[logo]LIBERTY
FINANCIAL
Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210-2214
April 11, 1997
To my fellow Stockholders:
I am pleased to invite you to attend the 1997 Annual Meeting of
Stockholders of Liberty Financial Companies, Inc. The Meeting will be held on
Tuesday, May 13, 1997, at 11:00 a.m. in the New England Room on the fourth floor
of The Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston,
Massachusetts.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement set forth the business to be presented at this year's Meeting and
certain other information about Liberty Financial and its officers and
directors.
If you plan to attend the Meeting, please bring a form of personal
identification with you and, if you are acting as proxy for another, please
bring written confirmation from the record owner that you are acting as proxy.
Whether or not you expect to attend the meeting, please sign and date the
enclosed form of proxy and return it promptly in the accompanying envelope to
ensure that your shares will be represented. If you attend the Meeting, you may
withdraw any proxy previously given and vote your shares in person.
Cordially,
/s/ Kenneth R. Leibler
Kenneth R. Leibler
President and
Chief Executive Officer
<PAGE>
[logo]LIBERTY
FINANCIAL
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 13, 1997
To the Stockholders of
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Liberty Financial Companies, Inc. will be held in the New England Room on the
fourth floor of The Federal Reserve Bank of Boston at 600 Atlantic Avenue,
Boston, Massachusetts, on Tuesday, May 13, 1997, at 11:00 a.m. (the "Meeting"),
for the following purposes, all as set forth in the attached Proxy Statement:
(1) To elect six Directors with terms expiring at the 2000 Annual Meeting
of Stockholders;
(2) To approve Liberty Financial's Amended and Restated 1995 Stock
Incentive Plan; and
(3) To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for the Meeting.
It is important that your shares be represented at the Meeting regardless
of the number of shares you may hold. Please complete, sign and date the
enclosed form of proxy and return it promptly in the enclosed envelope which
requires no postage if mailed within the United States.
By Order of the Board of Directors,
/s/ John A. Benning
John A. Benning
Clerk
Boston, Massachusetts
April 11, 1997
<PAGE>
[logo]LIBERTY
FINANCIAL
LIBERTY FINANCIAL COMPANIES, INC.
PROXY STATEMENT
FOR THE
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
This Proxy Statement, with the accompanying proxy card, is being mailed to
Stockholders on or about April 4, 1997 and is furnished in connection with the
solicitation of proxies by the Board of Directors of Liberty Financial
Companies, Inc. ("Liberty Financial") to be used at the 1997 Annual Meeting of
Stockholders to be held on May 13, 1997 (and any adjournment thereof) (the
"Meeting").
VOTING INFORMATION
The Board of Directors has established March 21, 1997 as the record date
for the Meeting (the "Record Date"). Holders of shares of Liberty Financial's
Common Stock, $.01 par value ("Common Stock"), and holders of Liberty
Financial's Series A Convertible Preferred Stock, $.01 par value ("Preferred
Stock"), whose names appeared of record at the close of business on the Record
Date will be entitled to vote at the Meeting. On that date, 28,903,931 shares of
Common Stock and 327,340 shares of Preferred Stock were issued and outstanding.
Each issued and outstanding share of Common Stock will be entitled to one vote
on each matter to be voted on at the Meeting. Each issued and outstanding share
of Preferred Stock will be entitled to 1.0559 votes (i.e., the number of shares
of Common Stock into which one share of Preferred Stock was convertible on the
Record Date) per share on each such matter. The Common Stock and the Preferred
Stock will vote together as a single class on those matters presented for
approval at the Meeting. Shares of Common Stock and Preferred Stock can be voted
only if the owner of record is present to vote or is represented by proxy.
If you sign, date and return the enclosed proxy card in time for the
Meeting and do not subsequently revoke it, your shares will be voted in
accordance with your instructions as marked in the spaces provided for such
purpose. If no instructions are specified, your shares will be voted FOR the
election of the nominees for Director and FOR approval of the Amended and
Restated 1995 Stock Incentive Plan.
You may revoke your proxy at any time before it is exercised by returning
to Liberty Financial another properly signed proxy representing such shares and
bearing a later date or by otherwise delivering a written revocation to the
following address: Proxy Services, Boston EquiServe, P.O. Box 9381, Boston,
Massachusetts 02205-9956. A Stockholder attending the Meeting may vote in person
even though he or she may have previously filed a proxy.
The holders of a majority in interest of the combined voting power of the
Common Stock and the Preferred Stock issued, outstanding and entitled to vote at
the Meeting are required to be present in person or be represented by proxy at
the Meeting in order to constitute a quorum for the transaction of business. The
election of nominees for Director will be decided by plurality vote of the
shares represented and entitled to vote at the Meeting. Approval of the Amended
and Restated 1995 Stock Incentive Plan requires the vote of a majority of the
shares represented and entitled to vote at the Meeting.
<PAGE>
Abstentions and broker non-votes will be treated as shares present or
represented at the Meeting for quorum purposes. On each proposal considered at
the Meeting, abstentions will have the effect of negative votes, while broker
non-votes will be disregarded (i.e., they will not be considered shares entitled
to be voted on the proposal).
As of the Record Date, LFC Holdings Inc. ("LFC Holdings"), an indirect
wholly owned subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual"),
held shares of Common Stock representing 80.5% of the combined voting power of
the Common Stock and the Preferred Stock. LFC Holdings has indicated that it
will vote its shares in favor of each item proposed for approval by the Board of
Directors at the Meeting.
ELECTION OF DIRECTORS
(Proxy Item 1)
There are currently 21 members of the Board of Directors, divided into
three classes with terms expiring at the 1997, 1998 and 1999 Annual Meetings,
respectively. Two of the Directors whose term expires in 1997, Richard B. Smith
and Stanley A. Wainer, are retiring and will not stand for re-election. The
Board of Directors has fixed the number of Directors in such class for the
ensuing three-year term at six and nominated the Directors set forth below for
reelection at the Meeting for terms of office that will expire at the 2000
Annual Meeting. All of the nominees were elected to their current terms in 1994.
Each Director will continue in office until the Director's term expires and
until his or her successor is elected and qualified or until his or her death,
resignation or removal.
Management has made inquiries and believes that each of the nominees will
be willing and able to serve if elected. If any of the nominees shall be
unwilling or unable to serve, discretionary authority is reserved to vote for a
substitute chosen by the Board of Directors, or the Board of Directors may
reduce the number of Directors.
Biographical information is set forth below with respect to the Director
nominees and the Directors whose terms of office expire in 1998 and 1999.
Nominees For Election As Directors
Terms Expire at the 2000 Annual Stockholders' Meeting
<TABLE>
<S> <C>
MICHAEL J. BABCOCK Private investor; from 1992 to January, 1995, President and Chief Operating
Age 55 Officer of Leslie Fay Companies, Inc., an apparel manufacturer; Director of
Director since 1991 Liberty Mutual and Liberty Mutual Fire Insurance Company (an affiliate of
Liberty Mutual ("Liberty Fire")). On April 5, 1993, Leslie Fay Companies, Inc.
filed for protection from creditors under Chapter 11 of the federal Bankruptcy
Code.
HAROLD W. COGGER Executive Vice President of Liberty Financial since March, 1995; President of
Age 61 The Colonial Group, Inc. ("Colonial") from November, 1994 to December,
Director since 1995 1996 and Chief Executive Officer from March, 1996 to December, 1996;
President of Colonial Management Associates, Inc., a wholly owned subsidiary
of Colonial ("CMA"), from 1993 to December, 1996, and Chief Executive
Officer from March, 1995 to December, 1996.
2
<PAGE>
GARY L. COUNTRYMAN Chief Executive Officer of Liberty Mutual and Liberty Fire since 1986, and
Age 57 Chairman of both companies since 1991; Director of Liberty Mutual and certain
Director since 1991 of its affiliates, BankBoston Corporation, Boston Edison Company and
Harcourt General, Inc.
JOHN P. HAMILL President of Fleet Bank of Massachusetts, N.A. since 1992; Director of Liberty
Age 57 Mutual and Liberty Fire.
Director since 1991
MARIAN L. HEARD President and Chief Executive Officer of the United Way of Massachusetts Bay
Age 56 and Chief Executive Officer of the United Ways of New England since 1992;
Director since 1994 Director of Liberty Mutual and Liberty Fire and a Director or Trustee of
numerous national and local non-profit organizations.
SABINO MARINELLA Vice Chairman of Liberty Financial since January 1, 1995; Chief Executive
Age 67 Officer of Liberty Financial prior thereto.
Director since 1990
Directors Continuing In Office
Terms Expire at the 1998 Annual Stockholders' Meeting
GREGORY H. ADAMIAN Chancellor of Bentley College; Director of Liberty Mutual and Liberty Fire.
Age 70
Director since 1991
GERALD E. ANDERSON Retired; from 1974 until his retirement in 1992, President, Chief Executive
Age 65 Officer and Trustee of Commonwealth Energy System, a public utility holding
Director since 1991 company; Director of Liberty Mutual and Liberty Fire.
EDMUND F. KELLY President and Chief Operating Officer of Liberty Mutual and Liberty Fire since
Age 51 1992; Director Liberty Mutual and certain of its affiliates.
Director since 1992
KENNETH R. LEIBLER Chief Executive Officer of Liberty Financial since January 1, 1995; President
Age 47 of Liberty Financial since August, 1990; Chief Operating Officer from August,
Director since 1991 1990, until December, 1994; prior to August, 1990, President and Chief
Operating Officer of the American Stock Exchange, Inc.; Director of the Boston
Stock Exchange.
RAY B. MUNDT Chairman and (prior to September, 1993) Chief Executive Officer of Alco
Age 68 Standard Corporation, a distributor of paper packaging products and office
Director since 1991 equipment; Director of Alco Standard Corporation, Liberty Mutual, Liberty Fire,
Corestates Bank, Nocopi Technologies, Inc. and Unisource World Wide, Inc.
3
<PAGE>
GLENN P. STREHLE Treasurer of the Massachusetts Institute of Technology and Vice President since
Age 61 1986 (becoming Vice President for Finance and Treasurer in June, 1994);
Director since 1991 Director of Liberty Mutual, Liberty Fire, BankBoston Corporation and
SofTech, Inc., and a Trustee of Property Capital Trust.
MICHAEL von CLEMM Financier and Consultant; President, Templeton College, Oxford University
Age 61 since 1996; Executive Vice President of Merrill Lynch & Co., Inc. from 1986
Director since 1993 until his retirement in 1992; Director of Liberty Mutual, Liberty Fire, Nycomed
AS and Eastman Chemical Company.
Directors Continuing in Office
Terms Expire at the 1999 Annual Stockholders' Meeting
PAUL J. DARLING, II Chairman, President and Chief Executive Officer of Corey Steel Company, a
Age 59 manufacturer of cold finished steel bars and a metal service center; Director
Director since 1991 of Liberty Mutual, Liberty Fire and Unisource World Wide, Inc.
C. HERBERT EMILSON Retired; Vice Chairman of Colonial from November, 1994 to March, 1996;
Age 68 President and Chief Operating Officer of Colonial from 1983 to October, 1994;
Director since 1995 Director of many Boston-area non-profit institutions.
DAVID F. FIGGINS Retired; Chairman of Trafalgar House Construction, Inc., a construction
Age 68 company; Director of Liberty Mutual, Liberty Fire and First Bell Bancorp, Inc.
Director since 1991
JOHN B. GRAY Retired; from 1986 until his retirement in 1990, Mr. Gray served as President
Age 69 of Dennison Manufacturing Company, a manufacturer of self-adhesive
Director since 1991 materials and office supplies; Director of Liberty Mutual, Liberty Fire, EG&G
Inc. and Stackpole Corporation.
RAYMOND H. HEFNER, JR. President of Bonray, Inc., an oil and gas exploration company; Director of
Age 69 Liberty Mutual, Liberty Fire and Gulf Canada Resources Limited; also a
Director since 1991 Director of Liberty Bancorp, Inc. (which is not affiliated with Liberty Financial
or Liberty Mutual).
STEPHEN J. SWEENEY Retired; held various management positions with Boston Edison Company, an
Age 68 electric utility company, serving as President and Chief Executive Officer from
Director since 1991 1984 to 1986, as Chairman and Chief Executive Officer from 1987 to 1990,
and as Chairman from 1990 until his retirement in 1992; Director of Liberty
Mutual, Liberty Fire, Boston Edison Company, the Boston Stock Exchange,
Uno Restaurants, Inc. and Microscript, Inc.
</TABLE>
1996 Meetings And Standard Fee Arrangements
1996 Meetings. During 1996, the Board of Directors held five meetings. The
Board has an Executive Committee, an Audit Committee and a Compensation and
Stock Option Committee. No member of the Audit Committee or the Compensation and
Stock Option Committee is an employee of Liberty Financial or its subsidiaries.
4
<PAGE>
Executive Committee. The Executive Committee has and may exercise all the
powers of the full Board of Directors, except as otherwise limited by
Massachusetts corporation law or Liberty Financial's Restated Articles of
Organization or Restated By-laws. The Executive Committee did not meet in 1996.
As of the date of this Proxy Statement, its members were Messrs. Countryman
(Chairman), Leibler, Cogger, Emilson, Kelly, Marinella and Strehle.
Audit Committee. The Audit Committee is responsible for obtaining and
reviewing independent analyses of Liberty Financial's accounting policies and
procedures, financial controls and financial information provided to the Board
of Directors. The Audit Committee makes reports and recommendations to the Board
of Directors, at least annually, with respect to such reviews, including matters
such as: accounting records, practices and procedures; the annual appointment of
outside auditors, together with the scope, adequacy, cost and results of the
annual audit and the relationship between management and such outside auditors;
the scope and adequacy of internal audit procedures; controls for disbursement
procedures and asset safekeeping; and such other matters as the Board of
Directors may request.
The Audit Committee held four meetings in 1996. As of the date of this
Proxy Statement, its members were Ms. Heard and Messrs. Figgins, Gray, Strehle
and Sweeney (Chairman).
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee (i) reviews and approves all director and management compensation,
including salaries, incentive compensation, pension and fringe benefit policies
and procedures and (ii) administers Liberty Financial's 1990 Stock Option Plan,
1995 Stock Incentive Plan and 1995 Employee Stock Purchase Plan and has the
power and authority to grant awards (and determine the terms thereof) to
eligible officers and other key employees thereunder.
The Compensation and Stock Option Committee held three meetings in 1996. As
of the date of this Proxy Statement, its members were Messrs. Countryman,
Adamian, Babcock, Hamill, Mundt (Chairman) and Wainer. The Compensation and
Stock Option Committee has established a sub-committee consisting of each member
of the Committee other than Mr. Countryman, who for purposes of Rule 16b-3 under
the Exchange Act is not considered to be a disinterested director of Liberty
Financial. This subcommittee has exclusive authority for approving transactions
involving equity securities of the Company (including acquisitions [such as
grants and other awards] and dispositions [such as redemptions and other
repurchases] of equity securities of the Company) under benefit plans
administered by the Committee involving officers subject to the provisions of
Section 16 under the Securities Exchange Act of 1934 (the "Exchange Act").
In 1996, each Director attended at least 75% of the total number of
meetings of the Board of Directors and the Committees of the Board on which he
or she served while he or she was in office, except Mr. Babcock and Mr. Smith.
Fee Arrangements. Directors who are officers or employees of Liberty
Financial, Liberty Mutual or their affiliates receive no compensation for their
service as Directors of Liberty Financial. Except with respect to Mr. Emilson,
each member of the Board of Directors who is not an officer or employee of
Liberty Financial, Liberty Mutual or their affiliates is paid by Liberty Mutual
an annual retainer in the amount of $18,000. Liberty Financial pays each such
director a $200 fee for each Board or Committee meeting attended. Liberty
Financial pays Mr. Emilson an annual retainer in the amount of $18,000, and pays
him $1,200 for each Board meeting attended and $200 for each Committee meeting
attended.
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
Common Stock
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock by LFC Holdings (the only person or entity
known to Liberty Financial to be the beneficial owner of 5% or more of Liberty
Financial's Common Stock), each executive officer of Liberty Financial named in
the summary compensation table appearing elsewhere in this Proxy Statement, each
Director of Liberty Financial who owns beneficially any shares of Common Stock,
and all Directors and executive officers as a group, in each case as of March
21, 1997. Except as noted in the footnotes to such table, based on information
provided by such persons, each holder of Common Stock has or will have sole
voting and investment power with respect to the shares of Common Stock set forth
below. Unless otherwise indicated below, the address of each such person is: c/o
Liberty Financial Companies, Inc., 600 Atlantic Avenue, Boston, Massachusetts
02210.
