(3)
------------------ ---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori......... 1997 $551,250 $280,000 $ 0 $1,454,977 0 $300,645 $184,383
Chairman, President, 1996 518,750 202,125 0 599,983 0 0 193,385
and Chief Executive Officer 1995 488,750 150,000 0 0 40,000 0 202,032
Gail Deegan................. 1997 297,500 120,000 0 578,893 0 93,952 49,579
Executive Vice President 1996 246,111 70,038 0 216,250 30,000 0 41,343
and Chief Financial Officer
Julie A. McGee.............. 1997 254,500 104,400 0 572,753 0 150,323 39,841
Executive Vice President 1996 230,000 94,030 0 85,745 0 0 38,567
1995 210,000 25,050 0 0 24,000 0 47,927
June Smith.................. 1997 254,500 104,400 0 584,085 0 150,323 37,427
Executive Vice President 1996 228,750 93,998 0 24,090 0 0 32,651
1995 207,500 51,000 0 0 24,000 0 36,850
Albert Bursma, Jr........... 1997 269,750 67,568 0 552,500 0 112,742 91,880
Executive Vice President 1996 260,000 46,150 0 0 0 0 79,959
1995 42,875 0 0 0 30,000 0 0
</TABLE>
- ---------------
(1) 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. The restricted shares awarded for 1997 include both shares
awarded on January 27, 1998 as part of the 1997 bonus, and grants under the
1997-1998 Performance Restricted Share Plan. Restricted shares awarded as
part of the 1996 or 1997 bonus will vest (that is, all restrictions will
end) three years from the date of award provided the recipient remains
employed by the Company. Restricted shares awarded in 1997 under the
Performance Restricted Share Plan may vest at the end of 1998, depending on
whether the Company achieves specified levels of financial performance. If
the specified levels of financial performance are not achieved at that date,
the shares will vest at the end of 2001, if the recipient is still employed
by the Company. Dividends are paid on all restricted shares at the same rate
paid to all shareholders. The value shown is the fair market value at date
of grant. The following list shows the total number of shares of restricted
stock held by or to be awarded to the officers listed in the table as of
December 31, 1997, as well as the market value of these shares, determined
by the closing price of the Company's common stock on the New York Stock
Exchange on December 31, 1997: Mr. Darehshori: 84,504 shares, with a
year-end market value of $3,242,841; Ms. Deegan: 30,920 shares, with a
year-end market value of $1,186,555; Ms. McGee: 25,150 shares, with a
year-end market value of $965,131; Ms. Smith: 21,977 shares, with a year-end
market value of $843,367; Mr. Bursma: 20,000 shares, with a year-end market
value of $767,500.
(2) The award was paid half in cash and half in shares of the Company's stock.
17
<PAGE> 22
(3) These amounts are the Company's matching contributions under the 401(k)
Savings Plan, contributions under the defined contribution component of the
Supplemental Benefits Plan, and premiums paid for split-dollar life
insurance policies. Under the Supplemental Benefits Plan, we provide
benefits substantially equal to benefits that could not be provided under
the 401(k) Savings Plan because of limitations under the Internal Revenue
Code. The split-dollar life insurance premiums have two components, for the
term and non-term portions of the insurance. The ownership of these policies
is structured so that the Company will be reimbursed for the cumulative
total of all premiums paid on the earlier of the death or retirement of the
executive. The result is that over the life of the program there is minimal
cost to the Company. We retain the right to borrow against our investment in
the policies at any time. The table below shows the amounts we paid for each
of these categories during 1997 for the officers listed in the table.
<TABLE>
<CAPTION>
CONTRIBUTIONS
TO TERM NON-TERM
CONTRIBUTIONS SUPPLEMENTAL PORTION - PORTION -
TO 401(k) BENEFITS SPLIT-DOLLAR SPLIT-DOLLAR
NAME SAVINGS PLAN PLAN INSURANCE INSURANCE
---- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Mr. Darehshori........................ $7,125 $2,375 $14,974 $159,909
Ms. Deegan............................ 1,798 7,702 5,313 34,766
Ms. McGee............................. 6,875 2,625 5,093 25,248
Ms. Smith............................. 7,125 2,375 5,013 22,914
Mr. Bursma............................ 6,340 3,149 7,195 75,196
</TABLE>
STOCK COMPENSATION PLAN
We believe that our officers and employees should have the same interest in
the Company's success as its stockholders. We encourage officers and employees
to become stockholders by a variety of grants under the 1995 Stock Compensation
Plan. These grants include options to buy the Company's stock, restricted or
bonus stock, and performance awards, where the amount of cash and/or stock
received depends on achieving specified performance goals.
No options were granted in 1997 to the officers named in the Summary
Compensation Table. The following table shows option exercises during 1997 by
those officers. It also shows the number of options they still hold, both those
currently exercisable and those that will be exercisable in the future, along
with the value of these options at year-end. Because these options have not been
exercised, the values shown have not been realized. The options will have value
only if they are exercised, and that value will depend entirely on the share
price on the exercise date.
