UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

Filed by the Registrant                               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))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material Pursuant to § 240.14a-12

HOUGHTON MIFFLIN HARCOURT 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):

 

No fee required.

 

 

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:

 

 

 

 

 

 


 

 

 

 

 

 

 

March 22, 2021

Dear Stockholders:

I would like to invite you to attend the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Houghton Mifflin Harcourt Company on Friday, May 14, 2021, at 8:00 a.m., Eastern Time. We have adopted a virtual format for our Annual Meeting to provide a consistent and convenient experience to all stockholders regardless of location, and to support the health and well-being of our stockholders, employees and directors in light of the continued coronavirus (COVID-19) pandemic.  There will not be a physical meeting location, and stockholders will not be able to attend the annual meeting in person.  You may attend the Annual Meeting virtually via the Internet where you will be able to vote electronically and submit questions.  In order to attend, you must register in advance at www.proxydocs.com/HMHC any time before 7:00 a.m. Eastern Time on Friday, May 14, 2021.  Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions.  Please be sure to follow instructions found on your proxy card and/or voting instruction form and subsequent instructions that will be delivered to you via email. The accompanying notice of the Annual Meeting and proxy statement set forth the details regarding the Annual Meeting and the business to be conducted.

At the Annual Meeting, we will ask you to elect the nine director nominees listed in the proxy statement, consider a non-binding advisory vote to approve the compensation of our named executive officers, vote to approve the adoption of our Amended and Restated Employee Stock Purchase Plan and ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2021. We will also act upon any other business matters properly brought before the Annual Meeting. The attached proxy statement explains our voting procedures, describes the business we will conduct at the Annual Meeting and provides information about Houghton Mifflin Harcourt Company that you should consider when you vote your shares at the Annual Meeting. Further information about how to attend the Annual Meeting online, vote your shares electronically during the meeting and submit questions online during the meeting is included in the accompanying proxy statement.

It is important that your shares be represented and voted, regardless of the size of your holdings. Accordingly, whether or not you plan to attend the virtual Annual Meeting, we encourage you to complete, sign, date and return a proxy card or, for shares held in “street name,” voting instruction form, promptly so that your shares will be represented at the Annual Meeting. You may also access the proxy materials and vote via the Internet as described in the instructions included in the Notice of Internet Availability of Proxy Materials that you will receive, or vote by telephone. Your proxy is revocable at any time before it is voted and will not affect your right to vote electronically if you attend the virtual Annual Meeting.

I hope you will attend the Annual Meeting virtually. Thank you for your ongoing support of Houghton Mifflin Harcourt Company.

Very truly yours,

 

 

 

 

John J. Lynch, Jr.

President and Chief Executive Officer

 


 

 

 

 

 

 

 

 

125 High Street

Boston, Massachusetts 02110

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

FRIDAY, MAY 14, 2021, 8:00 A.M. (EASTERN TIME)

 

The 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Houghton Mifflin Harcourt Company (the “Company”) will be held on Friday, May 14, 2021, at 8:00 a.m., Eastern Time, or at any subsequent date and time that may be necessary by virtue of any adjournment or postponement of the Annual Meeting.  The Annual Meeting will be a virtual stockholders meeting. The purpose of the Annual Meeting is for the stockholders to consider and vote upon the following matters:

 

 

(1)

To elect nine (9) directors to the board of directors (the “Board”), each to serve until the Company’s next annual meeting of stockholders and until their successors are elected and qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal;

 

(2)

To approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers;

 

(3)

To approve the adoption of the Company’s Amended and Restated Employee Stock Purchase Plan;

 

(4)

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021; and

 

(5)

To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

The Board has fixed the close of business on March 15, 2021 as the record date for determining the stockholders of the Company entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof. Representation of at least a majority of the voting power represented by all outstanding shares of the Company’s common stock entitled to vote at the Annual Meeting is required to constitute a quorum to transact business at the Annual Meeting. Accordingly, it is important that your shares be represented at the Annual Meeting.

 

In order to attend the virtual Annual Meeting, you must register in advance at www.proxydocs.com/HMHC any time before 7:00 a.m. Eastern Time on Friday, May 14, 2021.  Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you to access the meeting and will permit you to submit questions.  You will not be able to attend the Annual Meeting in person.

 

We will be using the Securities and Exchange Commission’s Notice and Access model (“Notice and Access”), which allows us to deliver proxy materials via the Internet, as the primary means of furnishing proxy materials. We believe Notice and Access provides stockholders with a convenient method to access the proxy materials and vote, while allowing us to conserve natural resources and reduce the costs of printing and distributing the proxy materials. On or about March 22, 2021, we will mail to stockholders holding shares in “street name” a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and our Annual Report to Stockholders for the fiscal year ended December 31, 2020 (our “2020 Annual Report”) online and how to vote via the Internet. The Notice of Internet Availability of Proxy Materials also contains instructions on how to receive paper copies of the proxy materials and our 2020 Annual Report.

 

 

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

i

 


By Order of the Board of Directors,

 

 

 

 

William F. Bayers

Executive Vice President, Secretary and General Counsel

Boston, Massachusetts

March 22, 2021

YOUR VOTE IS IMPORTANT

We urge you to vote using telephone or Internet voting, if available to you, or if you received these proxy materials by mail, by completing, signing, dating and returning a proxy card or voting instruction form promptly. Please note that if your shares are held by a bank, broker or other recordholder and you wish to vote them at the virtual Annual Meeting, you must obtain a legal proxy from that recordholder.

 

Important Notice Regarding the Availability of

Proxy Materials for the 2021 Annual Meeting of Stockholders

To Be Held on May 14, 2021.

The Notice of Annual Meeting, proxy statement and the 2020 Annual Report are available at www.hmhco.com.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

ii

 


PROXY VOTING METHODS

If, at the close of business on March 15, 2021, you were a stockholder of record, you may vote your shares by proxy on the Internet, by telephone or by mail, or you may also vote electronically at the virtual Annual Meeting.   This year’s Annual Meeting is a virtual stockholders meeting, in order to attend you must to register in advance at www.proxydocs.com/HMHC any time before 7:00 a.m. on Friday, May 14, 2021.  For shares held through a broker or nominee, you may vote by submitting voting instructions to your broker or nominee. To reduce our administrative and postage costs, we ask that you vote on the Internet or by telephone, both of which are available 24 hours a day, seven days a week. You may revoke your proxies or change your vote at the times and as described in the “General Information” section of this proxy statement.

If you are a stockholder of record or hold shares through a broker or nominee and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Time) on May 13, 2021 to be counted.

To vote by proxy if you are a stockholder of record:

 

 

 

BY INTERNET

 

•   Go to www.proxypush.com/HMHC and follow the instructions, 24 hours a day, seven days a week.

•   You will need the control number included on your proxy card.

 

 

 

BY TELEPHONE

•   From a touch-tone telephone, dial the toll-free number on your proxy card and follow the recorded instructions, 24 hours a day, seven days a week.

•   You will need the control number included on your proxy card.

 

 

 

BY MAIL

 

 

 

•   If you have not already received a proxy card, you may request a proxy card from us by contacting our Secretary by calling our office at (617) 351-5000.

•   When you receive the proxy card, mark your selections on the proxy card.

•   Date and sign your name exactly as it appears on your proxy card.

•   Mail the proxy card in the postage-paid envelope that will be provided to you.

 

 

If your Houghton Mifflin Harcourt Company shares are held by a broker or nominee (that is, in “street name”), you will need to obtain a voting instruction form from the institution that holds your shares and follow the instructions included on that voting instruction form regarding how to instruct your broker or nominee to vote your shares. If your shares are held in street name at a broker and you do not provide voting instructions to your broker, your broker can vote your shares with respect to “routine” items, but not with respect to “non-routine” items. Proposals 1, 2, and 3 (Election of Directors, Advisory Vote on the Compensation of Named Executive Officers, and the Approval of the Amended and Restated Employee Stock Purchase Plan) are non-routine items. Proposal 4 (Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm) is a routine item. On non-routine items for which you do not provide voting instructions to your broker, the shares will be treated as broker non-votes.

YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

iii

 


TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY

1

GENERAL INFORMATION

4

CORPORATE GOVERNANCE

11

DIRECTOR COMPENSATION

20

PROPOSAL 1: ELECTION OF DIRECTORS

22

EXECUTIVE OFFICERS

26

COMPENSATION DISCUSSION AND ANALYSIS

28

COMPENSATION COMMITTEE REPORT

52

RISK ASSESSMENT OF OUR COMPENSATION PROGRAMS

53

EXECUTIVE COMPENSATION

54

PROPOSAL 2: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE
OFFICERS

67

PROPOSAL 3: AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

68

 

 

AUDIT COMMITTEE REPORT

75

PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

76

SECURITY OWNERSHIP AND OTHER MATTERS

77

CALCULATION OF BILLINGS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES

A-1

HOUGHTON MIFFLIN HARCOURT COMPANY AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

B-1

Forward-Looking Statements

The statements contained in this proxy statement include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “projects,” “anticipates,” “expects,” “could,” “intends,” “may,” “will,” “should,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” or, in each case, their negative, or other variations or comparable terminology. Forward-looking statements include all statements that are not statements of historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; our competitive strengths; the industry in which we operate; the impact of new accounting guidance and tax laws; expenses; effective tax rates; future liabilities; the outcome and impact of pending or threatened litigation; decisions of our customers; education expenditures; population growth; state curriculum adoptions and purchasing cycles; the impact of dispositions, acquisitions and other investments; the timing, structure and expected impact of our operational efficiency and cost-reduction initiatives and the estimated savings and amounts expected to be incurred in connection therewith; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. We caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.  

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if actual results are consistent with the forward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

iv

 


Important factors that could cause our results to vary materially from expectations include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the federal, state and local economies and on K-12 schools; the rate and state of technological change; state requirements related to digital instructional materials; our ability to execute on our Digital First, Connected growth strategy; increases in our operating costs; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives; our ability to sell the HMH Books & Media business and the terms of any such potential sale; and other factors described in the “Risk Factors” section of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other news releases we issue and filings we make with the Securities and Exchange Commission. In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.

We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.

References to Houghton Mifflin Harcourt Company

As used in this proxy statement, the terms “we,” “us,” “our,” “HMH” and the “Company” refer to Houghton Mifflin Harcourt Company, formerly known as HMH Holdings (Delaware), Inc., and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

 

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

v

 


 

PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement and does not contain all of the information that you should consider. You should read the entire proxy statement carefully before voting.

Information about our 2021 Annual Meeting of Stockholders

 

 

 

Date and time

Friday, May 14, 2021 at 8:00 a.m. Eastern Time

 

 

Location

The meeting is a virtual stockholders meeting only,

please register to attend at www.proxydocs.com/HMHC

 

 

Record Date

March 15, 2021

Voting Matters

 

 

Proposal

 

More
Information

 

Board

Recommendation

 

 

 

 

 

Proposal 1

To elect nine (9) directors to the board of directors, each to serve until the Company’s next annual meeting of stockholders and until their respective successors are elected and qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal.

Page 22

FOR

each nominee

 

 

 

 

Proposal 2

To approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers.

Page 67

FOR

 

 

 

 

Proposal 3

To approve the adoption of the Company’s Amended and Restated Employee Stock Purchase Plan.

Page 68

FOR

 

 

 

 

 

 

 

 

 

Proposal 4

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021.

 

Page 76

FOR

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

1

 


     PROXY STATEMENT SUMMARY - (Continued)     

 

Corporate Governance Highlights

We are committed to having sound corporate governance principles that serve the best interest of all our stockholders. Some highlights of our corporate governance practices are listed below.

 

  What We Do

 

 

Hold Annual Election of All Directors

 

 

8 Independent Directors out of 9 Director Nominees

 

 

Have Separate Chairman and Chief Executive Officer

 

 

Our Chairman is an Independent Director

 

 

100% Independent Board Committees 

 

 

Annual Board, Committee and Director Evaluations

 

 

Regular Executive Sessions of Independent Directors

 

 

Risk Oversight by Board and Committees

 

 

Access to Executives, Employees and Advisers

 

 

Continuing Director Education

Director Nominees

 

 

 

Director

Since

 

Committee
Memberships

 

Other

Public

Company

Boards

Name

Age

Professional Background

Audit

Comp

ESG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jean-Claude Brizard

57

2021

President and Chief Executive Officer of Digital Promise

 

      —

 L. Gordon Crovitz

62

2012

Co-Chief Executive Officer of News Guard Technologies Inc.

 

2

 

 

 

 

 

 

 

 

 Jean S. Desravines

49

2018

Chief Executive Officer of New Leaders Inc.

 

 

 

 

 

 

 

 

 

 Lawrence K. Fish*

76

2011

Former Chairman and Chief Executive Officer of Citizens Financial Group, Inc.

 

 

 

 

 

 

 

 

 Jill A. Greenthal

64

2012

Senior Advisor in Private Equity, Blackstone Group

 

2

 

 

 

 

 

 

 

 

 John F. Killian

66

2011

Former Executive Vice President and Chief Financial Officer of Verizon Communications Inc.

 

2

 

 

 

 

 

 

 

 

 John J. Lynch, Jr.

62

2017

President and Chief Executive Officer of Houghton Mifflin Harcourt Company

 

 

 

 

 

 

 

 

 John R. McKernan, Jr.

72

2012

Chairman and Chief Executive Officer, McKernan Enterprises, Inc.

