<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:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[X] 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
[HARCOURT GENERAL LOGO]
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
(617) 232-8200
February 5, 1999
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 12, 1999
The Annual Meeting of Stockholders of Harcourt General, Inc. will be held
at 10:00 a.m., Eastern Standard Time, on Friday, March 12, 1999, at BankBoston,
N.A., 100 Federal Street, Boston, Massachusetts, for the following purposes:
1. To elect four Class C directors in accordance with the By-Laws of
the Company.
2. 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.
3. 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
[HARCOURT GENERAL LOGO]
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
(617) 232-8200
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
MARCH 12, 1999
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 12, 1999, at BankBoston, N.A., 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 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 February 5, 1999.
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 15, 1999 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 15, 1999, there were 51,067,664 shares
of Common Stock and 20,020,567 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 inspector 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 15, 1999 (except
as indicated in Notes 5 through 8 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.
<PAGE> 4
<TABLE>
<CAPTION>
SHARES AND PERCENT OF CLASS
OF STOCK OWNED BENEFICIALLY (1)
-----------------------------------
NAME COMMON % CLASS B %
---- ------ - ------- -
<S> <C> <C> <C> <C>
Smith Family Group (2)(3)................................. 115,920 * 19,990,398 99.8
c/o Richard A. Smith
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Richard A. Smith (2)(3)................................... 680 * 13,647,970 68.2
c/o Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Nancy L. Marks (2)(3)..................................... -- -- 9,654,518 48.2
c/o Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Mark D. Balk, Esq. (2)(4)................................. -- -- 3,390,969 16.9
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110
FMR Corp. (5)............................................. 4,686,111 9.2 -- --
82 Devonshire Street
Boston, MA 02109
Neuberger Berman, LLC (6)................................. 3,798,053 7.4 -- --
605 Third Avenue
New York, NY 10158
Boston Partners Asset Management L.P. (7)................. 3,906,200 7.6 -- --
One Financial Center
Boston, MA 02111
PRIMECAP Management Company (8)........................... 3,701,400 7.2 -- --
225 South Lake Avenue
Pasadena, CA 91101
Brian J. Knez (3)(9)...................................... 47,246 * 745,373 3.7
Robert A. Smith (3)(10)................................... 55,264 * 755,373 3.8
John R. Cook (11)......................................... 47,694 * -- --
Eric P. Geller (1)(12).................................... 64,643 * -- --
William F. Connell (13)(14)............................... 4,540 * -- --
Gary L. Countryman (14)................................... 2,435 * -- --
Jack M. Greenberg (14).................................... 6,076 * -- --
Jeffrey R. Lurie (3)(14)(15).............................. 11,384 * 66,570 *
Lynn Morley Martin (14)................................... 1,838 * -- --
Maurice Segall (14)....................................... 4,753 * -- --
Paula Stern (14).......................................... 6,172 * -- --
Hugo Uyterhoeven (1)(14).................................. 14,795 * -- --
Clifton R. Wharton, Jr. (14).............................. 2,585 * -- --
All current executive officers and directors as a group
(21 persons) (1)(16).................................... 381,741 * 15,148,716 75.7
</TABLE>
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* Less than 1%.
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(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 only persons
in the table who own Series A Stock are Eric P. Geller (6,000 shares) and
Hugo Uyterhoeven (1,200 shares). All current executives and officers as a
group own 9,216 shares of Series A Stock as of January 15, 1999, which
represents less than 1% of the total shares of Series A Stock outstanding.
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 each
individual and for all current executive officers and directors as a group
includes shares allocated to each individual's account under the Company's
Employee Stock Ownership Plan ("ESOP"), as to which each individual shares
voting power with the trustee of the ESOP. The number of such shares is as
follows: Richard A. Smith--680; Brian J. Knez--185; Robert A. Smith--242;
John R. Cook--59; Eric P. Geller--697; and all current executive officers
as a group--3,955. Except as set forth in the preceding sentence or in the
following footnotes, each stockholder listed in the table 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 "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 Commission.
(3) The Smith Family Group includes Richard A. Smith, Chairman 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
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 18,987,125 shares of Class B Stock
are subject to the terms of the Stockholders' Agreement, the total number
of shares held by 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 115,920 shares of Common Stock, which includes 62,625 shares of
Common Stock subject to outstanding options exercisable within 60 days of
January 15, 1999, and an aggregate of 29,200 shares of restricted Common
Stock over which two members of the Smith Family Group (Robert A. Smith and
Brian J. Knez) have voting but not dispositive power. The 19,990,398 shares
of Class B Stock constitute 99.8% of the outstanding Class B Stock and,
together with 52,564 shares of Common Stock owned by the Smith Family
Group, constitute 27.8% of the aggregate of the shares of the Class B
Stock, Common Stock and Series A Stock outstanding as of January 15, 1999,
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.
