SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ] Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to s. 240.14a-11(c) or s. 240.14a-12
Liberty Financial Companies, Inc.
---------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[LIBERTY LOGO] LIBERTY
FINANCIAL
600 Atlantic Avenue
Boston, MA 02210
617-722-6000
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 10, 1999
To the Stockholders of
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
Liberty Financial Companies, Inc. will be held in Room AV-1 on the third floor
of The Federal Reserve Bank of Boston at 600 Atlantic Avenue, Boston,
Massachusetts, on Monday, May 10, 1999, at 11:00 a.m. (the "Meeting"), for the
following purposes, all as set forth in the attached Proxy Statement:
(1) To elect four Directors for new three-year terms expiring at the 2002
Annual Meeting of Stockholders; and
(2) 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 19, 1999
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 5, 1999
<PAGE>
[LIBERTY LOGO] LIBERTY
FINANCIAL
Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210-2214
April 5, 1999
To my fellow Stockholders:
I am pleased to invite you to attend the 1999 Annual Meeting of
Stockholders of Liberty Financial Companies, Inc. The Meeting will be held on
Monday, May 10, 1999, at 11:00 a.m. in Room AV-1 on the third 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>
[LIBERTY LOGO] LIBERTY
FINANCIAL
600 Atlantic Avenue
Boston, MA 02210
617-722-6000
LIBERTY FINANCIAL COMPANIES, INC.
PROXY STATEMENT
FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 1999
This Proxy Statement, with the accompanying proxy card, is being mailed to
Stockholders on or about April 5, 1999 and is furnished in connection with the
solicitation of proxies by the Board of Directors of Liberty Financial
Companies, Inc. ("Liberty Financial" or the "Company") to be used at the 1999
Annual Meeting of Stockholders to be held on May 10, 1999 (and any adjournment
thereof) (the "Meeting").
VOTING INFORMATION
The Board of Directors has established March 19, 1999 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, 46,675,377 shares
of Common Stock and 324,759 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 1.58385 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.
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 9379, 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
<PAGE>
for Director will be decided by a plurality of the votes cast at the Meeting.
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 not be treated as votes cast and therefore will not be counted
in calculating a plurality.
As of the Record Date, Liberty Mutual Insurance Company ("Liberty Mutual")
owned beneficially shares of Common Stock representing approximately 71.0% of
the combined voting power of the Common Stock and the Preferred Stock. Liberty
Mutual's subsidiary, LFC Management Corporation, 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 18 members of the Board of Directors, divided into
three classes with terms expiring at the 1999, 2000 and 2001 Annual Meetings,
respectively. Four Directors whose terms expire in 1999, David F. Figgins, John
B. Gray, Raymond H. Hefner, Jr. and Stephen J. Sweeney, are retiring and will
not stand for reelection. The Board of Directors has fixed the number of
Directors in such class at four and nominated the Directors set forth below for
reelection at the Meeting for three-year terms of office that will expire at
the 2002 Annual Meeting. After the 1999 Annual Meeting, the Board of Directors
will consist of 14 members.
Each Director will continue in office until the Director's term expires
and until his successor is elected and qualified or until his 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.
All of the Director nominees and the Directors whose terms of office
expire in 2000 and 2001 are listed below with their principal occupations for
the last five years.
Nominees For Election As Directors
Terms Expire at the 2002 Annual Stockholders' Meeting
<TABLE>
<S> <C>
WILLIAM F. CONNELL Chairman and Chief Executive Officer of Connell Limited Partnership, a
Age 60 manufacturer of industrial products and metals recycler; Director of
Director since BankBoston Corporation, Harcourt General, Inc., Liberty Mutual, and
February, 1999 Liberty Mutual Fire Insurance Company ("Liberty Fire"), an affiliate of
Liberty Mutual.
PAUL J. DARLING, II Chairman, President and Chief Executive Officer of Corey Steel Company,
Age 61 a manufacturer of cold finished steel bars and a metal service center;
Director since 1991 Director of Liberty Mutual, Liberty Fire and Unisource Worldwide, Inc.
THOMAS J. MAY Chairman, President and Chief Executive Officer of Boston Edison
Age 51 Company since 1994; prior thereto President and Chief Operating Officer
Director since 1998 thereof; Director of BankBoston Corporation, Boston Edison Company, Liberty
Mutual and Liberty Fire.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
DR. KENNETH L. ROSE President and Chief Executive Officer of Henkels & McCoy, Inc., a
Age 62 privately held engineering and construction company; Director of Liberty
Director since Mutual and Liberty Fire.
February, 1999
Directors Continuing in Office
Terms Expire at the 2000 Annual Stockholders' Meeting
MICHAEL J. BABCOCK Private investor; President and Chief Operating Officer of Leslie Fay
Age 57 Companies, Inc., an apparel manufacturer, from 1993 to 1995; Director
Director since 1991 of Liberty Mutual, Liberty Fire and HRDQ, Inc.