18
<PAGE> 23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END($)
ACQUIRED VALUE ------------- -----------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Nader F. Darehshori......... 0 $ 0 100,000/0 $1,621,250/$0
Gail Deegan................. 0 0 20,000/10,000 $335,000/$167,500
Julie A. McGee.............. 0 0 40,000/16,000 $636,000/$261,000
June Smith.................. 800 14,100 37,600/14,400 $606,650/$237,600
Albert Bursma, Jr........... 0 0 30,000/0 $526,875/$0
</TABLE>
- ---------------
(1) Market value of underlying securities at exercise or year-end, minus the
exercise or base price.
RETIREMENT PLAN
As of January 1, 1997, the Company's Pension Plan was renamed the
Retirement Plan. On that date, the benefit formula was changed from a final
average pay formula to a cash balance formula. Under the Retirement Plan, an
account is established for each employee. Every year, we credit each employee's
account with an amount that varies depending on the length of service and
earnings, and with interest on the accumulated balance. For calculating our
contribution to the Retirement Plan, compensation consists primarily of salary,
wages, commissions, and annual incentive compensation. When an employee leaves
the Company, he or she has the option to
- convert this account to an annuity benefit,
- leave the account in the Retirement Plan where it will continue to
earn interest, or
- take the account balance as a lump sum payment.
An employee who leaves with less than five years of service receives no
benefit under the Retirement Plan.
The Internal Revenue Code limits the annual benefits which can be paid from
a tax-qualified retirement plan. As permitted by the Internal Revenue Code, the
Supplemental Benefits Plan pays benefits above the permitted limits. We
calculate these supplemental benefits for the officers named in the Summary
Compensation Table and nine other executive officers using the formula from the
Pension Plan. This formula uses a multiple of the employee's years of service
and average annual earnings for the five highest consecutive years of service in
the last fifteen years before retirement, less a portion of estimated annual
Social Security benefits. The following table shows the range of the estimated
annual retirement benefits under the Retirement Plan and the Supplemental
Benefits Plan at the normal retirement age of 65 (calculated as of January 1,
1998) to those officers. The benefits shown on the table reflect a single life
annuity benefit, after offsetting the officer's primary Social Security benefit.
19
<PAGE> 24
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)
FOR FIVE HIGHEST ---------------------------------------------------------------
CONSECUTIVE YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
250,000$........ $ 58,500 $77,900 $ 97,600 $116,900 $123,200 $129,400
300,000........ 71,000 94,500 118,400 141,900 149,400 156,900
400,000........ 96,000 127,800 160,100 191,900 201,900 211,900
450,000........ 108,500 144,500 181,000 216,900 228,200 239,400
500,000........ 121,000 161,100 201,800 241,900 254,400 266,900
550,000........ 133,500 177,800 222,700 266,900 280,500 294,400
600,000........ 146,000 194,400 243,500 291,900 306,900 321,900
650,000........ 158,500 211,100 264,400 316,900 333,200 349,400
700,000........ 171,000 227,700 285,200 341,900 359,400 376,900
750,000........ 183,500 244,400 306,100 366,900 385,700 404,400
800,000........ 196,000 261,000 326,900 391,900 411,900 431,900
850,000........ 208,500 277,700 347,800 416,900 438,200 459,400
</TABLE>
As of December 31, 1997, the years of credited service and the compensation
that will be taken into account for pension calculations for 1997 for the
officers named in the Summary Compensation Table are: Mr. Darehshori, 32 years
and $753,375; Ms. Deegan, 12 years and $367,538; Ms. McGee, 4 years and
$348,530; Ms. Smith, 6 years and $348,498; and Mr. Bursma, 26 years and
$315,900. Differences between the amount of compensation shown above and that
shown in the Summary Compensation Table on page 17 reflect differences in
accounting for incentive compensation payments, which are included in the year
paid when calculating pension benefits.
CHANGE-IN-CONTROL ARRANGEMENTS
Severance Agreements
Fourteen executive officers, including those named in the Summary
Compensation Table, have severance agreements with the Company. The senior
executives' severance agreements expire on December 31, 1998, and are
automatically extended on an annual basis for an additional twelve-month period
unless we give the executive at least eighteen months' notice that the agreement
will not be extended. We also have severance agreements with some of our key
managers. No executive officers are currently parties to a key managers'
severance agreement.
Severance benefits under both types of agreements are payable if, within
two years after a "change in control" of the Company, either the employee
terminates his or her employment for "good reason," as defined in the agreement,
or the Company terminates the employee's employment other than for reasons
specifically permitted by the agreement. 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 will generally be deemed to have occurred on (a) a
third party's acquisition of 25% or more of the Company's stock; (b) a change,
over a two-year period, in the majority of the members of the Company's Board of
Directors; (c) a merger, consolidation, or liquidation of the Company; or (d)
the sale of all or substantially all of the Company's assets.