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Tracey D. Weber

54

2016

General Manager for Digital Commerce & SaaS for IBM

 

 

 

 

 

 

 

 

 

    Audit:   Audit Committee                                                        

    Comp: Compensation Committee

    ESG:   Environmental, Social and Governance Committee (formerly known as the Nominating, Ethics and

Governance Committee)

*

= Chairman of the Board; = Chair; = Member

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

2

 


     PROXY STATEMENT SUMMARY - (Continued)     

 

 

Executive Compensation Highlights

Our compensation programs, practices and policies are reviewed by the Compensation Committee on an ongoing basis for alignment with our business strategy and shareholder interests. Our compensation philosophy is focused on pay for performance and is designed to reflect appropriate governance practices aligned with the needs of the Company. Listed below are some of the Company’s key practices and policies adopted to drive employee and Company performance, mitigate against undue risk, and to align the interests of our executives and other key employees with those of our stockholders.

 

  What We Do

 

 

 

 

Use Mix of Fixed and Variable Compensation, with an Emphasis on Variable Compensation

 

 

 

 

Use Mix of Annual- and Long-Term Incentive Compensation, with an Emphasis on Long-Term Incentive Compensation

 

 

 

 

Work with an Independent Executive Compensation Consultant

 

 

 

 

Design Compensation Programs to Avoid Excessive Risk-Taking

 

 

 

 

Maintain Clawback Policy

 

 

 

 

Maintain Stock Ownership Policy

 

  What We Don’t Do x

 

 

 

 

x

No Excise Tax Gross-Ups

 

 

 

 

x

No Pensions or Supplemental Executive Retirement Plans

 

 

 

 

x

No Single Trigger Equity Acceleration

 

 

 

 

x

No Repricing or Cash Buyouts of Underwater Stock Options without Stockholder Approval

 

 

 

 

x

No Discounted Stock Options

 

 

 

 

x

No Dividend Equivalents Paid on Unearned Performance Awards

 

 

 

 

x

No Unauthorized Hedging or Pledging

 

 

 

 

x

No Excessive Use of Perquisites

 

 

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

3

 


 

GENERAL INFORMATION

1. When and where is the Annual Meeting?

 

Our 2021 Annual Meeting of Stockholders (the “Annual Meeting”) will be a completely virtual meeting on Friday, May 14, 2021, at 8:00 a.m., Eastern Time, or at any subsequent time that may be necessary by any adjournment or postponement of the Annual Meeting.  There will be no physical meeting location.  The meeting will only be conducted via live webcast.

In order to attend, you must register in advance at www.proxydocs.com/HMHC any time before 7:00 a.m. Eastern Time on Friday, May 14, 2021.  Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions.  Please be sure to follow instructions found on your proxy card and/or voting authorization form and subsequent instructions that will be delivered to you via email.

Online registration will begin at 5:00 p.m., Eastern Time on March 22, 2021, and you should allow ample time to complete the online registration process. We will have technicians standing by and ready to assist you with any technical difficulties you may have accessing the virtual meeting on Friday, May 14, 2021. You may log on to the virtual meeting starting one hour before it begins.

2. Why is the 2021 annual meeting of stockholders a virtual, online meeting?

 

To support the health and well-being of our stockholders, employees and directors in light of the continuing novel coronavirus (“COVID-19”) global pandemic, our Annual Meeting of stockholders will be a virtual meeting of stockholders where stockholders will participate by accessing a website using the Internet. There will not be a physical meeting location. In light of the public health and safety concerns related to COVID-19, we believe that hosting a virtual meeting will facilitate stockholder attendance and participation at our Annual Meeting by enabling stockholders to participate remotely from any location around the world. Our virtual meeting will be governed by our Rules of Conduct which will be posted at www.proxydocs.com/HMHC in advance of the meeting. We have designed the virtual annual meeting to provide the same rights and opportunities to participate as stockholders would have at an in-person meeting, including the right to vote and ask questions through the virtual meeting platform.

3. Why am I receiving these proxy materials?

 

We are furnishing you these proxy materials in connection with the solicitation of proxies on behalf of our Board of Directors (the “Board”) for use at the Annual Meeting, including any postponements or adjournments thereof. This proxy statement includes information that we are required to provide under rules of the U.S. Securities and Exchange Commission (the “SEC”) and is designed to assist you in voting your shares.

4. What is “Notice and Access” and why did the Company elect to use it?

 

We are providing access to our proxy materials over the Internet under the Notice and Access rules of the SEC. On or about March 22, 2021, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to stockholders who hold shares in “street name” in lieu of mailing a paper copy of the proxy materials. The Notice includes information on how to access and review the proxy materials and how to vote via the Internet. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed set of the proxy materials by mail or by email. Instructions on how to request a printed copy of the proxy materials may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or by e-mail on an ongoing basis.

Choosing to access our proxy materials over the Internet or to receive proxy materials by email will decrease costs, expedite distribution of proxy materials to you and reduce our environmental impact. We encourage stockholders to take advantage of the availability of the proxy materials on the Internet to help reduce the environmental impact of our Annual Meeting.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

4

 


     GENERAL INFORMATION - (Continued)     

 

5. How can I get electronic access to the proxy materials?

 

The Notice will provide you with instructions regarding how to: (1) view our proxy materials for the Annual Meeting on the Internet; and (2) instruct us to send proxy materials to you by e-mail. The proxy materials are also available in the “Investors” section of our website at www.hmhco.com under the heading “Financial Information.”

6. What is included in the proxy materials?

 

The proxy materials include:

 

the Notice;

 

this proxy statement; and

 

our Annual Report to Stockholders for the fiscal year ended December 31, 2020 (the “2020 Annual Report”).

If you receive a paper copy of these materials by mail, the proxy materials also include a proxy card or voting instruction form.

7. What does it mean if I receive more than one Notice or proxy card or voting instruction form on or about the same time?

 

It generally means you hold shares registered in more than one account. To ensure that all of your shares are voted, please sign and return each proxy card or voting instruction form or, if you vote by Internet or telephone, vote once for each Notice or proxy card or voting instruction form that you receive.

8. Who pays the cost of soliciting proxies for the Annual Meeting?

 

Proxies will be solicited on behalf of the Board by mail, telephone, e-mail or other electronic means or in person, and we will pay the solicitation costs. We will supply our proxy materials, including our 2020 Annual Report, to brokers, dealers, banks and voting trustees, or their nominees for the purpose of soliciting proxies from beneficial owners, and we will reimburse such record holders for their reasonable expenses. The Company has retained Georgeson LLC to assist in soliciting proxies in connection with the Annual Meeting, for an estimated fee of up to approximately $12,500, plus expenses.

9. Who is entitled to vote at the Annual Meeting?

 

In accordance with our Amended and Restated By-Laws (the “By-Laws”), the Board has fixed the close of business on March 15, 2021 as the record date (the “Record Date”) for determining the stockholders entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof. At the close of business on the Record Date, the outstanding number of our voting securities was 127,410,353 shares of common stock. Each stockholder is entitled to one vote for each share of common stock he or she held as of the Record Date. A complete list of registered stockholders will be available for examination by stockholders of record during the annual meeting and at least 10 days prior to the meeting upon request to our Secretary at the address set forth in the section entitled “2020 Annual Report and Annual Report on Form 10-K” on page 79 or by calling our offices at (617) 351-5000. Shares cannot be voted at the Annual Meeting unless the holder is present in person or represented by proxy. Shares of common stock that are present virtually during the Annual Meeting constitute shares of common stock represented “in person.”

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

5

 


     GENERAL INFORMATION - (Continued)     

 

10. What matters will be voted on at the Annual Meeting?

 

The following matters will be voted on at the Annual Meeting:

 

 

Proposal 1

 

To elect the nine (9) director nominees who are named in this proxy statement to the Board.

 

 

 

Proposal 2

 

To approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers.

 

 

 

 

 

Proposal 3

 

To approve the adoption of the Company’s Amended and Restated Employee Stock Purchase Plan.

 

 

 

Proposal 4

 

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.

 

 

 

Other

 

To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

 

 

11. What is the vote required for each proposal and what are my voting choices?

 

 

 

Proposal

 

Vote

Required

 

What Are My

Voting Choices?

 

Broker

Discretionary

Voting

Allowed?

 

  Proposal 1

Election of nine (9) directors

Plurality of the shares represented in person or by proxy and entitled to vote on the election of directors

“FOR”

or

“WITHHOLD”

No

  Proposal 2

Advisory vote on the compensation of named executive officers

Majority of the shares represented in person or by proxy and entitled to vote on such proposal

“FOR,”

“AGAINST”

or

“ABSTAIN”

No

  Proposal 3

Approval of the Amended and Restated Employee Stock Purchase Plan

Majority of the shares represented in person or by proxy and entitled to vote on such proposal

“FOR,”

“AGAINST”

or

“ABSTAIN”

No

  Proposal 4

Ratification of the appointment of the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021

Majority of the shares represented in person or by proxy and entitled to vote on such proposal

“FOR,”

“AGAINST”

or

“ABSTAIN”

Yes

 

With respect to Proposal 1, the election of directors, you may vote “FOR” or “WITHHOLD” with respect to each nominee for director. A “plurality” means that the nine director nominees that receive the highest number of votes cast “FOR” will be elected. Stockholders have the option to express dissatisfaction with a nominee by indicating that they wish to “WITHHOLD” authority to vote their shares in favor of the nominee. A substantial number of “WITHHOLD” votes will not prevent a nominee from getting elected, but it can influence future decisions by the Environmental, Social and Governance Committee and the Board concerning nominees.

With respect to Proposals 2, 3 and 4 (or any other matter to be voted on at the Annual Meeting), you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you “ABSTAIN” from voting on such proposals, the abstention will have the same effect as an “AGAINST” vote.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

6

 


     GENERAL INFORMATION - (Continued)     

 

12. Could other matters be decided at the Annual Meeting?

 

We are not aware of any matters to properly come before the Annual Meeting other than those described in this proxy statement. If you grant a proxy, the persons named as proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting.

13. How does the Board recommend that I vote?

 

The Board recommends that you vote:

 

 

 

FOR

The election of the nine (9) director nominees who are named in this proxy statement to the Board.

 

 

 

FOR

The approval, on a non-binding advisory basis, of the compensation of the Company’s named executive officers.

 

 

 

 

FOR

The approval of the adoption of the Amended and Restated Employee Stock Purchase Plan.

 

FOR

The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.

 

 

14. What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

 

 

 

Stockholder of Record

You are a “stockholder of record” if, at the close of business on the Record Date, your shares were registered directly in your name with Computershare Trust Company, N.A., our transfer agent and registrar.

 

Beneficial Owner

You are a “beneficial owner” if, at the close of business on the Record Date, your shares were held by a brokerage firm or other nominee and not in your name. To be a “beneficial owner” means that, like most of our stockholders, your shares are held in “street name.” As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares by following the voting instructions your broker or other nominee provides. If you do not provide your broker or nominee with instructions on how to vote your shares, your broker or nominee will be able to vote your shares as described in Questions 19 and 20, below.

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

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     GENERAL INFORMATION - (Continued)     

 

 

15. How do I vote my shares?

 

How to vote your shares depends on whether you hold your shares as a “stockholder of record” or as a “beneficial owner.” We explain these terms in the answer provided to Question 14, above. If you are a stockholder of record, you can vote in the following ways:

 

 

 

By Internet

 

 

By following the Internet voting instructions included in the proxy materials sent to you (or by going to www.proxypush.com/HMHC and following the instructions) at any time up until 11:59 p.m., Eastern Time, on May 13, 2021.

 

 

 

By Telephone

 

 

By following the telephone voting instructions included in the proxy materials sent to you (i.e., by calling 1-866-390-5371 and following the instructions) at any time up until 11:59 p.m., Eastern Time, on May 13, 2021.

 

 

 

 

By Mail

 

 

If you have received a printed copy of the proxy materials from us by mail, you may vote by mail by marking, dating, and signing your proxy card in accordance with the instructions on it and returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The proxy card must be received prior to the Annual Meeting. If a proxy card is dated, signed and returned without specifying choices, the proxies will be voted in accordance with the recommendations of the Board set forth in this proxy statement, and, in the discretion of the persons named in your proxy, upon such other business as may properly come before the Annual Meeting.

 

 

 

Vote Electronically During the Virtual Annual Meeting

 

 

First, you must satisfy the requirements by registering to attend the Annual Meeting at www.proxydocs.com/HMHC (see below). Then, if you are a stockholder of record and prefer to vote your shares at the Annual Meeting, you must vote electronically during the virtual Annual Meeting up to the closing of the polls. Even if you plan to attend the virtual Annual Meeting, we encourage you to vote in advance by Internet, telephone or mail so that your vote will be counted if you later decide not to attend the virtual Annual Meeting.

 

If you are a beneficial owner, you should follow the instructions in the Notice or the voting instructions provided by your broker or nominee. In these cases, you may vote by Internet, telephone or mail, as applicable. You may vote your shares beneficially held through your broker if you attend the virtual Annual Meeting and you obtain a legal proxy from your broker giving you the legal right to vote the shares at the virtual Annual Meeting.

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

8

 


     GENERAL INFORMATION - (Continued)     

 

16. What do I need to attend the virtual Annual Meeting?

 

In order to attend, you must register in advance at www.proxydocs.com/HMHC any time before 7:00 a.m. Eastern Time on Friday, May 14, 2021.  Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions.  Please be sure to follow instructions found on your proxy card and/or voting authorization form and subsequent instructions that will be delivered to you via email.

 

17. How do I submit a question at the virtual Annual Meeting?

 

If you wish to submit a question, on the day of the Annual Meeting, beginning at 8:00a.m., Eastern Time on May 14, 2021, you may log into the virtual meeting platform using the unique link provided to you via email following the completion of your registration at www.proxydocs.com/HMHC, type your question into the “Ask a Question” field, and click “Submit.” Our virtual meeting will be governed by our Rules of Conduct which will be posted at www.proxydocs.com/HMHC in advance of the meeting. The Rules of Conduct will address the ability of stockholders to ask questions during the meeting, including rules on permissible topics, and rules for how questions and comments will be recognized and disclosed to meeting participants.

