<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
LIBERTY FINANCIAL COMPANIES, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
<PAGE>
[LOGO]
600 Atlantic Avenue
Boston, MA 02210
617-722-6000
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 2000
TO THE STOCKHOLDERS OF
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE IS HEREBY GIVEN that the 2000 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 8, 2000, 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 2003
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 17, 2000 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. If you attend the Meeting, you may
withdraw any proxy previously given and vote your shares in person.
By Order of the Board of Directors,
/s/ J. ANDREW HILBERT
J. Andrew Hilbert
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Boston, Massachusetts
April 6, 2000
<PAGE>
[LOGO]
600 Atlantic Avenue
Boston, MA 02210
617-722-6000
LIBERTY FINANCIAL COMPANIES, INC.
PROXY STATEMENT
FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 2000
This Proxy Statement, with the accompanying proxy card, is being mailed to
Stockholders on or about April 6, 2000 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 2000
Annual Meeting of Stockholders to be held on May 8, 2000 (and any adjournment
thereof) (the "Meeting").
VOTING INFORMATION
The Board of Directors has established March 17, 2000 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, 47,726,803 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, 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
<PAGE>
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 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 70.68% 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 14 members of the Board of Directors, divided into three
classes with terms expiring at the 2000, 2001 and 2002 Annual Meetings,
respectively. Sabino Marinella, whose term expires in 2000, is retiring from the
Board and will not stand for reelection. The Board of Directors has fixed the
number of Directors in such class at four and nominated the four Directors set
forth below for reelection at the Meeting for three-year terms of office that
will expire at the 2003 Annual Meeting. After the 2000 Annual Meeting, the Board
of Directors will consist of 13 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 2001 and 2002 are listed below with their principal occupations for the last
five years.
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
TERMS EXPIRE AT THE 2003 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
MICHAEL J. BABCOCK Private investor; President and Chief Operating Officer of
Age 58 Leslie Fay Companies, Inc., an apparel manufacturer, from
Director since 1991 1993 to 1995; Director of Liberty Mutual and Liberty Mutual
Fire Insurance Company ("Liberty Fire"), an affiliate of
Liberty Mutual, and HRDQ, Inc.
GARY L. COUNTRYMAN President and Chief Executive Officer of the Company since
Age 60 January 13, 2000; Chairman (since 1991) and Chief Executive
Director since 1991 Officer (from 1986 until April, 1998) of Liberty Mutual and
Liberty Fire; Director of Liberty Mutual and certain of its
affiliates, Fleet Boston Corporation, NSTAR and Harcourt
General, Inc.
JOHN P. HAMILL Chairman and Chief Executive Officer of Sovereign Bank New
Age 60 England since January 10, 2000; President of Fleet Bank of
Director since 1991 Massachusetts, N.A. from 1992 to December 31, 1999; Director
of Liberty Mutual and Liberty Fire.
MARIAN L. HEARD President and Chief Executive Officer of the United Way of
Age 59 Massachusetts Bay and Chief Executive Officer of the United
Director since 1994 Ways of New England since 1992; Director of CVS Corporation,
Fleet Boston Corporation, Liberty Mutual and Liberty Fire
and a Director or Trustee of numerous national and local
non-profit organizations.
</TABLE>
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRE AT THE 2001 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
GERALD E. ANDERSON Retired; from 1974 until his retirement in 1992, President,
Age 68 Chief Executive Officer and Trustee of Commonwealth Energy
Director since 1991 System, a public utility holding company; Director of
Liberty Mutual and Liberty Fire.
CHARLES I. CLOUGH Chairman and Chief Executive Officer, Clough Capital
Age 57 Partners, LP since January, 2000; Chief Investment
Director since February 2000 Strategist at Merrill Lynch & Company, Inc. from 1987
through 1999; Chairman of the Board of Trustees of Boston
College; Director of Liberty Mutual and Liberty Fire.
EDMUND F. KELLY President and Chief Executive Officer of Liberty Mutual and
Age 54 Liberty Fire since April, 1998, President and Chief
Director since 1992 Operating Officer prior thereto; Director of Liberty Mutual
and certain of its affiliates, and Citizens Financial Group,
Inc.
RAY B. MUNDT Retired; Chairman and Chief Executive Officer of Unisource
Age 71 Worldwide, Inc., a paper supply and systems company, from
Director since 1991 1996 to 1999; prior thereto Chairman and (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 and Nocopi Technologies, Inc.
