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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- - --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Houghton Mifflin Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[Houghton Mifflin Logo]
March 29, 1999
Dear Stockholder:
I am delighted to invite you to attend the 1999 Annual Meeting of
Stockholders of Houghton Mifflin Company on Wednesday, April 28, 1999, 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 1998 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. Dareshori
---------------------------------
Nader F. Darehshori
Chairman, President, and
Chief Executive Officer
<PAGE> 3
1999 NOTICE OF ANNUAL MEETING
Boston, Massachusetts
March 29, 1999
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 28, 1999, at 10:00 A.M. At the meeting, we
will ask you to:
1. Elect three directors, each for a three-year term;
2. Ratify the selection of Ernst & Young LLP as independent auditors of
the Company for 1999; and
3. 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 VOTE YOUR SHARES EVEN THOUGH YOU HAVE SENT IN YOUR PROXY CARD.
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TABLE OF CONTENTS
GENERAL INFORMATION....................................................... 1
VOTING.................................................................... 1
Who Can Vote......................................................... 1
How to Vote.......................................................... 1
Quorum and Vote Necessary for Action................................. 2
BOARD OF DIRECTORS........................................................ 2
Board Structure...................................................... 2
Committees of the Board.............................................. 3
Directors' Compensation.............................................. 5
PROPOSAL 1 -- ELECTION OF CLASS I DIRECTORS............................... 6
Nominees for Class I Directors -- Term Expires in 2002............... 6
Class I Director Continuing in Office -- Term Expires in 1999........ 7
Class III Directors Continuing in Office -- Term Expires in 2001..... 7
Class II Directors Continuing in Office -- Term Expires in 2000...... 9
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............................. 14
Salary............................................................... 14
Incentive Compensation............................................... 14
Company Stock........................................................ 14
IRS Limits on Tax Deductibility of Compensation...................... 15
STOCK PERFORMANCE GRAPH................................................... 16
EXECUTIVE COMPENSATION.................................................... 17
STOCK COMPENSATION PLAN................................................... 18
Stock Options........................................................ 19
RETIREMENT PLAN........................................................... 19
CHANGE-IN-CONTROL ARRANGEMENTS............................................ 21
Severance Agreements................................................. 21
Stock Compensation and Other Plans................................... 22
PROPOSAL 2 -- SELECTION OF INDEPENDENT AUDITORS........................... 22
OTHER INFORMATION......................................................... 22
Stockholder Proposals................................................ 22
Expenses of Soliciting Proxies....................................... 23
i
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HOUGHTON MIFFLIN COMPANY
222 Berkeley Street
Boston, Massachusetts 02116
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1999
GENERAL INFORMATION
The Board of Directors of Houghton Mifflin Company is soliciting proxies to
be used at the 1999 Annual Meeting. On March 29, 1999, 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 1998 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, 1999 are entitled to vote. On this record date, there were
25,785,861 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 and "for"
ratification of the selection of independent auditors for 1999. 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 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.
<PAGE> 6
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 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. 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.
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 this proposal.
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.
2
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The Board currently consists of 13 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 I directors expire at this meeting. The Board
voted to increase its size to 13 in October 1998, in preparation for the
retirement of Mary H. Lindsay and John Magee, both Class III directors, and
George Putnam, a Class I director, and elected Michael Goldstein as a Class II
director and Gail H. Klapper as a Class III director. Under the Company's
retirement policy, Ms. Lindsay and Mr. Magee will be retiring from the Board at
the Annual Meeting, and Mr. Putnam, whose term expires, will not be standing for
re-election. The Board decided to add directors prior to these retirements to
help ensure a smooth transition.
The Board has voted to fix the number of directors for 1999 at 10. The
Board has also voted to reclassify Mr. Goldstein as a Class I director to better
equalize the size of the classes. At this Annual Meeting, three nominees in
Class I are up for election. These nominees are Joseph A. Baute, Nader F.
Darehshori, and Michael Goldstein. Each of the nominees is now a member of the
Board of Directors.
