<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HARCOURT GENERAL, INC.
(Name of Registrant as Specified In Its Charter)
ERIC P. GELLER, ESQ.
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid.
[ ] Fee paid previously with preliminary materials.
* [ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
[COMPANY LOGO]
Harcourt General, Inc.
27 Boylston Street/Box 1000
Chestnut Hill, MA 02167
(617) 232-8200
January 31, 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 14, 1997
The Annual Meeting of Stockholders of Harcourt General, Inc. will be held
at 10:00 a.m., Eastern Standard Time, on Friday, March 14, 1997, at The First
National Bank of Boston, 100 Federal Street, Boston, Massachusetts, for the
following purposes:
1. To elect four Class A directors in accordance with the By-Laws of
the Company.
2. To consider and act on a proposal to amend the Company's Restated
Certificate of Incorporation to increase the total number of shares of
capital stock which the Company is authorized to issue from 180,000,000
shares to 320,000,000 shares, and to increase the authorized number of
shares of Common Stock from 100,000,000 shares to 200,000,000 shares and
the authorized number of shares of Class B Stock from 40,000,000 shares to
80,000,000 shares.
3. To consider and act on a proposal to approve the Company's 1997
Incentive Plan.
4. To consider and act on a proposal to ratify the appointment by the
Board of Directors of Deloitte & Touche LLP as the Company's independent
auditors for the current fiscal year.
5. To transact such other business as may properly come before the
meeting and any adjournments of the meeting.
Holders of the Company's Common Stock and Class B Stock will be asked to
consider and act upon each of the foregoing items. All stockholders are
cordially invited to attend the meeting.
By Order of the Board of Directors
ERIC P. GELLER
Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
[COMPANY LOGO]
Harcourt General, Inc.
27 Boylston Street/Box 1000
Chestnut Hill, MA 02167
(617) 232-8200
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
MARCH 14, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harcourt General, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held at 10:00 a.m. on Friday,
March 14, 1997, at The First National Bank of Boston, 100 Federal Street,
Boston, Massachusetts, and at any adjournments thereof. All shares will be voted
in accordance with the instructions contained in the proxy, but if the proxies
which are signed and returned do not specify a vote on any proposal, the proxies
will be voted FOR the election of the nominees for director named herein, FOR
the proposal to amend the Company's Restated Certificate of Incorporation, FOR
the proposal to approve the Company's 1997 Incentive Plan and FOR the
ratification of the appointment by the Board of Directors of Deloitte & Touche
LLP as the Company's independent auditors for the current fiscal year. Any proxy
may be revoked by a stockholder at any time before it is exercised by providing
written notice of revocation to the Secretary of the Company (at the address set
forth above), by executing a proxy bearing a later date, or by voting in person
at the Annual Meeting. The mailing of this proxy statement and accompanying form
of proxy is expected to commence on or about January 31, 1997.
In addition to solicitations of proxies by mail, the Company's officers,
directors or employees may solicit proxies by telephone or personal
communication. All costs of soliciting proxies, including reimbursement of fees
of certain brokers, fiduciaries and nominees in obtaining voting instructions
from beneficial owners, will be borne by the Company.
Although stock transfer books will remain open, the Board of Directors has
fixed the close of business on January 16, 1997 as the record date for
determining the stockholders having the right to vote at the Annual Meeting. At
the meeting, each share of Common Stock and Class B Stock is entitled to one
vote. At the close of business on January 16, 1997, there were shares
of Common Stock and shares of Class B Stock of the Company outstanding
and entitled to vote at the meeting.
Shares of Common Stock and Class B Stock represented in person or by proxy
at the Annual Meeting (including abstentions and broker non-votes) will be
tabulated by the inspectors of election appointed for the meeting and will be
counted in determining that a quorum is present. Votes are counted using written
ballots.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 16, 1997 (except
as indicated in Note 5 below) with respect to the beneficial ownership of the
Company's equity securities by (i) each person known to the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock or Class B Stock, (ii) each executive officer named in the Summary
Compensation Table, (iii) each director of the Company, and (iv) all current
executive officers and directors as a group. Robert J. Tarr, Jr., who is listed
in the table as an executive officer named in the Summary Compensation Table,
resigned as a director and officer of the Company effective January 15, 1997.
See paragraph A under "Transactions with Management."
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<TABLE>
<CAPTION>
SHARES AND PERCENT OF CLASS OR
SERIES OF STOCK OWNED BENEFICIALLY (1)
---------------------------------------------------------
NAME COMMON % SERIES A % CLASS B %
- ------------------------------------------ --------- --- -------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Smith Family Group (2)(3)................. 54,825 * -- -- 19,990,398 99.7
c/o Richard A. Smith
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
Richard A. Smith (2)(3)................... 723 * -- -- 14,194,540 70.8
c/o Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
Nancy L. Marks (2)(3)..................... -- -- -- -- 10,162,612 50.7
c/o Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
Mark D. Balk, Esq. (2)(4)................. -- -- -- -- 2,888,819 14.4
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110
Neuberger & Berman L.P. (5)............... 4,822,540 9.4 -- -- -- --
605 Third Avenue
New York, NY 10158
Robert J. Tarr, Jr. (6)................... 416,953 * 55,414 4.8 -- --
Brian J. Knez (2)(7)...................... 16,064 * -- -- 625,373 3.1
John R. Cook (8).......................... 24,648 * -- -- -- --
Eric P. Geller (9)........................ 45,561 * 6,000 * -- --
William F. Connell........................ 1,500 * -- -- -- --
Gary L. Countryman........................ -- -- -- -- -- --
Jack M. Greenberg......................... 500 * -- -- -- --
Herbert W. Jarvis......................... 4,500 * -- -- -- --
Jeffrey R. Lurie (2)(10).................. 10,653 * -- -- -- --
Lynn Morley Martin........................ 500 * -- -- -- --
Maurice Segall............................ 2,000 * -- -- -- --
Robert A. Smith (2)(11)................... 26,359 * -- -- 632,233 3.2
Paula Stern............................... 500 * -- -- -- --
Hugo Uyterhoeven.......................... 1,200 * 1,200 * -- --
Clifton R. Wharton, Jr.................... 1,500 * -- -- -- --
All current executive officers and
directors as a group (20 persons)
(12).................................... 203,642 * 9,016 * 15,452,146 77.1
<FN>
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* Less than 1%.
</TABLE>
(1) Each share of Class B Stock is convertible at any time into one share of
Common Stock. Each share of the Company's Series A Cumulative Convertible
Stock ("Series A Stock"), which is not a voting security of the Company, is
convertible at any time into 1.1 shares of Common Stock. The Company knows
of no person owning Series A Stock who, after conversion of such stock,
would own more than 5% of the Company's outstanding Common Stock. The
number of shares of Common Stock reported in the table for the executive
officers of the Company individually and as a group includes shares
allocated to
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each executive officer's account under the Company's Employee Stock
Ownership Plan ("ESOP"), as to which the officers share voting power with
the trustee of the ESOP. The number of shares is as follows: Richard A.
Smith--723; Robert J. Tarr, Jr.--769; Brian J. Knez--154; John R. Cook--36;
Eric P. Geller--637; Robert A. Smith--208; and all current executive
officers as a group--2,693. Except as set forth in the preceding sentence
or in the following footnotes, each stockholder referred to above has sole
voting and investment power with respect to the shares listed.
(2) Certain of the shares included in the table have been counted more than
once because of certain rules and regulations of the Securities and
Exchange Commission. The total number of shares owned by, or for the
benefit of, Richard A. Smith, Nancy L. Marks and members of their families
is as shown for the "Smith Family Group." See Note 3. Mr. Smith and Mrs.
Marks are "control" persons of the Company within the meaning of the rules
and regulations of the Securities and Exchange Commission.
(3) The Smith Family Group includes Richard A. Smith, Chairman of the Board and
Chief Executive Officer of the Company; Nancy L. Marks, Mr. Smith's sister;
Robert A. Smith and Brian J. Knez, Presidents and Co-Chief Operating
Officers and directors of the Company, who are, respectively, the son and
son-in-law of Richard A. Smith; Jeffrey R. Lurie, a director of the Company
and the son of Nancy L. Marks; other members of their families and various
family corporations, trusts and charitable foundations. Certain members of
the Smith Family Group have filed a Schedule 13D, as amended, with the
Securities and Exchange Commission. The Schedule 13D discloses that the
members of the Smith Family Group have executed the Smith-Lurie/Marks
Stockholders' Agreement dated December 29, 1986, as supplemented (the
"Stockholders' Agreement"). The Stockholders' Agreement imposes certain
restrictions on the ability of the parties thereto to convert their Class B
Stock into Common Stock without permitting the other parties to acquire the
shares proposed to be so converted.
Not all shares of Class B Stock and none of the shares of Common Stock
owned beneficially by the members of the Smith Family Group are subject to
the Stockholders' Agreement. Thus, while 19,734,912 shares of Class B Stock
are subject to the terms of the Stockholders' Agreement, the total number
of shares held by or for the benefit of the Smith Family Group and as to
which the Smith Family Group is deemed to be the beneficial owner is
19,990,398 shares of Class B Stock and 54,825 shares of Common Stock, which
includes 40,061 shares of Common Stock subject to outstanding options
exercisable within 60 days of January 16, 1997. The 19,990,398 shares of
Class B Stock constitute 99.7% of the outstanding Class B Stock and,
together with the 14,764 outstanding shares of Common Stock owned by the
Smith Family Group, constitute 27.6% of the aggregate of the shares of the
Class B Stock, Common Stock and Series A Stock outstanding as of January
16, 1997, assuming conversion of all Series A Stock into Common Stock.
Members of the Smith Family Group possess sole or shared voting power over
all of the shares shown in the table.
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to the stockholders, and each share of Class B Stock
entitles the holder thereof to one vote on all such matters, except that
each share of Class B Stock entitles the holder thereof to ten votes on the
election of directors at any stockholders' meeting under certain
circumstances which are not present as of the date of this Proxy Statement.
As to any elections in which the Class B Stock carries one vote per share
(as is the case on the date of this Proxy Statement), the Smith Family
Group had, as of January 16, 1997, 28.1% of the combined voting power of
the Common Stock and Class B Stock. As to any elections in which the Class
B Stock would carry ten votes per share, the Smith Family Group had, as of
January 16, 1997, 79.1% of the combined voting power of the Common Stock
and Class B Stock. The effect of this significant voting power is to permit
the Smith Family Group to exert decisive control over the results of
elections for the Board of Directors in the event of a substantial
accumulation of Common Stock by persons unrelated to the Smith Family
Group.
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<PAGE> 6
The holders of Common Stock and the holders of Class B Stock are each
entitled to vote separately as a class on a number of significant matters.
For example, the holders of Common Stock and Class B Stock will each vote
separately as a class on any (i) merger or consolidation of the Company
with or into any other corporation, any sale, lease, exchange or other
disposition of all or substantially all of the Company's assets to or with
any other person, or any dissolution of the Company, (ii) additional
issuances of Class B Stock other than in connection with stock splits and
stock dividends, and (iii) amendments to the Company's Restated Certificate
of Incorporation.
(4) Mr. Balk, who is an officer and director of the law firm of Goulston &
Storrs, P.C., and is included in the Smith Family Group because he serves
as a trustee and/or director of several Smith family trusts and/or
corporations, shares voting and investment power with respect to all shares
of Class B Stock shown next to his name with various members of the Smith
Family Group. Mr. Balk disclaims beneficial ownership of such shares, all
of which are included in the number of shares owned beneficially by or for
the benefit of the Smith Family Group. See Note 3.
(5) The information reported was provided to the Company by Neuberger & Berman
in December 1996. Neuberger & Berman has shared voting power with respect
to 2,632,000 shares and shared investment power with respect to all of the
shares reported in the table. Neuberger & Berman disclaims any economic
interest with respect to the shares reported in the table.
