<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE LIBERTY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LIBERTY
- --------------------------------------------------------------------------------
The Liberty Corporation Box 789 Greenville, SC 29602-0789
March 27, 1997
Dear Shareholder:
We cordially invite you to attend the 1997 Annual Meeting of Shareholders
of The Liberty Corporation on Tuesday, May 6, 1997, at 10:30 a.m. in the
Company's Headquarters Building located at 2000 Wade Hampton Boulevard,
Greenville, South Carolina.
The accompanying Notice of Meeting and Proxy Statement describe the matters
to be considered and voted upon at the meeting. We will also review the major
Company developments in 1996.
Your participation in the affairs of Liberty is important, regardless of
the number of shares you hold. To ensure your representation at the meeting,
whether or not you attend, please complete and return the enclosed proxy card as
soon as possible.
We look forward to seeing you on May 6. Coffee will be served prior to the
meeting, when the members of the Board of Directors hope to visit with you.
Cordially,
/s/ HAYNE HIPP
HAYNE HIPP
Chairman and Chief Executive Officer
<PAGE> 3
THE LIBERTY CORPORATION
WADE HAMPTON BOULEVARD
GREENVILLE, S. C. 29615
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
March 27, 1997
To the Shareholders of The Liberty Corporation:
The Annual Meeting of Shareholders of The Liberty Corporation will be held
at The Liberty Corporation Headquarters Building, Wade Hampton Boulevard,
Greenville, South Carolina, on Tuesday, May 6, 1997 at 10:30 a.m., local time,
for the following purposes:
1. To elect four directors to serve for three-year terms.
2. To consider and act upon a proposal to amend the Restated Articles of
Incorporation regarding director liabilities.
3. To consider and act upon a proposal to approve the material
amendments to, and the eligible participants under, the Performance
Incentive Compensation Program.
4. To ratify the selection of independent public accountants.
5. To transact such other business as may properly come before the
meeting.
Holders of Common Stock and Preferred Stock at the close of business on
March 15, 1997 will be entitled to vote at the meeting or any adjournment
thereof.
A copy of the 1996 Annual Report to Shareholders is enclosed.
By Order of the Board of Directors
Martha G. Williams
Vice President, General Counsel
& Secretary
EACH SHAREHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A SHAREHOLDER DECIDES TO ATTEND THE MEETING, HE MAY, IF
HE WISHES, REVOKE HIS PROXY AND VOTE HIS SHARES IN PERSON.
<PAGE> 4
Mailing Date: March 27, 1997
THE LIBERTY CORPORATION
WADE HAMPTON BOULEVARD
GREENVILLE, S. C. 29615
---------------------
PROXY STATEMENT
---------------------
The 1997 Annual Meeting of Shareholders of The Liberty Corporation
("Liberty" or the "Company") will be held on May 6, 1997 for the purposes set
forth in the Notice of Annual Meeting. The accompanying form of proxy is
solicited on behalf of the Board of Directors in connection with this meeting
and any adjournment thereof. Officers of Liberty may solicit proxies by mail,
telephone and personal interview, which expense will be borne by Liberty. In
addition, the Company has engaged the services of Corporate Communications,
Inc., Nashville, Tennessee, to assist in the solicitation of proxies at an
estimated fee of $5,000 plus out-of-pocket expenses.
A proxy in the accompanying form which is properly executed, duly returned
and not revoked will be voted in accordance with instructions contained therein.
If no instructions are given with respect to a specified matter to be acted
upon, proxies will be voted in favor of such matter. Proxies may be revoked at
any time prior to the voting of the proxy by written notice to the Company's
Corporate Secretary, by delivery of a later dated proxy, or by attending the
Annual Meeting and voting in person.
Each shareholder is entitled to one vote for each share of Common Stock and
each share of Preferred Stock of Liberty held at the close of business on March
15, 1997, the record date for the Annual Meeting. On that date there were
20,249,865 shares of Common Stock, 668,207 shares of Series 1994-A Preferred
Stock, 590,469 shares of Series 1994-B Preferred Stock, and 599,985 shares of
Series 1995-A Preferred Stock outstanding.
In voting by proxy on the election of directors (Item 1), shareholders may
vote in favor of all nominees or withhold their votes as to some or all
nominees. In voting by proxy on the approval of the amendment to the Restated
Articles of Incorporation (Item 2), amendment to the Performance Incentive
Compensation Program (Item 3), and ratification of the selection of independent
public accountants (Item 4), shareholders may vote FOR, AGAINST or ABSTAIN with
respect to each proposal. Unless other instructions are indicated on the proxy
card, all properly executed proxies received by the Company will be voted FOR
the election of all the nominees for director set forth below under "Election of
Directors," and FOR Items 2, 3 and 4. Some proxies may include broker non-votes.
A broker non-vote occurs when a broker holding stock in street name does not
have discretion to vote the shares on a particular matter without receiving
specific instructions from the beneficial owner and has not received any such
instructions.
The election of directors will require the affirmative vote of a plurality
of the shares voting in person or by proxy as to the election of directors at
the Annual Meeting. Votes withheld and broker non-votes will not be included in
vote totals for director nominees and will have no effect on the outcome of the
election. Item 2 will require the affirmative vote of two-thirds of the shares
entitled to vote at the Annual Meeting. Abstentions and broker non-votes will
have the effect of votes against Item 2. Items 3 and 4 each will require the
affirmative
<PAGE> 5
vote of a majority of the shares voting in person or by proxy at the Annual
Meeting with respect to each such matter. The outcome of the vote for Items 3
and 4 will not be affected by abstentions and broker non-votes.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares is necessary to constitute a quorum at the Annual
Meeting. Any proxy authorized to be voted at the meeting on any matter
(including on routine matters pursuant to the discretionary authority granted in
management's proxy), whether or not the proxy is marked to WITHHOLD AUTHORITY,
to ABSTAIN or to effect a broker non-vote on any proposal, will be counted in
establishing a quorum.
ITEM 1. ELECTION OF DIRECTORS
INFORMATION RESPECTING THE BOARD AND NOMINEES
The Board, which held four meetings during 1996, has standing Audit,
Compensation, Investment and Finance, and Nominating Committees. The memberships
and principal responsibilities of these Committees are as follows:
The Audit Committee, which met three times during 1996, currently includes
Edward E. Crutchfield, Chairman, John R. Farmer, Lawrence M. Gressette, Jr., and
J. Thurston Roach. The Audit Committee is responsible for recommending to the
Board of Directors the engagement or discharge of the independent public
accountants, reviewing with the independent public accountants the plan and
results of the audit engagement, maintaining direct reporting responsibility and
regular communication with the Company's internal audit staff, reviewing the
scope and results of the Company's internal audit procedures, approving the
services to be performed by the independent public accountants, reviewing the
degree of independence of the public accountants, considering the range of audit
and non-audit fees and reviewing the adequacy of the Company's system of
internal accounting controls.
The Compensation Committee, which met three times during 1996, currently
includes William O. McCoy, Chairman, John H. Mullin, III and Eugene E. Stone,
IV. This Committee establishes the salaries and other forms of executive
compensation for senior executives of the Company and its subsidiaries, develops
and maintains compensation plans for such senior executives and grants benefits
under such plans.
The Investment and Finance Committee, which did not meet during 1996,
currently includes W. W. Johnson and J. Thurston Roach. This Committee advises
the Board with regard to the Company's capital structure and long-term capital
and borrowing needs; the Company's broad investment policies and guidelines; and
the quality and performance of the investment portfolios.
The Nominating Committee, which met one time since the last annual meeting,
currently includes Buck Mickel, Chairman, Rufus C. Barkley, Jr., W. W. Johnson
and Dr. Benjamin F. Payton. This Committee recommends selection to management
and to the Board of Directors of nominees for election as Directors and
considers the performance of incumbent Directors in determining whether to
nominate them for re-election. The Nominating Committee will consider nominees
recommended by shareholders for the 1998 meeting provided such nominations are
made in writing in accordance with the procedures set forth in the Company's
Bylaws and are submitted no later than December 1, 1997 to the Corporate
Secretary at the Company's above stated address for referral to the Nominating
Committee.
The Board of Directors is divided into three classes. At each annual
meeting, one class is elected for a three-year term. The Nominating Committee
has recommended the election of Hayne Hipp, Buck Mickel, J. Thurston Roach and
William B. Timmerman as Directors to hold office for terms of three years,
expiring with the annual shareholders meeting to be held in 2000 and until their
successors are duly elected and qualified.
2
<PAGE> 6
The terms of office of the other eight Directors continue until the annual
meeting of shareholders held in the year shown for their respective classes. The
Board of Directors and management concur in this recommendation.
Should any one or more of the nominees become unavailable to accept
nomination for election as a Director, the persons named in the enclosed proxy
will vote for the election of such other persons as management may recommend,
unless the Board reduces the number of Directors. The nominees receiving a
plurality of the votes cast will be elected as Directors.
Following is information about each nominee for Director or Director whose
term continues after the meeting, including certain biographical data.
NOMINEES FOR DIRECTOR
FOR TERMS EXPIRING IN MAY 2000:
HAYNE HIPP is Chairman, President and Chief Executive Officer of Liberty,
having been elected Chairman in 1995. Also serving as Chairman of Liberty Life,
Mr. Hipp first became a Director of Liberty in 1977. He also serves on the
Boards of Wachovia Corporation and SCANA Corporation. He is 57 years old.
BUCK MICKEL is the retired Vice Chairman of the Board and President of
Fluor Corporation, a company headquartered in Irvine, California, and engaged
primarily in furnishing engineering and construction services and producing
natural resources. Mr. Mickel has been a member of Liberty's Board of Directors
since 1969 and is also a Director of Fluor Corporation, Duke Power Company,
Delta Woodside Industries, Incorporated, Insignia Financial Group, RSI Holdings
Inc. and Emergent Group Incorporated. Mr. Mickel is 71 years old.
J. THURSTON ROACH is President and a Director of Simpson Timber Company, a
subsidiary of Simpson Investment Company, a privately-held company headquartered
in Seattle, Washington, engaged in growing and harvesting timber and
manufacturing lumber, plywood, pulp, and paper. Until January, 1996, when he
became President of Simpson Timber Company, he served as Senior Vice President,
Chief Financial Officer and Secretary of Simpson Investment Company. Mr. Roach
also serves as a Director of Celulosa del Pacifico S.A. and was first elected a
Director of Liberty in 1994. He is 55 years old.
WILLIAM B. TIMMERMAN is Chairman of the Board, President and Chief
Executive Officer of SCANA Corporation, a utilities company located in Columbia,
South Carolina. He has held these positions since March 1, 1997. Mr. Timmerman
was elected President of SCANA on December 13, 1995 and Chief Operating Officer
on August 21, 1996. From May 1, 1994 to December 13, 1995, he was Executive Vice
President, Chief Financial Officer and Controller. Previously, he was Senior
Vice President of SCANA as well as its Chief Financial Officer and Controller.
Mr. Timmerman is being nominated as a Director of Liberty for the first time and
also serves as a Director of InterCel, Inc. and Wachovia Bank of South Carolina.
He is 50 years old.
3
<PAGE> 7
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING IN MAY 1998:
EDWARD E. CRUTCHFIELD is Chairman and Chief Executive Officer of First
Union Corporation, a bank holding company, located in Charlotte, North Carolina.
Mr. Crutchfield has served as a Director of Liberty since 1989 and also serves
as a Director of VF Corporation. He is 55 years old.
JOHN R. FARMER is a Limited Partner of Goldman, Sachs & Co., New York, New
York, and Vice Chairman of Goldman Sachs Europe, Limited, London, England,
investment banking firms. He assumed this position in 1994 and, previously,
served as a General Partner of Goldman, Sachs & Co. and Managing Director of
Goldman, Sachs, International. Mr. Farmer was first elected a Director of
Liberty in 1995. He is 58 years old.
WILLIAM O. MCCOY is Vice President and Chief Financial Officer of the
University of North Carolina, Chapel Hill, North Carolina, a position he assumed
in 1995. Previously, he served as Vice Chairman of the Board of BellSouth
Corporation, Atlanta, Georgia, and as President and Chief Executive Officer of
BellSouth Enterprises, Incorporated. Mr. McCoy has served as a Director of
Liberty since 1984 and also serves as a Director of Carolina Power and Light
Company, Kenan Transport Company, Fidelity Investments and The Weeks
Corporation. He is 63 years old.
JOHN H. MULLIN, III is Chairman of Ridgeway Farm, Inc., a wholesale shade
and ornamental tree nursery located in Brookneal, Virginia. Serving as a
Managing Director of Dillon, Read & Co. Inc., of New York, New York, until 1989,
Mr. Mullin remains a Director of Dillon, Read & Co. Inc. and also serves as a
Director of ACX Technologies, Inc., Alex. Brown Realty, Inc. and The Ryland
Group, Inc. He has served as a Liberty Director since 1989. Mr. Mullin is 55
years old.
TERMS EXPIRING IN MAY 1999:
RUFUS C. BARKLEY, JR. is the Chairman of the Board of Cameron and Barkley
Company, an industrial and electrical and electronics supplier of Charleston,
South Carolina. He has held this position since 1959 and also served as Chief
Executive Officer until January 1, 1992. Mr. Barkley, who is also a Director of
Wachovia Corporation, first became a Director of Liberty in 1970. He is 67 years
old.
W. W. JOHNSON is Chairman of the Executive Committee of the Board of
Directors of NationsBank Corporation, a bank holding company, headquartered in
Charlotte, North Carolina. Mr. Johnson first became a Director of Liberty in
1973 and is also a Director of NationsBank Corporation, Duke Power Company and
Alltel Corporation. He is 66 years old.
BENJAMIN F. PAYTON is President of Tuskegee University, Tuskegee, Alabama.
He was elected a Director of Liberty in 1973 and is also a Director of AmSouth
Bancorporation, ITT Corporation, Morrison Health Care Incorporated, Praxair,
Incorporated, Ruby Tuesday, Inc. and Sonat Incorporated. Dr. Payton is 64 years
old.
EUGENE E. STONE, IV is Chief Executive Officer of Stone Manufacturing Co.,
an apparel manufacturer, and Chairman of Umbro International, a marketer of
sports apparel and equipment. Both
4
<PAGE> 8
companies are located in Greenville, South Carolina. Mr. Stone first became as a
Director of Liberty in 1996 and also serves as a Director of Carolina First
Bank. He is 58 years old.
- ---------------
1. References to "Liberty Life" are to Liberty Life Insurance Company, a
wholly-owned subsidiary of Liberty.
2. Dr. Benjamin F. Payton attended 60% of the aggregate of the total number of
meetings of the Board and the meetings held by all committees of the Board on
which he sat.
EXECUTIVE COMPENSATION
The following information is given as to the chief executive officer and
the other four most highly compensated officers (collectively the "Senior
Executives") who received salary and bonus for 1996 from Liberty and its
subsidiaries of more than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- ---------------------------
SHARES
RESTRICTED UNDERLYING ALL OTHER
STOCK STOCK OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY ($) BONUS ($) ($) (2) (#) (3) ($) (4)
------------------------------ ---- ---------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James M. Keelor 1996 $262,215 $349,528 $305,156 -0- $21,945
President of Cosmos 1995 262,586 203,399 252,669 -0- 21,795
1994 234,808 190,259 150,766 -0- 21,750
H. Ray Eanes 1996 382,333 185,000 262,500 -0- 16,945
Senior VP & CFO of Liberty 1995 360,000 175,000 251,634 -0- 15,678
1994 264,167 215,000 772,500 -0- -0-
Hayne Hipp 1996 383,333 101,000 937,500 -0- 23,743
Chairman, President & CEO of Liberty 1995 333,334 103,350 1,062,500 -0- 23,786
1994 350,000 -0- 772,500 -0- 23,454
Porter B. Rose 1996 232,000 144,658 244,844 -0- 23,945
President of Liberty Investment Group 1995 226,667 163,233 163,012 -0- 23,986
1994 211,334 95,780 177,546 -0- 23,656
W. Kenneth Hunt, III 1996 225,000 88,462 112,188 -0- 20,683
President of Liberty Life 1995 216,333 74,849 45,928 -0- 20,730
1994 178,334 38,320 425,277 -0- 20,266
</TABLE>
- ---------------
(1) References to "Cosmos" are to Cosmos Broadcasting Corporation and to
"Liberty Investment Group" are to a group of companies comprised of Liberty
Capital Advisors, Inc. and Liberty Properties Group, Inc. All companies
referenced are wholly-owned subsidiaries of Liberty.
(2) The aggregate restricted shareholdings at December 31, 1996 for each
individual named in the Summary Compensation Table were as follows: James
M. Keelor -- 25,065 shares valued at $983,801; H. Ray Eanes -- 34,180
shares valued at $1,341,565; Hayne Hipp -- 95,600 shares valued at
$3,752,300; Porter B. Rose -- 22,112 shares valued at $867,896; and W.
Kenneth Hunt, III -- 17,496 shares valued at $686,718. Dividends are paid
on restricted stock at the same rate as paid on all outstanding shares of
the Company's Common Stock.
(3) No stock options were granted to or exercised by any of the Senior
Executives during 1996.