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<PAGE> 6
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 15, 1999, 28.19% 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 15, 1999, 79.58% 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.
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 would 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 is based on a Schedule 13G dated February 14, 1998
filed with the Commission by FMR Corp. FMR Corp has sole voting power with
respect to 344,252 shares and sole dispositive power with respect to all of
the shares reported in the table.
(6) The information reported is based on information provided by Neuberger
Berman, LLC as of January 15, 1999. Neuberger Berman, LLC has sole voting
power with respect to 1,888,727 shares, shared voting power with respect to
1,686,500 shares, and shared dispositive power with respect to all of the
shares reported in the table.
(7) The information reported is based on a Schedule 13G dated February 9, 1998
filed with the Commission by Boston Partners Asset Management L.P. Boston
Partners Asset Management L.P. has shared voting and dispositive power with
respect to all of the shares reported in the table.
(8) The information reported is based on a Schedule 13G dated August 31, 1998
filed with the Commission by PRIMECAP Management Company. PRIMECAP
Management Company has sole voting and dispositive power with respect to
781,400 shares and shared dispositive power with respect to 2,929,000
shares reported in the table.
(9) Includes 29,509 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 15, 1999. Also includes
14,600 shares of restricted Common Stock over which Mr. Knez has voting but
not dispositive power. All of the shares reported for Mr. Knez are included
in the shares owned by the Smith Family Group. See Note 3.
4
<PAGE> 7
(10) Includes 33,116 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 15, 1999. Also includes
14,600 shares of restricted Common Stock over which Mr. Smith has voting
but not dispositive power. All of the shares reported for Mr. Smith are
included in the shares owned by the Smith Family Group. See Note 3.
(11) Includes 35,335 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 15, 1999. Also includes 7,300
shares of restricted Common Stock over which Mr. Cook has voting but not
dispositive power.
(12) Includes 41,391 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of January 15, 1999. Also includes 6,400
shares of restricted Common Stock over which Mr. Geller has voting but not
dispositive power.
(13) Includes 1,500 shares of Common Stock held by a family partnership in which
Mr. Connell holds an interest.
(14) Ms. Martin, Dr. Stern and Messrs. Connell, Countryman, Greenberg, Lurie,
Segall, Uyterhoeven and Wharton hold, respectively, 1,338, 5,672, 1,540,
2,435, 5,576, 731, 2,753, 13,595 and 1,085 Common Stock based units which
are included in the table. These individuals do not have voting or
dispositive power with respect to these Common Stock based units. See
"Directors' Compensation."
(15) Includes 10,640 shares of Common Stock held by the Philadelphia Eagles,
Inc., of which Mr. Lurie is principal 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.
(16) Includes (i) 214,356 shares of Common Stock which are subject to
outstanding options exercisable within 60 days of January 15, 1999, (ii)
59,800 shares of restricted Common Stock over which the current executive
officers have voting but not dispositive power, (iii) 3,955 shares of
Common Stock allocated to the individuals in the group under the ESOP, as
to which such individuals share voting power with the trustee of the ESOP,
and (iv) the 34,725 Common Stock based units referred to in Note 14 above.
5
<PAGE> 8
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 1999 Annual Meeting, four Class C 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 nominees is currently a member of the Board of Directors. The
Company has no reason to believe that any of 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
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.
All of the nominees for director and the directors who will continue to
serve after the 1999 Annual Meeting are listed below with their principal
occupations for the last five years.
NOMINEES FOR TERMS EXPIRING IN 2002 (CLASS C DIRECTORS)
JEFFREY R. LURIE, age 47, Director since 1996
Principal owner and Chief Executive Officer of the 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 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 59, Director since 1993
Davee Chair, J. L. Kellogg School of Management, Northwestern University;
Advisor, Deloitte & Touche LLP; 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 System, Inc., Procter & Gamble Co., TRW Inc. and 11
Dreyfus mutual funds.
PAULA STERN*, age 53, Director since 1993
President of The Stern Group, Inc., an economic analysis and trade advisory
firm; Alkire Chairholder in International Business at Hamline University; Former
Chairwoman of the U.S. International Trade Commission; Director of CBS
Corporation, Infinity Broadcasting Corporation, Wal-Mart Stores, Inc. and Avon
Products, Inc.
CLIFTON R. WHARTON, JR.*, age 72, 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
Tenneco, Inc. and New York Stock Exchange, Inc.; Member of TIAA-CREF Board of
Overseers.
6
<PAGE> 9
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS A DIRECTORS)
GARY L. COUNTRYMAN*, age 59, Director since 1996
Chairman and Director of Liberty Mutual Insurance Company, Liberty Mutual
Fire Insurance Company and Liberty Financial Companies, Inc.; Director of Boston
Edison Company, Unisource Worldwide, Inc. and BankBoston Corporation and its
principal subsidiary, BankBoston, N.A. From 1992 until April 1998, served as
Chairman and Chief Executive Officer of Liberty Mutual Insurance Company,
Liberty Mutual Fire Insurance Company and Liberty Financial Companies, Inc.