(6) Includes 15,000 shares of Common Stock and 15,000 shares of Series A Stock
owned by Mr. Tarr's wife; 12,248 shares of Common Stock owned by a
charitable trust of which Mr. Tarr is a trustee; 30,000 shares of Common
Stock held by three trusts, of which Mr. Tarr's wife is a trustee, for the
benefit of their children and 15,000 shares of Series A Stock owned by Mr.
Tarr's wife as custodian for their three children. Mr. Tarr disclaims
beneficial ownership of the shares described in the preceding sentence. Mr.
Tarr resigned as a director and officer of the Company effective January
15, 1997. See paragraph A under "Transactions with Management."
(7) Includes 15,160 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 16, 1997. Also includes
149,855 shares of Class B Stock held by Mr. Knez's wife, 462,698 shares of
Class B Stock held in trust for the benefit of Mr. Knez's wife and 12,820
shares of Class B Stock held by two trusts, of which Mr. Knez is a trustee,
for the benefit of his children. All of the shares reported for Mr. Knez
are included in the shares owned by the Smith Family Group. See Note 3.
(8) Includes 24,612 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 16, 1997.
(9) Includes 33,173 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 16, 1997.
(10) Includes 10,640 shares of Common Stock held by the Philadelphia Eagles,
Inc., of which Mr. Lurie is owner and Chief Executive Officer. All of the
shares reported for Mr. Lurie are included in the shares owned by the Smith
Family Group. See Note 3.
(11) Includes 24,901 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 16, 1997 and 592,480 shares
of Class B Stock held by trusts of which Mr. Smith is a trustee and
beneficiary. All of the shares reported for Mr. Smith are included in the
shares owned by the Smith Family Group. See Note 3.
(12) Includes 155,004 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 16, 1997.
4
<PAGE> 7
1. ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
classes. At each Annual Meeting, a class of directors is elected for a full term
of three years to succeed those whose terms are expiring.
At the 1997 Annual Meeting, four Class A directors are to be elected for
three year terms. The persons named in the accompanying proxy will vote each
proxy for the election of the nominees listed below, unless directed otherwise.
Each of the Class A nominees is currently a member of the Board of Directors.
Mr. Knez, who is currently a Class C director, will stand for election as a
Class A director at the Annual Meeting in order to equalize the number of
directors in each class. The Company has no reason to believe that the listed
nominees will become unavailable for election, but if for any reason that should
be the case, the proxies may be voted for substitute nominees. In electing
directors, holders of the Common Stock and Class B Stock vote together as a
single class. A plurality of the votes cast at the Annual Meeting is required to
elect each director. Proxies withholding authority to vote for a nominee will be
treated as votes cast against the election of such nominee. Broker non-votes
will not be treated as votes cast and therefore will not be counted in
calculating a plurality.
Herbert W. Jarvis, a current Class A director, is not standing for election
at the 1997 Annual Meeting. Mr. Jarvis, who is 71 years old, has been a director
of the Company since 1981. Robert J. Tarr, Jr. resigned as a director and
officer of the Company effective January 15, 1997. See paragraph A under
"Transactions with Management."
All of the nominees for director and the directors who will continue to
serve after the 1997 Annual Meeting are listed below with their principal
occupations for the last five years.
NOMINEES FOR TERMS EXPIRING IN 2000 (CLASS A DIRECTORS)
GARY L. COUNTRYMAN*, age 57, Director since 1996
Chairman and Chief Executive Officer of Liberty Mutual Insurance Company
and Liberty Mutual Fire Insurance Company; President of those companies through
March 1992; Chairman of Liberty Financial Companies, Inc.; Director of Liberty
Mutual Insurance Company, Liberty Mutual Fire Insurance Company, Liberty
Financial Companies, Inc., Boston Edison Company, and Bank of Boston Corporation
and its principal subsidiary, The First National Bank of Boston. Mr. Countryman
served as a director of The Neiman Marcus Group, Inc., a majority-owned
subsidiary of the Company, from its creation in 1987 until January 1996.
JACK M. GREENBERG*, age 54, Director since 1993
Chairman of McDonald's USA since October, 1996; Vice Chairman of McDonald's
Corporation since January 1992; Chief Financial Officer of McDonald's
Corporation from January 1992 to October 1996; Director of McDonald's
Corporation, Stone Container Corporation and Arthur J. Gallagher & Company.
BRIAN J. KNEZ, age 39, Director since 1995
President and Co-Chief Operating Officer of the Company since January 15,
1997; President and Chief Executive Officer of Harcourt Brace & Company since
May 1995; President of the Scientific, Technical, Medical and Professional Group
of Harcourt Brace from 1993 to May 1995; Group Vice President of the Scientific,
Technical and Medical Group of Harcourt Brace from 1991 to 1993; Mr. Knez is the
son-in-law of Richard A. Smith, Chairman of the Board and Chief Executive
Officer of the Company, and the brother-in-law of Robert A. Smith, who is also
President and Co-Chief Operating Officer and a director of the Company.
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RICHARD A. SMITH, age 72, Director since 1950
Chairman of the Board and Chief Executive Officer (since January 15, 1997
and prior to December 1991) of the Company and of The Neiman Marcus Group, Inc.;
Chairman of the Board, President (until November 1, 1995) and Chief Executive
Officer of GC Companies, Inc. since December 1993; Director of The Neiman Marcus
Group, Inc., GC Companies, Inc., Liberty Mutual Insurance Company, Liberty
Mutual Fire Insurance Company, Liberty Financial Companies, Inc., and Bank of
Boston Corporation and its principal subsidiary, The First National Bank of
Boston. Mr. Smith is the father of Robert A. Smith and the father-in-law of
Brian J. Knez, who are Presidents and Co-Chief Operating Officers and directors
of the Company. Mr. Smith is the uncle of Jeffrey R. Lurie, a director of the
Company.
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS B DIRECTORS)
WILLIAM F. CONNELL*, age 58, Director since 1992
Chairman and Chief Executive Officer of Connell Limited Partnership;
Director of Boston Edison Company, Bank of Boston Corporation and its principal
subsidiary, The First National Bank of Boston, LCI International, Inc. and North
American Mortgage Company.
MAURICE SEGALL*, age 67, Director since 1986
Senior Lecturer, Massachusetts Institute of Technology; Former Chairman and
Chief Executive Officer of Zayre Corp.; Director of AMR Corporation.
ROBERT A. SMITH, age 37, Director since 1989
President and Co-Chief Operating Officer of the Company and President and
Chief Operating Officer of The Neiman Marcus Group, Inc. since January 15, 1997;
Group Vice President of the Company and of The Neiman Marcus Group, Inc. prior
thereto; President and Chief Operating Officer of GC Companies, Inc. since
November 1995. Mr. Smith is the son of Richard A. Smith, Chairman of the Board
and Chief Executive Officer of the Company, the brother-in-law of Brian J. Knez,
who is also President and Co-Chief Operating Officer and a director of the
Company, and the cousin of Jeffrey R. Lurie, a director of the Company.
HUGO UYTERHOEVEN*, age 65, Director since 1980
Timken Professor of Business Administration, Graduate School of Business
Administration, Harvard University; Director of Bombardier, Inc., The Stanley
Works and Ecolab, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS C DIRECTORS)
JEFFREY R. LURIE, age 45, Director since 1996
Owner and Chief Executive Officer, Philadelphia Eagles, Inc., a National
Football League franchise, since May 1994; President and Chief Executive Officer
of Chestnut Hill Productions, a motion picture production company. Mr. Lurie is
the nephew of Richard A. Smith, Chairman of the Board and Chief Executive
Officer of the Company, and the cousin of Robert A. Smith, President and
Co-Chief Operating Officer and a director of the Company.
LYNN MORLEY MARTIN*, age 57, Director since 1993
Davee Chair, J. L. Kellogg School of Management, Northwestern University,
since September 1993; Advisor, Deloitte & Touche LLP, since June 1993; former
Fellow at the Kennedy School of Government,
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Harvard University; United States Secretary of Labor from February 1991 to
January 1993; Member of the United States House of Representatives (Illinois
16th Congressional District) from 1981 to February 1991; Director of Ameritech
Corporation, Ryder Systems, Inc., Procter & Gamble Co., TRW Inc. and various
Dreyfus mutual funds.
PAULA STERN*, age 51, Director since 1993.
President of The Stern Group, Inc., an economic analysis and trade advisory
firm; Former Chairwoman of the U.S. International Trade Commission; Alkire
Chairholder in International Business at Hamline University; Director of
Westinghouse Electric Corporation and Wal-Mart Stores, Inc.
CLIFTON R. WHARTON, JR.*, age 70, Director since 1994
Retired Chairman and Chief Executive Officer of Teachers Insurance and
Annuity Association-College Retirement Equities Fund (TIAA-CREF); Deputy
Secretary of State, U.S. Department of State, from January 1993 to November
1993; former Chancellor, State University of New York System; Director of Ford
Motor Company, Tenneco, Inc., New York Stock Exchange, Inc. and TIAA-CREF Board
of Overseers.
- ---------------
* The Company's By-Laws provide for the independence of a majority of the
members of the Board of Directors and the Audit, Nominating and Compensation
Committees. Those persons who are considered "independent" within the meaning
of the Company's By-Laws are indicated by an asterisk (*) above.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1996, the Board of Directors held
five meetings and acted once by unanimous written consent. During fiscal 1996,
each director of the Company attended at least 75% of the aggregate number of
Board meetings and meetings held by the committees of which he or she is a
member, except for Mr. Countryman, who attended two of the three Board meetings
held during fiscal 1996 subsequent to his election to the Board of Directors.
The Board of Directors has designated four principal standing committees. Set
forth below are descriptions of the functions of such committees and the names
of their current members.
Audit Committee. The members of the Audit Committee, which met four times
during fiscal 1996, are Messrs. Jarvis (Chairman), Greenberg, Uyterhoeven and
Wharton and Dr. Stern. It is anticipated that Mr. Uyterhoeven will succeed Mr.
Jarvis, who is not standing for election at the Annual Meeting, as Chairman of
the Audit Committee immediately following the Annual Meeting. The functions of
the Audit Committee include the review of the scope of the services of the
Company's independent auditors and the responsibilities of the Company's
internal audit department and a continuing review of the Company's internal
procedures and controls. The Audit Committee annually reviews the Company's
audited financial statements, considers the qualifications and fees of the
independent auditors of the Company and makes recommendations to the Board of
Directors as to the selection of the auditors and the scope of their audit
services.
Compensation Committee. The members of the Compensation Committee, which
met once during fiscal 1996, are Messrs. Segall (Chairman), Connell, Greenberg
and Uyterhoeven and Ms. Martin. The functions of the Compensation Committee are
to review or determine salaries, benefits and other compensation for officers
and key employees of the Company and its subsidiaries and to administer the
Company's stock incentive plans.
Nominating Committee. The members of the Nominating Committee, which met
once during fiscal 1996, are Messrs. Uyterhoeven (Chairman), Connell, Jarvis,
Richard A. Smith and Ms. Martin. The functions of the Nominating Committee, in
addition to nominating directors and making recommendations
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<PAGE> 10
concerning the structure and membership of the various committees of the Board
of Directors, include consulting with the Chief Executive Officer on questions
of management, organization and succession and providing the Board of Directors
with such guidance on these matters as the Board of Directors may seek from time
to time. The Company's By-Laws provide that the Nominating Committee must
carefully consider all suggestions timely received from any stockholder of
nominees for director of the Company when the nominee confirms in writing to the
Nominating Committee his or her desire to serve as a director of the Company and
where the credentials of the nominee meet the standards generally applied by the
Nominating Committee. Written suggestions for candidates, accompanied by the
consent of the proposed candidate to serve as a director if nominated and
elected, and a detailed description of his or her qualifications and background,
must be received by the Company, c/o Secretary, P.O. Box 1000, Chestnut Hill,
Massachusetts 02167 no later than November 1, 1997 (see "Deadline for Submission
of 1998 Stockholder Proposals and Nominations").