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<PAGE> 9
(4) "All Other Compensation" was comprised of the following items during 1996
(the last completed fiscal year): a.) the full dollar value of the entire
premiums paid by the Company on behalf of the named individuals for split
dollar life insurance policies: James M. Keelor -- $7,500, Hayne
Hipp -- $6,798, Porter B. Rose -- $7,000, and W. Kenneth Hunt,
III -- $3,738; b.) Company contributions under the 401(k) Thrift Plan for
each named individual: James M. Keelor -- $4,500, H. Ray Eanes -- $4,500,
Hayne Hipp -- $4,500, Porter B. Rose -- $4,500, and W. Kenneth Hunt,
III -- $4,500; and c.) Company contributions allocated to each named
individual pursuant to the profit sharing plan: James M. Keelor -- $9,945,
H. Ray Eanes -- $12,445, Hayne Hipp -- $12,445, Porter B. Rose -- $12,445,
and W. Kenneth Hunt, III -- $12,445.
PENSION PLAN TABLE
The following table shows estimated annual benefits payable after
retirement to a participant covered by the Supplemental Retirement Income Plan
at its termination on December 31, 1984:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ -------- -------- -------- ----------
<C> <C> <C> <C> <C>
$100,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000
150,000 45,000 60,000 75,000 90,000
200,000 60,000 80,000 100,000 120,000
250,000 75,000 100,000 125,000 150,000
300,000 90,000 120,000 150,000 180,000
350,000 105,000 140,000 175,000 210,000
400,000 120,000 160,000 200,000 240,000
450,000 125,000 180,000 225,000 270,000
500,000 150,000 200,000 250,000 300,000
550,000 165,000 220,000 275,000 330,000
600,000 180,000 240,000 300,000 360,000
</TABLE>
A participant's remuneration covered by the Supplemental Retirement Income
Plan is his or her average salary and bonus (as reported in the Summary
Compensation Table) during the three consecutive years of the final five years
of employment which will produce the highest average. Estimated annual benefits
under the Supplemental Retirement Income Plan as listed in the table would be
reduced by Social Security benefits and any benefits received under the 401(k)
Thrift Plan resulting from employer contributions and under the Retirement Plan,
any annuity contract or any other qualified profit sharing or pension plan for
which the Company provides the consideration. It is assumed that the
participant's account balances under the 401(k) Thrift Plan resulting from
employer contributions and under the Retirement Plan and any other qualified
profit sharing or pension plans for which the Company provided the compensation
would be used to purchase a single life annuity on the employee's retirement
date. As of December 31, 1984, the termination date of the Supplemental
Retirement Income Plan, the years of service for each of the persons listed in
the Summary Compensation Table are as follows: Hayne Hipp -- 15 years, W.
Kenneth Hunt, III -- 4 years, James M. Keelor -- 11 years, and Porter B. Rose
- -16 years.
6
<PAGE> 10
DIRECTORS COMPENSATION
Each Director who is not also an officer of Liberty or one of its
subsidiaries receives $16,000 annual compensation, plus $2,000 for each meeting
of the Board which he attends. Travel expenses incurred by a Director in
attending a meeting of the Board or a Committee are also reimbursed.
The Compensation Committee Report on Executive Compensation and the
performance graph which follow shall not be deemed to be incorporated by
reference into any filing made by the Company under the Securities Act of 1933
or the Securities Exchange Act of 1934, notwithstanding any general statement
contained in any such filing incorporating this proxy statement by reference,
except to the extent the Company incorporates such Report and graph by specific
reference.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is currently composed of Messrs. William O.
McCoy, Chairman, Eugene E. Stone, IV, and John H. Mullin, III, all of whom are
non-employee directors. The Committee establishes the salaries and other forms
of compensation for executive officers of the Company and its subsidiaries. It
also administers the Performance Incentive Compensation Program for such
executive officers and grants benefits under such Program. Set forth below is a
report of the Compensation Committee addressing the Company's compensation
policies for 1996 as they affected the Company's executive officers, including
Hayne Hipp and Messrs. Eanes, Hunt, Keelor and Rose, the four executive officers
other than Mr. Hipp who were the Company's most highly paid executives
(collectively with Mr. Hipp, the "Senior Executives") during 1996.
Policies. The Compensation Committee's executive compensation policies are
designed to:
- Pay for performance by basing a substantial portion of annual
compensation on corporate, business unit and individual performance;
- Motivate executive officers to achieve strategic business objectives and
reward them for achievements;
- Align the interests of executives with the long-term interests of the
shareholders through stock option, restricted stock and other stock-based
awards; and
- Provide pay scales and compensation plans which are comparable to those
offered by other companies in the insurance and broadcasting industries,
thus allowing the Company to compete for and retain talented executives
who are critical to the Company's performance.
At present, the executive compensation program is composed of annual
incentive cash bonuses, long-term incentive stock options and restricted stock
grants, and salary and benefits generally available to executives in the
insurance and broadcasting industries. The incentive programs are designed to
reward participants on the basis of individual and corporate performance that
benefit the Company and its shareholders. The Committee believes that it is
desirable for executive compensation to be deductible for federal income tax
purposes, to the extent that achieving deductibility is practicable, consistent
with the Company's overall objectives, and in the best interests of the Company
and its shareholders. Accordingly, the Committee may from time to time take
appropriate action intended to qualify compensation as "performance based" for
tax deductibility as within the meaning of Section 162(m)of the Internal Revenue
Code. As discussed in Item 3 of this proxy statement, the Company is seeking
shareholder approval of amendments to the Performance Incentive Compensation
Program so that awards under the Program qualify as "performance based"
compensation under Section 162(m). The loss of deduction generally applies only
to compensation that could otherwise be deducted in a taxable year, which
excludes certain compensation deferred into another taxable year. The Chief
Executive
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<PAGE> 11
Officer deferred income in 1996, and the Company does not expect that Section
162(m) will limit the deductibility of his compensation.
Comparability. The Committee annually reviews the executive compensation
program including an analysis of competitive market data. This data compares the
Company's compensation practices to those of groups of comparator companies that
have business operations in the insurance and broadcasting industries and that
are similar in size in terms of revenues and assets. Salaries are generally
targeted at the 50th percentile of the salaries of comparable positions at the
comparator companies, and in 1996 most of the executive officers received
salaries equal to this level. The opportunity for executive officers to earn
compensation in excess of the 50th percentile is provided by the annual
performance-based bonus plan and the long-term incentive stock option and
restricted stock plan. The Chief Executive Officer's 1996 salary was below the
median level. The Performance Graph in this proxy statement displays, in
addition to the Company and the S&P 500, the Dow Jones Media and the Dow Jones
Life Insurance indices. These indices are comprised of a broad range of
broadcasting and insurance companies, including those companies in the
comparator groups used for compensation purposes.
Annual Performance Incentive. The Compensation Committee's emphasis on
tying pay to corporate, business unit and individual performance is reflected in
the incentive bonuses awarded pursuant to the 1996 Annual Management Bonus Plan
(the "Bonus Plan"). The Bonus Plan provided for cash bonus awards to executive
officers based on the 1996 actual versus target earnings performance of the
Company and its major business units and various other individual or operating
measures tailored to an individual executive's area of responsibility.
The Bonus Plan established separate target bonus pools for the Company and
each of its major business units. Bonuses are determined primarily by the
achievement of the Company's return on shareholders' equity target. As Company
earnings and shareholder value increases, bonus payouts increase proportionally.
The target awards to be paid to the executive officers from the bonus pools
reflected the Committee's subjective judgment as to the extent to which the
participant could contribute to the achievement of the Company's financial
goals. Threshold actual earnings, which varied among the Company and its
business units, were required before an executive officer became eligible for a
bonus. No bonuses would have been awarded to officers of the Company if the
actual earnings of the Company had been lower than target earnings of the
Company by 5%. No bonuses would have been awarded to officers of the insurance
business unit if its actual earnings had been lower than its target earnings by
7%. Similarly, no bonuses would have been awarded to officers of the
broadcasting subsidiary if actual broadcasting earnings had been lower than its
target earnings by 10%. Thresholds at the indicated percentages were established
in order to level the effect on the bonus pools of year-to-year earnings
volatility due to acquisitions, divestitures and cyclical broadcasting revenues.
The bonus awards paid to the Senior Executives ranged from 75% to 411% of
target awards that would have been paid if the entire target bonus pool had been
distributed. The Chief Executive Officer's bonus award was 50% of his target
award. 59% of combined salary and bonus paid to the Senior Executives in 1996
was derived from the performance based bonus. 21% of combined salary and bonus
paid to the Chief Executive Officer was derived from performance based bonus.
Long-term Performance Incentive. The Company's Performance Incentive
Compensation Program (the "Program") is designed to align a significant portion
of the executive compensation program with shareholder
8
<PAGE> 12
interests. Although the proposed amendments to the Program will authorize
additional types of stock-based awards, the Program currently permits the
granting of two types of stock-based awards:
- Stock Option. A right vesting over a period of years as established by
the Compensation Committee and terminating after ten years to purchase
shares of Common Stock at the current market value as of the date the
option is granted; and
- Restricted Stock. Shares of Common Stock which the recipient cannot sell
or otherwise dispose of until a restriction period lapses and which are
forfeited if the recipient terminates employment for any reason other than
retirement, disability or death prior to the lapse of the restriction
period.
In granting restricted stock in 1996 the Committee utilized a formula tied
to the amount of bonus earned by an executive officer under the prior year's
Bonus Plan and did not place emphasis on previous grants. In addition, the
Committee awarded grants of restricted stock to some executive officers to
reflect increased responsibilities or superior performance over a period of
years. Senior Executives, other than the Chief Executive Officer, were awarded
restricted stock having a value as of the date of the award equal to 1.0 to 1.5
times the Senior Executive's cash bonus paid pursuant to the 1995 Bonus Plan.
The value of the restricted stock grant equaled market value of the stock
underlying the restricted stock grant as of the date of the award.
Salaries. Executive officers were granted base salary increases effective
May 1, 1996 after evaluating executives' levels of performance, responsibility
and internal equity issues, and after evaluating the range of salaries paid by
the comparator companies.
Chief Executive Officer. At its May 7, 1996 meeting, the Committee
reviewed the competitive salary and bonus market data and noted that the Chief
Executive's base salary combined with his 1996 annual bonus award was below the
50th percentile of salaries and bonuses paid by the comparator companies.
Evaluating the competitive total compensation market data for the comparator
companies, the Committee determined that a restricted stock grant of 30,000
shares together with a salary increase of $50,000 would be appropriate and
within the range of total compensation paid by the comparator companies.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:
Eugene E. Stone, IV William O. McCoy, Chairman John H. Mullin, III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996 there were no interlocking relationships between the Company's
executive officers and its directors.
CERTAIN TRANSACTIONS
Edward E. Crutchfield, Chairman and Chief Executive Officer of First Union
Corporation, is a Director of Liberty. Liberty Life writes mortgage protection
policies for customers of First Union Insurance Group, a subsidiary of First
Union Corporation. As of December 31, 1996, annualized insurance premiums in
force for these policies were approximately $785,854. Effective March 21, 1995,
Liberty entered into a Credit Agreement with a syndicate of banks pursuant to
which Liberty could borrow up to $375 million. First Union National Bank of
North Carolina was among the banks participating in the syndicate of banks and
its portion of the total debt at December 31, 1996 was $21.0 million.
William B. Timmerman is President of SCANA Corporation, an affiliate of
South Carolina Electric and Gas Company, and is a nominee for Director of
Liberty. Liberty Life writes universal life insurance policies for
9
<PAGE> 13
employees of South Carolina Electric and Gas Company. Premiums and interest paid
on policy loans on these policies totaled approximately $357,800 during 1996.
Liberty Life entered into mortgage loan transactions of $1,640,000 to Top
Notch Retail Limited Partnership during 1992 and of $1,000,000 to PhotoMarker II
during 1996. The principals for each of these transactions include children of
Buck Mickel; and collectively, their ownership interest in each transaction
exceeds 10%. At December 31, 1996, the balance on the Top Notch Retail loan was
$1,206,937 and the balance on the PhotoMarker II loan was $988,590.
Management believes that the terms of the arrangements described in this
"Certain Transactions" section are as favorable to Liberty as are similar
transactions between unrelated parties.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS AND
CHANGE-OF-CONTROL ARRANGEMENTS
On May 20, 1994, H. Ray Eanes became the Senior Vice President, Treasurer
and Chief Financial Officer of Liberty pursuant to an employment agreement which
expires on December 31, 1999. Mr. Eanes' initial base salary under the agreement
was $350,000 per year, subject to review and increase by the Compensation
Committee of the Board of Directors in subsequent years as appropriate,
decreasing to $100,000 in the final two years of the term of the agreement. For
1997 the Compensation Committee has increased Mr. Eanes' salary to $388,500. He
is also entitled to receive an annual bonus of a minimum of 50% of base salary
determined in accordance with the Bonus Plan and an award of restricted stock
under the Program at the discretion of the Compensation Committee. In January,
1997, W. Kenneth Hunt, III entered into a one-year employment agreement
terminating on December 31, 1997. Pursuant to this agreement, Mr. Hunt is
entitled to a base salary of $225,000 and benefits of the type available to all
Company employees.
10
<PAGE> 14
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The Performance Graph below compares cumulative, five-year shareholder
returns on an indexed basis with the S&P 500 Stock Index, the Dow Jones Life
Insurance Index and the Dow Jones Media Index.
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE RETURN*
AMONG THE LIBERTY CORPORATION, THE S&P 500 INDEX, THE DOW JONES
LIFE INSURANCE INDEX AND THE DOW JONES MEDIA INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LIBERTY S&P 500 DOW JONES LIFE DOW JONES
(FISCAL YEAR COVERED) CORPORATION MEDIA
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 130 108 131 118
1993 114 118 130 143
1994 122 120 117 137
1995 166 165 162 197
1996 197 203 215 203
</TABLE>
* Assumes $100 invested on December 31, 1991 in Stock or Index,
including reinvestment of dividends. Fiscal year ending December 31.
11
<PAGE> 15
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table shows as of January 31, 1997, the shares of Liberty
Common Stock and Liberty Preferred Stock beneficially owned (as that term is
defined by Rule 13d-3 issued by the SEC under the Securities Exchange Act of
1934) by all persons who beneficially own more than 5% of the shares of each
such class of Liberty stock. Hayne Hipp and John B. Hipp are brothers. Jane Gage
Hipp Caulder, Mary Ladson Hipp Haddow, Edward F. Hipp, H. Neel Hipp, Jr. and
William F. Hipp are brothers and sisters. Jo Love Little, James S. Love, III and
Mary E. McMillan are brother and sisters.
<TABLE>
<CAPTION>
NATURE AND AMOUNT OF
BENEFICIAL OWNERSHIP
----------------------------------------------
SOLE VOTING SHARED VOTING TOTAL
AND/OR AND/OR SHARES PERCENTAGE PERCENTAGE
INVESTMENT INVESTMENT BENEFICIALLY OF OF
NAME AND ADDRESS(1) POWER(2) POWER(3) OWNED COMMON PREFERRED
- ------------------- ------------ -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Jane Gage Hipp Caulder
Travelers Rest, SC............................... 157,138 1,394,606(4) 1,551,744 7.67% --
Mary Ladson Hipp Haddow
Atlanta, GA...................................... 131,769(5) 1,454,227(6) 1,585,996 7.84% --
Edward F. Hipp
Hendersonville, NC............................... 133,686 1,382,912(7) 1,516,598 7.50% --
H. Neel Hipp, Jr
Greenville, SC................................... 99,033(8) 1,603,560(9) 1,702,593 8.42% --
Hayne Hipp
Greenville, SC................................... 385,934(10) 2,495,608(11) 2,881,542 14.25% --
John B. Hipp
Atlanta, GA...................................... 16,598 1,141,733(12) 1,158,331 5.73% --
William F. Hipp
Atlanta, GA...................................... 115,020(13) 1,521,230(14) 1,636,250 8.09% --
Frances M. McCreery
Chagrin Falls, OH................................ 1,064,658(15) 7,200(16) 1,071,858 5.30% --
William R. Patterson
999 Peachtree Street, NE
Atlanta, GA 30309-3996........................... -0- 2,142,025(17) 2,142,025 10.59% --
Jo Love Little
#2 Birch Cove
Gulfport, MS 30503............................... 174,490(18) -0- 174,490 -- 9.39%
James S. Love, III
12137 Hickman Road
Biloxi, MS 39532................................. 176,045(18) -0- 176,045 -- 9.47%
Mary E. McMillan
1200 Meadowbrook, #34
Jackson, MS 39206................................ 171,224(18) -0- 171,224 -- 9.21%
The Mighty Mite Corporation
25165 Bickham Road
Jackson, LA 70748................................ 232,935(18) -0- 232,935 -- 12.53%
</TABLE>
- ---------------
(1) The mailing address for the individuals listed above, with the exception of
Mr. Patterson, Ms. Love, Mr. Love, Ms. McMillan and The Mighty Mite
Corporation is P. O. Box 789, Greenville, South Carolina 29602.
12
<PAGE> 16
(2) Except as otherwise indicated in these Notes, each person has sole voting
and investment power with respect to the designated shares.