<TABLE>
<CAPTION>
Shares
Owned
Name Beneficially Percentage
- ---------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
LFC Holdings, Inc.
c/o Liberty Mutual
175 Berkeley Street
Boston, MA 02117 ................................................... 23,550,495 81.5%
Kenneth R. Leibler(2) ................................................ 304,454 1.0%
Harold W. Cogger(3 4) ................................................ 135,077 *
John W. Rosensteel(2) ................................................ 57,417 *
C. Allen Merritt(2) .................................................. 79,504 *
John A. Benning(2) ................................................... 96,097 *
Dr. Gregory H. Adamian ............................................. 1,000 *
Gerald E. Anderson ................................................ 500 *
Paul J. Darling II ................................................ 1,000 *
C. Herbert Emilson(5) ................................................ 208,831 *
John B. Gray ...................................................... 200 *
Sabino Marinella(2) .................................................. 478,433 1.6%
Glenn P. Strehle ................................................... 500 *
Stephen J. Sweeney ................................................ 100 *
All executive officers and directors as a group (31 persons)(6) ...... 1,604,045 5.3%
</TABLE>
- ------------
* Less than 1%.
(1) Percentages are calculated pursuant to Rule 13d-3 under the Exchange Act.
Such calculations assume, for each person and group, that all shares which
may be acquired by such person or group (i) pursuant to options presently
exercisable or which become exercisable within 60 days following March 21,
1997 or (ii) upon conversion of
6
<PAGE>
shares of Preferred Stock are outstanding for the purpose of computing the
percentage of Common Stock owned by such person or group. However, those
unissued shares of Common Stock are not deemed to be outstanding for the
purpose of calculating the percentage of Common Stock owned by any other
person.
(2) Except as indicated below, consists of options to purchase shares of Common
Stock which are presently exercisable or which become exercisable within 60
days following March 21, 1997. Also includes 10,100 shares owned by Mr.
Leibler, 5,500 shares owned by Mr. Rosensteel, 1,500 shares owned by Mr.
Merritt, 1,750 shares owned by Mr. Benning and 9,910 shares owned by Mr.
Marinella.
(3) Includes options to purchase 61,800 shares all of which are fully vested and
exercisable, and options to purchase an additional 4,500 shares which become
exercisable on May 7, 1997.
(4) Includes 66,263 shares of Common Stock issuable upon conversion of 62,755
shares of Preferred Stock owned by Mr. Cogger.
(5) Includes 95,692 shares of Common Stock owned of record by Pauline V. Emilson
(Mr. Emilson's spouse), as to which Mr. Emilson disclaims any beneficial
ownership. Also includes 536 shares of Common Stock held in trust under the
C. Herbert and Pauline V. Emilson Charitable Remainder Unitrust and 3,779
shares of Common Stock held in trust under the C. Herbert Emilson and
Pauline V. Emilson Charitable Annuity Trust, as to which Mrs. Emilson (as a
co-trustee of each such trust) shares voting and investment power, and as to
which Mr. Emilson disclaims any beneficial ownership.
(6) Includes (without duplication), (i) the option shares referenced in notes 2
and 3 above, (ii) Mr. Cogger's shares referenced in note 4 above, (iii) the
shares owned by Pauline V. Emilson referenced in Note 5 above and (iv) the
trust shares referenced in note 5 above. Also includes options to purchase
an additional 152,410 shares of Common Stock held by unnamed executive
officers which are presently exercisable or which become exercisable within
60 days following March 21, 1997.
Preferred Stock
The table below sets forth certain information with respect to the
beneficial ownership of Preferred Stock by each person or entity known to
Liberty Financial to be the beneficial owner of more than five percent of the
shares of Preferred Stock, each executive officer of Liberty Financial named in
the summary compensation table appearing elsewhere in this Proxy Statement who
owns beneficially any shares of Preferred Stock, each Director of Liberty
Financial who owns beneficially any shares of Preferred Stock, and all Directors
and executive officers as a group as of March 21, 1997. Except as noted in the
footnotes to such table, based on information provided by such persons, each
holder of Preferred Stock has or will have sole voting and investment power with
respect to the shares of Preferred Stock set forth below. Except as noted in the
footnotes to such table, the address of each such person is: c/o Liberty
Financial Companies, Inc., 600 Atlantic Avenue, Boston, Massachusetts 02210.
<TABLE>
<CAPTION>
Shares
Owned
Name Beneficially Percentage
- ---- -------------- ------------
<S> <C> <C>
Trustees of the Irrevocable Trust
For Children dated September 24, 1985 (of C. Herbert Emilson)(1) ...... 147,515 45.1%
Harold W. Cogger ...................................................... 62,755 19.2%
Merrill Lynch, Pierce, Fenner & Smith, Inc
101 Hudson Street
Jersey City, New Jersey 07302 ....................................... 55,449 16.9%
All executive officers and directors as a group (31 persons)(2)......... 210,270 64.2%
</TABLE>
7
<PAGE>
- ------------
(1) The trustees of such trust are John A. McNeice, Jr., Davey S. Scoon and
Linda S. Dalby, who share voting and investment power and disclaim any
beneficial ownership. The address of such trust is c/o Linda S. Dalby, Esq.,
50 Rowes Wharf, Boston, Massachusetts 02110.
(2) Includes the trust shares referenced in note 1 above.
In connection with Liberty Financial's acquisition of Colonial (effective
March 24, 1995), each person acquiring shares of Preferred Stock had the right
to become a party to a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement provides that a holder of Preferred Stock who is a
party thereto may not transfer the Preferred Stock without the prior written
consent of Liberty Financial prior to the fifth anniversary of the acquisition,
except to certain permitted transferees. The Stockholders Agreement also
provides that at any time during the first 60 days after the fifth anniversary
of the acquisition, each party to the Stockholders Agreement may elect to sell
to Liberty Mutual, and Liberty Mutual shall be obligated to purchase, all, but
not less than all, of the Preferred Stock then owned by such party (the "Put
Shares") at a price of $50.00 per Put Share (appropriately adjusted for any
changes in capitalization affecting the Preferred Stock), plus accrued but
unpaid dividends through the date of purchase. Liberty Mutual may designate
Liberty Financial (without any further action or approval by Liberty Financial)
or another person or entity as the purchaser of the Put Shares; provided,
however, that no such designation shall relieve Liberty Mutual of its
obligations to purchase the Put Shares if the designee fails to do so. The
restrictions on transfer and the provisions requiring the purchase of the Put
Shares do not apply to any shares of Common Stock acquired upon conversion of
the Preferred Stock, and the Stockholders Agreement does not restrict such
conversion. Holders of substantially all of the Preferred Stock are parties to
the Stockholders Agreement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Liberty Financial's executive
officers and Directors, and any persons who own more than 10% of a class of
Liberty Financial's equity securities registered under the Exchange Act
(currently only the Common Stock), to file reports of ownership and changes in
ownership of securities with the Securities and Exchange Commission (the "SEC")
and the New York Stock Exchange. Executive officers, Directors, and persons who
own more than 10% of the Common Stock are required by SEC regulations to furnish
Liberty Financial with copies of all Section 16(a) reports they file. To Liberty
Financial's knowledge, LFC Holdings currently is the only stockholder owning
more than 10% of the Common Stock.
Based solely on a review of the copies of such reports received by it or
written representations from certain reporting persons that no other reports
were required Liberty Financial believes that all Section 16(a) filing
requirements applicable to its executive officers, Directors and 10%
stockholders were complied with during 1996, except as indicated below. LFC
Holdings filed a report on Form 4 in January, 1997 reporting two transactions
each of which was reportable on a Form 4 for an earlier period during 1996.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Committee Report
on
Executive Compensation
This report has been prepared by the Compensation and Stock Option
Committee of the Board of Directors (the "Committee").
The Committee administers the executive compensation program of Liberty
Financial and its subsidiaries. The Committee is comprised of the six directors
listed at the end of this report, none of whom is an employee of Liberty
Financial or any of its subsidiaries. Each member of the Committee (other than
Gary L. Countryman) qualifies as a non-employee director for the purpose of Rule
16b-3 under the Exchange Act. All members of the Committee qualify as outside
directors for purposes of Section 162(m) of the Internal Revenue Code (the
"Code").
8
<PAGE>
The Committee approves all components of the compensation of the senior
executives of Liberty Financial and its subsidiaries. This report describes
Liberty Financial's compensation program for executive officers and the bases on
which 1996 compensation determinations were made by the Committee with respect
to executive officers, including the President and Chief Executive Officer
("CEO"), Kenneth R. Leibler, and the other executive officers named in the
compensation tables appearing elsewhere in this Proxy Statement.
Compensation Philosophy and Overview
The primary objectives of Liberty Financial's executive officer compensation
program are:
[bullet] To provide balanced and competitive total compensation that
enables Liberty Financial and its subsidiaries to attract,
motivate and retain highly qualified executives.
[bullet] To create incentives for enhancing Liberty Financial's
profitability, and for attaining its other strategic goals,
through performance-based devices that reward executive officers
for achieving corporate and business unit goals and individual
management goals.
[bullet] To align the financial interests of executive officers with those
of stockholders, and to promote Liberty Financial's strategy of
integrating the activities of its various business units, through
the use of performance- based devices tied to corporate-wide
goals, as well as stock-based compensation.
Generally, Liberty Financial aims for executive compensation to be at the
middle range of the market for comparable positions at similar companies for
performance which meets corporate and business unit goals and individual
management goals; above such market range for performance above such goals; and
below such market range for performance which does not meet such goals. Liberty
Financial regularly utilizes the services of an independent consulting firm
specializing in executive compensation of financial services companies for the
purpose of determining market levels of compensation for comparable positions in
companies of relevant size and business profile ("peer companies"). The
Committee considers these survey results in determining executive compensation.
The peer companies used in these surveys generally include companies in the
investment management and annuity businesses.
Corporate and business unit goals applied in determining compensation are
derived from business plans presented to the Board of Directors. For 1996, such
goals generally were defined in terms of specified levels of pre-tax income from
operations and product sales. These goals are established on a corporate-wide
basis for the CEO and the other holding company executive officers. Goals for
executive officers of separate business units are measured both with respect to
the performance of their separate units and the corporate-wide goals (with the
former receiving a greater weighting).
The primary elements of Liberty Financial's executive officer compensation
program are base salary, annual cash bonuses which vary from year-to-year
depending upon performance measured against corporate and business unit goals
and individual management goals, and long-term incentives in the form of
stock-based compensation.
Base Salary
The purpose of base salary is to attract and retain key executives by
providing a base level of income that recognizes the market value of the
position. Base salary for executive officers is targeted in the middle range of
the relevant market, with adjustments as appropriate to reflect the individual's
performance and experience. Base salaries for executive officers are reviewed
annually by the Committee, and typically are subject to merit increases based on
performance or unique individual circumstances.
Annual Bonus
Executive officers are eligible for annual cash bonuses. Annual bonus
awards are based upon achievement of a combination of corporate and business
unit goals and individual management goals. These goals are established
9
<PAGE>
at the beginning of the year in consultation with the CEO. Each executive
officer has a target bonus expressed as a percentage of base salary. The target
bonus is weighted between corporate and business unit goals and individual
management goals (with the corporate and business unit component typically
receiving a greater weighting). Corporate and business unit performance must
exceed a threshold level in order for any portion of this component of the
target bonus to be earned by the executive. This component will increase to a
specified cap if corporate and business unit performance exceeds the target
levels. Similarly, the individual component also is subject to certain
thresholds and multipliers.
Stock-Based Compensation
Liberty Financial's 1995 Stock Incentive Plan (the "1995 Incentive Plan")
is designed to provide stock-based compensation which allows senior executives
and other key employees to participate in the future growth of Liberty
Financial, thereby aligning their interests with those of stockholders.
Stock-based compensation also promotes Liberty Financial's strategy of
integrating the activities of its various business units, since the future value
of its stock will reflect its consolidated results, rather than the performance
of any particular business unit or units.
Historically, awards under the 1995 Incentive Plan have consisted solely of
stock options. Each option granted has an exercise price per share set at fair
market value on the date of grant. Each option has a life of 10 years and
becomes exercisable in four equal annual installments beginning on the first
anniversary of the grant date. For 1997, the Committee may consider granting a
portion of awards in the form of shares of restricted stock. Any such restricted
stock awards could have vesting provisions based on continued service, or the
attainment of certain performance measures, or both. In granting awards, the
Committee takes into account the executive's level of responsibility, past
contributions and anticipated ability to contribute to Liberty Financial's
future performance. The Committee also considers long-term incentive practices
in peer companies. Beginning in 1997, awards to persons who are subject to the
provisions of Section 16 of the Exchange Act will be granted by a subcommittee
consisting of each member of the Committee other than Mr. Countryman, who for
purposes of Rule 16b-3 under the Exchange Act is not considered to be a
disinterested director of Liberty Financial.
1996 CEO Compensation
Mr. Leibler's base salary was raised from $655,000 for 1995 to $705,000 for
1996. Mr. Leibler also received a grant of 60,000 stock options in May, 1996. In
February, 1997 the Committee awarded Mr. Leibler a bonus of $750,000 for 1996
performance. The Committee determined that this base salary increase and option
grant was merited by Mr. Leibler's performance in 1995, as reflected by Liberty
Financial's pre-tax income from operations and product sales in relation to
corporate-wide targets for 1995, Mr. Leibler's success in completing several
acquisitions in 1995 (including acquisitions of The Colonial Group, Inc.,
Newport Pacific Management, Inc., the bank distribution business of Wall Street
Investor Services, Inc. and American Asset Management Company) and successfully
integrating the acquired businesses into Liberty Financial's other businesses,
and Mr. Leibler's overall leadership and decision-making impact on the
achievement of Liberty Financial's business plan objectives in 1995. With
respect to base salary, the Committee also considered market benchmarks for base
salaries of chief executive officers at peer companies. With respect to the
option grant, the Committee also sought to create a significant financial
incentive to continue the strategy of enhancing relationships among the
subsidiaries' existing operations, with a view toward increasing product sales,
generating additional expense savings, and thereby increasing Liberty
Financial's profitability and shareholder value.
In determining Mr. Leibler's 1996 bonus, the Committee considered Liberty
Financial's pre-tax income from operations and product sales in relation to
corporate-wide targets for 1996 and Mr. Leibler's success in completing certain
additional acquisitions in 1996 (including the acquisition of Independent
Financial Marketing Group, Inc. ("IFMG")) and successfully integrating the
acquired businesses into Liberty Financial's other businesses (including
10
<PAGE>
the consolidation of Liberty Financial's bank marketing operations into IFMG).
The Committee also considered Mr. Leibler's overall leadership and
decision-making impact on the achievement of Liberty Financial's business plan
objectives in 1996. The Committee believes that these achievements were
reflected in the increase in the market value of Liberty Financial's Common
Stock during 1996.
Deductibility of Executive Compensation under the Code
Under Section 162(m) of the Code, a publicly held corporation cannot deduct
in any taxable year compensation in excess of one million dollars paid to each
of its CEO and its four other most highly compensated officers. However, the
deduction limitation of Section 162(m) does not apply to certain
performance-based compensation arrangements.
Liberty Financial's stock-based compensation programs have been designed so
that compensation in respect of outstanding stock options will not be subject to
the limitation on deductibility under Section 162(m). The Code and Internal
Revenue Service regulations under Section 162(m) provide that, with respect to
annual cash bonuses, in order to assure deductibility of any bonus compensation
that may bring total compensation over the million dollar limit, a rigid
"formula type" bonus approach must be used with only limited Committee
discretion permitted. The Committee believes that judgment and discretion are
critical to effective performance assessment as well as related bonus
determinations and has therefore decided not to adopt such a rigid formula-type
bonus plan at this time. Thus, any payments to those five executive officers in
excess of the limit resulting from such cash bonuses may not be deductible for
tax purposes. The Committee has concluded that the near-term impact of these
provisions on Liberty Financial's tax reporting will not be material. The
Committee will continue to monitor the impact of Section 162(m) on an ongoing
basis in order to balance the benefits of favorable tax treatment for Liberty
Financial with a need to apply prudent judgment in carrying out the Committee's
compensation philosophy with respect to the applicable executive officers.
Members of the Compensation Committee
The members of the Committee submitting this report are:
Gregory H. Adamian
Michael J. Babcock
Gary L. Countryman
John P. Hamill
Ray B. Mundt (Chairman)
Stanley A. Wainer
Mr. Wainer is retiring as a Director effective with the expiration of his
current term on May 13, 1997.
Executive Compensation Tables and Information
The tables that appear below, along with the accompanying text and
footnotes, provide information on compensation and benefits for the named
executive officers, in accordance with applicable SEC requirements. All the data
regarding values for stock options are hypothetical in terms of the amounts that
an individual may or may not receive, because such amounts are contingent on
continued employment with Liberty Financial and the price of the Common Stock.
All year-end values shown in these tables for outstanding stock options reflect
a price of $38 7/8 per share, which was the closing price of the Common Stock on
December 31, 1996. None of the named executive officers received any perquisites
during 1996 exceeding the lesser of $50,000 or 10% of such officer's total
salary and bonus for such year.