Executive Committee. The members of the Executive Committee, which held no
meetings and acted once by unanimous written consent during fiscal 1996, are
Messrs. Richard A. Smith (Chairman), Robert A. Smith and, since January 15,
1997, Brian J. Knez and Hugo Uyterhoeven. Mr. Tarr served as a member of the
Executive Committee until his resignation from the Board of Directors effective
January 15, 1997. The By-Laws confer upon the Executive Committee the authority
to manage the affairs of the Company in the intervals between meetings of the
Board of Directors, except that the Committee may not effect certain fundamental
corporate actions such as (a) declaring a dividend, (b) amending the Restated
Certificate of Incorporation or the By-Laws, (c) adopting an agreement of merger
or consolidation or (d) imposing a lien on substantially all the assets of the
Company. In practice, the Executive Committee meets infrequently and does not
act except on matters which must be dealt with prior to the next scheduled Board
of Directors meeting and which are not sufficiently important to require action
by the full Board of Directors.
DIRECTORS' COMPENSATION
Those directors who are not employees of the Company receive an annual
retainer of $22,500 each and a fee of $1,750 per meeting attended, plus travel
and incidental expenses (an aggregate of $12,284 in fiscal 1996) incurred in
attending meetings and carrying out their duties as directors. They also receive
a fee of $750 (the Chairmen receive $1,250, with the exception of the Chairmen
of the Audit and Compensation Committees, who receive $1,750) for each committee
meeting attended. If a director is unable to attend a meeting in person but
participates by telephone, he or she receives one-half of the fee that would
otherwise be payable.
All directors of the Company are invited to attend meetings of the Board of
Directors of The Neiman Marcus Group, Inc. ("NMG"), a publicly-held company in
which the Company has a controlling interest. Directors of the Company who are
not employees of the Company and who participate in NMG Board meetings receive
$1,500 for each meeting attended in person and $750 for participating by
telephone. The total amount paid to directors of the Company for attendance at
NMG Board meetings in fiscal 1996 was $3,000.
The Company offers non-employee directors the alternative of receiving
directors' fees on a deferred basis. Those directors may elect to defer receipt
of all or a specified portion of their fees (i) in the form of cash with
interest at a rate equal to the average of the top rates paid by major New York
banks on primary new issues of three month negotiable certificates of deposit,
or (ii) in the form of stock based units, the value of each unit initially being
equal to the fair market value of one share of Common Stock of the Company on
the date the fees would otherwise be payable. To date, Messrs. Countryman,
Greenberg, Jarvis and Uyterhoeven, and Dr. Stern have elected to receive their
fees on a deferred basis using the stock based method.
The Company also maintains a retirement plan for its non-employee
directors. Directors who have served on the Board for at least ten years are
entitled to receive an annual retirement benefit equal to the annual
8
<PAGE> 11
retainer in effect during the year in which they retire. This benefit continues
for a period of time equal to the director's length of service on the Board.
Retirement benefits are not payable after death or in the event a director joins
the board of directors or becomes an executive officer of a competitor of the
Company within three years of his or her retirement as a director of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. The Company believes that all filing requirements
applicable to its insiders were complied with during fiscal 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information on the compensation provided by
the Company during fiscal 1996, 1995 and 1994 to the Company's Chief Executive
Officer and the four other most highly paid executive officers of the Company
during fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
---------------
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
--------------------------------------------- UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS OTHER ANNUAL OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) COMPENSATION($)(3) (#) ($)(4)
------------------ ------ -------- ------ ------------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Tarr, Jr.(5)................. 1996 $1,600,000 $1,200,000 $ 53,456 -- $100,320
President and Chief Executive 1995 $1,500,000 $1,125,000 $ 89,862 -- $ 92,994
Officer 1994 $1,400,000 $1,050,000 $ 69,431 -- $ 95,042
Richard A. Smith(6).................... 1996 $ 750,000 $ 525,000 -- -- $300,809(7)
Chairman of the Board 1995 $ 750,000 $ 525,000 -- -- $334,805(7)
1994 $ 750,000 $ 525,000 -- -- $273,404(7)
Brian J. Knez(8)....................... 1996 $ 425,000 $ 212,500 -- 10,000 $ 21,130
President and Chief Executive Officer 1995 $ 301,923 $ 152,383 -- 3,000 $ 14,159
Harcourt Brace & Company 1994 $ 220,000 $ 66,000 -- 2,500 $ 8,601
John R. Cook........................... 1996 $ 360,000 $ 180,000 -- 4,000 $ 18,115
Senior Vice President and 1995 $ 337,500 $ 168,750 -- 4,000 $ 16,596
Chief Financial Officer 1994 $ 330,000 $ 165,000 -- 15,000 $ 17,800
Eric P. Geller......................... 1996 $ 305,000 $ 152,500 $ 69,106 4,000 $ 15,436
Senior Vice President, 1995 $ 292,500 $ 146,250 $ 77,307 4,000 $ 14,456
General Counsel and Secretary 1994 $ 280,000 $ 140,000 -- 10,000 $ 15,118
</TABLE>
- ---------------
(1) The Company does not have a long-term compensation program that includes
long-term incentive payouts.
(2) Bonus payments are reported with respect to the year in which the related
services were performed.
(3) No disclosure regarding items included in this column is required unless the
amount in any year exceeds the lesser of $50,000 or 10% of the total annual
salary and bonus for any named officer. Includes the cost to the Company of
medical and dental expenses, financial counseling and estate planning fees,
auto expenses with respect to Messrs. Smith and Tarr, tax offset bonuses in
connection with the exercise of stock options in the amount of $56,058 and
$62,530 to Mr. Geller in fiscal 1996 and 1995, respectively,
9
<PAGE> 12
and bargain interest on Company loans, including bargain interest of
$20,049, $64,801 and $45,181 for Mr. Tarr in fiscal 1996, 1995 and 1994,
respectively.
(4) The items accounted for in this column include the value of allocated ESOP
shares, the cost to the Company of matching contributions under the Key
Employee Deferred Compensation Plan and group life insurance premiums. For
fiscal 1996, such amounts for each of the named executive officers were,
respectively, as follows: Mr. Tarr -- $500, $85,788 and $14,032; Mr. Smith
-- $500, $0 and $2,160; Mr. Knez -- $500, $19,601 and $1,028; Mr. Cook --
$500, $16,606 and $1,009; and Mr. Geller -- $500, $14,069 and $867. Also
included in this column for fiscal 1996 is $298,649 for Mr. Smith, which
represents a calculation of the benefit to Mr. Smith of the premium
advanced by the Company in fiscal 1996 on the life insurance policy
referred to in paragraph B under "Transactions Involving Management." The
benefit is determined for the period, projected on an actuarial basis,
between the date the premium is paid by the Company and the date the
Company will be entitled to reimbursement of the premium.
(5) Mr. Tarr resigned as a director and officer of the Company effective
January 15, 1997. See paragraph A under "Transactions Involving
Management."
(6) Pursuant to a Deferred Compensation Agreement between the Company and Mr.
Smith dated as of December 15, 1994, Mr. Smith has agreed to defer that
portion of his compensation for fiscal 1996 and succeeding fiscal years
which is not deductible as compensation by the Company under the provisions
of the Internal Revenue Code which disallow a tax deduction to the Company
for certain compensation to an executive officer named in the Summary
Compensation Table in excess of $1 million in any fiscal year.
(7) For information regarding advances made to Mr. Smith of a portion of the
premiums payable on a split dollar life insurance policy, see paragraph B
under "Transactions Involving Management."
(8) Mr. Knez became President and Co-Chief Operating Officer of the Company on
January 15, 1997 and became President and Chief Executive Officer of
Harcourt Brace & Company in May, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding options granted under
the Company's 1988 Stock Incentive Plan during the fiscal year ended October 31,
1996 to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------ ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert J. Tarr, Jr.(3).... -- -- -- -- -- --
Richard A. Smith(4)....... -- -- -- -- -- --
Brian J. Knez............. 10,000 12.45% $41.875 12/20/05 $263,350 $667,380
John R. Cook.............. 4,000 4.98% $41.875 12/20/05 $105,340 $266,952
Eric P. Geller............ 4,000 4.98% $41.875 12/20/05 $105,340 $266,952
</TABLE>
- ---------------
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1996. All option grants are non-qualified stock options
having a term of 10 years and one day. They become exercisable at the rate
of 20% on each of the first five anniversary dates of the grant. All
options were granted at fair
10
<PAGE> 13
market value determined by the closing price of the Common Stock on the New
York Stock Exchange on the date of grant.
(2) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange
Commission.
(3) Pursuant to Mr. Tarr's Employment Agreement, following grants of options and
restricted stock to Mr. Tarr in fiscal 1992, he was not eligible to receive
any additional stock options or restricted stock through October 31, 1996.
Mr. Tarr resigned as a director and officer of the Company effective January
15, 1997. See paragraph A under "Transactions Involving Management."
(4) Mr. Smith does not participate in the Company's stock incentive plans.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information regarding the stock options
exercised during fiscal 1996 and the number and value of stock options held at
October 31, 1996 by the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT OCT. 31, AT OCT. 31,
ACQUIRED 1996(#) 1996($)
ON VALUE ------------- ----------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#)(1) ($)(1)(2) UNEXERCISABLE UNEXERCISABLE(3)
---- -------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Robert J. Tarr, Jr.(1).............. 125,955 $3,264,244 44,040/ $1,502,000/
0 0
Richard A. Smith(4)................. -- -- -- --
Brian J. Knez....................... -- -- 10,628/ $ 299,947/
15,883 $ 201,018
John R. Cook........................ -- -- 16,709/ $ 327,725/
22,806 $ 381,900
Eric P. Geller(1)................... 15,414 $ 474,210 28,692/ $ 772,170/
16,283 $ 278,447
</TABLE>
- ---------------
(1) The Company paid to Messrs. Tarr and Geller, respectively, the amounts of
$1,964,769 and $302,136 with respect to the surrender of vested options held
by them to purchase 70,464 and 9,909 shares of Common Stock, respectively,
at average exercise prices of $18.49 and $16.55, respectively. The number of
options surrendered and such payments, which were calculated based on the
difference between the closing price of the Common Stock on the New York
Stock Exchange on the date the officer elected to receive this payment and
the option exercise price, are included in the first two columns in this
table for each officer. Mr. Tarr exercised all of his remaining stock
options on January 6, 1997 by using 14,934 shares of Common Stock to acquire
44,040 shares of Common Stock at an exercise price of $15.89 for a total
value realized of $1,364,377. Mr. Tarr resigned as a director and officer of
the Company effective January 15, 1997. See paragraph A under "Transactions
Involving Management."
(2) Represents the difference between the closing price of the Company's Common
Stock on the New York Stock Exchange on the date of exercise or surrender
and the option exercise price.
(3) The value of unexercised in-the-money options is calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Company's Common Stock on the New York
11
<PAGE> 14
Stock Exchange at fiscal year end ($50.00) less the option exercise price
for those shares. These values have not been realized. The closing price of
the Company's Common Stock on the New York Stock Exchange was $ on
January 16, 1997.
(4) Mr. Smith does not participate in the Company's stock incentive plans.
PENSION PLANS
The Company maintains a funded, qualified pension plan known as the
Harcourt General Retirement Plan (the "Retirement Plan"). Non-union employees of
the Company who have reached the age of 21 and completed one year of service
with 1,000 or more hours participate in the Retirement Plan, which pays benefits
upon retirement or termination of employment by reason of disability. Benefits
under the Retirement Plan become fully vested after five years of service with
the Company.
The Company also maintains a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded, non-qualified plan under which benefits are
paid from the Company's general assets to supplement Retirement Plan and Social
Security benefits. Executive, administrative and professional employees with an
annual base salary at least equal to a self-adjusting minimum ($100,000 as of
December 31, 1996) are eligible to participate in the SERP. At normal retirement
age (generally age 65), a participant with 25 or more years of service is
entitled to payments under the SERP sufficient to bring his or her combined
annual benefit from the Retirement Plan and the SERP, computed as a straight
life annuity, up to 50% of the participant's highest consecutive 60 month
average of annual pensionable earnings, less 60% of his or her estimated annual
primary Social Security benefit. If the participant has fewer than 25 years of
service, the combined benefit is proportionately reduced. In computing the
combined benefit, "pensionable earnings" means base salary, including any salary
which may have been deferred. Benefits under the SERP become fully vested after
five years of service with the Company.