The Board met 9 times during 1998. 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:
Compensation & Employment Practices &
Audit Nominating Diversity
Mr. Baute, Chair Dr. Sorenson, Chair Mr. Longsworth, Chair
Mr. Freedman* Mr. Baute* Mr. Freedman
Mr. Goldstein* Mr. Goldstein* Ms. Klapper*
Mr. Magee** Ms. Klapper* Ms. Lindsay**
Ms. Malone Ms. Lindsay** Mr. McDougal
Mr. McDougal Mr. Longsworth Mr. Tarr*
Dr. Sorenson** Mr. Putnam**
Mr. Tarr
Executive Finance
Mr. Darehshori, Chair Ms. Malone, Chair
Mr. Baute Mr. Freedman**
Mr. Longsworth* Mr. Goldstein*
Mr. Magee** Mr. Magee**
Ms. Malone Mr. McDougal*
Mr. Putnam** Mr. Putnam**
Dr. Sorenson* Dr. Sorenson*
Mr. Tarr
- - --------
* After April 28, 1999
** Until April 28, 1999
3
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Audit Committee 5 meetings in 1998
- 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 6 meetings in 1998
- 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 Practices & Diversity Committee 2 meetings in 1998
- 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 1998
- 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.
4
<PAGE> 9
Finance Committee 3 meetings in 1998
- Reviews and makes recommendations relating to offerings of debt and
equity securities, major borrowing commitments, dividend policy, investor
relations activities, risk management policy, and other significant
financial matters.
Directors' Compensation
We compensate directors who are not employees of the Company as follows:
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
Shares of Company stock 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. One director participated in the plan during
1998.
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. 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. Individual directors
derive no financial benefit from this program.
5
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PROPOSAL 1 -- ELECTION OF CLASS I DIRECTORS
The shares represented by your proxy card will be voted "for" the election
of the Class I 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 I DIRECTORS--TERM EXPIRES IN 2002
[PICTURE OF JOSEPH A. BAUTE Age: 71 Director Since: 1982
JOSEPH Principal Occupation or Employment: Mr. Baute is a principal
A. BAUTE] 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, Spectra, Inc., Thermo-Spectra, Inc., INSO
Corporation, and Metrika Corporation, and past Chairman of
the Board of the Federal Reserve Bank of Boston.
Committees: Audit (Chair) and Executive.
[Picture of NADER F. DAREHSHORI Age: 62 Director Since:
Nader F. 1989 Principal Occupation or Employment: Mr. Darehshori has
Darehshori] 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 Dana-Farber
Cancer Institute.
Committees: Executive (Chair).
[Picture of MICHAEL GOLDSTEIN Age: 57 Director Since:
Michael 1998 Principal Occupation or Employment: Mr. Goldstein is
Goldstein] Chairman of the Board of Toys "R" Us, Inc., where he was
Chief Executive Officer and Vice Chairman of the Board from
1994 to 1998.
Other Business Affiliations: Director of the National Retail
Federation, the 92nd Street Y, The Special Contributions Fund
of the NAACP, The Council on Economic Priorities, the
Northside Center for Child Development, the Queens College
Foundation, and the State University of New York at Stony
Brook Foundation; Member of the Advisory Board of The For All
Kids Foundation.
Committees: Audit, Compensation & Nominating, and Finance
(as of April 28, 1999).
6
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CLASS I DIRECTOR CONTINUING IN OFFICE--TERM EXPIRES IN 1999
[PICTURE OF GEORGE PUTNAM Age: 72 Director Since:
GEORGE 1985 Principal Occupation or Employment: Mr. Putnam is
PUTNAM] Chairman of Putnam Investment Management Co. and Chairman and
President of each of the Putnam Mutual 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. Mr. Putnam will retire as a director after the
Annual Meeting.
CLASS III DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 2001
[PICTURE OF GAIL H. KLAPPER Age: 55 Director Since: 1998
GAIL Principal Occupation or Employment: Ms. Klapper is the
KLAPPER] founder and managing principal of The Klapper Firm, a law and
consulting organization focusing on general corporate, real
estate, regulatory, and administrative law, and the director
and member of The Colorado Forum, a group composed of chief
executive officers focusing on public policy issues.
Other Business Affiliations: Director of Orchard Trust
Company, a subsidiary of Great West Life and Annuity
Insurance Company, Gold. Inc. Community Board, and Norwest
Banks of Colorado Community Board; Chairman of the Boards of
Wellesley College and the Denver Metro Chamber of Commerce.