(3) Shares shown in this column are included in the totals for more than one
person as follows: (a) Hayne Hipp shares voting and investment power with
John B. Hipp and other persons with respect to 741,535 shares; (b) Hayne
Hipp shares voting and investment power with William R. Patterson and other
persons with respect to 416,000 shares; (c) Jane Gage Hipp Caulder, Mary
Ladson Hipp Haddow, Edward F. Hipp, H. Neel Hipp, Jr. and William F. Hipp
share voting and investment power with William R. Patterson and each other
with respect to 1,373,392 shares; (d) Jane Gage Hipp Caulder, Mary Ladson
Hipp Haddow, Edward F. Hipp, H. Neel Hipp, Jr. and William F. Hipp share
voting and investment power with each other and another individual with
respect to 270,000 shares; (e) H. Neel Hipp, Jr. shares voting and
investment power with the spouse of each of his brothers and sisters with
respect to 65,477 shares; and (f) H. Neel Hipp, Jr. shares voting and
investment power with William F. Hipp and another individual with respect
to 70,830 shares. Except as otherwise indicated in these Notes, both voting
and investment power are shared with respect to the shares designated in
this column.
(4) Includes 10,045 shares held of record by her husband or by or for her minor
children and 11,837 shares held in trust for the benefit of her children of
which her husband serves as Co-Trustee. Jane Gage Hipp Caulder disclaims
beneficial ownership of the 14,950 shares held by her husband and in trust
for her children.
(5) Includes 2,200 shares held in trust for the benefit of her children of
which Mary Ladson Hipp Haddow serves as sole Trustee.
(6) Includes 1,568 shares held jointly with her husband, 59,357 shares held of
record by her husband or by or for her minor children and 25,362 shares
held in trust for the benefit of her children of which her husband serves
as Co-Trustee. Mary Ladson Hipp Haddow disclaims beneficial ownership of
the 40,881 shares held by her husband and in trust for her children.
(7) Includes 7,415 shares held of record by his wife or by or for his minor
children and 8,485 shares held in trust for the benefit of his children of
which his wife serves as Co-Trustee. Edward F. Hipp disclaims beneficial
ownership of these shares.
(8) Includes options to purchase 6,000 shares currently exercisable under
Liberty's Performance Incentive Compensation Program and 5,341 restricted
shares as to which he has sole voting but no investment power. Also
includes 14,300 shares held in trust for the benefit of his brother's
children of which he serves as sole Trustee.
(9) Includes 79,887 shares held of record by his wife or by or for his minor
children and 2,810 shares held in trust for the benefit of his children of
which he and his wife serve as Co-Trustees. H. Neel Hipp, Jr. disclaims
beneficial ownership of the 79,887 shares held by his wife or by or for his
minor children.
(10) Includes 95,600 restricted shares as to which he has sole voting power but
no investment power and 38,287 shares held in trust for the benefit of
charity and/or family and non-family members of which Hayne Hipp serves as
sole Trustee.
(11) Includes 12,045 shares held of record by his wife, 160,219 shares held in
trust for the benefit of his children and/or charity of which his wife
serves as Co-Trustee and 2,440 shares held by him as custodian.
(12) Includes 54,498 shares held of record by his minor children.
(13) Includes 1,740 shares held in trust for the benefit of his children of
which William F. Hipp serves as sole Trustee.
(14) Includes 62,927 shares held of record by his wife or by or for his minor
children and 19,793 shares held in trust for the benefit of his children of
which his wife serves as Co-Trustee. William F. Hipp disclaims beneficial
ownership of these shares.
13
<PAGE> 17
(15) Includes 100,000 shares held in trust for her benefit and for the benefit
of family members of which Frances M. McCreery serves as sole Trustee.
(16) Includes 800 shares held in trust for the benefit of her husband. Frances
M. McCreery disclaims beneficial ownership of these shares.
(17) Includes 2,142,025 shares for which shared voting power is held and
1,789,392 shares for which shared investment power is held.
(18) The shares shown as being owned by Jo Love Little, James S. Love, III and
Mary E. McMillan are shares of Liberty's Series 1995-A Preferred Stock; and
the shares shown as being owned by The Mighty Mite Corporation are shares
of Liberty's Series 1994-A Preferred Stock. Each share of Preferred Stock
entitles these holders to receive an equal number of shares of Liberty
Common Stock upon conversion of the shares of Preferred Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the shares of Liberty Common Stock owned
beneficially (as that term is defined by Rule 13d-3 issued by the SEC under the
Securities Exchange Act of 1934), unless otherwise indicated, by each Director
and nominee and by all executive officers and Directors of Liberty as a group on
January 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
SHAREHOLDER(1) OF COMMON STOCK OF COMMON STOCK
-------------- ---------------- ------------------
<S> <C> <C>
Rufus C. Barkley, Jr...................................... 3,908(2) .02%
Edward E. Crutchfield..................................... 2,000 .01%
H. Ray Eanes.............................................. 47,600(3) .24%
John R. Farmer............................................ 5,000 .02%
Lawrence M. Gressette, Jr................................. 1,000 .01%
Hayne Hipp................................................ 2,881,542(4) 14.25%
W. Kenneth Hunt, III...................................... 40,763(5) .20%
W. W. Johnson............................................. 800 .00%
James M. Keelor........................................... 75,396(6) .37%
William O. McCoy.......................................... 1,400 .01%
Buck Mickel............................................... 8,000 .04%
John H. Mullin, III....................................... 2,600(7) .01%
Benjamin F. Payton........................................ 200 .00%
J. Thurston Roach......................................... 2,000 .01%
Porter B. Rose............................................ 73,563(8) .36%
Eugene E. Stone, IV....................................... 1,000 .01%
William B. Timmerman...................................... 0 .00%
All Directors, Nominees for Director and Executive
Officers as a Group (21 persons)........................ 3,355,274(9) 16.59%
</TABLE>
- ---------------
(1) None of the Directors and executive officers is the beneficial owner of any
Preferred Stock or of any equity securities of any of Liberty's
subsidiaries. Except as otherwise indicated in these Notes, each of the
individuals named above has sole voting and investment power with respect
to the shares listed for such person.
14
<PAGE> 18
(2) Includes 200 shares held of record by his wife and 3,708 shares held by a
partnership of which a trust established for the benefit of his mother and
of which he serves as Co-Trustee is a general partner. Rufus C. Barkley,
Jr. disclaims beneficial ownership of these shares.
(3) Includes 34,180 restricted shares as to which he has sole voting power but
no investment power.
(4) See "Principal Holders of Voting Securities" table and Notes 3, 10 and 11
thereto for a more complete description of the nature and amount of
beneficial ownership by Hayne Hipp.
(5) Includes 17,496 restricted shares as to which he has sole voting power but
no investment power.
(6) Includes options to purchase 28,000 shares currently exercisable under
Liberty's Performance Incentive Compensation Program and 25,065 restricted
shares as to which he has sole voting power but no investment power.
(7) Includes 600 shares held in trust for the benefit of his children of which
John H. Mullin, III serves as Co-Trustee.
(8) Includes options to purchase 8,000 shares currently exercisable under
Liberty's Performance Incentive Compensation Program and 22,112 restricted
shares as to which he has sole voting power but no investment power.
(9) Includes options to purchase 76,800 shares currently exercisable under
Liberty's Performance Incentive Compensation Program and 238,844 restricted
shares as to which they have sole voting power but no investment power.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934 requires the Company's
Directors and executive officers and persons who own more than 10% of the
Company's Common Stock to file with the SEC and the New York Stock Exchange
various reports as to ownership of such Common Stock. Such persons are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on a review of the copies of
such forms furnished to the Company and written representations to the Company
that no other reports were required, all the applicable Section 16(a) filing
requirements were complied with during 1996.
ITEM 2. PROPOSAL TO AMEND THE RESTATED ARTICLES OF INCORPORATION REGARDING
DIRECTOR LIABILITIES
INTRODUCTION
The Board of Directors recommends that the shareholders consider and
approve a proposal to amend the Company's Restated Articles of Incorporation to
include a new Article 10. Proposed Article 10 would limit the personal liability
of the Company's directors to the Company or its shareholders for monetary
damages for certain breaches of fiduciary duty.
Proposed Article 10 is designed to implement the liability limitations
authorized by Section 33-2-102(e) the South Carolina Business Corporation Act
(the "SCBCA"). The SCBCA permits South Carolina corporations to include in their
Articles of Incorporation a provision limiting directors' liability for monetary
damages for certain breaches of their fiduciary duties, including their duty of
care. Section 33-2-102(e) is an enabling provision only. An amendment to the
Articles of Incorporation approved by the shareholders is required to effect the
permitted limitation on liability.
The Board of Directors believes that it is appropriate and advisable that
the shareholders adopt the proposed amendment to the Restated Articles of
Incorporation and recommends that the shareholders vote to approve and adopt the
proposed amendment. If approved, the proposed amendment will be delivered to the
15
<PAGE> 19
Secretary of State of South Carolina for filing as soon thereafter as practical
and will become effective upon filing. The text of the proposed Article 10,
which is described in greater detail below, is set forth as Exhibit A to this
proxy statement.
BACKGROUND AND REASONS FOR PROPOSED AMENDMENT
In performing their duties, directors are obligated as fiduciaries to
exercise their business judgment and act in what they reasonably determine in
good faith, after appropriate consideration, to be in the best interests of the
corporation and its shareholders. Decisions made on that basis are protected by
the so-called "business judgment rule" and should not be second-guessed by a
court in the event of lawsuit challenging such decisions. The business judgment
rule is designed to protect directors from personal liability to the corporation
or its shareholders when their business decisions are subsequently challenged.
However, due to the expense of defending lawsuits, the frequency with which
unwarranted litigation is brought against directors and the inevitable
uncertainties with respect to the application of the business judgment rule to
particular facts and circumstances, as a practical matter, directors and
officers of a corporation rely on indemnity from, and insurance procured by, the
corporation they serve to provide a financial backstop in the event of such
expenses or unforeseen liability. The SCBCA has for some time specifically
permitted corporations to provide indemnity and procure insurance for its
directors and officers, and the Company's Bylaws provide for indemnification of
officers and directors to the extent permitted under South Carolina law, without
adoption of the proposed amendment to the Articles of Incorporation. Without
adoption of the proposed amendment to the Articles of Incorporation, South
Carolina law does not authorize indemnification for judgments against directors
in derivative actions brought by shareholders in the right of the corporation.
Consistent with South Carolina law, the Company's Bylaws also authorize the
Company to purchase insurance to protect its officers and directors.
Recent changes in the market for directors and officers liability insurance
are making it increasingly more difficult, and in some cases, impossible, for
directors and officers of many corporations to obtain any meaningful liability
insurance coverage. Insurance carriers have in certain cases declined to renew
existing directors and officers liability policies, or have increased premiums
to such an extent that the cost of obtaining such insurance becomes prohibitive.
Moreover, current policies often exclude coverage for areas where the service of
qualified independent directors is most needed. For example, many policies do
not cover liabilities or expenses arising from directors and officers activities
in response to attempts to take over a corporation. Such limitations on the
scope of insurance coverage, along with high deductibles and low limits of
liability, have undermined meaningful directors and officers liability insurance
coverage.
The increasing difficulty in obtaining meaningful directors and officers
liability insurance is attributable to a number of factors, many of which are
affecting the liability insurance industry generally, including the granting of
unprecedented damage awards. Although the Company has up to now been able to
obtain insurance coverage for directors and officers on a basis which it
considered acceptable, the Company would like to avoid the increase in premiums
and limitations in the scope of coverage which is symptomatic of the problems
generally in the liability insurance industry.
According to published sources, the inability of corporations to provide
meaningful director liability insurance has had a damaging effect on the ability
of public corporations to recruit and retain corporate directors. Although the
Company has not directly experienced this problem, the Company's Board of
Directors believes that the Company should take every possible step to ensure
that the Company will continue to be able to attract and retain the best
possible directors.
16
<PAGE> 20
The proposed Article 10 is intended to provide directors with substitute
assurance under certain circumstances against potentially unreasonable personal
liability should the Company experience reduced insurance coverage due to
increased exceptions and for reduced dollar limits. Proposed Article 10 is
intended to reduce the risks incident to serving as a director by providing
that, subject to the limitations described below, directors would not have
monetary liability to the Company or its shareholders for breaches of their
fiduciary duties of care. The primary purpose of the proposed amendment and the
reason it is being recommended to shareholders is to ensure that the Company
will continue to be able to attract and retain individuals of the highest
quality and ability to serve as its directors and that such individuals will
feel free to continue to make entrepreneurial decisions on behalf of the Company
without undue fear of personal liability. There has not been any litigation
threatened or brought against the Company's Board of Directors for any breach of
their fiduciary duties to the Company. Thus, the proposed Article 10 is a
response to conditions facing corporate directors generally, including the
increased difficulty in obtaining the insurance coverage traditionally provided
in the past, and is not a response to any recent litigation involving the
Company's directors. Moreover, no director presently in office has indicated an
intention to resign if the proposed Article 10 is not adopted.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Proposed Article 10 provides that a director of the Company will not be
personally liable to the Company or its shareholders for monetary damages for
breach of the director's duty of care or other duty as a director except for
liability (a) for any breach of the director's duty of loyalty to the Company or
its shareholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) for approving a
payment of a dividend or a stock repurchase in violation of Section 33-8-330 of
the SCBCA; or (d) for any transaction from which the director derived an
improper personal benefit. If the Code is amended after approval by the
shareholders of the proposed Article 10 to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company would be eliminated or limited to the fullest
extent permitted by the SCBCA, as so amended.
Under Section 33-8-300(a) of the SCBCA, a director must discharge his
duties as a director in good faith and "with the care an ordinarily prudent
person in a like position would exercise under similar circumstances." The SCBCA
provides that a director who performs his duties in compliance with these
standards will not be liable for actions taken as a director or for failure to
take any action. Absent adoption of proposed Article 10, however, directors
could be held liable for certain actions or inactions if they fail to meet the
above-described standard of care. Subject to the requirement of good faith and
the other limitations listed earlier, proposed Article 10, if adopted by the
shareholders, would absolve directors for any monetary liability arising from
actions or failures to act in violation of their duties to the Company and its
shareholders, provided that the director was not grossly negligent. Accordingly,
if proposed Article 10 is adopted, shareholders will be giving up a cause of
action against the directors for certain breaches of their fiduciary duty. In
this regard, the relief from liability by South Carolina law and proposed
Article 10 is more limited than that allowed by the laws in certain other states
which allow directors to be absolved even if the director is grossly negligent.
Directors would remain liable for improper appropriation of the Company's
business opportunities, acts or omissions which are not in good faith or which
involve intentional misconduct, gross negligence or a knowing violation of law,
certain matters specified in Section 33-8-330 of the SCBCA and transactions from
which a director derives improper personal benefit. Proposed Article 10 would
not eliminate or limit liability of directors arising in connection with causes
of action brought under federal securities laws.
17
<PAGE> 21
The directors have a personal interest in having the limited liability
provision adopted, at the potential expense of the shareholders who might
otherwise seek and obtain monetary damages from the directors for breach of
their duty of care. Proposed Article 10 probably will reduce the likelihood of
derivative litigation against directors and may discourage shareholders from
bringing a lawsuit against directors for breach of their duty of care even
though such an action, if successful, might otherwise have benefited the Company
and its shareholders. The directors believe, however, that any such potential
disadvantage to the shareholders is outweighed by the benefits that proposed
Article 10 will provide by encouraging well qualified people to serve as
directors of the Company and to take legitimate business risks, as directors
have historically been free to do, without excessive fear of personal liability.
Although proposed Article 10 would provide directors with protection from
awards of monetary damages for certain breaches of the duty of care or other
duties as a director, it does not eliminate the directors' duties, including the
duty of care. Accordingly, proposed Article 10 would not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of duties, including the duty of care. Furthermore,
liabilities which may arise out of acts of omissions occurring prior to the
adoption and effectiveness of proposed Article 10 would not be affected, so that
directors would remain potentially liable for monetary damages in connection
with any such acts or omissions. In addition, proposed Article 10 would apply
only to claims against a director arising out of his role as a director, and
would not apply, if he is also an officer, to his role as an officer or in any
capacity other than that of a director. The limitation of liability would only
apply with respect to claims by the Company (including derivative actions) or
its shareholders and does not extend to claims by third parties.
VOTE REQUIRED
Under the SCBCA, the affirmative vote of the holders of two-thirds of the
outstanding stock of the Company entitled to vote at the Annual Meeting is
required to adopt the proposed amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE AMENDMENT TO LIMIT DIRECTOR LIABILITY.
ITEM 3. PROPOSAL TO APPROVE THE MATERIAL AMENDMENTS TO, AND THE ELIGIBLE
PARTICIPANTS UNDER, THE PERFORMANCE INCENTIVE COMPENSATION PROGRAM
On December 26, 1996 and February 4, 1997, the Board of Directors and the
Compensation Committee approved various amendments to the Company's Performance
Incentive Compensation Program (the "Program"). Except for one immaterial
modification not requiring shareholder approval, the amendments (the "Material
Amendments") were adopted subject to shareholder approval and are described
below under the caption "Material Amendments and Eligible Participants." The
Board of Directors and the Compensation Committee consider the Program to be
helpful in attracting and retaining the services of valuable officers and key
employees of the Company (which includes its subsidiaries) and providing
significant incentives for high levels of performance. Under the Material
Amendments, awards also may be granted to non-employee directors of the Company,
which will facilitate the use of stock-based compensation for directors. The
Program has been in effect since initially approved by the shareholders in 1983.
In 1990, the shareholders approved an extension in the term of the Program and
an increase in the number of shares subject to the Program.