Summary Compensation Table. The following table sets forth compensation
information for the past three fiscal years for each of Liberty Financial's
chief executive officer and the other four most highly compensated executive
officers:
11
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------- --------------
Awards
--------------
Securities
Name and Principal Base Underlying All Other
Position during 1996 Year Salary ($) Bonus ($)(1) Options (#) Compensation ($)(2)
- --------------------------- ------- ------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Kenneth R. Leibler 1996 705,000 750,000 60,000 48,475
President and Chief 1995 655,000 491,000 38,000 40,538
Executive Officer 1994 593,500 386,000 99,848 44,368
Harold W. Cogger(3) 1996 450,000 478,350(4) 18,000 40,854
Executive Vice President 1995 425,000 516,250(4) -- 40,854
John W. Rosensteel 1996 396,500 275,000 15,000 27,994
President and Chief 1995 381,150 187,000 15,000 31,535
Executive Officer of 1994 346,500 225,000 33,283 25,606
Keyport Life Insurance
Company
C. Allen Merritt 1996 293,000 200,000 18,000 17,175
Senior Vice President 1995 275,000 135,000 11,000 15,280
and Treasurer 1994 255,000 130,000 19,970 13,500
John A. Benning 1996 318,000 171,720 15,000 21,947
Senior Vice President 1995 303,000 145,000 11,000 20,963
and General Counsel 1994 288,000 150,680 13,260 20,491
</TABLE>
- ------------
(1) The amounts presented are bonuses earned in 1996 and paid in 1997, earned in
1995 and paid in 1996, or earned in 1994 and paid in 1995, respectively.
(2) Consists of (a) insurance premiums paid by Liberty Financial during the
applicable fiscal year with respect to term life insurance for the benefit
of the named executive officers, individually as follows: Mr. Leibler,
$2,500 in 1996, $2,807 in 1995 and $2,960 in 1994; Mr. Cogger, $18,354 in
1996 and 1995; Mr. Rosensteel, $5,000 in each year; and Mr. Benning, $3,459
in 1996 and in 1995 and $1,378 in 1994; and (b) contributions and interest
accruals under defined contribution plans for the benefit of the named
executive officers, individually as follows: Mr. Leibler, $45,975 in 1996,
$37,731 in 1995 and $41,408 in 1994; Mr. Cogger, $22,500 in 1996 and 1995;
Mr. Rosensteel, $22,994 in 1996, $26,535 in 1995 and $20,606 in 1994; Mr.
Merritt, $17,175 in 1996, $15,280 in 1995 and $13,500 in 1994; Mr. Benning,
$18,488 in 1996, $17,504 in 1995 and $19,113 in 1994.
(3) Mr. Cogger became an executive officer of Liberty Financial effective March
27, 1995 in connection with Liberty Financial's acquisition of Colonial.
(4) Does not include a long-term incentive plan award made to Mr. Cogger in 1995
payable not later than March 15, 1998 and described in the long-term
incentive plan awards table appearing in Liberty Financial's 1996 Proxy
Statement.
12
<PAGE>
Option Grant Table. The following table sets forth certain information
regarding options to purchase Common Stock granted during 1996 by Liberty
Financial to the executive officers named in the above summary compensation
table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term(2)($)
Options Employees Price Per
Name Granted (#) in 1996 Share ($) Expiration Date(1) 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 60,000 9.8% $33.00 05/06/06 1,245,211 3,155,610
Harold W. Cogger 18,000 2.9% $33.00 05/06/06 373,563 946,683
John W. Rosensteel 15,000 2.5% $33.00 05/06/06 311,303 788,903
C. Allen Merritt 18,000 2.9% $33.00 05/06/06 373,563 946,683
John A. Benning 15,000 2.5% $33.00 05/06/06 311,303 788,903
</TABLE>
- ------------
(1) Each option becomes exercisable in four equal annual installments,
commencing on May 7, 1997 and vests in full upon the death, disability or
retirement (after age 60) of the optionee.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if such options are not exercised until the end of the
option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% in accordance with applicable regulations of the
SEC, compounded annually from the dates the options were granted until their
expiration dates and, therefore, are not intended to forecast possible
future appreciation in the Common Stock. This table does not take into
account any appreciation in the price of the Common Stock after the date of
grant.
Option Exercises and Year-End Option Table. The following table sets forth
certain information regarding the stock options exercised during 1996 and stock
options held as of December 31, 1996 by the executive officers named in the
above summary compensation table.
Aggregate Option Exercises in Last Fiscal Year and Aggregate Option
Values at Fiscal Year-End
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year-End (#) In-the-Money Options at Year-End ($)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 10,000 281,590 261,556 159,222 $6,696,321 $2,114,241
Harold W. Cogger -- -- 61,800 18,000 2,340,675 105,750
John W. Rosensteel 5,500 114,230 39,848 51,211 868,954 737,888
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year-End (#) In-the-Money Options at Year-End ($)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
C. Allen Merritt -- -- 68,470 40,395 $1,792,048 $491,582
John A. Benning 2,000 42,568 85,605 38,227 2,282,637 497,684
</TABLE>
Certain Additional Information Regarding Executive Officer Compensation
Defined Benefit Retirement Programs
With the exception of Mr. Cogger, each of the executive officers of Liberty
Financial named in the above summary compensation table participates in Liberty
Financial's Pension Plan and Supplemental Pension Plan (collectively, the
"Pension Plans"). In addition, (i) under his employment agreement, Mr. Cogger is
entitled to a pension benefit from Liberty Financial which is calculated as if
he participated in the Pension Plans, (ii) Mr. Benning has a contractual
relationship with Liberty Financial under which his benefits under the Pension
Plans shall be calculated using October 1, 1973 as his date of hire for
determining years of credited service, subject to certain adjustments and (iii)
Mr. Rosensteel has a contractual relationship with Liberty Financial under which
his benefits under the Pension Plans shall be calculated using September 21,
1990 as his date of hire for determining years of credited service. The
following table shows the estimated annual pension benefits payable upon
retirement for the specified compensation and years of service classifications
under the Pension Plans.
Estimated Annual Retirement Benefits at Age 65
Under Liberty Financial's Pension Plan and Supplemental Pension Plan
<TABLE>
<CAPTION>
Years of Credited Service
-------------------------------------------------------------
Five-Year Average Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000 $52,178 $69,570 $86,963 $ 93,629 $100,296
400,000 106,178 141,570 176,963 190,296 203,629
600,000 160,178 213,570 266,963 286,963 306,963
800,000 214,178 285,570 356,963 383,629 410,296
1,000,000 268,178 357,570 446,963 480,296 513,629
1,200,000 322,178 429,570 536,963 576,963 616,963
</TABLE>
Benefits under the Pension Plans are based on an employee's average pay for
the five highest consecutive years during the last ten years of employment, the
employee's estimated social security retirement benefit and years of credited
service with Liberty Financial and its subsidiaries. The current compensation
covered by the Pension Plans and such additional contractual arrangements for
each participating executive officer of Liberty Financial named in the above
summary compensation table (treating Mr. Cogger as such) is as follows: Mr.
Leibler, $1,196,000; Mr. Cogger, $623,200; Mr. Rosensteel, $583,500; Mr.
Merritt, $428,000; and Mr. Benning, $463,000. For purposes of determining
benefits payable upon retirement under the Pension Plans and such additional
contractual arrangements, compensation includes base salary and annual bonus.
Benefits are payable in the form of a single-life annuity providing for monthly
payments. Actuarially equivalent methods of payment may be elected by the
recipient. As of the date hereof, the executive officers of Liberty Financial
named in the above summary compensation table had the following full credited
years of service under the Pension Plans: Mr. Leibler, 6 years; Mr. Cogger, 2
years; Mr. Rosensteel, 6 years; Mr. Merritt, 9 years; and Mr. Benning, 23 years.
14
<PAGE>
Change of Control Provisions of 1990 Stock Option Plan
Liberty Financial's 1990 Stock Option Plan, as amended (the "1990 Plan"),
provided for the grant of options to officers and other key employees of Liberty
Financial for the purchase of shares of Common Stock. As of March 21, 1997,
options to purchase an aggregate of 1,550,169 shares of Common Stock were issued
and outstanding under the 1990 Plan, including options to purchase 322,778
shares held by Mr. Leibler (272,854 of which were vested), 61,059 shares held by
Mr. Rosensteel (44,417 of which were vested), 79,865 shares held by Mr. Merritt
(69,880 of which were vested) and 97,832 shares held by Mr. Benning (87,847 of
which were vested). No additional options will be granted under the 1990 Plan.
Upon a change of control of Liberty Financial (defined as the transfer of 50% or
more of the equity ownership of Liberty Financial other than solely pursuant to
a public offering in which securities are issued for cash), all non-vested
options will automatically vest and the Compensation and Stock Option Committee
may, in its discretion, elect to cancel all outstanding options by paying the
holders thereof an amount equal to the difference between the formula value of
the Common Stock (as defined in the 1990 Plan) and the exercise price of the
Options.
Employment Contract
In connection with the Colonial acquisition, Mr. Cogger entered into an
employment contract with Colonial and Liberty Financial providing for his
employment through December 31, 1997. Mr. Cogger's contract provides for his
employment as the Executive Vice President of Liberty Financial, at a base
annual salary of $475,000 during 1997. The contract also provides that Mr.
Cogger will be eligible for: (a) an annual short-term incentive bonus of from 0%
to 150% of his base salary, to the extent of achievement of certain
profitability and other management objectives reviewed by the Compensation and
Stock Option Committee and (b) a long-term incentive bonus, payable in cash not
later than March 15, 1998, of from 25% to 150% of $2,000,000, with the precise
amount based on Colonial's cumulative income before taxes in relation to
specified targets. Mr. Cogger is also entitled to receive options to purchase
18,000 shares of Common Stock per year of the contract. Mr. Cogger is entitled
under the contract to participate in any profit sharing or other benefit plans
as may be made generally available to executives or salaried employees of
Colonial, and to receive all other benefits and participate in any and all other
pension, medical, life, accident and disability plans generally available to
officers of Colonial from time to time. Mr. Cogger also is eligible to receive a
pension benefit from Liberty Financial as provided in his employment agreement
which is calculated as if he participated in the Pension Plans.
If Mr. Cogger's employment under the contract is terminated without cause
(as defined therein) prior to December 31, 1997, he is entitled to receive the
following payments: (a) the continuation of base salary, for the greater of one
year following such termination or the period to December 31, 1997; (b) in lieu
of any short-term incentive bonus, a bonus of 100% of Mr. Cogger's base salary
for the calendar year in which the termination occurs; and (c) a long-term
incentive bonus which is the greater of (i) 25% of $2,000,000 or (ii) the
applicable long-term bonus amount as described above, pro-rated by a fraction,
the numerator of which is the number of days between January 1, 1995 and the
date of termination, and the denominator of which is 1095 days. In addition, Mr.
Cogger will be entitled to receive certain health and life insurance and other
benefits. If Mr. Cogger's employment is terminated for cause or by him
voluntarily, he is entitled to receive only his base salary to the date of such
termination and no further benefits or payments except as required by law or
under Colonial's group insurance and other employee benefit plans.
15
<PAGE>
Compensation Committee Interlocks and Insider Participation
During 1996, Gregory H. Adamian, Michael J. Babcock, Gary L. Countryman,
John P. Hamill, Ray B. Mundt and Stanley A. Wainer served as members of Liberty
Financial's Compensation and Stock Option Committee. The membership of Liberty
Financial's Compensation and Stock Option Committee is identical to the
membership of the Compensation Committee of the Board of Directors of Liberty
Mutual. Mr. Countryman is Chief Executive Officer of Liberty Mutual and is
Chairman of Liberty Financial. Prior to January, 1996, Mr. Countryman served on
the Compensation Committee of the Board of Directors of The Neiman Marcus Group,
Inc. ("Neiman Marcus"). Richard A. Smith, a director of Liberty Financial, is
Chairman of the Board of Neiman Marcus. Mr. Countryman does not receive any
compensation from Liberty Financial.
16
<PAGE>
Stockholder Return Comparisons
The graph below and the accompanying table compare the total return on
Liberty Financial's Common Stock since it became a publicly-traded corporation
(on March 27, 1995) to the S&P 500 Index (Standard & Poor's Corporation 500
Composite Stock Price Index) and the Dow Jones Life Insurance Group Index,
assuming an original investment of $100. Total return values for these indices
were calculated based on cumulative total return values, assuming reinvestment
of dividends. The graph lines merely connect year-end dates and do not reflect
fluctuations between those dates.
[line chart]
3/27/95 12/31/95 12/31/96
LIBERTY FINANCIAL COMPANIES $100.00 $109.80 $143.80
S&P 500 $100.00 $125.40 $154.20
DJ LIFE INSURANCE GROUP $100.00 $117.80 $156.40
17
<PAGE>
APPROVAL OF AMENDED AND RESTATED 1995 STOCK INCENTIVE PLAN
(Proxy Item 2)
The Board of Directors of Liberty Financial has authorized certain
amendments to Liberty Financial 1995's Stock Incentive Plan and directed that
such Plan, as amended and restated to reflect these amendments (the "Plan"), be
submitted to Stockholders for their approval at the Meeting.
Background
The Plan was adopted in 1995 prior to Liberty Financial becoming a public
company. The Plan is a so-called "omnibus" equity incentive plan, providing for
the grant of stock options, stock appreciation rights ("SARs"), restricted stock
or unrestricted stock, performance shares and other awards. To date, only stock
options have been issued under the Plan. An aggregate of 1,093,000 options were
granted in 1995 and 1996 (excluding options held by employees of Colonial
assumed by Liberty Financial in connection with its acquisition of Colonial),
1,013,250 of which remain outstanding (with 15,250 having been exercised and
64,500 having been forfeited) as of March 21, 1997. The original pool of shares
authorized for issuance in respect of awards under the Plan (which pool also
includes options granted under Liberty Financial's 1990 Stock Option Plan) is
nearly exhausted. The amendments to the Plan approved by the Board include a new
provision described below governing the number of shares issuable in the future
under the Plan. In addition to seeking approval of the Plan as amended and
restated, Liberty Financial is seeking approval of the Plan at this time so that
certain awards made hereafter under the Plan may qualify as "performance-based"
for purposes of regulations under Section 162(m) of the Code.
Purpose
The Plan is designed to create and enhance significant ownership of Liberty
Financial Common Stock by key officers and employees of Liberty Financial and
its affiliates. Liberty Financial believes that stock-based compensation awards
under the Plan provide a meaningful incentive to participants to make
substantial contributions to Liberty Financial's future success, enhance Liberty
Financial's ability to attract and retain persons who will make such
contributions, and help ensure that Liberty Financial has competitive
compensation opportunities for its key officers and employees. By furthering
these objectives, the Plan is intended to benefit the interests of Stockholders.
The following summary of the Plan does not purport to be complete and is
qualified in its entirety by reference to the full text of the Plan (as
amended), which is attached as Appendix A to this Proxy Statement.
Administration
The Plan is administered by the Compensation and Stock Option Committee
(the "Committee"). Except as described below, the Committee will have full
authority to select eligible individuals to receive awards under the Plan and to
determine the terms of awards, including vesting schedules, price, performance
standards, length of any performance restriction or option period,
post-retirement and termination rights and payment alternatives. The Committee
also will have the authority to interpret the terms of the Plan and of awards
made under the Plan, to adopt, amend and rescind rules and guidelines for the
administration of the Plan and to decide all questions and settle all
controversies and disputes which may arise in connection with the Plan. The
Committee has established a sub-committee consisting of each member of the
Committee other than Mr. Countryman, who for purposes of Rule 16b-3 under the
Exchange Act is not considered to be a disinterested director of Liberty
Financial. This subcommittee has exclusive authority for approving transactions
involving equity securities of the Company (including acquisitions [such as
grants and other awards] and dispositions [such as redemptions and other
repurchases] of equity securities of Liberty Financial) under benefit plans
administered by the Committee involving officers subject to the provisions of
Section 16 under the Exchange Act.
18
<PAGE>
Membership of the Committee currently is constituted consistent with
qualification under the performance- based exception from the deductibility
limits set forth in Section 162(m) of the Code and the regulations thereunder
for those awards that are intended to qualify for such exception.
Eligibility
Persons who are eligible to receive awards under the Plan include key
employees, non-employee directors and individuals performing services for
Liberty Financial, all as selected by the Committee. In 1995 and 1996, a total
of 85 and 107 individuals, respectively, received awards under the Plan.
Shares Available For Issuance
Currently, the Plan limits to a specified numerical cap the number of
shares that may be issued under the Plan. As amended, from and after the
Meeting, awards may be issued in any year ("award year") providing (pursuant to
the exercise of stock options or SARs, as restricted stock or unrestricted
stock, in payment of performance shares, or in payment of or pursuant to other
awards) for the issuance of not more than two percent (2.0%) of the total number
of shares of Common Stock outstanding as of the December 31 next preceding the
award year. There were 28,705,015 shares of Common Stock outstanding as of
December 31, 1996. Accordingly, up to 574,100 shares would be available under
this provision for grant during 1997 (the first award year under the Plan, as
amended).