20
<PAGE> 25
In general, the severance agreements entitle the employee to:
- a lump sum payment of either three times (for senior executives) or
two times (for key managers) the annual salary and the greater of
either any incentive compensation paid in the preceding year or the
average incentive compensation paid in the past three years;
- all incentive compensation earned but previously deferred and not yet
distributed;
- the aggregate present value of benefits under the Company's
Supplemental Benefits Plan; and
- the present value of additional retirement benefits which would have
been earned by the employee under existing retirement plans had he or
she remained in the Company's employ for either an additional
thirty-six months (for senior executives) or twenty-four months (for
key managers).
In addition, we will maintain medical, life insurance, and disability
coverage benefits for the employee for a period of either thirty-six months (for
senior executives) or twenty-four months (for key managers) following
termination of employment. We will also reimburse senior executives and key
managers for legal fees incurred in enforcing the terms of the agreements and
certain tax liabilities resulting from payments under the agreements. Severance
payments made under the key managers' severance agreements may not exceed the
amount that we are permitted to deduct for federal income tax purposes.
Stock Compensation Plan and Supplemental Benefits Trust
In general, on a change in control, all options become immediately
exercisable, all restricted shares become immediately vested, and all
performance-based awards are paid out, pro rata depending on how much of the
performance period has been completed as of the date of the change in control.
We have established a Supplemental Benefit Trust in connection with the
Supplemental Benefits Plan, non-employee directors' retirement benefits, and
deferred compensation agreements with employees and directors, to preserve those
benefits in the event of a change in control. The Board may decide to have other
employee plans covered by the Supplemental Benefit Trust as well. On any
"potential change in control," which is defined in the Supplemental Benefit
Trust as a third party acquiring 15% or more of the Company's stock, we will
contribute additional cash and property to the Supplemental Benefit Trust enough
to pay, in accordance with the terms of the covered plans, the authorized
benefits. 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, we remain obligated to pay any deficiency.
PROPOSAL 2 -- ADOPTION OF THE HOUGHTON MIFFLIN COMPANY 1998 STOCK COMPENSATION
PLAN
We believe that it is important to encourage employees whose efforts are
important to the continued success and growth of the Company to own Company
stock. To help employees become stockholders, we have granted options to
employees to purchase common stock through stock compensation plans. The most
recent such plan is the Houghton Mifflin 1995 Stock Compensation Plan (the "1995
Plan").
21
<PAGE> 26
At its February 25, 1998 meeting, the Board of Directors adopted the
Houghton Mifflin Company 1998 Stock Compensation Plan (the "1998 Plan"). We are
now asking for your approval of the 1998 Plan so that it can become effective.
The 1998 Plan, when effective, will replace the 1995 Plan. After the
effective date of the 1998 Plan, we will not make any further grants under the
1995 Plan, but all existing grants will remain in effect until they expire. As
of January 31, 1998, options and grants for approximately 1,442,474 shares are
outstanding under the 1995 Plan, and options and grants for approximately
544,500 shares are outstanding under the 1992 Stock Compensation Plan. The 1998
Plan is similar to the 1995 Plan in that it provides the Board of Directors with
great flexibility in determining the terms of the options or grants to employees
to better meet changing circumstances.
We have summarized the key provisions of the 1998 Plan below, but you
should review the full text of the 1998 Plan in Appendix A.
Purpose and Administration
In general terms, the 1998 Plan permits us to grant options, restricted or
bonus stock, or other performance awards to employees of the Company and its
subsidiaries whose services, in the judgment of the Compensation & Nominating
Committee of the Board of Directors (the "Committee"), are important to the
Company's continued success and growth. The Committee, which administers the
1998 Plan, determines the terms and conditions of grants to individual
employees, including the exercise price of options, the ability to transfer the
grant, and the number of shares of stock subject to each grant. Approximately
400 employees are now eligible to receive employee grants under the 1998 Plan.
Number of Shares Authorized
A total of 1,800,000 shares of common stock are authorized for issuance
under the 1998 Plan, plus any shares authorized but unused under the prior
plans. We may adjust this total if there are changes in the Company's
capitalization, a merger, or a similar transaction.
Types of Grants
The Committee may make grants to employees under the 1998 Plan in the form
of incentive or non-qualified stock options; restricted stock, performance
shares, or performance units, which may be subject to forfeiture if specified
requirements (such as continued employment or performance goals) are not met;
stock which is part of an employee's incentive compensation; or stock awards or
bonuses. The maximum number of shares that may be awarded to one individual
under the 1998 Plan is 500,000 shares. The 1998 Plan allows the Committee to
make cash payments to compensate employees for tax liability resulting from
awards other than stock options.
The 1998 Plan also provides for an annual grant of 1,000 shares of stock
and an option to purchase 2,000 shares as compensation to each non-employee
member of the Board of Directors for each full calendar year of service. A grant
to a non-employee director for a partial year of service will be prorated.