JACK M. GREENBERG*, age 56, Director since 1993
President and Chief Executive Officer of McDonald's Corporation since
August 1998; Vice Chairman of McDonald's Corporation from October 1996 until
August 1998; Chairman (from October 1996) and Chief Executive Officer (from July
1997) of McDonald's USA until August 1998; Chief Financial Officer of McDonald's
Corporation from January 1982 until October 1996; Director of McDonald's
Corporation and Arthur J. Gallagher & Company.
BRIAN J. KNEZ, age 41, Director since 1995
President and Co-Chief Operating Officer of the Company since January 1997;
President (until November 1998) and Chief Executive Officer of Harcourt Brace &
Company since May 1995; President of the Scientific, Technical, Medical and
Professional Group of Harcourt Brace prior thereto; Director of The Neiman
Marcus Group, Inc. and Open Market, Inc. Mr. Knez is the son-in-law of Richard
A. Smith, Chairman 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.
RICHARD A. SMITH, age 74, Director since 1950
Chairman of the Company and of The Neiman Marcus Group, Inc.; Chief
Executive Officer of the Company since January 1997; Chief Executive Officer of
The Neiman Marcus Group, Inc. from January 1997 until December 1998; Chief
Executive Officer of the Company and of The Neiman Marcus Group, Inc. prior to
December 1991; Chairman, President (until November 1995) and Chief Executive
Officer of GC Companies, Inc.; Director of The Neiman Marcus Group, Inc. and GC
Companies, Inc. Mr. Smith is the father of Robert A. Smith and the father-in-law
of Brian J. Knez, who are each President and Co-Chief Operating Officer and
directors of the Company. Mr. Smith is the uncle of Jeffrey R. Lurie, a director
of the Company.
DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CLASS B DIRECTORS)
WILLIAM F. CONNELL*, age 60, Director since 1992
Chairman and Chief Executive Officer of Connell Limited Partnership;
Director of BankBoston Corporation and its principal subsidiary, BankBoston,
N.A.
MAURICE SEGALL*, age 69, Director since 1986
Senior Lecturer, Massachusetts Institute of Technology; Former Chairman and
Chief Executive Officer of Zayre Corp.; Director of AMR Corporation and Trustee
of Cabot Industrial Trust.
ROBERT A. SMITH, age 39, Director since 1989
President and Co-Chief Operating Officer of the Company since January 1997;
Group Vice President of the Company prior thereto; Chief Executive Officer of
The Neiman Marcus Group, Inc. since December 1998; President and Chief Operating
Officer of The Neiman Marcus Group, Inc. from January 1997 to December 1998;
Group Vice President of The Neiman Marcus Group, Inc. prior thereto; President
and Chief Operating
7
<PAGE> 10
Officer of GC Companies, Inc. since November 1995; Director of The Neiman Marcus
Group, Inc. Mr. Smith is the son of Richard A. Smith, Chairman 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 67, Director since 1980
Timken Professor of Business Administration Emeritus, Graduate School of
Business Administration, Harvard University; Director of Bombardier, Inc., The
Stanley Works and Ecolab, Inc.
- ---------------
* 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, 1998, the Board of Directors held
five meetings and acted once by unanimous written consent. During fiscal 1998,
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. 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 three times
during fiscal 1998, are Hugo Uyterhoeven (Chairman), Jack M. Greenberg, Paula
Stern and Clifton R. Wharton, Jr. 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 twice during fiscal 1998, are Maurice Segall (Chairman), William F. Connell,
Jack M. Greenberg, Lynn Morley Martin and Hugo Uyterhoeven. 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 incentive plans.
Nominating Committee. The members of the Nominating Committee, which met
twice during fiscal 1998, are William F. Connell (Chairman), Lynn Morley Martin,
Richard A. Smith and Hugo Uyterhoeven. The functions of the Nominating
Committee, in addition to nominating directors and officers and making
recommendations 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. All suggestions by
stockholders for nominees for director must be made in writing and received by
the Company, c/o Secretary, 27 Boylston Street, Chestnut Hill, Massachusetts
02467 no later than November 1, 1999 (see "Deadline for Submission of
Stockholder Proposals and Nominations for Director for Annual Meeting of
Stockholders to be held in March 2000"). Such writing must set forth (i) the
name and address of
8
<PAGE> 11
the stockholder who intends to make the nomination and of each person to be
nominated, (ii) a representation that the stockholder is a holder of record of
the Company's stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person named, (iii) a
description of the arrangements and understandings between the stockholder and
each nominee and any other person pursuant to which the nomination is to be made
by the stockholder, (iv) the consent of each proposed nominee to serve as a
director of the Company if so elected and (v) such other information regarding
each proposed nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission.