GARY L. COUNTRYMAN Chairman (since 1991) and Chief Executive Officer (from 1986 until
Age 59 April, 1998) of Liberty Mutual and Liberty Fire; Director of Liberty Mutual
Director since 1991 and certain of its affiliates, BankBoston Corporation, Boston Edison
Company, Harcourt General, Inc. and Unisource Worldwide, Inc.
JOHN P. HAMILL President of Fleet Bank of Massachusetts, N.A.; Director of Liberty
Age 59 Mutual and Liberty Fire.
Director since 1991
MARIAN L. HEARD President and Chief Executive Officer of the United Way of Massachusetts
Age 58 Bay and Chief Executive Officer of the United Ways of New England; Director
Director since 1994 of Liberty Mutual and Liberty Fire and a Director or Trustee of numerous
national and local non-profit organizations.
SABINO MARINELLA Retired; Chief Executive Officer of Liberty Financial prior to 1995;
Age 69 Vice Chairman of Liberty Financial from January, 1995 to December, 1997.
Director since 1990
Directors Continuing in Office
Terms Expire at the 2001 Annual Stockholders' Meeting
GERALD E. ANDERSON Retired; from 1974 until his retirement in 1992, President, Chief
Age 67 Executive Officer and Trustee of Commonwealth Energy System, a public
Director since 1991 utility holding company; Director of Liberty Mutual and Liberty Fire.
EDMUND F. KELLY President and Chief Executive Officer of Liberty Mutual and Liberty
Age 53 Fire since April, 1998, President and Chief Operating Officer prior thereto;
Director since 1992 Director of Liberty Mutual and certain of its affiliates.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
KENNETH R. LEIBLER Chief Executive Officer of Liberty Financial since January 1, 1995; President
Age 50 of Liberty Financial since August, 1990; Chief Operating Officer from August,
Director since 1991 1990, to December, 1994; Director of Keyport Life Insurance Company, an
indirect wholly-owned subsidiary of Liberty Financial, ISO New England, Inc.
and the Boston Stock Exchange.
RAY B. MUNDT Chairman and Chief Executive Officer of Unisource Worldwide, Inc., a paper
Age 70 supply and systems company, since August, 1996; prior thereto Chairman and
Director since 1991 (prior to September, 1993) Chief Executive Officer of Alco Standard
Corporation, a distributor of paper packaging products and office equipment;
Director of Liberty Mutual, Liberty Fire, Alco Standard Corporation,
Corestates Bank, Nocopi Technologies, Inc. and Unisource Worldwide, Inc.
GLENN P. STREHLE Treasurer Emeritus and Advisor to the Chairman and President of the
Age 63 Massachusetts Institute of Technology since January, 1999; Treasurer of MIT
Director since 1991 (and Vice President from 1986 and Vice President for Finance from June, 1994)
from 1975 through 1998; Director of Liberty Mutual, Liberty Fire and
BankBoston Corporation and a Trustee of Property Capital Trust.
</TABLE>
1998 Meetings And Standard Fee Arrangements
1998 Meetings. During 1998, the Board of Directors held six meetings. The
Board has an Executive Committee, an Audit Committee, a Compensation Committee
and an Investment Committee. No member of the Audit Committee or the
Compensation Committee is an employee of Liberty Financial or its subsidiaries.
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 1998.
As of the date of this Proxy Statement, its members were Messrs. Countryman
(Chairman), Leibler, 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 three meetings in 1998. As of the date of this
Proxy Statement, its members were Ms. Heard and Messrs. Figgins, Gray, May,
Strehle and Sweeney (Chairman).
Compensation Committee. The Compensation 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 employee benefit plans.
The Compensation Committee held three meetings in 1998. As of the date of
this Proxy Statement, its members were Messrs. Countryman, Darling, Babcock,
Hamill, Kelly and Mundt (Chairman). The Compensation Committee has established
a sub-committee consisting of each member of the Committee other than Messrs.
Countryman and
4
<PAGE>
Kelly, who for purposes of Rule 16b-3 under the Securities Exchange Act of 1934
(the "Exchange Act") are not considered to be non-employee directors 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]) under benefit plans administered by the Committee involving
persons subject to the provisions of Section 16 under the Exchange Act with
respect to equity securities of Liberty Financial.
In 1998, each incumbent 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.
Investment Committee. The Board of Directors appointed an Investment
Committee in February, 1999. The purpose of the Investment Committee is to
review the investment policies and activities of the Investment Committee of
the Company's subsidiary, Keyport Life Insurance Company. As of the date of
this Proxy Statement, the members of the Investment Committee were Messrs.