Currently, 11 non-employee directors are eligible to receive these formula
grants under the 1998 Plan; following Mr. Thomas's retirement, 10 non-employee
directors will be eligible.
Payment of Exercise Price
The exercise price of a stock option may be paid in cash or previously
owned stock, or both. The exercise price may also be paid through a "cashless
exercise" procedure, which allows
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<PAGE> 27
employees to sell immediately enough of the shares to cover the exercise price
and to pay withholding taxes.
Amendment
We may amend or terminate the 1998 Plan at any time, but we may not do so
without an employee's consent if it would adversely affect the employee's rights
to previously-granted awards.
Current Stock Information
The closing price of the Company's common stock on March 4, 1998, was
$32.1875 per share on the New York Stock Exchange.
New Plan Benefits Table
As of the date of this Proxy Statement, we have made no awards under the
1998 Plan. Because of the flexibility that the 1998 Plan provides, the cost of
the 1998 Plan will vary depending on the terms of the individual grants awarded
to employees. It is not possible to determine the amount of benefits that any
individual employee or group of employees may receive in the future under the
1998 Plan, since all awards will be made by the Committee in its sole
discretion. The table below shows information about annual awards to be made to
all non-employee directors as a group under the 1998 Plan.
<TABLE>
<CAPTION>
DOLLAR VALUE($) NUMBER OF UNITS
--------------- ---------------
<S> <C> <C>
All directors who are not executive
officers, as a group*.................... Fair market value at date of grant 30,000
</TABLE>
- ---------------
*Includes 10 non-employee directors in 1998, after the retirement of Mr. Thomas.
Federal Income Tax Consequences-1998 Plan
Stock Options
There is no immediate federal income tax effect on the grant of a stock
option; the option holder does not recognize taxable income, and the Company
does not receive a tax deduction. When an incentive stock option is exercised,
the option holder generally does not recognize taxable income (unless required
by the alternative minimum tax), and the Company does not receive a tax
deduction. When non-qualified stock options are exercised, the holder will
recognize taxable income in an amount equal to the difference between the
exercise price and the fair market value on the date of exercise. The Company
will receive a tax deduction in the same amount.
If, after exercising an incentive stock option, the employee holds the
shares for at least two years from the date of grant, and one year from the date
of exercise, then any gain or loss will be treated as capital gain or loss. If
the shares are not held for these periods, the option will be treated as a
nonqualified option, and the Company will receive a tax deduction for the amount
of the employee's gain, now treated as taxable compensation for services. When
the stock received by exercise of a nonqualified stock option is sold, any gain
or loss will be treated as either long- or short-term capital gain or loss,
depending on how long the stock has been held. Certain additional rules apply if
the exercise price for any option is paid in shares previously owned by the
option holder.
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<PAGE> 28
Restricted Stock and Other Stock Awards
An employee who is granted an award of restricted stock or other stock does
not recognize taxable income at the time of the grant if the shares are subject
to a substantial risk of forfeiture and are not transferable. The employee
recognizes income only when there is no longer a risk of forfeiture or the
shares become transferable, in an amount equal to the fair market value of the
stock at the date when the risk ends or the shares become transferable. The
Company is then entitled to a tax deduction in the same amount. If the stock is
later sold, the difference between the amount received from the sale and the
amount recognized as income will be treated as either long- or short-term
capital gain or loss, depending on how long the stock has been held.
Approval of the 1998 Plan
Approval of the 1998 Plan requires the affirmative vote of the holders of a
majority of shares present in person or by proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL TWO.
PROPOSAL 3 -- RATIFICATION OF INDEPENDENT AUDITORS
Based on the Audit Committee's recommendation, the Board has selected Ernst
& Young LLP as the Company's independent auditors for 1998. We are asking you to
ratify the Board's selection. Ernst & Young has audited the Company's books for
many years and is very familiar with the Company's business. Partners and
employees of the firm engaged in audits are periodically rotated, providing us
with new expertise. Representatives of Ernst & Young have direct access to the
Audit Committee and regularly attend its meetings. During 1997 Ernst & Young's
services included auditing the Company's consolidated statements, consulting in
connection with unaudited quarterly financial information, and advising us on
various accounting, tax, and regulatory matters. Representatives of Ernst &
Young will be present at the meeting with the opportunity to make a statement
and answer appropriate questions.
Ratification requires the affirmative vote of a majority of the shares
present in person or by proxy. The Board will reconsider its selection of Ernst
& Young if the stockholders vote against ratification.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL THREE.
OTHER INFORMATION
Stockholder Proposals
Stockholders who want to have a proposal included in next year's Proxy
Statement for the 1999 Annual Meeting must send the proposal to the Company's
Clerk at our executive offices in Boston so that the Clerk receives the proposal
no later than November 25, 1998. To be eligible to submit a proposal, a
stockholder must have been a registered or beneficial owner of either at least
one percent of the Company's outstanding stock or stock with a market value of
$1,000 for at least one year before submitting the proposal, and must continue
to own stock at this level through the meeting date.