Executive Committee. The members of the Executive Committee, which held no
meetings during fiscal 1998, are Richard A. Smith (Chairman), Robert A. Smith,
Brian J. Knez and Hugo Uyterhoeven. 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 cash
retainer of $22,500 each and a fee of $1,750 per meeting attended, plus travel
and incidental expenses (an aggregate of $48,616 in fiscal 1998) 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.
In March 1998, the Board of Directors increased the annual retainer payable
to its non-employee directors by authorizing grants of Common Stock based units
in an aggregate amount equal to the value of the annual cash retainer. Grants
are made quarterly, with the number of Common Stock based units in each grant
calculated by dividing $5,625 (the amount of the quarterly cash retainer) by the
trailing five day average of the price of the Company's Common Stock at the end
of each fiscal quarter. These Common Stock based units do not carry voting or
dispositive rights. Dividend equivalents are paid on the Common Stock based
units in the form of additional units calculated by dividing the declared
dividend amount by the price of the Company's Common Stock on the dividend
payment date. In March 1998, the Board of Directors discontinued the retirement
plan for non-employee directors. Retirement benefits accrued by current non-
employee directors under the retirement plan were converted into Common Stock
based units, with each director receiving 200 Common Stock based units for each
year of service under the former retirement plan. The value of each non-employee
director's Common Stock based units will be payable only in cash when the
non-employee director ceases to serve as a member of the Board of Directors of
the Company.
The Company offers non-employee directors the right to elect to receive all
or part of the cash portion of their directors' fees on a deferred basis (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 three month negotiable certificates of deposit
as quoted on the last business day of the fiscal quarter, or (ii) in the form of
Common Stock based units, calculated on the basis of the trailing five day
average of the price of the Company's Common Stock at the end of each fiscal
quarter. Messrs. Countryman, Greenberg and Uyterhoeven and Dr. Stern are
currently electing to receive all of their fees on a deferred basis using the
stock based method.
9
<PAGE> 12
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
$2,000 for each meeting attended in person and $1,000 for participating by
telephone, which are the same fees received by NMG Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. The Company believes that all filing requirements
applicable to its insiders were complied with during fiscal 1998.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information on the compensation provided by
the Company during fiscal 1998, 1997 and 1996 to the Company's Chief Executive
Officer and the four other most highly paid executive officers of the Company
during fiscal 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
----------------------------
AWARDS
ANNUAL COMPENSATION ----------------------------
---------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) AWARDS(4) (#) ($)(5)
------------------ ------ ------ ------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Smith........... 1998 $800,000 $828,000 $-- -- -- $363,373
Chairman and Chief 1997 $750,000 $787,500 $-- -- -- $310,906
Executive Officer(6) 1996 $750,000 $525,000 $-- -- -- $300,809
Brian J. Knez.............. 1998 $600,000 $538,200 $-- $358,050 19,000 $ 36,374
President and Co-Chief 1997 $492,308 $443,077 $-- -- 15,000 $ 29,889
Operating Officer(7) 1996 $425,000 $212,500 $-- -- 10,000 $ 21,130
Robert A. Smith............ 1998 $600,000 $538,200 $-- $358,050 19,000 $ 36,374
President and Co-Chief 1997 $461,538 $473,847 $-- -- 15,000 $ 29,426
Operating Officer(7) 1996 $275,000 $137,500 $-- -- 3,250 $ 9,837
John R. Cook............... 1998 $400,000 $282,000 $-- $168,175 9,100 $ 22,114
Senior Vice President and 1997 $375,000 $281,250 $-- -- 3,500 $ 21,269
Chief Financial Officer 1996 $360,000 $180,000 $-- -- 4,000 $ 18,115
Eric P. Geller............. 1998 $340,000 $224,825 $-- $168,175 9,100 $ 18,424
Senior Vice President, 1997 $320,000 $240,000 $-- -- 3,500 $ 18,222
General Counsel and 1996 $305,000 $152,500 $69,106 -- 4,000 $ 15,436
Secretary
</TABLE>
- ---------------
(1) Other than restricted stock, stock options and stock appreciation rights
which may be granted under the Company's 1997 Incentive Plan, the Company
does not have a long-term compensation program for its executive officers
that includes long-term incentive payouts.
(2) Bonus payments are reported with respect to the year in which the related
services were performed.
10
<PAGE> 13
(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. The amount reported for Mr. Geller
in fiscal 1996 includes a tax offset bonus of $56,058 in connection with the
exercise of stock options.