The following table shows the estimated annual pension benefits payable to
employees in various compensation and years of service categories. The estimated
benefits apply to an employee retiring at age 65 in 1996 who elects to receive
his or her benefit in the form of a straight life annuity. These benefits
include amounts attributable to both the Retirement Plan and the SERP and are in
addition to any retirement benefits that might be received from Social Security.
ESTIMATED ANNUAL RETIREMENT BENEFITS
UNDER RETIREMENT PLAN AND SERP(1)
<TABLE>
<CAPTION>
TOTAL CREDITED YEARS OF SERVICE
AVERAGE ------------------------------------------------------------
PENSIONABLE 25
EARNINGS 5 10 15 20 OR MORE
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 ........................... $ 30,000 $ 60,000 $ 90,000 $120,000 $150,000
600,000 ........................... 60,000 120,000 180,000 240,000 300,000
900,000 ........................... 90,000 180,000 270,000 360,000 450,000
1,200,000 ........................... 120,000 240,000 360,000 480,000 600,000
1,500,000 ........................... 150,000 300,000 450,000 600,000 750,000
1,800,000 ........................... 180,000 360,000 540,000 720,000 900,000
</TABLE>
- ---------------
(1) The amounts actually payable will be lower than the amounts shown above,
since the above amounts will be reduced by 60% of the participant's
estimated primary Social Security benefit. Richard A. Smith will have a
smaller Social Security reduction due to certain guaranty provisions
contained in a prior pension plan in which he participated. In 1990, Mr.
Smith received a distribution of the present value of excess retirement
benefits then accrued under an agreement between Mr. Smith and the Company;
his future retirement benefits will thus be reduced accordingly.
12
<PAGE> 15
The following table shows the pensionable earnings and credited years of
service for the executive officers named in the Summary Compensation Table as of
October 31, 1996 and years of service creditable at age 65. Credited service may
not exceed 25 years for the purpose of calculating retirement benefits under any
of the Company's retirement plans.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------
PENSIONABLE EARNINGS AT
FOR YEAR ENDED OCTOBER 31, AT
NAME OCTOBER 31, 1996 1996 AGE 65
---- -------------------- ----------- ------
<S> <C> <C> <C>
Robert J. Tarr, Jr.(1)................................ $1,600,000 20 --
Richard A. Smith...................................... 750,000 25 25
Brian J. Knez......................................... 425,000 9 25
John R. Cook.......................................... 360,000 4 14
Eric P. Geller........................................ 305,000 17 25
</TABLE>
- ---------------
(1) Mr. Tarr resigned as a director and officer of the Company effective January
15, 1997. See paragraph A under "Transactions Involving Management" for a
description of Mr. Tarr's retirement benefits under his Resignation
Agreement.
TRANSACTIONS INVOLVING MANAGEMENT
A. The Company and Mr. Tarr entered into an employment agreement effective
as of November 25, 1991 (the "Employment Agreement"). While the initial term of
the Employment Agreement expired on October 31, 1996, the Board of Directors of
the Company unanimously extended the term of the Employment Agreement to October
31, 1998 in accordance with the provisions of the Employment Agreement. On
December 17, 1996, the Company and Mr. Tarr entered into an agreement relating
to Mr. Tarr's resignation as a director and officer of the Company effective
January 15, 1997 (the "Resignation Agreement").
Under the Employment Agreement, Mr. Tarr served as the President, Chief
Executive Officer and Chief Operating Officer of the Company . The Employment
Agreement provided that Mr. Tarr's base salary would be $1,600,000 for each of
fiscal 1996, 1997 and 1998. Under the Employment Agreement, Mr. Tarr was
entitled to a maximum annual cash bonus equal to 75% of his base salary for
fiscal 1996 and 100% of his base salary for fiscal 1997 and 1998. Mr. Tarr's
bonus for fiscal 1996 is included in the Summary Compensation Table.
Under the Resignation Agreement, the Company has agreed to pay Mr. Tarr
compensation at the rate of $1,600,000 per annum through October 31, 1998 and
lump sum payments of $1,600,000 in both January 1998 and January 1999. Mr. Tarr
will defer 15% of each of these payments, which will be recorded in an account
on the Company's books. The Company will add to such account an amount equal to
3% of the deferred compensation and, on a quarterly basis, credit such account
with interest at the prime rate plus two percentage points, consistent with the
Company matching and interest features of the Company's Key Employee Deferred
Compensation Plan. The total amount deferred, together with the credited
interest, will be paid to Mr. Tarr on January 15, 1999, together with the
balance in Mr. Tarr's account under the Company's Key Employee Deferred
Compensation Plan, which shall continue to be maintained and bear interest to
that date.
In the Resignation Agreement, Mr. Tarr has agreed to certain
non-competition and non-solicitation covenants and to provide certain consulting
services to the Company. The Company will pay Mr. Tarr $800,000 during the 12
month period commencing on November 1, 1998 for providing such consulting
services.
Commencing on November 1, 1998, Mr. Tarr will receive an annual retirement
benefit (which will include his maximum permissible benefits under both the
Harcourt General Retirement Plan and the
13
<PAGE> 16
Harcourt General Supplemental Executive Retirement Plan) during his lifetime of
$1,427,500. If Mr. Tarr is survived by his spouse, she will receive a benefit
during her lifetime in an annual amount equal to 50% of the foregoing amount.
Pursuant to the Resignation Agreement, the Company will continue to provide
Mr. Tarr with basic life insurance with a $2,400,000 death benefit until age 65
and fully paid whole life insurance with a $450,000 death benefit, and will also
provide Mr. Tarr and his beneficiaries with certain other benefits provided to
the Company's senior executives, including participation in the Company's
Executive Medical Plan.
The compensation and benefits to be provided to Mr. Tarr and his
beneficiaries under the Resignation Agreement are based on the terms of Mr.
Tarr's Employment Agreement as approved in 1991. The Resignation Agreement was
approved unanimously by both a sub-committee of the Board of Directors comprised
of independent directors as well as the full Board of Directors.
B. In August 1990, a trust established by Mr. and Mrs. Richard A. Smith
entered into an agreement with the Company whereby the Company, with the
approval of the Compensation Committee, agreed to make advances of the portion
of the premiums not related to term insurance payable on a split dollar life
insurance policy purchased by the trust on the joint lives of Mr. and Mrs.
Smith. The Company will make such advances for not more than nine years, after
which time the premiums may be paid through policy loans. The Company is
entitled to reimbursement of the amounts advanced, without interest, upon the
first to occur of (a) the death of the survivor of Mr. and Mrs. Smith or (b) the
surrender of the policy. These advances are secured by a collateral assignment
of the policy to the Company. During fiscal 1996, 1995, and 1994, the Company
advanced $414,362, $419,075 and $422,898, respectively, toward the payment of
such premiums.
C. The principal purpose of the Company's 1983 Key Executive Stock Purchase
Loan Plan (the "Loan Plan"), which provides loans to key employees to finance
the purchase of shares of the Company's stock, is to encourage the acquisition
and retention of Company stock by such employees so that the continuing
proprietary interest of such employees in the Company may serve as an additional
incentive to them.
Each loan made to date under the Loan Plan is evidenced by a secured
promissory note bearing interest at a rate determined by the Compensation
Committee. The unpaid principal amount of any loan becomes due and payable seven
months after the loan participant's employment with the Company or any of its
subsidiaries has terminated. The Compensation Committee, in its discretion, may
extend any loan which becomes due and payable by reason of such termination for
an additional term not exceeding five months. The unpaid principal amount of a
loan of a participant who ceases to be a Company employee by reason of
retirement, disability, involuntary discharge or death, or who resigns more than
four years after the date of the loan, shall be repayable at the option of the
participant (or his legal representative, as the case may be) either in cash or
in the number of Company shares obtained with the proceeds of the loan.
The aggregate unpaid principal amount of all stock purchase loans
outstanding under the Loan Plan may not exceed $5,000,000 at any time, subject,
however, to the right of the Board of Directors upon the recommendation of the
Compensation Committee to increase the aggregate outstanding loan limitation to
not more than 3/4 of 1% of the Company's total assets as most recently made
public by the Company at the time of such action, excluding for this purpose the
assets of The Neiman Marcus Group, Inc. The aggregate amount of outstanding
indebtedness to the Company on January 16, 1997 under the Loan Plan was
[$614,149].
14
<PAGE> 17
The following table describes (a) the largest amount of indebtedness
outstanding under the Loan Plan during fiscal 1996, (b) the amount of
indebtedness outstanding on January 16, 1997, and (c) the weighted average rate
of interest on indebtedness outstanding on January 16, 1997 for the executive
officers of the Company who had loans in excess of $60,000 during fiscal 1996 or
subsequent thereto.
<TABLE>
<CAPTION>
LARGEST INDEBTEDNESS WEIGHTED
INDEBTEDNESS OUTSTANDING AT AVERAGE
OUTSTANDING JANUARY 16, INTEREST RATE
IN FISCAL 1996 1997 PER ANNUM
-------------- -------------- -------------
<S> <C> <C> <C>
Robert J. Tarr, Jr.(1)............................... $250,000 $ 0 --
Eric P. Geller....................................... $370,017 [$ 281,652] 3.40%
Craig B. Sawin(2).................................... $100,175 [$ 100,175] 4.74%
Gerald T. Hughes(3).................................. $117,997 [$ 117,997] 5.00%
</TABLE>
- ---------------
(1) Pursuant to an arrangement under his Employment Agreement, Mr. Tarr is also
indebted to the Company in the amount of $63,686, which is to be paid on
April 15, 1997 pursuant to the Resignation Agreement.
(2) Mr. Sawin was Vice President - Planning and Analysis of the Company until
January 15, 1997, when he resigned as an officer of the Company to devote
his full time to his position as Chairman and Chief Executive Officer of
Drake Beam Morin, Inc., the Company's professional services subsidiary.
(3) Mr. Hughes is the Vice President - Human Resources of the Company.
------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934, each as amended, that might incorporate future filings, including this
proxy statement, in whole or in part, the following Compensation Committee
Report on Executive Compensation and Stock Performance Graph shall not be deemed
to be incorporated by reference into any such filings, nor shall such sections
of this proxy statement be deemed to be incorporated into any future filings
made by the Company under the Securities Act of 1933 or the Securities Exchange
Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of Maurice Segall (Chairman),
William F. Connell, Jack M. Greenberg, Lynn Morley Martin and Hugo Uyterhoeven.
The members of the Compensation Committee are all independent directors.
Compensation Policies
The principal objectives of the Company's executive compensation program
are to reward competitively its executive officers in order to attract and
retain excellent management and to provide incentives to executive officers that
will encourage them to increase the profitability of the Company and to build
shareholder value.
Early in each fiscal year, the Committee considers the recommendations of
the Chief Executive Officer, which are supported by data generated by the
Company's Human Resources Department, for each component of compensation for the
Company's executive officers. The Committee reviews those recommendations and
then approves them or makes such modifications as it deems appropriate.