Stockholders who want to present business for action at the meeting, other
than proposals included in the Proxy Statement, must follow the procedures
described in the Company's By-laws. The By-laws provide that stockholder
proposals or nominations for director may be made only by a stockholder of
record who has given the Company advance notice of the proposed business or
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<PAGE> 29
nomination. For the 1999 Annual Meeting, we must receive the stockholder's
notice between December 30, 1998, and February 13, 1999. If there is a special
meeting, or if the Annual Meeting is called for a date prior to February 13,
1999, we must receive the stockholder's notice not later than the close of
business 20 days after the day we mailed the notice of the meeting or publicly
announced the meeting date. The stockholder's notice must contain specific
background and stock ownership information about the stockholder making the
proposal or nomination, and, if a director nominee is proposed, background and
stock ownership information about each nominee. Please see the By-laws for
additional details.
Expenses of Soliciting Proxies
The Company will pay all costs of soliciting these proxies. In addition to
mailing proxy soliciting material, our officers and employees may also solicit
proxies in person, by telephone, or by other electronic means of communication.
We will ask banks, brokers, and other institutions, nominees, and fiduciaries to
forward the proxy material to their principals and to obtain authority to
execute the proxies. We will then reimburse them for expenses. We have also
retained Hill and Knowlton, Inc. to assist us in soliciting proxies, and have
agreed to pay them a fee of approximately $6,000 plus out-of-pocket expenses.
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<PAGE> 30
APPENDIX A
HOUGHTON MIFFLIN COMPANY
1998 STOCK COMPENSATION PLAN
The primary purpose of this Plan is to attract, retain, and motivate the
employees of Houghton Mifflin Company (the "Company") and of any subsidiary
corporation of which more than 50% of the outstanding voting stock is owned by
the Company (a "Subsidiary") who will most assist the Company or its
Subsidiaries in achieving the Company's long-term goals and objectives, and to
provide an opportunity for these employees to acquire an interest in the Company
through the granting of options or restricted or bonus stock or other
performance awards, as herein provided. Additionally, the Plan is intended to
provide an incentive to non-employee members of the Board of Directors of the
Company ("director-participants") to increase their efforts for the success of
the Company by increasing their proprietary interest in the Company, through the
receipt of shares of the Company's common stock and options to purchase shares
of the Company's Common Stock. To achieve those purposes, the Plan amends and
restates the 1995 Stock Compensation Plan (the "1995 Plan").
1. SHARES OF STOCK SUBJECT TO THE PLAN
The stock that may be issued under the Plan shall not exceed, in the
aggregate, the sum of 1,800,000 shares of the Company's common stock ("Company
Stock"), which may be either authorized but unissued shares or treasury shares,
plus any shares of Company stock that were authorized but unused under either
the 1995 Plan or the 1992 Stock Compensation Plan (the "1992 Plan"), including,
without limitation, shares represented by awards which are forfeited, expire, or
are canceled without delivery of shares of Company Stock or which result in the
forfeiture of shares of Company Stock back to the Company.
In determining the number of shares of Company Stock available for grant
under the Plan, (i) any shares of Company Stock granted or reserved for issue
under the Plan that are forfeited because of the failure to meet an award
contingency or condition, or shares reserved for issue on exercise of options
under the Plan which have expired or been terminated shall again be available
for use pursuant to new awards under the Plan; (ii) to the extent that shares of
Company Stock covered by an award are not delivered to a participant because the
award is forfeited or canceled, or the shares are not delivered because the
award is settled in cash, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares available for delivery
under the Plan; (iii) if the exercise price of any stock option granted under
the Plan, the 1995 Plan, or the 1992 Plan is paid by tendering shares of Company
Stock to the Company or by withholding pursuant to an election under Section 8
of the Plan or Section 7 of the 1995 Plan, only the number of shares of Company
Stock issued net of the shares tendered or withheld shall be deemed delivered
for purposes of determining the maximum number of shares available for delivery
under the Plan; and (iv) shares of Company Stock delivered under the Plan in
settlement, assumption, or substitution of outstanding awards (or obligations to
grant future awards) under the plans or arrangements of another entity shall not
reduce the maximum number of shares of Company Stock available for delivery
under the Plan to the extent that such settlement, assumption, or substitution
is a result of the Company or a Subsidiary acquiring another entity (or an
interest in another entity).
The stock that may be issued under the Plan to any one individual between
the Plan's Effective Date (as defined in Section 12 hereof) and its termination
shall not exceed, in the aggregate,
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<PAGE> 31
500,000 shares of Company Stock. The number of shares subject to the Plan and
the number of shares which can be issued to any one individual thereunder shall,
however, be subject to adjustment as provided in Section 10 hereof.