18
<PAGE> 22
The following discussion first summarizes the Program as a whole, as
modified by the Material Amendments (the "Amended Program") and then focuses on
the Material Amendments and the reasons for recommending that the shareholders
approve them. This summary is qualified by reference to the Amended Program
attached as Exhibit B to this proxy statement. As explained under the caption
"Material Amendments," the shareholders are being asked to approve changes:
(1) to comply with applicable requirements under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), in order to permit
the Company to claim tax deductions for "performance-based compensation" in
excess of $1 million to certain highly compensated executives;
(2) to give the Compensation Committee more flexibility in granting
new types of awards (unrestricted shares and phantom stock units) and in
defining the terms of certain existing types of awards;
(3) to permit awards under the Program to be made to non-employee
directors of the Company and its subsidiaries, including members of the
Compensation Committee who administer and grant awards under the Program;
(4) to further extend the term of the Program and increase the number
of shares subject to awards under the Program (in lieu of adopting a new
plan);
(5) to delete an existing limit that no more than 20% of the shares
subject to the Program may be acquired by any one participant because more
specific limits will be imposed for all future awards in order to comply
with Section 162(m) of the Code;
(6) to authorize the Committee to provide for accelerated vesting of
awards upon a change in control; and
(7) to provide more flexibility to amend the Program without
shareholder approval, as permitted by recent rule changes adopted by the
Securities and Exchange Commission.
In addition to the Material Amendments, to comply with Code Section 162(m),
the shareholders also are being asked to approve the officers, key employees and
directors of the Company and its subsidiaries as the group eligible to
participate in the Program.
GENERAL. The Amended Program will continue to be administered by the
Compensation Committee (the "Committee"), which has been appointed by the Board
of Directors for this purpose. Although not explicitly required by the terms of
the Amended Program, the Company intends that the Committee will continue to be
composed of "non-employee directors" as that term is defined in Rule 16b-3
adopted by the Securities and Exchange Commission ("SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and "outside directors" as
that term is used in the regulations adopted by the Internal Revenue Service
("IRS") under Section 162(m) of the Code. The Committee is authorized to
establish rules and regulations for administration of the Amended Program and to
make determinations under and interpretations of the Amended Program and the
Awards granted thereunder. The Amended Program provides for grants of incentive
stock options within the meaning of Section 422 of the Code, nonstatutory stock
options, performance units, restricted share awards, unrestricted share awards,
phantom stock units, and any combination of the foregoing (collectively,
"Awards"). The Amended Program will expire on May 6, 2007, except with respect
to Awards then outstanding.
ELIGIBILITY TO PARTICIPATE. Officers and key employees of the Company and
its subsidiaries are eligible to participate in the Program, and non-employee
directors of the Company and its subsidiaries also will be
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eligible to participate under the Amended Program. As of January 31, 1997,
sixty-seven officers and key employees were eligible to participate in the
Program. The Company and its subsidiaries currently have thirteen non-employee
directors who will become eligible to participate in the Amended Program upon
shareholder approval of the Material Amendments. All other directors of the
Company's subsidiaries are also employees already eligible to participate in the
Program. The Committee's determinations as to which officers, key employees and
directors will receive Awards will be made on the basis of such individuals'
responsibilities and present and potential contributions to the success of the
Company and its subsidiaries.
SHARES AVAILABLE FOR ISSUANCE UNDER THE AMENDED PROGRAM. A total of
4,300,000 shares of Common Stock may be subject to Awards, including Awards
previously granted and previously settled, all as adjusted in accordance with
the terms of the Program. The shares of Common Stock issuable under the Program
may be authorized but unissued shares or shares reacquired by the Company,
including shares purchased in the open market. At March 14, 1997, the closing
market price of the Company's Common Stock on the New York Stock Exchange was
$42.75 per share.
Per Participant Limits. More specific per participant limits are included
in the Material Amendments to replace the previous restriction that no
participant may acquire more than 20% of the shares subject to the Program.
Subject to antidilution adjustments, a participant may not be granted options on
or after May 6, 1997 (or prior to that date if their grant was conditioned on
shareholder approval of the Material Amendments), covering more than 400,000
shares of Common Stock during a single calendar year. Subject to antidilution
adjustments, for other stock-based Awards granted on or after May 6, 1997 (or
prior to that date if their grant was conditioned on shareholder approval of the
Material Amendments), total grants cannot be made to a single participant with
respect to more than 100,000 shares in any calendar year. Awards that are not
stock-based and are granted on or after May 6, 1997 may not result in a payment
to a single participant in excess of $2,000,000 in any calendar year. For Awards
(other than stock options) granted on or after May 6, 1997, the total payments
or other settlements cannot be made to a single participant in excess of
$5,000,000 in cash and 1,000,000 shares in any calendar year.
Effect of Forfeitures, Cancellations, Etc. After May 6, 1997, if any Award
is cancelled, is forfeited, expires or terminates without exercise or is settled
in cash instead of Common Stock and if any Award or any shares subject to an
Award are exchanged for or cancelled in connection with the grant of new Awards,
the shares of Common Stock so affected will be restored to the total shares
available under the Amended Program. For any such event or circumstance that
occurs after May 6, 1997, the shares of Common Stock so affected will be counted
against the applicable per participant limits described above (although not
against the aggregate limits).
STOCK OPTIONS. Options may be granted at any time for the purchase of
shares of the Company's Common Stock. The Committee may grant options to
officers, key employees and directors of the Company and its subsidiaries for
such number of shares as the Committee designates, subject to the limits
described above. No incentive stock options, however, may be granted to any
non-employee directors. In addition, the fair market value of the shares subject
to one or more incentive stock options first exercisable in any calendar year
may not exceed $100,000 (determined at grant date and without regard to any
restriction other than a restriction which by its terms will never lapse).
The option price under each option will be at least 100% of the fair market
value of the shares on the date such option is granted, as determined by the
Committee. If an incentive stock option is granted to an individual who, at the
time of the grant, owns stock having more than 10% of the total combined voting
power of the Company or any of its subsidiaries (a "10% shareholder"), the
exercise price of such incentive stock
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option must be at least 110% of the fair market value of the shares on the date
of grant, as determined by the Committee. Upon exercise of any option, the
option price must be paid in full. Payment must be made in cash or, if permitted
by the Committee, may be made in Common Stock valued at its fair market value on
the date of exercise or, at the discretion of the Committee, in any combination
of the foregoing.
Each option will become exercisable in such amounts and at such times as
the Committee may prescribe. No option may be exercisable more than ten years
after the date of the grant. For any incentive stock options granted to a 10%
shareholder, the maximum term is five years instead of ten. Options are not
transferable except by will or the laws of descent and distribution and, during
the lifetime of the employee to whom granted, may be exercised only by such
employee.
Subject to the exceptions noted below, each option may be exercised only
during the continuance of the optionee's employment with (or service as a
non-employee director of) the Company or one of its subsidiaries. For incentive
stock options granted after 1997, unless the option agreement is amended by the
Company and the participant to treat it as a nonstatutory option, the option may
be exercised only for three months after termination of employment (or for one
year after termination of employment due to disability or if the participant
dies within three months of terminating employment, or for three years after
termination of employment due to death). Nonstatutory stock options granted
after 1996 may be exercised for up to one year after termination of employment
for any reason. Subject to the shorter limits described above for the retirement
or disability of a holder of incentive stock options granted after 1996, if an
optionee's employment (or service as a non-employee director) is terminated due
to death, disability or retirement at normal retirement age under the Retirement
Plan of the Company or of any applicable subsidiary (or any applicable
retirement policy for non-employee directors), any options then exercisable will
remain exercisable by such optionee, or, if applicable, a beneficiary or legal
representative, for three years from the date of such termination of employment
or until expiration of the option, whichever occurs first.
PERFORMANCE UNITS. Performance units may be awarded from time to time at
the discretion of the Committee. The Committee is authorized, when making any
Award of performance units, to assign a value to the performance units and
define the terms and conditions as to their values and the basis on which such
values will be determined. Performance standards will be established by the
Committee each time performance units are granted. At the time the performance
standards are met (and subject to the Committee certification required by
Section 10 of the Program in the case of Qualifying Awards), performance units
will be paid in cash equal to the appropriate amount earned and established by
the Committee.
Unless waived in the circumstances described below, these standards must be
met during the continuance of the participant's employment with the Company
prior to any payment with respect to such units. If a participant's employment
(or service as a non-employee director) is terminated due to death, disability
or retirement at normal retirement age under the Retirement Plan of the Company
or of any applicable subsidiary (or any applicable retirement policy for
non-employee directors), the Committee shall have complete discretion to waive
all or part of the employment and performance standard requirements for payment
in respect of one or more performance units, except as otherwise provided for
any performance units that constitute Qualifying Awards. Performance units may
not be transferred except by will or the laws of descent and distribution and,
during the lifetime of the participant to whom awarded, payment may be made with
respect to such performance units only to the participant or his personal
representative.
RESTRICTED SHARES. The Amended Program authorizes the Committee to grant
restricted shares with any restriction period (the "Restriction Period") that
the Committee deems appropriate. The Committee also has the discretion to set
vesting schedules and vesting conditions for such Awards. During the applicable
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Restriction Period, restricted shares may not be sold, assigned, transferred,
pledged or otherwise encumbered. In addition to the requirement of continued
employment (or service as a non-employee director) during the Restriction
Period, the Committee may condition vesting of restricted shares on the
satisfaction of performance goals within certain time periods. The time periods
in which performance goals must be satisfied may be the same as the applicable
vesting schedule based on employment (or service as a non-employee director) or
they may be shorter. As a result, the applicable restrictions on transfer may
continue to apply to restricted shares after all performance goals have been
satisfied. During the applicable Restriction Period, the participant is entitled
to full dividend and voting rights in respect of the shares that are the subject
of the Award, unless and until the restricted shares are forfeited.
If a participant's employment (or service as a non-employee director)
terminates due to death, disability or retirement at normal retirement age under
the Retirement Plan of the Company or of any applicable subsidiary (or any
applicable retirement policy for directors), the restrictions imposed on any
restricted shares will terminate as of the date of such termination of
employment (or service as a non-employee director), except as otherwise provided
for any restricted shares that constitute Qualifying Awards. If a participant's
employment (or service as a non-employee director) terminates for any reason
other than as provided above, a participant will forfeit all rights in respect
of any restricted shares as of the date of such termination of employment (or
service as a non-employee director) subject to the exceptions described below.
For restricted share Awards prior to 1997, if there is a merger,
consolidation, sale of all or substantially all of the Company's assets, or
other corporate reorganization in which the Company is not the surviving
corporation, the restrictions then applicable to any restricted shares will
terminate as of the date of that event or such earlier date as the Committee may
determine. For restricted share Awards granted after 1996, the terms of the
particular Awards will govern the extent (if any) to which the restrictions on
those restricted shares may terminate as a result of any transaction described
above or in the event of any other change in control event.
PHANTOM STOCK UNITS. Under the Amended Program, the Committee may grant to
participants phantom stock units which represent an unfunded and unsecured
promise on the part of the Company to deliver to a participant stock, cash or a
combination of stock and cash equal to the value of a number of phantom shares
established by the Committee when granting the Award. Phantom stock units, like
restricted shares, will be subject to a Restriction Period that the Committee
deems appropriate. In addition to the requirement of continued employment (or
service as a non-employee director) during the Restriction Period, the Committee
may condition vesting of phantom stock units on the satisfaction of performance
goals within certain time periods, which may be the same as or shorter than the
applicable vesting schedule based on employment (or service as a non-employee
director).
Phantom stock units may be settled in stock, cash or some combination of
both. The Committee may determine whether the participant will receive stock or
cash, or may grant to the participant the right to make such an election. In
addition, the Committee may grant the participant the right to defer vesting or
payment of a phantom stock unit. The grant of a phantom stock Award does not
give the holder any rights as a shareholder with respect to the phantom shares
represented by the unit, but it will give the holder a right to receive
additional cash compensation equal to the amount of cash dividends payable with
respect to a corresponding number of actual shares of Common Stock. The Program
contemplates that the Company may from time to time establish one or more
grantor trusts administered by a financial institution, as trustee, and
contribute shares to any such trust to be used to satisfy the Company's
obligations under Awards. To the extent this is done with respect to phantom
stock units, participants may be given a right to direct the Trustee as to the
voting of a number of shares of Common Stock corresponding to their phantom
shares even though
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the participants have no rights as shareholders as a result of the grant of
phantom stock units. (See "Certain Plan Benefits" beginning on page 31 for a
contemplated use of this feature with respect to the Chief Executive Officer.)
If a participant's employment (or service as a non-employee director)
terminates due to death, disability or retirement at normal retirement age under
the Retirement Plan of the Company or of any applicable subsidiary (or any
applicable retirement policy for non-employee directors), the vesting conditions
imposed on phantom stock units will terminate as of the date of such termination
of employment (or service as a non-employee director), except as otherwise
provided for any phantom stock units that constitute Qualifying Awards. In the
event of termination of employment (or service as a non-employee director) for
any reason other than as provided above, a participant shall forfeit all rights
in respect of any unvested phantom stock units as of the date of such
termination of employment (or service as a non-employee director).
UNRESTRICTED SHARES. The Committee may from time to time in its discretion
grant Awards of unrestricted shares of Common Stock to officers, key employees
and directors as consideration for services rendered to the Company or its
subsidiaries. Without limiting the Committee's authority, it is contemplated
that Awards of unrestricted shares may be granted to non-employee directors in
lieu of or as a supplement to cash fees for services rendered as directors.
QUALIFYING AWARDS. The Committee may grant to any eligible participant in
the Program an Award designed to qualify as performance-based compensation under
Section 162(m) of the Code ("Qualifying Award"). A Qualifying Award may be a
stock option or an Award of restricted shares, phantom stock units or
performance units, provided that any Award of restricted shares, phantom stock
units or performance units is conditioned upon satisfaction within a set period
of time of performance goals established by the Committee in accordance with
Section 10(A) of the Program. Unless otherwise specified in writing by the
Committee, either at the time an Award is granted or at any time thereafter, all
Awards issued under the Program that are either stock options or other Awards as
to which the settlement or vesting of the Award is conditioned upon achievement
of performance goals established by the Committee in accordance with Section
10(A) of the Program, will be treated as Qualifying Awards. Awards of
unrestricted shares cannot be Qualifying Awards.
For all Qualifying Awards granted on or after May 6, 1997, these
performance goals must be based on any one or more (or any combination) of the
following business criteria: revenues, net income (before or after tax),
earnings, earnings per share, shareholders' equity, return on equity, assets,
return on assets, capital, return on capital, book value, economic value added,
operating margins, profit margins, cash flow, shareholder return, expenses,
sales or market share, expense management, return on investment, improvements in
capital structure, budget comparisons, profitability of an identifiable business
unit or product, or stock price of the Company. The performance goals for a
Qualifying Award also may be based on any of the foregoing business criteria
either: (1) before the effect of acquisitions, divestitures, accounting changes,
restructuring or other special charges or other extraordinary items or (2) after
giving effect to an adjustment to reflect any such transaction or extraordinary
item, to the extent, in each such case, the Committee specifies, when granting
the Award, that any such extraordinary items will be disregarded or that a
particular formula or other objective method will be used to make an appropriate
adjustment to reflect any such transaction or extraordinary item.
The foregoing objectives may be applicable to the Company as a whole, one
or more of its divisions, subsidiaries, business units, or business lines, or
any combination of the following. Such performance goals also may be based on
the attainment of specified levels of Company performance under one or more of
the measures described above relative to the performance of other businesses.
The Committee may require that payment of a Qualifying Award be subject to other
conditions, such as completion of a period of service, even
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if the performance goals specified in the Qualifying Awards are satisfied. The
Committee also has the discretion to reduce (but not to increase) some or all of
the amount that would otherwise be payable under the Qualifying Award upon
satisfaction of performance and other conditions.
If a participant's employment terminates due to death or disability, the
restrictions or other vesting conditions imposed on any Qualifying Award will
terminate as of the date of such termination of employment; but in that event,
the Committee may defer or accelerate the payment of such Award in its sole and
absolute discretion. If employment terminates for any reason other than as
provided above, a participant will forfeit, as of the date of such termination
of employment, all rights with respect to any shares represented by, and will
forfeit all rights to receive any other settlement of, all unvested Awards that
constitute Qualifying Awards.
CHANGE IN CONTROL EVENTS. The Committee may provide, when granting an
Award or at any time thereafter, whether and to what extent a "Change in Control
Event" will cause the restrictions imposed on any outstanding Awards to
terminate and such Awards to become fully exercisable, fully vested or fully
earned. A "Change in Control Event" is deemed to occur when: (1) a tender or
exchange offer has been made (other than by the Company, its subsidiaries or any
of their employee benefit plans) which, if completed, will cause the offeror to
become an "Acquiring Person" (as defined below), provided that the offeror
actually acquires shares of the Common Stock pursuant to the offer; (2) any
person or entity (other than the Company, its subsidiaries or any of their
employee benefit plans) becomes an Acquiring Person (other than in an
acquisition from the Company or in a transaction approved by the Incumbent
Board, as defined below); or (3) the directors who constitute the Incumbent
Board as of the relevant time fail to constitute at least a majority of the
Board of Directors. At any relevant time, a director will be deemed a member of
the Incumbent Board if that director either (a) served as a director of the
Company on February 4, 1997 or (b) was elected or nominated with the approval by
a majority of the Incumbent Board as then constituted (unless the individual's
initial assumption of office was in connection with an actual or threatened
election contest relating to the election of the Company's directors).
