10-K405
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THE LIBERTY CORPORATION FORM 10-K405
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to ________________
Commission File Number 1-5846
THE LIBERTY CORPORATION
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(Exact name of Registrant as specified in its charter)
South Carolina 57-0507055
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 789, Wade Hampton Boulevard, Greenville, S. C. 29602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 268-8436
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, no par value per share New York Stock Exchange
Rights to Purchase Series A
Participating Cumulative Preferred Stock New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of January 31, 1995:
Common Stock, No Par Value $362,763,000
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The number of shares outstanding of each of Registrant's classes of
common stock as of March 15, 1995:
Common Stock, No Par Value 19,862,795
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1994 are incorporated into Part II, Items 5, 6, 7,
and 8 by reference.
Portions of The Liberty Corporation Proxy Statement for the Annual
Meeting of Shareholders on May 2, 1995 are incorporated into Part III, Items
10, 11, 12, and 13 by reference.
This report is comprised of pages 1 through 147. The exhibit index is
on page 31.
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ITEM 1. BUSINESS
GENERAL
The Registrant, The Liberty Corporation ("the Company") is a holding
company engaged through its subsidiaries primarily in the insurance and
broadcasting businesses.
The Company's primary insurance subsidiaries are Liberty Life Insurance
Company ("Liberty Life") and its pre-need insurance group of companies. The
pre-need companies include Pierce National Life Insurance Company ("Pierce
National"), North American National Corporation ("North American") and American
Funeral Assurance Company ("American Funeral"). North American is an insurance
holding company whose subsidiaries include Pan Western Life Insurance Company,
Brookings International Life Insurance Company and Howard Life Insurance
Company. Howard Life Insurance Company was merged into Pierce National in
January 1995. Together, these insurance subsidiaries offer a diverse portfolio
of individual life and health insurance products. In addition to Liberty Life
and the pre-need companies, Liberty Insurance Services Corporation ("Liberty
Insurance Services") provides home office support services for unaffiliated
life and health insurance companies, as well as for the Company's insurance
subsidiaries. Other subsidiaries of the Company provide investment advisory
services to the Company's insurance subsidiaries and unaffiliated insurance
companies, and property development and management services to the Company.
The Company's broadcasting subsidiary, Cosmos Broadcasting Corporation
("Cosmos"), currently owns and operates eight network affiliated television
stations, the most recent being WLOX-TV in Biloxi, Mississippi, acquired in
February 1995.
STRATEGY; RECENT DEVELOPMENTS
The Company's principal strategy is to grow internally and through
acquisitions, while maintaining its emphasis on cost controls.
We will continue to seek opportunities to acquire insurance companies
and blocks of business that complement or fit with the Company's existing
marketing divisions and product lines. The Company's acquisition strategy has
focused on both home service and pre-need businesses. Home service business
represents the Company's primary core business, whereas the pre-need business
is a relatively new line of business for the Company. The Company largely
entered the pre-need business with the acquisition of Pierce National in July
1992. The 1994 pre-need acquisitions significantly strengthened the Company's
market position in the pre-need market, which provides life insurance products
to pre-fund funeral services. The Company believes that the pre-need business
has favorable demographics which can provide attractive future premium and
earnings growth.
Management's philosophy regarding broadcasting acquisitions is to make
selective acquisitions in local markets where we can be among the dominant
television stations.
The following page summarizes the Company's acquisitions since 1991.
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Annual Premiums
INSURANCE ACQUISITIONS Date Acquired
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Acquisition through reinsurance of a block of home service July 1991 $16 million(1)(2)
business from Kentucky Central Life Insurance Company
Acquisition through reinsurance of a block of mortgage December 1991 $21 million(1)
protection insurance from Integon Life Insurance Corporation
Acquisition of Pierce National Life Insurance Company, a July 1992 $31 million(1)
California based provider of pre-need life insurance (includes $6 million of
single pay premiums)
Acquisition of Magnolia Financial Corporation and its October 1992 $15 million(1)
subsidiary, Magnolia Life Insurance Company, a Louisiana based
provider of primarily home service life insurance
Acquisition of assets and block of insurance business from April 1993 $7 million(3)
Estate Assurance Company, a Louisiana based provider of pre-need (includes $6 million of
life insurance single pay premiums)
Acquisition of North American National Corporation and its February 1994 $24 million(4)
subsidiaries, an Ohio based holding company with insurance (includes $5 million of
subsidiaries based in Ohio, Colorado and North Dakota that single pay premiums)
provide primarily pre-need and other ordinary life insurance and
accident and health insurance
Acquisition of American Funeral Assurance Company, a Mississippi February 1994 $59 million(4)
based provider of primarily pre-need life insurance (includes $44 million
of single pay premiums)
Acquisition of State National Capital Corporation and its April 1994 $10 million(4)
subsidiaries, a Louisiana based provider of primarily home
service life insurance
(1) Represents amount of annualized premiums acquired at the time of
acquisition.
(2) Net of annual premiums associated with western portion of Kentucky Central
block of business, which the Company sold in December 1991.
(3) Represents amount of annual premiums reported by the selling company in
its 1992 annual financial statements filed under applicable statutory
requirements.
(4) Represents amount of annual premiums reported by the selling company in
its 1993 annual financial statements filed under applicable statutory
requirements.
BROADCASTING ACQUISITION
On February 28, 1995, the Company completed the acquisition of WLOX-TV in
Biloxi, Mississippi, bringing to eight the total number of television stations
in the broadcasting subsidiary. The purchase price of $41.0 million was funded
with a combination of redeemable preferred stock, cash and a note payable. WLOX
is an ABC affiliate that carries strong local news and is the top station in
its market.
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INSURANCE OPERATIONS
LIBERTY LIFE. Liberty Life is a stock life insurance company engaged in
the business of writing a broad range of individual life insurance policies and
accident and health insurance policies. Liberty Life is ranked 131st, based on
ordinary life insurance in force among approximately 1,200 United States life
insurance companies, according to data provided by A.M. Best Company. While
Liberty Life is licensed in forty-nine states, and the District of Columbia,
its focus has been the Southeast and Midwest. For 1994, the largest percentages
of its premium income were from South Carolina (31%), North Carolina (23%),
Louisiana (4%) and Ohio (3%). The Company believes that Liberty Life is the
largest provider of home service business in the Carolinas. State National was
integrated into Liberty Life during late 1994 and is included in the discussion
of Liberty Life.
Life insurance and annuity premiums contributed 83% of Liberty Life's
total premiums in 1994, 79% in 1993 and 78% in 1992. Accident and health
insurance premiums contributed the remainder.
The Company decided to cease sales of its products through its general
agency distribution system due to the absence of critical volume. The decision
to close the general agency distribution system resulted in a pre-tax charge to
earnings of $10.3 million, primarily to reduce deferred acquisition costs no
longer considered recoverable. Premiums and policy charges from the general
agency division represented approximately 2% of the Company's total premiums
and policy charges in 1994.
Liberty Life continues to market its insurance products through its Home
Service and Mortgage Protection divisions.
HOME SERVICE DIVISION. The Home Service Division is Liberty Life's largest
division, contributing 70% of Liberty Life's premiums in 1994. Home Service
agents of Liberty Life sell primarily individual life, including universal life
and interest-sensitive whole life products, as well as health insurance. As of
December 1994, the Company had approximately 1,400 agents and managers in this
division operating out of 60 district offices. These agents periodically visit
the insureds' homes and businesses to collect premiums. Although the Company
has broadened this division's area of concentration beyond the Carolinas,
principally through strategic acquisitions, the Company has maintained a
regional focus for its home service business on the Southeast and Midwest.
MORTGAGE PROTECTION DIVISION. The Mortgage Protection Division contributed
26% of Liberty Life's premiums in 1994. The Mortgage Protection Division
primarily sells decreasing term life insurance designed to extinguish the
unpaid portion of a residential mortgage upon the death of the insured. This
division also sells accidental death, disability income and credit life
insurance. A staff of full-time representatives and independent brokers offer
these products through more than 1,000 financial institutions located
throughout the United States. The Company supports the marketing of these
products through direct mail and phone solicitations.
PRE-NEED GROUP. The Company's pre-need subsidiaries provide life insurance
products which pre-fund funeral services. Pierce National, a stock life
insurance company acquired in July 1992, is domiciled in California, but its
principal executive offices are in Greenville, South Carolina. Pre-need
policies consist primarily of ordinary life insurance policies for which the
premiums are paid in a single payment at the outset or primarily over a three,
five or ten-year period. In April 1993, Pierce National acquired through
coinsurance all of the ordinary life insurance, representing pre-need life
insurance, of Estate Assurance Company, effective as of January 1, 1993.
North American, acquired in February 1994, has executive offices in
Greenville, South Carolina while its insurance subsidiaries are domiciled in
other states. Pan-Western Life Insurance Company, a stock life insurance
company, is domiciled in Ohio. Brookings International Life Insurance Company,
also a stock life insurance company, is domiciled in South Dakota.
American Funeral, also acquired in February 1994, is domiciled in the
state of Mississippi. Administrative and service operations of American Funeral
are located in Amory, Mississippi.
The Company's current plans are to integrate each of the North American
subsidiaries into Pierce National and or American Funeral by the end of 1995.
The pre-need companies are currently licensed in 41 states, the District
of Columbia, and ten Canadian provinces. Pierce National has licensing
applications pending in 4 additional states, three of which are not covered by
another pre-need company. The current plan is to seek licensure in the majority
of the remaining states by the end of 1995. The largest percentages of premium
income for 1994 came from Canada (13%), Mississippi (11%) and California (9%).
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At December 31, 1994, the pre-need companies had 26 employees in its home
office in Greenville who perform administrative and clerical duties. Policy
administration for Pierce National and North American is carried out by Liberty
Insurance Services who employs approximately 85 people in this area. American
Funeral employs approximately 45 people in its Amory, Mississippi office to
provide administrative, clerical and policy administration services.
PREMIUM BREAKDOWN. The following table sets forth the insurance premiums
and policy charges for Liberty Life's marketing and distribution divisions and
the pre-need companies for the years ended December 31.
(In 000's) 1994 1993 1992
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Liberty Life
Home Service $136,187(3) $ 137,919 $122,457
Mortgage Protection 49,985 54,058 60,639
General Agency Marketing 6,143 5,906 4,425
Other 1,384 1,670 1,744
193,699 199,553 189,265
Pre-Need
Pierce National 59,738 51,369(2) 19,868(1)
American Funeral 40,583(1)
North American 21,769(1)
122,090 51,369 19,868
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Total $315,789 $250,922 $209,133
(1) Represents premiums from date of acquisition.
(2) Increase reflects, in part, the acquisition of Estate Assurance
Company's insurance in force in April 1993.