On and after the Effective Date of the Plan, no further grants of options
or restricted stock shall be made under the 1995 Plan. Options and other awards
granted under either the 1995 Plan or the 1992 Plan which are outstanding on and
after the Effective Date shall be subject to and governed by the terms and
conditions of the Plan. The actual provisions of any such outstanding option
agreement or other award agreement, however, shall not be altered unless an
amendment thereto is approved by the Committee (as defined in Section 2 below)
and (if the affected participant's approval is required by the 1995 Plan, the
1992 Plan, the Plan, the appropriate agreement, or applicable law) approved by
the affected participant.
2. ELIGIBILITY AND ADMINISTRATION
Except with respect to director-participants, awards will be granted only
to persons who are employees of the Company or a Subsidiary whose efforts are
important to the continued success and growth of the Company and, in the case of
incentive stock options, who are eligible to receive an incentive stock option
under the Internal Revenue Code of 1986, as amended from time to time (the
"Code"). The Board of Directors of the Company (the "Board") shall appoint a
committee to administer the Plan (the "Committee"). The Committee shall consist
of two or more directors of the Company, each of whom is a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and an "outside director" within the meaning of Section 162(m)
of the Code. The Committee, acting by a majority of its members, shall determine
the participants in the Plan to whom grants will be made, the number of shares
subject to each grant, and the terms of the grant, consistent with the
provisions of this Plan.
3. GRANTS TO EMPLOYEES
The Committee may make grants to employees under this Plan in the form of
Stock Options (either Incentive Stock Options ("ISOs") or Non-Qualified Options
("NQOs")), Restricted Stock, Bonus Stock, or Performance Awards, each as defined
below. Unless prohibited by law or regulation, the Committee may make grants
under this Plan (except ISO grants) "in tandem" (i.e., the participant may be
given the right to select the form in which the grant is exercised) or in
combination with other grants. The Committee may also make cash awards (i) in
connection with, or as part or all of, a Performance Award or (ii) pursuant to
Section 9 hereof with respect to any Bonus Stock or Restricted Stock.
- Incentive Stock Options
ISOs are a right to buy shares of Company Stock in the future at the
market price at the time of grant, subject to the requirements of
Section 422 of the Code. A stock option intended to be an ISO shall be
designated as an ISO in its grant. The aggregate fair market value
(determined at the time the ISO is granted) of the Company Stock with
respect to which ISOs are exercisable for the first time by an
optionholder during any calendar year (under all plans of the Company
and any Subsidiary) shall not exceed $100,000. The aggregate number of
shares of Common Stock which may be issued under ISOs granted under this
Plan shall not exceed 500,000, as adjusted pursuant to Section 10
hereof.
A-2
<PAGE> 32
- Non-Qualified Options
NQOs are stock options (i) which do not meet the ISO restrictions,
either in the grant itself or as the participant treats the grant, or
(ii) the terms of which provide that the options will not be treated as
ISOs. NQOs do not receive the special tax consequences given ISOs by the
Code.
- Restricted Stock
Restricted Stock is a grant of Company Stock to an individual subject to
forfeiture during the restriction period if specific requirements
(including continued employment or performance goals) described in the
grant documents are not met for the restriction period.
- Bonus Stock
Bonus Stock is a grant of Company Stock to an individual which is made
free of any restrictions. Bonus Stock may be granted as a bonus or
instead of cash under other compensatory arrangements of the Company or
a Subsidiary.
- Performance Awards
Performance Awards are awards granted, subject to applicable law, with
value, payment, or other terms contingent upon performance of the
Company or specified Subsidiaries or any other factors designated by the
Committee. Performance Awards, in whole or in part, may be (i)
denominated or payable in cash, (ii) denominated or payable in, valued
by reference to, or otherwise based on, or related to Company Stock, or
(iii) denominated or payable in, valued by reference to, or otherwise
based on, or related to, either Company Stock or cash, to be determined
in the discretion of the Committee.
4. GRANTS TO DIRECTOR-PARTICIPANTS
Each individual who has served as a non-employee member of the Board during
any calendar year shall be a director-participant in the Plan with respect to
such year. With respect to each calendar year each director-participant shall be
granted, as compensation, (x) 1,000 shares of Company Stock, and (y) options to
purchase 2,000 shares of Company Stock, in each case as of the day before the
regularly scheduled meeting of the Board in the month of January following the
close of such calendar year; provided, however, that the number of shares or
options so granted shall be prorated in the case of any director-participant
whose service on the Board began during such year or who retired or resigned
from the Board during such year. The proration shall be based on the portion of
such year the director-participant served as a non-employee member of the Board.