GLENN P. STREHLE Treasurer Emeritus and Advisor to the Chairman and President
Age 64 of the Massachusetts Institute of Technology since January,
Director since 1991 1999; Treasurer of MIT (and Vice President from 1986 and
Vice President for Finance from June 1994) from 1975 through
1998; Director of Liberty Mutual and Liberty Fire.
</TABLE>
4
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TERMS EXPIRE AT THE 2002 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
WILLIAM F. CONNELL Chairman and Chief Executive Officer of Connell Limited
Age 61 Partnership, a manufacturer of industrial products and
Director since 1999 metals recycler; Director of Fleet Boston Corporation,
Harcourt General, Inc., LCI International, Inc., Liberty
Mutual and Liberty Fire.
PAUL J. DARLING, II Chairman, President and Chief Executive Officer of Corey
Age 62 Steel Company, a manufacturer of cold finished steel bars
Director since 1991 and a metal service center, since 1984; Director of Liberty
Mutual, Liberty Fire and Unisource Worldwide, Inc.
THOMAS J. MAY Chairman and Chief Executive Officer of NSTAR since 1999;
Age 52 Chairman, President and Chief Executive Officer of Boston
Director since 1998 Edison Company from 1994 to August, 1999; Director of Fleet
Boston Corporation, NSTAR, RCN Corporation, New England
Business Service, Inc., Liberty Mutual and Liberty Fire.
DR. KENNETH L. ROSE President and Chief Executive Officer of Henkels & McCoy,
Age 63 Inc., a privately held engineering and construction company;
Director since 1999 Director of Liberty Mutual and Liberty Fire.
</TABLE>
1999 MEETINGS AND STANDARD FEE ARRANGEMENTS
1999 MEETINGS. During 1999, the Board of Directors held four 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.
Mr. Countryman, who is an employee of Liberty Mutual and a member of the
Compensation Committee, is currently serving as President and Chief Executive
Officer of Liberty Financial Companies, Inc.
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 1999.
As of the date of this Proxy Statement, its members were Messrs. Countryman
(Chairman), 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 1999. As of the date of this
Proxy Statement, its members were Ms. Heard and Messrs. Anderson, Connell, May,
Rose and Strehle (Chairman).
5
<PAGE>
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 two meetings in 1999. 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 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.
INVESTMENT COMMITTEE. The Board of Directors appointed an Investment
Committee in February, 1999, which met three times in 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. Countryman (Chair), Anderson, Darling, Hamill, Kelly and
Strehle.
In 1999, 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.
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 $40,000 per annum.
Liberty Financial pays each such director a $200 fee for each Board or Committee
meeting attended, except that the fee for attendance at each Investment
Committee meeting is $100. Each Director of Liberty Financial who does not serve
on any other Liberty Mutual Group Board of Directors is paid an annual retainer
of $18,000, plus $1,200 for each Board meeting attended, and $200 for each
Committee meeting attended.
6
<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 17, 2000. 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.......................................... 34,098,701 71.45%
Kenneth R. Leibler(2)(3).................................... 319,728 *
C. Allen Merritt, Jr.(2).................................... 185,438 *
John A. Benning(2).......................................... 157,943 *
Stephen E. Gibson(2)........................................ 80,243 *
Phil Polkinghorn(2)......................................... 28,500 *
Gerald E. Anderson.......................................... 1,000 *
William F. Connell.......................................... 1,500 *
Paul J. Darling II.......................................... 1,000 *
Sabino Marinella(4)......................................... 363,129 *
Glenn P. Strehle............................................ 500 *
All executive officers and Directors as a group (23
persons)(5)............................................... 1,040,160 2.15%
</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 17,
2000 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 17,
2000 in the following amounts: 246,774 shares exercisable by Mr. Leibler;
129,038 shares exercisable by Mr. Merritt; 70,932 shares exercisable by
7
<PAGE>
Mr. Benning; 69,439 shares exercisable by Mr. Gibson; and 12,500 shares
exercisable by Mr. Polkinghorn.
(3) Mr. Leibler forfeited his restricted stock and his unvested stock options
upon his resignation on January 13, 2000, and an additional 124,500 vested
stock options were cancelled pursuant to Mr. Leibler's Resignation Agreement
with the Company. See "Certain Additional Information Regarding Executive
Officer Compensation" below.