In addition, there shall be available for awards under the Plan in any
award year, in excess of Shares available for grant during such award year
pursuant to such 2% limit (i) shares represented by awards under the Plan
granted from and after May 13, 1997 which shall have been canceled, forfeited or
terminated or which expire unexercised (with the exceptions of the termination
of an SAR granted in tandem with a stock option upon the exercise of the related
stock option, and the termination of a related stock option upon the exercise of
such a corresponding SAR); and (ii) the excess amount of variable awards granted
from and after May 13, 1997 which become fixed at less than their maximum
limitations.
For purposes of calculating the total number of shares of Common Stock
available for grants of awards, the grant of a performance share is deemed to be
equal to the maximum number of shares of Common Stock which may be issued under
the award, and where the value of an award is variable on the date it is
granted, the value is deemed to be the maximum limitation of the award. Awards
payable solely in cash will not reduce the number of shares of Common Stock
available for awards granted under the Plan.
In addition to the annual share limits described above, over the term of
the Plan, no more than 10,000,000 shares of Common Stock may be issued under
incentive stock options ("ISOs").
In addition, without regard to the foregoing limit, the Company may issue
awards under the Plan in connection with the acquisition of other entities or
businesses in replacement of stock-based awards held by employees or other
persons associated with the acquired entity or business.
The amendment of the Plan would not affect awards heretofore granted under
the Plan (which consist solely of stock options).
Shares of Common Stock issued under the Plan may consist of authorized but
unissued shares, treasury shares or previously issued shares reacquired by
Liberty Financial, including shares purchased on the open market.
Transferability of Awards
Currently under the Plan, awards may not be transferred, except in limited
circumstances under the laws of descent and distribution. As amended, the
Committee would be given discretionary authority to permit greater
transferability in the case of any award, including transfers to members of the
participant's family. In no event shall an ISO be transferable other than as
permitted under the rules prescribed in the Code with respect to ISOs.
19
<PAGE>
Awards
Stock Options
The Committee may grant ISOs, non-qualified stock options or a combination
thereof. The exercise price for non-qualified stock options must be at least 50%
of the fair market value of the underlying stock at the time of grant, and the
exercise price for ISOs cannot be less than 100% of the fair market value of the
underlying stock at the time of grant. Options expire ten years after the grant
date.
Stock Appreciation Rights
SARs entitle the recipient to receive a cash payment equal to the
appreciation in value of a share of Common Stock from the initial grant to the
date the recipient elects to exercise the SAR, or until the date the SAR
expires. SARs may be granted either on a stand alone basis or in tandem with
stock options or other types of awards; for example, the participant may
exercise a stock option and thereby acquire shares of Common Stock, or,
alternatively, the participant may exercise an SAR and receive a payment equal
to the appreciation in value of the option shares. When the SAR is exercised,
the Committee may elect to pay the award in the form of shares of Common Stock
or cash, or some combination.
Restricted and Unrestricted Stock
Grants of restricted stock involve the issuance of shares of Common Stock
to the recipient subject to transfer restrictions and forfeiture to Liberty
Financial if certain conditions (such as continuation of employment and/or
performance-based criteria) are not satisfied by the recipient. As the
conditions are satisfied, the forfeiture restrictions "lapse" and the recipient
is then free to hold or sell the shares free of the restrictions. Grants of
unrestricted stock involve the issuance of shares of Common Stock, free of any
transfer or forfeiture restrictions.
Performance Shares
Grants of performance shares involve setting performance goals and a
certain amount of bonus to be paid if the performance goals are fully satisfied,
or some part of the bonus if the performance goals are not fully satisfied. The
performance goals may be individual or group- or business unit- or Liberty
Financial-wide goals. The award may be converted into a specified number of
shares of Common Stock at the time the goals are established, with the payoff,
after satisfaction of the goals, being made in the number of shares of Common
Stock or their current value at that time. All rights with respect to
performance shares shall be available only during a participant's lifetime, and
each performance shares award agreement shall specify the participant's (and his
or her beneficiary's ) rights in the event or retirement, death or other
termination of employment.
Other Awards
The Plan also authorizes supplemental cash grants that may made to assist a
recipient in the payment of income taxes associated with awards under the Plan.
In addition, the Plan authorizes the grant of other types of awards that are
consistent with the terms of the Plan.
20
<PAGE>
1996 Awards
The following table sets forth the number of outstanding options granted
during 1996 under the Plan to the specified individuals and groups.
Name Number of Options
- ---- -----------------
Kenneth R. Leibler 60,000
Harold C. Cogger 18,000
John W. Rosensteel 15,000
C. Allen Merritt 18,000
John A. Benning 15,000
All current executive officers as a group (12 persons) 208,000
All employees who were not executive officers as a group 404,000
Adjustment of Awards
The Plan provides that the number and kind of shares which may be awarded
under the Plan or which are subject to outstanding awards, as well as the option
or grant price of any award, will be subject to adjustment in the event of a
stock dividend, stock split or other change in corporate structure or
capitalization or certain other transactions which, in the determination of the
Committee, would affect such shares.
Amendments
Currently, amendments to the Plan must be approved by the Board. Certain
amendments must be approved by Stockholders. As amended, amendments could be
approved by the Board or the Committee. Such future amendments will not require
Stockholder approval under the Plan. Liberty Financial may continue to seek
Stockholder approval of amendments in the future in order to comply with
applicable requirements of the New York Stock Exchange or other exchanges on
which its shares are listed, Section 422 of the Code (pertaining to ISOs),
Section 162(m) of the Code or other applicable legal requirements.
Certain Federal Income Tax Consequences of Options and SARs under the Plan
The following is a summary of the principal federal income tax consequences
associated with stock options and SARs granted under the Plan. It does not
describe all federal tax consequences associated with stock options and SARs,
nor does it describe foreign, state or local tax consequences associated with
such awards.
Stock Options
General. No taxable income or deduction results by reason of the grant of a
stock option under the Plan. The income tax treatment associated with the
exercise of non-qualified stock options and the exercise of ISOs are summarized
below. Special rules may apply where the exercise price of a stock option is
paid by tendering previously owned shares of stock, or where the shares acquired
upon exercise are subject to restrictions under the Plan.
Non-qualified stock options. In general, the participant will recognize
upon exercise of a non-qualified stock option taxable ordinary income (subject
to withholding) equal to the value of the Common Stock acquired upon exercise
minus the exercise price. Liberty Financial will be entitled to a corresponding
deduction provided certain wage-reporting requirements are satisfied. Any gain
or loss upon a subsequent sale or exchange of the shares will be a capital gain
or loss, long-term or short-term, depending on the applicable holding period for
the shares. Liberty Financial will not be entitled to a deduction with respect
to any such subsequent gain or loss.
Incentive stock options. No ordinary income to the participant and no
deduction for Liberty Financial results upon the exercise of an ISO, although
the participant may in some cases incur alternative minimum tax liability by
reason of the exercise. If the participant holds shares acquired upon exercise
of an ISO for at least one year
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after exercise and at least two years from the date of grant of the option, any
gain or loss recognized upon a subsequent sale or exchange of the shares will be
a long-term capital gain or loss for which Liberty Financial will not be
entitled to a deduction. With limited exceptions, if the participant disposes of
any ISO shares before satisfying these holding periods, the participant will
have ordinary income at time of disposition equal to the excess (if any) of the
value of those shares at time of exercise over the exercise price, and Liberty
Financial will be entitled to a corresponding deduction. Any additional gain
recognized in connection with the disposition will be treated as capital gain,
short-term or long-term, depending on the applicable holding period for the
shares. Liberty Financial will not be entitled to a deduction with respect to
any such additional gain. For purposes of these rules, in general, an ISO that
is exercised more then three months following termination of employment is
treated as a non-qualified stock option, as are ISOs to the extent they first
become exercisable in any calendar year for shares having a grant-
date value in excess of $100,000.
Stock Appreciation Rights
In general, when an SAR is exercised, the participant will recognize
ordinary income, and Liberty Financial will be entitled to a deduction, equal to
the amount of cash and the fair market value of any property delivered in
satisfaction of the exercise.
Section 162(m) of the Code
Section 162(m) of the Code generally limits an employer's income tax
deduction for compensation paid to each of its CEO and its four other most
highly compensated officers ("Section 162(m) employees") to $1,000,000 per
officer per year. The deduction limitation of Section 162(m) does not apply,
however, to certain performance-
based compensation arrangements, including plans which establish specific
performance goals and/or limits on awards, which are administered by a committee
composed exclusively of "outside" directors, which are disclosed to and approved
by the stockholders of the public company and (with respect to performance
goals) which are certified as to completion and satisfaction by such committee
before payment or vesting. Furthermore, in the case of Liberty Financial,
because the Plan was adopted before Liberty Financial became a public company,
options heretofore granted under the Plan to Section 162(m) employees will not
be subject to the deduction limit of Section 162(m).
The Plan includes provisions and limits on awards which are intended to
enable awards granted in the future to Section 162(m) employees under the Plan
to be exempt from the deduction limitation of Section 162(m). The Committee
retains the discretion to determine whether awards under the Plan to Section
162(m) employees should satisfy the performance-based criteria of Section
162(m). Accordingly, the Committee, in the exercise of such discretion, will
determine whether or not to activate such provisions and limits. These
provisions and limits can be summarized as follows:
[bullet] The maximum number of shares of Common Stock subject to stock
options that could be granted to any single participant during any
calendar year would be 300,000.
[bullet] Similarly, the maximum number of SARs or shares of restricted
stock that could be granted to any single participant during any
calendar year in each case also would be 300,000.
[bullet] The maximum payout to any Section 162(m) employee with respect to
performance shares granted in any one year would be $1,000,000.
[bullet] The exercise price of stock options granted to Section 162(m)
employees would not be less than fair market value on the date of
grant.
[bullet] In the case of awards of restricted stock and performance shares,
such awards would be made subject to performance measures selected
by the Committee from the following alternatives: (i) earnings per
share,
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(ii) share price, (iii) pre-tax operating profits, (iv) net
income, (v) return on equity or assets, (vi) revenues or expenses,
(vii) product sales, (viii) market share, or (ix) any combination
of the foregoing. Performance measures may be formulated in
respect of the performance of Liberty Financial and its
subsidiaries, a subsidiary, or a another business unit or units.
Performance measures could be absolute or relative and could be
expressed in terms of a progression within a specified range.
Section 162(m) requires that, in order for the exemption from the
limitation on deduction with respect to performance-based awards issued under
the Plan to be available, the Plan must be approved by Stockholders. Approval of
Item 2 is intended to satisfy the Stockholder approval requirement of Section
162(m).
Effective Date and Term
A vote "FOR" Item 2 will constitute a vote in favor of the Plan as amended.
Subject to approval by Stockholders, the Plan as amended will become effective
as of May 13, 1997, and awards may be made under the Plan as amended from and
after that date. No awards may be made under the Plan after May 13, 2007, but
awards granted before then may extend beyond that date.
THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE AMENDED AND
RESTATED 1995 STOCK OPTION PLAN
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Matters Pertaining to Liberty Mutual
General
Prior to the acquisition of Colonial in March, 1995, Liberty Financial was
an indirect wholly owned subsidiary of Liberty Mutual. As of the Record Date,
Liberty Mutual owned (indirectly through LFC Holdings) approximately 81.5% of
the outstanding shares of Common Stock and approximately 80.5% of the combined
voting power of the outstanding Common Stock and Preferred Stock.
Liberty Mutual is a Massachusetts-chartered property and casualty mutual
insurance company with more than $22.7 billion in assets and $5.6 billion in
surplus at December 31, 1996. The principal business activities of Liberty
Mutual's subsidiaries and affiliates (other than Liberty Financial) are
property-casualty insurance, insurance services and life insurance (including
group life and health insurance products) marketed through its own sales force.
Although at present 17 of Liberty Financial's directors are also directors
of Liberty Mutual, Liberty Financial's operations are separate from, and
generally have been conducted independently of, Liberty Mutual and its other
business activities. Liberty Financial and its operating subsidiaries have their
own personnel responsible for operations, strategic planning, marketing,
finance, administration, human resources, accounting, legal and other management
functions.
Reimbursement of Certain Direct Costs and Intercompany Agreement
Liberty Mutual from time to time has provided management, legal, internal
audit and treasury services to Liberty Financial, as well as to other Liberty
Mutual subsidiaries which services are of the type normally performed by a
parent company's corporate staff. In connection with the Colonial acquisition,
Liberty Financial and Liberty Mutual entered into an Intercompany Agreement (the
"Intercompany Agreement") governing ongoing services provided by Liberty Mutual
to Liberty Financial. Under the Intercompany Agreement, such services are
provided only as requested by Liberty Financial and may include legal, tax,
treasury and certain other services. Liberty Financial pays Liberty Mutual a fee
based upon Liberty Mutual's direct costs allocable to the services provided, and
reimburses Liberty Mutual for all associated out of pocket fees and expenses
incurred by it. The agreement provides for estimated quarterly payments and
subsequent adjustments thereto based upon actual experience. For 1996, Liberty
Financial paid Liberty Mutual $624,000 for services under the Intercompany
Agreement.
The Intercompany Agreement also provides that, during any period in which
Liberty Mutual owns at least 20% of the voting power of the outstanding capital
stock of Liberty Financial, Liberty Financial will provide Liberty Mutual with
certain financial and other information. During any period in which Liberty
Mutual owns at least 50% of the voting power of the outstanding capital stock of
Liberty Financial or in which Liberty Mutual is required or elects to
consolidate Liberty Financial's financial results in its own financial
statements, Liberty Financial must obtain Liberty Mutual's prior written consent
to any significant changes in accounting principles of Liberty Financial.
In addition, the Intercompany Agreement provides that Liberty Financial
will indemnify Liberty Mutual, its subsidiaries (other than Liberty Financial
and its subsidiaries), and each of their respective officers, directors,
employees, and agents against losses from third-party claims based on, arising
out of or resulting from (i) the activities of Liberty Financial or its
subsidiaries (including without limitation liabilities under the Securities Act
of 1933, as amended (the "Securities Act"), the Exchange Act and other
securities laws) and (ii) any other acts or omissions arising out of performance
of the Intercompany Agreement.
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Tax Sharing Agreement
Liberty Financial and its subsidiaries (except for Keyport Life Insurance
Company ["Keyport"] and its subsidiaries, each of which filed a separate federal
income tax return through 1993) have been included in the consolidated federal
income tax return filed by Liberty Mutual. In accordance with the Code, Liberty
Mutual expects to include Liberty Financial and its subsidiaries in its
consolidated federal income tax return so long as Liberty Mutual continues to
own at least 80% of the outstanding stock of Liberty Financial (determined by
both vote and value). Prior to 1994, when Keyport and its subsidiaries became
eligible for inclusion in Liberty Mutual's consolidated tax return, each of
Keyport and its subsidiaries determined separately its liability for federal
income taxes.
Liberty Financial and Liberty Mutual have entered into a formal Tax Sharing
Agreement (the "Tax Sharing Agreement"). The Tax Sharing Agreement, effective
for taxable years beginning on or after January 1, 1990, provides for the
allocation between Liberty Financial and Liberty Mutual of the liability for
federal income taxes and foreign, state, and local income, franchise, or excise
taxes, and details the methodology and procedures for determining the payments
or reimbursements to be made by or to Liberty Financial with respect to such
taxes.
The Tax Sharing Agreement generally provides, among other things, that
Liberty Financial will pay to Liberty Mutual an amount for federal income tax
purposes determined as if Liberty Financial filed a separate consolidated
federal income tax return for Liberty Financial and its subsidiaries (i.e., as
if Liberty Financial were the common parent of an affiliated group including its
subsidiaries but not including Liberty Mutual and its other subsidiaries [in
each case excluding Keyport and its subsidiaries for periods prior to 1994]),
regardless of the amount of federal income tax shown on the actual consolidated
federal income tax return filed by Liberty Mutual on behalf of its entire
affiliated group (including Liberty Financial and its subsidiaries). The
determination of the amounts to be paid by Liberty Financial pursuant to the Tax
Sharing Agreement generally will take into account carryovers and carrybacks of
net operating losses and other attributes, again as if Liberty Financial and its
subsidiaries (other than Keyport and its subsidiaries for periods prior to 1994)
independently filed a consolidated federal income tax return.