For each calendar year beginning with 1999, a director-participant may
elect to receive a whole number of shares of Company Stock equal in value to all
or any part of his or her annual retainer fee earned for services as a director
during such calendar year in place of payment in cash. A director-participant's
election must be made in writing delivered to the Committee before the beginning
of the calendar year in which the retainer fee is earned, and becomes
irrevocable on the last day prior to the beginning of that calendar year. Any
election shall continue and apply to subsequent calendar years until terminated
or modified by written notice delivered to the Committee. A notice of
termination or modification will be effective as of the end of the calendar year
in which the notice is delivered, and shall apply to retainer fees payable in
subsequent years. Any shares to be delivered pursuant to such an election shall
be delivered quarterly, and shall be valued at the closing price per
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<PAGE> 33
share of Company Stock as reported by the New York Stock Exchange on the last
business day of each calendar quarter. The value of fractional shares shall be
paid in cash.
5. GRANTS
Grants may be made under this Plan to participants (including grants to
director-participants which are in addition to grants made to such
director-participant pursuant to Section 4 hereof) by the Committee at any
scheduled or unscheduled meeting. In making a grant to a participant under this
Plan, the Committee will specify (either at the time of grant or thereafter) the
terms and conditions of the grant, all of which shall be subject to the terms
and conditions of this Plan (including Section 13 hereof). Unless the Committee
specifies otherwise or applicable law requires otherwise, with respect to any
grant to an individual of Restricted Stock or Bonus Stock or of Company Stock in
connection with a Performance Award, past services of that individual equal to
the aggregate par value of Company Stock subject to such grant shall constitute
the only consideration paid upon the issuance of such stock. If at any time,
consideration other than past services is required by applicable law with
respect to a grant, such consideration shall be paid within the sixty days
immediately following such grant.
6. PERIOD OF OPTION AND PAYMENT OF EXERCISE PRICE
Each stock option grant shall be exercisable at such time or times as the
Committee shall from time to time determine, but in no event after the
expiration of ten years from the date of grant. Except as otherwise provided in
this Section 6, the delivery of certificates representing shares under any stock
option grant will be contingent upon receipt by the Company from the
optionholder (or a purchaser acting in his or her stead, in accordance with the
provisions of the grant) of the full purchase price for such shares in the form
of cash and/or shares of Company Stock either previously owned by the
optionholder (provided that such shares have been held for at least six months)
or withheld by the Company pursuant to an election by the optionholder under
Section 8 below, the total value of which is equal to the total purchase price
of the optioned shares then being purchased and the fulfillment of any other
requirements contained in the option or applicable provisions of law. The
purchase price also may be paid in such other form of consideration as the
Committee may authorize. The Company may permit a participant to elect to pay
the exercise price by authorizing a third party to sell shares of Company Stock
(or a sufficient portion of the shares) being acquired upon exercise of an
option and to remit to the Company a sufficient portion of the sale proceeds to
pay the entire exercise price and any tax withholding resulting from such
exercise. No optionholder or person entitled to exercise the stock option grant
shall be deemed to be a holder of any shares subject to the grant for any
purpose until such shares are issued to him or her under the terms of the grant
and the Plan.
7. TRANSFERABILITY OF OPTIONS
The Committee, in its discretion, may grant transferable options or amend
outstanding options to make them transferable (collectively, "Transferable
Options"). The option agreement with respect to a Transferable Option shall
provide that (i) the optionholder can transfer the Transferable Option to (x)
members of his or her immediate family (i.e., children, grandchildren, or
spouse), (y) trusts for the benefit of such family members, and (z) partnerships
whose only partners are such family members; (ii) no consideration can be paid
for the transfer of the Transferable Option; and (iii) the transferee of a
Transferable Option is subject to all conditions applicable to the Transferable
Option prior to its transfer.
A-4
<PAGE> 34
The option agreement with respect to any option granted hereunder shall
state the transferability restrictions for such option determined by the
Committee.
The rights and obligations of the Company under the Plan and any grant may
be assigned by the Company to a successor to the whole or any part of its
business if the successor assumes in writing all of such rights and obligations.
8. WITHHOLDING
The Company may defer making payment or delivery of any shares of Company
Stock to a participant under the Plan until satisfactory arrangements have been
made for the payment of any federal, state, or local income taxes required to be
withheld with respect to such payment or delivery. Each participant may elect to
have the Company withhold shares of Company Stock having an aggregate value
equal to the amount required to be withheld. If no such election is in effect,
the Company shall nevertheless have the right to impose a mandatory withholding
of such shares. In addition, at the election of a participant, upon exercise of
an option, the Company may withhold shares of Company Stock equal to all or a
portion of the purchase price of the shares then being purchased. The value of
fractional shares remaining after payment of the withholding taxes or the
exercise price shall be paid to such participant in cash. Shares so withheld
shall be valued at fair market value at the close of the regular business day on
which the option is exercised.
9. CASH AWARDS
If the payment or delivery of (or lapsing of restrictions with respect to)
any Company Stock awarded to a participant under this Plan, the 1995 Plan or the
1992 Plan shall be subject to the imposition of any federal, state, or local
income tax, the Committee, in its discretion, either at the time the award is
granted or thereafter, may also grant the participant a cash award.