18. Are there other things I should know if I intend to attend the virtual Annual Meeting?

 

Please note that you can only access the virtual Annual Meeting via your unique link to the Annual Meeting that will be emailed to you following completion of your registration at www.proxydocs.com/HMHC.

19. What will happen if I do not vote my shares?

 

 

 

 

 

Stockholders of Record

 

If you are the stockholder of record and you do not vote by proxy card, by telephone, via the Internet or vote your shares electronically during the virtual Annual Meeting, your shares will not be voted at the Annual Meeting.

 

Beneficial Owners

If you are the beneficial owner and you do not direct your broker or nominee regarding how to vote your shares, your broker or nominee may vote your shares only on those proposals for which it has discretion to vote. Under applicable stock exchange rules, your broker or nominee generally does not have discretion to vote your shares on the election of directors, executive compensation proposals and other significant matters and, as such, does not have discretion to vote your shares with regard to Proposals 1, 2 and 3. We believe that Proposal 4 — ratification of the appointment of our independent registered public accounting firm — is a routine matter on which brokers and nominees can vote on behalf of their clients, if clients do not furnish voting instructions.

 

20. What is the effect of a broker non-vote?

 

Subject to applicable stock exchange and SEC rules, brokers or other nominees who hold shares for a beneficial owner have the discretion to vote on routine proposals when they have not received voting instructions. A broker non-vote occurs when a broker or other nominee does not receive voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares. Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present virtually at the Annual Meeting or represented by proxy and entitled to vote with respect to certain proposals. Accordingly, a broker non-vote will not impact our ability to obtain a quorum, nor will it impact the outcome of voting on Proposals 1, 2 and 3. Because brokers are entitled to vote on Proposal 4, we do not anticipate any broker non-votes with regard to this proposal.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

9

 


     GENERAL INFORMATION - (Continued)     

 

21. May I revoke my proxy or change my vote?

 

 

Yes, our By-Laws provide that you may revoke a proxy you have given at any time before it is voted at the Annual Meeting by:

 

 

delivering to our Secretary a letter revoking the proxy, which our Secretary must receive prior to the Annual Meeting;

 

 

delivering to our Secretary a new proxy, bearing a later date than the previous proxy, which our Secretary must receive prior to the Annual Meeting; or

 

attending the virtual Annual Meeting and voting electronically during the meeting before the polls close.

Attendance at the virtual Annual Meeting does not, standing alone, constitute your revocation of a proxy. You may change your vote at any time prior to the voting of your shares at the virtual Annual Meeting by:

 

casting a new vote by telephone or over the Internet by the time and date set forth in Question 15 above; or

 

sending a new proxy card or voting instruction form with a later date that is received prior to the Annual Meeting.

22. Where do I send a stockholder proposal for consideration at the Company’s 2022 Annual Meeting of Stockholders?

 

If you wish to propose a matter for consideration at our 2022 Annual Meeting of Stockholders, the proposal should be mailed by certified mail, return receipt requested, to our Secretary at the Company’s principal executive office, 125 High Street, Boston, Massachusetts 02110.

For a stockholder proposal to be considered for inclusion in our proxy statement for our 2022 Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the proposal must be received by our Secretary at our principal executive office on or before November 22, 2021 by 5:00 p.m., Eastern Time. Failure to deliver a proposal in accordance with this procedure may result in it not being deemed timely received.

Even if a stockholder proposal is not eligible for inclusion in our proxy statement pursuant to Rule 14a-8, the proposal may still be offered for consideration at an annual meeting according to the procedures set forth in our By-Laws. A stockholder who wishes to offer a proposal for consideration at our 2022 Annual Meeting of Stockholders (where such proposal does not otherwise qualify for inclusion in our 2022 proxy statement under Rule 14a-8) may do so by delivering written notice of the proposal to our Secretary, not before January 14, 2022 and not later than February 13, 2022. See “Stockholder Proposals and Nominations for the 2022 Annual Meeting” below in this proxy statement.

23. How can I find the voting results of the Annual Meeting?

 

We expect to announce preliminary voting results during the virtual Annual Meeting. We will publish final voting results in a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If the official voting results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final voting results in an amendment to the Form 8-K as soon as they become available.

 

 

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

10

 


 

CORPORATE GOVERNANCE

Corporate Governance Guidelines

We maintain corporate governance guidelines (the “Corporate Governance Guidelines”) that set forth a flexible framework within which the Board, assisted by its committees, exercises its responsibilities. The Corporate Governance Guidelines provide a flexible framework for the conduct of the Board’s business and address, among other things:

 

Board membership, including size, director independence, membership criteria, and selection of new directors.

 

Board leadership structure.

 

Board procedures and practices, including meetings, conflicts of interest, director compensation, and performance assessment.

 

Board committees and chairs.

 

Management succession planning and review.

The Company’s Corporate Governance Guidelines are available in the “Investors” section of our website at www.hmhco.com under the heading “Corporate Governance” and are also available in print to any person who requests them by writing to: Houghton Mifflin Harcourt Company, Investor Relations, 125 High Street, Boston, Massachusetts 02110.

Code of Conduct

We maintain a code of conduct (the “Code of Conduct”) that applies to all directors, officers and employees of the Company and serves as the foundation of our ethics and compliance program. Included within the Code of Conduct is our Finance Department Code of Ethics, which (in addition to the other provisions of our Code of Conduct) is applicable to our Chief Executive Officer, Chief Financial Officer and all other members of our finance department. Any substantive amendments to or waivers from a provision of the Code of Conduct requiring disclosure under applicable rules of The Nasdaq Stock Market LLC (“Nasdaq”) or the SEC will be disclosed on our website. Under our Code of Conduct, all employees have a duty to report any violation or suspected violation of the policy or law to the appropriate personnel as identified in the policy.

The Code of Conduct is available in the “Investors” section of our website at www.hmhco.com under the heading “Corporate Governance” and is also available in print to any person who requests it by writing to: Houghton Mifflin Harcourt Company, Investor Relations, 125 High Street, Boston, Massachusetts 02110.

Director Independence

Nasdaq rules provide that a majority of our Board must be comprised of “independent directors”. Under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that each of Jean-Claude Brizard, Daniel Allen, L. Gordon Crovitz, Jean S. Desravines, Lawrence K. Fish, Jill A. Greenthal, John F. Killian, John R. McKernan, Jr., E. Rogers Novak and Tracey D. Weber qualifies as an independent director.

Our Board has also determined that all of the members of its Audit Committee, Compensation Committee and Environmental, Social and Governance Committee (formerly known as the Nominating, Ethics and Governance Committee) are independent directors as defined under applicable Nasdaq rules and, in the case of all members of the Audit Committee, the independence requirements under Rule 10A-3 under the Exchange Act, and, in the case of all members of the Compensation Committee, the independence requirements under Rule 10C-1 under the Exchange Act.

In making such independence determinations for directors (and for members of committees, as applicable), our Board considered the criteria required by applicable Nasdaq rules, including, but not

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

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     CORPORATE GOVERNANCE - (Continued)     

 

limited to, our relationships with the family members of such directors and companies with which such directors are affiliated and the relationships between our directors (including companies with which they are affiliated) and our independent auditors, as well as Mr. Crovitz having served as our interim President and Chief Executive officer from late September 2016 through mid-April 2017, and the Company’s payment of a portion of the compensation of Mr. Fish’s executive assistant not attributed to services rendered to the Company.

Board Leadership Structure

We currently separate the roles of the Chairman of the Board and the Chief Executive Officer. Our President and Chief Executive Officer is responsible for setting our strategic direction and our day-to-day leadership and performance, while the Chairman of the Board, who is an independent director, provides guidance and counsel to our Chief Executive Officer and presides over meetings of the Board. The Board believes that the separation of the two roles appropriately balances the need for our Chief Executive Officer to run our day-to-day operations, with involvement and oversight from the Chairman. The Board periodically reviews its leadership structure to determine whether it continues to best serve the Company and our stockholders.

Committees of the Board

Our Board has standing Audit, Compensation and Environmental, Social and Governance (formerly known as the Nominating, Ethics and Governance Committee) Committees. The standing Board committees are chaired by independent directors, each of whom reports regularly to the Board at Board meetings on the activities and decisions made by the respective committees. The Board makes committee assignments and designates committee chairs based on a director’s independence, knowledge and areas of expertise. We believe this structure helps facilitate efficient decision-making and communication among our directors and fosters efficient Board functioning at Board meetings. The Board conducts an annual self-evaluation to determine whether it and its committees are functioning effectively. We describe the current functions and members of each committee below.

The table below provides current standing committee memberships and 2020 committee meeting information:

 

Director

 

Audit

 

Compensation

 

Environmental, Social and

Governance(1)

 

 

 

 

 

Daniel Allen

 

 

 

 

 

Jean-Claude Brizard(2)

 

L. Gordon Crovitz

 

 

 

 

 

 

Jean S. Desravines

 

 

 

 

 

Lawrence K. Fish*(3)

 

 

 

 

Jill A. Greenthal(3)

 

 

 

 

 

John F. Killian(3)

 

 

 

 

 

John J. Lynch, Jr.

 

 

 

 

 

 

 

John R. McKernan, Jr.

 

 

 

 

 

 

 

 

 

Tracey D. Weber

 

 

 

 

 

Actions by Written Consent

0

5

0

 

 

 

 

Total Committee Meetings

6

5

6

 

(1)

In September 2020, the Board expanded the Nominating, Ethics and Governance committee’s responsibilities to include reviewing and advising management on the Company’s environmental, social and governance (“ESG”) strategy, policies and programs.  To reflect the recent expansion of the committee’s duties with respect to ESG, the Board has renamed the committee as the Environmental, Social and Governance Committee.  

(2)

Mr. Brizard joined each of the Compensation Committee and the ESG Committee effective March 19, 2021.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

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     CORPORATE GOVERNANCE - (Continued)     

 

(3)      The Board has determined that each of Mr. Fish, Ms. Greenthal and Mr. Killian qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

* = Chairman of the Board; = Chair; = Member

Audit Committee

Our Audit Committee Charter sets forth the duties of the Audit Committee. The Audit Committee oversees the accounting and financial reporting processes of the Company related to internal controls, the audit of the Company’s financial statements, and such other matters as required under SEC rules and regulations and Nasdaq listing standards. Among other things, the Audit Committee meets with management, the internal auditors and the independent auditors to review internal accounting controls and accounting, auditing, and financial reporting matters. The Audit Committee approves the appointment of our independent auditors, reviews and approves the scope of the annual audits of our financial statements, reviews our internal control over financial reporting, reviews and approves any non-audit services performed by the independent auditors, reviews the findings and recommendations of the internal and independent auditors, periodically reviews major accounting policies and oversees and administers our related person transactions policy.

More detailed description of the functions, duties and responsibilities of the Audit Committee are set forth in its charter, which is available in the “Investors” section of our website at www.hmhco.com under the heading “Corporate Governance.”

Compensation Committee

Our Compensation Committee Charter sets forth the duties of the Compensation Committee. Among other things, the Compensation Committee, in coordination with the Board, evaluates the Chief Executive Officer’s performance and makes recommendations to the Board regarding the compensation of our Chief Executive Officer and, in coordination with the Chief Executive Officer, reviews the Chief Executive Officer’s evaluation of the other executive leadership team members and approves their compensation, including salary, target annual bonus plan opportunity and long-term incentive program opportunity, and other compensation matters. The Compensation Committee reviews our compensation philosophy and strategy, and considers the material risks associated with the Company’s compensation structure, policies and programs as well as mitigating factors. The Compensation Committee also administers incentive compensation and equity-based plans, sets performance targets, metrics and weightings under the Company’s incentive compensation and equity-based plans, and reviews other special compensation matters, such as executive employment agreements and other compensatory arrangements, as well as severance and change-in-control arrangements.

More detailed description of the functions, duties and responsibilities of the Compensation Committee are set forth in its charter, which is available in the “Investors” section of our website at www.hmhco.com under the heading “Corporate Governance.”

Independent Compensation Consultants

The Compensation Committee engages Semler Brossy Consulting Group, LLC (“Semler Brossy”) as its compensation consultant to assist it in fulfilling its responsibilities under its charter. Semler Brossy advises the Compensation Committee on a broad range of executive compensation matters, including apprising the committee of executive compensation-related trends and developments in the marketplace, informing the committee of regulatory considerations relating to executive compensation, assessing the composition of the Company’s compensation peer group companies, providing competitive market data on executive compensation levels, program design and governance features, providing general advice in support of compensation decisions pertaining to our executive leadership team, and reviewing management proposals, documentation and disclosures in support of the committee. In retaining and utilizing Semler Brossy, the Compensation Committee considered, among other factors, the independence of the firm according to the factors the committee is required to consider under Rule 10C-1 of the Exchange Act and Nasdaq Rule 5605.  Semler Brossy does not have any other relationship with or provide any other services to the Company.  The Compensation Committee has determined that the firm is independent and does not have any conflicts of interest with the Company.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

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     CORPORATE GOVERNANCE - (Continued)     

 

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee in 2020 were Messrs. Allen, Fish, Kilian, McKernan and Desravines and Ms. Weber. E. Rogers Novak was a member of the Compensation Committee through the end of his term on May 19, 2020. Jean-Claude Brizard became a member of the Compensation Committee on March 19, 2021.  None of our executive officers served as a member of the board or compensation committee, or similar committee, of any other company whose executive officer(s) served as a member of our Board or our Compensation Committee.