Leibler, Countryman, Anderson, Darling, Hamill, Kelly and Strehle.
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. 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 a retainer at a rate of
$30,000 per annum. Liberty Financial pays each such director a $200 fee for
each Board or 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 Liberty Mutual (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 19, 1999. 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(1)
- ---- -------------- --------------
<S> <C> <C>
Liberty Mutual Insurance Company
175 Berkeley Street
Boston, MA 02117 ..................................................... 33,526,002 71.8%
Kenneth R. Leibler(2) ................................................. 526,262 1.1%
C. Allen Merritt, Jr.(2) .............................................. 150,422 *
John A. Benning(2) .................................................... 128,767 *
Lindsay Cook(2) ....................................................... 110,602 *
Stephen E. Gibson(2) .................................................. 46,501 *
Gerald E. Anderson .................................................... 1,000 *
William F. Connell .................................................... 1,500 *
Paul J. Darling II .................................................... 1,500 *
John B. Gray .......................................................... 300 *
Sabino Marinella(3) ................................................... 362,889 *
Glenn P. Strehle ...................................................... 750 *
Stephen J. Sweeney .................................................... 150 *
All executive officers and Directors as a group (27 persons)(4) ....... 1,574,699 3.3%
</TABLE>
- ------------
* Less than 1%.
(1) Percentages are calculated pursuant to Rule 13d-3(d)(1) under the Exchange
Act. Such calculations assume, for each person and group, that all shares
which may be acquired by such person or group pursuant to options presently
exercisable or which become exercisable within 60 days following March 19,
1999 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) Includes options to purchase shares of Common Stock which are presently
exercisable or which become exercisable within 60 days following March 19,
1999 in the following amounts: 427,308 shares exercisable by Mr. Leibler;
117,266 shares exercisable by Mr. Merritt; 79,889 shares exercisable by Mr.
Benning; 75,902 shares exercisable by Mr. Cook; and 34,751 shares
exercisable by Mr. Gibson.
(3) Includes options to purchase 93,317 shares, all of which are vested and
fully exercisable.
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<PAGE>
(4) Includes (without duplication), (i) the option shares referenced in notes 2
and 3 above and (ii) options to purchase an additional 189,449 shares of
Common Stock held by other executive officers which are presently
exercisable or which become exercisable within 60 days following March 19,
1999.
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 as of March 19, 1999. No executive officer or
Director of Liberty Financial beneficially owns any shares of Preferred Stock
as of such date. Except as noted in the footnotes to such table, based on
information provided by such persons, each holder of Preferred Stock has sole
voting and investment power with respect to the shares of Preferred Stock set
forth below.
<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)........ 146,515 45.1%
Harold W. Cogger(2)...................................................... 62,755 19.3%
Charles F. Evans(3) ..................................................... 57,069 17.6%
</TABLE>
- ------------
(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) Mr. Cogger's address is 638 Bay Road, Hamilton, Massachusetts 01936.
(3) Mr. Evans' address is 20 Circuit Road, Chestnut Hill, MA 02467.
In connection with Liberty Financial's acquisition of The Colonial Group,
Inc. ("Colonial") effective March 24, 1995, each person acquiring shares of
Preferred Stock had the right to become a party to a stockholders agreement
(the "Preferred Stockholders Agreement"). The Preferred 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 Preferred Stockholders Agreement also provides that
at any time during the first 60 days after the fifth anniversary of the
acquisition (March 24, 2000), each party to the Preferred 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 Preferred
Stockholders Agreement does not restrict such conversion. Holders of
substantially all of the Preferred Stock are parties to the Preferred
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
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<PAGE>
(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, Liberty Mutual currently is the only
stockholder which owns beneficially 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, except as noted below, each of
its executive officers, Directors and 10% stockholders made all Section 16(a)
filings required during 1998. Messrs. Cook and Benning each filed one late
report with respect to a single transaction. Mr. May, who became a Director of
the Company in February, 1998, filed his Form 3 late.
8
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
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. None of the
named executive officers received perquisites during 1998 exceeding the lesser
of $50,000 or 10% of such officer's total salary and bonus for such year.