10. EQUITABLE ADJUSTMENTS
In the event that any dividend or other distribution (whether in the form
of cash, Company Stock, or other property), recapitalization, stock split,
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event,
affects the Company Stock in such a way that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of participants under the
Plan, then the Committee shall make such equitable changes or adjustments as it
deems appropriate and, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of stock of the Company (or other
securities) which may thereafter be issued in connection with grants under the
Plan, (ii) the number and kind of shares of stock of the Company (or other
securities) issued or issuable in respect of outstanding grants, and (iii) the
exercise price, grant price, or purchase price relating to any grant.
11. CHANGE IN CONTROL
Immediately prior to a change in control of the Company, unless otherwise
specified in any granting documents, all outstanding options granted under the
Plan will become immediately exercisable, all restrictions on restricted shares
will lapse, and all performance-based awards will be paid out on a pro rata
basis, depending on how much of the performance period has been completed as of
the date of such change in control.
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<PAGE> 35
For purposes of this Plan, a "change in control" of the Company shall be
deemed to have occurred if any of the following occurs:
(a) any "Person" (as defined in this Section 11) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), directly or indirectly, of securities
of the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities;
(b) during any period of no more than two consecutive years beginning after
the date of any award made under this Plan, individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company) whose
election by the Board or nomination for election by the Company's stockholders
was approved or recommended by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of the period or
whose election or whose nomination for election was previously so approved or
recommended, cease for any reason to constitute at least a majority thereof;
(c) there occurs a merger or consolidation of the Company or a subsidiary
thereof with or into any other entity, other than (x) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior to thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or any parent thereof), more than 75% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation or (y) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires 25% or more of the combined
voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
For purposes of this Plan, "Person" has the meaning given such term in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) of the Exchange Act, but excludes (a) the Company or any of its
subsidiaries, (b) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company (or of any subsidiary of the Company), (c)
any corporation owned, directly or indirectly by the stockholders of the Company
and (d) an underwriter temporarily holding securities pursuant to an offering of
such securities.
12. EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Effective Date of the Plan shall be the date the Plan is approved by
the stockholders of the Company. Until the Effective Date of the Plan, the 1995
Plan shall continue in full force and effect in accordance with its terms.
13. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Committee, as provided in Section 2
hereof, which shall make the grants under the Plan, determine the form of
options or other awards to be granted in each case (either at the time of grant
or thereafter), and make any other determination under or interpretation of any
provisions of the Plan.
A-6
<PAGE> 36
Any of the actions taken by the Committee shall be final and conclusive.
Without the consent of the affected participant, however, no amendment or other
action with respect to any outstanding award hereunder may impair or adversely
affect the rights of the participant holding the award.
The Board may amend the Plan as it may deem proper and in the best interest
of the Company. However, no such action shall adversely affect or impair any
options or other awards previously granted under the Plan, the 1995 Plan, or the
1992 Plan without the consent of the grantee.
14. EXPIRATION AND TERMINATION OF THE PLAN
Unless earlier terminated by the Board, the Plan shall be unlimited in
duration and, in the event of Plan termination, shall remain in effect as to
awards granted under the Plan prior to its termination as long as any such
awards are outstanding. Grants may be made under the Plan at any time, or from
time to time, prior to the termination of the Plan. The Plan may be abandoned or
terminated at any time by the Board, except with respect to any awards then
outstanding.
A-7
<PAGE> 37
953-PS-98
<PAGE> 38
DETACH HERE
PROXY
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1998 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 29, 1998, at
10:00 a.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 1997 Annual Report.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
UNLESS OTHERWISE INSTRUCTED THIS PROXY WILL BE VOTED SEE REVERSE
IN FAVOR OF THE PROPOSALS SET FORTH ON THE REVERSE SIDE. SIDE
<PAGE> 39
To our stockholders:
This proxy card consolidates all your registered shares, 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 29, 1998. 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, Boston EquiServe, 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
DETACH HERE
[x] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
<TABLE>
<CAPTION>
<S> <C> FOR AGAINST ABSTAIN
1. Election of Class III Directors for a three-year term. 2. Approve the Houghton Mifflin
Company 1998 Stock [ ] [ ] [ ]
Nominees: Mary H. Lindsay, John F. Magee, Claudine B. Compensation Plan.
Malone, Ralph Z. Sorenson, Robert J. Tarr, Jr.
FOR WITHHELD 3. Ratify Ernst & Young LLP as inde- [ ] [ ] [ ]
[ ] [ ] pendent auditors for 1998.
[ ]______________________________________ 4. Transact such other business as [ ] [ ] [ ]
For all nominees except as noted above may properly come before the
Meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
PLEASE SIGN IN THE SAME FORM AS NAME APPEARS
HEREON. FIDUCIARIES AND CORPORATE OFFICERS
SHOULD INDICATE THEIR TITLES.
</TABLE>