(3) Includes the results of State National Life Insurance Company from
April 1994
UNDERWRITING PRACTICES. Liberty Life's underwriting practices for ordinary
life insurance require medical examinations for applicants over age 60 or for
policies in excess of certain prescribed face amounts. Approximately 72% OF
non-home service life insurance policies issued in 1994 were issued without
medical examinations. In accordance with the general practice in the life
insurance industry, Liberty Life writes life insurance on substandard risks at
increased premium rates. Generally, home service life insurance for
non-universal life products is written for amounts under $5,000 and typically
no medical examination is required. Mortgage protection life insurance is
usually written without medical examination. Substantially all of pre-need
policies are written for amounts under $5,000, and no medical examination is
required unless the applicant requests a preferred rate.
REINSURANCE. The Company's insurance subsidiaries use reinsurance in two
distinct ways: first, as a risk management tool in the normal course of
business and second, in isolated strategic transactions to effectively buy or
sell blocks of in force business. The Company's insurance subsidiaries remain
liable with respect to reinsurance ceded should any reinsurer be unable to meet
the obligations assumed by it. As a result of its reinsurance transactions, the
Company's insurance subsidiaries remain liable on $4.8 billion (22%) of its
total $21.6 billion life insurance in force at December 31, 1994.
For the years ended December 31, 1994, 1993 and 1992, the Insurance Group
had ceded life insurance premiums of $26.4 million, $26.1 million and $28.3
million, respectively. Accident and Health premiums ceded for the Insurance
Group made up the remainder of ceded premiums which were $3.7 million, $3.5
million and $3.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively.
RISK MANAGEMENT REINSURANCE TRANSACTIONS. Liberty Life reinsures with
other insurance companies portions of the life insurance it writes in order to
limit its exposure on large or substandard risks. The maximum amount of life
insurance that Liberty Life will retain on any life is $300,000, plus an
additional $50,000 in the event of accidental death. This maximum is reduced
for higher ages and for special classes of risks. The maximum amount of life
insurance that any of the pre-need companies will retain on any life is
$50,000. Insurance in excess of the retention limit is either automatically
ceded under reinsurance agreements or is reinsured on an individually agreed
basis with other insurance companies. Liberty Life has ceded a significant
portion of its risks on accidental death and disability coverage to other
insurance companies. Liberty Life and Pierce National also have coverage for
catastrophic accidents. At December 31, 1994, Liberty Life and the pre-need
companies had ceded in the normal course of business portions of their risks to
a number of other insurance companies.
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STRATEGIC REINSURANCE TRANSACTIONS. In 1991, 80% or $3.2 billion face
amount of Liberty Life's General Agency Marketing Division net insurance in
force was coinsured with Life Reassurance Corporation ("Life Re"). The
agreement with Life Re also provides for the coinsurance of 50% of this
division's insurance in force issued after 1991. The total face value of
amounts ceded to Life Re at December 31, 1994 was $2.9 billion. Under terms of
the agreement, assets supporting the business ceded are required to be held in
escrow.
In order to facilitate the 1991 acquisition through reinsurance of the
Kentucky Central block of business, Liberty Life coinsured 50% of its home
service traditional life insurance business with Lincoln National Life
Reinsurance Insurance Company. The Lincoln National reinsurance has been
accounted for under generally accepted accounting principles as financial
reinsurance. The reinsurance contract contains an escrow agreement that
requires assets equal to the reserves reinsured, as determined under statutory
accounting principles, be held in escrow for the benefit of this block of
business.
The Company uses assumption reinsurance to effectively acquire blocks of
in force business by acting as the "reinsurer" for other insurance companies.
For instance, the Company acquired the Kentucky Central and Estate Assurance
blocks in this manner.
OPERATIONS. The administrative functions of underwriting and issuing new
policies, and the ongoing servicing and claims settlement of in force policies,
are centralized at the home office of Liberty Life, Pierce National and North
American in Greenville, South Carolina, and American Funeral's home office in
Amory, Mississippi. In acquiring additional blocks of insurance business, the
Company's strategy is to integrate the administrative functions into its
existing operations, either directly or through Liberty Insurance Services, as
soon as practical after the effective date of the acquisition. The Company
believes that this centralization permits economies of scale and promotes
greater cost efficiencies. The Company is currently in the process of
consolidating the pre-need businesses of Pierce National, North American and
American Funeral.
The Company's Insurance Group services approximately 3.0 million policies
representing $21.6 billion of life insurance in force, of which $4.8 billion of
insurance in force has been ceded to other companies. Approximately 152,000
policies representing $3.2 billion of life insurance in force were issued
during 1994. The Company intends to continue its focus on reducing the unit
costs of administrative services by increasing the volume of business through
acquisitions of blocks of business similar in nature to its existing business,
by internal growth in those businesses, and by investing in up-to-date
technology to further improve efficiency in its operations.
LIBERTY INSURANCE SERVICES. Liberty Insurance Services provides a wide
range of home office support services to unaffiliated life and health insurance
companies on a fee basis, as well as to the Company's insurance subsidiaries.
These services include underwriting, preparation of policies, accounting,
customer service and claims processing and adjudication and can be tailored to
support the special features of insurance products offered by other companies
that desire these services. The Company's strategy is to target (i) insurance
companies that have closed blocks of business that are expensive to administer,
(ii) insurance companies that have start-up or new product lines requiring new
support levels, (iii) small to midsize insurance companies that cannot justify
large investments in home office technology, and (iv) insurance companies
acquired by financial investors lacking experience in providing home office
support. Liberty Insurance Services believes that its economies of scale will
permit its customers to reduce their home office support costs and focus
resources on marketing their insurance products. Although Liberty Insurance
Services profits generated to date have not been material, the Company believes
that Liberty Insurance Services has significant growth potential. Liberty
Insurance Services has 270 employees who provide services to the Company's
insurance subsidiaries as well as to its outside clients.
SPECIAL CHARGES
The Company recognized special charges in the fourth quarter of $20.3
million (after-tax) relating to two unique situations: a write off of deferred
costs connected with the development of a software system for administration of
the Company's insurance business, and a decision to cease marketing products
through the general agency distribution system.
SYSTEMS DEVELOPMENT COSTS. The largest component of the special charges
relates to a write off of previously deferred systems development costs. In
1989, the Company entered into a joint venture effort with the objective of
developing a state-of-the-art system that would service all of the types of
insurance products sold by the Company's insurance subsidiaries. It was
expected that the Company would be able to have this system fully implemented
by the end of 1993, and that it would provide a substantial competitive
advantage. Additionally, it was contemplated that the software would be sold to
other companies, through the joint venture partner (JVP), and that the Company
would receive royalty income from the venture.
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In 1993, it became apparent that the system was not going to be completed
and available for implementation by the end of 1993. Further, the JVP had
acquired another software company and had made a decision that the system being
developed for the Company would not be the one the JVP marketed to other
insurance companies. In late 1993, the JVP suggested an alternative approach
for the Company to receive value for the costs that it had incurred. Namely,
the Company was offered the rights to all software produced, or to be produced,
by the JVP and the company it had acquired. The Company was to receive these
rights with no, or substantially reduced, fees. Further, as a part of this
proposal, the JVP would complete and deliver certain system components (these
were to interface with the systems for which the Company was to receive rights)
to the Company by mid-1994.
The system components have not been delivered and the JVP asked for
additional time to complete the development. As a result, it was necessary that
the Company, again, assess the value of the related asset taking into
consideration the current circumstances. The Company engaged a consulting firm
to review the situation and assist in estimating a reasonable value or range of
values that might be attributed to the costs that had been incurred and
deferred in connection with the development of the anticipated systems. As a
result of this review, it was determined that a write off amounting to $13.6
million after-tax was appropriate to reflect the current estimated economic
value.
GENERAL AGENCY MARKETING. One of the channels of distribution for Liberty
Life has been a general agency marketing system (GAM). However, GAM did not
produce the expected sales volume and there was no reasonable basis to expect
significant increases in such sales in the foreseeable future. It was
determined to be unlikely that the business sold through GAM would produce the
level of returns that justified continuation of an allocation of capital and
resources.
A charge was made to reduce previously deferred policy acquisition costs
and results in an expectation of no future profits or losses on the GAM
business. Additionally, provision was made to estimate other losses that may
reasonably be expected to result from this decision. (e.g. uncollectible
advances to general agents). Total charges recognized in 1994 related ceasing
marketing through general agency amounted to $6.7 million after-tax.
INSURANCE COMPETITION. The Company's Insurance Group competes with
numerous United States and Canadian insurance companies, some of which have
greater financial resources, broader product lines and larger staffs. In
addition, banks and savings and loan associations in some jurisdictions compete
with the Company's Insurance Group for sales of life insurance products, and
the Insurance Group competes with banks, investment advisors, mutual funds and
other financial entities to attract investment funds generally.
Competition in the home service business is largely regional or local,
highly dependent on the quality of the local management, and is less price
competitive than other insurance markets. The home service business involves
frequent contacts by agents with their customers. Liberty emphasizes to its
agents the importance of taking advantage of these contacts to establish
personal relationships which the Company believes add stability to its home
service business.
The Company believes that competition in the pre-need market is national
and, therefore, has expanded the market of its pre-need business. The Company
intends to capitalize on its affinity marketing expertise gained in the
mortgage protection insurance business by targeting national chains of funeral
homes and by supplementing this effort with direct marketing and telemarketing
campaigns.
The Company currently believes that it ranks third nationally in mortgage
protection insurance with an estimated 15% market share. Slightly over 70% of
the mortgage protection market share is believed to be held by four companies
and 33% of the market is held by the market leader.
INSURANCE REGULATION. Like other insurance companies, the Company's
insurance subsidiaries are subject to regulation and supervision by the state
or other insurance department of each jurisdiction in which they are licensed
to do business. These supervisory agencies have broad administrative powers
relating to the granting and revocation of licenses to transact business, the
licensing of agents, the approval of policy forms, reserve requirements and the
form and content of required statutory basis financial statements. As to its
investments, each of the Company's insurance subsidiaries must meet the
standards and tests established by the National Association of Insurance
Commissioners (the "NAIC") and, in particular, the investment laws and
regulations of the states in which each subsidiary is domiciled. All states and
jurisdictions (including the Canadian provinces where Pierce National is also
licensed) have their own statutes and regulations, which vary in certain
respects. However, the NAIC Model Act and regulations have tended to make the
various states' regulation more uniform. The insurance companies are also
subject to laws in most states that require solvent life insurance companies to
pay guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies.