Summary Compensation Table. The following table sets forth compensation
information for the past three fiscal years for each of Liberty Financial's
chief executive officer and the other four most highly compensated executive
officers for fiscal 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation(1)
--------------------------- -----------------------------
Awards
-----------------------------
Restricted Securities
Name and Principal Base Stock Underlying All Other
Position during 1998 Year Salary ($) Bonus ($)(2) Awards ($)(3) Options (#) Compensation ($)(4)
- --------------------------- ------ ------------ ------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 1998 750,000 1,000,000 464,844 50,000 52,288
President and Chief 1997 740,000 1,100,000 384,750 60,000 46,379
Executive Officer 1996 705,000 750,000 -- 90,000 48,475
C. Allen Merritt, Jr. 1998 460,000 475,000 223,125 30,000 23,580
Chief Operating Officer 1997 425,000 350,000 213,750 23,251 20,005
1996 293,000 200,000 -- 27,000 17,175
Stephen E. Gibson(5) 1998 420,000 550,000 185,938 17,500 226,270
President and Chief 1997 400,000 407,200 192,375 23,251 51,333
Executive Officer 1996 192,562 200,000 -- 37,500 100,000
of The Colonial Group
John A. Benning 1998 325,000 175,000 -- 8,000 29,698
Senior Vice President 1997 318,000 196,715 85,500 9,751 19,730
and General Counsel 1996 318,000 171,720 -- 22,500 21,947
Lindsay Cook 1998 254,000 200,000 148,750 15,000 14,175
Executive Vice President 1997 244,000 150,000 128,250 15,751 13,589
1996 233,000 120,000 -- 27,000 14,400
</TABLE>
- ------------
(1) Other than stock options, restricted stock and other stock based incentives
which may be granted under the Company's Amended and Restated 1995 Stock
Incentive Plan (the "1995 Stock Incentive Plan"), the Company does not have
a long-term compensation program for its executive officers that includes
long-term incentive payouts.
(2) Bonus payments are reported with respect to the year in which the bonus was
earned.
(3) Calculated by multiplying the closing price of the Company's Common Stock
on the New York Stock Exchange on the date of grant ($37.1875 in 1998;
$28.50 in 1997) by the number of shares awarded. The number of shares
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<PAGE>
and value of restricted stock held by the named executive officers as of
December 31, 1998 (based on the New York Stock Exchange closing price of
$27.00 for the Company's Common Stock at fiscal year end) is as follows:
Mr. Leibler: 26,000 shares, $702,000; Mr. Merritt: 13,500 shares, $364,500;
Mr. Gibson: 11,750 shares, $317,250; Mr. Cook: 8,500 shares, $229,500; and
Mr. Benning: 3,000 shares, $81,000. The restricted stock granted in 1997
(Mr. Leibler 13,500 shares; Mr. Merritt 7,500 shares; Mr. Gibson 6,750
shares; Mr. Cook 4,500 shares; and Mr. Benning 3,000 shares) will vest on
May 14, 2003 or any time after May 13, 1999 if for a 10 consecutive trading
day period the closing price of Liberty Financial's Common Stock exceeds
$41.73. The restricted stock granted in 1998 (Mr. Leibler 12,500 shares;
Mr. Merritt 6,000 shares; Mr. Gibson 5,000 shares; and Mr. Cook 4,000
shares) will vest on May 12, 2004 or any time after May 11, 2000 if for a
10 consecutive trading day period the closing price of Liberty Financial
common stock exceeds $54.45. Holders of restricted stock are entitled to
vote their restricted shares and retain all dividends which may be paid
with respect to such shares. In general, in the event of termination of
employment, restricted shares are forfeited by the holders and revert to
the Company. The closing price of the Company's Common Stock on the New
York Stock Exchange on March 19, 1999 was $22.3125.
(4) Consists of the following amounts for 1998: (a) insurance premiums paid by
Liberty Financial with respect to term life insurance for the benefit of
the named executive officers, individually as follows: Mr. Leibler, $2,500;
Mr. Benning, $3,632; and Mr. Cook, $826; (b) contributions under defined
contribution plans for the benefit of the named executive officers,
individually as follows: Mr. Leibler, $49,788; Mr. Benning, $26,066; Mr.
Merritt, $23,580; Mr. Gibson, $22,400; and Mr. Cook, $13,349; (c) for Mr.
Gibson, an excess profit sharing plan award in the amount of $36,400; and
(d) for Mr. Gibson, an additional amount of $167,471 pursuant to an
agreement between Mr. Gibson and Liberty Financial relating to the
settlement of a dispute with Mr. Gibson's previous employer.
(5) Mr. Gibson's employment at The Colonial Group commenced July 8, 1996.
Option Grant Table. The following table sets forth certain information
regarding options to purchase Common Stock granted under the 1995 Stock
Incentive Plan during 1998 by Liberty Financial to the executive officers named
in the summary compensation table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees Price Per Option Term(2)($)
Name Granted (#) in 1998 Share ($) Expiration Date(1) 5% 10%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 50,000 8.01% $ 37.19 05/11/08 1,169,430 2,963,565
- -----------------------------------------------------------------------------------------------------------------------
C. Allen Merritt, Jr. 30,000 4.81% $ 37.19 05/11/08 701,658 1,778,139
- -----------------------------------------------------------------------------------------------------------------------
Stephen E. Gibson 17,500 2.80% $ 37.19 05/11/08 409,300 1,037,248
- -----------------------------------------------------------------------------------------------------------------------
John A. Benning 8,000 1.28% $ 37.19 05/11/08 187,109 474,170
- -----------------------------------------------------------------------------------------------------------------------
Lindsay Cook 15,000 2.40% $ 37.19 05/11/08 350,829 889,070
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Each option becomes exercisable in four equal annual installments,
commencing on May 12, 1999 and vests in full upon the death, disability or
retirement (after age 60) of the optionee. No stock appreciation rights
were granted to any named executive officer in 1998.