15
<PAGE> 18
The principal components of the Company's compensation program are:
Base Salary
Base salary is determined with reference both to salary survey information
from recognized compensation consulting firms and to each executive officer's
level of responsibility, experience and performance. The salary survey data is
used to establish benchmark amounts for both base salary and total cash
compensation for each executive position. Comparisons are made to a broad range
of companies or, depending on an executive's level of responsibility, to groups
of profit centers or divisions within such companies, with the principal
selection criteria for comparisons being similar revenues to the Company or to
the group or division within the Company. While there are no hard and fast rules
which bind the Committee, the Company generally sets its salary and total cash
compensation benchmarks (assuming that maximum bonuses are achieved) for
executive officers at the 75th percentile of the comparison group of companies
in order to reflect both the Company's size (in terms of revenues) and
complexity (in terms of diversity of operating businesses) and to compete for
and retain the best management talent available. Because the Company is involved
in a variety of businesses and competes for executives with all major U.S.
companies, the Committee believes that comparison information from the broadest
group of companies is the most appropriate reference for setting cash
compensation amounts. The Committee accordingly does not limit its comparison
information for compensation purposes to the companies included in the peer
group in the Stock Performance Graph.
The Committee reviews in detail the base salary levels for each of the
executive officers of the Company. While the Committee uses the benchmarks as a
reference point, a particular individual's base salary may vary from the
benchmark depending upon his salary history, experience, individual performance,
contractual obligations of the Company, guidelines determined by the Chief
Executive Officer with respect to salary increases for the entire Company and
the subjective judgment of the Committee.
Cash Bonus Awards
Bonuses are awarded based on the achievement of performance objectives by
the Company and individual executive officers. The bonus program puts
significant amounts of total cash compensation at risk for executive officers,
with the intent of focusing their attention on achieving both the Company's
performance goals and their individual goals, thereby contributing to
profitability and building shareholder value.
Shortly after the beginning of each fiscal year, the Compensation Committee
establishes the Company's performance goals for the current year and determines
the executive officers who should participate in the plan for that year and the
maximum bonus values attainable by them. For fiscal 1996, the maximum bonuses
for which executive officers were eligible ranged from 30% to 75% of base
salary. For fiscal 1997, the range of maximum bonuses will be from 30% to 70% of
base salary.
The principal performance measure which determines the payment of bonuses
for executive officers is the Company's earnings goal established by the
Committee shortly after the beginning of the fiscal year. The earnings goal
established for fiscal 1996 was an amount of net income that was exceeded by the
Company's actual net income for fiscal 1996 as it appears on the line "Net
earnings" in the Company's Consolidated Statements of Earnings. For executives
with responsibilities at the group or division level, a performance target
relating to the financial results of that group or division is established. The
Committee will use similar factors in determining bonuses for fiscal 1997.
In addition, each of the Company's senior executive officers prepares and
agrees with the Chief Executive Officer on individual performance goals. The
executive must meet these individual goals in addition to the Company's
performance target in order for an executive to get his full bonus. Individual
performance goals typically include achievement of specific tasks.
Absent extraordinary circumstances, if the corporate performance target is
exceeded, bonus awards are not increased over the maximum bonus values
established by the Committee. If the performance target is not
16
<PAGE> 19
met, bonus awards will, in all probability, be reduced at the discretion of the
Committee. If the Company falls sufficiently short of its performance target,
there is a presumption that bonuses would not be paid absent special
circumstances. Depending on the individual executive officer, factors such as
the performance of a business unit or units for which the executive officer is
responsible and achievement of individual performance goals are considered in
the decision to award a bonus. If corporate and/or business unit performance
targets are met, but an individual falls short of his performance goals, the
individual's bonus could be reduced or eliminated in the discretion of the
Committee.
The bonuses awarded to the named executive officers in fiscal 1996 were
determined by an assessment of all of the factors described above. Since the
Company exceeded its earnings goal in fiscal 1996, the bonuses awarded to the
named executive officers in each case equaled their maximum bonus values.
Stock Incentives
The Committee's purpose in awarding equity based incentives, principally in
the form of stock options which vest over a period of five years and terminate
ten years from the date of grant, is to achieve as much as possible an identity
of interest between the executive officers and the long term interest of the
stockholders. The Company's senior executive officers have always had a very
significant equity ownership in the Company, and the Committee is of the view
that this has been and continues to be a key factor in focusing the efforts of
management in building shareholder value. The principal factors considered in
determining which executive officers (including the named executive officers)
were awarded stock options in fiscal 1996, and in determining the amounts of
such awards, were salary levels, special circumstances such as promotions and
contractual commitments, as well as the performance, experience and level of
responsibility of each executive officer.
Compensation of the Chief Executive Officer
Robert J. Tarr, Jr. served as President, Chief Executive Officer and Chief
Operating Officer of the Company from November 1991 until his resignation,
effective January 15, 1997. Mr. Tarr's compensation for fiscal 1996 was
determined by his Employment Agreement with the Company which was entered into
after approval by the Compensation Committee in November 1991.
When the Committee approved Mr. Tarr's agreement, it considered all of the
factors described above under the Compensation Policies caption as well as
detailed information for chief executive officer positions at other large and
complex companies which was developed by the Company's Human Resources
Department acting under the ultimate supervision of Richard A. Smith, the
Company's then Chairman and Chief Executive Officer. This information included
special reviews of chief executive officer compensation conducted at the request
of the Company by William M. Mercer Incorporated and Hewitt Associates, two
nationally recognized executive compensation consulting firms. Other factors
which the Committee considered in approving Mr. Tarr's contract were his
experience and performance with the Company, competition for chief executive
officers of similar experience and ability, and planning for management
succession.
Mr. Tarr's Employment Agreement became effective after the Company
completed the acquisition of Harcourt Brace & Company in November, 1991. In
approving Mr. Tarr's agreement, the Committee considered the Company's need for
continuity of strong and experienced senior management to focus on the
integration of Harcourt Brace & Company into the Company's operations.
Specifically, the Committee was of the view that a long term agreement with Mr.
Tarr met the Company's need for stability during the period following the
acquisition of Harcourt Brace & Company.
Mr. Tarr was paid his full target bonus of 75% of base salary for fiscal
1996 because the Company exceeded the earnings goal established by the Committee
for fiscal 1996.
In November 1991, Mr. Tarr received 100,000 shares of restricted stock and
an option grant for 220,200 shares of stock pursuant to his Employment
Agreement. The purpose of these grants was to put a substantial
17
<PAGE> 20
portion of Mr. Tarr's total compensation at risk and to sharply focus his
attention on building shareholder value over the long term. Under the terms of
his Employment Agreement, Mr. Tarr was not entitled to receive any further
grants of restricted stock or stock options through October 31, 1996.
Richard A. Smith, the Chairman of the Board of the Company, was elected by
the Board of Directors to the position of Chief Executive Officer effective
January 15, 1997, the effective date of Mr. Tarr's resignation. In fiscal 1997,
Mr. Smith will continue to receive the same base salary of $750,000 paid to him
in fiscal 1996 and will be eligible for a maximum cash bonus award of 70% of his
base salary, which is the same percentage as in fiscal 1996.
Compliance with the Internal Revenue Code
The Internal Revenue Code (the "Code") generally disallows a tax deduction
to public companies for compensation in excess of $1 million per year paid to
each of the executive officers named in the Summary Compensation Table which is
not "performance based" compensation. Because Mr. Tarr's compensation for fiscal
1996 was paid pursuant to his Employment Agreement, which became effective prior
to February 17, 1993, his fiscal 1996 compensation is not subject to the $1
million limit on deductibility. Mr. Smith, whose compensation also exceeded $1
million in fiscal 1996, has deferred all of his fiscal 1996 compensation that
would not have been deductible as a result of the Code, and has agreed to
continue to defer income in future fiscal years, if necessary, so long as such
compensation is not deductible by the Company under the Code. If stockholders
approve the Harcourt General 1997 Incentive Plan at the 1997 Annual Meeting, it
is expected that Mr. Smith's bonus, if awarded upon achievement of the
performance goals established by the Committee pursuant to that Plan, will be
deductible by the Company for tax purposes.
The Committee and the Board of Directors recently adopted the Harcourt
General 1997 Incentive Plan, subject to approval by the stockholders of the
Company at the 1997 Annual Meeting. If the stockholders approve this plan, the
Committee may continue to award stock incentives and cash bonuses based on
objective criteria and consistent with past practice. The stock incentives and
cash bonuses awarded under the Plan will be eligible to be characterized as
"performance based" compensation and therefore will be fully deductible by the
Company.
The Committee will continue to monitor the requirements of the Code to
determine what actions should be taken by the Company in order to preserve the
tax deduction for executive compensation to the maximum extent, consistent with
the Company's continuing goals of providing the executive officers of the
Company with appropriate incentives and rewards for their performance.
COMPENSATION COMMITTEE
Maurice Segall, Chairman
William F. Connell
Jack M. Greenberg
Lynn Morley Martin
Hugo Uyterhoeven
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<PAGE> 21
STOCK PERFORMANCE GRAPH
The following graph compares the total cumulative return over five years on
the Company's Common Stock to the total cumulative return over the same period
of the common stocks of companies in the Standard & Poor's 500 Stock Index and a
Peer Index. The graph assumes that the value of the investment in the Company's
Common Stock and each index was $100 at October 31, 1991 and that all dividends
were reinvested.
<TABLE>
<CAPTION>
Measurement Period Harcourt S&P 500 In-
(Fiscal Year Covered) General, Inc. dex Peer Index
<S> <C> <C> <C>
31-Oct-91 $100.00 $100.00 $100.00
31-Oct-92 $148.93 $109.95 $102.03
31-Oct-93 $225.54 $126.32 $120.10
31-Oct-94 $211.55 $131.20 $141.54
31-Oct-95 $230.33 $165.85 $146.00
31-Oct-96 $295.14 $205.78 $183.68
</TABLE>
The Peer Index includes companies in the publishing and specialty retailing
industries. The common stocks of the companies in the Peer Index have been
weighted annually at the beginning of each fiscal year to reflect relative stock
market capitalization. The groups in the Peer Index have been weighted 55%
publishing and 45% specialty retailing based on the approximate contribution of
each of those segments to the Company's fiscal 1996 operating earnings. The
companies which comprise the Peer Index are:
<TABLE>
<CAPTION>
SPECIALTY
PUBLISHING RETAILING
---------- ---------
<S> <C>
Houghton Mifflin Company Tiffany & Co.
John Wiley & Sons, Inc. Nordstrom, Inc.
The McGraw-Hill Companies, Inc.
The Times Mirror Company
</TABLE>
The comparisons provided in this graph are not intended to be indicative of
possible future performance of the Company's stock.
19
<PAGE> 22
2. APPROVAL OF INCREASE OF AUTHORIZED CAPITAL STOCK
Article Fourth of the Company's Restated Certificate of Incorporation
currently provides that the total number of shares of capital stock of all
classes which the Company is authorized to issue is 180,000,000 shares comprised
of the following: (a) 100,000,000 shares of Common Stock with a par value of
$1.00 per share, (b) 40,000,000 shares of Class B Stock with a par value of
$1.00 per share and (c) 40,000,000 shares of Preferred Stock with a par value of
$1.00 per share. The Preferred Stock may be issued in one or more series with
the provisions determined by the Company's Board of Directors. There are
presently authorized 10,000,000 shares of Series A Cumulative Convertible Stock,
$1.00 par value (the "Series A Stock").
On October 31, 1996 [to be updated to a more recent date prior to delivery
of final proxy statement], 51,068,100 shares of Common Stock were issued and
outstanding and 23,017,900 shares of Common Stock were reserved for issuance in
connection with the exercise of employee stock options and pursuant to
conversions of the Class B Stock and the Series A Stock. On October 31, 1996 [to
be updated to a more recent date prior to delivery of final proxy statement],
20,050,523 shares of Class B Stock and 1,152,161 shares of Series A Stock were
issued and outstanding. Consequently, 25,914,000 shares of Common Stock,
19,949,477 shares of Class B Stock and 38,848,000 shares of Preferred Stock
remain available for future issuance.
The Company's Board of Directors has adopted a resolution recommending the
approval of a proposed amendment to the Company's Restated Certificate of
Incorporation increasing the number of shares of Common Stock which the Company
is authorized to issue from 100,000,000 to 200,000,000 and increasing the number
of shares of Class B Stock which the Company is authorized to issue from
40,000,000 to 80,000,000. The number of authorized shares of Preferred Stock and
Series A Stock will remain unchanged.