The Tax Sharing Agreement further provides that Liberty Financial will pay
to Liberty Mutual amounts for foreign, state, or local income, franchise, or
excise taxes on a basis consistent with the methodology for determining federal
income tax payments, except that Liberty Financial generally will not be
required to pay for a taxable year an amount that exceeds the total liability
shown on the combined, joint, consolidated, or similar return actually filed on
behalf of Liberty Mutual and/or any of its other subsidiaries together with
Liberty Financial and/or any of its subsidiaries (with subsequent adjustments as
appropriate, however, to be taken into account where tax payments have been so
limited in a prior year).
The Tax Sharing Agreement also provides for procedures with respect to
adjustments to tax payments or reimbursements resulting from audits or other
proceedings with respect to taxable years for which Liberty Financial and/or its
subsidiaries have been included with Liberty Mutual and/or its other
subsidiaries in any consolidated federal income tax return or any combined,
joint, consolidated, or similar foreign, state, or local income, franchise, or
excise tax return. In addition, while the Tax Sharing Agreement generally
applies to taxable years in which Liberty Financial has been or will be included
in a consolidated federal income tax return filed by Liberty Mutual, it also
contains provisions that may affect carryovers or carrybacks of net operating
losses or other tax attributes from or to taxable years prior or subsequent to
such consolidation.
For 1996, Liberty Financial paid Liberty Mutual $39.9 million pursuant to
the Tax Sharing Agreement.
As the common parent of an affiliated group filing a consolidated federal
income tax return and under the terms of the Tax Sharing Agreement, Liberty
Mutual has various rights. Among other things, it is the sole and exclusive
agent for Liberty Financial in any and all matters relating to the U.S. income
tax liability of Liberty Financial, it
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has sole and exclusive responsibility for the preparation and filing of the U.S.
consolidated federal income tax return for such affiliated group, and it has the
power, in its sole discretion, to contest or compromise any asserted tax
adjustment or deficiency and to file, litigate, or compromise any claim for
refund on behalf of Liberty Financial.
Registration Rights Agreement
In connection with the Colonial acquisition, Liberty Financial and Liberty
Mutual entered into a Registration Rights Agreement (the "Liberty Mutual
Registration Rights Agreement") which, among other things, provides that Liberty
Financial will, upon Liberty Mutual's request, register under the Securities Act
any of the shares of Common Stock currently held indirectly or hereafter
acquired directly or indirectly by Liberty Mutual (including, therefore, all
shares held by LFC Holdings) for sale in accordance with Liberty Mutual's
intended method of disposition thereof, and will take such other actions
necessary to permit the sale thereof in other jurisdictions. Liberty Mutual has
the right to request up to three such registrations per year, subject to certain
minimum share requirements. Liberty Mutual has agreed to pay the costs and
expenses in connection with each such registration of its shares. Liberty
Financial has the right (exercisable not more than once in any 12-month period)
to require Liberty Mutual to delay any exercise by Liberty Mutual of such rights
to require registration and other actions under the agreement for a period of up
to 120 days if Liberty Financial determines, and the underwriters selected by
Liberty Financial concur, that any other offerings by Liberty Financial then
being conducted or about to be conducted would be adversely affected, or if
Liberty Financial determines that it would be required to disclose publicly
material business information which would cause a material disruption of a major
corporate development then pending or in progress or that such registration
would have other material adverse consequences.
Liberty Mutual also has the right, which it may exercise at any time and
from time to time in the future, to include the shares of Common Stock held
directly or indirectly by it in certain other registrations of common equity
securities of Liberty Financial initiated by Liberty Financial on its own
behalf. Liberty Mutual has agreed to pay its pro rata share of all costs and
expenses in connection with each such registration.
Each of Liberty Financial and Liberty Mutual will indemnify the other, and
the officers, directors and controlling persons of the other, against certain
liabilities arising in respect of any registration or other offering covered by
the registration rights under the Liberty Mutual Registration Rights Agreement.
Certain Other Transactions Involving Liberty Mutual
Immediately prior to the Colonial acquisition, Liberty Mutual and two of
its affiliates loaned an aggregate of $100.0 million (collectively, the
"Colonial Acquisition Loan") to Liberty Financial, the proceeds of which were
used to fund the cash portion of the purchase price in the acquisition. The
Colonial Acquisition Loan is evidenced by notes in the aggregate principal
amount of $100.0 million bearing interest at up to 8.5% per annum, payable
semiannually. The entire principal amount of such notes is payable on the tenth
anniversary of issuance. Liberty Mutual and its affiliates have the right to
accelerate Liberty Financial's obligations under the Colonial Acquisition Loan
if Liberty Mutual ceases to own a majority of the outstanding Common Stock. The
Colonial Acquisition Loan is subject to a prepayment penalty in the form of a
"make whole" provision. Under the "make whole" provision, the prepayment penalty
would be an amount equal to the present value, as of the prepayment date, of the
loss of investment income resulting from the interest rate differential on the
principal amount prepaid between 8.5% and the yield to maturity, as of such
date, on U.S. Government Securities maturing on the due date of the Colonial
Acquisition Loan notes.
In January, 1995, a wholly owned subsidiary of Liberty Financial issued a
$30.0 million principal amount promissory note to LFC Holdings. This note bears
interest, payable semi-annually, at 8.0% per annum, with the
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entire principal amount being payable (without scheduled mandatory prepayments)
on March 31, 2000. Such note may be prepaid without penalty or premium at any
time.
In December, 1993, an affiliate of Liberty Mutual made a loan in the
principal amount of $75.0 million to Liberty Financial. In connection with the
financing for Liberty Financial's acquisition in April, 1995 of Newport Pacific
Management, Inc. ("Newport Pacific"), an affiliate of Liberty Mutual loaned
approximately $24.0 million to Liberty Financial. At that time, both of these
loans were combined into a single note in the principal amount of $99.0 million
which bears interest at 8.0% per annum. This note is due and payable on March
31, 2000, and may be prepaid, without penalty or premium, at any time.
Liberty Financial made all required interest payments on the
above-described indebtedness to Liberty Mutual and its affiliates during 1996.
Colonial is a party to a revolving credit agreement with The First National
Bank of Boston and certain other lenders pursuant to which the lenders have
agreed to lend up to $80.0 million to Colonial. The proceeds of the loans made
under this credit agreement are used to finance the sale of shares of the mutual
funds sponsored by Colonial which are sold without front-end sales loads.
Liberty Mutual has guaranteed such loans. As consideration for this guarantee,
Liberty Mutual receives a fee from Colonial equal to the sum of (i) a percentage
of any interest rate and other savings which Colonial receives as a result of
the guarantee, determined by subtracting the percentage equal to Liberty
Mutual's direct or indirect equity interest from time to time in Liberty
Financial, calculated on a fully diluted basis, from 100%, and (ii) 0.15% of the
average outstanding borrowings under the credit agreement. The aggregate
guarantee fee accrued in 1996 by Colonial for payment to Liberty Mutual was
$151,000.
Keyport has a sales arrangement with Liberty Life Assurance Company of
Boston ("Liberty Life"), a subsidiary of Liberty Mutual which is licensed to
sell variable annuity contracts in the State of New York. Liberty Life issues
variable annuity contracts in New York with substantially the same policy terms
and underlying investment options as Keyport's variable annuity products, the
premiums for which are deposited in a separate account of Liberty Life. Keyport
provides administrative services to Liberty Life with respect to such annuities.
All contractual obligations in respect of such annuities are those of Liberty
Life rather than of Keyport. Liberty Life charges the fees payable under the
annuities, pays Keyport a fee designed to cover Keyport's expenses in
administering these annuities, and retains the balance. During 1996 Liberty Life
paid Keyport fees of $71,800 under these arrangements.
In October, 1996, Liberty Financial sold to a wholly owned subsidiary of
Liberty Mutual a wholly owned subsidiary of Liberty Financial which had provided
real estate management services to certain affiliates of Liberty Mutual and
certain third parties. The sales price was $2.1 million, the net book value of
the transferred subsidiary.
Newport Pacific provides investment management services to Liberty Mutual.
Liberty Mutual paid Newport Pacific $398,000 for these services in 1996.
In addition, Liberty Financial provides investment advisory services to oil
and gas investment subsidiaries of Liberty Mutual. These subsidiaries reimburse
Liberty Financial for all direct out-of-pocket costs for these services. These
cost reimbursements totaled $727,200 in 1996.
As of December 31, 1996, Liberty Mutual and Liberty Mutual Fire Insurance
Company, an affiliate of Liberty Mutual, owned approximately 9.4% and 1.0%,
respectively, of the outstanding shares of beneficial interest of Liberty
ALL-STAR Equity Fund, a closed-end fund listed on the New York Stock Exchange.
All of such shares were purchased in open market transactions. Liberty Asset
Management Company, a Liberty Financial subsidiary, is the investment adviser to
this fund.
The existing and proposed agreements between Liberty Financial and Liberty
Mutual may be modified in the future and additional transactions or agreements
may be entered into between Liberty Financial and Liberty Mutual. Conflicts
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of interest could arise between Liberty Financial and Liberty Mutual with
respect to any of the foregoing, or any future agreements or arrangements
between them. Neither Liberty Mutual nor Liberty Financial has instituted, or
has any current plans to institute, any formal plan or arrangement to address
any possible conflicts of interest.
Certain Other Transactions
In connection with the Colonial acquisition, Liberty Financial and C.
Herbert Emilson and John A. McNeice, Jr. entered into a Registration Rights
Agreement with respect to Common Stock of Liberty Financial obtained by Messrs.
Emilson and McNeice in the Colonial acquisition. Mr. Emilson is a Director of
Liberty Financial. Mr. McNeice was a Director of Liberty Financial prior to
December 31, 1996. The agreement provides that Messrs. Emilson and McNeice will
have the right, which they may exercise at any time and from time to time, to
include the shares of Common Stock held directly or indirectly by them in
certain registrations of common equity securities of Liberty Financial initiated
by Liberty Financial on its own behalf. Liberty Financial will be required to
pay substantially all of the costs and expenses in connection with each such
registration. Each of Liberty Financial and Messrs. Emilson and McNeice will
indemnify the other, and the affiliates of the other, against certain
liabilities arising in respect of any registration or other offering covered by
the registration rights under such Registration Rights Agreement.
Hans P. Ziegler, who is Chief Executive Officer of Stein Roe and an
executive officer of Liberty Financial, obtained interest-free loans from
Liberty Financial during 1995 in the aggregate principal amount of $583,411. The
loans were made on a limited recourse basis, with Mr. Ziegler's repayment
obligation limited to the sales proceeds to be received from certain residential
real estate owned by him. The loans were secured by mortgages on this real
estate. Liberty Financial extended these loans in fulfillment of a commitment
made to Mr. Ziegler at the time he was hired by Stein Roe to finance his
relocation and protect him on the sale of his former principal residence. In
1996, the real estate securing these loans was sold for aggregate proceeds of
$353,634. This amount was credited to reduce the balance of these loans.
Pursuant to such commitment, the remaining balance of $229,777 was forgiven and
Liberty Financial paid a bonus in the amount of $212,111 to Mr. Ziegler in
respect of his estimated tax liabilities arising from imputed interest in
respect of such loans, such debt forgiveness and the payment of the bonus.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Liberty Financial for the year
ended December 31, 1996 have been audited and reported upon by Ernst & Young LLP
("E&Y"). Similarly, E&Y will serve as the independent auditors of Liberty
Financial for 1997. Representatives of E&Y are expected to be present at the
Meeting to respond to appropriate questions and will have the opportunity to
make a statement if they so desire.
For fiscal years prior to 1996, the consolidated financial statements of
Liberty Financial were audited and reported on by KPMG Peat Marwick LLP
("KPMG"). On March 13, 1996, following a competitive proposal process, Liberty
Financial's Audit Committee terminated KPMG's appointment as Liberty Financial's
independent accountants effective March 14, 1996, and voted to recommend to the
Board of Directors that E&Y be appointed as Liberty Financial's independent
accountants for fiscal 1996. The Board of Directors approved this recommendation
on April 10, 1996.
In connection with the audits of Liberty Financial's consolidated financial
statements for the two fiscal years in the period ended December 31, 1995, and
the subsequent interim period through March 14, 1996, there were no
disagreements between Liberty Financial and KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to KPMG's satisfaction would
have caused KPMG to make reference to the subject matter of the disagreement in
connection with KPMG's audit report on the consolidated financial statements of
Liberty Financial. In addition, the audit reports
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of KPMG on the consolidated financial statements of Liberty Financial as of and
for the two fiscal years ended December 31, 1995 did not contain any adverse
opinion or disclaimer of opinion, nor were such reports qualified or modified as
to uncertainty, audit scope, or accounting principles.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholders who wish to submit proposals pursuant to Rule 14a-8 under the
Exchange Act at the 1998 Annual Meeting of Stockholders will be required to
deliver the proposals to Liberty Financial on or prior to December 12, 1997.
Liberty Financial's Restated By-Laws also contain certain provisions which
impose additional requirements upon the submission by stockholders of nominees
for election to the Board of Directors and other Stockholder proposals. Please
forward any such proposals or the required notices to the Clerk of Liberty
Financial, John A. Benning, c/o Liberty Financial Companies, Inc., 600 Atlantic
Avenue, Suite 2400, Boston, Massachusetts 02210-2214.
BY-LAWS
A copy of the Restated By-Laws, as amended, of Liberty Financial may be
obtained without charge by a Stockholder upon written request addressed to the
Clerk of Liberty Financial at the address set forth above under "SUBMISSION OF
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING." Copies of the such Restated
By-Laws also will be made available at the Meeting.
EXPENSES OF SOLICITATION
Liberty Financial will bear the cost of preparing, assembling and mailing
the Notice, Proxy Statement and form of proxy for the Meeting. Solicitation of
proxies will be primarily through the use of the mails, but employees of Liberty
Financial may solicit proxies, by personal interview, by telephone or by other
means of communication, without additional compensation. Liberty Financial will
also provide persons, firms, banks and corporations holding shares in their
names, or in the names of their nominees, which in either case are beneficially
owned by others, proxy material for transmittal to such beneficial owners and
reimburse such record holders for their reasonable expenses in so doing.
OTHER MATTERS
Liberty Financial has no knowledge of any matters to be presented for
action by the Stockholders at the Meeting other than as set forth above.
However, the enclosed proxy gives discretionary authority to the persons named
therein to act in accordance with their best judgment in the event that any
additional matters should be presented.
ANNUAL REPORT
A copy of Liberty Financial's Annual Report to Stockholders for the year
ended December 31, 1996, which includes financial statements, has been mailed to
Stockholders in advance of the mailing of this Proxy Statement. The Annual
Report is not to be regarded as proxy soliciting material.
Copies of Liberty Financial's Annual Report to Stockholders and of its
Annual Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1996 will be made available at the Meeting and also may
be obtained without charge by any Stockholder upon written request addressed to
William Rice, Director of Corporate Communications, Liberty Financial Companies,
Inc., 600 Atlantic Avenue, Suite 2400, Boston, Massachusetts 02210-2214.
By Order of the Board of Directors,
John A. Benning
Clerk
Dated: April 11, 1997
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Appendix A
LIBERTY FINANCIAL COMPANIES, INC.
AMENDED AND RESTATED
1995 STOCK INCENTIVE PLAN
(as amended and restated to reflect amendments proposed to be adopted
at the 1997 Annual Meeting of Stockholders)
--------------
1. Purpose. The purpose of the Liberty Financial Companies, Inc. 1995 Stock
Incentive Plan (the "Plan") is to advance the interests of Liberty Financial
Companies, Inc. (the "Company"), and its present and future Affiliates by
strengthening the ability of the Company and its Affiliates to attract, retain
and motivate key employees, directors, and consultants to the Company by
providing incentives, opportunities and favorable terms for them to acquire
stock of the Company and to receive other Awards.
The Plan shall be administered by the Board of Directors of the Company
(the "Board") and the Compensation and Stock Option Committee of the Board, or
another committee or persons designated by the Board, as provided in Section 15
(the "Committee").
2. Participation. The Committee shall have exclusive power (except as may
be delegated by the Committee as provided in Section 15 herein) to select the
key employees, directors and other individuals performing services for the
Company and its Affiliates who shall be eligible individuals who may participate
in the Plan and be granted Awards under the Plan. Eligible individuals may be
selected individually or by groups or categories, as determined by the Committee
in its discretion. As used herein the term "Participant" means each eligible
individual to whom an Award has been made under any provision of the Plan.
3. Awards Under the Plan.
3.1. Types of Awards. Awards under the Plan ("Awards") may include, but
need not be limited to, one or more of the following types, either alone or in
any combination thereof: (i) "Stock Options"; (ii) "Stock Appreciation Rights";
(iii) "Restricted Stock"; (iv) "Unrestricted Stock"; (v) "Performance Shares";
(vi) "Loans"; (vii) "Supplemental Cash Grants"; and (viii) any other type of
Award deemed by the Board in its discretion to be consistent with the purposes
of the Plan.