10
<PAGE>
(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. These values are not intended to forecast possible
future appreciation in the Common Stock. This table does not take into
account changes 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 1998 and stock
options held as of December 31, 1998 by the executive officers named in the
summary compensation table.
Aggregate Option Exercises in Last Fiscal Year and Aggregate Option
Values at Fiscal Year-End
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Year-End (#) Year-End ($)(1)
- ---------------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 95,610 2,743,805 377,308 154,250 4,904,257 365,078
- ---------------------------------------------------------------------------------------------------------------------------
C. Allen Merritt, Jr. 10,000 229,231 104,203 65,064 1,531,369 108,049
- ---------------------------------------------------------------------------------------------------------------------------
Stephen E. Gibson 0 0 24,563 53,689 87,563 87,563
- ---------------------------------------------------------------------------------------------------------------------------
John A. Benning 66,185 1,408,135 69,826 30,688 1,139,164 96,799
- ---------------------------------------------------------------------------------------------------------------------------
Lindsay Cook 6,200 177,799 75,464 44,438 1,108,717 108,049
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) The value of unexercised in-the-money options is calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Company's Common Stock on the New York Stock Exchange at the end of
1998 ($27.00) and the option exercise price for those shares. These values
have not been realized. The closing price of the Company's Common Stock on
the New York Stock Exchange on March 19, 1999 was $22.3125.
Certain Additional Information Regarding Executive Officer Compensation
Defined Benefit Retirement Programs
Each of the executive officers of Liberty Financial named in the above
summary compensation table, other than Mr. Gibson, participates in Liberty
Financial's Pension Plan and Supplemental Pension Plan (collectively, the
"Pension Plans"). In addition, Mr. Benning has a contractual arrangement 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. Mr. Gibson does not
participate in a defined benefit or actuarial plan sponsored by the Company.
11
<PAGE>
The following table shows the estimated annual benefits payable under the
Pension Plans upon retirement for the specified compensation and years of
service classifications, assuming retirement at age 65 in 1999.
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 $51,773 $69,030 $86,288 $92,954 $99,621
400,000 105,773 141,030 176,288 189,621 202,954
600,000 159,773 213,030 266,288 286,288 306,288
800,000 213,773 285,030 356,288 382,954 409,621
1,000,000 267,773 357,030 446,288 479,621 512,954
1,200,000 321,773 429,030 536,288 576,288 616,288
1,400,000 375,773 501,030 626,288 672,954 719,621
</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. For purposes of
determining benefits payable upon retirement under the Pension Plans and such
additional contractual arrangements, compensation includes base salary and
annual bonus. The current five year average compensation covered by the Pension
Plans for each participating executive officer of Liberty Financial named in
the above summary compensation table is as follows: Mr. Leibler, $1,304,100;
Mr. Merritt, $528,600; Mr. Benning, $471,023; and Mr. Cook, $334,900. 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 participating 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,
8 years; Mr. Merritt, 11 years; Mr. Benning, 25 years; and Mr. Cook, 15 years.
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 19,
1999, options to purchase an aggregate of 833,282 shares of Common Stock were
issued and outstanding under the 1990 Plan, all of which were vested, including
options to purchase 274,558 shares held by Mr. Leibler, 65,515 shares held by
Mr. Merritt, 47,055 shares held by Mr. Benning, and 31,650 shares held by Mr.
Cook. 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), the Compensation Committee
may, in its discretion, elect to cancel all outstanding options under the 1990
Plan by paying the holders thereof an amount equal to the difference between
the fair market value of the Common Stock and the exercise price of such
options.
Compensation Committee Interlocks and Insider Participation
Michael J. Babcock, Gary L. Countryman, Paul J. Darling, II, John P.
Hamill, Edmund F. Kelly (effective May 11, 1998) and Ray B. Mundt served as
members of Liberty Financial's Compensation Committee during 1998. The
membership of Liberty Financial's Compensation Committee is identical to the
membership of the Compensation Committee of the Board of Directors of Liberty
Mutual. Mr. Countryman is Chairman of Liberty Mutual and Liberty Financial. Mr.
Kelly is President and Chief Executive Officer of Liberty Mutual. Neither Mr.
Countryman nor Mr. Kelly receive any compensation from Liberty Financial.