The Board of Directors believes it is desirable to have these additional
shares available for future issuance in connection with possible stock
distributions, acquisitions, financing requirements and other general corporate
purposes. The Company has no present plans, arrangements or understandings which
would require the issuance of any of the additional authorized shares.
Except for the increase in the number of authorized shares of Common Stock
and Class B Stock, the proposed amendment does not change any of the provisions
of the Company's Restated Certificate of Incorporation. No stockholder has any
preemptive right and, if the proposed amendment is approved by the stockholders,
shares of Common Stock may be issued on such terms and conditions as the Board
of Directors may determine without first offering such shares to stockholders
unless required pursuant to the rules of the New York Stock Exchange or by
applicable law. The Company may not issue additional shares of Class B Stock,
except in connection with stock splits and stock dividends, unless and until
such issuance is authorized by the holders of a majority of the voting power of
the shares of Common Stock and of Class B Stock entitled to vote, each voting
separately as a class. Under certain circumstances, each share of Class B Stock
entitles the holder to ten votes on the election of directors. See Note 3 to
"Stock Ownership of Certain Beneficial Owners and Management."
If the proposal to amend the Restated Certificate of Incorporation is
adopted by the stockholders at the Annual Meeting, the first sentence of Article
Fourth of the Restated Certificate of Incorporation will read in its entirety as
follows:
"The total number of shares of capital stock of all classes which this
corporation shall have authority to issue shall be 320,000,000 shares to
wit: (a) 200,000,000 shares of Common Stock with a par value of $1.00 per
share; and (b) 80,000,000 shares of Class B Stock with a par value of $1.00
per share, and (c) 40,000,000 shares of Preferred Stock with a par value of
$1.00 per share."
20
<PAGE> 23
Approval of the proposal to increase the number of authorized shares of
capital stock requires the favorable vote of the holders of shares representing
at least (i) a majority of the issued and outstanding Common Stock, voting
separately as a class and (ii) a majority of the issued and outstanding Class B
Stock, voting separately as a class. Abstentions will be treated as votes cast.
Broker non-votes will be treated as present but not voting. On this proposal,
abstentions and broker non-votes will have the same effect as votes against the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF COMMON STOCK AND CLASS B
STOCK VOTE FOR APPROVAL OF THE FOREGOING PROPOSAL TO AMEND THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION.
3. PROPOSAL TO APPROVE THE COMPANY'S 1997 INCENTIVE PLAN.
The Board of Directors has adopted, subject to stockholder approval, the
Harcourt General, Inc. 1997 Incentive Plan (the "1997 Incentive Plan"). The
Board of Directors believes that approval of the 1997 Incentive Plan will
advance the interests of the Company by providing eligible participants the
opportunity to receive a broad variety of equity-based and cash incentives
("Awards"). A total of 4,000,000 shares of Common Stock have been reserved for
issuance under the 1997 Incentive Plan, subject to adjustment as provided in the
1997 Incentive Plan. If the 1997 Incentive Plan is approved by the stockholders,
the Company will not grant any new awards under the 1988 Stock Incentive Plan.
SUMMARY OF THE 1997 INCENTIVE PLAN
The following summary description of the 1997 Incentive Plan is qualified
in its entirety by reference to the full text of the 1997 Incentive Plan
attached to this proxy statement as Exhibit A.
Deductibility of Performance Awards. If the 1997 Incentive Plan is
approved by the stockholders, certain payments to executive officers under the
1997 Incentive Plan will be eligible for treatment as "performance based"
compensation under Section 162(m) of the Internal Revenue Code ("Section
162(m)"). As described in the Compensation Committee Report on Executive
Compensation set forth in this proxy statement, Section 162(m) generally limits
to $1 million the annual corporate income tax deduction for compensation paid to
the chief executive officer or any of the four other highest paid executive
officers of a publicly-held corporation which is not "performance-based"
compensation. The 1997 Incentive Plan is intended to comply with Section 162(m)
by allowing Awards granted under the 1997 Incentive Plan to qualify as
performance-based compensation. Under current regulations, in those cases where
an Award under the 1997 Incentive Plan would qualify for the Section 162(m)
performance-based exception by reason of being conditioned upon one or more of
the specific performance criteria described below (see "Performance Criteria"),
continued availability of the exception will depend upon reapproval by
stockholders of the material terms of the performance criteria not later than by
the first stockholder meeting that occurs in the fifth year following the year
in which the stockholders previously approved such terms.
Administration. The 1997 Incentive Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee"), which is
comprised solely of persons who qualify both as "outside directors" (within the
meaning of Section 162(m)) and "non-employee directors" (within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934). Subject to
the terms of the 1997 Incentive Plan, the Committee has authority to interpret
the 1997 Incentive Plan; determine eligibility for and grant Awards; determine,
modify or waive the terms and conditions of any Award; and otherwise do all
things necessary to carry out the purposes of the 1997 Incentive Plan. In the
case of any Award intended to be eligible for the performance-based compensation
exception under Section 162(m), the Committee shall exercise its discretion
consistent with qualifying the Award for such exception.
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<PAGE> 24
Eligibility and Participation. In general, the Committee will select
participants in the 1997 Incentive Plan from among key employees of the Company
and its affiliates who, in the opinion of the Committee, are in a position to
make a significant contribution to the success of the Company or its affiliates.
The Committee also has discretion to include as participants in the 1997
Incentive Plan members of the Company's Board of Directors and other persons who
provide services to the Company or its affiliates. The maximum number of shares
for which stock options may be granted to any person, the maximum number of
shares subject to stock appreciation rights granted to any person, and the
aggregate maximum number of shares of Common Stock which may be delivered to any
person pursuant to Awards that are not stock options or stock appreciation
rights are each limited to 1.5 million over the life of the 1997 Incentive Plan.
In addition, no more than $3.5 million may be paid to any individual with
respect to any annual cash performance-based bonuses, and no more than $3.5
million in cash performance-based bonuses may be paid to any individual with
respect to multi-year performance periods ending in the same year. No Award may
be granted under the 1997 Incentive Plan after December 31, 2006, but Awards
previously granted may extend beyond such date.
Types of Awards. The Committee, in its discretion, may award (i) options
to purchase Common Stock, (ii) stock appreciation rights, (iii) restricted or
unrestricted Common Stock, (iv) promises to deliver stock or other securities in
the future, (v) convertible securities, (vi) cash bonuses, and (vii) cash
bonuses or loans to help defray the costs of the foregoing awards.
Performance Criteria. Awards under the 1997 Incentive Plan may be
conditioned upon satisfaction of specified performance criteria. In the case of
any such Award that is intended to qualify for exemption from the deduction
limitation rules of Section 162(m) (an "Exempt Award"), the criteria used in
connection with the Award shall be one or any combination of the following:
earnings or earnings per share (whether on a pre-tax, after-tax, operational or
other basis); return on equity; return on assets; revenues; sales; expenses; one
or more operating ratios; stock price; stockholder return; market share; cash
flow; inventory levels or inventory turn; capital expenditures; net borrowing,
debt leverage levels or credit quality; or the accomplishment of mergers,
acquisitions, dispositions, public offerings or similar extraordinary business
transactions. In the case of an Exempt Award, the Committee will preestablish
the particular performance goals in writing no later than 90 days after the
commencement of the period of service to which the performance relates (or
earlier if so required under applicable regulations) and will certify prior to
payment whether the performance goal or goals have been attained. If the
performance goal with respect to an Exempt Award is not attained, no other Award
shall be provided in substitution. Where rights under an Award depend in whole
or in part on attainment of performance objectives, actions by the Company that
have an effect, however material, on such performance objectives or on the
likelihood that they will be achieved will not be deemed an amendment or
alteration of the Award unless accomplished by a change in the express terms of
the Award or other action that is without substantial consequence except as it
affects the Award.
Rules Applicable to Awards. The Company retains the right at any time to
extinguish rights under an Award in exchange for payment in cash, Common Stock
(subject to the limitation on the maximum number of shares available with
respect to Awards) or other property on such terms as the Committee determines,
provided the holder of the Award consents to such exchange. Except as the
Committee otherwise expressly provides, Awards (other than an Award in the form
of an outright transfer of cash or unrestricted Common Stock) may not be
transferred other than by will or by the laws of descent and distribution and,
during the lifetime of a participant, an Award requiring exercise may be
exercised only by the participant. The Committee may determine the time or times
at which an Award will vest or become exercisable. Unless the Committee
expressly provides otherwise, an Award requiring exercise will cease to be
exercisable, and all other Awards to the extent not already fully vested will be
forfeited, immediately upon the cessation (for any reason, including death) of
the participant's employment or other service relationship with the Company and
its affiliates. The Committee may provide that upon the exercise of an Award the
participant will
22
<PAGE> 25
automatically receive a new Award of like kind covering a number of shares
determined by reference to the number of shares tendered to the Company upon
exercise of the first Award.
Stock Options. Each stock option (except as otherwise expressly provided
by the Committee consistent with continued qualification of the stock option as
an Exempt Award, or unless the Committee expressly determines that such stock
option is not subject to Section 162(m) or that the stock option is not intended
to qualify as an Exempt Award), will have an exercise price not less than the
fair market value of the Common Stock subject to the stock option, determined as
of the date of grant, except that a stock option intended to be an "incentive
stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue
Code granted to a person who owns (or by application of attribution rules is
deemed to own) more than 10% of the total combined voting power of all classes
of stock of the Company will have an exercise price equal to at least 110% of
such fair market value and will not be exercisable after the expiration of five
years from the date such option is granted. Because the value of stock option
and stock appreciation rights Awards depends upon the price of the Company's
Common Stock, such Awards generally will be Exempt Awards without the need for
the Committee to specify any other performance criteria. Options awarded under
the 1997 Incentive Plan will not be ISOs except as expressly provided otherwise.
Effect of Certain Transactions. In the event of a consolidation or merger
in which the Company is not the surviving corporation or which results in the
acquisition of substantially all the Company's outstanding Common Stock by a
single person or entity or by a group of persons and/or entities acting in
concert, or in the event of the sale or transfer of substantially all the
Company's assets or a dissolution or liquidation of the Company, all outstanding
Awards requiring exercise will cease to be exercisable, and all other Awards to
the extent not fully vested (including Awards subject to performance conditions
not yet satisfied or determined) will be forfeited, as of the effective time of
such transaction. Prior to such time the Committee may (but need not) accelerate
the vesting or exercisability of any Award or provide for substitute or
replacement awards.
Equitable Adjustment. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
structure, the Committee will make appropriate adjustments to the maximum number
of shares that may be delivered under the 1997 Incentive Plan, to the maximum
share limits under the 1997 Incentive Plan, to the number and kind of shares of
stock or securities subject to Awards then outstanding or subsequently granted,
to any exercise prices relating to Awards, and to any other provision of Awards
affected by such change. The Committee also may make such adjustments to take
into account other distributions or events, if the Committee determines that
adjustments are appropriate to avoid distortion in the operation of the 1997
Incentive Plan and to preserve the value of Awards; provided, that no such
adjustment shall be made to the maximum share limits, or otherwise to an Award
intended to be eligible for the performance-based exception under Section
162(m), except to the extent consistent with that exception.
Amendment. Subject to the Committee's right to exercise its discretion
consistent with qualifying Awards for the performance-based exception under
Section 162(m), the Committee may at any time or times amend the 1997 Incentive
Plan or any outstanding Award for any purpose which may at the time be permitted
by law, or may at any time terminate the 1997 Incentive Plan as to any further
grants of Awards, provided that no such amendment will, without the approval of
the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the 1997 Incentive Plan to continue to qualify
under Section 422 of the Internal Revenue Code or for Awards to be eligible for
the performance-based exception under Section 162(m).
Other Compensation. The existence of the 1997 Incentive Plan and the grant
of Awards will not affect the Company's right to pay other bonuses or
compensation, except as provided under the 1997 Incentive Plan.