Committees: Compensation & Nominating and Employment
Practices & Diversity (as of April 28, 1999).
[Picture of MARY H. LINDSAY Age: 72 Director Since: 1975
Mary H. Other Business Affiliations: Member of the President's
Lindsay] 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 Practices & Diversity and
Compensation & Nominating. Ms. Lindsay will retire as a
director after the Annual Meeting.
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[Picture of JOHN F. MAGEE Age: 72 Director Since: 1976
John F. Principal Occupation or Employment: Mr. Magee is the former
Magee] 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, Executive, and Finance. Mr. Magee will
retire as a director after the Annual Meeting.
[Picture of CLAUDINE B. MALONE Age: 62 Director Since: 1982
Claudine Principal Occupation or Employment: Ms. Malone is President
B. Malone] 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.
[Picture of RALPH Z. SORENSON Age: 65 Director Since:1976
Ralph Z. Principal Occupation or Employment: Dr. Sorenson is
Sorenson] 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 corporation of Babson College.
Committees: Audit and Compensation & Nominating (Chair).
[Picture of ROBERT J. TARR, JR. Age: 55 Director Since: 1998
Robert Principal Occupation or Employment: Mr. Tarr is currently a
J. Tarr, Jr.] consultant focusing on business management issues. He 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 Co., Hannaford Brothers, Inc., WESCO
International, Inc., Sterling Autobody Centers, Inc., and
Barney's, Inc.
Committees: Compensation & Nominating and Finance.
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CLASS II DIRECTORS CONTINUING IN OFFICE--TERM EXPIRES IN 2000
[PICTURE OF JAMES O. FREEDMAN Age: 63 Director Since: 1991
JAMES O.
FREEDMAN] Principal Occupation or Employment: Mr. Freedman is
President Emeritus and Bicentennial Professor of Law and the
Liberal Arts and of Government at Dartmouth College. He was
President of Dartmouth College from 1987 to 1998.
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 Board of Trustees of the Jewish Publication
Society of America, and the Board of Directors of the
Salzburg Seminar and the Friends of the Library of the
Supreme Court of Israel; life member of Clare Hall, Cambridge
University; Fellow of the American Academy of Arts and
Sciences; 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 nine 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 Practices & Diversity and Finance.
[Picture of CHARLES R. LONGSWORTH Age: 69 Director Since: 1985
Charles
R. Longsworth] Principal Occupation or Employment: Mr. Longsworth is
Chairman Emeritus of the Colonial Williamsburg Foundation in
Williamsburg, Virginia.
Other Business Affiliations: Director of Saul Centers, Inc.,
Crestar Financial Corporation, the Center for Public
Resources, and the Virginia Eastern Shore Corporation;
Chairman Emeritus of the Board of Trustees of Amherst
College; President Emeritus of Hampshire College.
Committees: Employment Practices & Diversity (Chair) and
Compensation & Nominating.
[Picture of ALFRED L. MCDOUGAL Age: 68 Director Since: 1994
Alfred Principal Occupation or Employment: Mr. McDougal is
L. McDougal] 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 Hubbard Street Dance Company
and Opportunity International.
Committees: Audit and Employment Practices & Diversity.
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<PAGE> 14
RELATED PARTY TRANSACTIONS WITH DIRECTORS
Mr. Darehshori is a director 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, Employees'
Medical Benefits Trust, and Benefits Trust, and is Trustee under the Company's
Indenture relating to the issuance of debt securities. 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 13%
of INSO's common stock, and had 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, 1999. 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................................... 20,974 *
Albert Bursma, Jr................................. 46,713 *
Nader F. Darehshori............................... 270,130(4) *
Gail Deegan....................................... 76,126 *
James O. Freedman................................. 13,301 *
Michael Goldstein................................. 1,250 *
Gail H. Klapper................................... 750 *
Mary H. Lindsay................................... 16,367 *
Charles R. Longsworth............................. 18,041(5) *
John F. Magee..................................... 22,334 *
Claudine B. Malone................................ 23,001(6) *
Alfred L. McDougal................................ 11,833(7) *
Julie A. McGee.................................... 86,296 *
George Putnam..................................... 17,437 *
June Smith........................................ 65,468 *
Ralph Z. Sorenson................................. 20,201 *
Robert J. Tarr, Jr................................ 7,083(8) *
All directors and executive officers as
a group (28 persons)............................. 1,178,613 4.01%
</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.............................................. 18,227
Ms. Deegan.................................................. 16,798
Mr. Bursma.................................................. 5,184
Ms. Smith................................................... 7,118
Ms. McGee................................................... 9,294
</TABLE>
In addition to the restricted shares, Mr. Darehshori also holds 28,828
Restricted Share Units, which do not have voting rights and may not be
transferred. After Mr. Darehshori's retirement, these Restricted Share
Units will automatically convert into an equal number of shares of common
stock.