(4) Calculated by multiplying the closing price of the Company's Common Stock on
the New York Stock Exchange on the date of grant ($54.25) by the number of
shares awarded. For restricted Common Stock granted in fiscal 1998, the
restrictions lapse upon the achievement of specified performance targets or,
if the specified targets are not reached within five years of the date of
grant, then on the eighth anniversary of the date of grant. The specified
performance targets have not yet been attained. Holders of restricted stock
are entitled to vote their restricted shares and receive all dividends which
may be paid with respect to such shares. In general, in the event of
termination of employment for any reason, restricted shares are forfeited by
the holders and revert to the Company. At the end of fiscal 1998, the named
executive officers' restricted stock holdings and market values (based on
the New York Stock Exchange closing price of $48.6875 for the Company's
Common Stock at fiscal year end) were as follows: Mr. Knez -- 6,600 shares
($321,338); Mr. Robert Smith -- 6,600 shares ($321,338); Mr. Cook -- 3,100
shares ($150,931); and Mr. Geller -- 3,100 shares ($150,931).
(5) The items accounted for in this column include the value of allocated ESOP
shares and the cost to the Company of matching contributions under the Key
Employee Deferred Compensation Plan and of group life insurance premiums.
For fiscal 1998, such amounts for each of the named executive officers were,
respectively, as follows: Richard A. Smith -- $500, $0 and $2,304; Brian J.
Knez -- $500, $34,146 and $1,728; Robert A. Smith -- $500, $34,146 and
$1,728; John R. Cook -- $500, $20,460 and $1,154; and Eric P. Geller --
$500, $16,945 and $979. Also included in this column is $360,569 for Richard
A. Smith, which represents a calculation of the benefit to Mr. Smith of the
premium advanced by the Company in fiscal 1998 for the life insurance policy
referred to in paragraph A under "Transactions Involving Management." The
benefit is determined for the period, projected on an actuarial basis,
between the date the premium is paid by the Company and the date the Company
will be entitled to reimbursement of the premium.
(6) Richard A. Smith became Chief Executive Officer of the Company on January
15, 1997. (Mr. Smith was Chief Executive Officer of the Company prior to
December 1991.)
(7) Brian J. Knez and Robert A. Smith each became President and Co-Chief
Operating Officer of the Company on January 15, 1997.
11
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding options to purchase
Common Stock granted under the Company's 1997 Incentive Plan during the fiscal
year ended October 31, 1998 to the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Smith(3).... -- -- -- -- -- --
Brian J. Knez.......... 19,000 7.17% $ 54.25 12/17/07 $648,233 $1,642,750
Robert A. Smith........ 19,000 7.17% $ 54.25 12/17/07 $648,233 $1,642,750
John R. Cook........... 9,100 3.44% $ 54.25 12/17/07 $310,470 $ 786,791
Eric P. Geller......... 9,100 3.44% $ 54.25 12/17/07 $310,470 $ 786,791
</TABLE>
- ---------------
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1998. 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 market value measured 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) Richard A. Smith does not participate in the Company's stock incentive
plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information regarding stock options exercised
during fiscal 1998 and the number and value of stock options held at October 31,
1998 by the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
SHARES AT OCT. 31, OPTIONS
ACQUIRED 1998(#) AT OCT. 31, 1998($)
ON VALUE ------------- -------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Richard A. Smith(3)................ -- -- -- --
Brian J. Knez...................... -- -- 21,811/38,700 $400,488/$74,119
Robert A. Smith.................... 2,202 $ 83,803 28,320/34,750 $625,710/$48,122
John R. Cook....................... -- -- 28,215/18,900 $469,475/$90,438
Eric P. Geller..................... 4,404 $ 112,240 35,271/17,900 $802,136/$74,500
</TABLE>
- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on the New York Stock Exchange on the date of exercise and the option
exercise price.
(2) 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 Stock Exchange at fiscal year
end ($48.6875) and the option exercise price for those shares. These values
have not been realized.
(3) Richard A. Smith does not participate in the Company's stock incentive
plans.
12
<PAGE> 15
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 $160,000 as of November 1, 1998 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 or retires before
age 65, the combined benefit is 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, which includes benefits under the Retirement Plan and
the SERP, 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 1999 who elects to receive his or her
benefit in the form of a straight life annuity. The amounts actually payable
will be lower than the amounts shown since the amounts will be reduced by 60% of
the participant's estimated primary Social Security benefit.
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
- ----------- - -- -- -- -------
<C> <S> <C> <C> <C> <C> <C>
$300,000 ............................ $30,000 $ 60,000 $ 90,000 $120,000 $150,000
400,000 ............................ 40,000 80,000 120,000 160,000 200,000
500,000 ............................ 50,000 100,000 150,000 200,000 250,000
600,000 ............................ 60,000 120,000 180,000 240,000 300,000
700,000 ............................ 70,000 140,000 210,000 280,000 350,000
800,000 ............................ 80,000 160,000 240,000 320,000 400,000
900,000 ............................ 90,000 180,000 270,000 360,000 450,000
</TABLE>
- ---------------
(1) 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.