The Amended Program defines an "Acquiring Person" as any person or group of
affiliated or associated persons which, after February 4, 1997, becomes the
beneficial owner of 20% or more of either the Company's Common Stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors, except for any person
that beneficially owns 20% or more of either the Company's Common Stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors: (1) as a result of a
reduction in the number of shares of Common Stock outstanding due to the
Company's acquisition of its Common Stock; (2) as a result of: (a) a will or the
laws of descent and distribution, (b) the transfer of shares to any member of
the transferor's immediate family or to a trust for the benefit of a member of
the transferor's family (a "Transferee Trust"), (c) a divorce decree or
settlement or (d) the transfer of shares held on February 4, 1997 by any trust
or held at any time by Transferee Trust to any beneficiary of any such trust; or
(3) as a result of any acquisition by such person of shares pursuant to any
employee benefit plan of the Company or any of its subsidiaries.
ADJUSTMENT. The total number of shares subject to the Amended Program, the
maximum number of shares that may be acquired by any one participant, the number
of shares subject to outstanding Awards, and the exercise prices of outstanding
stock options will be adjusted by the Committee in the event of a merger,
reorganization, consolidation, recapitalization, stock dividend, spin-off, stock
split or other change in the corporate structure or other distribution of stock
or property (except ordinary cash dividends) affecting the Company's Common
Stock.
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TERM, AMENDMENTS AND DISCONTINUANCE. The Amended Program will terminate
with respect to the granting of Awards on May 6, 2007 (assuming shareholder
approval of the Material Amendments) unless terminated at an earlier date by the
Committee. The Committee may amend, suspend or discontinue the Amended Program.
The Committee may condition the effectiveness of any amendment on shareholder
approval to the extent the Committee determines that shareholder approval is
necessary or desirable to qualify for: certain tax deductions or other desired
treatment under Section 162(m) or other Sections of the Code and related
regulations of the IRS, all as amended from time to time; certain exemptions
under Section 16 of the Exchange Act and related rules adopted by the SEC, all
as amended from time to time; or any other desired exemption or treatment under
any applicable law or regulation. No such amendment may materially and adversely
affect the rights of any participant as to any then outstanding Award without
that participant's consent.
TAX WITHHOLDING. Prior to issuing stock or otherwise settling an Award,
the Company has the right to require any participant to remit to it any amounts
required to satisfy any applicable federal, state or local tax withholding
requirements with respect to such Award. Cash payments by the Company in
settlement of Awards will be net of the amounts necessary to satisfy applicable
withholding requirements (which generally will not be applicable to non-employee
directors). For Awards to be settled in shares of Common Stock, the participant
may elect to surrender, or otherwise authorize the Company to withhold, a number
of shares of Common Stock having a sufficient fair market value to satisfy the
amount of any taxes required to be withheld with respect to such Common Stock.
FEDERAL INCOME TAX CONSEQUENCES. As discussed above, the Amended Program,
which is not qualified under Section 401(a) of the Code, provides for the grant
to eligible officers, employees and non-employee directors of various types of
Awards. The following summary of tax consequences to the Company and
participants arising under the Program is necessarily general and is based on
present provisions of the Code, rulings and proposed regulations, all of which
are subject to future changes. In addition, state income tax laws may vary in
effect.
Incentive Stock Options. Under current federal tax laws, an optionee will
not recognize income from the grant or exercise of an incentive stock option for
ordinary income tax purposes. However, in computing an optionee's liability for
the alternative minimum tax, the optionee will have income at the date of
exercise equal to the difference between the fair market value of the shares
acquired and the option price paid for the shares. Assuming the optionee does
not sell or otherwise dispose of the stock acquired pursuant to the exercise of
an incentive stock option within two years from the date of grant of such option
or within one year after the exercise of such option, any amount received upon
the subsequent sale or disposition of such stock in excess of the optionee's tax
basis in such stock (generally, the option price of such stock) will be treated
as a long-term capital gain or loss.
If the optionee sells or otherwise disposes of the stock acquired upon
exercise of an incentive stock option within two years from the date of grant of
such option or within one year after the exercise of such option, such sale or
other disposition will constitute a "disqualifying disposition," and the
optionee will recognize ordinary income in an amount not exceeding the amount of
gain realized on the disposition. The Company is not entitled to a deduction
with respect to an incentive stock option unless there is a disqualifying
disposition of shares received upon exercise of such option.
Nonstatutory Stock Options. Under current federal tax laws, an optionee
will not recognize income as a result of the grant of a nonstatutory stock
option. Except as provided below, upon exercise of a nonstatutory stock option,
an optionee will recognize ordinary income in an amount equal to the difference
between the fair
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market value of the stock on the date of exercise and the aggregate option
price. Subject to Code Section 162(m), either the Company or the appropriate
subsidiary will be entitled to a deduction equal to the amount of ordinary
income recognized by an optionee upon exercise of a nonstatutory stock option.
Performance Units. Under current federal tax laws, a participant will not
recognize income upon the grant of a performance unit under the Program. Rather,
a participant will recognize ordinary income upon the payment attributable to a
performance unit in an amount equal to the amount of cash received. Such income
is subject to withholding (except for non-employee directors). Subject to Code
Section 162(m), either the Company or the appropriate subsidiary will be
entitled to a deduction equal to the amount of such ordinary income.
Restricted Shares. Under current federal tax laws, a participant will not
recognize income upon the Award of restricted shares under the Program. Instead,
except as provided below, such participant will recognize ordinary income when
the restrictions imposed under the Program terminate and the previously
restricted shares vest in the participant without further restriction. Subject
to Code Section 162(m), the Company will be entitled to a deduction equal to the
amount of such ordinary income.
Alternatively, Section 83(b) of the Code permits a recipient to elect,
within thirty days of the Award date, to recognize the fair market value of
restricted shares, determined as of the Award date without regard to any
restrictions, as ordinary income subject (except for non-employee directors) to
withholding, even though such shares remain subject to forfeiture restrictions.
The Company is entitled to a corresponding deduction at the same time. If such
an election is made, any subsequent appreciation in value of the shares is not
taxable as ordinary income. However, if such shares are subsequently forfeited
and returned to the Company, the employee will not be entitled to a deduction
with respect to such forfeiture.
When a participant disposes of the shares, any amount received in excess of
the fair market value of the shares at the time the restrictions terminate (or
any amount in excess of the fair market value of the shares on the Award date if
the participant has made a Section 83(b) election) will be treated as capital
gain.
Phantom Stock Units. Under current federal tax laws, a participant will
not recognize income upon an Award of phantom stock units or upon the vesting of
such units, and the Company will not be entitled to a deduction upon the
occurrence of either such event. However, the participant will recognize
ordinary income when phantom stock units are settled by a payment in stock or
cash, in an amount equal to the fair market value of an appropriate number of
shares of Common Stock on the date of settlement. Subject to Code Section
162(m), the Company will be allowed a deduction for the amount of any taxable
income recognized by the participant at the time such income is recognized.
Unrestricted Shares. Under current federal tax laws, a participant will
recognize income upon an Award of unrestricted shares, as of the Award date. The
amount of the income recognized will be equal to the fair market value of the
unrestricted shares on the date of grant. Such income is subject to withholding
(except for non-employee directors). Subject to Code Section 162(m), either the
Company or the appropriate subsidiary will be entitled to a deduction equal to
the amount of such ordinary income.
MATERIAL AMENDMENTS AND ELIGIBLE PARTICIPANTS
The shareholders are being asked to approve both the Material Amendments,
which are described below, and the eligibility of officers, key employees and
directors of the Company and its subsidiaries to participate in the Program. The
Material Amendments will: (1) permit future Awards under the Amended Program to
continue to qualify as performance-based compensation under Code Section 162(m)
by obtaining shareholder
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approval of: (a) the performance criteria to be used as the basis of performance
goals established by the Committee; and (b) certain per participant limits on
Awards granted or paid in any calendar year, beginning with Awards granted on or
after May 6, 1997 (or granted prior to that date if the grant was expressly
subject to shareholder approval of the Material Amendments); (2) allow the
Committee to make Awards of phantom stock units; (3) provide greater flexibility
as to the time periods during which restricted share Awards may vest; (4)
provide additional flexibility as to the time periods during which stock options
may be exercised; (5) permit Awards to be granted to directors of the Company or
its subsidiaries (without regard to whether they are also employees); (6)
authorize the Committee to provide for accelerated vesting of Awards upon
certain change of control events; (7) extend the Program's termination date from
May 1, 2000 to May 6, 2007; (8) increase from 2,800,000 to 4,300,000* (subject
to adjustment,* as described below) shares of Common Stock available for Awards
under the Program and clarify the way in which this limit will be applied; and
(9) provide more flexibility for the Program to be amended in the future without
further shareholder approval.
SECTION 162(M) AMENDMENTS AND APPROVAL OF ELIGIBLE PARTICIPANTS. Section
162(m) of the Code limits the Company's tax deduction to $1 million per year for
certain compensation paid to "covered employees," consisting of the chief
executive officer and the four other most highly compensated executive officers
of the Company (the "Million Dollar Cap"). However, this limitation does not
apply to "performance-based compensation." Stock options that have an exercise
price no lower than the grant date market price of the stock subject to option
(as is required under the Program) may automatically qualify as
performance-based compensation if the shareholders approve certain maximum
limits on the number of shares underlying such stock options that may be granted
to any participant over a specified period. For other Awards to qualify as
performance-based compensation, three conditions must be satisfied before the
Awards are settled: (1) one or more objective performance goals established by a
compensation committee consisting exclusively of two or more outside directors
(such as the Committee) must be achieved; (2) certain terms of the Program must
be approved by the shareholders, including the class of persons eligible to
participate, the maximum amount payable to any individuals and the performance
criteria to be used by the compensation committee in establishing specific
performance goals; and (3) the compensation committee must certify that the
performance goals and other material conditions precedent to settlement have
been satisfied.
The Million Dollar Cap has not yet presented a significant restriction on
the deductibility of the Company's current compensation levels, although there
have been a few instances when the Chief Executive Officer voluntarily agreed to
defer some of his compensation to avoid exceeding this limit. The Company
considers it prudent and desirable to provide a way to permit the Company to pay
higher levels of compensation and to preserve its tax deduction for future
executive compensation, without the need for any such deferrals. This will
enhance the Company's ability to retain, obtain and motivate highly qualified
senior executives. It also will facilitate the Company's implementation of a
combined package of incentive Awards which the Committee is contemplating to
significantly increase senior executives' stock ownership in the Company,
particularly if the Company achieves aggressive performance targets. The types
of Awards under consideration by the Committee would involve combined grants of
stock options and restricted stock (or perhaps phantom stock in some instances)
designed to provide incentive compensation over a multi-year period. Such Awards
will further align senior management's long-term interests with those of the
Company's other shareholders. If such performance-based Awards are fully earned,
there is a greater likelihood that the
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* As of the date of this proxy statement, approximately 2,754,000 shares have
been used for Awards currently outstanding and Awards previously settled, and
approximately 1,546,000 shares are available for future grants pursuant to the
Program, assuming shareholder approval of the Material Amendments.
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Company may forfeit significant compensation deductions unless that compensation
qualifies for the exemption from the Million Dollar Cap.
Accordingly, the proposed amendments will permit the Committee to structure
Awards to qualify as performance-based compensation under Section 162(m) of the
Code ("Qualifying Awards"), so as to preserve the Company's tax deduction for
compensation paid pursuant to Qualifying Awards, even though in excess of the
Million Dollar Cap. The Committee also may grant Awards under the Program that
do not qualify as performance-based compensation, in which case the compensation
paid under these Awards will be subject to the Million Dollar Cap.
Since the Million Dollar Cap became effective, the Company has been
operating under transitional rules that have not required shareholder approval
of maximum limits and performance criteria in order for Awards to be treated as
performance-based compensation. However, this transition period will end with
the Company's 1997 Annual Meeting of Shareholders. Accordingly, the Board of
Directors is seeking shareholder approval of amendments to the Program to permit
the Company to continue to deduct for tax purposes compensation paid to covered
executives under Awards that qualify as performance-based compensation.
The amendments provide that two general types of Qualifying Awards may be
granted under the Amended Program. The first type is stock options. Effective
May 6, 1997 for options granted on or after that date, during a single calendar
year, a participant may not be granted options to purchase more than 400,000
shares of Common Stock, subject to anti-dilution adjustments as provided in the
Program. This limitation is required to be approved by the shareholders in order
for future stock options issued under the Program to qualify as
performance-based compensation.
The second type of Qualifying Awards includes restricted shares, phantom
stock units and performance units whose payment is conditioned upon the
attainment of performance goals set by the Committee. In order for these types
of Awards granted after May 6, 1997 to be Qualifying Awards, the performance
goals set by the Committee must be based on one or more (or any combination) of
business criteria approved by the shareholders. Accordingly, the shareholders
are being asked to approve the business criteria described on page 23 and
contained in Section 10(A) of the Program. The shareholders also are being asked
to approve the applicable per participant limitations for these types of Awards.
Effective May 6, 1997, for Awards made on or after that date, a participant
cannot receive grants of restricted shares and phantom stock units (in any
combination of such Awards) covering more than 100,000 shares of Common Stock
during a single calendar year. Any performance units that are not measured based
on a number of actual or phantom shares cannot result in payment of more than
$2,000,000 in any year to any one participant. In addition, a participant cannot
receive more than 1,000,000 shares of Common Stock or $5,000,000 in cash during
a single calendar year upon the vesting and settlement of any Qualifying Awards
of any type other than stock options.
Since the Million Dollar Cap became effective, the Committee has granted
stock options and, in early 1997, performance-based restricted shares that
qualify as performance-based compensation. These types of Awards are described
generally on pages 20 through 23 of this proxy statement. The transitional rules
applicable under Section 162(m) of the Code permitted these Awards to qualify as
performance-based compensation even though they were not contingent on
shareholder approval of the Material Amendments and thus are not subject to the
new per participant limitations imposed by the Material Amendments.
The maximum per participant limits described above are not designed to be
used to provide compensation to any participant above the level otherwise
appropriate for the individual's duties and responsibilities. The
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<PAGE> 32
maximum levels established by the amendments are designed to preserve
flexibility while enabling the Company to comply with the technical provisions
of the Million Dollar Cap and to preserve the deductibility of performance-based
compensation paid to the covered executives. The tax benefits derived from such
deductions preserve corporate assets and benefit the Company and its
shareholders.
PHANTOM STOCK UNITS. The Committee and the Board of Directors believe that
phantom stock units, with a value measured based on phantom shares of Common
Stock, will provide the Company with desirable flexibility in structuring
compensation Awards. Without the Material Amendments, the Program allows the
grant of restricted shares and also allows the grant of performance units that
can be settled only in cash. There has not been a mechanism, however, for
structuring a single Award with flexibility decided at a subsequent date whether
to settle that Award in cash, Common Stock or some combination thereof. The
proposed phantom stock units will provide this flexibility and also will provide
recipients of such Awards with added flexibility for tax planning purposes to
defer receipt of the shares or cash paid in settlement of these Awards.
UNRESTRICTED SHARES. The Committee and the Board of Directors believe the
flexibility to grant Awards of unrestricted shares will provide desirable
flexibility to use shares as a substitute or supplement to cash compensation for
services in appropriate circumstances. This type of Award is particularly well
suited as a substitute for cash fees paid to non-employee directors, although it
is not limited to that use.
CHANGE IN VESTING PARAMETERS FOR RESTRICTED SHARES. The Program currently
provides that the vesting schedule for restricted shares can be no faster than
20% per year for the first five years and no slower than full vesting (assuming
all conditions to vesting are satisfied) by the end of ten years. The Company
believes additional flexibility regarding vesting schedules is desirable,
particularly in connection with the addition of performance-based conditions to
vesting. Additional flexibility will permit the Committee to structure Awards
with shorter vesting schedules, if appropriate, so as to provide a more direct
link between the incentive provided by that settlement and the achievement of
performance goals during periods shorter than five years. For example, a one or
three-year vesting schedule might be more appropriate for an Award of restricted
shares having a performance goal extending over one year or three years. As a
result, the Company is seeking the flexibility to delete any restrictions on the
Committee's discretion to establish the vesting periods it deems appropriate.
ADDITIONAL FLEXIBILITY FOR OPTION EXERCISE PERIODS. The Material
Amendments would provide added flexibility for the Committee to define the
periods during which stock options may be exercised. A current requirement that
stock options cannot be exercised during the first year after grant would be
deleted. The Committee also would have more flexibility to allow exercise of an
option after termination of employment (or after a participant ceases to be a
non-employee director), without regard to whether that termination occurs in
connection with death, disability or retirement or a change in control event
(discussed below). In light of the increasing trend in today's society for
individuals to change from one employer to another, the Committee and the Board
of Directors believe this additional flexibility is desirable in structuring
appropriate compensation packages.
EXTENSION TO NON-EMPLOYEE DIRECTORS. The Material Amendments will permit
Awards under the Amended Program to be made to directors of the Company and its
subsidiaries (without regard to whether they are also employees). In light of
the general recognition by institutional shareholders and others of the
desirability of shifting more of directors' compensation from cash to stock, the
Committee and the Board of Directors believe this change is desirable. The
desirability of using stock to compensate directors is one of the reasons cited
for recent regulatory changes that permit discretionary stock Awards to be made
to non-employee directors under compensatory plans, without disqualifying those
non-employee directors from
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<PAGE> 33
administering the compensatory plans. The Material Amendments will permit any
form of Award other than incentive stock options to be granted to non-employee
directors. Without limiting its flexibility to grant other types of Awards, the
Committee contemplates that unrestricted shares may be used, in part, for
non-employee directors as a partial substitute for certain cash fees currently
being paid to non-employee directors.