(4) Includes options to purchase 93,317 shares, all of which are vested and
fully exercisable.
(5) Excludes Mr. Leibler's shares, as Mr. Leibler resigned as an executive
officer and director on January 13, 2000, and Mr. Benning's shares as
Mr. Benning retired as an officer of the Company on December 31, 1999.
Otherwise, includes (without duplication), (i) the option shares referenced
in notes 2 and 4 above and (ii) options to purchase an additional 255,451
shares of Common Stock held by other executive officers which are presently
exercisable or which become exercisable within 60 days following March 17,
2000.
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 17, 2000. 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 could not
transfer the Preferred Stock without the prior written consent of Liberty
Financial prior to March 24, 2000, except to certain permitted transferees. The
Preferred Stockholders Agreement also provides that at any time during the
period from March 25, 2000 through May 23, 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
8
<PAGE>
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
(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 for one late report filed
by Mr. Marinella and one late report filed by Mr. Merritt, each with respect to
a single transaction, each of its executive officers, Directors and 10%
stockholders made all Section 16(a) filings required during 1999.
9
<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 1999 exceeding the lesser
of $50,000 or 10% of such officer's total salary and bonus for such year.
SUMMARY COMPENSATION TABLE. The following table sets forth compensation
information for the past three fiscal years for each of Liberty Financial's
chief executive officer and the other four most highly compensated executive
officers for fiscal 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
---------------------- -------------------------
BASE RESTRICTED SECURITIES
NAME AND PRINCIPAL SALARY STOCK UNDERLYING ALL OTHER
POSITION DURING 1999 YEAR ($) BONUS($)(2) AWARDS($)(3) OPTIONS(#) COMPENSATION($)(4)
- ---------------------------------- -------- -------- ----------- ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler(5)............. 1999 760,000 -- 245,625 100,000 54,820
President and Chief 1998 750,000 1,000,000 464,844 50,000 52,288
Executive Officer 1997 740,000 1,100,000 384,750 60,000 46,379
C. Allen Merritt, Jr.............. 1999 490,000 490,000 176,850 29,000 29,900
Chief Operating Officer 1998 460,000 475,000 223,251 30,000 23,580
1997 425,000 350,000 213,750 23,251 20,005
Stephen E. Gibson................. 1999 450,000 500,000 135,094 23,000 205,616
President of Liberty Funds Group 1998 420,000 550,000 185,938 17,500 226,270
1997 400,000 407,200 192,375 23,251 51,333
Phil Polkinghorn(6)............... 1999 279,960 350,000 377,188 50,000 506,907
President of Keyport Life 1998 -- -- -- -- --
Insurance Company 1997 -- -- -- -- --
John A. Benning(7)................ 1999 332,000 185,000 -- 9,000 20,617
Senior Vice President 1998 325,000 175,000 -- 8,000 29,698
and General Counsel 1997 318,000 196,715 85,500 9,751 19,730
</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 dates of grant ($23.1875 on May 5,
1999 and $24.5625 on May 11, 1999; $37.1875 in 1998; $28.50 in 1997) by the
number of shares awarded. The number of shares and value of restricted
10
<PAGE>
stock held by the named executive officers as of December 31, 1999 (based on
the New York Stock Exchange closing price of $22.9375 for the Company's
Common Stock at fiscal year end) is as follows: Mr. Leibler: 36,000 shares,
$825,750; Mr. Merritt: 20,700 shares, $474,806; Mr. Gibson: 17,250 shares,
$395,672; Mr. Benning: 3,000 shares, $68,813; and Mr. Polkinghorn: 16,000
shares, $367,000. Mr. Leibler's restricted stock was forfeited upon his
resignation effective January 13, 2000, and Mr. Benning's restricted stock
vested upon his retirement effective December 31, 1999. Both Mr. Leibler's
and Mr. Benning's restricted stock are therefore excluded from the
description of vesting which follows. The restricted stock granted in 1997
(Mr. Merritt 7,500 shares; Mr. Gibson 6,750 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. Merritt 6,000 shares; and
Mr. Gibson 5,000 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. The restricted stock granted
to Mr. Polkinghorn on May 5, 1999 (11,500 shares) will vest on May 5, 2005
or any time after May 4, 2001 if for a 10 consecutive trading day period the
closing price of Liberty Financial Common Stock exceeds $33.95. The
restricted stock granted on May 11, 1999 (Mr. Merritt 7,200 shares,
Mr. Gibson 5,500 shares, and Mr. Polkinghorn 4,500 shares) will vest on
May 11, 2005 or any time after May 10, 2001 if for a 10 consecutive day
trading period the closing price of Liberty Financial Common Stock exceeds
$35.96. 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 17, 2000 was $21.1875.