13
<PAGE> 16
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, 1998 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, 1998 1998 AGE 65
---- -------------------- ----------- ------
<S> <C> <C> <C>
Richard A. Smith...................................... $800,000 25 25
Brian J. Knez......................................... $600,000 11 25
Robert A. Smith....................................... $600,000 13 25
John R. Cook.......................................... $400,000 6 14
Eric P. Geller........................................ $340,000 19 25
</TABLE>
TRANSACTIONS INVOLVING MANAGEMENT
A. In August 1990, a trust established by Mr. and Mrs. Richard A. Smith
entered into an agreement (as amended in December 1998) with the Company whereby
the Company, with the approval of the Compensation Committee of the Board of
Directors, 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 thirteen 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 1998, 1997 and 1996, the Company advanced $406,773, $409,229 and
$414,362, respectively, toward the payment of such premiums.
B. 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 15, 1999 under the Loan Plan was
$1,242,809.
14
<PAGE> 17
The following table describes (a) the largest amount of indebtedness
outstanding under the Loan Plan during fiscal 1998, (b) the amount of
indebtedness outstanding on January 15, 1999, and (c) the weighted average rate
of interest on indebtedness outstanding on January 15, 1999 for the executive
officers of the Company who had loans in excess of $60,000 during fiscal 1998 or
subsequent thereto.
<TABLE>
<CAPTION>
LARGEST INDEBTEDNESS WEIGHTED
INDEBTEDNESS OUTSTANDING AT AVERAGE
OUTSTANDING JANUARY 15, INTEREST RATE
IN FISCAL 1998 1999 PER ANNUM
-------------- -------------- -------------
<S> <C> <C> <C>
Brian J. Knez........................................ $ 0 $ 76,069 2.32%
Robert A. Smith...................................... $ 69,186 $197,221 2.46%
John R. Cook......................................... $177,084 $177,084 2.26%
Eric P. Geller....................................... $421,215 $421,215 2.44%
Peter Farwell(1)..................................... $ 0 $148,269 2.38%
Paul F. Gibbons(2)................................... $106,419 $106,419 2.48%
Gerald T. Hughes(3).................................. $116,532 $116,532 5.00%
</TABLE>
- ---------------
(1) Mr Farwell is the Vice President - Corporate Relations of the Company.
(2) Mr. Gibbons is the Vice President and Treasurer of the Company.
(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 (i) reward competitively its executive officers, (ii) attract and retain
individuals important to the success of the Company, (iii) provide incentives
that will motivate those executives, and (iv) reward the Company's executives
for achieving the business and strategic objectives of the Company and its
operating divisions over both the short and long terms.
The Committee makes annual and long term incentives a significant component
of the Company's executive officers' total compensation. The Committee also
increases the variable risk and reward of such incentive compensation in
proportion to an executive's level of responsibility in the Company.
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
15
<PAGE> 18
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.
The principal components of the Company's compensation program are: (i)
base salary, (ii) annual incentive bonus, and (iii) stock incentives.
Base Salary
For fiscal 1998, base salary was 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 was used to establish benchmark amounts for both base salary
and total cash compensation for each executive position. Comparisons were made
to a broad range of companies, with the principal focus on companies with
multiple core businesses, similar revenues and consumer orientation. Because the
Company competes for executive talent with a broad range of companies, the
Committee did not limit its comparison information for compensation purposes to
the companies included in the peer groups in the Stock Performance Graph. For
fiscal 1998, the Committee generally set its salary and total cash compensation
benchmarks (assuming that maximum bonuses would be achieved) for executive
officers at the middle range for comparable positions in the comparison group of
companies.
The Committee reviewed the base salary levels for each of the named
executive officers of the Company. While the Committee used the above described
benchmarks as a reference point, the Committee also takes into account a
particular individual's salary history, experience, individual performance,
guidelines established by the Chief Executive Officer with respect to salary
increases for the entire Company and other similar criteria.
Annual Incentive Bonus
The annual incentive bonus program is intended to put substantial amounts
of total cash compensation at risk with the intent of focusing the attention of
the executives 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 fiscal 1998, the Compensation Committee
established the Company's performance goals for fiscal 1998 and determined the
executive officers who should participate in the annual incentive plan and their
respective bonus award opportunities. The determination of annual bonuses for
fiscal 1998 was based principally on the achievement of performance objectives
by the Company as well as the individual executive's own performance.
For fiscal 1998, the executive officers' cash bonus opportunity ranged from
35% to 75% of base salary for performance that met the earnings per share goal
for fiscal 1998. If the Company achieved earnings per share in excess of the
fiscal 1998 goal, cash bonus opportunities increased to a range of 70% to 150%
of base salary, while achievement of earnings per share below the fiscal 1998
goal reduced the bonus award opportunity to a range of 9% to 19% of base salary.