CHANGE IN CONTROL EVENTS. Although the Company is not aware of any pending
change in control events, it recognizes that such events could arise in the
future. The Program currently provides only for acceleration of the restrictions
on restricted shares in a limited number of contexts. The proposed amendment
would expand the number of situations that would be considered changes in
control, and allow the Committee when granting Awards or at any time thereafter
to provide for accelerated vesting of all Awards subject to restrictions and
accelerated exercisability of options upon a change in control event. A
potential disadvantage of an acceleration of an Award as to which the
performance goal had not been completed is that the Company is likely to lose
the special treatment of performance-based compensation above the Million Dollar
Cap for any compensation received upon acceleration as to which the performance
goal was not attained. Accordingly, the Company may lose tax deductions for the
resulting compensation based on the provisions of Code Section 162(m), as well
as other Code Sections applicable to compensation payable as a result of a
change in control. This would occur only if acceleration actually occurs and not
merely because there is flexibility to accelerate. The Company believes this
potential disadvantage is offset by the advantages of acceleration in a change
of control context and the related assurance to recipients of Awards that the
value of those Awards will not necessarily be lost due to possible termination
of employment or other events in connection with a change in control of the
Company.
The amended change in control acceleration provision may have the effect of
making a change in control of the Company somewhat more difficult because of the
accelerated cost of settling Awards for which acceleration is provided and the
potential loss of deductions for such compensation.
EXTENSION OF PROGRAM'S TERM. Unless extended, the Program will terminate
on May 1, 2000. The Company prefers to continue extending the term of the
existing Program, rather than adopting new incentive programs from time to time,
as many other corporations do. In light of the other actions being taken this
year with respect to the Program, it is more efficient to seek shareholder
approval at this time to extend the term of the Program, rather than deferring
that and then seeking shareholder approval of an extension within one to three
years. Accordingly, subject to shareholder approval of the Material Amendments,
the term of the Program will be extended another ten years to May 7, 2007.
ADDITIONAL SHARES. In connection with the extension of the Program's term,
the other changes being made to the Program, and the Board of Directors' and the
Committee's desire to structure both the terms of and the right to receive
Awards under the Program in a way that will encourage the Company's senior
executives to make significant investments in the Company's Common Stock, the
Board of Directors and the Committee believe it is appropriate at this time to
authorize additional shares for future Awards. The additional shares for which
approval is sought represent approximately 7.4% of the Company's outstanding
Common Stock as of the date of this proxy statement. The Awards granted and to
be granted under the Program are designed to align the interests of officers,
key employees and directors with those of other shareholders and to enable the
Company to attract, motivate and retain experienced and highly qualified
individuals.
ABILITY TO RECYCLE SHARES. The Material Amendments provide that if any
shares of Common Stock subject to an Award are cancelled or forfeited, or if any
Award that is stock based terminates without issuance of shares, is settled in
cash, or is exchanged for another Award, the shares covered by the initial Award
will be
30
<PAGE> 34
restored to the total shares available for Awards under the Program generally,
but will continue to count against the per participant limits applicable to the
individual participants who received the initial Award.
ADDED FLEXIBILITY FOR FUTURE AMENDMENT OF THE PROGRAM. New SEC rules that
became effective in November 1996 under Section 16 of the Exchange Act no longer
require shareholder approval of various compensation plans, such as the Program,
or of material amendments thereto in order for Awards under such compensation
plans to comply with certain exemptions from the short-swing profit recovery
provisions of Section 16. This and other changes in the SEC rules under Section
16 reflect a determination by the SEC that transactions between a company and
its executives, other employees and directors pursuant to compensation plans
justify simpler and more flexible exemptions than those available in the past
because these transactions are designed primarily to reward service or provide
incentives for better performance and generally do not present the same
opportunities to profit from non-public information as do the market
transactions by corporate insiders. As part of the SEC's new simplified approach
for such transactions, the SEC determined that approval of compensation
arrangements by the full Board of Directors or by committee of the Board
consisting solely of two or more "non-employee directors" provides an acceptable
substitute for shareholder approval.
Particularly in light of a growing trend, which the Company supports, to
use stock-based Awards as a significant component of executive compensation, the
Company believes it is desirable for the Committee to have maximum flexibility
to modify the Program from time to time, as it deems appropriate, subject to
obtaining shareholder approval when deemed appropriate by the Committee to
comply with regulatory requirements or other regulatory exemptions and benefits.
As described earlier, Section 162(m) of the Code continues to require
shareholder approval of the material terms (as defined in the applicable
regulations thereunder) of performance-based compensation in order to qualify
for an exemption from the Million Dollar Cap. In the case of the Program, this
will include amendments to certain material features of the Program and also
will include a requirement that the shareholders reapprove certain material
terms of the Program every five years. In addition, the Company's Common Stock
is listed on the New York Stock Exchange, and the rules of the New York Stock
Exchange require shareholder approval for certain issuances of listed stock.
The Compensation Committee will continue to evaluate the need for
shareholder approval of any further amendments to the Program based on these and
other factors, but the Company believes it would be desirable to eliminate any
additional requirement in the Program itself that might require shareholder
approval in circumstances where such approval is not otherwise needed to comply
with applicable legal requirements or to obtain desired exemptions or other
desired benefits. This will permit the Committee to make certain adjustments in
the Program faster and more easily when deemed appropriate to enhance the
purposes of the Program. Shareholder approval of the Material Amendments may
provide certain opportunities for the Committee to modify the Program in ways
that might increase the cost of the Program to the Company, but the Company
believes that any such increased cost of the Program would result primarily from
a determination by the Company to use stock-based Awards as a larger component
(as compared to cash) of the compensation of the Company's executives, other key
employees and directors.
CERTAIN PLAN BENEFITS. It is impossible to determine the amount of future
Awards that will be received by particular participants because the grant of
Awards under the Program is within the Committee's discretion. Information about
Awards granted under the Program in 1996 to the Company's five highest
compensated executive officers is set forth in the table on page 5. To
supplement that information, the following table shows information regarding the
Awards granted in 1996 to all executive officers as a group, all directors who
are not executive officers as a group, and all employees, including all officers
who are not executive officers, as a group.
31
<PAGE> 35
THE PERFORMANCE INCENTIVE COMPENSATION PROGRAM
<TABLE>
<CAPTION>
OPTIONS RESTRICTED SHARES
--------------------------- --------------------------
NUMBER OF
SHARES
DOLLAR UNDERLYING DOLLAR NUMBER OF
NAME AND POSITION VALUE ($) (1) OPTIONS VALUE ($) (2) SHARES
----------------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Executive Officer Group.................... $ 40,000 5,000 $2,946,890 75,080
Non-Executive Director Group............... -0- -0- -0- -0-
Non-Executive Officer/Employee Group....... 768,500 123,945 1,346,079 34,295
</TABLE>
- ---------------
(1) Equal to the net value of the option as of December 31, 1996 based on the
closing market price of the Company's Common Stock on December 31, 1996
minus the applicable per share exercise price of the option.
(2) Represents value based on the closing market price of the Company's Common
Stock on December 31, 1996, assuming all shares are fully vested.
The Company granted certain Awards on February 4, 1997 that are governed by
the terms of the Program in its current form and are not conditioned on
shareholder approval of the Material Amendments. In addition, in December 1996,
the Committee and Mr. Hipp agreed that if the shareholders approve the Material
Amendments, three installments of restricted shares previously granted to Mr.
Hipp that cover a total of 15,600 shares and are scheduled to vest later in 1997
will be cancelled and will be replaced with grants of 15,600 shares of phantom
stock. Settlement of any such phantom stock Awards will be deferred until July
1998 or such later time as Mr. Hipp may elect. It is contemplated that the
Company will establish a revocable grantor trust and contribute shares of its
Common Stock to that trust to be used to satisfy the Company's obligations under
any such phantom stock Awards, and that Mr. Hipp will be given a right to direct
the trustee as to the voting of such shares. No grant of any phantom stock will
occur, however, unless and until the shareholders approve the Material
Amendments.
VOTE REQUIRED
The affirmative vote of a majority of the shares voting, in person or by
proxy, on this proposal at the Annual Meeting is required to approve the
Material Amendments to, and the class of persons entitled to participate in, the
Amended Program.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE MATERIAL AMENDMENTS TO, AND THE CLASS OF PERSONS ENTITLED TO
PARTICIPATE IN, THE AMENDED PROGRAM.
ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to shareholder ratification, the Board of Directors has appointed
the firm of Ernst and Young LLP as independent public accountants for the year
1997. The appointment was made upon the recommendation of the Audit Committee,
which is composed of Directors who are not officers or otherwise employees of
Liberty.
If the shareholders do not ratify the selection of Ernst and Young LLP, the
selection of independent certified public accountants will be reconsidered and
made by the Board of Directors. It is understood that even if the selection is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a new
32
<PAGE> 36
independent accounting firm at any time during the year if the Board feels that
such a change would be in the best interests of the Company and its
shareholders.
The appointment of the firm of Ernst & Young LLP as independent public
accountants for Liberty was ratified by the shareholders at Liberty's last
Annual Meeting. Representatives of the firm are expected to be present at the
Annual Meeting of Shareholders and will be available to respond to appropriate
questions and will have the opportunity to make a statement should they so
desire.
Ratification of the appointment of independent auditors requires that the
votes cast favoring the action exceed the votes cast opposing the action. The
Board of Directors recommends that shareholders vote FOR such ratification.
SHAREHOLDERS' PROPOSALS
To be considered for inclusion in the proxy materials for the 1998 Annual
Meeting under SEC regulations, a shareholder proposal must be received by the
Corporate Secretary at the Company's above stated address on or before December
1, 1997.
In addition, the Company's Bylaws provide certain procedures that a
shareholder must follow to nominate persons for election as directors or to
introduce an item of business at an annual meeting, even if such item is not to
be included in the Company's proxy material. Such procedural requirements are
fully set forth in the Company's Bylaws, a copy of which may be obtained without
charge by any shareholder by written request addressed to the Corporate
Secretary at the principal executive offices of the Company. To have a
nomination or item of business brought before the 1998 Annual Meeting, a
shareholder must deliver the required notice of such nomination or item to the
Corporate Secretary not less than sixty days nor more than ninety days prior to
the meeting.
OTHER MATTERS
The management of Liberty knows of no business to be presented at the
meeting other than the four items specified above. If other matters are duly
presented for action, it is the intention of the persons named in the enclosed
proxy to vote on such matters in accordance with their judgment.
MARTHA G. WILLIAMS
Vice President, General Counsel
& Secretary
Greenville, South Carolina
March 27, 1997
33
<PAGE> 37
EXHIBIT A
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
TO LIMIT THE DIRECTORS' LIABILITY TO THE EXTENT
PERMITTED BY SOUTH CAROLINA LAW
The Restated Articles of Incorporation would be amended to add a new
Article 10 as follows and to renumber existing Article 10 accordingly:
10. No director of the Corporation shall be personally liable to the
Corporation or its shareholders for the monetary damages for breach of his
or her fiduciary duty as a director occurring after the effective date
hereof; provided, however, the foregoing shall not eliminate or limit the
liability of a director: (a) for any breach of the director's duty of
loyalty to the Corporation or its shareholders; (b) for acts or omissions
not in good faith or which involve gross negligence, intentional
misconduct, or a knowing violation of law; (c) imposed for unlawful
distributions as set forth in Section 33-8-330 of the South Carolina
Business Corporation Act of 1988, as amended from time to time (the
"SCBCA"), or (d) for any transaction from which the director derived an
improper personal benefit. This provision shall eliminate or limit the
liability of a director only to the maximum extent permitted from time to
time by the SCBCA or any successor law or laws. If the SCBCA is amended
after approval by the shareholders of this Article 10 to further eliminate
or limit the personal liability of directors, the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the SCBCA, as so amended. Any repeal or modification of the
foregoing protection by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
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<PAGE> 38
EXHIBIT B
THE PERFORMANCE
INCENTIVE COMPENSATION PROGRAM
AS AMENDED AND RESTATED ON FEBRUARY 4, 1997
(SUBJECT TO SHAREHOLDER APPROVAL OF CERTAIN
AMENDMENTS PRIOR TO THEIR EFFECTIVENESS ON MAY 6, 1997)
The following is the text of the Performance Incentive Compensation Program
(the "Program"):
SECTION 1. Purpose. The purpose of this Program is to provide The Liberty
Corporation (the "Company") and its subsidiaries with an effective means of
attracting, retaining and motivating officers, other key employees and directors
(whether or not they are employees) and to encourage and enable them to acquire
common stock of the Company ("Common Stock"), thereby increasing their
proprietary interest in the Company's success. Subject to the limitations set
forth below, the Program provides for the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, performance units, restricted
share awards, unrestricted share awards, phantom stock units, and all or any
combination of the foregoing ("Awards"), to eligible employees.
SECTION 2. Administration. The Compensation Committee of the Board of
Directors or such other committee of the Board as the Board may subsequently
designate (hereinafter referred to as the "Committee") shall have full power and
authority, subject to such orders or resolutions not inconsistent with the
provisions of the Program as may from time to time be issued or adopted by the
Board, to interpret the provisions and supervise the administration of the
Program. All determinations by the Committee shall be made by the affirmative
vote of a majority of its members, but any determination reduced to writing and
signed by all of the members shall be fully as effective as if it has been made
by a majority vote at a meeting duly called and held. All decisions made by the
Committee pursuant to the provisions of the Program or resolutions of the Board
shall be conclusive and binding on all persons, including the Company, its
shareholders and employees, and participants in the Program.
SECTION 3. Shares Subject to the Program.
(A) Shares of Common Stock are the only shares that may be delivered under
the Program. The shares of Common Stock to be delivered under the Program shall
be made available from the authorized but unissued shares or from shares
reacquired by the Company, including shares purchased in the open market.
(B) Subject, in each case, to adjustments made pursuant to the provisions
of Sections 3(C) and 3(D):
(i) The aggregate number of shares that may be subject to Awards under
the Program from its initial inception in 1983 shall not exceed 4,300,000
shares.
(ii) Effective May 6, 1997, with respect to stock options granted on
or after that date (and any stock options granted prior to such date if
their grant was conditioned upon approval of amendments to the Program by
the shareholders at their annual meeting on May 6, 1997), the number of
shares of Common Stock with respect to which such stock options may be
granted to any one participant within any calendar year shall not exceed
400,000 shares.
(iii) Effective May 6, 1997, with respect to Awards granted on or
after that date (and any Awards granted prior to such date if their grant
was conditioned upon approval of amendments to the Program by the
shareholders at their annual meeting on May 6, 1997), the number of shares
of Common Stock with
B-1
<PAGE> 39
respect to which any such Awards that are measured based on a number of
actual or phantom shares (except for stock options governed by paragraph
(ii) above) may be granted to any one participant within any calendar year
shall not exceed 100,000 shares.
(iv) Effective May 6, 1997, with respect to Awards granted on or after
that date (and any Awards granted prior to such date if their grant was
conditioned upon approval of amendments to the Program by the shareholders
at their annual meeting on May 6, 1997), the maximum amount of compensation
that can be paid to any one participant during any calendar year on account
of any such Awards that are not measured based on a number of actual or
phantom shares of Common Stock shall not exceed $2,000,000.
(v) Effective May 6, 1997, with respect to Awards granted on and after
that date (and any Awards granted prior to such date if their grant was
conditioned upon approval of amendments to the Program by the shareholders
at their annual meeting on May 6, 1997), under all such Awards (other than
stock options) granted under the Program, in any one calendar year: (a) no
one participant may be paid cash in excess of $5,000,000 and (b) no one
participant may receive more than 1,000,000 shares of Common Stock. For
purposes of this paragraph, the amount paid or received in any calendar
year under an Award described in this paragraph shall be deemed to be the
value or number of shares earned under such Award based on the attainment
of performance objectives, if any, and based on any downward adjustments,
as determined by the Committee, as of the date of the determination. Except
in the case of any prior Awards granted subject to approval by the
shareholders of amendments to the Program at their May 6, 1997 annual
meeting, amounts paid pursuant to Awards granted under the Program prior to
May 6, 1997, shall not be counted toward and shall not be subject to the
limits contained in this paragraph (v).
(C) The following rules shall apply in determining the amount of shares or
cash that has been used for purposes of the limits in Section 3(B)(i), (ii),
(iii), (iv) and (v):
(i) Any shares affected by the expiration or termination (without
exercise) of any option (or portion thereof) prior to May 6, 1997 or by the
forfeiture of all or any portion of an Award of restricted shares or
phantom stock units prior to May 6, 1997, shall be restored to the total
shares available for use under the Program for Awards to the same
participant or other participants.