The NAIC and state regulatory authorities require the Asset Valuation
Reserve or "AVR" and the Interest Maintenance Reserve or "IMR" to be
established as a liability on a life insurer's statutory financial statements,
but do not affect financial
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statements of the Company prepared in accordance with generally accepted
accounting principles. AVR establishes a statutory reserve for mortgage loans,
equity real estate and joint ventures, as well as for fixed maturities and
common and preferred stock. AVR generally captures all realized and unrealized
gains and losses on such assets, other than those resulting from changes in
interest rates. IMR captures the net gains or losses that are realized upon the
sale of fixed income securities (bonds, preferred stocks, mortgage-backed
securities and mortgage loans) and that result from changes in the overall
level of interest rates, and amortizes these net realized gains or losses into
income over the remaining life of each investment sold, thus limiting the
ability of an insurer to enhance statutory surplus by taking gains on fixed
income securities. The IMR and AVR requirements have not had a material impact
on the Company's insurance subsidiaries' surplus nor Liberty Life's ability to
pay dividends to the Company.
In recent years the NAIC has approved and recommended to the states for
adoption and implementation several regulatory initiatives designed to decrease
the risk of insolvency of insurance companies in general. These initiatives
include the implementation of a risk-based capital formula for determining
adequate levels of capital and surplus and further restrictions on an insurance
company's payment of dividends to its shareholders. To date, South Carolina has
not adopted the NAIC risk-based capital model act; however, it does require
prior notice to the South Carolina Commissioner of dividend distributions to
shareholders, and permits the Commissioner to disapprove or limit the dividend
within 30 days of notice if the dividend or distribution is deemed an
unreasonable strain on surplus. The NAIC risk-based capital model act or
similar initiatives may be adopted by South Carolina or the various states in
which Liberty Life and the Company's other insurance subsidiaries are licensed,
but the ultimate content and timing of any statutes and regulations adopted by
the states cannot be determined at this time.
Under the NAIC's risk-based capital requirements, insurance companies must
calculate and report information under a risk-based capital formula in their
annual statutory financial statement. This information is intended to permit
insurance regulators to identify and require remedial action for inadequately
capitalized insurance companies, but is not designed to rank adequately
capitalized companies. The NAIC requirements provide for four levels of
potential involvement by state regulators for inadequately capitalized
insurance companies, ranging from regulatory control of the insurance company
to a requirement for the insurance company to submit a plan to improve its
capital. Implementation of the substantive regulatory authority by this NAIC
initiative depends on adoption by the states of the NAIC Model Act on
risk-based capital requirements. The NAIC has determined to deny accreditation
to state insurance regulatory authorities in states failing to adopt this
risk-based capital Model Act by January 1, 1996. The RBC ratios for the
Company's insurance subsidiaries exceed the minimum capital requirements at
December 31, 1994.
Another NAIC Model Act limits dividends that may be paid in any calendar
year without regulatory approval to the lesser of (i) 10% of the insurer's
statutory surplus at the prior year-end, or (ii) the statutory net gain from
operations of the insurer (excluding realized capital gains and losses) for the
prior calendar year. The current South Carolina statutes applicable to Liberty
Life do not conform to the NAIC Model Act (South Carolina limits dividends to
the greater of 10% of statutory surplus or gain from operations). Under current
South Carolina law, without prior approval from the South Carolina Commissioner
of Insurance, dividend payments from Liberty Life to the Company are limited to
the greater of the prior year's statutory gain from operations or 10% of the
prior year's statutory surplus. This resulted in a maximum allowable dividend
in 1994 of $20.4 million without approval from the South Carolina Insurance
Commissioner. Actual dividends and distributions paid by Liberty Life were
$20.3 million in 1994, $22.0 million in 1993 and $14.0 million in 1992. Under
regulations effective July 1, 1995, the South Carolina Insurance Department
must be notified of all dividends and distributions to shareholders within five
days following the declaration, and at least ten days prior to the payment of
the dividend or distribution, and will have the authority to limit the amount
of any dividends or distributions. Extraordinary dividends, defined as
distributions that, together with all other distributions within a 12 month
period, exceed the greater of the net gain from operations or 10% of statutory
surplus, cannot be made without the approval of the South Carolina Insurance
Department, or unless the department has not disapproved the payment within 30
days following the notice of the declaration. Pierce National has agreed with
several states to not pay dividends until after 1995.
In accordance with the rules and practices of the NAIC and in accordance
with state law, every insurance company is generally examined once every three
years by examiners from its state of domicile and from several of the other
states where it is licensed to do business. Liberty Life, Pierce National and
Pan-Western's most recent examinations were for the period ending December 31,
1990. American Funeral's most recent examination was for the period ending
December 31, 1992; and Brookings International Life's most recent examination
was for the period ending December 31, 1988. Examinations of Liberty Life and
Pierce National for the periods ended December 31, 1993, are currently in
progress.
The Office of the Superintendent of Financial Institutions - Canada, and
the Canadian provinces regulate and supervise the Canadian operations of Pierce
National in the same manner as the NAIC and the states. Separate financial
statements are required to meet the Canadian regulatory requirements and a
separate examination is conducted by the Canadian regulatory agencies.
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The Company's insurance subsidiaries are also subject to regulation as an
insurance holding company system under statutes which have been enacted in
their states of domicile and other states in which they are licensed to do
business. Pursuant to these statutes, Liberty Life and Pierce National are
required to file an annual registration statement with the Office of the
Commissioner of Insurance and to report all material changes or transactions.
In addition, these statutes restrict the ability of any person to acquire
control (generally presumed at 10% or more) of the outstanding voting
securities of the Company without prior regulatory approval.
BROADCASTING OPERATIONS
Cosmos currently owns and operates the following television stations, six
of which were ranked No. 1 in their market by the November 1994 Nielsen ratings
for sign-on to sign-off:
Station Primary Market Affiliation VHF/UHF
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WAVE-TV Louisville, Kentucky NBC VHF
WIS-TV Columbia, South Carolina NBC VHF
WSFA-TV Montgomery, Alabama NBC VHF
KLPC-TV Lake Charles, Louisiana NBC VHF
WTOL-TV Toledo, Ohio CBS VHF
KAIT-TV Jonesboro, Arkansas ABC VHF
WFIE-TV Evansville, Indiana NBC UHF
WLOX-TV Biloxi, Mississippi ABC VHF
Cosmos has approximately 653 full-time employees and 94 part-time
employees, including their cable sales operations in Columbia, S.C. and
Frankfort, KY.
NETWORK AFFILIATES. Each Cosmos station is affiliated with one of the
major networks - NBC, ABC, CBS. The affiliation contracts provide that the
network will offer to the affiliated station a variety of network programs,
both sponsored and unsponsored, for which the station has the right of first
refusal against any other television station located in its community. The
station has the right to reject or accept the programs offered by the network
and also has the right to broadcast programs either produced by the station or
acquired from other sources. The major networks provide their affiliated
stations with programming and sell the programs, or commercial time during the
programs, to national advertisers. Each affiliate is compensated by its network
for carrying the network's programs. That compensation is based on the local
market rating strength of the affiliate and the audience it helps bring to the
network programs. The major networks typically provide programming for
approximately 90 hours of the approximately 135 hours per week broadcast by
their affiliated stations.
The NBC affiliation contracts with each of Cosmos' NBC affiliated stations
have been continuously in effect for over thirty-eight years. Cosmos' CBS
affiliation contract and ABC affiliation contract have each been continuously
in effect for approximately thirty years.
SOURCES OF COSMOS' TELEVISION OPERATING REVENUES. The following table
shows the approximate percentage of Cosmos' gross television operating revenues
by source excluding other income for the three years ended December 31, 1994:
Year ended December 31 1994 1993 1992
---------------------- ---- ---- ----
Local and Regional Advertising 57% 60% 57%
National Spot Advertising 30 32 31
Network Compensation 7 7 8
Political Advertising 6 1 4
Local and regional advertising is sold by each station's own sales
representatives to local and other non-national advertisers or agencies.
Generally these contracts are short-term, although occasionally longer-term
packages will be sold. National spot advertising (generally a series of spot
announcements between programs or within the station's own programs) is sold by
the station or its sales representatives directly to agencies representing
national advertisers. Most of these national sales contracts are also
short-term, often covering spot campaigns running for thirteen weeks or less.
Network compensation is paid by the network to its affiliated stations for
broadcasting network programs that include
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advertising sold by the network to agencies representing national advertisers.
Political advertising is generated by national and local elections, which is by
definition very cyclical.
A television station's rates are primarily determined by the estimated
number of television homes it can provide for an advertiser's message. The
estimates of the total number of television homes in the market and of the
station's share of those homes is based on the AC Nielsen industry wide
television rating service. The demographic make-up of the viewing audience is
equally important to advertisers. A station's rate card for national and local
advertisers takes into account, in addition to audience delivered, such
variables as the length of the commercial announcements and the quantity
purchased. The payments by a network to an affiliated station are largely
determined by the total homes delivered, the relative preference of the station
among the viewers in the market area and other factors related to management
and ownership.
TELEVISION BROADCASTING COMPETITION. The television broadcasting industry
competes with other leisure time activities for the time of viewers and with
all other advertising media for advertising dollars. Within its coverage area a
television station competes with other stations and with other advertising
media serving the same area. The outcome of the competition among stations for
advertising dollars in a market depends principally on share of audience,
advertising rates and the effectiveness of the sales effort.
Cosmos believes that each of its stations has a strong competitive
position in its local market, enabling it to deliver a high percentage of the
local television audience to local advertisers. Cosmos' commitment to local
news programming, combined with syndicated programming, are important elements
in maintaining Cosmos' current market positions.
Another source of competition is cable television, which brings additional
television programming, including pay cable (HBO, Showtime, Movie Channel,
etc.), into subscribers' homes in a television station's service area. Cable
television competes for the station's viewing audience and, on a more modest
scale, its advertising.
Federal law now requires that cable operators negotiate with television
operators for the right to carry a station's signal (programs) on cable
systems. Cosmos recently used this "retransmission consent" negotiation to
forge long term partnerships with cable operators with the purpose of
developing secondary revenue streams from programs and services specifically
produced for cable. Cosmos also recently formed CableVantage Inc., a marketing
company designed to assist local cable operators in the sale of commercial time
available in cable network programs.
Subscription Television, an over-the-air pay television service, and
Multipoint Distribution Service, a microwave-distributed pay television
service, also compete for television audiences. In addition, licenses are now
being granted for Multichannel Multipoint Distribution Service. None of these
services has yet significantly fractionalized the audiences of commercial
television stations. The use of home video recording and playback (VCR)
equipment is has grown and provides another element of competition for
television audiences.
Two other television broadcast services are providing consumers with
additional technical delivery/programming opportunities. Low power television,
sometimes referred to as "neighborhood TV," is authorized to operate in a
limited coverage area. Authorizations are being granted by the Federal
Communication Commission ("FCC") on a lottery basis. Direct Broadcast
Satellite, which transmits television signals from satellite transponders to
parabolic home antennae, is now being actively marketed.