Four members of the group composed of all directors and executive officers
share with others voting and investment power over 24,940 of the shares
listed, and the holders have sole voting power only over 102,446 of the
shares listed.
(2) Includes shares that may be acquired upon exercise of stock options that
were exercisable on January 31, 1999, or that will become exercisable within
60 days after January 31, 1999. The following list shows the number of these
shares.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Mr. Baute................................................... 4,001
Mr. Bursma.................................................. 30,000
Mr. Darehshori.............................................. 100,000
Ms. Deegan.................................................. 30,000
Mr. Freedman................................................ 4,001
Mr. Goldstein............................................... 667
Ms. Klapper................................................. 667
Ms. Lindsay................................................. 4,001
Mr. Longsworth.............................................. 4,001
Mr. Magee................................................... 4,001
Ms. Malone.................................................. 4,001
Mr. McDougal................................................ 4,001
Ms. McGee................................................... 51,200
Mr. Putnam.................................................. 4,001
Ms. Smith................................................... 43,200
Dr. Sorenson................................................ 4,001
Mr. Tarr.................................................... 667
All directors and executive officers as a group (28
persons).................................................. 483,882
</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, 1998, the most recent date for which such information is
available.
(4) Includes 1,139 shares owned by Mr. Darehshori's wife and 1,525 shares held
by Mr. Darehshori's wife as custodian for a minor child.
11
<PAGE> 16
(5) Mr. Longsworth has reported and disclaimed beneficial ownership of 1,300
shares owned by his wife.
(6) All shares are owned by a corporation of which Ms. Malone is sole
stockholder.
(7) Includes 3,832 shares owned by a trust of which Mr. McDougal is trustee.
(8) Mr. Tarr has reported and disclaimed beneficial ownership of 1,000 shares
owned by a charitable trust of which Mr. Tarr is trustee.
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 originally provided that the Company and the
employee-participant would share in the gain or loss if any shares purchased
under the plan were sold after the first anniversary of purchase but before the
fifth anniversary. The Company amended the Executive Stock Purchase Plan in 1998
to eliminate the gain and loss sharing provisions. The Non-Employee Director
Stock Purchase Plan also provided for gain and loss sharing under certain
circumstances between the third and fifth anniversary of purchase, but since
these time periods have passed, these provisions are no longer applicable.
In connection with these plans, we entered into loan agreements with some
participants. All loans, which must be repaid on sale of the shares, are
interest-bearing, and loans to employee-participants are secured by the shares.
The promissory notes of employee-participants were amended when the Executive
Stock Purchase Plan was amended; the effective interest rate under those notes
is 6.5%, maturing on June 30, 2003. Director-participants pay an effective
interest rate of 7.4%, and their loans mature on October 1, 1999. The following
list shows the highest amount outstanding under any of these loans that exceeds
$60,000 since January 1, 1998, which is the same as the amount currently
outstanding. Directors: Mr. Baute, $106,680; Mr. Longsworth, $106,680; Dr.
Sorenson, $106,680. Director and executive officer: Mr. Darehshori, $1,416,207.
Executive officers: Ms. Hacking, $330,569; Mr. Logue, $232,815; Ms. McGee,
$336,141; Mr. Oswald, $485,584; Mr. Smith, $247,781; Mr. Weaver, $263,967.