12
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, each as amended, that might incorporate future filings, including
this Proxy Statement, in whole or in part, the following Compensation Committee
Report on Executive Compensation and Stockholder Return Comparison shall not be
deemed to be incorporated by reference into any such filings, nor shall such
sections of this Proxy Statement be deemed to be incorporated into any future
filings made by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
Compensation Committee Report
on
Executive Compensation
This report has been prepared by the Compensation 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 and Edmund F. Kelly) qualifies as a non-employee director
for the purpose of Rule 16b-3 under the Exchange Act.
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 the Committee determined 1998 compensation for 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:
o To provide balanced and competitive total compensation that enables
Liberty Financial and its subsidiaries to attract, motivate and retain
highly qualified executives.
o 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.
o 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
performance 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 uses the services of an independent consulting firm
specializing in executive compensation of financial services companies. This
firm helps Liberty Financial determine market levels of compensation for
comparable positions in companies of relevant size and business profile ("peer
companies"). The peer companies used in these surveys generally include
companies in the investment management and annuity businesses. The Committee
considers these survey results in determining executive compensation. Because
the Company competes for executive talent with a broad range of companies, the
peer companies used for compensation planning purposes are not limited to the
peer group of companies used in the Stock Performance Graph below.
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 performance goals), and long-term incentives in the form of
stock-based compensation.
13
<PAGE>
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. Liberty Financial targets base salary for executive officers in the
middle range of the relevant market, with adjustments as appropriate to reflect
the individual's performance and experience, Company guidelines for salary
increases and the subjective judgement of the Committee. The Committee reviews
base salaries for executive officers annually. The Committee typically approves
merit increases based on performance or unique individual circumstances.
Annual Bonus
Executive officers are eligible for annual cash bonuses. Liberty Financial
bases annual bonus awards on achievement of a combination of corporate and
business unit goals derived from business plans presented to the Board of
Directors, as well as individual performance goals. Each executive officer has
a target bonus expressed as a percentage of base salary. In determining whether
an executive officer has earned the target bonus, the Committee typically gives
greater weight to the corporate and business unit goals than to the individual
performance goals. Liberty Financial generally defines the corporate and
business unit goals in terms of objectively quantifiable measurements, which
primarily include pre-tax income from operations and investment product sales.
Liberty Financial establishes these goals on a corporate-wide basis for the CEO
and the other holding company executive officers. The Company establishes goals
for executive officers of separate business units with respect to both the
performance of their separate units and the corporate-wide goals (giving
greater weight to the former). 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 increases to a
specified cap if corporate and business unit performance exceeds the target
levels. Similarly, the individual performance component also is subject to
thresholds and limits.
Stock-Based Compensation
Liberty Financial's Amended and Restated 1995 Stock Incentive Plan (the
"1995 Incentive Plan") provides 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.
Prior to 1997, awards under the 1995 Incentive Plan consisted solely of
stock options. The exercise price of each option granted is 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. In 1997, the Committee also began granting a
portion of awards to a select group of senior executives in the form of shares
of restricted stock. Such restricted stock awards have vesting provisions based
on continued service (six years from grant date), with earlier vesting possible
after two years based upon attainment of a specified price level of Liberty
Financial's Common Stock. The Committee granted both stock options and
restricted stock awards in 1998, and anticipates granting similar option and
restricted stock awards in 1999. 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 of peer companies.
Beginning in 1997, all stock incentive awards to persons who are subject to the
provisions of Section 16 of the Exchange Act are granted by a subcommittee
consisting of each member of the Committee other than Mr. Countryman and Mr.
Kelly, who for purposes of Rule 16b-3 under the Exchange Act are not considered
to be disinterested directors of Liberty Financial.
1998 CEO Compensation
The Committee established Mr. Leibler's base salary for 1998 at $750,000.
In February, 1999 the Committee awarded Mr. Leibler a bonus of $1,000,000 for
1998 performance. In May, 1998, the Committee granted Mr. Leibler 50,000 stock
options and 12,500 shares of restricted stock. In determining Mr. Leibler's
1998 base salary, bonus
14
<PAGE>
and stock incentives, the Committee considered the Company's financial
performance in relation to corporate-wide targets for both 1997 and 1998, as
appropriate. The Committee also considered Mr. Leibler's overall leadership and
decision-making impact on the achievement of Liberty Financial's business plan
objectives in both 1997 and 1998. 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 stock grants, 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 towards increasing product sales, generating additional expense savings,
and thereby increasing Liberty Financial's profitability and shareholder value.