Environmental, Social and Governance Committee

In September 2020, the Board expanded the Nominating, Ethics and Governance Committee’s responsibilities with respect to reviewing and advising management on the Company’s environmental, social and governance (“ESG”) strategy, policies and programs.  To reflect the expansion of the committee’s duties with respect to ESG matters, the Board has renamed the committee as the Environmental, Social and Governance Committee.  

Our Environmental, Social and Governance Committee Charter sets forth the duties of the Environmental, Social and Governance Committee. The Environmental, Social and Governance Committee identifies individuals qualified to become members of the Board, reviews and makes recommendations on corporate governance guidelines and other policies as well as with respect to the size and structure of the Board, reviews and makes recommendations on director compensation and indemnification arrangements, oversees director orientation and continuing education programs, reviews management succession planning in coordination with the Board, and oversees the evaluation of the Board and its committees.

More detailed description of the functions, duties and responsibilities of the Environmental, Social and Governance Committee are set forth in its charter, which is available in the “Investors” section of our website at www.hmhco.com under the heading “Corporate Governance.”

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

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     CORPORATE GOVERNANCE - (Continued)     

 

Director Background Information

The chart below provides certain background and diversity demographic information for the nine nominees for election to our Board of Directors:

 

 

 

 

Jean-Claude Brizard

L. Gordon

Crovitz

 

Jean

Desravines

 

Lawrence

K. Fish

 

Jill A.

Greenthal

 

John

Killian

 

John J.

Lynch, Jr.

 

John R.

McKernan, Jr.

 

Tracey

Weber

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years on the Board

 

 

*

8.7

 

3

 

10.7

 

8.9

 

10.2

 

3.10

 

8.6

 

4.8

Age

 

 

57

62

 

49

 

76

 

64

 

66

 

62

 

72

 

54

Gender

 

 

M

M

 

M

 

M

 

F

 

M

 

M

 

M

 

F

Race/Ethnicity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

African American/Black

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

White/Caucasian

 

 

 

 

 

 

 

 

 

 

 

*Mr. Brizard joined the Board of Directors on March 19, 2021.

Director Nomination Process

The Environmental, Social and Governance Committee utilizes a broad approach for identification of director nominees and may seek recommendations from our directors, officers or stockholders and/or engage a search firm. In evaluating and determining whether to ultimately recommend a person as a candidate for election as a director, the Environmental, Social and Governance Committee considers the qualifications set forth in our Corporate Governance Guidelines, including high personal and professional ethics, integrity and values, demonstrated business acumen, experience and ability to use sound judgment to contribute to effective oversight of the business or financial affairs of the Company, strategic planning, diversity and independence from management. It also takes into account specific characteristics and expertise that it believes will enhance the diversity of knowledge, expertise, background and personal characteristics of the Board. Ultimately, the Environmental, Social and Governance Committee seeks to recommend to the Board those nominees whose specific qualities, experience and expertise will augment the current Board’s composition and whose past experience evidences that they will: (1) dedicate sufficient time, energy and attention to ensure the diligent performance of Board duties; (2) comply with the duties and responsibilities set forth in our Corporate Governance Guidelines and in our By-Laws; (3) comply with all duties of care, loyalty and confidentiality applicable to them as directors of publicly traded corporations organized in Delaware; and (4) adhere to our Code of Conduct.

The Environmental, Social and Governance Committee considers stockholder recommendations of qualified potential candidates. To have a potential candidate considered by the Environmental, Social and Governance Committee as a nominee for election at the 2022 Annual Meeting of Stockholders, a stockholder must submit the recommendation in writing to the attention of our Secretary at our corporate headquarters no later than February 13, 2022 and no sooner than January 14, 2022. Any such recommendation must include the same information required under our By-Laws for nomination of director candidates by stockholders.

Stockholders also have the right under our bylaws to nominate director candidates, without any action or recommendation on the part of the Environmental, Social and Governance Committee or our Board, by following the procedures set forth under “Stockholder Proposals and Nominations for the 2022 Annual Meeting”.

Board Role in Risk Oversight

The Board is responsible for reviewing and approving the Company’s risk management strategy and framework consistent with its duty of oversight over the management of the business and affairs of the Company. As a result of the COVID-19 pandemic, the Board increased the frequency of its meetings with the management team over the course of 2020 in order to have greater visibility on the impact of the pandemic on the business and also to gain insight into the Company’s health and safety programs

 

 

 

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     CORPORATE GOVERNANCE - (Continued)     

 

implemented to support and ensure the safety and well-being of the Company’s employees who are either working remotely or onsite at our distribution centers.  

The Audit Committee, under powers delegated to it by the Board, is responsible for discussing with the Company’s management the major financial, operational, legal, compliance and other significant risks (including cybersecurity risks), as well as the Company’s risk assessment and risk management policies and practices in place. The Audit Committee works directly with members of senior management and the Company’s internal audit team to review and assess our risk management initiatives, including the Company’s compliance programs, and reports these matters to the Board, as appropriate. In addition, the Audit Committee meets as appropriate: (i) as a committee to discuss the Company’s risk management policies and exposures; and (ii) with the Company’s independent auditors to review our internal control environment and potential significant risk exposures.

The Compensation Committee oversees and annually reviews the management of risks relating to our compensation programs and policies. In fulfillment of its duties, the Compensation Committee has direct responsibility for reviewing and approving the compensation of our executive officers and other compensation matters. The Compensation Committee meets regularly with senior management to understand the financial, human resources and stockholder implications of compensation decisions and reports these matters to the Board, as appropriate.

The Environmental, Social and Governance Committee oversees the management of risks related to the Company’s corporate governance structure and leadership, conflicts of interest and director nomination process. In addition, in September 2020 the Board expanded the Nominating, Ethics and Governance committee’s responsibilities with respect to reviewing and advising management on the Company’s ESG strategy, policies and programs.  To reflect the expansion of the committee’s duties with respect to ESG matters, the Board has renamed the committee as the Environmental, Social and Governance Committee.  

The Board engages in the oversight of risk management in various ways. The Board sets goals and standards for the Company’s employees, officers and directors. Implicit in this philosophy is the importance of sound corporate governance. It is the duty of the Board to serve as a prudent fiduciary for stockholders and to oversee the management of the Company. During the course of each year, the Board reviews the structure and operation of various departments and functions of the Company. In these reviews, the Board discusses with management material risks affecting those departments and functions and management’s approach to mitigating those risks. The Board reviews and approves management’s operating plans and material risks that could affect the results of those operating plans (including cybersecurity risks). In its review and approval of annual reports on Form 10-K, the Board reviews the Company’s business and related risks, including as described in the “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the reports. The Audit Committee reviews these risks in connection with the preparation of quarterly reports on Form 10-Q. When the Board reviews particular transactions and initiatives that require Board approval, or that otherwise merit Board involvement, the Board generally includes related analysis and risk mitigation plans among the matters addressed with senior management. The day-to-day identification and management of risk is the responsibility of the Company’s management. As the market environment, industry practices, regulatory requirements and the Company’s business evolve, it is expected that senior management and the Board will respond with appropriate risk mitigation strategies and oversight.

Board Meetings and Annual Meeting Attendance by Board Members

We expect our directors to attend each meeting of the Board and of the committees on which our directors serve. We also expect our directors to attend our annual meeting of stockholders. During 2020, in light of the COVID-19 global pandemic the Board increased the frequency of its meetings and met 22 times. In 2020, no member of the Board attended fewer than 75% of the aggregate of: (i) the total number of meetings of the Board (held during the period for which he or she served as a director); and (ii) the number of meetings held by all committees of the Board on which he or she served (during the periods that he or she served on any such committee). All of our then-serving directors attended our 2020 Annual Meeting of Stockholders.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

16

 


     CORPORATE GOVERNANCE - (Continued)     

 

Executive Sessions

The Board generally meets in executive sessions as part of every regularly scheduled Board meeting without management directors or any other members of management present unless the Board specifically requests their presence. In addition, the independent directors of the Board meet in executive session without any members of management present at least two times annually, but ideally as part of every regularly scheduled Board meeting, to be consistent with the requirements set forth in the Nasdaq rules and our Corporate Governance Guidelines.

Communications with the Board of Directors

The Board has established the following procedure for stockholders to communicate with members of the Board and for all interested parties to communicate with the presiding director or the non-management directors as a group. All such communications should be addressed to the attention of our Secretary at our corporate headquarters, located at 125 High Street, Boston, Massachusetts 02110. The Secretary collects and maintains a log of each such communication and forwards any that the Secretary believes requires immediate attention to the appropriate member or group of members of the Board, who then determines how such communication should be addressed. On a quarterly basis, all of the information is shared with the Chairman of the Board.

Review and Approval of Transactions with Related Persons

We have adopted written policies and procedures for the review of any transaction, arrangement or relationship in which the Company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), or any entity with which any such person is employed, is a general partner or principal, or has a 10% or greater beneficial ownership interest, each of whom we refer to as a “related person,” has a direct or indirect material interest (a “related person transaction”).

Our policy provides that, prior to entering into any related person transaction, either the related person or the department head responsible for the potential related person transaction will provide notice to the legal department of the proposed transaction. If the legal department determines that the proposed transaction is a related person transaction, the transaction is presented to the Audit Committee for consideration at the next Audit Committee meeting. If the legal department, in consultation with the Chief Executive Officer or the Chief Financial Officer, determines that it is not practicable or desirable to wait until the next Audit Committee meeting, the transaction is presented to the Chair of the Audit Committee (who possesses delegated authority to act between meetings). The Audit Committee or the Chair considers all of the relevant facts and circumstances available, including (if applicable) but not limited to: the benefits to the Company; the impact on a director’s independence in the event the related person is a director, an immediately family member of a director or a related entity of a director; the availability of other sources for comparable products or services; the terms of the transaction; and the terms available to unrelated third parties or to employees generally. The Audit Committee may seek bids, quotes or independent valuations from third parties in connection with assessing any related person transaction.

The Audit Committee or the Chair approve only those related person transactions that they determine are in the best interests of the Company. The Chair reports to the Audit Committee at the next meeting any approval under this Policy pursuant to delegated authority.

If the Company’s Chief Executive Officer, Chief Financial Officer or General Counsel becomes aware of a related person transaction that has not been previously reviewed, approved or ratified under the policy, such transaction will be submitted to the Audit Committee or Chair. The Audit Committee or the Chair will review and consider all of the relevant facts and circumstances related to this transaction as described above and evaluate all options, including but not limited to ratification, rescission, amendment or termination of the related person transaction. The Audit Committee periodically reviews any previously approved or ratified related person transactions that remain ongoing. Based on all relevant facts and circumstances, the Audit Committee determines if it is in the best interests of the Company to continue, modify or terminate the related person transaction.

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

17

 


     CORPORATE GOVERNANCE - (Continued)     

 

Employment relationships and compensation arrangements between us and our executive officers are not considered related person transactions if they have been reviewed and approved by the Compensation Committee or the Board.

Investor Rights Agreement

In connection with our restructuring, on June 22, 2012, we entered into an investor rights agreement with our new stockholders (the “Investor Rights Agreement”). The Investor Rights Agreement contains, among others, provisions granting our stockholders party thereto from time to time certain registration rights as described in further detail below and provisions related to confidentiality, holdback agreements and our public reporting obligations.

The Investor Rights Agreement provides our stockholders party thereto from time to time with certain registration rights. Under the Investor Rights Agreement, we are required to use commercially reasonable efforts to file and cause to become effective, a shelf registration statement (on Form S-3 if permitted) for the benefit of all stockholders party to the Investor Rights Agreement, and any individual holder or holders of 15% or more of our outstanding common stock can demand an unlimited number of “shelf takedowns,” so long as the total offering size is reasonably expected to exceed $100 million.

Each holder or group of holders who owns at least 15% of our outstanding common stock has: (i) one Form S-1 demand registration right per annum, which may be conducted in an underwritten offering, as long as the total offering size is reasonably expected to exceed $100 million; and (ii) unlimited Form S-3 demand registration rights, which may be conducted in underwritten offerings, as long as the total offering size is reasonably expected to exceed $100 million, each subject to customary cutback provisions.

 

Each stockholder party to the Investor Rights Agreement has unlimited piggyback registration rights with respect to underwritten offerings, subject to certain exceptions and limitations.

 

The registration rights described above are subject to certain cutback provisions and customary suspension/blackout provisions. We have agreed to pay all registration expenses under the Investor Rights Agreement, except that the selling stockholders may be responsible for their pro rata shares of underwriters’ fees, commissions and discounts (subject to the exception described below), stock transfer and certain legal expenses. We are required to pay certain expenses of the selling stockholders, including one firm of legal counsel for the selling stockholders, for any shelf takedown under the shelf registration statement.

 

In connection with the registration rights described above, we have agreed to indemnify the stockholders against certain liabilities. The Investor Rights Agreement also contains certain holdback agreements that apply to each stockholder party to the Investor Rights Agreement. Generally, without our prior consent and subject to limited exceptions, the stockholders party to the Investor Rights Agreement have agreed that, if participating in a future shelf takedown or other underwritten public offering, they shall not publicly sell or distribute our equity securities during: (i) the seven-day period prior to the pricing of such offering; and (ii) the 90-day period beginning on such pricing date.

 

Pursuant to its rights under the Investor Rights Agreement, during 2020 Anchorage Capital Group, L.L.C. (“Anchorage”) requested that the Company register for resale all of its outstanding shares.  The Company filed the necessary Registration Statement on Form S-3 and it was declared effective on November 25, 2020.  As set forth in Anchorage’s amended Schedule 13D/A filing dated December 10, 2020, Anchorage no longer holds any shares of common stock of the Company.