12
<PAGE> 17
Principal Stockholders
The following table shows, as of December 31, 1998, 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 PERCENT OF AMOUNT AND NATURE OF
BENEFICIAL OWNER CLASS BENEFICIAL OWNERSHIP
------------------- ----------- --------------------
<S> <C> <C>
Harbor Capital Management 6.45% 1,967,150 shares -- shared
Company Inc. voting power and dispositive power
125 High Street
Boston, MA 02110
Morgan Stanley Dean 9.38% 2,203,077 shares -- shared voting power
Witter & Co. 2,860,127 shares -- shared dispositive
1585 Broadway power
New York, N.Y. 10036
State Street Bank and 5.4% 236,751 shares -- sole voting power
Trust Company, Trustee 1,410,504 shares -- shared voting power
225 Franklin Street 212,401 shares -- sole dispositive power
Boston, MA 02110 1,437,054 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 1998 other than a Form 5 filed late by Mr. Caron to report the grant
of an option.
COMPENSATION & NOMINATING COMMITTEE'S REPORT TO STOCKHOLDERS
Introduction
The Compensation & Nominating Committee of the Board of Directors
administers compensation plans for Mr. Darehshori and 15 other executives. The
members of the Committee all are directors who are not Company employees. 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.
13
<PAGE> 18
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 Company's competitors and comparable companies
in general industry compensate executives with comparable positions. The
Committee met six times in 1998 and reported its actions and deliberations to
the Board of Directors. During 1998, the Committee's independent compensation
consultant presented an extensive comparison of the Company's compensation
practices in light of its performance with respect to other publishing companies
and general industry and concluded that the Company's compensation levels were
appropriate and within competitive ranges. The surveyed companies include those
entities in the publishing peer group, a comparator group for purposes of the
Stock Performance Graph on page 16.
Salary
Salaries for executives are set based on the responsibilities and strategic
value of the position and the employee's experience and performance. The
Committee also considers information presented by its independent compensation
consultant with respect to salaries for executives in comparable positions at
other publishing companies and in general industry. 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 salary for 1998, the Committee reviewed
the Company's operating and financial performance for 1997. After considering
these and other factors, the Committee increased Mr. Darehshori's salary from
$560,000 to $600,000. As compared to salaries paid to chief executive officer
positions in the other publishing and general industry companies surveyed by the
Committee's independent consultant, Mr. Darehshori's salary was below the
median.
Incentive Compensation
Each year the Committee approves an annual bonus plan early in the year.
The 1998 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) was
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. In addition, since 1998 budgeted results in certain
financial areas were below those for 1997, the 1998 plan required that the
Company achieve 1997 levels in those areas in order to receive a full payment at
targeted levels of performance. Mr. Darehshori's 1998 bonus was $300,036 and
4,657 shares of restricted stock.
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 an interest in the long-term success of the Company and better identify
with the interests of stockholders. The Committee also believes that the best
ways to provide executives with stock ownership opportunities are stock
14
<PAGE> 19
options, restricted stock, and performance shares, which depend on achievement
of specified financial goals. Early in 1997, after reviewing the results of a
study of the Company's executive stock ownership practices by its independent
consultant, the Committee awarded shares of performance restricted stock, which
could not be transferred or sold, to the officers named in the Summary
Compensation Table and nine other executive officers. Depending on the extent to
which the executives achieved specified financial factors, the restrictions on
some or all of these shares could lapse at the end of 1998. The restrictions on
any remaining shares will lapse at the end of 2001, as long as the executive is
still employed by the Company. The Company's financial performance resulted in
the achievement of an average of 97.8% of the financial targets, which led to
the lapse of restrictions on 78% of the shares awarded. Mr. Darehshori was
granted 50,000 shares in 1997 and restrictions lapsed on 39,000 shares based on
the Company's financial performance through December 31, 1998.
The Committee provided a financial incentive in the form of stock options
for Mr. Darehshori and the other senior executives related to the extent to
which the Company achieves its financial goals through the end of 2000. The
options provide for exercisability over three years beginning in the year 2002.
However, if the Company achieves its year 2000 financial goals, the options
become exercisable on February 15, 2001. The Committee granted Mr. Darehshori
options to purchase 80,000 shares under this program. The Committee also granted
Mr. Darehshori options to purchase 80,000 shares for service through 2001.
IRS Limits on Tax Deductibility of Compensation
The Securities and Exchange Commission requires that this report comment
upon the Company's policy with respect Section 162(m) of the Internal Revenue
Code of 1986, under which 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. The Committee's policy is to balance the
deductibility of compensation with the need to provide appropriate and
competitive financial rewards to Company executives.