Deductibility of Executive Compensation under the Internal Revenue Code
Under Section 162(m) of the Internal Revenue Code (the "Code"), a publicly
held corporation cannot deduct in any taxable year compensation in excess of $1
million paid to each of its CEO and its four other most highly compensated
executive officers. The deduction limitation of Section 162(m) does not apply
to certain performance-based compensation arrangements. In the case of Liberty
Financial, annual cash bonuses and restricted stock awards can result in the
Section 162(m) deduction limitation becoming applicable.
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 $1 million 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. The Committee therefore has 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 are not deductible for tax purposes. Liberty Financial's
stock-based compensation programs generally 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). However, because Liberty
Financial's existing restricted stock awards vest after six years of continued
employment regardless of other performance-based criteria, Liberty Financial
will be unable to deduct an amount equal to taxable income to the officer at
vesting (equal to the then market value of the shares) to the extent the $1
million cap is exceeded. The Committee believes that such guaranteed time-lapse
vesting is an extremely valuable tool in retaining the select group of
executives eligible for restricted stock grants. The Committee has concluded
that the near-term impact of these provisions on Liberty Financial's results of
operations 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
judgement in carrying out the Committee's compensation philosophy with respect
to the Company's executive officers.
Members of the Compensation Committee
The members of the Committee submitting this report are:
Michael J. Babcock
Gary L. Countryman
Paul J. Darling, II
John P. Hamill
Edmund F. Kelly
Ray B. Mundt (Chairman)
15
<PAGE>
Stockholder Return Comparison
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 on March 27, 1995 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. The comparisons
provided in this graph are not intended to be indicative of possible future
performance of the Company's Common Stock.
[Line representation of graph]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
3/27/95 12/31/95 12/31/96 12/31/97 12/31/97
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIBERTY FINANCIAL COMPANIES, INC. $100.00 $109.80 $143.80 $211.90 $153.50
- ---------------------------------------------------------------------------------------------------------
S&P 500 INDEX $100.00 $125.40 $154.20 $205.60 $264.30
- ---------------------------------------------------------------------------------------------------------
DOW JONES LIFE INSURANCE GROUP INDEX $100.00 $117.80 $156.40 $232.60 $309.20
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
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 beneficially approximately 71.8% of the outstanding shares
of Common Stock and approximately 71.0% 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 $48.0 billion in assets and $7.0 billion in
surplus at December 31, 1998. 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 16 of Liberty Financial's 18 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
1998, Liberty Financial paid Liberty Mutual $0.6 million 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.
17
<PAGE>
Tax Sharing Agreement
With respect to the period from January 1, 1990 through July 17, 1997 (the
"Deconsolidation Date"), 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) were included in the
consolidated federal income tax return filed by Liberty Mutual. Prior to 1994,
Keyport and its subsidiaries were not eligible for inclusion in Liberty
Mutual's consolidated federal income tax return.
Liberty Financial and Liberty Mutual are parties to a written Tax Sharing
Agreement (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides for
the allocation between Liberty Financial and Liberty Mutual of the liability
for federal income taxes and foreign, state, and local income, franchise, and
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 applies primarily to taxable years or
periods beginning on or after January 1, 1990 and ending before or on the
Deconsolidation Date.
Liberty Mutual's ownership of the outstanding capital stock of the Company
fell below 80% effective on the Deconsolidation Date. As a result, Liberty
Financial and its subsidiaries are no longer included in the consolidated
federal and certain other income tax returns filed by Liberty Mutual, and the
Tax Sharing Agreement generally will no longer be in effect, for periods
beginning after the Deconsolidation Date, except for certain provisions that
may affect carryovers and carrybacks of net operating losses or other tax
attributes and subsequent examination adjustments by taxing authorities (as
described below). Liberty Mutual's 1997 consolidated federal income tax return
included Liberty Financial and its subsidiaries through the Deconsolidation
Date. Subsequently, the Company and its subsidiaries (other than Keyport and
Keyport's subsidiaries) will file a consolidated federal income tax return. For
the remainder of 1997 through July 17, 2002, Keyport and its subsidiaries will
file separately from the Company, after which period Keyport and its current
subsidiaries will be eligible to be included in the Company's consolidated
federal income tax return.
The Tax Sharing Agreement generally provides with respect to periods prior
to deconsolidation, 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 paid by Liberty Financial pursuant to the Tax Sharing Agreement
generally takes 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 for such periods.
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 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.
18
<PAGE>
For 1998, Liberty Financial paid Liberty Mutual $9.8 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, for periods prior to
deconsolidation, Liberty Mutual 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. Liberty Mutual has sole and exclusive responsibility for the
preparation and filing of the U.S. consolidated federal income tax return for
such affiliated group, and Liberty Mutual 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 "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 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
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 under the
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 was evidenced by notes in the aggregate principal
amount of $100.0 million bearing interest at up to 8.5% per annum, payable
semiannually. The Colonial Acquisition Loan was 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. When this loan was prepaid in
December, 1998, the amount of the "make whole" payment by the Company to
Liberty Mutual was $15.0 million.