 

Anchorage Nomination Agreement

On December 21, 2016, the Company appointed Daniel Allen, President, Senior Portfolio Manager and partner of Anchorage, to the Board and the Nominating, Ethics and Governance Committee. The appointment was made pursuant to a nomination agreement the Company entered into with certain affiliates of Anchorage who are stockholders of the Company (the “Anchorage Holders”) dated as of December 21, 2016 (the “Anchorage Nomination Agreement”).

 

 

 

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2021 Proxy Statement

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     CORPORATE GOVERNANCE - (Continued)     

 

Pursuant to the Anchorage Nomination Agreement, the Company also agreed, among other things (and subject to certain terms and conditions), to include Mr. Allen on the Company’s slate of director candidates for re-election at our 2017 Annual Meeting. On February 1, 2020, Mr. Allen retired from Anchorage and became a Senior Advisor to the firm.  Anchorage informed the Company at that time that Mr. Allen would continue to serve on the Company’s Board as Anchorage’s designee.

 

On November 4, 2020 Anchorage and the Company entered into an amendment of the Anchorage Nomination Agreement (the “Amendment”) confirming that the “Restricted Period” under the Anchorage Nomination Agreement would expire on November 5, 2020. Accordingly, pursuant to its terms, the Anchorage Nomination Agreement ceased to be in effect at the end of the day on November 5, 2020. Mr. Allen, who no longer served as a designee of Anchorage, remained on the Company’s Board of Directors as an independent director.

 

The Anchorage Nomination Agreement contained restrictions on certain actions by Anchorage during the Restricted Period. These restrictions included, among other things and with certain carve-outs, restrictions on: (i) soliciting proxies or initiating a stockholder proposal with respect to the Company; (ii) forming or influencing any “group” (as defined pursuant to Section 13(d) of the Exchange Act) with respect to securities of the Company; (iii) acquiring additional shares where it would result in Anchorage beneficially owning more than 20% of the Company’s outstanding common stock; (iv) other than in an underwritten widely dispersed public offering, knowingly transferring common stock to any person or group that would beneficially own more than 10% of the Company’s outstanding common stock as a result of such transfer; (v) making disparaging public statements regarding the Company or its affiliates (with the Company agreeing to a reciprocal restriction) or making public proposals regarding changes in the Company’s business or financial condition; and (vi) initiating legal proceedings against the Company or requesting inspection of the Company’s corporate books and records. Additionally, for the duration of the Restricted Period, Anchorage agreed to cause all voting securities owned by it to, at each Company stockholder meeting, be present for quorum purposes and vote (i) for all directors nominated by the Board for election and (ii) in accordance with the recommendation of the Board on any precatory or non-binding proposals.

 

Indebtedness

Affiliates of certain of our stockholders, including stockholders holding 5% or more of our common stock, also currently own a portion of our indebtedness, including indebtedness outstanding under our term loan facility. Mr. Allen, a director of the Company, was a partner at Anchorage until February 1, 2020.  In November 2019, Anchorage participated as a lender in the refinancing of the Company’s debt, acquiring $20 million out of the $306 million in aggregate principal amount of 9.000% Senior Secured Notes due 2025 issued by the Company and becoming a lender under the Company’s second amended and restated term loan credit agreement with a commitment of $15 million out of the $380 million in initial principal amount of the term loan.  Anchorage’s participation in the refinancing was on the same terms as all the other lenders.

 

Indemnification Arrangements

We have entered into agreements with our executive officers and directors to provide contractual indemnification in addition to the indemnification provided for in our charter documents. We believe that these provisions and agreements are necessary to attract qualified executive officers and directors. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

19

 


 

DIRECTOR COMPENSATION

The Environmental, Social and Governance Committee is responsible for reviewing and recommending non-employee director compensation to the Board for its approval. We pay our non-employee directors a mix of fixed cash compensation and variable equity-based compensation. We do not provide any compensation to Company employee directors or, prior to November 2020, to Mr. Allen pursuant to the Anchorage Nomination Agreement for their Board service. The compensation paid to our non-employee directors consists of an annual retainer for service as a member or the Chairman of the Board, of which a portion is paid in cash and a portion in equity, plus an annual cash retainer for service as a member or chair of Board committees, as set forth in the tables below. The Company also reimburses directors for expenses they incur in connection with attending Board and committee meetings.

Under the Company’s non-employee director deferred compensation program (“Deferred Compensation Program”), non-employee directors are permitted to defer receipt of cash and equity-based compensation, with deferred amounts to be paid out either at a specified date or upon the individual’s separation from service in accordance with the individual’s election. Under the Deferred Compensation Program, deferred cash compensation is deemed to be notionally invested in Company common stock and credited with earnings or losses with respect thereto. Each of Messrs. Crovitz and McKernan elected to defer 100% of the portion of their compensation for 2020 that was delivered in the form of time-based restricted stock units (“RSUs”). Following the initial year of a director’s eligibility to participate in the Deferred Compensation Program for which special rules apply, deferral elections may be made no later than the end of the year prior to the fiscal year in which the compensation is earned.

As a result of the COVID-19 pandemic, the majority of the Company’s workforce has worked remotely since March 2020. In addition, from April 2020 through the end of July 2020, the Company implemented a four-day work week furlough program along with executive and senior leadership salary reductions.  For directors, the Company implemented a 25% reduction in director cash compensation from April 2020 through the end of July 2020.

As of December 31, 2020, the retainers paid to our non-employee directors for service as a member or the Chairman of the Board, a portion of which is paid in cash and a portion of which is paid in equity is as follows:

 

 

Position

 

Aggregate Annual Retainer for

Chairman/Membership ($)

 

Amount

Payable in Cash ($)

 

Amount

Payable in RSUs ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Board Chairman

 

 

 

250,000

 

 

 

 

 

120,000

 

 

 

 

 

130,000

 

 

 

 

Other Board Members

 

 

 

165,000

 

 

 

 

 

80,000

 

 

 

 

 

85,000

 

 

 

 

The retainers paid to our non-employee directors for service as a member or chair of standing Board committees, all of which are paid in cash, in effect as of December 31, 2020 are as follows:

 

 

Position

 

Annual Retainer for

Non-Chair Membership ($)

 

Aggregate Annual Retainer

for Chair ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit Committee

 

 

 

10,000

 

 

 

 

 

15,000

 

 

 

 

Compensation Committee

 

 

 

10,000

 

 

 

 

 

15,000

 

 

 

 

Nominating, Ethics and Governance Committee

 

 

 

5,000

 

 

 

 

 

7,500

 

 

 

 

Cash compensation is payable quarterly. Equity compensation is granted annually to non-employee directors on May 31 of each year and vests on the first anniversary of the date of grant, subject to continued service as a member of the Board. If necessary, director fees and grants are pro-rated for any portion of the year or quarter in which the director was not serving on the Board or the Committee.

 

In February 2021, the Board, upon recommendation from the Environmental, Social and Governance Committee, approved certain changes to non-employee director compensation following consideration of the December 2019 Semler Brossy targeted benchmarking analysis of competitive director pay levels, as well as the increased ESG responsibilities for the Environmental, Social and Governance Committee.  Effective following the Annual Meeting, non-employee director equity compensation will increase from $130,000 to $155,000 for the Board Chairman and will increase from $85,000 to $110,000 for all other

 

 

 

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2021 Proxy Statement

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     DIRECTOR COMPENSATION - (Continued)     

 

Board members.  In addition, the annual retainer for the Environmental, Social and Governance Committee non-chair membership will increase from $5,000 to $10,000 and the annual retainer for Environmental, Social and Governance Committee chair will increase from $7,500 to $15,000.  All other non-employee director compensation will remain the same.

 

Director Compensation

The following table sets forth information regarding the compensation we paid to our non-employee directors for service on the Board during 2020.

 

 

Name

 

Fees Earned or

Paid in Cash(1)

($)

 

Stock

Awards(2)

($)

 

All Other

Compensation(3)

($)

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel Allen(4)

 

 

 

14,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,715

 

 

L. Gordon Crovitz

 

 

 

78,478

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

163,478

 

 

Jean S. Desravines

 

 

 

92,326

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

177,326

 

 

Lawrence K. Fish

 

 

 

133,872

 

 

 

 

 

130,000

 

 

 

 

 

46,338

 

 

 

 

310,210

 

 

Jill A. Greenthal

 

 

 

94,635

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

179,635

 

 

John F. Killian

 

 

 

106,176

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

191,176

 

 

John R. McKernan Jr.

 

 

 

101,560

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

186,560

 

 

E. Rogers Novak Jr.(5)

 

 

 

23,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,750

 

 

Tracey D. Weber

 

 

 

92,326

 

 

 

 

 

85,000

 

 

 

 

 

 

 

 

 

177,326

 

 

(1)

Represents the aggregate cash retainers for Board and committee service and reflects the 25% reduction in director cash compensation from April 2020 through July 2020 adopted as part of the Company’s cost-savings measures implemented in response to the COVID-19 pandemic.

(2)

Represents the aggregate grant date fair value of RSUs granted in May 2020 in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, “Stock Compensation” (disregarding any forfeiture assumptions). For the assumptions made in determining these values, see Note 13 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. These awards will vest on May 31, 2021, subject to continued service on the Board. As of December 31, 2020, Mr. Fish held 84,967 RSUs, each of Messrs. Crovitz, Desravines, Killian and McKernan held 55,556 RSUs and Mses. Greenthal and Weber held 55,556 RSUs.

(3)

Represents portion of salary and benefits paid to Mr. Fish’s executive assistant not attributed to services rendered to the Company.

(4)

Mr. Allen only received director compensation for his service on the Board from November 5, 2020 through December 31, 2020 as he was an independent director and no longer serving as Anchorage’s stockholder designee due to the termination of the Anchorage Nomination Agreement.  Prior to November 5, 2020 Mr. Allen did not receive any director compensation for his service on the board.

(5)

Mr. Novak received director compensation for his service on the Board through the end of his term on May 19, 2020.

 

 

 

 

 

 

 

 

Houghton Mifflin Harcourt Company

2021 Proxy Statement

21

 


 

 

PROPOSAL 1: ELECTION OF DIRECTORS

The Board is elected by the stockholders to oversee the stockholders’ interest in the overall success of our business and our financial strength. Nine (9) directors are to be elected at the Annual Meeting to serve until the Company’s next annual meeting of stockholders and until their successors are elected and qualified, subject to a director’s earlier death, resignation, retirement, disqualification or removal. Daniel Allen will not stand for re-election at the 2021 Annual Meeting and will cease to serve as a director upon the election of directors at the 2021 Annual Meeting.  The Board thanks him for his exemplary service to the Company. The size of the Board will be reduced to nine members effective upon the election of directors at the Annual Meeting.  If you sign your proxy card or vote by telephone or over the Internet, but do not give instructions with respect to the election of directors, your shares will be voted for the nine director nominees recommended by the Board. If you sign your voting instruction form but do not give instructions with respect to the election of directors to your broker, your broker will not be able to vote your shares and your shares will not be voted on this matter.

Upon the recommendation of the Environmental, Social and Governance Committee, the Board has nominated our current directors, other than Mr. Allen who will not be standing for re-election, for election. The nominees are willing to be elected and to serve. If any nominee is not a candidate for election at the Annual Meeting (an event that the Board does not anticipate), the proxies may be voted for a substitute nominee. The business experience, qualifications and affiliations of each nominee are set forth below.

Jean-Claude Brizard

 

Director Since: March 2021    •    Age: 57

Committees: Compensation Committee; and Environmental, Social and Governance Committee

 

Jean-Claude Brizard has served as President and CEO of Digital Promise, a global, nonpartisan, nonprofit organization focused on accelerating innovation in education, since March 2021. Mr. Brizard served as Senior Advisor and Deputy Director in US Programs at the Bill and Melinda Gates Foundation where he focused on PK-16 education across five communities in four states from October 2017 to February 2021. Mr. Brizard also led several strategies to help close the racial and economic achievement gaps in Washington State's educational system as well as support the growth and sustainability of the state’s public charter school sector. From January 2016 through October 2017, Mr. Brizard was a Partner and Vice President at Cross & Joftus (now known as FourPoint Education Partners) and supported the work of many state departments of education and public-school districts seeking to turnaround chronically failing school systems as well as focusing on education to career.  Mr. Brizard is the former Chief Executive of Chicago Public Schools. Prior to his appointment in Chicago, he was Superintendent of Schools for the Rochester, NY School District. Under Mr. Brizard’s leadership, both the Chicago Public Schools and the Rochester City School District saw substantial improvements in student performance. Mr. Brizard’s experience also includes a 21-year career as an educator and administrator with the NYC Department of Education. He served as a Regional Superintendent, supervising more than 100 schools in the Borough of Brooklyn and he also served as the system’s Executive Director for its 400 secondary schools. Mr. Brizard is a Fellow of the Broad Center, a Fellow of the Pahara-Aspen Institute, and a member of the Aspen Institute Global Leadership Network.  Mr. Brizard self identifies as African American.

 

L. Gordon Crovitz

 

Director Since: August 2012    •    Age: 62

Committees: Audit Committee; and Environmental, Social and Governance Committee

L. Gordon Crovitz co-founded and became co-Chief Executive Officer of NewsGuard Technologies Inc. in 2018, which gives consumers information about the news brands they access online, and has been a partner at NextNews Ventures, a partnership investing in early-stage news companies, since June 2009. Mr. Crovitz served as interim President and Chief Executive Officer of the Company from September 2016 to April 2017. Mr. Crovitz co-founded e-commerce software company Press+ LLC in 2009 and served as Co-Chief Executive Officer from April 2009 to September 2014. From 1980 to 2007, Mr. Crovitz held a number of positions with Dow Jones and The Wall Street Journal, culminating in his role as Executive Vice President for Dow Jones and Publisher of The Wall Street Journal. Mr. Crovitz serves on

 

 

 

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     PROPOSAL 1: ELECTION OF DIRECTORS - (Continued)     

 

the Board of Directors of Next Digital Limited and Marin Software Incorporated.  Mr. Crovitz previously served as a director for Business Insider from 2008 to 2020 and as a director for Blurb from 2009 to 2020. He is also on the board of the American Association of Rhodes Scholars. Mr. Crovitz’s qualifications to serve on the Board include his management experience in the publishing industry and extensive experience as a director.