FEDERAL REGULATION OF BROADCASTING. Cosmos' broadcasting operations are
subject to the jurisdiction of the FCC under the Communications Act. The
Communications Act empowers the FCC, among other things, to issue, revoke or
modify broadcasting licenses; to assign frequency bands; to determine the
location of stations; to regulate the apparatus used by stations; to establish
areas to be served; to adopt such regulations as may be necessary to carry out
the provisions of the Communications Act and to impose certain penalties for
violation of such regulations.
Television broadcasting licenses may be granted for a maximum term of five
years and, upon application, and in the absence of a conflicting application or
a petition to deny which raises a substantial and material issue of relevant
fact (which would require the FCC to hold a hearing) or adverse findings as to
the licensee's qualifications, are usually renewed without hearing by the FCC
for additional five year terms. Cosmos' renewal applications have always been
granted without hearing for the full term. The Communications Act prohibits the
transfer of a license or the transfer of control or other change in control of
a licensee without prior approval of the FCC. The Hipp family is considered by
the FCC to have de facto control over Cosmos, and any action that would change
such control would require prior approval of the FCC.
Under FCC regulations governing multiple ownership, a license to operate a
television station generally will not be granted to any person (or persons
under common control) if such person directly or indirectly holds a significant
interest in (i) another radio or television station, with an overlapping
service area, (ii) more than 12 television stations or (iii) less than
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12 television stations if their audience coverage exceeds 25% of total
United States households. FCC regulations also limit ownership of television
stations by those having interests in cable television systems and daily
newspapers serving the same service area as the television stations. The rules
provide that each case will be considered on the basis of its particular facts.
During 1995, legislation is expected which will remove many of the ownership
restrictions now encumbering broadcasters. Congress has publicly stated that
broadcasters need regulatory relief in order to effectively compete in the
multi-channel environment of the future commonly referred to as the "electronic
information superhighway".
There are additional FCC Regulations and Policies, and regulations and
policies of other federal agencies, principally the Federal Trade Commission,
regulating network/affiliate relations, political broadcasts, children's
programming, advertising practices, equal employment opportunity, carriage of
television signals by CATV systems, application and reporting procedures and
other areas affecting the business and operations of television stations.
INVESTMENTS AND INVESTMENT POLICY
The Company derives a substantial portion of its total revenues from
investment income. Invested assets are held primarily through Liberty Life and
the pre-need companies, although the parent company and its real estate
subsidiaries hold $70.7 million (52%) of the $135.5 million of the consolidated
investment real estate portfolio at December 31, 1994. The Company's investment
advisory subsidiary manages securities and non-real estate related assets for
the Company and its subsidiaries, while the Company's property development and
management subsidiary manages all investment real estate assets and the
mortgage loan portfolio for the Company and its subsidiaries.
All investments made for the Company are governed by the general
requirements and guidelines established and approved by the Company's
Investment Committee and by qualitative and quantitative limits prescribed by
applicable insurance laws and regulations. The Committee, comprised of seven
senior officers of the Company and appropriate subsidiaries, meets monthly to
set and review investment policy and to approve current investment plans.
The Company follows a value-oriented investment philosophy in which
purchases are generally made with the intention of holding securities to
maturity. Investment philosophy is focused on the intermediate to longer-term
horizon and is not oriented towards trading. As market relationships change and
individual securities become increasingly over or undervalued, securities may
be sold prior to maturity and replaced with similar securities. In addition,
the Company attempts to minimize liquidity risk by using an integrated
asset/liability matching process. As an additional risk control measure, the
Company's investment strategy focuses on diversity through a relatively large
number of smaller investments in contrast to larger, more concentrated
investments.
FIXED MATURITY SECURITIES. As of December 31, 1994, fixed maturity
securities comprised approximately 68% ($1.2 billion) of the Company's invested
assets and had a weighted average credit rating of AA. As of December 31, 1994,
approximately 54% of the Company's fixed maturity portfolio was comprised of
mortgage-backed securities. Certain mortgage-backed securities are subject to
significant prepayment risk or extension risk due to changes in interest rates.
In periods of declining interest rates, mortgages may be repaid more rapidly
than scheduled as borrowers refinance higher rates to take advantage of the
lower current rates. The Company's emphasis on call protection as part of its
investment strategy makes its portfolio less vulnerable to prepayments which
reduce portfolio yield during low interest rate environments. The Company's
emphasis on well-structured mortgage securities makes the portfolio less
vulnerable to maturity extension risk which occurs as prepayments slow during a
rising rate environment. Prepayment activity slowed dramatically during 1994
due to the sharp increase in interest rates. In contrast to a year ago when
reinvestment rates were significantly below portfolio yields, current purchase
yields are approaching existing portfolio yields. As a result, the downward
pressure on investment income is expected to stabilize.
MORTGAGES. As of December 31, 1994, mortgage loans comprised 12% ($203.4
million) of the Company's invested assets. Mortgage loans on real estate are
carried at amortized cost which include valuation adjustments for impaired
value where appropriate. As of December 31, 1994, 2.81% of the Company's
mortgage loan portfolio was more than 60 days delinquent, compared to the
industry average of 3.38% at December 31, 1994 (as reported in the American
Council of Life Insurance's "Investment Bulletin" dated March 9, 1995). It is
the Company's policy to stop accruing mortgage loan interest income for
financial statement purposes once a loan is more than 90 days past due. At that
time the accrued interest on the loan is deducted from income.
REAL ESTATE. As of December 31, 1994, 8% ($135.5 million) of the Company's
invested assets were real estate. Liberty Life holds 47% ($64.5 million) of the
real estate portfolio and the remainder is held by the parent company and its
real estate subsidiary. During 1994, the Company purchased approximately $43
million of real estate assets from SCANA Development Corporation. The Company's
real estate assets are comprised primarily of residential land development,
business parks, business property rentals and shopping centers. Residential
land development is partially developed and
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undeveloped properties zoned residential that are sold to home builders.
Business parks are partially developed and undeveloped properties zoned for
business use that are primarily sold to various industrial, manufacturing, and
office users. The Company records gains (losses) on the sale of residential
land development and business parks as investment income. Business property
rentals and shopping centers are leased to commercial and rental tenants,
respectively, and gains (losses) from sales of such properties are recorded as
realized investment gains (losses). The Company's real estate investment
properties are carried at cost less accumulated depreciation and valuation
adjustments for impaired value where appropriate.
The Company's methodology for determining permanent impairment of a
property begins with an annual review of estimated value for each property in
the portfolio. This process uses projected cash flows to value partially
developed land for resale, a combination of comparable tract sales and
projected cash flows to value undeveloped land and capitalization rates are
applied to net operating cash flow for developed properties. As of December 31,
1994, the Company does not believe that the values of these properties have
been impaired from their carrying values.
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EXECUTIVE OFFICERS
The following is a list of the Executive Officers of the Registrant
indicating their age and certain biographical data.
FRANCIS M. HIPP, Age 84 (1)
Chairman of the Board of Liberty since 1967
W. HAYNE HIPP, Age 55 (1)
Chairman of the Board of Liberty Life from January 1, 1979 - February 9,
1988; September 18, 1989 - present
Chairman of the Board of Cosmos - May 1, 1989 - February 18, 1992 President
and Chief Executive Officer of Liberty since September, 1981
MARTHA G. WILLIAMS, Age 52
Vice President, General Counsel & Secretary of Liberty since January, 1982
Vice President, General Counsel & Secretary of Liberty Life since January,
1982
Secretary and Counsel of Cosmos since February 11, 1982
H. RAY EANES, Age 54
Senior Vice President of Finance and Treasurer of Liberty since May 20, 1994
Prior to joining Liberty was Vice Chairman - Finance and Administration of
Ernst & Young LLP
W. KENNETH HUNT, III, Age 41
President of Liberty Life Insurance Company since December, 1994
President of Pierce National Life Insurance Company from September, 1993 to
December, 1994 President of Liberty Insurance Services Corporation from
August, 1991 to September, 1993
Chief Financial Officer of Liberty Life Insurance Company from February,
1987 to August, 1991
JENNIE M. JOHNSON, Age 48
Vice President, Planning, of Liberty since February 1, 1986
JAMES M. KEELOR, Age 52
President of Cosmos since February 18, 1992
Vice President, Operations, of Cosmos from December, 1989 to February 18,
1992
Vice President & General Manager of WDSU-TV from January, 1987 to
December, 1989
M. PORTER B. ROSE, Age 53
President, Liberty Investment Group, Inc. since March 24, 1992
Chairman, Liberty Capital Advisors, Inc. since January 1, 1987
Chairman, Liberty Properties Group, Inc. since January 1, 1987
JOHN P. SMITH, Age 42
Controller of Liberty since September 15, 1994
Previously Vice President/Finance of Liberty Life Insurance Company
(1) W. Hayne Hipp is the son of Francis M. Hipp.
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OTHER BUSINESS
In addition to the operating subsidiaries, the Company has other minor
organizations. These include the Company's administrative staff, an investment
advisory company, a property development & management company and
transportation operations. There are approximately 123 full-time employees in
these areas.
RESEARCH ACTIVITIES
The Company and its subsidiaries do not have a formal program of research
on new or improved products. As a part of its operation, each company continues
to seek improved methods and products. No material amounts were spent in this
area during 1994.
INDUSTRY SEGMENT DATA
Information concerning the Company's industry segments is contained in
Selected Financial Data on page 43 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on page 94 of this report and is
incorporated in this Item 1 by reference.
ITEM 2. PROPERTIES
MAIN OFFICES. The main office of the Company, Liberty Life and Cosmos is
located on a 30-acre tract in Greenville, SC and consists of three buildings
totaling approximately 360,000 square feet plus parking. The main office
facilities are owned by the Company and Liberty Life, a wholly owned subsidiary
of the Company. The Company also owns the main office of Brookings
International Life, (approximately 6,000 square feet plus parking), in
Brookings, SD and the home office of American Funeral (approximately 40,000
square feet plus parking), in Amory, MS. Liberty Life leases branch office
space in various cities. Leases are normally made for terms of one to ten
years.
Cosmos owns its television broadcast studios, office buildings and
transmitter sites in Columbia, SC; Montgomery, AL; Toledo, OH; Louisville, KY;
Evansville, IN; Jonesboro, AR; Lake Charles, LA; and Biloxi, Mississippi.
The following properties are owned by the Company or a wholly owned
subsidiary.