This report is submitted by the Company's Compensation & Nominating
Committee, the members of which are Dr. Sorenson (Chairman), Ms. Lindsay, Mr.
Longsworth, Mr. Putnam, and Mr. Tarr.
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 six companies with
significant publishing activities. The companies in the peer group are Golden
Books Family Entertainment, Inc.; Harcourt General Inc.; McGraw-Hill, Inc.;
Scholastic Corporation; Thomas Nelson, Inc.; and John Wiley & Sons, Inc. We have
deleted Waverly, Inc. from the peer group used last year because it was acquired
by another company. 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, 1993, to December 31, 1998, and assumes an
initial investment of $100 and quarterly reinvestment of dividends. The price of
the Company's common stock was $24.3125 on December 31, 1993, and $47.25 on
December 31, 1998. The information in the graph reflects the Company's
two-for-one stock split effective in July 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HOUGHTON MIFFLIN COMPANY, S&P MIDCAP 400 INDEX, AND PUBLISHING PEER GROUP
[PERFORMING GRAPH]
<TABLE>
<CAPTION>
HOUGHTON MIFFLIN CO. S&P MIDCAP 400 INDEX PEER GROUP
-------------------- -------------------- ----------
<S> <C> <C> <C>
Base Period Dec93 100.00 100.00 100.00
Dec94 95.10 96.42 100.97
Dec95 91.98 126.25 130.56
Dec96 123.58 150.49 139.90
Dec97 170.09 199.03 189.90
Dec98 212.52 237.05 242.26
</TABLE>
Total return data provided by S&P's Compustat Services, Inc.
16
<PAGE> 21
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid the Chairman,
President, and Chief Executive Officer and the four other most highly
compensated executive officers during the last three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ----------------------------------
AWARDS
----------------------- PAYOUTS
OTHER RESTRICTED SECURITIES --------
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) # ($)(2) ($)(3)
------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori......... 1998 $590,000 $300,036 $0 $ 202,288 160,000 $ 0 $190,411
Chairman, President, 1997 551,250 280,000 0 1,454,977 0 300,645 184,383
and Chief Executive Officer 1996 518,750 202,125 0 599,983 0 0 193,385
Gail Deegan................. 1998 313,500 127,230 0 65,201 30,000 0 49,653
Executive Vice President 1997 297,500 120,000 0 578,893 0 93,952 49,579
and Chief Financial Officer 1996 246,111 70,038 0 216,250 30,000 0 41,343
Albert Bursma, Jr........... 1998 280,500 113,206 0 34,055 30,000 0 96,347
Executive Vice President 1997 269,750 67,568 0 552,500 0 112,742 91,880
1996 260,000 46,150 0 0 0 0 79,959
June Smith.................. 1998 279,000 114,013 0 32,187 30,000 0 37,728
Executive Vice President 1997 254,500 104,400 0 584,085 0 150,323 37,427
1996 228,750 93,998 0 24,090 0 0 32,651
Julie A. McGee.............. 1998 274,500 111,626 0 46,478 30,000 0 40,438
Executive Vice President 1997 254,500 104,400 0 572,753 0 150,323 39,841
1996 230,000 94,030 0 85,745 0 0 38,567
</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. The restricted shares awarded
for 1998 were awarded on January 26, 1999 as part of the 1998 bonus.
Restrictions on shares awarded as part of the 1996, 1997, and 1998 bonuses
will lapse three years from the date of award provided the recipient remains
employed by the Company. Restrictions on a portion of the shares awarded in
1997 under the Performance Restricted Share Plan lapsed in January 1999,
based on the Company's having achieved specified levels of financial
performance. Restrictions on the remaining shares will lapse 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, 1998, 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, 1998:
Mr. Darehshori, 86,055 shares, with a year-end market value of $4,066,099;
Ms. Deegan, 32,398 shares, with a year-end market value of $1,530,806; Mr.