Jean S. Desravines

 

Director Since: March 2018    •    Age: 49

Committees: Audit Committee; and Compensation Committee

Jean S. Desravines has served as Chief Executive Officer of New Leaders, a national education nonprofit organization, since February 2011. In his role as Chief Executive Officer of New Leaders, he manages an organization that develops leaders for high-need schools in more than 20 cities and 15 states. Mr. Desravines previously served in senior positions in the New York City Department of Education, including as senior counselor to the chancellor of New York City’s public school system. He has also served on the board of trustees of St. Francis College since October 2014, and as a director of America Achieves, a national non-profit organization dedicated to improving public schools in the United States, since February 2016. He joined the board of directors of The New York Landmarks Conservancy, a non-profit organization, in February 2019. Mr. Desravines’ qualifications to serve on the Board include his extensive experience in the education nonprofit and public sectors. Mr. Desravines self identifies as Black.

Lawrence K. Fish (Chairman of the Board)

 

Director Since: August 2010    •    Age: 76

Committees: Audit Committee; Compensation Committee; and Environmental, Social and Governance Committee

Lawrence K. Fish served as Chairman and Chief Executive Officer of Citizens Financial Group, Inc. (“Citizens”) from 2005 to 2008 and as Chairman, President and Chief Executive Officer of Citizens from 1992 to 2005. Mr. Fish is a member of the Massachusetts Institute of Technology Corporation (the institute’s board of trustees).  Mr. Fish previously served as a director of Tiffany & Co. from 2008 to 2019 and as a director of Textron Inc. from 1999 to 2020.  He is also an Honorary Trustee of the Brookings Institution in Washington D.C., Chairman of the Board of Management Sciences for Health and Trustee of Woods Hole Oceanographic Institution. Mr. Fish’s qualifications to serve on the Board include his extensive experience in the areas of finance, marketing, general management and corporate governance.

Jill A. Greenthal

 

Director Since: June 2012    •    Age: 64

Committees: Audit Committee; and Environmental, Social and Governance Committee (Chair)

Jill A. Greenthal has been a Senior Advisor in Private Equity at the Blackstone Group, an investment firm, since 2007, working closely with Blackstone’s global media and technology teams to assist in investments in those sectors. She also serves as a director of Akamai Technologies, Inc. and Cars.com Inc., and previously served as a director of Orbitz Worldwide from 2007 to 2013, Michaels Stores from 2011 to 2015 and Flex Ltd. from 2018 to 2020. Prior to 2007, Ms. Greenthal was an investment banker and partner at each of Blackstone and Credit Suisse First Boston. Ms. Greenthal is also a trustee of the Dana-Farber Cancer Institute and The James Beard Foundation and is an Overseer of the Museum of Fine Arts in Boston, Massachusetts. Ms. Greenthal’s qualifications to serve on the Board include her extensive experience in advising and financing media, Internet and technology companies.

John F. Killian

 

Director Since: January 2011    •    Age: 66

Committees: Audit Committee (Chair); and Compensation Committee

John F. Killian was Executive Vice President and Chief Financial Officer of Verizon Communications Inc. (“Verizon”) from March 2009 through October 2010. Prior to becoming Chief Financial Officer, Mr. Killian

 

 

 

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     PROPOSAL 1: ELECTION OF DIRECTORS - (Continued)     

 

was President of Verizon Business from October 2005 until March 2009, the Senior Vice President and Chief Financial Officer of Verizon Telecom from June 2003 until October 2005, and the Senior Vice President and Controller of Verizon Telecom from April 2002 until June 2003. Mr. Killian serves on the board of directors at ConEdison Inc. He is also a Trustee of Goldman Sachs Trust II, an open-end management investment company. Mr. Killian’s qualifications to serve on the Board include his extensive financial expertise, as well as significant management and leadership experience.

John J. Lynch, Jr.

 

Director Since: May 2017    •    Age: 62

Committees: None

John “Jack” J. Lynch, Jr. has served as President and Chief Executive Officer of the Company since April 2017. Mr. Lynch served as Chief Executive Officer of Renaissance Learning, a leader in K-12 learning analytics, from November 2012 to April 2017. He has been active in the K-12 education industry since 1999 and was the founding Chief Executive Officer of bigchalk.com, where he created an education network serving 40,000 schools. He also served as president and Chief Executive Officer of the Pearson Technology Group from May 2003 to May 2006. Prior to joining Renaissance Learning, Mr. Lynch was a member of the executive board of Wolters Kluwer. Mr. Lynch serves on the board of directors of Meazure Learning, a full-service exam delivery and online proctoring solution provider for academic, professional and lifelong learners.  Mr. Lynch’s qualifications to serve on the Board include his leadership role in the Company and his over 25 years of management experience in the software and information industry, including in the field of education technology.

John R. McKernan, Jr.

 

Director Since: September 2012    •    Age: 72

Committees: Compensation Committee (Chair); and Environmental, Social and Governance Committee

John R. McKernan, Jr. served as a member of the Board from August 2010 through June 2012 and rejoined the Board in September 2012. Mr. McKernan has served as Chairman and Chief Executive Officer of McKernan Enterprises, Inc., a strategic consulting and investment firm, since January 1995 and a Senior Advisor at the U.S. Chamber of Commerce since March 2015, where he also served as its Foundation President from October 2013 to February 2015. He is also currently a director of BorgWarner Inc. and Management and Training Corporation. Mr. McKernan also serves as the Chair of the BorgWarner Foundation. Mr. McKernan is the former Chairman of Education Management Corporation, a provider of post-secondary education in North America, where he served as Chief Executive Officer from September 2003 until February 2007 and as a director until 2015. Mr. McKernan is currently Chairman of the Board of Directors of The Foundation for Maine’s Community Colleges and a director of The American Action Forum and served as Governor of the State of Maine from 1987 to 1995. Mr. McKernan served as a director of Achieve from 2016 to 2020. Mr. McKernan’s qualifications to serve on the Board include his superior leadership capabilities, knowledge of the legal and legislative processes and significant prior experience as a director.

Tracey D. Weber

 

Director Since: July 2016    •    Age: 54

Committees: Audit Committee; and Compensation Committee

Tracey D. Weber currently serves as General Manager, Marketplace and Digital Growth/Ecosystems for IBM, a global technology services company, where she is responsible for IBM’s digital marketplace and revenues, several SaaS offerings, as well as efforts to build a digital ecosystem for Hybrid Cloud.  Since May 2017, she has had responsibility for the IBM digital platform. She previously served as Chief Client Officer and Vice President of Transformation for IBM’s Watson Customer Engagement business unit from September 2016 to May 2017. From February 2016 to April 2016, Ms. Weber was a Strategic Advisor for innovative online shopping destination Gilt Groupe, where she formerly served as President from February 2015 to February 2016 and Chief Operating Officer from September 2013 to February 2015. She served as Managing Director, North America Internet and Mobile and Global Product at Citibank, NA, a multinational financial services corporation, from October 2010 to July 2013. Ms. Weber has also

 

 

 

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     PROPOSAL 1: ELECTION OF DIRECTORS - (Continued)     

 

previously served as Executive Vice President of Barnes & Noble, Inc.’s textbooks and digital education division and has held several leadership positions at Travelocity.com. From July 2013 to March 2016, she served on the board of International Game Technology. Ms. Weber’s qualifications to serve on the Board include her leadership roles across a variety of consumer industries and extensive digital operations experience.

THE BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED ABOVE.

 

 

 

 

 

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EXECUTIVE OFFICERS

The executive officers of the Company are set forth below:

 

Name

 

Age

 

Position

 

John J. Lynch, Jr.

62

President, Chief Executive Officer and Director

Joseph P. Abbott, Jr.

44

Executive Vice President and Chief Financial Officer

William F. Bayers

66

Executive Vice President, Secretary and General Counsel

Amy L. Dunkin

47

Executive Vice President, General Manager, Services

Michael E. Evans

59

Executive Vice President, Chief Revenue Officer

Matthew Mugo Fields

45

Executive Vice President and General Manager, Supplemental and Intervention Solutions

James P. O’Neill

48

Executive Vice President and General Manager, Core Solutions

Alejandro Reyes

56

Senior Vice President, Chief People Officer

 

 

 

 

Set forth below is certain additional information concerning the Company’s executive officers, including their respective positions with the Company and prior business experience, other than Mr. Lynch, for whom such information is provided above under the caption “Proposal 1: Election of Directors”.

Joseph P. Abbott, Jr.

 

Executive Vice President and Chief Financial Officer

Joseph P. Abbott, Jr. joined the Company in March 2016 as Executive Vice President and Chief Financial Officer. From 2012 to 2016, Mr. Abbott was an Executive Director in the Media and Communications Investment Banking Group at Morgan Stanley, where he held various roles since 2005. At Morgan Stanley, Mr. Abbott led a team that advised educational publishing and information services companies (and their stakeholders) on all aspects relating to mergers and acquisitions, financings and other major strategic transactions. Prior to joining Morgan Stanley, Mr. Abbott served as an officer in the United States Navy.

William F. Bayers

 

Executive Vice President, Secretary and General Counsel

William F. Bayers joined the Company in May 2007 as Senior Vice President, Secretary and General Counsel and has served as Executive Vice President, Secretary and General Counsel since March 2008. Previously, he served as Vice President and General Counsel of Harcourt Education Group. Mr. Bayers oversees all legal, regulatory and corporate matters for the Company.

Amy L. Dunkin

 

Executive Vice President, General Manager, Services

Amy L. Dunkin has served as our Executive Vice President, General Manager, Services since June 2019.   Previously, she served as our Senior Vice President, Chief Marketing Officer from September 2017 to June 2019, and prior to that she served as our Senior Vice President of Marketing since March 2016 after joining the Company in June 2015 as Vice President of Marketing. From 2009 through May 2015, Ms. Dunkin served as Vice President of Marketing of Scholastic Corporation, a publisher and distributor of books, instructional material and media for children, where she held various roles since 2005. As General Manager, Services, she oversees our Professional Services business. Ms. Dunkin has over 20 years of experience in educational technology, publishing and media in both marketing and business development roles.

 

 

 

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     EXECUTIVE OFFICERS - (Continued)     

 

Michael E. Evans

 

Executive Vice President, Chief Revenue Officer

Michael E. Evans has served as our Executive Vice President, Chief Revenue Officer since September 2019.  Previously, he served as Chief Financial Officer for McGraw Hill Education, a learning science company and educational publisher, from January 2019 through July 2019. Prior to McGraw Hill Education, he was the Chief Financial Officer of Ruffalo Noel Levitz, a private equity education-services company, from October 2018 through December 2018. Mr. Evans was Chief Operating Officer and Chief Financial Officer of Renaissance Learning, a leader in K-12 learning analytics, from October 2015 through October 2018. Mr. Evans joined Pearson, PLC in 2003 and held various roles within Pearson, including Senior Vice President – Product Management, Marketing & Research from January 2015 through October 2015, Senior Vice President, General Manager for Pre-K-12 Literacy and Mathematics from June 2011 through December 2014, and President of Pearson School Systems. Prior to Pearson, Mr. Evans was the Chief Operating Officer of Bigchalk, Inc., a K-12 library database provider. He also held various senior management positions in both broadcast and cable television including his role as Assistant General Manager of the Food Network cable television channel. In his current role, Mr. Evans is responsible for K-12 go-to-market and customer lifecycle including sales, marketing, customer success, technical support and corporate program management.

Matthew Mugo Fields

 

Executive Vice President and General Manager, Supplemental and Intervention Solutions

Matthew Mugo Fields has served as Executive Vice President and General Manager, Supplemental and Intervention Solutions since October 2017. Previously, he served as Vice President, Consumer Group of McGraw-Hill Education, a learning science company and educational publisher, from October 2016 through October 2017. He was the founder and Chief Executive Officer of Redbird Advanced Learning, a digital personalized learning provider, from July 2013 until its acquisition by McGraw-Hill Education in October 2016. Mr. Fields was also a co-founder of Rocket Group, a provider of in-school tutoring, and served as president and as a director from 2006 to October 2016.

James P. O’Neill

 

Executive Vice President and General Manager, Core Solutions

James P. O’Neill has served as Executive Vice President and General Manager, Core Solutions since September 2017. From September 2012 through September 2017, he served as Chief Product and Strategy Officer of Achieve3000, Inc., a developer of online differentiated instruction solutions. Previously, he held several roles at the Company from January 2005 to September 2012, including as Senior Vice President, Product Management and Strategy from April 2012 through September 2012. Mr. O’Neill currently serves on the board of directors of Amira Learning, Inc.  Mr. O’Neill has over 20 years of experience in educational technology, product development, strategy, marketing and sales.

 

Alejandro Reyes

 

Senior Vice President, Chief People Officer

Alejandro Reyes has served as Senior Vice President, Chief People Officer since November 2017, focusing on enabling the success of the employee community through strategic people initiatives including leadership and talent development, talent management and culture change. From May 2011 to October 2017, he served as Chief Talent and Organization Development Officer at Laureate Education, Inc., a global network of degree-granting higher education institutions, where he was responsible for building the company’s talent infrastructure. Prior to his time at Laureate, Mr. Reyes held roles relating to organizational and leadership transformation at Dell Inc. from October 2006 to May 2011, and at Motorola, Inc. from May 1998 to October 2006.