INDUSTRIAL PROPERTY
Name Description/Size Location
---- ---------------- --------
Liberty Life
Woodland Corporate Center 133 acres, developed Tampa, FL
Northpoint 323 acres, developed Columbia, SC
SouthChase 200 acres, developed Greenville, SC
The Exchange 2 acres, developed Greenville, SC
Ridgeview Center 9 acres, developed Spartanburg, SC
Exec Park Faber Place 44 acres, developed Charleston, SC
Pepperdam Industrial Park 25 acres, developed Charleston, SC
Overlook Industrial Park 187 acres, developed Lexington, SC
Harbison 16 acres, developed Richland Co., SC
LPC of SC, Inc.
Woodfield 261 acres, being developed Fountain Inn, SC
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OFFICE & OTHER BUILDINGS
Name Description/Size Location
---- ---------------- --------
LIBCO of Florida, Inc.
Woodland Business Center I 88,800 sq. ft. on 8 acres Tampa, FL
Woodland Business Center II 45,351 sq. ft. on 3.5 acres Tampa, FL
Woodland Business Center II F 40,000 sq. ft on 5.8 acres, under Tampa, FL
construction
Liberty Life
Lindsay Parking 7,534 sq. ft. leased Greensboro, NC
Print Shop 10,749 sq. ft., unoccupied Greensboro, NC
Leased to B.F. Goodrich Co. 11,630 sq. ft. leased Greensboro, NC
Dixie Sales Co. 19,699 sq. ft. unoccupied Greensboro, NC
Woodcreek House Single-family residential Lexington Co., SC
Cox House Single family residential Baton Rouge, LA
LPC of SC, Inc.
Leased to Alcoa
Fujikura, Ltd. 222,670 sq. ft. on 22 acres Duncan, SC
Leased to Perrigo Co. 72,000 sq. ft. on 9 acres Greenville, SC
Lot 44 Phase III Hampton's Single-family residence Columbia, SC
Grant
Twin Lakes 40,000 sq. ft. on 5.5 acres Charlotte, NC
One Harbison Way 43,708 sq. ft on 6.57 acres Columbia, SC
3820 Faber Place 39,543 sq. ft Charleston, SC
Fortune 33,582 sq. ft. on 3.04 acres Charleston, SC
LPG Development Corp.
Spec II @ Northpoint 102,000 sq. ft. on 10.52 acres, to be Columbia, SC
constructed
SouthChase Development Corp.
Leased to Stone Safety 104,200 sq. ft. on 11 acres Greenville, SC
Spec IV @ SouthChase 49,500 sq. ft. on 8 acres Greenville, SC
Spec V @ SouthChase 102,400 sq. ft. on 12.3 acres Greenville, SC
Pan Western
Oak Creek #1 25,000 sq. ft. on 2.2 acres Franklin Co., OH
North High Street 11,242 sq. ft. on 0.26 acres Franklin Co., OH
Grove City, OH 4,200 sq. ft. on 0.39 acres Franklin Co., OH
The Liberty Corporation
Downtown Property 72,698 sq. ft., 3 Bldg. Office Baton Rouge, LA
Parking Lot 36 space parking lot Baton Rouge, LA
Tiger Bend Road 8,700 sq. ft. office building Baton Rouge, LA
10926 Old Hammond #33 Single - family residence Baton Rouge, LA
10926 Old Hammond #22 Single - family residence Baton Rouge, LA
7141 Vice President Single - family residence Baton Rouge, LA
7212 President Drive Single - family residence Baton Rouge, LA
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RESIDENTIAL LAND
Name Description/Size Location
---- ---------------- --------
Liberty Life
Prestwick 108 acre, first home Fulton County, GA
Carlos Tract 444 acre, first home Gwinnett County, GA
Jamesford Meadows 194 acre, first home Greensboro, NC
Hampton's Grant 106 acre, first home Columbia, SC
Cedar Grove 56 acre, first home Lexington County, SC
Rose Creek 97 acre, first home Richland County, SC
Liberty Downs 133 acre, first home Williamson Cty., TN
Carisbrook 76 acre, first home Greenville, SC
Kennedy Tract 133 acre, first home Gwinnett County, GA
Wando Tract 385 acre, first home Charleston Co., SC
Legion Lakes 234 acre, first home Richland County, SC
Briarcliffe Estates 110 acre, first home Richland County, SC
Waterbury 5 acre, first home Richland County, SC
Ridgecreek 77 acre, first home Richland County, SC
Woodcreek 146 acre, first home Lexington County, SC
Corley Woods 65 acre, first home Lexington County, SC
Night Harbor 105 acre, first home Lexington County, SC
Bent Creek Plantation 30 acre, first home Lexington County, SC
Moss Creek 79 acre, first home Lexington County, SC
Whitehill Creek 146 acre, first home Dorchester Co., SC
LPC of SC, Inc.
Devonhall 71 acre, first home Fulton County, GA
Preston 32 acre, first home Burlington, NC
Ashford 305 acre, first home Columbia, SC
Adam's Run 70 acre, first home Greenville, SC
Neely Farm 110 acre, first home Greenville, SC
Deerspring at Neely Farm 88 acre, first home Greenville, SC
Laurel Brook at Neely Farm 69 acre, first home Greenville, SC
Miramont 69 acre, first home Gwinnett County., GA
Evonvale @ Storza 117 acre, first home Forsyth County., GA
Planter's Row 180 acre, first home Greenville, SC
Hawthorne Ridge at Neely Farm 67 acre, first home Greenville, SC
Berkshire Park 65 acre, first home Greenville, SC
Montgrove @ Storza 134 acre, first home Forsyth County, GA
Pan Western
Grenada Project 6 acres, partially developed Grenada City, MS
Brookings International Life
Pheasant's Nest 104.4 acres, being developed Brookings, SD
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SHOPPING CENTERS
Name Description/Size Location
---- ---------------- --------
LIBCO of Florida, Inc.
Village Market Place 54,417 sq. ft. on 7 acres Orange City, FL
LPC of SC, Inc.
Rushmore Place 13,585 sq. ft. on 1 acres Greenville, SC
Shops @ O'Neil Court 57, 824 sq. ft. on 7.92 acres Columbia, SC
Murraywood Center 35,774 sq. ft. on 4.092 acres Columbia, SC
Shop of Mt. Pleasant 29,280 sq. ft. on 2.888 acres Mt. Pleasant, SC
North Rivers Shops 32,388 sq. ft. on 2.037 acres Charleston, SC
Market Place 58,259 sq. ft. on 8.104 acres Aiken, SC
Crossroads Center 89,122 sq. ft. on 12.779 acres Florence, SC
Liberty Life
Peter's Creek Bilo 42,680 sq. ft. on 5.05 acres, under Winston-Salem, NC
construction
TIMBER TRACTS
Name Description/Size Location
---- ---------------- --------
Liberty Life
Wolf Mtn/Fox Hill 15 acres undeveloped land Cashiers, NC
UNDEVELOPED LAND
Name Description/Size Location
---- ---------------- --------
Liberty Life
Boyle 19 acres, undeveloped land Columbia, SC
Pamplico 9 acres, undeveloped land Florence, SC
Santee 14 acres, undeveloped land Santee, SC
Old Cherokee 50 acres, undeveloped land Lexington, SC
Perkins Road 5 acres, commercial land Baton Rouge, LA
LPC of SC, Inc.
Haltiwanger 94 acres Columbia, SC
Scuffletown Road 18 acres, adjacent to Adam's Run Greenville, SC
Pan Western
Oak Creek #2 2 acres Franklin County, OH
S. High Street 7.8 acres Franklin County, OH
Park Avenue Associates, Inc., a wholly owned subsidiary of Liberty
Life, has a 60% interest as General Partner of Tanyard Creek Partnership.
The partnership owns a 49,500 square foot office building. Commerce Center
of Greenville, Inc., a wholly owned subsidiary of Liberty Properties
Group, Inc., has a 50% interest as Limited Partner of Park Place
Partnership. This partnership owns a 50, 251 square foot office building.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not currently engaged in legal proceedings of
material consequence other than ordinary routine litigation
incidental to its business. Any proceedings reported in prior
filings have been settled or otherwise satisfied.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
STOCKHOLDER MATTERS
Information concerning the market for the Company's
Common Stock and related stockholder matters is contained on
the inside back cover of The Liberty Corporation Annual Report
to Shareholders and is filed as Exhibit 13 on page 93 of this
report and is incorporated in this Item 5 by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Company is contained
on page 43 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on page 94 of this
report and is incorporated in this Item 6 by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial
Condition and Results of Operations is contained on pages
9-13, 16-18 and 21 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on pages 95 - 102 of
this report and is incorporated in this Item 7 by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
The Company's Consolidated Financial Statements and
Report of Independent Auditors are contained on pages 8, 14,
15, 20, 22-41 and 43 of The Liberty Corporation Annual Report
to Shareholders and is filed as Exhibit 13 on pages 103 - 126
of this report and are incorporated in this Item 8 by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors of the Company is
contained in The Liberty Corporation Proxy Statement for the
May 2, 1995 Annual Meeting of Shareholders and is incorporated
in this Item 10 by reference.
Information concerning Executive Officers of the
Company is submitted in a separate section of this report in
Part I, Item 1 on page 13 and is incorporated in this Item 10
by reference.
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ITEM 11. EXECUTIVE COMPENSATION
Information concerning Executive Compensation and
transactions is contained in The Liberty Corporation Proxy
Statement for the May 2, 1995 Annual Meeting of Shareholders
and is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning Security Ownership of Certain
Beneficial Owners and Management is contained in The Liberty
Corporation Proxy Statement for the May 2, 1995 Annual Meeting
of Shareholders and is incorporated in this Item 12 by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning Certain Relationships and
Related Transactions is contained in The Liberty Corporation
Proxy Statement for the May 2, 1995 Annual Meeting of
Shareholders and is incorporated in this Item 13 by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) AND (2). LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of
The Liberty Corporation and Subsidiaries are included in the
Company's Annual Report to Shareholders for the year ended
December 31, 1994, filed as Exhibit 13 to this report and
incorporated in Item 8 by reference:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - For Each of the Three
Years Ended December 31, 1994
Consolidated Statements of Cash Flows - For Each of the
Three Years Ended December 31, 1994
Consolidated Statements of Shareholders' Equity - For Each
of the Three Years Ended December 31, 1994
Notes to Consolidated Financial Statements - December 31,
1994
Report of Independent Auditors
The following consolidated financial statement schedules of
The Liberty Corporation and Subsidiaries are included in Item
14(d):
I - Summary of Investments
II - Condensed Financial Statements of The Liberty
Corporation (Parent Company)
III - Supplementary Insurance Information
IV - Reinsurance
V - Valuation and Qualifying Accounts and Reserves
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange
Commission, but which are excluded from this report, are not
required under the related instructions or are inapplicable,
and therefore have been omitted.
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(A)(3). LIST OF EXHIBITS
------- ----------------
2. Agreement and Plan of Merger by and among The Liberty
Corporation, State National Capital Corporation, and
certain shareholders of State National Capital
Corporation.