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<PAGE> 26
PRICE OF COMMON STOCK
The closing price of the Common Stock on the New York Stock Exchange on
January 16, 1997 was [$ ].
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the issuance and exercise of stock options awarded under the 1997 Incentive
Plan and is based on the law as in effect on January 1, 1997. The summary does
not address all federal tax consequences, nor does it cover state, local or
non-U.S. tax consequences.
In general, a participant realizes no taxable income on either the grant or
the vesting of a stock option. The exercise of a nonstatutory, or nonqualified,
option (i.e., an option that does not qualify as an ISO) results in ordinary
income (generally subject to withholding if the participant is an employee)
equal to the difference (the "Option Spread") between the value of the Common
Stock purchased and the option exercise price. A corresponding deduction is
available to the Company. In general, the ordinary income associated with the
exercise is measured and taken into account at the time of exercise. Any
subsequent sale of Common Stock purchased under a nonstatutory option may result
in a capital gain or loss.
The exercise of an ISO does not produce ordinary taxable income. However,
because the Option Spread constitutes "alternative minimum taxable income"
(measured and taken into account, in general, at the time of exercise), exercise
of an ISO may result in an alternative minimum tax liability. In addition,
shares purchased under an ISO ("ISO Shares") are subject to special tax holding
rules. If a participant holds on to ISO Shares for at least two years from the
date of the ISO grant and at least one year after exercise, any gain or loss
recognized for tax purposes upon a subsequent sale of the shares will be a
long-term capital gain or loss. However, a disposition of ISO Shares by the
participant within either of these special holding periods (a so-called
"disqualifying disposition") results in ordinary compensation income in the year
of the disposition equal, in general, to the Option Spread at the time the
option was exercised. The ordinary income realized upon a disqualifying
disposition of ISO Shares is deductible to the Company but is not subject to
withholding. Any additional gain recognized for tax purposes in a disqualifying
disposition will be taxed as short-term or long-term capital gain.
An ISO that is exercised by the participant more than three months
following termination of employment (one year, if termination occurred by reason
of total and permanent disability) is treated for tax purposes as a nonstatutory
option. ISOs granted to a participant under the 1997 Incentive Plan (together
with ISOs granted to the participant after 1986 under any other plans of the
Company and certain affiliates) are also treated as nonstatutory options to the
extent that, in the aggregate, they first become exercisable in any calendar
year for shares of Common Stock having a fair market value (determined at time
of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, certain
Awards vested or paid in connection with a change of control of the Company may
also be non-deductible to the Company and may be subject to an additional 20%
federal excise tax. Non-deductible "parachute payments" will in general reduce
the $1 million limit on deductible compensation under Section 162(m) of the
Code, to the extent such limit is applicable to remuneration paid under the 1997
Incentive Plan or otherwise.
VOTING REQUIREMENTS
Approval of the 1997 Incentive Plan requires a favorable vote of a majority
of the issued and outstanding Common Stock and Class B Stock, voting together as
a single class, represented and entitled to vote at the meeting. Abstentions
will be treated as votes cast. Broker non-votes will be treated as present but
not voting. On this proposal, abstentions and broker non-votes will have the
same effect as votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE THE 1997 INCENTIVE PLAN.
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<PAGE> 27
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Although Delaware law does not require that the selection by the Board of
Directors of the Company's auditors be approved each year by the stockholders,
the Board of Directors believes it is appropriate to submit its selection to the
stockholders for their approval and to abide by the result of the stockholders'
vote. The Board of Directors recommends that the stockholders ratify the
appointment of Deloitte & Touche LLP as independent auditors to audit the
financial statements of the Company for the fiscal year ending October 31, 1997.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if they wish, and will be
available to respond to appropriate questions from stockholders. The Company
paid or accrued approximately $1.5 million on account of audit, tax and
consulting services rendered by Deloitte & Touche LLP for the fiscal year ended
October 31, 1996. Deloitte & Touche LLP also serves as the independent auditors
for The Neiman Marcus Group, Inc.
Approval of the proposal to ratify the selection of Deloitte & Touche LLP
as the Company's independent auditors for the current fiscal year requires a
favorable vote of a majority of the issued and outstanding Common Stock and
Class B Stock, voting together as a single class, represented and entitled to
vote at the meeting. Abstentions will be treated as votes cast. Broker non-votes
will be treated as present but not voting. On this proposal, abstentions and
broker non-votes will have the same effect as votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING OCTOBER 31, 1997.
5. OTHER MATTERS
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. If any other matters should be properly brought
before the meeting, it is the intention of the persons named in the enclosed
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
DEADLINE FOR SUBMISSION OF
1998 STOCKHOLDER PROPOSALS AND NOMINATIONS
In order for stockholder proposals to be considered by the Company for
inclusion in the proxy material for the Annual Meeting of Stockholders to be
held in 1998, they must be received by the Company at its principal executive
offices by November 1, 1997. Any nominations for the Board of Directors must
also be received no later than November 1, 1997. See "Meetings and Committees of
the Board of Directors -- Nominating Committee."
By Order of the Board of Directors
ERIC P. GELLER
Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, IF YOU ARE A HOLDER OF
COMMON STOCK OR CLASS B STOCK, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. STOCKHOLDERS WHO
ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN
THEIR PROXIES.
25
<PAGE> 28
EXHIBIT A
HARCOURT GENERAL, INC.
1997 INCENTIVE PLAN
1. DEFINED TERMS
Appendix A, which is incorporated by reference, defines the terms used in
the Plan.
2. IN GENERAL
The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
equity-based or cash incentives through the grant of Awards. No Award may be
granted under the Plan after December 31, 2006, but Awards previously granted
may extend beyond that date.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express
provisions of the Plan, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so. In the case of any Award
intended to be eligible for the performance-based compensation exception under
Section 162(m)(4)(C) of the Code, the Committee shall exercise its discretion
consistent with qualifying the Award for such exception.
4. SHARES SUBJECT TO THE PLAN
a. A total of 4,000,000 shares of Stock have been reserved for issuance
under the Plan. The following shares of Stock will also be available for future
grants:
(i) shares remaining under an Award that terminates without having
been exercised in full (in the case of an Award requiring
exercise by a Participant for delivery of Stock);
(ii) shares subject to an Award, where cash is delivered to a
Participant in lieu of such shares;
(iii) shares of Restricted Stock that are forfeited to the Company;
(iv) shares of Stock tendered by a Participant as payment upon
exercise of an Award; and
(v) shares of Stock held back by the Administrator, or tendered by a
Participant, in satisfaction of tax withholding requirements.
Stock delivered under the Plan may be authorized but unissued Stock or
previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
b. The maximum number of shares for which Stock Options may be granted to
any person over the life of the Plan shall be 1,500,000. The maximum number of
shares subject to SARs granted to any person over the life of the Plan shall
likewise be 1,500,000. For purposes of the preceding two sentences, the
repricing of a Stock Option or SAR shall be treated as a new grant to the extent
required under Section 162(m) of the Code. The aggregate maximum number of
shares of Stock delivered to any person over the life of the Plan pursuant to
Awards that are not Stock Options or SARs shall also be 1,500,000. Subject to
these limitations,
A-1
<PAGE> 29
each person eligible to participate in the Plan shall be eligible in any year to
receive Awards covering up to the full number of shares then available for
Awards under the Plan.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. ALL AWARDS
(1) PERFORMANCE OBJECTIVES. Where rights under an Award depend in whole or
in part on attainment of performance objectives, actions by the Company that
have an effect, however material, on such performance objectives or on the
likelihood that they will be achieved will not be deemed an amendment or
alteration of the Award unless accomplished by a change in the express terms of
the Award or other action that is without substantial consequence except as it
affects the Award.
(2) ALTERNATIVE SETTLEMENT. The Company retains the right at any time to
extinguish rights under an Award in exchange for payment in cash, Stock (subject
to the limitations of Section 4) or other property on such terms as the
Administrator determines, provided the holder of the Award consents to such
exchange.
(3) TRANSFERABILITY OF AWARDS. Except as the Administrator otherwise
expressly provides, Awards (other than an Award in the form of an outright
transfer of cash or Unrestricted Stock) may not be transferred other than by
will or by the laws of descent and distribution and, during a Participant's
lifetime an Award requiring exercise may be exercised only by the Participant
(or in the event of the Participant's incapacity, the person or persons legally
appointed to act on the Participant's behalf).
(4) VESTING, ETC. The Administrator may determine the time or times at
which an Award will vest (i.e., become free of restrictions) or become
exercisable. Unless the Administrator expressly provides otherwise, an Award
requiring exercise will cease to be exercisable, and all other Awards to the
extent not already fully vested will be forfeited, immediately upon the
cessation (for any reason, including death) of the Participant's employment or
other service relationship with the Company and its Affiliates.
(5) TAXES. The Administrator will make such provision for the withholding
of taxes as it deems necessary. The Administrator may, but need not, hold back
shares from an Award or permit a Participant to tender previously owned shares
in satisfaction of tax withholding requirements.
(6) DIVIDEND EQUIVALENTS, ETC. The Administrator may provide for the
payment of amounts in lieu of dividends or other distributions with respect to
Stock subject to an Award.
(7) RIGHTS LIMITED. Nothing in the Plan shall be construed as giving any
person the right to continued employment or service with the Company or its
Affiliates, nor any rights as a shareholder except as to shares actually issued
under the Plan. The loss of existing or potential profit in Awards will not
constitute an element of damages in the event of termination of employment or
service for any reason, even if the termination is in violation of an obligation
of the Company or Affiliate to the Participant.
(8) SECTION 162(M). In the case of an Award intended to be eligible for
the performance-based compensation exception under Section 162(m)(4)(C) of the
Code, the Plan and such Award shall be construed in a manner consistent with
qualifying the Award for such exception.
A-2
<PAGE> 30
b. AWARDS REQUIRING EXERCISE
(1) TIME AND MANNER OF EXERCISE. Unless the Administrator expressly
provides otherwise, (a) an Award requiring exercise by the holder will not be
deemed to have been exercised until the Administrator receives a written notice
of exercise (in form acceptable to the Administrator) signed by the appropriate
person and accompanied by any payment required under the Award; and (b) if the
Award is exercised by any person other than the Participant, the Administrator
may require satisfactory evidence that the person exercising the Award has the
right to do so.
(2) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an Award is
to be accompanied by payment, the Administrator may determine the required or
permitted forms of payment either at or after the time of the Award, subject to
the following: (a) unless the Administrator expressly provides otherwise, all
payments will be by cash or check acceptable to the Administrator; and (b) where
shares issued under an Award are part of an original issue of shares, the Award
shall require an exercise price equal to at least the par value of such shares.
(3) RELOAD AWARDS. The Administrator may provide that upon the exercise of
an Award through the tender of previously owned shares of Stock, the Participant
or other person exercising the Award will automatically receive a new Award of
like kind covering a number of shares determined by reference to the number of
shares tendered in payment of the exercise price of the first Award.
c. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the awarded shares, or (ii) cash or other property having
a value not less than the par value of the awarded shares plus such additional
amounts (if any) as the Administrator may determine payable in such combination
of cash, other property (of any kind) or services as the Administrator may
determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. MERGERS, ETC.
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
the Company's outstanding Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), all outstanding Awards
requiring exercise will cease to be exercisable, and all other Awards to the
extent not fully vested (including Awards subject to performance conditions not
yet satisfied or determined) will be forfeited, as of the effective time of the
covered transaction. Prior to such time the Administrator may (but need not)
accelerate the vesting or exercisability of any Award or provide for substitute
or replacement awards from the acquiring entity (if any).
b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) BASIC ANTIDILUTION PROVISIONS. In the event of a stock dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital structure, the Administrator will make appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under
Section 4.a. and to the maximum share limits described in Section 4.b., and will
also make appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change.