If the Company fell sufficiently short of its performance target, bonuses
likely would not have been paid absent special circumstances. Depending on the
individual executive officer, factors such as the performance of a business unit
or corporate department for which the executive officer is responsible and
achievement of individual performance goals were considered in the decision to
award a bonus. If corporate and/or division performance targets were met, but an
individual fell short of his or her performance goals, the individual's bonus
could have been reduced or eliminated in the discretion of the Committee.
In December 1998 the Compensation Committee established the Company's
performance goals for fiscal 1999 and determined the executive officers who
should participate in the annual incentive plan for that year
16
<PAGE> 19
and their respective bonus award opportunities. As in fiscal 1998, the cash
bonus opportunities for fiscal 1999 have been determined by reference to the
achievement of earnings per share goals established by the Committee. The bonus
ranges for fiscal 1999 are the same ranges used in fiscal 1998 for achievement
of earnings per share meeting, exceeding or falling below the fiscal 1999 goals.
Stock Incentives
The Committee's purpose in awarding equity based incentives is to achieve
as much as possible an identity of interest between the Company's executives and
the long term interest of the stockholders. For fiscal 1998, the principal
factors considered in determining which executives (including the named
executive officers) were awarded equity based compensation, and in determining
the types and amounts of such awards, included salary levels, equity awards
granted to executives at competing comparison companies, and the performance,
experience, and level of responsibility of each executive.
The Company granted two kinds of equity based incentives in fiscal 1998 (i)
non-qualified stock options, and (ii) performance accelerated restricted stock.
Non-qualified stock options vest over a five year period and terminate ten years
from the date of grant. The restrictions on performance accelerated restricted
stock lapse upon the earlier of (i) the achievement of specified earnings per
share goals within five years of the date of grant, or (ii) the eighth
anniversary of the date of grant.
Compensation of the Chief Executive Officer
In fiscal 1998, Richard A. Smith received a base salary of $800,000, an
increase of $50,000 from his annual base salary of $750,000 for each of fiscal
1997 and 1996. Because the Company exceeded the earnings per share goal for
fiscal 1998 as established by the Committee in December 1997, and taking into
account the criteria described under "Annual Incentive Bonus", the Committee
awarded Mr. Smith a bonus of $828,000, or 103.5% of his fiscal 1998 base salary.
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 which is
not "performance based" paid to each of the executive officers named in the
Summary Compensation Table. The Company's 1997 Incentive Plan allows the
Committee to award stock incentives and cash bonuses based on objective
criteria. It is expected that the stock incentives and cash bonuses awarded
under the Plan will generally be eligible to be characterized as "performance
based" compensation and therefore to be fully deductible by the Company.
Mr. Smith has agreed, and the Committee expects that other executive
officers of the Company will agree, to defer income in fiscal 1999 and future
fiscal years if and to the extent that their compensation is not deductible by
the Company under the Code.
17
<PAGE> 20
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 executives 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
18
<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 in (i) the Standard & Poor's 500 Stock Index and (ii) a
peer group index consisting of Houghton Mifflin Company, John Wiley & Sons,
Inc., The McGraw-Hill Companies, Inc., The Times Mirror Company, Tiffany & Co.,
Nordstrom, Inc., and Saks Holdings, Inc. Saks Holdings is included in the peer
group only for the period during which its common stock was publicly traded (May
22, 1996 - September 17, 1998). The value of an investment in Saks Holdings at
the end of the Company's 1996 fiscal year is set at the average of the other
members of the peer group at that date and the value at the end of the Company's
1998 fiscal year is set at the closing price of Saks Holdings common stock on
the day it ceased trading.
The graph assumes that the value of an investment in the Company's Common
Stock and each index was $100 at October 31, 1993 and that all dividends were
reinvested.
<TABLE>
<CAPTION>
Harcourt General,
Inc. S&P 500 Index Peer Index
<S> <C> <C> <C>
31-Oct-93 100.00 100.00 100.00
31-Oct-94 93.41 103.82 115.53
31-Oct-95 101.70 130.89 119.87
31-Oct-96 130.31 162.09 155.90
31-Oct-97 132.51 213.84 208.35
31-Oct-98 130.77 263.89 237.72
</TABLE>
The peer group index includes companies in the publishing and specialty
retail 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 peer group index has been weighted 66.66%
publishing and 33.33% retailing based on the approximate contribution of those
segments to the Company's fiscal 1998 net earnings.
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. 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, 1999.
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 $3.9 million on account of audit, tax and
consulting services rendered by Deloitte & Touche LLP for the fiscal year ended
October 31, 1998. 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, 1999.
3. 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 STOCKHOLDER PROPOSALS
AND NOMINATIONS FOR DIRECTOR
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN MARCH 2000
In order for stockholder proposals which are submitted pursuant to Rule
14a-8 of the Securities Exchange Act of 1934 (the "Exchange Act") to be
considered by the Company for inclusion in the proxy material for the Annual
Meeting of Stockholders to be held in March 2000, they must be received by the
Secretary of the Company by November 1, 1999.