19
<PAGE>
In January, 1995, a wholly-owned subsidiary of Liberty Financial borrowed
$30.0 million from an affiliate of Liberty Mutual. This loan bore interest,
payable semi-annually, at 8.0% per annum, and could be prepaid without penalty
or premium at any time. This loan was paid in November, 1998.
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 bore interest at 8.0% per annum. This note could be prepaid, without
penalty or premium, at any time. This note was paid in November, 1998.
Colonial is a party to a revolving credit agreement with BankBoston, N.A.
and certain other lenders pursuant to which the lenders have agreed to lend up
to $60.0 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 with 12b-1 distribution fees and contingent deferred
sales charges. 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 1998 by Colonial for payment to Liberty
Mutual was $81,000.
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 1998 Liberty
Life paid Keyport fees of approximately $88,000 under these arrangements.
The Company provides certain investment management services to Liberty
Mutual. Liberty Mutual paid the Company $0.6 million for these services in
1998. 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 $0.4 million in 1998.
As of December 31, 1998, Liberty Mutual and Liberty Fire owned
approximately 6.8% and 0.8%, 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 the fund.
During 1998, Keyport held mortgage notes in the original principal amount
of $100.0 million on properties owned by certain indirect subsidiaries of
Liberty Mutual. The notes were purchased for a price equal to their face value.
Liberty Mutual had agreed to provide credit support to the obligors under these
notes with respect to certain payments of principal and interest thereon. As of
December 31, 1998, the principal amount outstanding was $39.5 million. These
mortgage notes were paid in January, 1999.
An indirect wholly-owned subsidiary of the Company is a defendant in
pending litigation in Massachusetts state court. Liberty Mutual and a former
subsidiary of the Company transferred to Liberty Mutual in 1990 are also
20
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defendants in the suit. The plaintiffs allege various claims relating to a real
estate limited partnership for which the Company's indirect subsidiary acted as
a dealer manager in connection with a public offering of limited partnership
interests in 1987. Based upon all of the facts presently under consideration by
management, the Company believes that any likely outcome of the action will not
have a material adverse effect on the Company's financial condition or results
of operation. Although the Company believes that its interests and those of
Liberty Mutual are not adverse in the proceeding, Liberty Mutual and the
Company are represented by separate counsel in this litigation. Liberty Mutual
has paid the fees of the Company's counsel in the proceeding (an aggregate of
approximately $225,000 to date).
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 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.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Liberty Financial for the year
ended December 31, 1998 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 1999. 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.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholders who wish to submit proposals pursuant to Rule 14a-8 under the
Exchange Act at the 2000 Annual Meeting of Stockholders will be required to
deliver the proposals to Liberty Financial on or prior to December 7, 1999. For
proposals that stockholders intend to present at the 2000 Annual Meeting of
Stockholders outside the processes of Rule 14a-8 under the Exchange Act, unless
the stockholder notifies the Clerk of the Company of such intent by February
20, 2000, any proxy that management solicits for such Annual Meeting will
confer on the holder of the proxy discretionary authority to vote on any such
proposal properly presented at the Meeting. 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. 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 below.
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.
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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, 1998, which includes financial statements, is being mailed
to Stockholders with 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, 1998 will be made available at the Meeting and also may
be obtained without charge by any Stockholder upon written request addressed to
Director of Investor Relations, 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 5, 1999
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LFC93B DETACH HERE
PROXY
LIBERTY FINANCIAL COMPANIES, INC.
Proxy Solicited on behalf of the Board of Directors
of the Company for Annual Meeting, May 10, 1999
The undersigned hereby constitutes and appoints Kenneth R. Leibler, C.
Allen Merritt, Jr., John A. Benning and Robert A. Licht, and each of them, his
or her true 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 Room AV-1 on the
third floor of the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston,
Massachusetts on Monday, May 10, 1999, at 11:00 a.m. and at any adjournments
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 of Stockholders and Proxy Statement and a copy of the
Annual Report for the year ended December 31, 1998.
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.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------
<PAGE>
LFC93A DETACH HERE
Please mark
votes as in
[X] this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE " FOR" ALL NOMINEES FOR DIRECTOR.
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 come before the meeting. If no direction is made, this proxy will be
voted FOR the election of all nominees for director.
1. Election of Directors.
Nominees for terms expiring at 2002 Annual Meeting of Stockholders:
William F. Connell, Paul J. Darling II, Thomas J. May and Dr. Kenneth L.
Rose.
FOR WITHHELD
ALL FROM ALL
NOMINEES [ ] [ ] NOMINEES
[ ] _______________________________
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT. [ ]
MARK HERE IF YOU PLAN TO ATTEND 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:________