(ii) Effective May 6, 1997, if: (a) any shares of Common Stock subject
to an Award are forfeited or cancelled; or (b) if any Award otherwise
relating to shares of Common Stock terminates by expiration, forfeiture,
cancellation or otherwise without the issuance of such shares or is settled
in cash in lieu of Common Stock; or (c) if any shares of Common Stock
subject to an Award, or any Awards otherwise relating to shares of Common
Stock, are, with the Committee's permission, exchanged for or otherwise
surrendered and cancelled in connection with the grant of other Awards, the
shares of Common Stock so affected (directly or as a measurement of the
Award, to the extent so affected) shall be restored to the total shares
available for use under the Program for Awards generally, but shall be
counted against the limitations contained in Section 3(B)(ii), (iii) and
(v) with respect to the participant involved. Although shares subject to or
relating to an Award exchanged for or otherwise surrendered and cancelled
in connection with the grant of a new Award shall be restored to the total
shares available for use under the Program, the shares subject to or
relating to the resulting new Award shall be counted for all purposes under
the Program. The maximum number of shares available for issuance under the
Program shall not be reduced to reflect any distributions that may be
reinvested in additional shares of Common Stock.
(D) In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, spin-off, stock split or any other change in
corporate structure or other distribution of stock or property (except for
B-2
<PAGE> 40
ordinary cash dividends) affecting the Company's Common Stock, such adjustments
shall be made in the aggregate number of shares subject to the Program, the
maximum number of shares which may be acquired by, or subject to an Award
granted or paid to, any participant under the Program, the number and option
price of shares subject to then outstanding options granted under the Program,
the number of restricted shares then subject to restrictions under the Program
and the number of shares used to determine the value of then outstanding phantom
stock units as may be determined to be appropriate by the Committee. In no event
shall any "Qualifying Award" (as described in Section 10) that is then held by a
"Covered Employee" as defined in Section 162(m) of the Code be adjusted pursuant
to Section 3(D) to the extent it would cause such Award to fail to qualify as
"Performance-Based Compensation" under Section 162(m) of the Code.
SECTION 4. Eligibility for Participation. The individuals eligible to
participate in the Program shall consist of officers, other key employees and
directors of the Company and its subsidiaries, whether or not such directors are
also employees of the Company or its subsidiaries, as determined by the
Committee. Subject to the limitations of the Program, the Committee shall, after
consultation with and consideration of the recommendations of management, select
the officers, employees and directors to so participate and determine whether an
officer, employee or director is to receive Awards hereunder; provided, however,
that no incentive stock option may be granted to any director who is not an
employee of the Company (or any of its subsidiaries). The Committee, in its
discretion, may impose any conditions that it deems desirable on the grant of
any new Award, including without limitation a condition requiring the applicable
participant to surrender for cancellation an outstanding Award in order to
obtain a new Award that the Committee desires to grant in substitution of any
such outstanding Award.
SECTION 5. Stock Options.
(A) Stock options shall be granted to participants by the Committee from
time to time at its discretion. Each option shall be evidenced by an option
agreement which shall contain such terms and conditions as may be approved by
the Committee and shall be signed by an officer of the Company and the
participant. Incentive stock options and nonstatutory stock options shall be
evidenced by separate and distinct option agreements.
(B) A participant shall not be granted any incentive stock option if the
receipt of that option would result in the participant owning incentive stock
options (under the Program and any other plan maintained by the Company or any
subsidiary) that become exercisable for the first time in any one calendar year
into stock of the Company or any of its subsidiaries with a fair market value in
excess of $100,000. For purposes of the preceding sentence, the fair market
value of the stock of the Company or any of its subsidiaries will be determined
by the Committee as of the grant of the incentive stock options without regard
to any restriction other than a restriction which by its terms will never lapse.
(C) The price at which shares may be purchased upon exercise of a
particular option shall be not less than 100% of the fair market value of such
shares on the date such option is granted, as determined by the Committee
without regard to any restriction other than a restriction which by its terms
will never lapse. In the case of an individual who, at the time an option is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (or any of its subsidiaries) (a "10%
Shareholder"), the exercise price of any incentive stock option shall be not
less than 110% of the fair market value of the shares subject to the option on
the date such option is granted, as determined by the Committee without regard
to any restriction other than a restriction which by its terms will never lapse.
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(D) Options may be granted for any period of time as established by the
Committee, except that:
(i) The term of any incentive stock option shall not be longer than
ten years (or five years if granted to a 10% Shareholder) from the date the
option is granted.
(ii) No Option granted prior to 1997 may be exercised before the
expiration of a one year period of continued employment by the optionee
with the Company or a subsidiary thereof commencing on the date the option
is granted, except as provided in Section 5(E)(iv) below or except as
provided in any amendment to the applicable option agreement approved and
authorized through specific action by the Committee in a manner consistent
with terms permitted hereunder for options granted after 1996.
(E) Subject to the limitations in this Section 5 and the terms and
conditions of the option agreement, each option shall be exercisable at such
time or times and in such amount or amounts as the Committee may prescribe and
specify in the applicable option agreement.
(i) No incentive stock option granted after 1996 under this Program
may be exercised more than three months (or one year in the case of a
disabled employee or a deceased employee who died within three months of
terminating employment or during a disability that terminated employment)
after the participant holding such option ceased being an employee of the
Company or a subsidiary thereof, unless: (a) a longer period applies under
Section 5(E)(iv) below for the beneficiary or legal representative of a
deceased employee whose death terminated employment, or (b) the Company and
such participant (or a deceased participant's beneficiary or legal
representative) mutually agree in writing that such option will be amended
to treat it as a nonstatutory stock option.
(ii) Unless the option agreement specifies a longer or shorter time
for exercise, a nonstatutory stock option granted after 1996 must be
exercised no later than one year after the participant holding such option
ceases to be an employee (or ceases to be a non-employee director) of the
Company or a subsidiary thereof, unless a longer period applies under
Section 5(E)(iv) below.
(iii) In the case of options granted prior to 1997 (both incentive
stock options and nonstatutory stock options), unless the option agreement
is amended by specific action by the Committee (with the consent of the
holder if required) in a manner consistent with terms permitted hereunder
for options granted after 1996, each such option may be exercised only
during the continuance of the optionee's employment with the Company or one
of its subsidiaries, except as provided in Section 5(E)(iv) below.
(iv) Except as otherwise provided in Section 5(E)(i) with respect to
the disability or retirement of the holder of incentive stock options
granted after 1996, in the event of termination of employment (or service
as a non-employee director) by an optionee by reason of death, disability
or retirement at normal retirement age under the Company's Retirement Plan
or any applicable Retirement Plan of any of the Company's subsidiaries (or
any applicable retirement policy for non-employee directors), any options
then exercisable by such optionee shall remain exercisable by the optionee
or, if applicable, a beneficiary or legal representative, for three years
from the date of such termination of employment (or service as a
non-employee director) or until the expiration of the option, whichever
occurs first.
(F) No shares shall be delivered pursuant to the exercise of any option, in
whole or in part, until qualified for delivery under such laws and regulations
as may be deemed by the Committee to be applicable thereto and until payment in
full of the option price therefor is received by the Company. Payment of the
purchase price shall be made in cash, cash equivalent or, at the discretion of
the Committee, in Common Stock of the Company valued at its fair market value on
the date of exercise or, at the discretion of the Committee, in a combination of
the foregoing.
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(G) An option granted under the Program may not be transferred except by
will or the laws of descent and distribution and, during the lifetime of the
participant to whom granted, may be exercised only by such participant or his or
her personal representative.
SECTION 6. Performance Units.
(A) Performance units may be awarded by the Committee to participants from
time to time at its discretion. Such units shall have defined terms and
conditions as to their value and the basis on which such values will be
determined.
(B) Performance units may be awarded in lieu of, or in combination with,
any other Awards, as the Committee may determine. Performance standards shall be
established by the Committee each time performance units are granted and, except
as provided in Section 6(D) below, these standards must be met during the
continuance of the participant's employment with (or service as a non-employee
director of) the Company or one of its subsidiaries and prior to the making of
any payment with respect to such units.
(C) Performance units shall be assigned a value by the Committee upon the
award of such units.
(D) The value of performance units as established pursuant to Section 6(C)
above shall be paid in cash promptly after the performance standards established
pursuant to Section 6(B) above shall have been met and, for Qualifying Awards,
the Committee certification required under Section 10 shall have occurred. In
the event of termination of employment (or service as a non-employee director)
by reason of death, disability or retirement at normal retirement age under the
Company's Retirement Plan or any applicable Retirement Plan of any of the
Company's subsidiaries (or any applicable retirement policy for non-employee
directors), the Committee shall have complete discretion to waive all or a part
of the continued employment or service requirements and performance standard
requirements for payment in respect of one or more performance units that are
not Qualifying Awards (as defined below).
(E) Performance units awarded under the Program may not be transferred
except by will or the laws of descent and distribution and, during the lifetime
of the participant to whom awarded, payment may be made with respect to such
performance units only to the participant or such participant's personal
representative.
SECTION 7. Restricted Shares.
(A) Awards of restricted shares of Common Stock of the Company shall be
granted to participants by the Committee from time to time in its discretion.
Upon the grant of such an Award to a participant, the Committee shall notify the
participant in writing of the terms of such Award, as described below. Each
Award of restricted shares shall be evidenced by an agreement which shall
contain such terms and conditions as may be approved by the Committee and which
are consistent with the applicable provisions of the Program and shall be signed
by an officer of the Company and the participant.
(B) No consideration will be paid by a participant pursuant to an Award of
restricted shares under the Program.
(C) Except as provided for in Section 7(D) and Section 7(F) below,
restricted shares awarded to a participant under the Program shall vest in the
participant during a period commencing on the date such shares are awarded to a
participant and ending on a date to be specified by the Committee, in accordance
with a vesting schedule to be determined by the Committee in its discretion and
specified in the Award. Subject to the immediately preceding sentence, the
Committee may condition the vesting of any restricted shares awarded after
November 7, 1995 on any additional terms and conditions (including performance
achievement goals applicable to all or any portion of the overall vesting
period) for such period or periods as shall be
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determined by the Committee. If the Award document relating to any Award of
restricted shares granted prior to November 7, 1995 fails to contain any vesting
schedule, then such shares shall vest in equal annual installments (of 20% on
each anniversary of the Award date) over the five year period commencing on the
date such shares are awarded.
(i) To the extent that the shares remain non-vested under the vesting
schedule and any additional vesting terms and conditions set by the
Committee, such shares shall be deemed to be subject to a Restriction
Period. The Restriction Period for restricted shares shall terminate when
and to the extent that such shares vest in the participant in accordance
with their stated vesting terms or in accordance with the accelerated
vesting provided in Section 7(D), Section 7(F) or the terms of any Award
implementing the provisions of Section 12 below, subject, in each case, to
the need for Qualifying Awards to comply with Section 10, and except to the
extent such shares have been forfeited as provided in Section 7(E) or 7(G)
below.
(ii) Restricted shares under the Program which are subject to a
Restriction Period may not be assigned, transferred, pledged or otherwise
encumbered or disposed of, except by forfeiture to the Company as provided
in Section 7(E) or 7(G) below.
(iii) During the applicable Restriction Period: (a) the Company shall
retain possession of the certificates for restricted shares awarded under
the Program, (b) the participant shall execute and deliver to the Company a
stock power in blank with respect to such shares and (c) the participant
shall be entitled to full dividend and voting rights in respect of such
shares. After the end of the applicable Restriction Period, the
restrictions imposed under the Program shall cease to apply to the shares
previously subject to such Restriction Period and the certificates for such
shares shall be delivered to the participant.
(D) In the event of termination of employment (or service as a non-employee
director) by reason of death, disability or retirement at normal retirement age
under the Company's Retirement Plan or any applicable Retirement Plan of any of
the Company's subsidiaries (or any applicable retirement policy for non-employee
directors), the restrictions imposed under the Program in respect of any Awards
then subject to a Restriction Period, except Qualifying Awards, shall terminate
as of the date of such termination of employment (or service as a non-employee
director).
(E) In the event of termination of employment (or service as a non-employee
director) for any reason other than as provided in Section 7(D) above, a
participant shall forfeit all rights in respect of any shares then subject to a
Restriction Period as of the date of such termination of employment (or service
as a non-employee director), absent a contrary determination by the Committee
pursuant to the terms of any Award implementing the provisions of Section 12 in
connection with a Change in Control Event.
(F) With respect to restricted share Awards granted prior to 1997, in the
event of a merger, consolidation, sale of all or substantially all of the
Company's assets, or other corporate reorganization in which the Company is not
the surviving corporation, the restrictions imposed under the Program in respect
of any shares then subject to a Restriction Period shall terminate as of the
date of such event or as of such earlier date as determined by the Committee.
With respect to restricted share Awards granted after 1996, the terms of the
particular Awards will govern the extent (if any) to which the restrictions on
such restricted shares may terminate as a result of any transaction described in
the immediately preceding sentence, and in such regard may refer to the
provisions of Section 12.
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(G) To the extent all or a portion of a restricted share Award is subject
to additional vesting terms and conditions (such as performance goals) imposed
by the Committee to supplement the vesting schedule established for such Award,
and such additional terms and conditions are not satisfied during the applicable
period established for satisfying such terms and conditions, the restricted
shares subject to such additional vesting terms and conditions shall be
forfeited as of the end of the period during which such vesting terms and
conditions were to be satisfied. This special forfeiture provision applies only
to the number of restricted shares for which a special vesting term or condition
is not satisfied. To the extent a portion of the restricted shares granted
initially as part of the same Award are not subject to any special vesting terms
or conditions (other than the vesting schedule based on continued employment (or
service as a non-employee director) over the vesting period) or are subject to
special terms and conditions that have been satisfied, or may be satisfied by a
later deadline, such restricted shares shall not be forfeited pursuant to this
Section 7(G) unless and until the later deadline for satisfying any remaining
special terms and conditions occurs without such terms and conditions being
satisfied.
SECTION 8. Phantom Stock Units. Awards of phantom stock units ("phantom
units") shall be based on a number of phantom shares of Common Stock determined
by the Committee. The Company shall establish a book account ("Book Account") on
its records for each participant receiving an Award of phantom stock units and
shall credit to a participant's Book Account the number of phantom shares of
Common Stock granted to such participant pursuant to the Award. No actual shares
of Common Stock or other certificates shall be issued to a participant when a
phantom unit Award is granted. Phantom unit Awards shall be evidenced by written
agreements in such form as the Committee shall approve from time to time. A
participant shall earn the amount credited to his or her Book Account from time
to time in accordance with a schedule established by the Committee. The schedule
shall provide that a participant's interest will be earned in one or more
increments over a period of time determined by the Committee and may require
that certain performance goals be achieved. The Committee may establish a
different schedule for each phantom unit Award and each participant.
(A) From the time a phantom unit Award has been granted until the time it
is settled or forfeited, the participant to whom the phantom units were awarded
shall be entitled to receive, as additional compensation, cash payments
equivalent to the amount of dividends that would be paid with respect to a
number of shares of Common Stock corresponding to the number of phantom units
represented by such Award.
(B) No Award of phantom units shall confer on the participant any voting
rights unless and until such phantom unit Award is paid to the participant in
the form of actual shares of Common Stock.
(C) Except as otherwise provided in Section 10 with respect to Qualifying
Awards, if a participant ceases employment with (or service as a non-employee
director of) the Company and its subsidiaries as a result of death, disability
or retirement at normal retirement age under the Company's Retirement Plan or
any applicable Retirement Plan of any of the Company's subsidiaries (or any
applicable retirement policy for non-employee directors), such participant (or
his or her beneficiary) shall be entitled to such participant's full interest in
any phantom unit Award (whether or not earned) on the date of such termination
(to the extent not previously paid). Upon termination of employment with (or
service as a non-employee director of) the Company and its subsidiaries for any
other reason, a participant's interest in any unearned phantom unit Awards shall
be forfeited, absent a contrary determination by the Committee pursuant to the
terms of any Award implementing the provisions of Section 12 in connection with
a Change in Control Event. Notwithstanding the preceding sentence, whenever a
phantom unit Award is granted in substitution for restricted shares that were
subject to an Award granted prior to 1997 and that are surrendered and cancelled
in connection with the grant of such phantom unit Award, the Committee may
provide in such phantom unit
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Award that such phantom units will become fully earned under the same
circumstances as the restrictions applicable to the cancelled restricted shares
would have terminated pursuant to Section 7(F).
(D) When the Committee determines that a phantom unit Award is to be
granted, the Committee shall give the participant an opportunity to elect, the
time(s) at which the amount credited to his or her Book Account, once earned, is
to be paid in a form of payment determined under Section 8(E) below. Thereafter,
the participant may make one or more superseding elections to modify an earlier
election in order to further defer (but not accelerate) the time(s) of payment,
provided that any superseding election must be made prior to the tax year in
which the payments affected by the further deferral would have otherwise been
made. All elections under this Section 8(D) shall be made subject to the
provisions of Section 8(E) below and to the following:
(i) An election may specify that the amount credited to a
participant's Book Account will be paid to the participant in increments as
soon as each increment becomes earned.
(ii) Alternatively, an election may specify that the earned amounts
credited to a participant's Book Account will be paid to the participant in
a lump sum or in increments at a specified time or times after they become
earned even though the participant has not yet retired, or in substantially
equal annual installments commencing as soon as practicable following the
participant's retirement from employment with (or service as a non-employee
director of) the Company and its subsidiaries. At the time the participant
makes an election, the participant shall designate the period over which
the installment payments will be made. The Committee will have discretion
to modify the form of installment payment designated by the participant, if
the Committee deems such a modification to be appropriate and in the best
interests of the Company. If a participant elects the deferred payment form
of payment and dies after the installment payments begin, the remaining
installments will be paid to the participant's beneficiary according to the
schedule of installments designated by the participant.