3.1 Restated Articles of Incorporation, as amended through
March 15, 1995.
3.2 Bylaws, as amended (filed as Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 and incorporated herein by
reference).
4.1 See Articles 4, 5, 7 and 9 of the Company's Restated
Articles of Incorporation (filed as Exhibit 3.1) and
Articles I, II and VI of the Company's Bylaws (filed as
Exhibit 3.2).
4.2 See the Form of Rights Agreement dated as of August 7,
1990 between The Liberty Corporation and The Bank of New
York, as Rights Agent, which includes as Exhibit B thereto
the form of Right Certificate (filed as Exhibits 1 and 2
to the Registrant's Form 8-A, dated August 10, 1990, and
incorporated herein by reference) with respect to the
Rights to purchase Series A Participating Cumulative
Preferred Stock.
4.3 See Credit Agreement dated September 28, 1993 (filed as
Exhibit 10 to the Registrant's Annual Report on Form 10K
for the year ended December 31, 1993 and incorporated
herein by reference).
10. See Credit Agreement dated September 28, 1993 (filed as
Exhibit 4.3).
11. The Liberty Corporation and Subsidiaries Consolidated
Earnings Per Share Computation
13. Portions of The Liberty Corporation Annual Report to
Shareholders for the year ended December 31, 1994:
Market for the Registrant's Common Stock and Related
Security Stockholder Matters Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1994 and
1993
Consolidated Statements of Income - For the three
years ended December 31, 1994
Consolidated Statements of Cash Flows - For the three
years ended December 31, 1994
Consolidated Statements of Shareholders' Equity - For
the three years ended December 31, 1994
Notes to Consolidated Financial Statements - December
31, 1994
Report of Independent Auditors
21. The Liberty Corporation and Subsidiaries, List of
Subsidiaries
23. Consent of Independent Auditors
24. A. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1983
B. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1985
C. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1986
D. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1989
E. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1994
27. Financial Data Schedule (Electronic Filing Only)
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty
Corporation and Related Adopting Employers' 401(k)
Thrift Plan for the year ended December 31, 1994
20
21
(B). REPORTS ON FORM 8-K FILED IN 1994
None
(C). EXHIBITS FILED WITH THIS REPORT
2. Agreement and Plan of Merger by and among The Liberty
Corporation, State National Capital Corporation, and
certain shareholders of State National Capital
Corporation.
3.1 Amendment to Articles of Incorporation, as amended through
March 15, 1995.
11. The Liberty Corporation and Subsidiaries Consolidated
Earnings Per Share Computation
13. Portions of The Liberty Corporation Annual Report to
Shareholders for the year ended December 31, 1994:
Market for the Registrant's Common Stock and Related
Security Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1994 and
1993
Consolidated Statements of Income - For the three
years ended December 31, 1994
Consolidated Statements of Cash Flows - For the three
years ended December 31, 1994 Consolidated Statements
of Shareholders' Equity - For the three years ended
December 31, 1994
Notes to Consolidated Financial Statements - December
31, 1994
Report of Independent Auditors
21. The Liberty Corporation and Subsidiaries, List of
Subsidiaries
23. Consent of Independent Auditors
24. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K
filed for the year ended December 31, 1994.
27. Financial Data Schedule (Electronic Filing Only)
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty
Corporation and Related Adopting Employers' 401(k)
Thrift Plan for the year ended December 31, 1994
(D). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS
REPORT
I - Summary of Investments - December 31, 1994
II - Condensed Financial Statements of The Liberty
Corporation (Parent Company) December 31, 1994 and 1993
III - Supplementary Insurance Information - For the Three
Years Ended December 31, 1994
IV - Reinsurance - For the Three Years Ended December 31, 1994
V - Valuation and Qualifying Accounts and Reserves - For the
Three Years Ended December 31, 1994
21
22
Schedule I
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1994
(In 000's)
Amount at
Which
Shown on
Balance
Type of Investment Cost Value Sheet
------------------------------------------------------------------------------------------------
Fixed maturity securities, available for
sale Bonds:
United States Government and government agencies and
authorities $ 351,303 $ 327,413 $ 327,413
States, municipalities, and political subdivisions 45,514 42,436 42,436
Foreign governments 23,543 20,628 20,628
Public utilities 87,601 82,104 82,104
Convertibles and bonds with warrants attached 598 601 601
All other corporate bonds 385,145 359,455 359,455
Redeemable preferred stocks 53,818 50,392 50,392
------------------------------------
Total 947,522 $ 883,029 883,029
------------------------------------
Equity securities, available for sale
Common stocks:
Public utilities 3,876 $ 4,097 4,097
Banks, trusts and insurance companies 5,539 7,470 7,470
Industrial, miscellaneous, and all other 24,554 25,106 25,106
Nonredeemble preferred stocks 44,147 41,535 41,535
------------------------------------
Total 78,116 $ 78,208 78,208
------------------------------------
Fixed maturity securities, held to maturity
Bonds:
United States Government and government agencies and
authorities 185,016 $ 187,743 185,016
Foreign governments 454 558 454
Public utilities 70,076 80,003 70,076
All other corporate bonds 43,572 42,825 43,572
------------------------------------
Total 299,118 $ 311,129 299,118
------------------------------------
Mortgage loans on real estate 203,381 203,381
Investment real estate 135,545 135,545
Policy loans 96,160 96,160
Other long-term investments 31,624 31,624
Short-term investments 7,264 7,264
---------- ----------
Total investments $1,798,730 $1,734,329
========== ==========
22
23
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
(In $000's, except share data)
ASSETS 1994 1993
-----------------------
Cash $ 6,835 $ 1,069
Investment securities 661 2
Short term investments 3,409 --
Loans, notes and other receivables 8,744 8,841
Investment properties, at cost less accumulated depreciation of
$7,659 in 1994 and $5,383 in 1993 70,723 50,990
Other long-term investments 2,558 1,409
Buildings and equipment, at cost less accumulated depreciation of
$8,766 in 1994 and $9,226 in 1993 19,951 19,896
Investment in affiliated companies* 515,476 474,942
Intercompany debt and advances* 29,348 19,922
Income taxes recoverable 8,620 4,752
Deferred income tax benefits 2,305 4,818
Other assets 8,615 3,281
----------------------
$ 677,245 $ 589,922
======================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities
Notes, mortgages and other debt $ 222,392 $ 147,843
Accounts payable and accrued expenses 8,481 6,269
Other liabilities 3,459 560
----------------------
Total liabilities 234,332 154,672
Redeemable Preferred Stock
1994-A Series, $35.00 redemption value, 668,207
shares issued and outstanding 23,387 --
1994-B Series, $37.50 redemption value, 598,101
shares issued and outstanding 22,429 --
Shareholders' equity
Common stock
Authorized - 50,000,000 shares, no par value
Issued and Outstanding - 19,841,470 in 1994 and 19,497,515 in 1993 152,956 143,939
Unearned stock compensation (5,319) (4,475)
Unrealized appreciation (depreciation) of subsidiaries fixed maturity
securities available for sale and equity securities (53,109) 5,177
Cumulative foreign currency translation adjustment (1,491) (1,529)
Retained earnings 304,060 292,138
----------------------
Total shareholders' equity 397,097 435,250
----------------------
$ 677,245 $ 589,922
======================
*Eliminated in consolidation.
See notes to condensed financial statements.
23
24
SCHEDULE II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In $000's)
1994 1993 1992
--------------------------------------
REVENUES
Dividends from subsidiaries* $ 39,973 $ 31,209 $ 43,911
Outside interest 553 59 45
Intercompany interest* 7,068 6,933 6,736
Other 25,927 25,723 21,506
--------------------------------------
Total Revenues 73,521 63,924 72,198
EXPENSES
Salaries and wages 9,010 7,530 7,249
Outside interest 10,475 9,360 15,652
Intercompany interest* 3,145 3,642 3,671
Taxes and licenses 1,206 821 889
Depreciation and amortization 3,068 2,260 2,950
Other 22,051 23,682 14,006
--------------------------------------
Total Expenses 48,955 47,295 44,417
Income before income taxes, cumulative effect of accounting 24,566 16,629 27,781
changes and undistributed earnings of subsidiaries
Income tax benefits (5,880) (4,859) (5,537)
--------------------------------------
Income before cumulative effect
Income before cumulative effect of accounting changes and
undistributed earnings of subsidiaries 30,446 21,488 33,318
Cumulative effect of accounting
changes -- (155) --
--------------------------------------
30,446 21,333 33,318
Earnings of subsidiaries
net of dividends paid to parent* (4,371) 16,202 4,160
--------------------------------------
NET INCOME $ 26,075** $ 37,535** $ 37,478**
======================================
*Eliminated in consolidation.
**Differs from consolidated net income by $103, $1,612 and $3,407 in 1994, 1993
and 1992, respectively, due to gains recognized on a consolidated basis
previously recognized by subsidiaries on intercompany transactions.
Gains were deferred on a consolidated basis until completion of the
earnings process.
See notes to condensed financial statements.
24
25
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In $000's)
1994 1993 1992
---------------------------------------------
OPERATING ACTIVITIES
Net income $ 26,075 $ 37,535 $ 37,478
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,068 2,260 2,950
Provision for deferred income taxes 2,754 (2,834) 1,663
Earnings from subsidiary operations, net of
dividends paid to parent 4,371 (16,202) (4,160)
(Gain) Loss on disposal of assets (2,989) 2,299 (1,373)
Change in operating assets and liabilities:
(Increase) in intercompany debt and advances* (9,426) (1,266) (1,455)
Increase (Decrease)in accounts payable and
accrued expenses 2,212 (970) 1,469
Decrease (Increase) in other assets (5,334) (1,188) 1,754
Increase (Decrease) in other liabilities, and
accrued income taxes (969) 3,075 2,918
Other (2,385) 856 (4,345)
--------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,377 23,565 36,899
INVESTING ACTIVITIES
Additional investment in subsidiaries* (1,907) (6,500) (7,000)
Reduction in investment in subsidiaries* 10,000 10,000 5,952
Notes receivable repayments (made) (97) (7,907) 233
Purchase of investment properties (33,198) (19,055) (5,753)
Sale of investment properties 15,125 23,080 26,622
Net cash paid on purchase of insurance business (65,212) -- (66,434)
Other -- (48) --
--------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (75,289) (430) (46,380)
FINANCING ACTIVITIES
Proceeds from borrowings 2,537,169 2,192,635 1,699,000
Principal payments on debt (2,462,620) (2,219,351) (1,748,869)
Dividends paid (14,358) (13,108) (7,892)
Stock issued for employee benefit and performance
incentive compensation programs 3,487 7,181 4,153
Common stock offering -- 8,544 64,274
--------------------------------------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES 63,678 (24,099) 10,666
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 5,766 (964) 1,185
Cash at beginning of year 1,069 2,033 848
--------------------------------------------
CASH AT END OF YEAR $ 6,835 $ 1,069 $ 2,033
============================================
*Eliminated in consolidation.