(4) Consists of the following amounts for 1999: (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
and Mr. Benning, $3,632; (b) contributions under defined contribution plans
for the benefit of the named executive officers, individually as follows:
Mr. Leibler, $52,320; Mr. Benning, $16,985; Mr. Merritt, $29,900;
Mr. Gibson, $18,400; and Mr. Polkinghorn, $6,907; (c) for Mr. Gibson, an
additional amount of $187,216 pursuant to an agreement between Mr. Gibson
and Liberty Financial relating to the settlement of a dispute with
Mr. Gibson's previous employer, and (d) for Mr. Polkinghorn, a signing bonus
of $500,000.
(5) Mr. Leibler resigned as President and Chief Executive Officer of the
Company on January 13, 2000, and entered into an agreement with the Company
on February 7, 2000 which is described under "Certain Additional Information
Regarding Executive Officer Compensation" below.
(6) Mr. Polkinghorn began employment at Keyport Life Insurance Company on
May 5, 1999.
(7) Mr. Benning retired from the Company on December 31, 1999. He is currently
employed by Liberty Mutual and is serving as Acting General Counsel to the
Company.
11
<PAGE>
OPTION GRANT TABLE. The following table sets forth certain information
regarding options to purchase Common Stock granted under the 1995 Stock
Incentive Plan during 1999 by Liberty Financial to the executive officers named
in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED EXERCISE PRICE APPRECIATION FOR
UNDERLYING TO PRICE PER OPTION TERM(2)($)
OPTIONS EMPLOYEES SHARE -----------------------
NAME GRANTED (#) IN 1999 ($) EXPIRATION DATE(1) 5% 10%
- ---- ----------- ---------- --------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler(3)............ 100,000 12.69% 24.5625 5/10/09 1,544,720 3,914,630
C. Allen Merritt, Jr............. 29,000 3.68% 24.5625 5/10/09 447,969 1,135,243
Stephen E. Gibson................ 23,000 2.92% 24.5625 5/10/09 355,286 900,365
Phil Polkinghorn................. 29,500 3.74% 24.5625 5/10/09 455,692 1,154,816
20,500 2.60% 23.1875 5/04/09 298,941 757,575
John A. Benning.................. 9,000 1.14% 24.5625 5/10/09 139,025 352,317
</TABLE>
- ------------------------
(1) Each option becomes exercisable in four equal annual installments,
commencing on May 11, 2000 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 1999.
(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.
(3) Mr. Leibler forfeited all of his 1999 options upon his resignation on
January 13, 2000.
OPTION EXERCISES AND YEAR-END OPTION TABLE. The following table sets forth
certain information regarding the stock options exercised during 1999 and stock
options held as of December 31, 1999 by the executive officers named in the
Summary Compensation Table.
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<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND AGGREGATE OPTION VALUES AT
FISCAL YEAR-END
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY
SHARES OPTIONS AT YEAR-END (#) OPTIONS AT YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler(2)........... 0 0 441,558 190,000 3,535,662 21,094
C. Allen Merritt, Jr............ 12,000 204,553 116,391 69,876 967,289 6,328
Stephen E. Gibson............... 0 0 44,125 57,127 17,085 5,696
Phil Polkinghorn................ 0 0 0 50,000 0 0
John A. Benning(3).............. 10,523 168,217 98,932 0 728,214 0
</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
1999 ($22.9375) 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 17, 2000 was $21.1875.
(2) Mr. Leibler forfeited his unvested stock options upon his resignation on
January 13, 2000, and an additional 124,500 vested stock options were
cancelled pursuant to Mr. Leibler's Resignation Agreement with the Company.
See "Certain Additional Information Regarding Executive Officer
Compensation" below.
(3) All of Mr. Benning's stock options vested upon his retirement effective
December 31, 1999.