 

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (“CD&A”) is intended to assist our stockholders in understanding our executive compensation philosophy and objectives, program, practices and policies as well as the 2020 compensation for the following executive leadership team members (our “named executive officers,” or “NEOs”):

 

Named Executive Officers

 

 

John J. Lynch, Jr.

President and Chief Executive Officer

Joseph P. Abbott, Jr.

Executive Vice President and Chief Financial Officer

William F. Bayers

Executive Vice President, Secretary and General Counsel

Michael E. Evans

Executive Vice President, Chief Revenue Officer

James P. O’Neill

Executive Vice President and General Manager, Core Solutions

 

 

 

Executive Summary

Our Business

Overview

HMH is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. We are organized along two business segments: Education and HMH Books & Media (formerly referred to as Trade Publishing). Our Education segment focuses on the kindergarten through 12th grade (“K-12”) educational market and, in the United States, we are a market leader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, and we provide ongoing support in professional learning and coaching for educators and administrators.

Our offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

For nearly two centuries, our HMH Books & Media segment has brought renowned and awarded children’s, fiction, non-fiction, culinary and reference titles to readers throughout the world. Our distinguished author list includes ten Nobel Prize winners, forty-nine Pulitzer Prize winners, and twenty-six National Book Award winners. In November 2020, we announced that we were beginning to explore a

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

potential sale of the HMH Books & Media segment. Such a sale would be intended to build on the Company’s other strategic restructuring efforts and further align its cost structure to its digital-first, connected strategy.   

During 2020, we sharpened our focus on learning technology, providing innovative connected solutions for our customers that deliver more impact and more successful outcomes.  As our customers faced significant disruption in teaching and learning due to the COVID-19 pandemic, we continued to provide vital resources and support to educators, students and teachers when they needed us most.  We continued to transform our business and execute our strategy so in the future we can continue to deliver more impact for students and greater returns for shareholders. In 2020, our solutions-oriented team delivered significant strategic progress and execution in the face of unprecedented challenges. We have confidence and renewed optimism as we look to 2021 and feel we have a strong foundation for our future.

Achievements Through HMH Strategy

Through the implementation of our 2018-2020 strategy over the past three years, we have advanced our transformation through three key pillars: enhance and extend the core, develop integrated solutions and achieve operational excellence.

We've built one connected platform for all our products and services to support all subjects, all students and all teachers anywhere, whether instruction is provided in-person, remote, or in a hybrid model. This includes new, next generation programs in all four major core disciplines, along with a portfolio of best-in-class supplemental and intervention offerings.

In addition, we've begun to transition to a subscription-based business model that provides continuous updates and improvements to our customers, generates recurring revenue and is a powerful value proposition to our shareholders. We've established an entirely new operating model and a new way of working. This is a very strong foundation for HMH that benefits both our customers and our shareholders.

Now, as we look to enhance that strong foundation over the next three years, we have to answer one essential question: how do we create customer success? More specifically, what “experience” do we want our teachers to have with our products and services to help them produce the “outcomes” they aim to achieve for their students?

Our strategy to do that is Digital First, Connected. This strategy to 2023 has three pillars:

1.Grow Our Digital First, Connected Business

2.Deepen Customer Engagement & Increase Customer Outcomes

3.Optimize Our Digital Transformation

Through this strategy, we seek to create digital, connected, coherent, and compelling solutions that enable us to become the largest instructional materials EdTech company in K-12. We’ll strive to optimize the end-to-end customer journey by creating deep user engagement that is designed to lead to successful student outcomes. We’ll continue building a digitally mature organization and business and install the next generation of connected digital operations and infrastructure internally. And, we’ll seek to develop rich talent, execution capacity, culture, and leadership – to support and drive our digital-first, connected strategy.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

2020 Company Performance*

On a consolidated basis, the Company reported net sales of $1,031 million for the full year of 2020, down 26% compared to $1,391 million in 2019.

The net sales decrease was driven by a $371 million decrease in our Education segment, offset by a $12 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to the impact of the COVID-19 pandemic coupled with the smaller new adoption market opportunity in Texas ELA. Within our HMH Books & Media segment, the increase in net sales was primarily due to an increase in licensing revenue.

 

Our performance in 2020 with respect to important Company financial measures (including those from which financial performance metrics used in our incentive plans are derived) was as follows on a consolidated basis:

 

 

 

 

Years Ended December 31

 

 

 

 

 

 

(in millions of dollars)

 

2020

 

2019

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

1,031

 

 

 

 

 

1,391

 

 

 

 

(25.8

)

%

 

Billings(1)

 

 

 

1,089

 

 

 

 

 

1,591

 

 

 

 

(31.5

)

%

 

Net loss(2)

 

 

 

(480

)

 

 

 

 

(214

)

 

 

NM

 

 

 

Adjusted EBITDA(3)

 

 

132

 

 

 

 

166

 

 

 

 

(20.5

)

%

 

Net cash provided by operating activities

 

 

115

 

 

 

 

255

 

 

 

 

(54.8

)

%

 

Free cash flow(3)

 

 

3

 

 

 

 

115

 

 

 

 

(97.4

)

%

 

 

(1)

Billings is an operating measure. For a calculation of this measure, please see Annex A.

 

(2)

$279 million goodwill impairment impacted year over year change in net loss.

 

(3)

Adjusted EBITDA and free cash flow are not prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). For a reconciliation of these financial measures to the most directly comparable GAAP financial measures, please see Annex A.

NM = not meaningful

 

 

 

 

*

We encourage stockholders to read the Annual Report on Form 10-K for the year ended December 31, 2020, which describes our businesses and 2020 financial and operating performance and drivers thereof in greater detail.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

Executive Compensation Highlights

Significant Portion of 2020 NEO Target Total Direct Compensation (“TDC”)1 is At-Risk,

Performance-Based and Long-Term — Emphasizing “Pay for Performance”

 

 

 

 

 

 

Chief Executive Officer1
Target Total Direct Compensation

 

Other NEOs Average1
Target Total Direct Compensation

 

 

 

 

 

 

 

 

 

Our executive compensation programs emphasize variable, at-risk performance-based compensation, which comprised 81% of Mr. Lynch’s target TDC opportunity (in the form of annual- and long-term incentive compensation) and 73% on average for our other NEOs, with fixed compensation (base salary) making up the remainder of target TDC opportunity for 2020.

 

Our executive compensation programs emphasize long-term incentive compensation (bonus at target and LTIP (as defined below)), which comprised 71% of Mr. Lynch’s target variable, at-risk performance-based compensation opportunity and 68% on average for our other NEOs, with short-term incentive compensation (annual bonus plan) making up the remainder of their target variable, at-risk performance-based compensation opportunity for 2020.

 

1

The charts reflect the value of the 2020 target TDC opportunity as considered by our Compensation Committee as follows with respect to our CEO and other NEOs: (i) annual salary for 2020; (ii) target 2020 Bonus Plan opportunity; and (ii) the Board approved value for determining the number of time- and performance-based restricted stock units (“PSUs”) under the 2020 LTIP (as defined below) award.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

Pay for Performance Philosophy

We are committed to making sure that our executive compensation programs emphasize our pay for performance philosophy. We establish challenging financial goals in the annual bonus and long-term incentive programs and hold our leadership team to a standard of creating long-term value.

The Compensation Committee is committed to: (i) creating sustainable, long-term value for stockholders, and (ii) aligning the pay outcomes of the Company’s bonus and long-term incentive plans with the Company’s performance.

The Company’s pay for performance philosophy is evidenced by the following annual bonus and long-term incentive outcomes in recent years:

Annual Bonus Plan Payout History. As shown in the chart below, the Company’s performance achievement in comparison to the financial performance metrics that make up 90% of the Annual Bonus Plan awards, and the individual component that makes up 10% of the Annual Bonus Plan awards, has resulted in a below target payout in four of the last five years. The formulaic financial component of the Bonus Plan has paid out 60% of the target value, on average, over the last five years. For 2020, failure to achieve performance targets on Adjusted Cash EBITDA (59% of target) and HMH Billings (72% of target) resulted in below-target payout. 

 

 

1 60% threshold is for each individual metric. Weighted average overall payout can be below threshold.


 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

Long-term Incentive Plan Payout History. The Company has completed several long-term incentive plan (“LTIP”) cycles under the current plan structure that provides NEOs with an award that is 60% PSUs and 40% time-based restricted stock units (“RSUs”).

 

As a result of the Company’s below-threshold performance relative to its three-year consolidated Billings and Adjusted cash EBITDA (post plate) objectives under the 2016 LTIP, all of the performance-based equity awards granted under the plan were forfeited. For the 2017 LTIP, below-target performance of the three-year consolidated Billings objective resulted in a payout of 76% of target for those PSUs, while relative TSR was below threshold and resulted in no payout, for a combined PSU payout of 23%. For the 2018 LTIP, below-target performance of the three-year consolidated Billings objective resulted in a payout of 54% of target for those PSUs, while relative TSR was below threshold and resulted in no payout, for a combined PSU payout of 16%.

 

Due to the change in the Company’s share price from the date of grant to the final vesting date, the values of the time-based RSU portions of the awards for the 2016 LTIP, 2017 LTIP, and 2018 LTIP were 40%, 53%, and 87%, respectively, of the grant date target value1.

 

As a result, the total realized value of the 2016 LTIP, 2017 LTIP and 2018 LTIP awards was 16%, 32%, and 49% respectively, of the grant date target value for each award.

 

 

1 Value received for each award is measured on the final vesting date (3rd anniversary of grant date) and accounts for the change in the Company’s share price from date of grant until the final vesting date. A pro-rata portion of the time-based RSUs vests each year over the vesting period.

 

 

 

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

2020 Executive Compensation Actions

The following are highlights of actions taken with respect to our 2020 executive compensation program and named executive officer compensation as well as the impact of Company performance on executive compensation in 2020:

 

2020 Annual Bonus Plan Awards

Based on the Company’s performance relative to its consolidated Billings, business Billings, consolidated Adjusted cash EBITDA1 and Education Segment Adjusted cash EBITDA (before corporate allocations) under the 2020 Bonus Plan as well as individual performance:

 

•     Messrs. Lynch, Abbott, Bayers, Evans and O’Neill each received total award payouts equal to 10%, respectively, of their target awards which only includes the individual contribution portion of their 2020 Bonus as the financial performance targets were not achieved and they received no bonus payout for the financial performance portion.  

 

 

 

 

2020 Executive Compensation Program Actions and Changes

 

•     The 2020 Bonus Plan retained the corporate performance metrics of the Company’s 2019 annual bonus plan focusing on the Company’s consolidated Adjusted cash EBITDA1 and consolidated Billings. 

 

•     In order to increase our focus on cash flow generation, the Compensation Committee added Free Cash Flow (“FCF”) as a modifier to the achievement metrics for the 2020 Bonus Plan in place of the Plate Spend modifier. For purposes of the Annual Bonus Plan, FCF is the cash HMH produces through its operations, less capital expenditures. If actual FCF is outside of our target range, the Compensation Committee will review the circumstances of the result and can adjust the total funding of the financial component by +/- 5%. While the Compensation Committee, acting in March 2020, maintained the performance metric design and weightings for the Company’s 2020 long-term incentive program (“2020 LTIP”), due to uncertainty caused by the COVID-19 pandemic, the Compensation Committee and the Board of Directors did not approve the Company’s three-year plan for 2020-2022, or, as a result, the consolidated Billings performance objective for such period until August 2020.  As a consequence, half of the PSU component of the 2020 LTIP was granted in August 2020, while the time-based RSU component and the relative TSR performance RSU components of the 2020 LTIP were granted in March 2020.  See the section entitled “2020 Named Executive Officer Compensation” for additional detail.

 

•     In March 2020, the Company announced a four-day work week furlough program for employees below the senior leadership level along with executive and senior leadership salary reductions and director cash compensation reductions that began in April 2020 and ended by the end of July. During this time, our CEO received a 50% reduction in his base salary, the other NEOs and other executive leadership team members received a 25% salary reduction, and our directors received a 25% reduction in cash compensation.

 

•     Based on the board’s evaluation of Mr. Lynch’s individual contributions and a competitive review against the peer group median, Mr. Lynch received a $200,000 increase to his target LTIP for 2020 to continue to move his total compensation towards the peer group median. No other salary or target compensation increases were approved for our NEOs in connection with the annual compensation review.

 

  

1.

Adjusted cash EBITDA is a financial performance metric within the Company’s 2020 Bonus Plan. This metric is not prepared in accordance with GAAP and, despite the reference to EBITDA, is not intended to represent an adjusted earnings measure. For a reconciliation of the Adjusted cash EBITDA financial performance metric to the most directly comparable GAAP financial measure, please see Annex A.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

 

 

 

Partial Vesting of Performance-Based RSU Awards under 2018 Long-Term Incentive Plan

HMH achieved 82% of its three-year consolidated Billings goal, which resulted in a payout of 54% for the Billings portion of the 2018 LTIP award. Performance of Total Shareholder Return (TSR) was below threshold resulting in forfeiture of the TSR portion of the 2018 LTIP awards. The total performance-based RSU awards payout for the 2018 – 2020 cycle was 16% of target which is calculated based on the 60% weighting of PSUs.

2021 Executive Compensation Highlights

The following are highlights of the Company’s executive compensation program for 2021:

 

2021 Executive Compensation Program Highlights and Changes

 

•     No salary increases, incentive plan design changes, LTIP target changes or bonus target changes were approved for our NEOs in connection with our annual executive compensation review for 2021.