See notes to condensed financial statements.
25
26
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. NOTES, MORTGAGES AND OTHER DEBT
The general debt obligations at December 31, 1994, are as follows:
Average
Interest
(In 000's) Rate % Amount
---------- -------- --------
Notes due to banks 6.5 $220,500
Mortgage loans on investment property 8.0 1,820
Other 2.9 72
--------
$222,392
========
On March 21, 1995, the Parent Company completed the
restructuring of its $325,000,000 revolving credit facility into a new
$375,000,000, multi-tranche credit facility which will mature on
various dates beginning in March 1998. This facility will be used to
refinance indebtedness under the $325,000,000 facility, as well as to
provide funds to meet working capital requirements and finance
acquisitions. Note 5 of The Liberty Corporation and Subsidiaries
Consolidated Financial Statements provides additional information as
to this agreement. The maturities of the general debt obligations at
December 31, 1994 are as follows:
(In 000's) Amount
---------- --------
1995 $ 19,765
1996 379
1997 15,124
1998 122,124
1999 20,000
Thereafter 45,000
--------
$222,392
========
2. COMMITMENTS AND CONTINGENT LIABILITIES
The Parent Company has guaranteed $554,000 of debt incurred by
a subsidiary and $3,000,000 of debt for an unaffiliated marketing
company. In addition, the Company had various guarantees to regulatory
agencies concerning maintenance of minimum levels of capital in
certain regulated subsidiaries. The Company does not anticipate any
material adverse impact on its financial position as a result of these
guarantees.
3. RETAINED EARNINGS
As of December 31, 1994 and 1993, retained earnings of
$304,060,000 and $292,138,000 respectively, in The Liberty Corporation
(Parent Company) financial statements differs from The Liberty
Corporation and Subsidiaries consolidated financial statements. The
difference of $1,508,000 and $1,405,000 at December 31, 1994 and 1993,
respectively, relates to the capitalization of interest on a
consolidated basis and the elimination of gains on intercompany
transactions.
26
27
Schedule III
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In $000's)
Future Policy Other Policy
Deferred Policy Benefits, Claims &
Acquisition Cost of Business Losses, Claims Unearned Benefits
Segment Costs Acquired and Loss Expenses Premiums Payable
----------------------------------------------------------------------------------------------------------------------------
December 31, 1994
-----------------
Life/Health Insurance $260,479 $98,056 $1,727,799 $4,535 $51,969
December 31, 1993
-----------------
Life/Health Insurance $231,873 $56,762 $1,342,369 $3,135 $43,672
December 31, 1992
-----------------
Life/Health Insurance $211,945 $63,930 $1,265,410 $5,645 $40,210
Amortization
of Deferred
Benefits Acquisition Accident &
Net Claims, Losses Costs and Other Health
Premium Investment & Settlement Cost of Business Operating Premiums
Segment Revenue Income Benefits Acquired Expenses Written
---------------------------------------------------------------------------------------------------------------------------
1994
----
Life/Health Insurance $ 315,789 $ 129,925 $226,425 $ 45,035 $136,401 $ 29,472
1993
----
Life/Health Insurance $ 250,922 $ 106,864 $159,452 $ 39,402 $112,025 $ 42,151
1992
----
Life/Health Insurance $ 209,133 $ 90,120 $126,182 $ 29,581 $ 94,200 $ 45,250
27
28
Schedule IV
THE LIBERTY CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In $000's)
Amount Percentage of
Ceded to Assumed Amount
Gross Other From Net Assumed to
Amount(1) Companies Companies Amount Net
------------------------------------------------------------------------------------
Year ended December 31, 1994
Life insurance in force $21,600,665 $ 4,751,940 $ 15,391 $16,864,116 0.1%
==================================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 311,551 $ 26,365 $ 222 $ 285,408 .1%
Accident and health 32,568 3,693 1,506 30,381 4.9%
------------------------------------------------------------------
TOTAL $ 344,119 $ 30,058 $ 1,728 $ 315,789
==================================================================
Year ended December 31, 1993
Life insurance in force $20,202,101 $ 4,788,883 $ 20,431 $15,433,649 0.1%
Insurance premiums and policy charges:
Life, annuity and other considerations $ 233,263 $ 26,075 $ 208 $ 207,396 0.1%
Accident and health 45,191 3,546 1,881 43,526 4.3%
------------------------------------------------------------------
TOTAL $ 278,454 $ 29,621 $ 2,089 $ 250,922
==================================================================
Year ended December 31, 1992
Life insurance in force $20,458,434 $ 4,915,995 $ 28,417 $15,570,856 0.2%
==================================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 194,311 $ 28,279 $ 150 $ 166,182 0.1%
Accident and health 43,292 3,017 2,676 42,951 6.2%
------------------------------------------------------------------
TOTAL $ 237,603 $ 31,296 $ 2,826 $ 209,133
==================================================================
28
29
Schedule V
THE LIBERTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In 000's)
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Deducted From Asset Accounts of Period Expenses Accounts Deductions of Period
---------------------------- ---------- ----------- ---------- ---------- ----------
Year Ended December 31, 1994
Accounts receivable -
28(b)
reserve for bad debts $ 1,027 $ 408 $ 341 $ 255(a) $ 1,493
---------- ------------ --------- ---------- ----------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
----------- ------------ ---------- ---------- -----------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
----------- ------------ ---------- ---------- -----------
Year Ended December 31, 1993
Accounts receivable -
5(b)
reserve for bad debts $ 921 $ 1,004 $ --- $ 893(a) $ 1,027
---------- ------------ ---------- ---------- -----------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
----------- ------------ ---------- ---------- ------------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
----------- ------------ ---------- ---------- ------------
Year Ended December 31, 1992
Accounts receivable -
reserve for bad debts $ 556 $ 353 $ 315 $ 303(a) $ 921
---------- ------------ ---------- ---------- -----------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
----------- ------------ ----------- ----------- ------------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
----------- ------------ ----------- ----------- ------------
Notes:
(a) Uncollectible accounts written off, net of recoveries.
(b) Reversal of reserves no longer required.
29
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly
authorized, as of the 28th day of March, 1995
THE LIBERTY CORPORATION By: /s/ Hayne Hipp
----------------------- -------------------
Registrant Hayne Hipp
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated, as of the 28th day of
March, 1995.
By: /s/ John P. Smith By: /s/ William S. Lee
-------------------------------- --------------------------
John P. Smith William S. Lee
Corporate Controller Director
By: /s/ H. Ray Eanes By: /s/ James G. Lindley
-------------------------------- --------------------------
H. Ray Eanes James G. Lindley
Sr. Vice President Finance & Treasurer Director
By: /s/ Rufus C. Barkley, Jr. By: /s/ William O. McCoy
-------------------------------- --------------------------
Rufus C. Barkley, Jr. William O. McCoy
Director Director
By: /s/ Edward E. Crutchfield By: /s/ Buck Mickel
-------------------------------- --------------------------
Edward E. Crutchfield Buck Mickel
Director Director
By: /s/ Lawrence M. Gressette, Jr. By: /s/ John H. Mullin III
-------------------------------- --------------------------
Lawrence M. Gressette, Jr. John H. Mullin III
Director Director
By: /s/ Francis M. Hipp By: /s/ Benjamin F. Payton
-------------------------------- --------------------------
Francis M. Hipp Benjamin F. Payton
Director Director
By: /s/ Hayne Hipp By: /s/ J. Thurston Roach
-------------------------------- --------------------------
Hayne Hipp J. Thurston Roach
Director Director
By: /s/ W. W. Johnson By: /s/ Martha G. Williams
-------------------------------- --------------------------
W. W. Johnson *Martha G. Williams, as Director
Director Special Attorney in Fact
*By: /s/ James F. Kane
--------------------------------
James F. Kane
Director
30
31
Annual Report on Form 10-K
The Liberty Corporation
December 31, 1994
Index to Exhibits
Exhibits Page Number
2 Agreement and Plan of Merger by and among The Liberty Corporation, State National
Capital Corporation, and certain shareholders of State National Capital
Corporation 32 - 82
3.1 Amendment to Articles of Incorporation, as amended through March 15, 1995. 83 - 91
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation
92
13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended
December 31, 1994:
Market for the Registrant's Common Stock and Related Security Stockholder Matters
93
Selected Financial Data 94
Management's Discussion and Analysis of Financial Condition and Results of
Operations 95 - 102
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1994 and 1993 103 - 104
Consolidated Statements of Income - For the three years ended December 31, 1994 105
Consolidated Statements of Cash Flows - For the three years ended December 31,
1994 106
Consolidated Shareholders' Equity - For the three years ended December 31, 1994 107
Notes to Consolidated Financial Statements - December 31, 1994 108 - 126
Report of Independent Auditors 127
21. The Liberty Corporation and Subsidiaries, List of Significant Subsidiaries 128
23. Consent of Independent Auditors 129
24. Powers of Attorney applicable for certain signatures of members of the Board of
Directors in Registrant's 10-K filed for the year ended December 31, 1994. 130
27. Financial Data Schedule (Electronic Filing Only) 131
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty Corporation and Adopting Related
Employers' 401(k) Thrift Plan for the year ended December 31, 1994 132 - 147
31
EX-2
2
AGREEMENT & PLAN OF MERGER
1
EXHIBIT 2
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF MERGER
OR SHARE EXCHANGE
Pursuant to Section 33-11-105 of the 1976 South Carolina Code, as
amended, the undersigned as the surviving corporation in a merger or the
acquiring corporation in a share exchange, as the case may be, hereby submits
the following information:
1. The name of the surviving or acquiring corporation is
The Liberty Corporation
-----------------------
2. Attached hereto and made a part hereof is a copy of the Plan of Merger
or Share Exchange (see Sections 33-11-101 (merger), 33-11-102 (share
exchange), 33-11-104 (merger of subsidiary into parent), 33-11-107
(merger or share exchange with a foreign corporation), and 33-11-108
(merger of a parent corporation into one of its subsidiaries).
3. Complete the following information to the extent it is relevant with
respect to each corporation which is a party to the transaction:
(a) Name of the corporation State National Capital Corporation
----------------------------------
Complete either (1) or (2), whichever is applicable:
(1) / / Shareholder approval of the merger or stock exchange
was not required (See Sections 33-11-103(h),
33-11-104(a), and 33-11-108(a)).