Stock Options, which include "Nonqualified Stock Options" and "Incentive
Stock Options" or combinations thereof, are rights to purchase common stock,
$0.01 par value, of the Company ("Shares" or "Stock"). Nonqualified Stock
Options and Incentive Stock Options are subject to the terms, conditions and
restrictions specified in Section 4.
Stock Appreciation Rights are rights to receive (without payment to the
Company) cash, Shares, other securities of the Company (which may include,
without limitation, preferred stock, debentures, warrants, securities
convertible into common stock or other property, and any other securities
including those of the Company or an Affiliate, or any combination thereof
("Other Securities")), or other forms of payment, or any combination thereof, as
determined by the Committee, based on the increase in the value of the number of
Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are
subject to the terms, conditions and restrictions specified in Section 5.
Restricted Stock are Shares which are issued subject to terms, conditions
and restrictions specified in Section 6. Unrestricted Stock are Shares issued
without restrictions as described in Section 6.
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Performance Shares are contingent awards, subject to the terms, conditions
and restrictions described in Section 7, under which the Participant may become
entitled to receive cash, Shares, Other Securities, or other forms of payment,
or any combination thereof, as determined by the Committee.
Loans and Supplemental Cash Grants are other Awards which may be made
subject to the terms described in Section 8.
3.2. Maximum Number of Shares That May be Issued.
(a) There may be issued under the Plan any and all shares as shall be
issuable under Stock Options issued and outstanding as of May 12, 1997
(the date prior to the Company's 1997 Annual Stockholders' Meeting, at
which certain amendments to the Plan were approved) in accordance with
the respective terms of such Stock Options (including, without
limitation, any adjustments pursuant to Section 13). In addition, from
and after May 13, 1997, there may be issued under the Plan (as
Restricted Stock or Unrestricted Stock, in payment of Performance
Shares, pursuant to the exercise of Stock Options or Stock Appreciation
Rights, or in payment of or pursuant to the exercise of other Awards)
in any calendar year ("Award Year") Awards providing for the issuance
of an amount of Shares not exceeding two percent (2.0%) of the total
number of Shares outstanding as of the December 31 next preceding the
applicable Award Year. At any time during an Award Year such two
percent (2.0%) limit shall be calculated (i) first, after giving effect
to the issuance of Awards during such Award Year and (ii) second, after
taking into account whether any Awards previously issued during such
Award Year shall have been forfeited or otherwise shall have expired or
terminated, in whole or in part, without having been exercised or paid
in Shares.
(b) In addition, there shall be available for Awards under the Plan in any
Award Year, in addition to Shares available for grant during such Award
Year pursuant to paragraph (a) above, (i) shares in respect of Awards
granted from and after May 13, 1997 which shall have been canceled,
forfeited, terminated or which expire unexercised (with the exceptions
of the termination of a Stock Appreciation Right granted in tandem with
a Stock Option upon the exercise of the related Stock Option, and the
termination of a related Stock Option upon the exercise of such a
corresponding Stock Appreciation Right) and (ii) the excess amount of
variable Awards granted from and after May 13, 1997 which become fixed
at less than their maximum limitations. In each case the amounts
provided by this paragraph (b) shall be subject to adjustment as
provided in Section 13.
(c) For purposes of the foregoing provisions of this Section 3.2, (i) at
any time during an Award Year, Shares subject to an Award first shall
be charged against the limitation created by paragraph (a) above until
such limitation for such Award Year shall have been exhausted and
thereafter shall be charged against the amount available under
paragraph (b) above, (ii) the grant of a Performance Share shall be
deemed to be equal to the maximum number of Shares which may be issued
upon payment of the Performance Share and (iii) where the value of an
Award is variable on the date it is granted, the value shall be deemed
to be the maximum limitation of the Award. Awards payable solely in
cash shall be excluded in calculating the limitations established above
in this Section 3.2.
(d) Notwithstanding the foregoing provisions of this Section 3.2, the
maximum number of Shares that may be issued under Incentive Stock
Options awarded under the Plan from and after May 13, 1997, subject to
adjustment in accordance with Section 13, shall be 10,000,000 Shares.
(e) In addition, without regard to the foregoing limit, the Company may
issue Awards under the Plan in connection with the acquisition of other
entities or businesses in replacement of awards held by
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employees or other persons associated with the acquired entity or
business. Such replacement Awards shall be subject to adjustment as
provided in Section 13.
(f) Shares issued pursuant to the Plan may be either authorized but
unissued Shares, treasury Shares, reacquired Shares, or any combination
thereof.
3.3. Rights With Respect to Shares and Other Securities.
(a) Unless otherwise determined by the Committee in its discretion, a
Participant to whom an Award of Restricted Stock has been made (and any
person succeeding to such a Participant's rights pursuant to the Plan)
shall have, after issuance of a certificate for the number of Shares
awarded (or after such Shares otherwise shall actually have been issued
to or for the account of the Participant) and prior to the expiration
of the Restricted Period (as defined in Section 6) or the earlier
forfeiture of such Shares as herein provided, ownership of such Shares,
including the right to vote the same and to receive dividends
(including Shares issued upon reinvestment of cash dividends) or other
distributions made or paid with respect to such Shares (provided that
such Shares of Restricted Stock, and any new, additional or different
Shares, or Other Securities, or other forms of consideration which the
Participant may be entitled to receive with respect to such Shares of
Restricted Stock as a result of a stock split, stock dividend or any
other change in the capital structure of the Company, shall be subject
to the restrictions hereinafter described as determined by the
Committee in its discretion), subject, however, to the options,
restrictions and limitations imposed thereon pursuant to the Plan.
Notwithstanding the foregoing, a Participant with whom any agreement is
made to issue Shares or Other Securities in the future shall have no
rights as a shareholder with respect to Shares or Other Securities
related to such agreement until issuance of a certificate to the
Participant (or until such Shares or such Other Securities otherwise
shall actually have been issued to or for the account of the
Participant).
(b) Unless otherwise determined by the Committee in its discretion, a
Participant to whom a grant of Stock Options, Stock Appreciation
Rights, Performance Shares or any other Award is made (and any person
succeeding to such a Participant's rights pursuant to the Plan) shall
have no rights as a shareholder with respect to any Shares or as a
holder with respect to Other Securities, if any, issuable pursuant to
any such Award until the date of the issuance of a certificate to the
Participant for such Shares or such Other Securities (or until such
Shares or such Other Securities otherwise shall actually have been
issued to or for the account of the Participant). Except as provided in
Section 13, no adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date such
certificate is issued (or such other issuance shall have occurred).
3.4. Definitions of Certain Terms. Whenever the "Fair Market Value" of
Shares or Other Securities or any other property must be determined pursuant to
any provisions of the Plan, "Fair Market Value" shall be the amount determined
by the Committee as follows:
(i) if the Shares or Other Securities or other property are then traded
on a securities exchange, the closing sale price on the principal
market on which the Shares or Other Securities or other property are
traded on the date in question (or if such price is not available on
such date, on the business day closest to such date for which such
price is available); or
(ii) if the Shares or Other Securities or other property are then traded in
the over-the-counter market, the mean between the closing bid and
asked price of the Shares or Other Securities or other property on the
date in question (or if such prices are not available on such date, on
the business day closest to such date for which such prices are
available), as such price is reported in a publication of general
circulation selected by the Committee; or
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(iii) if the Shares or Other Securities or other property are not then
actively traded on an exchange or in the over-the-counter market, the
amount determined in good faith by the Committee.
As used herein, a "parent corporation" is any corporation which is the
owner of at least 50% of the total combined voting power of all classes of stock
of the Company, and a "subsidiary corporation" is any corporation of which the
Company is the owner of at least 50% of the total combined voting power of all
classes of stock of such corporation. "Affiliate" means any entity in which the
Company or any parent or subsidiary corporation has a substantial direct or
indirect equity interest.
An "eligible individual" shall be deemed to refer to any person eligible to
receive an Award under the Plan and shall include (i) key employees, (ii)
non-employee directors, and (iii) individuals performing services as non-
employee independent contractors.
"Section 162(m) employee" means a Participant who is one of the group of
"covered employees," as defined in regulations promulgated under Section 162(m)
of the Code.
For purposes of this Plan, a Participant shall be deemed to have terminated
his employment or performance of services for the Company and its Affiliates by
reason of "Disability" if the Participant has incurred total and permanent
disability as determined under the provisions of a Company or subsidiary
corporation long-term disability program which is applicable to the Participant.
"Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's misconduct
or dishonesty, any of which is directly and materially harmful to the business
or reputation of the Company or any Affiliate.
"Retirement" means the Participant's retirement from active employment with
the Company or an Affiliate (or ceasing to provide services as an independent
contractor) within or after the calendar year the Participant attains age sixty
(60).
4. Stock Options. The Committee may grant Stock Options either alone, or in
conjunction with Stock Appreciation Rights or other Awards, either at the time
of grant or by amendment thereafter, provided that an Incentive Stock Option may
be granted only to an eligible individual who is an employee of the Company or
its parent or subsidiary corporation. Incentive Stock Options are Stock Options
which are intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each Stock Option granted under
the Plan shall be evidenced by an instrument ("Option Agreement") in such form
as the Committee shall prescribe from time to time in accordance with the Plan
which shall comply with the terms and conditions specified in this Section 4 and
with such other terms and conditions, including, but not limited to,
restrictions upon the Stock Option or the Shares issuable upon exercise thereof,
as the Committee, in its discretion, shall establish.
4.1. Option Price. The option price may be less than, equal to, or greater
than, the Fair Market Value of the Shares subject to the option at the time the
Stock Option is granted, as determined by the Committee, but in no event will
the option price be less than 50% of the Fair Market Value of the underlying
Shares at the time the Stock Option is granted; provided, however, that in the
case of an Incentive Stock Option, the option price shall not be less than the
Fair Market Value of the Shares at the time the Incentive Stock Option is
granted, or if granted to an employee who owns stock representing more than ten
percent of the voting power of all classes of stock of the Company or of its
parent or subsidiary corporation (a "10% Employee"), such option price shall not
be less than 110% of such Fair Market Value at the time the Incentive Stock
Option is granted; and provided, further, that in the case of any Stock Option
intended to satisfy the "performance-based" exemption under Section 162(m) of
the Code, the option price shall not be less than the Fair Market Value of the
Shares at the time the Stock Option is granted. However, in no event will the
option price be less than the par value of such Shares.
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4.2. Number of Option Shares. The Committee shall determine the number of
Shares to be subject to each Stock Option; provided, however, that if the
Committee determines that a Stock Option should satisfy the "performance-based"
exemption under Section 162(m) of the Code, the maximum number of Shares subject
to Stock Options which may be granted to any single Participant during any
calendar year is three hundred thousand (300,000). The number of Shares subject
to an outstanding Stock Option may be reduced on a share-for-share or other
appropriate basis, as determined by the Committee, to the extent that Shares
under the Stock Option are used to calculate the cash, Shares, Other Securities,
or other forms of payment, or any combination thereof, received pursuant to
exercise of a Stock Appreciation Right attached to such Stock Option, or to the
extent that any other Award granted in conjunction with such Stock Option is
paid.
4.3. Exercisability of Stock Options. A Stock Option shall not be
exercisable, as follows:
(a) in the case of any Incentive Stock Option granted to a 10% Employee,
after the expiration of five (5) years from the date it is granted,
and, in the case of any other Incentive Stock Option or any
Nonqualified Stock Option, after the expiration of ten (10) years from
the date it is granted; any Stock Option may be exercised during such
period only at such time or times and in such installments as the
Committee may establish in the Option Agreement;
(b) unless payment in full is made for the Shares at the time of exercise
and such payment shall be made in such form (including, but not limited
to, cash, check, or if permitted by the Committee in the Option
Agreement, by delivery to the Company of Shares, or a promissory note,
or an irrevocable undertaking by a broker to deliver to the Company
sufficient funds to pay the exercise price, or the surrender of another
outstanding Award under the Plan, or any combination thereof) as the
Committee may determine in its discretion;
(c) unless the Participant has been, at all times during the period
beginning with the date of the grant of the Stock Option and ending on
the date of such exercise, employed by or otherwise performing services
for the Company or an Affiliate, or a corporation substituting or
assuming the Stock Option in a transaction to which Section 424(a) of
the Code is applicable, except that:
(i) unless otherwise provided in the Option Agreement, if the
Participant ceases to perform services for the Company or an
Affiliate because of Retirement or Disability, any unvested Stock
Option or portion thereof shall fully vest, and following such
Retirement or Disability the Participant may at any time within a
period of three (3) years from the date of such Retirement or
Disability exercise the Stock Option;
(ii) unless otherwise provided in the Option Agreement, if the
Participant ceases to perform services for the Company or an
Affiliate because of the Participant's death, any unvested Stock
Option or portion thereof shall fully vest, and the Participant's
estate, personal representative or Beneficiary to whom it has been
transferred pursuant to Section 14 (or any other permitted
transferee in accordance with Section 16.3) may at any time within
a period of three (3) years from the date of the Participant's
death exercise the Stock Option;
(iii) if the Participant ceases to perform services for the Company or an
Affiliate for Cause, all Stock Options shall immediately expire and
cease to be vested or exercisable, and the Participant shall have
no further rights or claims with respect thereto;
(iv) unless otherwise provided in the Option Agreement, if the
Participant ceases to perform services for the Company or an
Affiliate for any reason other than death, Disability or
Retirement, or for Cause, any Stock Option or portion thereof which
was not vested and exercisable shall imme-
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diately terminate and the optionee shall have no further rights or
claims with respect thereto, and the Participant may at any time
within a period of ninety (90) days from the date of such
termination exercise the Stock Option to the extent that the Stock
Option was exercisable by the Participant on the date the
Participant ceased to perform services;
provided, however, that the Committee may provide specifically in the
Option Agreement or otherwise for such other period of time during
which a Participant may exercise a Stock Option after termination of
the Participant's services, subject to the overriding limitation that
no Stock Option may be exercised to any extent by anyone after the date
of expiration of the Stock Option.
In the event that an Incentive Stock Option is exercised by a Participant
after the exercise period that applies for purposes of treatment as an incentive
stock option under Section 422 of the Code, such Stock Option shall thereafter
be treated as a Nonqualified Stock Option.
4.5. Restrictions on Incentive Stock Options. In the case of an Incentive
Stock Option, the amount of aggregate Fair Market Value of Shares (determined at
the time of grant of the Stock Option pursuant to Section 4.1) with respect to
which incentive stock options are exercisable for the first time by an employee
during any period shall not exceed any applicable limitations imposed by Section
422 of the Code or any successor provision (as of May 13, 1997, $100,000 per
calendar year under all plans of the employer corporation and its parent and
subsidiary corporations). To the extent the limitation in the preceding sentence
would be exceeded with respect to any portion of a Stock Option otherwise first
becoming exercisable for any year in accordance with the vesting schedule
established for an optionee, the Committee may determine at the time of grant
that vesting with respect to such excess amount shall be deferred until the
first subsequent year that such excess amount (or any part thereof) can become
exercisable within the limitation of the preceding sentence; absent such a
determination, such excess amount shall become vested as a Nonqualified Stock
Option.
An Incentive Stock Option shall be transferable only as permitted under the
rules prescribed in or under the Code for incentive stock options.
4.6. Restrictions on Shares. Shares purchased by a Participant upon
exercise of a Stock Option may be subject to such transfer and forfeiture
restrictions (including without limitation transfer and forfeiture restrictions
like those which may be applicable to Restricted Stock under the provisions of
Section 6) as the Committee in its sole discretion shall establish in the Option
Agreement.
5. Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights either alone, or in conjunction with Stock Options or other Awards,
either at the time of grant or by amendment thereafter, except that a Stock
Appreciation Right granted in conjunction with an Incentive Stock Option shall
be granted only at the time the Stock Option is granted. Each Award of Stock
Appreciation Rights ("SAR Award") granted under the Plan shall be evidenced by
an instrument ("SAR Agreement") in such form as the Committee shall prescribe
from time to time in accordance with the Plan which shall comply with the terms
and conditions specified in this Section 5, and with such other terms and
conditions, including, but not limited to, restrictions upon the SAR Award or
the Shares issuable upon exercise thereof, as the Committee, in its discretion,
shall establish.
5.1. Description of Stock Appreciation Rights. An SAR Award shall entitle
the holder to exercise such Award or to surrender unexercised the Stock Option
(or other Award) to which the Stock Appreciation Right is attached (or any
portion of such Stock Option or other Award) to the Company and to receive from
the Company in exchange therefor, without payment to the Company, that number of
Shares having an aggregate value equal to the excess of the Fair Market Value of
one Share, at the time of such exercise, over the exercise price (or option
price, as the case may be) per Share, times the number of Shares subject to the
SAR Award or the Stock Option (or other Award),
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or portion thereof, which is so exercised or surrendered, as the case may be.
