-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ud+2pQBxggW8TqQ2YLOGV+Ewf8q83AwQt+yh1sTJ7nKVR9eSRgslG5fwIwRq0Cv1 VtffCtZjXqPIY5pBOorfng== 0000950135-99-000468.txt : 19990208 0000950135-99-000468.hdr.sgml : 19990208 ACCESSION NUMBER: 0000950135-99-000468 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990312 FILED AS OF DATE: 19990205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARCOURT GENERAL INC CENTRAL INDEX KEY: 0000040493 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 041619609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-04925 FILM NUMBER: 99522894 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST / BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172328200 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL CINEMA CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MID WEST DRIVE IN THEATRES INC DATE OF NAME CHANGE: 19660907 DEF 14A 1 HARCOURT GENERAL, INC. 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: - -------------------------------------------------------------------------------- 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. 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. 4
SHARES AND PERCENT OF CLASS OF STOCK OWNED BENEFICIALLY (1) ----------------------------------- NAME COMMON % CLASS B % ---- ------ - ------- - 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
- --------------- * Less than 1%. 2 5 (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. 3 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 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 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 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 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 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 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 $1,000 for participating by telephone, which are the same fees received by NMG Directors. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and persons who own more than 10% of the Company's Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. The Company believes that all filing requirements applicable to its insiders were complied with during fiscal 1998. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table provides information on the compensation provided by the Company during fiscal 1998, 1997 and 1996 to the Company's Chief Executive Officer and the four other most highly paid executive officers of the Company during fiscal 1998.
LONG-TERM COMPENSATION(1) ---------------------------- AWARDS ANNUAL COMPENSATION ---------------------------- ---------------------------------------- SECURITIES OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER NAME AND FISCAL SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) AWARDS(4) (#) ($)(5) ------------------ ------ ------ ------ ------------ ---------- ---------- ------------ 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
- --------------- (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 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 $360,569 for Richard A. Smith, which represents a calculation of the benefit to Mr. Smith of the premium advanced by the Company in fiscal 1998 for the life insurance policy referred to in paragraph A under "Transactions Involving Management." The benefit is determined for the period, projected on an actuarial basis, between the date the premium is paid by the Company and the date the Company will be entitled to reimbursement of the premium. (6) Richard A. Smith became Chief Executive Officer of the Company on January 15, 1997. (Mr. Smith was Chief Executive Officer of the Company prior to December 1991.) (7) Brian J. Knez and Robert A. Smith each became President and Co-Chief Operating Officer of the Company on January 15, 1997. 11 14 OPTION GRANTS IN LAST FISCAL YEAR The following table provides information regarding options to purchase Common Stock granted under the Company's 1997 Incentive Plan during the fiscal year ended October 31, 1998 to the executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE ---------------------------------------------------- VALUE AT ASSUMED NUMBER OF % OF ANNUAL RATES OF SECURITIES TOTAL STOCK PRICE UNDERLYING OPTIONS APPRECIATION FOR OPTIONS GRANTED TO EXERCISE OR OPTION TERM(2) GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($) ---- ---------- ------------ ----------- ---------- ----- ------ 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
- --------------- (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.
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) ---- -------- -------- ------------- ---------------- 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
- --------------- (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 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)
TOTAL CREDITED YEARS OF SERVICE AVERAGE ------------------------------------------------------- PENSIONABLE 25 EARNINGS 5 10 15 20 OR MORE - ----------- - -- -- -- ------- $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
- --------------- (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 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.
YEARS OF SERVICE --------------------- PENSIONABLE EARNINGS AT FOR YEAR ENDED OCTOBER 31, AT NAME OCTOBER 31, 1998 1998 AGE 65 ---- -------------------- ----------- ------ 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
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 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.
LARGEST INDEBTEDNESS WEIGHTED INDEBTEDNESS OUTSTANDING AT AVERAGE OUTSTANDING JANUARY 15, INTEREST RATE IN FISCAL 1998 1999 PER ANNUM -------------- -------------- ------------- 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%
- --------------- (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 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 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 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 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.
Harcourt General, Inc. S&P 500 Index Peer Index 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
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 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 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 24 866-PS-99 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. =========================================================================================================================== 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: ---------------------------- ----------------- ---------------------------- ---------------
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. 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: ---------------------------- ----------------- ---------------------------- ---------------
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 -----END PRIVACY-ENHANCED MESSAGE-----