(iii) The Committee may specify in a phantom unit Award or by rules
adopted and amended from time to time reasonable limits on the minimum
amounts and the frequency of payments that shall be required for a
participant to elect multiple installments and a maximum time period (no
sooner than five years following termination of a participant's employment
(or service as a non-employee director)) during which all earned amounts
shall be paid.
(E) Subject to any restrictions on the form of payment that may be
specified by the Committee in the terms of any phantom unit Award, the Committee
shall determine whether a payment shall be made: (i) in whole shares of Common
Stock equal to the number of whole phantom shares of Common Stock credited to
the participant's Book Account, (ii) in cash, or (iii) in a combination of whole
shares of Common Stock and cash, in such proportions as the Committee deems
appropriate. When a payment is made in cash, the phantom shares of Common Stock
then credited to the participant's Book Account shall be valued, for purposes of
the payment, at the fair market value of a share of Common Stock at the time the
payment is made.
(F) The Committee shall have the right to defer payment of a participant's
phantom unit Awards, when earned, to the extent that the sum of (i) the
participant's phantom unit Awards that have been earned and are scheduled to be
settled plus (ii) all other "compensation" (as defined for purposes of Section
162(m) of the Code) with respect to the participant for the taxable year in
which settlement of the earned phantom unit Awards would otherwise be
deductible, may not be deductible by the Company by reason of Section 162(m) of
the Code, as determined by the Committee in its sole discretion. A phantom unit
Award deferred pursuant to this Section 8(F) shall be settled in subsequent
taxable years of the Company to the extent that the sum of
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the participant's deferred, but earned, phantom unit Awards and all other
"compensation" with respect to the participant would be deductible by the
Company under Section 162(m) of the Code. This Section 8(F) shall apply only to
the extent that the Committee determines in its sole discretion that the
deferral could allow settlement of the phantom unit Awards to be deductible in a
future year. The Committee's determination shall be final and binding.
SECTION 9. Unrestricted Shares. Awards of unrestricted shares of Common
Stock of the Company may be granted by the Committee from time to time in its
discretion to participants in consideration of services rendered to the Company
or its subsidiaries; provided that the Committee obtains adequate authorization
(whether in advance or as ratification) from the Board of Directors to the
extent required to comply with Sections 33-6-210(b) and 33-8-250(e)(8) of the
South Carolina Business Corporation Act of 1988, as it may be amended from time
to time (the "SCBCA"), or any successor provisions, all as in effect at the time
of any such grants. Without limiting the preceding sentence, but subject to the
proviso therein, Awards of unrestricted shares may be granted by the Committee
from time to time to directors of the Company or its subsidiaries in lieu of or
as a supplement to cash fees for services rendered as directors.
SECTION 10. Qualifying Awards. The Committee may, in its sole discretion,
grant an Award (other than unrestricted shares) to any participant with the
intent that such Award as "performance-based compensation" under Section 162(m)
of the Code (a "Qualifying Award"). Qualifying Awards may be issued as stock
options or, if the settlement or vesting of the Award is conditioned upon
achievement of performance goals established pursuant to Section 10(A) below, as
restricted shares, phantom stock units or performance units. Unless otherwise
specified in writing by the Committee, either at the time an Award is granted or
at any time thereafter, all Awards issued under the Program that are either
stock options or Awards as to which the settlement or vesting of the Award is
conditioned upon achievement of performance goals established by the Committee
in accordance with Section 10(A) below, shall be treated as Qualifying Awards.
The provisions of this Section 10, as well as other applicable provisions of the
Plan not inconsistent with this Section 10, shall apply to all Qualifying Awards
issued under the Program.
(A) For Qualifying Awards, all amounts received upon the settlement or
vesting of restricted shares, phantom stock units and performance units shall be
based upon the attainment of performance goals established by the Committee in
accordance with Section 162(m) of the Code. Such performance goals may vary by
participant and by Award. For Awards granted on or after May 6, 1997 (or granted
prior to such date if their grant was conditioned upon approval of amendments to
the Program by the shareholders at their annual meeting on May 6, 1997), such
performance goals shall be based on any one or more (or any combination) of the
following business criteria: revenues, net income (before or after tax),
earnings, earnings per share, shareholders' equity, return on equity, assets,
return on assets, capital, return on capital, book value, economic value added,
operating margins, profit margins, cash flow, shareholder return, expenses,
sales or market share, expense management, return on investment, improvements in
capital structure, budget comparisons, profitability of an identifiable business
unit or product, or stock price, or shall be based on any one or more (or any
combination) of the foregoing business criteria: (1) before the effect of
acquisitions, divestitures, accounting changes, restructuring or other special
charges or other extraordinary items or (2) after giving effect to an adjustment
to reflect any such transaction or extraordinary item, to the extent in each
such case the Committee specifies, when granting the Award, that the effect of
any such transactions or extraordinary items, shall be disregarded or that a
particular formula or other objective method shall be used to make an
appropriate adjustment to reflect any such transaction or extraordinary item.
(i) The foregoing business criteria and the performance goals
established by the Committee may be applicable to the Company as a whole,
one or more of its subsidiaries, divisions, business units or business
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lines, or any combination of the foregoing. The performance goals also may
be based on the attainment of specified levels of Company performance under
one or more of the business criteria described above relative to the
performance of other corporations.
(ii) The Committee may condition the settlement or vesting of any such
Award on the attainment of other conditions, such as completion of a period
of service, that must be satisfied in addition to the performance goal or
goals specified in the Award and that may apply during the same or a
different time period than the period used for the performance goal or
goals.
(B) The Committee shall have the discretion, by participant and by Award,
to reduce (but not to increase) some or all of the amount that would otherwise
be payable under the Award by reason of the satisfaction of the performance
goals set forth in the Award. In making any such determination, the Committee is
authorized to take into account any such factor or factors it determines are
appropriate, including but not limited to Company, business unit and individual
performance.
(C) Prior to payment of any Qualifying Award, the Committee shall certify
in writing that the performance goals and any other material terms of the Award
were in fact satisfied, all in a manner consistent with the applicable
regulations under Section 162(m) of the Code. Such certification shall not be
required, however, for compensation that is attributable solely to an increase
in the value of the Company's Common Stock.
(D) If a participant leaves employment with the Company and its
subsidiaries as a result of death or disability, any restrictions with respect
to Qualifying Awards shall terminate as of the date of such termination;
provided however, that the Committee is authorized to defer or accelerate the
actual receipt, payment or settlement of any such Qualifying Award that is
vested or earned as a result of such termination of employment. In the event of
termination of employment for any other reason, a participant shall forfeit all
rights in respect of any Qualifying Awards as of the date of such termination.
SECTION 11. Withholding. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock or issue a certificate free of
restrictions for vesting shares previously subject to forfeiture under the
Program, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy any applicable federal, state and
local withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Program payments are to be made
in cash, such payments shall be net of an amount sufficient to satisfy any
applicable federal, state and local withholding tax requirements. A participant
may elect with respect to any stock option (other than an incentive stock
option), restricted share award, restricted stock unit or performance unit to
surrender or authorize the Company to withhold shares of Common Stock (valued at
current fair market value on the date of surrender or withholding of the shares)
in satisfaction of all such applicable withholding requirements (the "Stock
Surrender Withholding Election"); provided, however, that:
(A) Any Stock Surrender Withholding Election shall be made by written
notice to the Company and thereafter shall be irrevocable by the participant;
(B) If a participant is an "officer" of the Company or other person subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor law, any Stock Surrender Withholding Election shall be
subject to any additional rules established from time to time by the Committee;
(C) Any Stock Surrender Withholding Election must be made prior to the date
on which the participant recognizes taxable income with respect to the receipt
of such shares (the "Tax Date");
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(D) When the Tax Date falls after the exercise of a stock option and the
participant makes a Stock Surrender Withholding Election, the full number of
shares of Common Stock subject to the stock option being exercised will be
issued, but the participant will be unconditionally obligated to deliver to the
Company on the Tax Date a number of shares of Common Stock having a value on the
Tax Date equal to the participant's federal, state and local withholding tax
requirements; and
(E) For purposes of this Section, the Committee shall have the discretion
to provide (by general rule or a provision in a specific Award document) that,
at the election of the participant (and subject to such conditions as the
Committee may impose by general rule or in a provision in a specific Award
document), "federal, state and local withholding tax requirements" shall be
deemed to be any amount designated by the participant which exceeds the amount
required by applicable law and governmental regulations to be withheld but which
does not exceed the participant's total estimated federal, state and local tax
obligations associated with the transaction, including FICA taxes to the extent
applicable.
Shares subject to an Award under the Program that are surrendered or
withheld under this Section 11 to satisfy a participant's federal, state and
local withholding tax obligations shall not thereby become available for use
again under the Program.
SECTION 12. Committee Authority to Accelerate Right of Exercise and
Accelerate Vesting in Certain Circumstances. The Committee may determine when
granting any Award (and may specify in the Award document) or may determine at
any time after granting an Award (in circumstances deemed appropriate by the
Committee) that notwithstanding the fact that an outstanding stock option has
not otherwise become exercisable in full in accordance with its terms and
notwithstanding any conditions to the vesting or earning of a participant's
rights with respect to any Award of restricted shares, phantom stock units or
performance units, such Award shall become fully exercisable (in the case of
stock options) or otherwise shall become fully exercisable and fully vested and
earned upon a "Change in Control Event" described in this Section 12 or upon any
termination of such participant's employment with (or service as a director of)
the Company or its subsidiary or significant reduction in such participant's
responsibilities or compensation following any such Change in Control Event.
Such determinations may be different as to different Awards.
(A) A "Change in Control Event" shall be deemed to have occurred if:
(i) a tender offer or exchange offer has been made (other than by the
Company, any of its subsidiaries, any employee benefit plan of the Company
or of any of its subsidiaries, or any person organized, appointed or
established by the Company or any of its subsidiaries for or pursuant to
the terms of any such plan) if, upon consummation thereof, the corporation,
person or other entity making such offer would become an Acquiring Person
(as defined below), and provided that the corporation, person or other
entity making such offer purchases or otherwise acquires shares of the
Company's Common Stock pursuant to such offer; or
(ii) any person, entity or "group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act (excluding, for this purpose, any
employee benefit plan of the Company or of any of its subsidiaries, or any
person organized, appointed or established by the Company or any of its
subsidiaries for or pursuant to the terms of any such plan which acquires
beneficial ownership of voting securities of the Company) becomes an
Acquiring Person (other than through acquisitions from the Company or in a
transaction approved by the "Incumbent Board" as defined below); or
(iii) the individuals who constitute the Incumbent Board fail for any
reason to continue to constitute at least a majority of the Board of
Directors. The "Incumbent Board" at any time shall mean
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the persons who are then members of the Board of Directors and who (a) are
members of the Board of Directors as of February 4, 1997 or (b) become
members of the Board of Directors thereafter upon election, or nomination
for election by the Company's shareholders, by a vote of at least a
majority of the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act.)
For purposes hereof, "Acquiring Person" means any person or group of
affiliated or associated persons that, after February 4, 1997, becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors; provided however, that such term does not include any person who
beneficially owns 20% or more of either the Company's Common Stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors: (a) as a result of the
reduction in the number of shares of Common Stock outstanding due to the
Company's acquisition of its Common Stock; (b) as a result of (1) a will or the
laws of descent and distribution, (2) the transfer of shares to any member of
the transferor's immediate family or to a trust for the benefit of a member of
the transferor's immediate family (a "Transferee Trust"), (3) a divorce decree
or settlement or (4) the transfer of shares held on February 4, 1997 by any
trust or held at any time by a Transferee Trust to any beneficiary of such
trust; or (c) as a result of any acquisition by such person of shares pursuant
to any employee benefit plan of the Company or of any of its subsidiaries.
(B) The relevant Change in Control Event shall be deemed to occur:
(i) in the event of Section 12(A)(i) above, on or after the date on
which shares are purchased pursuant to such tender or exchange offer; or
(ii) in the event of Section 12(A)(ii) above, at any time after the
date upon which the Company is provided a copy of Schedule 13D (filed
pursuant to Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) or other notice indicating that any person, entity
or group has become an Acquiring Person or, if the Company is not subject
to Section 13(d) of the Exchange Act, at any time after the date upon which
the Company receives written notice that any person, entity or group has
become an Acquiring Person; or
(iii) in the event of Section 12(A)(iii) above, on or after the
occurrence of such failure.
SECTION 13. Regulatory and Other Legal Requirements. All aspects of this
Program shall be subject to applicable laws, rules, regulations and approvals
required by governmental entities and stock exchanges. Without limiting the
foregoing, the issuance of shares of the Company's Common Stock under the
Program is subject to applicable provisions of the SCBCA (or any successor
laws); without in any way abdicating its decision making authority in connection
with the grant of any Awards hereunder (including, but not limited to, the
Committee's authority to establish and administer performance goals and certify
as to the attainment of any such performance goals), the Committee may obtain
further parameters from the Board of Directors within which to exercise the
Committee's authority or may obtain ratification of the Committee's decisions by
the full Board of Directors or may do both to the extent deemed appropriate to
comply with the SCBCA (including Sections 33-6-210(b) and 33-8-250(e)(8)) or any
successor laws.
B-12
<PAGE> 50
SECTION 14. Grantor Trusts. The Committee may, in its discretion and in a
manner consistent with Section 13, establish one or more grantor trusts (with
such terms as the Committee may determine) and contribute shares of Common Stock
and such other assets as may be deemed desirable for use in satisfying the
Company's obligations to one or more participants under one or more Awards
granted hereunder. The creation and funding of any such trust with respect to
one or more Awards shall not create any obligation on the part of the Company or
any rights in participants receiving other Awards to have the same or any
similar trust created or funded with respect to other Awards. If any such trust
is used for purposes of satisfying the Company's obligations to any participant
under an Award, the Company shall be relieved of its obligation to satisfy any
claim for benefits under such Award to the extent such participant receives a
distribution from the trust of the shares of Common Stock or other assets due in
accordance with the Award, but the Company shall remain liable for any balance
due that is not received from such trust.
SECTION 15. Term. This Program initially became effective May 3, 1983 for
ten years and was amended, with shareholder approval, in 1990 to extend its term
to May 1, 2000. Subject to approval of certain amendments by the shareholders of
the Company at their annual meeting to be held on May 6, 1997 or at any
adjournment thereof, this Program has been further amended, effective on the
date of such shareholder approval, to extend its term to May 6, 2007 unless
terminated at an earlier date by the Board. No Awards shall be granted after
termination of the Program, but any then outstanding Awards shall continue in
effect for the remainder of their respective terms, subject to the conditions of
such Awards. No incentive stock options may be granted after February 4, 2007,
which is ten years after the Committee's adoption of the Program as most
recently extended and restated.
SECTION 16. Amendments and Discontinuance. The Committee may amend,
suspend, or discontinue the Program; provided, however, that the Committee may
condition the effectiveness of any amendment on shareholder approval to the
extent the Committee determines that shareholder approval is necessary or
desirable to qualify for: certain tax deductions or other desired treatment
under Section 162(m) or other Sections of the Code and related regulations of
the Internal Revenue Service, all as amended from time to time; certain
exemptions under Section 16 of the Exchange Act and related rules adopted by the
Securities and Exchange Commission, all as amended from time to time; or any
other desired exemption or treatment under any applicable law or regulation.
Notwithstanding the foregoing, no such amendment shall materially and adversely
affect the rights of any participant as to any Award then outstanding without
the consent of such participant.
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<PAGE> 51
APPENDIX A
PROXY PROXY
THE LIBERTY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION.
The undersigned hereby appoints Sophia G. Vergas and R. David Black, or
either of them, as proxies, with full power of substitution, to represent the
undersigned at the 1997 Annual Meeting of Shareholders of The Liberty
Corporation ("Liberty") to be held at 10:30 a.m. on May 6, 1997, at The Liberty
Corporation Headquarters Building, Wade Hampton Boulevard, Greenville, South
Carolina, and any adjournment thereof, and to vote all the shares of Liberty
stock which the undersigned would be entitled to vote, if personally present.
<TABLE>
<S> <C> <C>
1. Election of Directors: [ ] FOR ALL 4 NOMINEES [ ] WITHHOLD AUTHORITY
listed below (except to vote for all
as marked to the nominees listed
contrary below) below
</TABLE>
Hayne Hipp, Buck Mickel, J. Thurston Roach and William B. Timmerman
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided.)
- ------------------------------------------------------------------------------
2. Proposal to amend the Restated Articles of Incorporation regarding director
liabilities.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the material amendments to, and the eligible
participants under, the Performance Incentive Compensation Program.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the appointment of Ernst & Young LLP as independent
public accountants for Liberty.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before said meeting.
PLEASE SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
<PAGE> 52
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH INSTRUCTIONS CONTAINED HEREIN. IN THE ABSENCE OF SUCH INSTRUCTIONS, THIS
PROXY WILL BE VOTED IN FAVOR OF ALL THE FOREGOING PROPOSALS.
SHARES
Date , 1997
---------------------
---------------------------------
Signature
---------------------------------
Signature
(Please sign your name exactly as
it appears hereon. Executors,
administrators, guardians,
officers of corporations, and
others signing in a fiduciary
capacity should state their full
titles as such.)