Bursma, 20,784 shares, with a year-end market value of $982,044; Ms. Smith,
22,718 shares, with a year-end market value of $1,073,426; Ms. McGee, 24,894
shares, with a year-end market value of $1,176,242. Mr. Darehshori's shares
include 28,828 Restricted Share Units, which do not have voting rights and
may not be transferred. After Mr. Darehshori's retirement, these Restricted
Share Units will automatically convert into an equal number of shares of
common stock.
17
<PAGE> 22
(2) The award was paid half in cash and half in shares of the Company's stock.
(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 1998 for the officers listed in the table.
<TABLE>
<CAPTION>
CONTRIBUTIONS TERM NON-TERM
CONTRIBUTIONS TO PORTION- PORTION-
TO 401(K) SUPPLEMENTAL SPLIT-DOLLAR SPLIT-DOLLAR
NAME SAVINGS PLAN BENEFITS PLAN INSURANCE INSURANCE
- - ---- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Mr. Darehshori................... $7,200 $2,400 $31,192 $149,619
Ms. Deegan....................... 7,200 2,400 7,085 32,968
Mr. Bursma....................... 6,864 2,736 16,390 70,357
Ms. Smith........................ 7,200 2,400 6,815 21,313
Ms. McGee........................ 6,429 3,571 7,117 23,321
</TABLE>
STOCK COMPENSATION PLAN
We believe that our officers and employees should have the same interest in
the Company's success as its stockholders. We encourage officers and employees
to become stockholders by a variety of grants under the 1998 Stock Compensation
Plan. These grants include options to buy the Company's stock, restricted or
bonus stock, and performance awards, where the amount of cash and/or stock
received depends on achieving specified performance goals.
18
<PAGE> 23
Stock Options
The following table shows stock option grants in 1998 to the officers named
in the Summary Compensation Table. The amounts shown as potentially realizable
values are based on the assumed appreciation rates required by the SEC, but the
real value of these options will depend entirely on the actual future share
price.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- - ---- ---------- ---------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Nader F. Darehshori..... 80,000 6.30% $42.9375 11/30/03 $ 949,027 $2,097,102
80,000 6.30 42.9375 11/30/08 2,160,253 5,474,505
Gail Deegan............. 30,000 2.36 42.9375 11/30/08 810,095 2,052,939
Albert Bursma, Jr....... 30,000 2.36 42.9375 11/30/08 810,095 2,052,939
June Smith.............. 30,000 2.36 42.9375 11/30/08 810,095 2,052,939
Julie A. McGee.......... 30,000 2.36 42.9375 11/30/08 810,095 2,052,939
</TABLE>
The following table shows option exercises during 1998 by those officers.
It also shows the number of options they still hold, both those currently
exercisable and those that will be exercisable in the future, along with the
value of these options at year-end. Because these options have not been
exercised, the values shown have not been realized. The options will have value
only if they are exercised, and that value will depend entirely on the share
price on the exercise date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END($)
ACQUIRED VALUE --------------- -------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
Nader F. Darehshori......... 20,000 $205,000 100,000/140,000 $2,096,250/$603,750
Gail Deegan................. 0 0 30,000/30,000 $ 768,750/$129,375
Albert Bursma, Jr........... 0 0 30,000/30,000 $ 793,125/$129,375
June Smith.................. 4,000 37,500 43,200/34,800 $1,081,800/$253,575
Julie A. McGee.............. 0 0 51,200/34,800 $1,269,800/$253,575
</TABLE>
- - ---------------
(1) Market value of underlying securities at exercise or year-end, minus the
exercise or base price.
RETIREMENT PLAN
Under the Company's Retirement Plan, which uses a cash balance formula, an
account is established for each employee. Every year, we credit each employee's
account with an amount that
19
<PAGE> 24
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 fewer 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
Company's 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 based on a formula which
uses a multiple of the employee's years of service and average annual earnings
for the five highest-paid 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, 1999) to those officers. The
benefits shown in the table reflect a single life annuity benefit, after
offsetting the officer's primary Social Security benefit.