Unless otherwise provided in the SAR Agreement, the Committee shall be entitled
in its discretion to elect to settle the obligation arising out of the exercise
of a Stock Appreciation Right by the payment of cash, Shares, Other Securities,
or other forms of payment, or any combination thereof, as determined by the
Committee, equal to the aggregate value of the Shares it would otherwise be
obligated to deliver. Any such election by the Committee shall be made as soon
as practicable after the receipt by the Committee of written notice of the
exercise of the Stock Appreciation Right.
5.2. Number of Shares Subject to SAR Award. The Committee shall determine
the number of Shares to be subject to each SAR Award; provided, however, that if
the Committee determines that an SAR Award should satisfy the
"performance-based" exemption under Section 162(m) of the Code, the maximum
number of Stock Appreciation Rights which may be granted to any single
Participant during any calendar year is three hundred thousand (300,000). The
number of Shares subject to an outstanding SAR Award may be reduced on a
share-for-share or other appropriate basis, as determined by the Committee, to
the extent that Shares under such SAR Award are used to calculate the cash,
Shares, Other Securities, or other forms of payment, or any combination thereof,
received pursuant to exercise of an Stock Option attached to such SAR Award, or
to the extent that any other Award granted in conjunction with such SAR Award is
paid.
5.3. Exercisability of SAR Award. The SAR Award shall not be exercisable:
(a) in the case of any SAR Award of that is attached to an Incentive Stock
Option granted to a 10% Employee, after the expiration of five (5)
years from the date it is granted, and, in the case of any other SAR
Award, after the expiration of ten (10) years from the date it is
granted. Any SAR Award may be exercised during such period only at such
time or times and in such installments as the Committee may establish
in the SAR Agreement;
(b) unless the Stock Option or other Award (if any) to which the SAR Award
is attached is at the time exercisable;
(c) in the case of any SAR Award that is attached to an Incentive Stock
Option, only when the Fair Market Value of the Shares subject to the
Stock Option exceeds the option price of the Stock Option;
(d) unless the Participant has been, at all times during the period
beginning with the date of the grant thereof and ending on the date of
such exercise, employed by or otherwise performing services for the
Company or an Affiliate, except that:
(i) unless otherwise provided in the SAR Agreement, if the Participant
ceases to perform services for the Company or an Affiliate because
of Retirement or Disability, any unvested Stock Appreciation Right
or portion thereof shall fully vest, and following such Retirement
or Disability the Participant may at any time within a period of
three (3) years from the date of such Retirement or Disability
exercise the Stock Appreciation Right;
(ii) unless otherwise provided in the SAR Agreement, if the Participant
ceases to perform services for the Company or an Affiliate because
of the Participant's death, any unvested Stock Appreciation Right
or portion thereof shall fully vest, and the Participant's estate,
personal representative or Beneficiary to whom it has been
transferred pursuant to Section 14 (or any other permitted
transferee in accordance with Section 16.3) may at any time within
a period of three (3) years from the date of the Participant's
death exercise the Stock Appreciation Right;
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(iii) if the Participant ceases to perform services for the Company or an
Affiliate for Cause, all Stock Appreciation Rights shall
immediately expire and cease to be vested or exercisable, and the
Participant shall have no further rights or claims with respect
thereto;
(iv) unless otherwise provided in the SAR Agreement, if the Participant
ceases to perform services for the Company or an Affiliate for any
reason other than death, Disability or Retirement, or for Cause,
any Stock Appreciation Right or portion thereof which was not
vested and exercisable shall immediately terminate and the
Participant shall have no further rights or claims with respect
thereto, and the Participant may at any time within a period of
ninety (90) days from the date of such termination exercise the
Stock Appreciation Right to the extent that the Stock Appreciation
Right was exercisable by the Participant on the date the
Participant ceased to perform services;
provided, however, that the Committee may provide specifically in the
SAR Agreement or otherwise for such other period of time during which
the Participant may exercise the SAR Award after termination of the
Participant's services, subject to the overriding limitation that no
SAR Award may be exercised to any extent by anyone after the date of
expiration of the SAR Award.
5.4. Deemed Exercise of SAR Award. An SAR Award may provide that it shall
be deemed to have been exercised at the close of business on the business day
preceding the expiration date of the Stock Appreciation Right or of the related
Stock Option (or other Award), or such other date as specified by the Committee,
if at such time such Stock Appreciation Right has a positive value. Such deemed
exercise shall be settled or paid in the same manner as a regular exercise
thereof as provided in Section 5.1.
6. Restricted Stock and Unrestricted Stock. Each Award of Restricted Stock
under the Plan shall be evidenced by an instrument ("Restricted Stock
Agreement") in such form as the Committee shall prescribe from time to time in
accordance with the Plan which shall comply with the terms and conditions
specified in this Section 6, and with such other terms and conditions as the
Committee, in its discretion, shall establish.
6.1. Number of Shares of Restricted Stock. The Committee shall determine
the number of Shares to be issued to a Participant pursuant to the Award of
Restricted Stock, and the extent, if any, to which they shall be issued in
exchange for cash, other consideration, or both; provided, however, that if the
Committee determines that an Award of Restricted Stock should satisfy the
"performance-based" exemption under Section 162(m) of the Code, the maximum
number of Shares of Restricted Stock which may be granted to any single
Participant during any calendar is three hundred thousand (300,000).
6.2. Restriction on Transfer; Forfeiture. Shares issued to a Participant in
accordance with the Award of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise disposed of, except by will or the laws of
descent and distribution (or as otherwise permitted pursuant to Section 16.3),
or as otherwise determined by the Committee in the Restricted Stock Agreement,
for such period as the Committee shall determine from the date on which the
Award is granted (the "Restricted Period"). Without limiting the generality of
the foregoing, the Restricted Period may terminate (in whole or in part) upon
the lapse of a specified time period, the attainment of performance goals, or
both.
The Shares issued to a Participant in accordance with the Award of
Restricted Stock shall be forfeited by the Participant and returned to the
Company in the following circumstances:
(i) if the Participant's continuous employment or performance of
services for the Company and its Affiliates shall terminate for any
reason (except as otherwise provided in Section 6.3) prior to the
expiration of the Restricted Period; or
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(ii) if, on or prior to the expiration of the Restricted Period the
Participant has not paid to the Company an amount equal to any
federal, state, local or foreign income or other taxes which the
Company determines is required to be withheld in respect of such
Shares and such failure shall continue for 10 business days
following notice thereof to the Participant (or such lesser period
as is imposed by applicable law); or
(iii) under such other circumstances as determined by the Committee in
its discretion, as shall be specified in the Restricted Stock
Agreement.
Each certificate for Shares issued pursuant to an Award of Restricted Stock
shall bear an appropriate legend referring to the foregoing forfeiture
provisions and other restrictions; shall be deposited by the Participant with
the Company, together with a stock power endorsed in blank; or shall be
evidenced in such other manner permitted by applicable law as determined by the
Committee in its discretion. Any attempt to dispose of any such Shares in
contravention of the foregoing forfeiture provisions and other restrictions
shall be null and void and without effect.
If Shares issued pursuant to an Award of Restricted Stock shall be
forfeited pursuant to the foregoing provisions, the Participant, or in the event
of his or her death, his or her personal representative, shall forthwith deliver
to the Clerk of the Company instruments of transfer as may reasonably be
required by the Clerk of the Company.
6.3. Termination of Services Under Certain Circumstances. Notwithstanding
Section 6.2, if a Participant who has been in continuous employment or
performance of services for the Company or an Affiliate since the date on which
an Award of Restricted Stock was granted to the Participant shall, while in such
employment or performance of services, die, or terminate such employment or
performance of services by reason of Disability or Retirement, and any of such
events shall occur prior to the end of the Restricted Period of such Award, the
Committee may determine to waive the application of the forfeiture provisions
(and any and all other restrictions) on any or all of the Shares subject to such
Award. The Committee also may in its discretion provide for such a result in the
Restricted Stock Agreement.
6.4 Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on Restricted Stock as it may deem advisable including,
without limitation, a requirement that Participants pay a stipulated purchase
price therefor and/or restrictions designed to satisfy requirements of
applicable federal or state securities laws.
Unless and until the Committee proposes for stockholder vote a change in
the general performance measures set forth below, the attainment of which shall
determine the number of Shares of Restricted Stock that become vested under the
Plan, the performance measure(s) to be used for purposes of grants to Section
162(m) employees shall be selected by the Committee from among the following
alternatives: (i) earnings per Share, (ii) Share price, (iii) pre-tax operating
profits, (iv) net income, (v) return on equity or assets, (vi) revenues or
expenses, (vii) product sales, (viii) market share, or (ix) any combination of
the foregoing. Performance measures may be in respect of the performance of the
Company and its subsidiary corporations (which may be on a consolidated basis),
a subsidiary corporation or a business unit or units. Performance measures may
be absolute or relative and may be expressed in terms of a progression within a
specified range.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. The
Committee retains the absolute discretion to grant Restricted Stock that shall
not qualify for the "performance-based" exemption under Section 162(m) of the
Code.
6.5. Notice of Election Under Section 83(b). A Participant making an
election under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within ten (10) days of the filing of such
election with the Internal Revenue Service.
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6.6. Unrestricted Stock. The Committee may, in its discretion, approve the
sale and transfer to a Participant of Shares of Unrestricted Stock free of any
vesting requirements or transfer restriction for a price which is not less than
the par value of the Shares.
7. Performance Shares. The Award of Performance Shares ("Performance Share
Grant") to a Participant will entitle the Participant to receive a specified
amount determined by the Committee (the "Value"), if the terms and conditions
specified herein and in the Award are satisfied. Each Performance Share Grant
shall be subject to the terms and conditions specified in this Section 7, and to
such other terms and conditions, including but not limited to, restrictions upon
any cash, Shares, Other Securities, or other forms of payment, or any
combination thereof, issued in respect of the Performance Share Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
instrument (a "Performance Share Agreement") in such form and substance as is
determined by the Committee.
7.1. Description of Performance Shares. The Committee shall determine the
Value or range of Values of a Performance Share Grant to be awarded to each
Participant selected for such an Award and whether or not such a Performance
Share Grant is granted in conjunction with an Award of Stock Options, Stock
Appreciation Rights, Restricted Stock or other Award, or any combination
thereof, under the Plan (which may include, but need not be limited to, deferred
Awards) concurrently or subsequently granted to the Participant (the "Associated
Award"). If the Committee determines that a grant of Performance Shares should
satisfy the "performance-based" exemption under Section 162(m) of the Code, the
maximum payout to any Section 162(m) employee with respect to Performance Shares
granted in any one calendar year shall be one million dollars ($1,000,000).
As determined by the Committee in the Performance Share Agreement, the
maximum value of each Performance Share Grant (the "Maximum Value") shall be:
(i) an amount fixed by the Committee at the time the Award is made or amended
thereafter; (ii) an amount which varies from time to time based in whole or in
part on the then current value of a Share, Other Securities, other forms of
payment, or any combination thereof; or (iii) an amount that is determinable
from criteria specified by the Committee.
Performance Share Grants may be issued in different classes or series
having different names, terms and conditions. In the case of a Performance Share
Grant awarded in conjunction with an Associated Award, the Performance Share
Grant may be reduced on an appropriate basis to the extent that the Associated
Award has been exercised, paid to or otherwise received by the Participant, as
determined by the Committee.
7.2. Performance Objectives. The award period in respect of any Performance
Share Grant shall be a period determined by the Committee. At the time each
Award is made, the Committee shall establish performance objectives to be
attained within the award period as the means of determining the Value of such a
Performance Share Grant. The performance objectives shall be based on such
measure or measures of performance, which may include, but need not be limited
to, the performance of the Participant, the Company, one or more of its parent
or subsidiary or corporations one or more of their business units, or any
combination of the foregoing, as the Committee shall determine, and may be
applied on an absolute basis or be relative to industry or other indices, or any
combination thereof.
The Value of a Performance Share Grant shall be equal to its Maximum Value
only if the performance objectives are attained in full, but the Committee shall
specify the manner in which the Value of Performance Share Grants shall be
determined if the performance objectives are met in part. Such performance
measures, the Value or the Maximum Value, or any combination thereof, may be
adjusted in any manner by the Committee in its discretion at any time and from
time to time during or as soon as practicable after the award period, if it
determines that such performance measures, the Value or the Maximum Value, or
any combination thereof, are not appropriate under the circumstances.
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Notwithstanding the foregoing, unless and until the Committee proposes for
stockholder vote a change in the general performance measures referenced below,
the attainment of which shall serve as a basis for the determination of the
number and/or value of Performance Shares granted under the Plan, the
performance measure(s) to be used for purposes of grants to Section 162(m)
employees shall be selected from the alternatives set forth in Section 6.4 and
shall be determined in the manner provided therein.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Performance Shares that shall not qualify for the "performance-based"
exemption under Section 162(m) of the Code, the Committee may make grants which
do not qualify for such exemption.
7.3. Effect of Termination of Services. The rights of a Participant in
Performance Shares awarded to him shall be provisional and may be canceled or
paid in whole or in part, all as determined by the Committee, if the
Participant's employment or performance of services for the Company and its
Affiliates shall terminate for any reason prior to the end of the award period.
7.4. Payment of Performance Shares. The Committee shall determine whether
the conditions of Section 7.1 or 7.2 have been met and, if so, shall ascertain
the Value of the Performance Share Grants. If the Performance Share Grants have
no Value, the Award and such Performance Share Grants shall be deemed to have
been canceled and the Associated Award, if any, may be canceled or permitted to
continue in effect in accordance with its terms. If the Performance Share Grants
have any Value and:
(i) were not awarded in conjunction with an Associated Award, the Committee
shall cause an amount equal to the Value of the Performance Share Grants
earned by the Participant to be paid to the Participant or the
Participant's Beneficiary as provided below; or
(ii) were awarded in conjunction with an Associated Award, the Committee
shall determine, in accordance with criteria specified by the Board, (A)
to cancel the Performance Share Grants, in which event no amount in
respect thereof shall be paid to the Participant or the Participant's
Beneficiary, and the Associated Award may be permitted to continue in
effect in accordance with its terms, (B) to pay the Value of the
Performance Share Grants to the Participant or the Participant's
Beneficiary as provided below, in which event the Associated Award may be
canceled or (C) to pay to the Participant or the Participant's
Beneficiary (or other permitted transferee in accordance with Section
16.3) as provided below, the Value of only a portion of the Performance
Share Grants, in which event all or a portion of the Associated Award may
be permitted to continue in effect in accordance with its terms or be
canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as practicable
following the end of the award period or upon the earlier termination of
employment or performance of services, or at such other time or times as the
Committee shall determine, and shall be made pursuant to criteria specified by
the Committee.
Payment of any amount in respect of the Performance Shares which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the award period or at such other time
or times as the Committee shall determine, and may be made in cash, Shares,
Other Securities, or other forms of payment, or any combination thereof, or in
such other manner, as determined by the Committee in its discretion.
Notwithstanding anything in this Section 7 to the contrary, the Committee may,
in its discretion, determine and pay out the Value of the Performance Shares at
any time during the award period.
8. Loans; Supplemental Cash Grants; Other Awards.
8.1. Loans. The Company may make a loan to a Participant ("Loan"), either
on the date of or after the grant of any Award to the Participant. A Loan may be
made either in connection with the purchase of Shares, Other Secu-
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rities or other property under the Award or with the payment of any federal,
state and local income tax with respect to income recognized as a result of the
Award. The Committee will have full authority to decide whether to make a Loan
and to determine the amount, terms and conditions of the Loan, including the
interest rate, whether the Loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the Loan is to be repaid and
the conditions, if any, under which it may be forgiven. However, no Loan may
have a term (including extensions) exceeding ten (10) years in duration.
8.2. Supplemental Cash Grants. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and grant a
cash award to the Participant ("Supplemental Cash Grant") not to exceed an
amount equal to (i) the amount of any federal, state and local income tax on
ordinary income for which the Participant may be liable with respect to the
Award, determined by assuming taxation at the highest marginal rate, plus (ii)
an additional amount on a grossed-up basis intended to make the Participant
whole on an after-tax basis after discharging all the Participant's income tax
liabilities arising from all payments under this Section 8.2. Any payments under
this Section 8.2 will be made at the time the Participant incurs such income tax
liability with respect to the Award.
8.3. Other Awards. In addition to the types of Awards specifically
described in the foregoing provisions of the Plan, the Committee may in its
discretion determine, describe and award or grant any other type of Award which
is consistent with the terms and purposes of the Plan. Such Awards may include
special Awards relating to a single eligible individual and Awards made pursuant
to special or recurring plans or programs covering groups of eligible
individuals.
9. Deferral of Compensation. The Committee shall determine whether or not
an Award shall be made in conjunction with deferral of the Participant's salary,
bonus or other compensation, or any combination thereof, and whether or not such
deferred amounts may be (i) forfeited to the Company or to other Participants,
or any combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company and its Affiliates), (ii) subject to
increase or decrease in value based upon the attainment of or failure to attain,
respectively, certain performance measures, and/or (iii) credited with
investment equivalents (which may include, but need not be limited to, interest,
dividends or other rates of return) until the date or dates of payment of the
Award, if any.