 

 

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

Summary of Sound Governance Features of Our Compensation Programs

Our compensation programs, practices and policies are reviewed by the Compensation Committee on an ongoing basis and are subject to change from time to time. Our compensation philosophy is focused on pay for performance and is designed to reflect appropriate governance practices aligned with the needs of the Company. Listed below are some of the Company’s key practices and policies adopted to drive employee and Company performance, mitigate against undue risk, and to align the interests of our executives and other key employees with those of our stockholders.

 

What We Do

 

 

Use Mix of Fixed and Variable Compensation, with an Emphasis on Variable Compensation

 

 

 

Use Mix of Annual- and Long-term Incentive Compensation, with an Emphasis on Long-Term Incentive Compensation

 

 

 

Work with an Independent Executive Compensation Consultant

 

 

 

Design Compensation Programs to Avoid Excessive Risk-Taking

 

 

 

Maintain Clawback Policy

 

 

 

Maintain Stock Ownership Policy

 

 

 

What We Don’t Do x

 

 

x

No Excise Tax Gross-Ups

 

 

 

x

No Pensions or Supplemental Executive Retirement Plans

 

 

 

x

No Single Trigger Equity Acceleration

 

 

 

x

No Repricing or Cash Buyouts of Underwater Stock Options without Stockholder Approval

 

 

 

x

No Discounted Stock Options

 

 

 

x

No Dividend Equivalents Paid on Unearned Performance Awards

 

 

 

x

No Unauthorized Hedging or Pledging

 

 

 

x

No Excessive Use of Perquisites

 

Advisory Vote on 2019 Named Executive Officer Compensation

At our 2020 Annual Meeting of Stockholders, our stockholders approved, on an advisory basis, the compensation of our named executive officers for fiscal 2019 with over 91% of the shares represented in person or by proxy and entitled to vote voting in favor. Given this strong support, the Compensation Committee determined to keep a similar overall compensation structure, but in connection with its annual review of our executive compensation programs implemented limited changes described herein to further support our compensation philosophy and operational and financial goals.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

Executive Compensation Philosophy and Objectives

Our compensation philosophy starts with the premise that people success + customer success = Company success. This philosophy guides development of our compensation programs for employees at all levels of the organization, including our executive leadership team, and fosters our ability to:

 

Attract, retain and motivate employees

Programs structured to be competitive in design and total compensation opportunity, generally targeting pay in median range (50th percentile) for our employees, and enabling higher opportunity for stronger than target performance.

Support customer needs and outcomes

Programs structured to support the strategic direction of the Company, including our focus on the needs of our customers and outcomes for their students.

Align with long-term interests of stockholders

Programs structured to be performance-based with achievement based on short- and long-term Company performance against financial and market metrics as well as individual performance.

The programs are designed to strike an appropriate balance between driving high levels of performance consistent with the financial objectives of the Company and mitigating against excessive risk taking.

How We Determine Executive Compensation

Participants in the Annual Process

The Compensation Committee

The Compensation Committee is responsible for making compensation decisions for our executive leadership team. The committee makes final decisions with respect to compensation for our named executive officers, other than the CEO, and makes recommendations to the Board with respect to the CEO’s compensation, with the Board making the final decision. As part of the annual executive compensation process, in February of each year the Compensation Committee in coordination with (i) the Board, with respect to the CEO, and (ii) the CEO, with respect to other executive leadership team members, and taking into account analysis and recommendations of the committee’s independent compensation consultant (“Independent Compensation Consultant”):

 

Reviews corporate and individual goals and objectives relevant to the compensation of our executive leadership team and reviews the evaluations of our executive leadership team in light of those goals and objectives.

 

Determines annual bonus plan award payouts for the previous year based on achievement of financial performance objectives and individual performance.

 

Certifies long-term incentive program award payouts (vesting) with respect to the performance-based component of the award based on achievement of financial and market performance objectives for three-year programs concluding at the end of the previous year.

 

Determines current year salary levels and target annual bonus plan opportunities for our executive leadership team.

 

Approves the design, performance metrics, targets and weightings for the current year annual bonus plan and long-term incentive program.

 

Determines and approves grants of equity awards under the current year’s long-term incentive program to our executive leadership team and other key employees.

Role of the Independent Consultant

The Compensation Committee engages Semler Brossy Consulting Group, LLC as its Independent Compensation Consultant. The Independent Compensation Consultant advises the Compensation Committee on a broad range of executive compensation and other matters relating to fulfillment of the

 

 

 

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committee’s responsibilities under its charter. As an advisor to the Compensation Committee, the Independent Compensation Consultant, among other things, generally:

 

Apprises the committee of executive compensation-related trends and developments in the marketplace.

 

Informs the committee of regulatory considerations relating to executive compensation.

 

Assesses the composition of the Company’s compensation peer group companies.

 

Provides competitive market data on executive compensation levels, program design and governance features.

 

Provides general advice in support of compensation decisions pertaining to our executive leadership team.

 

Reviews management proposals, documentation and disclosures in support of the committee.

Role of the Chief Executive Officer and Other Executive Officers

Our Chief Executive Officer, in coordination with our Chief People Officer, generally plays an important role in the process for setting compensation for the other executive officers and key employees. The CEO generally:

 

Develops his individual performance objectives for review with the Compensation Committee in coordination with the Board.

 

Reviews and approves individual performance objectives of the other executive leadership team members.

 

Evaluates the performance of the other executive leadership team members for the relevant performance period against such objectives in coordination with our Chief People Officer.

 

Reviews competitive market compensation data prepared for the Committee by the Independent Compensation Consultant and, in coordination with our Chief People Officer, recommends salary levels, target annual bonus plan and long-term incentive plan award opportunities for the other executive leadership team members to the Compensation Committee.

 

Makes recommendations on the design, performance metrics, targets and weightings for the current year annual bonus plan and long-term incentive program in coordination with the Chief Financial Officer and Chief People Officer.

 

Conducts an annual study of Organization and Talent with the purpose of identifying critical talent at executive levels to ensure proper succession plans are in place for executive and other critical roles, and to optimize the investment on retention of the highest potential individuals. Similarly, in coordination with the Chief People Officer, recommends actions to ensure that our executives and people at all levels are highly engaged and that we have a high-performance culture in the Company.

All such recommendations of our CEO are subject to Compensation Committee review, adjustment and approval.

Competitive Market Data and Compensation Peer Group

How We Use Competitive Market Data

Our Compensation Committee uses compensation peer group data as a point of reference to assess the competitiveness of executive compensation opportunities; benchmark executive compensation levels, program design and features; evaluate share utilization by reviewing overhang levels and annual burn rates; assist in the design of executive compensation programs; and benchmark executive compensation governance practices and policies.

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

The Compensation Committee also considers general and/or industry-specific survey data from similarly-sized companies for executives whose position, scope and operational or functional responsibilities are not readily available within our compensation peer group for benchmarking purposes.

2020 Compensation Peer Group

Our Compensation Committee reviews the composition and appropriateness of our compensation peer group companies annually with the Independent Compensation Consultant. Given our relatively small set of direct publicly-traded competitors, we primarily seek to include companies with similar revenues (0.5-2x of HMH’s revenue) in industries with similar business and talent profile characteristics. The Committee also reviews other screening factors such as market capitalization and geographic location. The resulting companies are primarily in the publishing, education services, and application software industries to reflect the business and talent profiles of our two business segments, Education and HMH Books & Media.

The compensation peer group referenced during the 2020 executive compensation review consisted of the following 17 companies:

 

2020 Peer Group Companies

 

Blackbaud Inc.

MicroStrategy Incorporated

TEGNA, Inc.

Bright Horizons Family
Solutions Inc.

Nuance
Communications Inc.

The E.W. Scripps Company

Graham Holdings
Company

Pearson Plc.  

The New York Times
Company

John Wiley & Sons Inc.

Pegasystems Inc.

TripAdvisor, Inc.

Stride Inc. (formerly K12 Inc.)

PTC Inc.

2U, Inc.

Meredith Corporation

Scholastic Corp.

 

 

During 2020, given the uncertainty caused in the market by the COVID-19 pandemic we chose not to make any changes to our peer group.

 

In addition, the Compensation Committee also considered technology and publishing industry survey data from Radford, Croner Digital, AAP as well as general industry survey data from Towers Watson, Mercer and AON Hewitt that reflected the revenue scope and operational or functional responsibilities of a particular executive.

Factors We Consider in Determining Executive Compensation

In determining executive compensation, the Compensation Committee generally considers a variety of factors as it deems appropriate to the circumstance, including:

 

The executive leadership team member’s role and responsibilities; qualifications, experience and industry knowledge; leadership quality and effectiveness; goals and objectives for the relevant performance period; performance during the relevant performance period and future potential; and retention risk;

 

The competitive market data for similar positions, functions or scopes of responsibility; and internal executive pay equity;

 

The Company’s financial performance, operational budget and three-year plan;

 

Recommendations of the Chief Executive Officer;

 

Input from the Independent Compensation Consultant; and

 

Other factors as the Compensation Committee deems appropriate.

In addition, the Compensation Committee considers the components of the executive leadership team member’s or other key employee’s target total direct compensation, which we define to include annual

 

 

 

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

salary and target annual bonus and long-term incentive program opportunities (“TDC”) and the mix thereof (including with respect to variable performance-based compensation and fixed compensation; short- and long-term compensation; and cash and equity compensation). The Compensation Committee does not apply any specific weighting to these factors, and the relative importance of any one factor may vary among the Company’s executive leadership team members depending on, among other things, their relative roles and scopes of responsibility.

While the Compensation Committee generally views a range around market median as representative of competitive market practice with respect to total direct compensation opportunity, it does not adhere to rigid formulas when determining the amount and mix of compensation elements.

Key Elements of Our Executive Compensation Program

Key Elements of Direct Compensation

Our executive compensation program’s direct compensation opportunity primarily consists of the following fixed and variable, performance-based compensation elements:

 

Element

 

What we Award

 

Its Objectives

 

What it Achieves

 

Fixed Compensation

 

 

 

Base Salary

Annual base salary, which
is a fixed cash amount,
paid at regular intervals

Attract and retain talented
and skilled employees

Provides a competitive
level of fixed cash
compensation

Variable Compensation

 

 

 

Short-Term Incentives –

Annual Cash Bonus

Annual performance-
based, at risk cash
incentive opportunity

Motivate and reward
employees to achieve or
exceed our current-year
Company and individual
performance objectives

Provides performance-
based, variable cash
compensation tied to
annual Company and
individual performance

Long-Term Incentives –

Annual Equity Awards

 

Three-Year at risk, equity
incentive opportunity
comprised of:

 

•        PSUs

 

•        Time-based RSUs

Align employee interests
with those of our
stockholders and
encourage executive
decision-making that
maximizes sustainable
value creation over the
long-term

PSUs provide value only to the extent that long-term performance objectives are met or exceeded

 

Time-based RSUs provide
long-term value creation
opportunity

 

 

 

 

 

 

 

 

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2021 Proxy Statement

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

 

2020 Target Total Direct Compensation for NEOs

We believe our emphasis on variable, at-risk performance-based incentive compensation – consisting of annual bonus plan cash awards and long-term incentive program equity awards – aligns our executive leadership team with our business strategy and the long-term interests of our stockholders, providing “pay for performance”.

Other Elements of Our Executive Compensation Program

 

Key Elements of Indirect and Other Compensation

Other components of our executive compensation program consist of the following key indirect and other compensation elements:

 

Element

 

What we Award

 

Its Objectives

 

What it Achieves

 

Indirect Compensation

 

 

 

Health, Welfare and
Other Employee
Benefits

Customary employee
benefit programs,
including medical and
health benefits and
401(k) matching
contribution

 

Customary executive-
level benefits,
including for relocation
benefits

Enhance our
competitiveness in the
markets in which we
compete for executive
talent

 

 

Attract and redeploy
executive talent

Provides health safety
and financial security
for our employees

Other Compensation

 

 

 

Severance and Other
Arrangements and
Change in Control
Protections

Severance and
change-in-control
protections tied to a
multiple of base salary
and annual bonus plan
award

Attract and retain
executive talent

 

Protect Company
interests through
appropriate restrictive
post-employment
covenants, including
non-competition and
non-solicitation

Enables management
to objectively evaluate
potential change in
control transactions
and provide for
continuity of
management through
any potential change
in control

 

2020 Named Executive Officer Compensation

2020 NEO Fixed Compensation

NEO 2020 Base Salary

In connection with the Compensation Committee’s annual review of compensation levels for our named executive officers in February 2020, no adjustments were made to the salaries of named executive officers for 2020. However, in response to the COVID-19 pandemic the Company implemented a temporary furlough program from April 2020 through July 2020, together with a salary reduction program for our NEOs that resulted in a 50% reduction in CEO base salary and 25% reduction in the remaining named executive officers’ base salaries during the furlough program.

 

 

 

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2021 Proxy Statement

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     COMPENSATION DISCUSSION AND ANALYSIS - (Continued)     

 

The actual salaries received, the annual base salaries of our NEOs at December 31, 2020 and percentage increases from their annual base salaries at December 31, 2019 were as follows:

 

 

Named Executive Officer

 

Actual Salary received

($)

 

 

Annual Base Salary

($)

 

 

% Increase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John J. Lynch, Jr.

 

 

796,154

 

 

 

900,000

 

 

 

0

%

 

 

Joseph P. Abbott, Jr.

 

 

528,846

 

 

 

550,000

 

 

 

0

%

 

 

William F. Bayers

 

 

432,692

 

 

 

450,000

 

 

 

0

%

 

 

Michael E. Evans

 

 

504,808

 

 

 

525,000

 

 

 

0

%

 

 

James P. O’Neill

 

 

432,692

 

 

 

450,000