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 $ 58,400 $ 77,900 $ 97,000 $116,800 $123,000 $129,300
300,000 70,900 94,500 118,400 141,800 149,300 156,800
350,000 83,400 111,200 139,000 166,800 175,500 184,300
400,000 95,900 127,900 159,800 191,800 201,800 211,800
450,000 108,400 144,500 180,700 216,800 228,100 239,300
500,000 120,900 161,200 201,500 241,800 254,300 266,800
550,000 133,400 177,900 222,300 266,800 280,600 294,300
600,000 145,900 194,500 243,200 291,800 306,800 321,800
650,000 158,400 211,200 264,000 316,800 333,100 349,300
700,000 170,900 227,900 284,900 341,800 359,300 376,800
750,000 183,400 244,600 305,700 366,800 385,600 404,300
800,000 195,900 261,200 326,500 391,800 411,800 431,800
850,000 208,400 277,900 347,400 416,800 438,100 459,300
900,000 220,900 294,600 368,200 441,900 464,400 486,900
1,100,000 270,900 361,200 451,600 541,900 569,400 596,900
</TABLE>
As of December 31, 1998, the years of credited service and the compensation
that will be taken into account for pension calculations for 1998 for the
officers named in the Summary Compensation Table are: Mr. Darehshori, 33 years
and $870,000; Ms. Deegan, 13 years and $433,500; Mr. Bursma, 27 years and
$348,068; Ms. Smith, 6 years and $383,400; and Ms. McGee, 5 years and $378,900.
Differences between the amount of compensation shown above and in the Summary
Compensation
20
<PAGE> 25
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
Sixteen 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, 1999, 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. Fifteen executive officers have agreements of this kind.
We also have severance agreements with some of our key managers. One executive
officer is a party 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.
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 36 months (for
senior executives) or 24 months (for key managers).
In addition, we will maintain medical, life insurance, and disability
coverage benefits for the employee for a period of either 36 months (for senior
executives) or 24 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.
21
<PAGE> 26
Stock Compensation and Other Plans
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 enough additional cash and property to the Supplemental Benefit Trust
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 -- SELECTION OF INDEPENDENT AUDITORS
Based on the Audit Committee's recommendation, the Board has selected Ernst
& Young LLP as the Company's independent auditors for 1999. 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 1998 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, acquisition, 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 TWO.
OTHER INFORMATION
Stockholder Proposals
Stockholders who want to have a proposal included in next year's Proxy
Statement for the 2000 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, 1999. 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.
22
<PAGE> 27
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 nomination. For the 2000 Annual Meeting, we must
receive the stockholder's notice between December 29, 1999, and February 12,
2000. If there is a special meeting, or if the Annual Meeting is called for a
date prior to February 12, 2000, 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 the 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.
23
<PAGE> 28
953-PS-99
<PAGE> 29
PROXY
HOUGHTON MIFFLIN COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1999 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 28, 1999, 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 1998 Annual Report.
(continued and to be signed on the reverse side)
- - ----------- -----------
SEE REVERSE Unless otherwise instructed this proxy will be SEE REVERSE
SIDE voted in favor of the proposals set forth on SIDE
- - ----------- the reverse side. -----------
If any other matters are properly presented to
the meeting, the Proxies will vote according
to their best judgment.
<PAGE> 30
To our stockholders,
This proxy card consolidates all your registered shares, whether those shares
were accumulated through purchase, through the Houghton Mifflin 401(k) Savings
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) Savings 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 28, 1999. Therefore, we urge you to register
your vote now by completing, signing, and returning the enclosed proxy
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, EquiServe, at
(800) 730-4001.
CODE
COM Common Stock
HM1 401(k) Savings Plan stock; employee's contribution
HM2 401(k) Savings Plan stock; employer's contribution
HM3 401(k) Savings Plan stock; acquired through ESOP
DETACH HERE
- - -------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
1. Election of Class I Directors FOR AGAINST ABSTAIN
for a three-year term. 2. Ratify Ernst & [ ] [ ] [ ]
Nominees: Joseph A. Baute, Young LLP as
Nader F. Darehshori independent
Michael Goldstein auditors for 1999.
FOR WITHHELD
[ ] [ ]
[ ]__________________________ MARK HERE IF YOU PLAN
For all nominees except as TO ATTEND THE MEETING [ ]
noted above.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
PLEASE SIGN IN THE SAME FORM AS NAME
APPEARS HEREON. FIDUCIARIES AND
CORPORATE OFFICERS SHOULD INDICATE
THEIR TITLES.
Signature:______________ Date:______ Signature:______________ Date:______