A-3
<PAGE> 31
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make adjustments
of the type described in paragraph (1) above to take into account distributions
to common stockholders other than stock dividends or normal cash dividends,
mergers, consolidations, acquisitions, dispositions or similar corporate
transactions, or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to preserve the value of Awards made hereunder; provided, that no such
adjustment shall be made to the maximum share limits described in Section 4.b.,
or otherwise to an Award intended to be eligible for the performance-based
exception under Section 162(m)(4)(C) of the Code, except to the extent
consistent with that exception.
8. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares previously delivered under
the Plan until: the Company's counsel has approved all legal matters in
connection with the issuance and delivery of such shares; if the outstanding
Stock is at the time listed on any stock exchange or national market system, the
shares to be delivered have been listed or authorized to be listed on such
exchange or system upon official notice of notice of issuance; and all
conditions of the Award have been satisfied or waived. If the sale of Stock has
not been registered under the Securities Act of 1933, as amended, the Company
may require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act. The Company may require that certificates evidencing
Stock issued under the Plan bear an appropriate legend reflecting any
restriction on transfer applicable to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any
time or times amend the Plan or any outstanding Award for any purpose which may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards, provided that (except to the extent expressly required
or permitted by the Plan) no such amendment will, without the approval of the
stockholders of the Company, effectuate a change for which stockholder approval
is required in order for the Plan to continue to qualify under Section 422 of
the Code or for Awards to be eligible for the performance-based exception under
Section 162(m)(4)(C) of the Code.
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to award a person bonuses or other compensation in
addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of The Commonwealth
of Massachusetts.
A-4
<PAGE> 32
APPENDIX A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"ADMINISTRATOR": The Committee, if one has been appointed; otherwise the
Board.
"AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"AWARD": Any of the following:
(i) Options ("Stock Options") entitling the recipient to acquire
shares of Stock upon payment of the exercise price. Each Stock Option
(except as otherwise expressly provided by the Committee consistent with
continued qualification of the Stock Option as a performance-based award
for purposes of Section 162(m) of the Code, or unless the Committee
expressly determines that such Stock Option is not subject to Section
162(m) of the Code or that the Stock Option is not intended to qualify for
the performance-based exception under Section 162(m) of the Code), will
have an exercise price not less than the fair market value of the Stock
subject to the option, determined as of the date of grant, except that an
ISO granted to an Employee described in Section 422(b)(6) of the Code will
have an exercise price not less than 110% of such fair market value. The
Administrator will determine the medium in which the exercise price is to
be paid, the duration of the option, the time or times at which an option
will become exercisable, provisions for continuation (if any) of option
rights following termination of the Participant's employment with the
Company and its Affiliates, and all other terms of the Option. No Stock
Option awarded under the Plan will be an ISO unless the Administrator
expressly provides for ISO treatment.
(ii) Rights ("SARs") entitling the holder upon exercise to receive
cash or Stock, as the Administrator determines, equal to a function
(determined by the Administrator using such factors as it deems
appropriate) of the amount by which the Stock has appreciated in value
since the date of the Award.
(iii) Stock subject to restrictions ("Restricted Stock") under the
Plan requiring that the Stock be redelivered to the Company if specified
conditions are not satisfied. The conditions to be satisfied in connection
with any Award of Restricted Stock, the terms on which such Stock must be
redelivered to the Company, the purchase price of such Stock, and all other
terms shall be determined by the Administrator.
(iv) Stock not subject to any restrictions under the Plan
("Unrestricted Stock").
(v) A promise to deliver Stock or other securities in the future on
such terms and conditions as the Administrator determines.
(vi) Securities (other than Stock Options) that are convertible into
or exchangeable for Stock on such terms and conditions as the Administrator
determines.
(vii) Cash bonuses tied to performance criteria as described at (viii)
below ("Cash Performance Awards").
A-5
<PAGE> 33
(viii) Awards described in any of (i) through (vii) above where the
right to exercisability, vesting or full enjoyment of the Award is
conditioned in whole or in part on the satisfaction of specified
performance criteria ("Performance Awards"). The Committee in its
discretion may grant Performance Awards that are intended to qualify for
the performance-based compensation exception under Section 162(m)(4)(C) of
the Code and Performance Awards that are not intended so to qualify. No
more than $3,500,000 may be paid to any individual with respect to any Cash
Performance Award. In applying the limitation of the preceding sentence:
(A) multiple Cash Performance Awards to the same individual that are
determined by reference to performance periods of one year or less ending
with or within the same fiscal year of the Company shall be subject in the
aggregate to one $3,500,000 limit, and (B) multiple Cash Performance Awards
to the same individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year of the
Company shall be subject in the aggregate to a separate limit of
$3,500,000. With respect to any Performance Award other than a Cash
Performance Award, Stock Option or SAR, the maximum award opportunity shall
be 1,500,000 shares or their equivalent value in cash, subject to the
limitations of Section 4.b. For the avoidance of doubt, any Performance
Award of a type described in (i) through (vi) above shall be treated for
purposes of this paragraph as a Performance Award that is not a Cash
Performance Award, even if payment is made in cash.
In the case of a Performance Award intended to qualify as
performance-based for the purposes of Section 162(m) of the Code, the
Committee shall in writing preestablish a specific performance goal (based
solely on one or more qualified performance criteria) no later than 90 days
after the commencement of the period of service to which the performance
relates (or at such earlier time as is required to qualify the award as
performance-based under Code Section 162(m)(4)(C)). For purposes of the
Plan, a qualified performance criterion is any of the following: (1)
earnings or earnings per share (whether on a pre-tax, after-tax,
operational or other basis), (2) return on equity, (3) return on assets,
(4) revenues, (5) sales, (6) expenses, (7) one or more operating ratios,
(8) stock price, (9) stockholder return, (10) market share, (11) cash flow,
(12) inventory levels or inventory turn, (13) capital expenditures, (14)
net borrowing, debt leverage levels or credit quality, (15) the
accomplishment of mergers, acquisitions, dispositions, public offerings or
similar extraordinary business transactions or (16) any combination of the
foregoing. The performance goals selected in any case need not be
applicable across the Company, but may be particular to an individual's
function or business unit. Prior to payment of any Performance Award
intended to qualify as performance- based under Section 162(m)(4)(C) of the
Code, the Committee shall certify whether the performance goal has been
attained and such determination shall be final and conclusive. If the
performance goal is not attained, no other Award shall be provided in
substitution of the Performance Award.
(ix) Grants of cash, or loans, made in connection with other Awards in
order to help defray in whole or in part the economic cost (including tax
cost) of the Award to the Participant. The terms of any such grant or loan
shall be determined by the Administrator.
Awards may be combined in the Administrator's discretion.
"BOARD": The Board of Directors of the Company.
"CODE": The U.S. Internal Revenue Code of 1986, as from time to time
amended and in effect.
"COMMITTEE": A committee of the Board comprised solely of two or more
outside directors within the meaning of Section 162(m) of the Code. The
Committee may delegate ministerial tasks to such persons (including Employees)
as it deems appropriate.
"COMPANY": Harcourt General, Inc.
"EMPLOYEE": Any person who is employed by the Company or an Affiliate.
A-6
<PAGE> 34
"ISO": A Stock Option intended to be an "incentive stock option" within
the meaning of Section 422 of the Code.
"PARTICIPANT": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"PLAN": Harcourt General, Inc. 1997 Incentive Plan as from time to time
amended and in effect.
"STOCK": Common Stock of the Company, par value $1.00 per share.
A-7
<PAGE> 35
HARCOURT GENERAL, INC.
COMMON STOCK AND COMMON STOCK AND
CLASS B STOCK CLASS B STOCK
PROXY PROXY
P
R ANNUAL MEETING OF STOCKHOLDERS -- MARCH 14, 1997
O
X Richard A. Smith, John R. Cook and Eric P. Geller, and each of them
Y (a majority of those present and acting to have all the powers hereunder),
with several powers of substitution, are hereby authorized to represent
and vote all shares of Common Stock and/or Class B Stock of the
undersigned at the Annual Meeting of Stockholders of Harcourt General,
Inc. to be held at The First National Bank of Boston, 100 Federal Street,
Boston, Massachusetts, on Friday, March 14, 1997 at 10:00 a.m. and at any
adjournments thereof. The undersigned hereby revokes any Proxy previously
given and acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement dated January 31, 1997 and a copy of the Annual Report for the
year ended October 31, 1996.
The shares represented by this Proxy will be voted as directed by the
undersigned. The Board of Directors of Harcourt General, Inc. recommends a
vote FOR the nominees set forth below and FOR proposals 2, 3 and 4. If
this Proxy is signed and returned and does not specify a vote on any
proposal, the Proxy will be so voted.
ELECTION OF CLASS A DIRECTORS
Nominees: Gary L. Countryman
Jack M. Greenberg
Brian J. Knez
Richard A. Smith
(SEE REVERSE SIDE TO CAST VOTE)
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
<PAGE> 36
<TABLE>
[X] Please mark
votes as in
this example.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Approval of the amendment of the [ ] [ ] [ ]
Company's Restated Certificate of
Incorporation to increase the
Company's authorized capital
stock.
FOR WITHHELD
1. Election of [ ] [ ] 3. Approval of the Company's 1997 [ ] [ ] [ ]
Directors Incentive Plan.
(See reverse).
4. Approval of the appointment of [ ] [ ] [ ]
Deloitte & Touche LLP as
[ ]____________________________________ independent auditors of the
For all nominees except as noted above Company for the current fiscal
year.
- ---------------------------------------------------------------------------------------------------------
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
For joint accounts, each owner should sign. Executors,
Administrators, Trustees, etc., should give full title.
Signature______________________ Date______________ Signature______________________ Date________________
</TABLE>
<PAGE> 37
CONFIDENTIAL VOTING INSTRUCTIONS
TO: WACHOVIA BANK OF NORTH CAROLINA, N.A.
AS TRUSTEE UNDER THE
HARCOURT GENERAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
WITH RESPECT TO THE ANNUAL MEETING OF STOCKHOLDERS OF
HARCOURT GENERAL, INC. -- MARCH 14, 1997
I hereby instruct the Trustee to vote (in person or by proxy) all
shares of Common Stock of Harcourt General, Inc. which are credited to my
account under the above-referenced Plan at the Annual Meeting of
Stockholders of Harcourt General, Inc. to be held at The First National Bank of
Boston, 100 Federal Street, Boston, Massachusetts on Friday, March 14, 1997 at
10:00 a.m. and at any adjournments thereof. The undersigned hereby revokes any
voting instruction previously given and acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement dated January 31, 1997 and a copy of the
Annual Report for the year ended October 31, 1996.
The shares represented by this Instruction Card will be voted by the
Trustee as directed by the undersigned. The Board of Directors of Harcourt
General, Inc. recommends a vote FOR the nominees set forth below and FOR
proposals 2, 3 and 4. If this Instruction Card is signed and returned and does
not specify a vote on any proposal, this Instruction Card will be so voted.
ELECTION OF CLASS A DIRECTORS
Nominees: Gary L. Countryman
Jack M. Greenberg
Brian J. Knez
Richard A. Smith
(SEE REVERSE SIDE TO CAST VOTE)
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
<PAGE> 38
<TABLE>
[X] Please mark
votes as in
this example.
<CAPTION>
THIS INSTRUCTION CARD IS SOLICITED BY THE PLAN TRUSTEE.
- ---------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Approval of the amendment of the [ ] [ ] [ ]
Company's Restated Certificate of
Incorporation to increase the
Company's authorized capital
Stock.
FOR WITHHELD
1. Election of [ ] [ ] 3. Approval of the Company's 1997 [ ] [ ] [ ]
Directors Incentive Plan.
(See reverse).
4. Approval of the appointment of [ ] [ ] [ ]
Deloitte & Touche LLP as
[ ]____________________________________ independent auditors of the
For all nominees except as noted above Company for the current fiscal
year.
- ---------------------------------------------------------------------------------------------------------
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
For joint accounts, each owner should sign. Executors,
Administrators, Trustees, etc., should give full title.
Signature______________________ Date______________ Signature______________________ Date________________
</TABLE>