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.
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 2000.
13
<PAGE>
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 $51,570 $68,760 $85,950 $92,617 $99,283
400,000 105,570 140,760 175,950 189,283 202,617
600,000 159,570 212,760 265,950 285,950 305,950
800,000 213,570 284,760 355,950 382,617 409,283
1,000,000 267,570 356,760 445,950 479,283 512,617
1,200,000 321,570 428,760 535,950 575,950 615,950
1,400,000 375,570 500,760 625,950 672,617 719,283
1,600,000 429,570 572,760 715,950 769,283 822,617
</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, $1,467,400; Mr. Merritt, $653,077
and Mr. Benning, $486,887. 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, 9 years; Mr. Merritt, 12 years; and Mr. Benning,
26 years. Mr. Polkinghorn is not yet vested under the Pension Plans, and
Mr. Gibson is not eligible for the Pension Plan. Mr. Benning retired effective
December 31, 1999.
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 17, 2000,
options to purchase an aggregate of 677,550 shares of Common Stock were issued
and outstanding under the 1990 Plan, all of which were vested, including options
to purchase 246,774 shares held by Mr. Leibler, 48,349 shares held by
Mr. Merritt, and 47,055 shares held by Mr. Benning. 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.
RESIGNATION AGREEMENT BETWEEN THE COMPANY AND MR. LEIBLER
On February 7, 2000, following Mr. Leibler's resignation as President, Chief
Executive Officer and Director of the Company on January 13, 2000, the Company
and Kenneth R. Leibler entered into a
14
<PAGE>
Settlement Agreement and General Release (the "Resignation Agreement"). Under
the Resignation Agreement, the Company agreed to make separation payments to
Mr. Leibler in the aggregate amount of $3,480,000 over a period of 18 months.
The Company will also continue to provide health, dental, life insurance and
financial counseling benefits to Mr. Leibler for a period of up to 18 months.
The Company will also provide executive outplacement consulting services for
Mr. Leibler. Mr. Leibler agreed to the cancellation of an aggregate of 124,500
vested stock options granted in 1995 and 1996. The Resignation Agreement also
includes mutual releases and other customary agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Michael J. Babcock, Gary L. Countryman, Paul J. Darling, II, John P. Hamill,
Edmund F. Kelly and Ray B. Mundt served as members of Liberty Financial's
Compensation Committee during 1999. 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, and has been President and
Chief Executive Officer of Liberty Financial since January 13, 2000. Mr. Kelly
is President and Chief Executive Officer of Liberty Mutual. Neither
Mr. Countryman nor Mr. Kelly receive any compensation from Liberty Financial.
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.
15
<PAGE>
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 Companies, Inc. (the "Company" or "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 1999 compensation for executive officers,
including both the former President and Chief Executive Officer ("CEO"), Kenneth
R. Leibler, as well as 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:
- To provide balanced and competitive total compensation that enables
Liberty Financial and its subsidiaries to attract, motivate and retain
highly qualified executives.
- 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.
- 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.
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
16
<PAGE>
corporate and business unit goals and individual performance 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. 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 operating income, return on equity 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 1999, and anticipates granting both stock options and
restricted stock awards in 2000. In granting awards, the Committee takes into
account the executive's level
17
<PAGE>
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 have been 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.
1999 CEO COMPENSATION
Kenneth R. Leibler served as President and CEO of the Company from
January 1, 1995 until his resignation effective January 13, 2000. In
February 1999, the Committee established Mr. Leibler's base salary for 1999 at
$760,000. In May 1999, the Committee granted Mr. Leibler 100,000 stock options
and 10,000 shares of restricted stock. In determining Mr. Leibler's 1999 base
salary and stock incentives, the Committee considered the Company's financial
performance in relation to corporate-wide targets for 1998. The Committee also
considered Mr. Leibler's overall leadership and decision-making impact on the
achievement of Liberty Financial's business plan objectives for 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. Because of Mr. Leibler's
resignation in January 2000, none of the stock awards granted in 1999 were
vested, and the Committee did not award Mr. Leibler a bonus for 1999.
Gary L. Countryman, the Chairman of the Company, was elected by the Board of
Directors to assume the positions of President and Chief Executive Officer on
January 13, 2000, the effective date of Mr. Leibler's resignation.