For proposals that stockholders intend to present at the Annual Meeting of
Stockholders to be held in March 2000 outside the processes of Rule 14a-8 of the
Exchange Act, unless the stockholder notifies the Secretary of the Company of
such intent by December 21, 1999, any proxy that management solicits for such
Annual Meeting will confer on the holder of the proxy discretionary authority to
vote on any such proposal properly presented at the meeting.
In order for suggestions by stockholders for nominees for director to be
considered by the Nominating Committee, they must be received by the Secretary
of the Company by November 1, 1999; see "Meetings and Committees of the Board of
Directors -- Nominating Committee."
20
<PAGE> 23
All such communications to the Secretary of the Company must be in writing
and must be received by the Company at its principal executive offices (27
Boylston Street, Chestnut Hill, Massachusetts 02467) by the applicable date.
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.
21
<PAGE> 24
866-PS-99
<PAGE> 25
HARCOURT GENERAL, INC.
COMMON STOCK AND COMMON STOCK AND
CLASS B STOCK CLASS B STOCK
PROXY PROXY
ANNUAL MEETING OF STOCKHOLDERS -- MARCH 12, 1999
Richard A. Smith, John R. Cook and Eric P. Geller, and each of them singly,
each with power 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 BankBoston,
N.A., 100 Federal Street, Boston, Massachusetts, on Friday, March 12, 1999 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 February 5, 1999 and a copy of the Annual Report for
the year ended October 31, 1998.
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 proposal 2. 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 B DIRECTORS
NOMINEES: JEFFREY R. LURIE
LYNN MORLEY MARTIN
PAULA STERN
CLIFTON R. WHARTON, JR.
(SEE REVERSE SIDE TO CAST VOTE.)
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
<TABLE>
<S> <C> <C>
===========================================================================================================================
The Board of Directors recommends a vote FOR Proposals 1 and 2.
- ---------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approval of the appointment of
Directors (See [ ] [ ] Deloitte & Touche LLP as independent [ ] [ ] [ ]
reverse). auditors of the Company for the
current fiscal year.
[ ]
---------------------------------------------
For all nominees except as noted above
===========================================================================================================================
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
For joint accounts, each owner should sign. Executors, Administrators,
Trustees, etc., should give full title.
Signature: Date: Signature: Date:
---------------------------- ----------------- ---------------------------- ---------------
</TABLE>
<PAGE> 26
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 12, 1999
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 BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts, on Friday, March 12, 1999 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 February 5, 1999 and a copy of the Annual Report for the year ended
October 31, 1998.
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
proposal 2. 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 B DIRECTORS
NOMINEES: JEFFREY R. LURIE
LYNN MORLEY MARTIN
PAULA STERN
CLIFTON R. WHARTON, JR.
(SEE REVERSE SIDE TO CAST VOTE.)
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
<TABLE>
<S> <C> <C>
This Instruction Card is solicited by the Plan Trustee.
===========================================================================================================================
The Board of Directors recommends a vote FOR Proposals 1 and 2.
- ---------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approval of the appointment of
Directors (See [ ] [ ] Deloitte & Touche LLP as independent [ ] [ ] [ ]
reverse). auditors of the Company for the
current fiscal year.
[ ]
---------------------------------------------
For all nominees except as noted above
===========================================================================================================================
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
For joint accounts, each owner should sign. Executors, Administrators,
Trustees, etc., should give full title.
Signature: Date: Signature: Date:
---------------------------- ----------------- ---------------------------- ---------------
</TABLE>
<PAGE> 27
_______________________________________________________________________WACHOVIA
Wachovia Corporate Services, Inc.
Trust Services Division
301 North Main Street
Winston-Salem, North Carolina 27150-3099
February 5, 1999
To: Participants in the Harcourt General, Inc.
Employee Stock Ownership Plan
From: Wachovia Bank, N.A.
Trustee of the Harcourt General, Inc. Employee Stock Ownership Plan
As a participant in the Harcourt General, Inc. Employee Stock Ownership
Plan, which owns shares of Harcourt General Common Stock, you are entitled to
instruct the Trustee on how to vote the shares of Common Stock in your account
on matters scheduled to come before the Annual Meeting of Stockholders
of Harcourt General, Inc. to be held on Friday, March 12, 1999.
A proxy statement, confidential voting instruction card and return
envelope are enclosed. Please complete, date and sign the voting instruction
card and mail it promptly in the return envelope to exercise your right to
direct the Trustee with respect to shares of Harcourt General, Inc. allocated to
your account.
If you own shares of Harcourt General, Inc. outside of the Employee Stock
Ownership Plan, you will receive similar materials for those shares in a
separate mailing. Please return both cards in their separate return envelopes if
you wish to fully participate in the matters being submitted to the
stockholders of Harcourt General, Inc.
Enclosures