10. Deferred Payment of Awards. The Committee may specify that the payment
of all or any portion of cash, Shares, Other Securities, or any other form of
payment, or any combination thereof, under an Award shall be deferred until a
later date. Deferrals shall be for such periods or until the occurrence of such
events, and upon such terms, as the Committee shall determine in its discretion.
Deferred payments of Awards may be made by undertaking to make payment in the
future based upon the performance of certain investment equivalents (which may
include, but need not be limited to, government securities, Shares, Other
Securities, other forms of payment, or any combination thereof), together with
such additional amounts of investment equivalents as may be determined by the
Committee in its discretion.
11. Amendment or Substitution of Awards Under the Plan. The terms of any
outstanding Award under the Plan as provided in any instrument may be amended
from time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder); provided that no such amendment shall
adversely affect in a material manner any right of a Participant under the Award
without the Participant's written consent, unless the Committee determines in
its discretion that there have occurred or are about to occur significant
changes in the economic, legislative, regulatory, tax, accounting or
cost/benefit conditions which are determined by the Committee in its discretion
to have or to be expected to have a substantial effect on the performance of the
Company, or any subsidiary corporation, Affiliate, division or business unit
thereof, on the Plan, or on any Award under the Plan. The Committee may, in
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its discretion, permit holders of Awards under the Plan to surrender outstanding
Awards in order to exercise or realize the rights under other Awards, or in
exchange for the grant of new Awards, or require holders of Awards to surrender
outstanding Awards as a condition precedent to the grant of new Awards under the
Plan.
12. Termination of Services by a Participant. For all purposes under the
Plan, the Committee shall determine whether a Participant has terminated
employment by or the performance of services for the Company and its Affiliates;
provided, however, that transfers between the Company and an Affiliate or
between Affiliates and approved leaves of absence shall not be deemed such a
termination.
13. Changes in the Company's Capital Structure. The existence of
outstanding Awards shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of capital stock, bonds, debentures, or Other Securities ahead of or
affecting the Shares, Other Securities or the rights thereof, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
The number of Shares (or Other Securities) covered by any outstanding
Award, the price per share thereof, and the limits on the amount of Incentive
Stock Options issuable under the Plan and the amounts of Shares issuable
pursuant to Section 162(m) employees upon exercise of Stock Options or Stock
Appreciation Rights or as Restricted Stock each shall be appropriately adjusted
for any increase or decrease in the number of issued Shares resulting from the
subdivision or consolidation of Shares (or Other Securities) or any other
capital adjustment, the payment of a stock dividend or any other increase in
such Shares (or Other Securities) effected without receipt of consideration by
the Company or any other decrease therein effected without a distribution of
cash or property in connection therewith, or any other extraordinary or unusual
event similarly affecting the Shares (or Other Securities). Any such adjustment
shall be made by the Committee, in its discretion, and such adjustment shall be
final, conclusive and binding for all purposes of the Plan.
In the event the Company merges or consolidates with one or more
corporations and the Company is the surviving corporation, thereafter upon any
exercise of an Award, the holder thereof shall be entitled to purchase or
receive in lieu of the number of Shares (or Other Securities) as to which the
Award relates, the number and class of shares of stock or securities to which
the holder would have been entitled pursuant to the terms of the agreement of
merger or consolidation if immediately prior to such merger or consolidation,
the holder had been the holder of record of Shares (or Other Securities) as to
which the Award related.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated or sells or otherwise disposes of substantially all of
its assets to another corporation while unexercised Stock Options or other
Awards remain outstanding under the Plan:
(i) subject to the provisions of clauses (iii), (iv) and (v) below, after
the effective date of such merger, consolidation or sale, as the case may
be, each holder of an outstanding Stock Option or other Award shall be
entitled, upon exercise of such Stock Option or other Award, to receive
in lieu of Shares (or Other Securities) of the Company, shares of such
stock or other securities as the holders of Shares (or Other Securities)
received pursuant to the terms of the merger, consolidation or sale; or
(ii) the Committee may waive any discretionary limitations imposed with
respect to the exercise of the Stock Option or other Award so that all
Stock Options or other Awards from and after a date prior to the
effective date of such merger, consolidation, liquidation or sale, as the
case may be, specified by the Committee, shall become fully vested or be
exercisable in full; or
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(iii) any or all outstanding Stock Options or other Awards may be canceled by
the Committee as of the effective date of any such merger, consolidation,
liquidation or sale provided that notice of such cancellation shall be
given to each holder of a Stock Option or other Award, and each such
holder thereof shall have the right to exercise such Stock Option or
other Award in full (without regard to any discretionary limitations
imposed with respect to the Stock Option or other Award) during a 30-day
period preceding the effective date of such merger, consolidation,
liquidation or sale; or
(iv) any or all outstanding Stock Options or other Awards may be canceled by
the Committee as of the date of any such merger, consolidation,
liquidation or sale provided that notice of such cancellation shall be
given to each holder of a Stock Option or other Award, and each such
holder thereof shall have the right to exercise such Stock Option or
other Award but only to the extent exercisable in accordance with any
discretionary limitations imposed with respect to the Stock Option or
other Award prior to the effective date of such merger, consolidation,
liquidation or sale; or
(v) the Committee may provide for the cancellation of any or all
outstanding Stock Options or other Awards and for the payment to the
holders thereof of some part or all of the amount by which the value
thereof exceeds the payment, if any, which the holder would have been
required to make to exercise such Stock Option or other Award.
Except as hereinbefore expressly provided, the issue by the Company of
shares of capital stock of any class or securities convertible into shares of
capital stock of any class for cash or property or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number, class or price of
Shares then subject to outstanding Stock Options or other Awards.
14. Designation of Beneficiary by Participant. A Participant may name a
Beneficiary to receive any benefit or payment to which the Participant may be
entitled in respect of any Award under the Plan in the event of the
Participant's death, on a written form to be provided by and filed with the
Company, and in a manner determined by the Committee. A Participant may change
the Participant's Beneficiary from time to time in the same manner, unless such
Participant has made an irrevocable designation. Any designation of Beneficiary
under the Plan (to the extent it is valid and enforceable under applicable law)
shall be controlling over any other disposition, testamentary or otherwise, as
determined by the Committee in its discretion. If no designated Beneficiary
survives the Participant or is otherwise in existence on the date on which any
amount becomes payable to such Participant's Beneficiary, such payment will be
made to the legal representatives of the Participant's estate, and the term
"Beneficiary" as used in the Plan shall be deemed to include such person or
persons.
15. Administration. The Plan shall be administered by the Compensation and
Stock Option Committee of the Board, or by any other committee appointed by the
Board (the Compensation and Stock Option Committee or other such committee
appointed by the Board is herein referred to as the "Committee"). The members of
the Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board.
The Committee shall have full power, except as limited by law, the Articles
of Organization and By-Laws of the Company, subject to such other restricting
limitations or directions as may be imposed by the Board from time to time, to
exercise all of the powers vested in it by the terms of the Plan set forth
herein, such powers to include authority (except as may be delegated as
permitted herein) to select the key employees and other key individuals to be
granted Awards under the Plan, to determine the type, size and terms of the
Award to be made to each individual selected, to modify the terms of any Award
that has been granted, to determine the time when Awards will be granted, to
establish performance objectives, and to prescribe the form of the instruments
embodying Awards made under
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<PAGE>
the Plan. The Committee is authorized to interpret the Plan and the Awards
granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations which it
deems necessary or desirable for the administration of the Plan.
The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award in the manner and to the extent
the Committee deems necessary or desirable to carry it into effect. Any decision
of the Committee (or its delegate as permitted herein) in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.
The Committee may establish a sub-committee consisting of at least two
members of the Committee to whom some or all of the authority of the Committee
with respect to the Plan may be delegated. The Committee (and any sub-committee)
may act only by a majority of its members in office, except that the members of
the Committee (and any sub-committee) may authorize any one or more of their
members or any officer of the Company (i) to designate additional Participants
with respect to an authorized reserve of Awards approved by the Committee (or
sub-committee) and (ii) to execute and deliver documents or to take any other
ministerial action on behalf of the Committee (or such sub-committee) with
respect to Awards made or to be made to Participants. No member of the Committee
(or such sub-committee) and no officer of the Company shall be liable for
anything done or omitted to be done by him, by any other member of the Committee
(or such sub-committee) or by any other officer of the Company in connection
with the performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute. If any such sub-committee or
other authorized designee(s) shall have authority to grant, or to take any other
action with respect to, any Awards intended to comply with Rule 16b-3 or to
qualify as "performanced-based" compensation under Section 162(m) of the Code,
then such sub-committee or such autho-
rized designee(s) shall be constituted in a manner which shall comply at all
relevant time(s) with the applicable requirements of Rule 16b-3 or Section
162(m), as the case may be.
Notwithstanding the foregoing provisions of this Section 15, but subject to
the provisions of Section 16.5, the Board of Directors may in any instance
exercise authority with respect to the Plan that it has delegated hereunder to
the Committee.
16. Miscellaneous Provisions.
16.1. No Rights to Awards or Employment. No employee or other person shall
have any claim or right to be granted an Award under the Plan. Determinations
made by the Committee under the Plan need not be uniform and may be made
selectively among eligible individuals under the Plan, whether or not such
eligible individuals are similarly situated. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee or other person any
right to continue to be employed by or perform services for the Company or any
Affiliate, and the right to terminate the employment of or performance of
services by any Participant at any time and for any reason is specifically
reserved.
16.2. Delivery of Written Instruments. No Participant or other person shall
have any right with respect to the Plan, the Shares reserved for issuance under
the Plan or in any Award, contingent or otherwise, until written evidence of the
Award shall have been delivered to the recipient and all the terms, conditions
and provisions of the Plan and the Award applicable to such recipient (and each
person claiming under or through such recipient) have been met.
16.3. Assignment Prohibition. Subject to the provisions of this Section
16.3, (a) no Award under the Plan shall be transferable otherwise than by will,
by the laws of descent and distribution, or by operation of a "qualified
domestic relations order," as that term is defined in the Code, and (b) during
the lifetime of the Participant to whom
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<PAGE>
an Award has been granted, rights under the Award may be exercised only by the
Participant, the Participant's guardian or legal representative, or by the
assignee of the Award under such a "qualified domestic relations order."
Notwithstanding the foregoing, the Committee may provide for greater
transferability in the case of any Award, including, without limitation,
transfer to one or more members of the Participant's family or to a partnership
or trust established for the benefit of one or more members of the Participant's
family. Unless otherwise provided by the Committee, the conditions and criteria
governing the exercise or payment of such an Award (by way of example
accelerated vesting upon death or Disability or the attainment of performance
goals applicable to the Participant) shall following any permitted transfer
continue to be determined by reference to the Participant and not the
transferee. In no event shall Incentive Stock Options awarded under the Plan be
transferable other than as permitted under the rules prescribed in or under the
Code for incentive stock options. An award that is intended to be exempt under
Rule 16b-3 under the Exchange Act or any successor rule, or that is intended to
qualify for the performance-
based exception under Section 162(m) of the Code, shall be transferable only to
the extent consistent with such exemption or qualification. Nothing in this
Section shall be construed as restricting the transfer of Shares that have
become free of other transfer restrictions under the Plan or that were awarded
free of any such restrictions.
16.4. Compliance With Applicable Laws. No Shares, Other Securities, or
other forms of payment shall be issued hereunder with respect to any Award
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
16.5. Rule 16b-3 and Section 162(m). It is the intent of the Company that
the Plan comply in all respects with Rule 16b-3, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3. It is the intent
of the Company that Awards to Section 162(m) employees may satisfy for
"performance-based" compensation under Section 162(m) of the Code to the extent
that the Committee shall make Awards which the Committee intends to satisfy such
exemption; any ambiguities or inconsistencies in the Plan shall be interpreted
to give effect to such intention.
16.6. Tax Withholding. The Company and its Affiliates shall have the right
to deduct from any payment made under the Plan any federal, state, local or
foreign income or other taxes required by law to be withheld with respect to
such payment. It shall be a condition to the obligation of the Company to issue
Shares, Other Securities, or other forms of payment, or any combination thereof,
upon exercise, settlement or payment of any Award under the Plan, that the
Participant (or any Beneficiary or person entitled to act) pay to the Company,
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying any liability to withhold federal, state, local or foreign income
or other taxes. If the amount requested is not paid, the Company may refuse to
issue Shares, Other Securities, or other forms of payment, or any combination
thereof.
Notwithstanding anything in the Plan to the contrary the Committee may, in
its discretion, permit an eligible Participant (or any Beneficiary or person
entitled to act) to elect to pay a portion or all of the amount requested by the
Company for such taxes with respect to such Award, at such time and in such
manner as the Committee shall deem to be appropriate including, but not limited
to, by authorizing the Company to withhold, or agreeing to surrender to the
Company on or about the date such tax liability is determinable, Shares, Other
Securities, or other forms of payment, or any combination thereof, owned by such
person or a portion of such forms of payment that would otherwise be
distributed, or have been distributed, as the case may be, pursuant to such
Award to such person, having a Fair Market Value equal to the amount of such
taxes.
16.7. Plan Not Funded. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan, and
rights to the payment of Awards shall be no greater than the rights of the
Company's general creditors.
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<PAGE>
16.8. Consent of Participant. By accepting any Award or other benefit under
the Plan, each Participant and each person claiming under or through him shall
be conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company, the Committee, or
the delegates of the Committee.
16.9. Rules of Construction. The masculine pronoun includes the feminine
and the singular includes the plural wherever appropriate. The validity,
construction, interpretation, administration and effect of the Plan, and of its
rules and regulations, and rights relating to the Plan and to Awards granted
under the Plan, shall be governed by and construed in accordance with the
domestic substantive laws of The Commonwealth of Massachusetts without giving
effect to any choice or conflicts of laws rule or provision that would result in
the application of the domestic substantive laws of any other jurisdiction.
17. Plan Amendment or Suspension. The Plan may be amended or suspended in
whole or in part at any time and from time to time by the Board or by the
Committee. No amendment of the Plan shall adversely affect in a material manner
any right of any Participant with respect to any Award theretofore granted
without such Participant's written consent, except as permitted under Section
11.
18. Plan Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the Plan; or
(b) May 13, 2007. No Award of an Incentive Stock Option may be granted
under the Plan after May 13, 2007.
No termination of the Plan shall materially alter or impair any of the
rights or obligations of any person, without such person's consent, under any
Award theretofore granted under the Plan, except that subsequent to termination
of the Plan, the Committee may make amendments permitted under Section 11.
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<PAGE>
DETACH HERE LIB F
LIBERTY FINANCIAL COMPANIES, INC.
P Common Stock and Proxy Solicited on Behalf of Common Stock and
R Series A Convertible the Board of Directors of Series A Convertible
O Preferred Stock the Company for Annual Meeting, Preferred Stock
X May 13, 1997
Y
The undersigned hereby constitutes and appoints Kenneth R. Leibler, C.
Allen Merritt and John A. Benning, and each of them, his or her true and lawful
agents and proxies with full power of substitution in each, to represent the
undersigned and vote all shares of Common Stock or Series A Convertible
Preferred Stock of the undersigned at the Annual Meeting of Stockholders of
LIBERTY FINANCIAL COMPANIES, INC., to be held in the New England Room on the
Fourth Floor of the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston,
Massachusetts on Tuesday, May 13, 1997, and at any adjournment thereof, on all
matters coming before said meeting. The undersigned hereby revokes any Proxy
previously given and acknowledges receipt of the related Notice of Annual
Meeting and Proxy Statement and a copy of the Annual Report for the year ended
December 31, 1996.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-------------------------
SEE REVERSE
SIDE
-------------------------
<PAGE>
[logo]LIBERTY
FINANCIAL
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Stockholders,
you can be sure your shares are represented at the meeting by promptly
returning your proxy in the enclosed envelope.
DETACH HERE LIB F
- ----- Please mark
| X | votes as in
- ----- this example.
This proxy, when properly executed, will be voted in the manner directed herein
and authorizes the Proxies to take action in their discretion upon other matters
that may properly come before the meeting. If no direction is made, this proxy
will be voted FOR the election of all nominees for director and FOR Proposal 2.
The Board of Directors recommends a vote FOR the election of all nominees for
director and FOR Proposal 2.
1. Election of Directors.
Nominees for terms expiring at 2000 Annual Meeting of Stockholders:
Michael J. Babcock, Harold W. Cogger, Gary L. Countryman, John P. Hamill, Marian
L. Heard and Sabino Marinella
[ ] FOR [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
2. Approval of the Amended and Restated 1995 Stock Incentive Plan (the "Plan").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as your name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such.
Signature:______________ Date: _______ Signature:______________ Date: _________