Mr. Countryman also serves as Chairman of Liberty Mutual, which owns
approximately 71.45% of the outstanding Common Stock of the Company.
Mr. Countryman will receive all of his compensation from Liberty Mutual and not
from the Company. The Company will pay Liberty Mutual a fee based upon Liberty
Mutual's direct cost of providing Mr. Countryman's services pursuant to the
Intercompany Agreement between the Company and Liberty Mutual. This Committee
will not play any role in determining either Mr. Countryman's compensation from
Liberty Mutual or the fee to be paid by the Company to Liberty Mutual for
Mr. Countryman's services.
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. In the case of Liberty Financial,
annual cash bonuses and restricted stock awards can trigger the Section 162(m)
deduction limitation.
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. The Committee therefore has decided not to
adopt such a rigid formula-type bonus plan at this time. Thus, any payments to
those five
18
<PAGE>
executive officers in excess of the limit resulting from such cash bonuses may
not be 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 million dollar 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 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 judgement 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:
Michael J. Babcock
Gary L. Countryman
Paul J. Darling, II
John P. Hamill
Edmund F. Kelly
Ray B. Mundt (Chairman)
19
<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 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 stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C> <C> <C> <C>
3/27/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
LIBERTY FINANCIAL COMPANIES, INC. $100.00 $108.90 $143.80 $211.90 $153.50 $132.50
S&P 500 INDEX $100.00 $125.40 $154.20 $205.60 $264.30 $319.94
DOW JONES LIFE INSURANCE GROUP INDEX $100.00 $117.80 $156.40 $232.60 $309.20 $286.93
</TABLE>
20
<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 71.45% of the outstanding shares
of Common Stock and approximately 70.68% 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 $50.0 billion in assets and $7.0 billion in
surplus at December 31, 1999. 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 13 of Liberty Financial's 14 directors are also
directors of Liberty Mutual, and the Chairman of Liberty Mutual is the President
and Chief Executive Officer of Liberty Financial, 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 1999, 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
21
<PAGE>
securities laws) and (ii) any other acts or omissions arising out of performance
of the Intercompany Agreement.
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 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) 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 its other subsidiaries
in any consolidated federal income tax return or any combined, joint,
consolidated, or similar foreign,
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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.
For 1999, Liberty Mutual paid Liberty Financial $14.1 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
Prior to 1999 Keyport had 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 issued variable annuity contracts in New York with substantially the same
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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 continues to provide 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 1999 Liberty Life paid Keyport fees of approximately $0.1 million 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 1999.
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 1999.
As of December 31, 1999, Liberty Mutual and Liberty Fire owned approximately
6.5% 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 1999, 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. 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 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.
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, 1999 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 2000. 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.
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SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholders who wish to submit proposals pursuant to Rule 14a-8 under the
Exchange Act at the 2001 Annual Meeting of Stockholders will be required to
deliver the proposals to Liberty Financial on or prior to December 4, 2000. For
proposals that stockholders intend to present at the 2001 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 19, 2001, 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, c/o Liberty Financial Companies, Inc., 600 Atlantic Avenue,
Suite 2400, Boston, Massachusetts 02210-2214.
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, 1999, 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, 1999 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,
/s/ J. ANDREW HILBERT
J. Andrew Hilbert
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: April 6, 2000
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1387-PS-00
<PAGE>
DETACH HERE
LFC3B
PROXY
LIBERTY FINANCIAL COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING, MAY 8, 2000
The undersigned hereby constitutes and appoints Gary L. Countryman, C. Allen
Merritt, Jr. and John A. Benning, 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 8, 2000, 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, 1999.
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.
<TABLE>
<S> <C> <C>
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
</TABLE>
<PAGE>
LFC73A DETACH HERE
<TABLE>
<S> <C> <C>
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
</TABLE>
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
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS.
NOMINEES FOR TERMS EXPIRING AT 2003 ANNUAL MEETING OF
STOCKHOLDERS:
(01) Michael J. Babcock, (02) Gary L. Countryman, (03) John
P. Hamill and (04) Marian L. Heard
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
FOR WITHHELD
ALL FROM ALL
NOMINEES / / / / NOMINEES
/ /
---------------------------------------------------------------------------------------------------
For all nominees except as noted above
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
Signature: _________ Date: _________ Signature: _________ Date: _________