(2) /X/ The Plan of Merger or Share Exchange was duly
approved by shareholders of the corporation as
follows:
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be cast the meeting For Against
------ ----------- -------------- --------------- -----------------------
Common Stock 1,061,190 1,061,190 1,060,956 1,059,240 1,716
*NOTE: Pursuant to the Section 33-1-05(a)(3)(ii), the corporation can
alternatively state the total number of undisputed shares cast for the
amendment by each voting group together with a statement that the
number cast for the amendment by each voting group was sufficient for
approval by that voting group.
Date MAR 31 1994
--------------------------
CERTIFIED TO BE A TRUE AND CORRECT COPY
AS TAKEN FROM AND COMPARED WITH THE
ORIGINAL ON FILE IN THIS OFFICE.
Jim Miles
---------------------------------------
Jim Miles
SECRETARY OF STATE FOR SOUTH CAROLINA
32
2
(b) Name of the corporation: The Liberty Corporation
-----------------------
Complete either (1) or (2), whichever is applicable:
(1) /X/ Shareholder approval of the merger or stock exchange was not
required (See Sections 33-11-103(h)), 33-11-104(a), and
33-11-108(a)).
(2) / / The Plan of Merger or Share Exchange was duly approved by
shareholders of the corporation as follows:
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be cast the meeting For Against
------- ------------ -------------- --------------- ------------------------
*NOTE: Pursuant to the Section 33-11-105(a) (3) (ii), the corporation can
alternatively state the total number of undisputed shares cast for the
amendment by each voting group together with a statement that the
number cast for the amendment by each voting group was sufficient for
approval by that voting group.
4. Unless a delayed date is specified, the effective date of this
document shall be the date it is accepted for filing by the Secretary
of State (See Section 33-1-230(b)):
5:00 P.M., Eastern time, April 1, 1994
--------------------------------------
DATE: March 31, 1994 The Liberty Corporation
-------------- ------------------------------------------------
(Name of the Surviving or Acquiring Corporation)
By: Martha G. Williams
----------------------
(Signature and Office)
Martha G. Williams, Vice President
----------------------------------
(Type or Print Name and Office)
FILING INSTRUCTIONS
1. Two copies of this form, the original and either a duplicate original
or a conformed copy, must be filed.
2. Filing Fee (payable to the Secretary of State at the time of filing of
this document.)
Filing Fee $ 10.00
Filing Tax 100.00
3. TWO COPIES OF THE PLAN OF MERGER OR SHARE EXCHANGE MUST BE FILED WITH
THIS FORM AS AN ATTACHMENT.
Form Approved by South Carolina
Secretary of State 1/89
33
3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE LIBERTY CORPORATION,
STATE NATIONAL CAPITAL CORPORATION
AND
CERTAIN SHAREHOLDERS OF
STATE NATIONAL CAPITAL CORPORATION
February 25, 1994
34
4
TABLE OF CONTENTS
ARTICLE 1
THE BUSINESS COMBINATION . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Characterization of the Merger for Tax Purposes . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION . . . . . . . . 2
2.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Payments by Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3
ARTICLES OF INCORPORATION, BYLAWS,
BOARD OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . 6
3.1 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Directors and Officers of Liberty . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF STATE NATIONAL AND CERTAIN OTHERS . . . . . . . . . . . . 6
4.1 Organization and Qualification, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Governmental and Other Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.7 Financial Statements of State National and its Subsidiaries . . . . . . . . . . . . . 9
4.8 Statutory Statements of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . 9
4.10 Governmental Authorization and Compliance with Laws . . . . . . . . . . . . . . . . . 11
4.11 Absence of Undisclosed Liabilities and Obligations . . . . . . . . . . . . . . . . . 11
4.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.13 Title to Properties; Absence of Liens and Encumbrances, Etc. . . . . . . . . . . . . . 12
4.14 Adequacy, Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.17 Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.18 Insider Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.19 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.21 Proxy/Disclosure Statement, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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4.22 Employee and Fringe Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.23 Hazardous Waste and Substances; Environmental Requirements . . . . . . . . . . . . . . 17
4.24 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.25 Certain Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.26 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.27 Policy Forms; Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.28 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.29 Accuracy of Schedules, Certificates and Documents . . . . . . . . . . . . . . . . . . 18
4.30 Special Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.31 Guaranty Fund Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.32 Inapplicability of LBCL Section 12:133 . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LIBERTY . . . . . . . . . . . 19
5.1 Organization and Qualification, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Authorization. Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Consents, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Absence of Undisclosed Liabilities and Agreements . . . . . . . . . . . . . . . . . . 21
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.10 Accuracy of Schedules, Certificates and Documents . . . . . . . . . . . . . . . . . . 21
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . . . . . . . 21
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Shareholders' Meeting; Proxy/Disclosure Statement . . . . . . . . . . . . . . . . . . 23
6.3 HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Consents, Authorizations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Investigation: Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Approval by State Insurance Departments . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Resignations of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 Noncompetition, Nondisclosure and Nonsolicitation . . . . . . . . . . . . . . . . . . 25
6.12 Cancellation of Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Actions to Avoid, and Notices of Breaches of Representations and Warranties . . . . . . 27
6.14 Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Liberty Preferred Stock 1994-A Series . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.18 Repayment of Certain Insider Loans; Modification Regarding Domma Loan . . . . . . . . 28
6.19 Termination of Benefits to Non-State National Employees . . . . . . . . . . . . . . . 28
ARTICLE 7
CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . 29
7.1 Conditions to Merger Relating to Both Parties . . . . . . . . . . . . . . . . . . . . 29
7.2 Conditions to Merger Relating to Liberty . . . . . . . . . . . . . . . . . . . . . . 29
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7.3 Conditions to the Merger Relating to State National . . . . . . . . . . . . . . . . . 31
7.4 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 8
CLOSING . . . . . . . . . . . . . . . . . . . . 32
8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Documents to be Delivered at the Closing by State National . . . . . . . . . . . . . 32
8.3 Documents to be Delivered at the Closing by Liberty . . . . . . . . . . . . . . . . . 33
8.4 Delivery of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9
TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . 34
9.1 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Procedure for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNITIES . . . . . . . . . . . . . . . 35
10.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Indemnification Procedure; Certain Limitations . . . . . . . . . . . . . . . . . . . 35
10.4 Satisfaction of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . 37
11.1 Specific Performance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.5 Counterparts; Facsimile Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.7 Variation and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.8 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.10 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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SCHEDULES TO AGREEMENT
2.2 Allocation of Merger Consideration
4.1 Jurisdictions Where Qualified
4.4 Violations
4.5 Consents
4.6 Subsidiaries; Jurisdictions Where Subsidiaries are Qualified
and Licensed
4.7 Financial Statements
4.9 Absence of Certain Changes or Events
4.10 Non-Compliance
4.12 Tax Matters
4.13 Exceptions to Title
4.14 Adequacy and Condition of Assets
4.15 Material Contracts
4.16 Litigation
4.17 Labor Controversies
4.18 Insider Interests
4.19 Intellectual Property
4.20 Insurance
4.22 Employee and Fringe Benefit Plans
4.23 Environmental Non-Compliance
4.24 Bank Accounts
4.25 Certain Expenses
4.26 Reserves
4.28 Directors and Officers
4.31 Guaranty Fund Obligations
4.32 Resolutions Adopted To Exempt Merger from LBCL Section 12:133
6.10 Certain Subsidiary Officers to Continue
6.11(a) Restricted Individuals
6.11(b) Restricted Territory
6.12 Employment Agreements to Continue in Effect
6.15 Terms and Conditions of Liberty Preferred Stock 1994-A Series
6.17(a) Form of Transfer Restriction Agreement
6.17(b) Form of Shareholder Agreement
11.4 Brokers
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CERTAIN DEFINED TERMS
Term Section
----- -------
Accredited Investor 2.2(a)(ii)
Affiliate 4.9(f)
Agreement Preamble
Balance Sheet Date 4.11
Cash Bonus Shareholders 2.2(a)(iii)
Cash Bonus Shares 2.2(a)(iii)
Cash Portion 2.2(a)
Citations 4.23
Closing 8.1
Code 1.4
Confidential Material 6.5(b)
Constituent Corporations 1.1
Defined Business 6.11(a)(ii)
Determination Date 10.4
Dissenting Shares 2.1(a)
Effective Time 1.2
Employee Plans 4.22(a)
ERISA Affiliate 4.22(a)
ERISA 4.22(a)(i)
Exchange Act 5.4
Expiration Date 10.3(c)
Financial Statements 4.7
HSR Act 4.5
Indemnified Party 10.3(a)
Indemnifying Party 10.3(a)
Indemnifying Shareholders Preamble
Intellectual Property 4.19
Intellectual Property Agreements 4.19
IRS 4.22(a)
LBCL 1.1
Liberty Preamble
Liberty Common Stock Preamble
Liberty Form 10-K Report 5.5
Liberty Loss 10.2(a)
Liberty Preferred Stock 1994-A Series Preamble
Liberty Quarterly Reports 5.5
Loss 10.3(a)(iii)
Material Contract 4.15
Merger Preamble
Merger Consideration 1.4
Merger Consideration Election Form 2.2(b)(ii)
Merger Filings 9.1
Multi-Employer Plan 4.22(a)(ii)
Non-Cash Bonus Shareholders 2.2(b)(ii)
Non-Cash Bonus Shares 2.2(b)(ii)
Noncompete Agreement 6.11
Notice of Possible Claim 103(c)
Notice of Claim 103(b)
Parent 4.6
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PBGC 4.22(a)
Pension/Profit-Sharing Plan 4.22(a)(i)
Person 4.6(a)
Preferred Stock 1994-A Series Amendment 6.15
Proprietary Information 6.11(b)
Proxy/Disclosure Statement 4.21,
Purchaser Representative 2.2(a)(ii)
Regulation D 2.2(a)
Representatives 6.5(b)
Restricted Individuals 6.11
SCBCA 1.1
SEC 2.2(a)
Securities Act 2.2(a)
Shareholder Agreement 6.17(b)
Shareholder Loss 10.2(b)
State National Preamble
State National Common Stock Preamble
State National Shareholders' Meeting 6.2
Statutory Statements 4.8
Stock Portion 2.2(a)
Subsidiary 4.6
Superfund Notices 4.23
Surviving Corporation 1.1
Taxes 4.12
Territory 6.11(a)(iii)
Transfer Restriction Agreement 6.17(a)
Third Party Claim 10.3(f)(i)
Welfare Plan 4.22(a)(iii)
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AGREEMENT AND PLAN OF MERGER
THIS IS AN AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of February 25, 1994 by and among THE LIBERTY CORPORATION, a South Carolina
corporation ("Liberty"), STATE NATIONAL CAPITAL CORPORATION, a Louisiana
corporation ("State National"), certain indemnifying shareholders of State
National who are so identified on the signature pages and have executed this
Agreement (collectively, the "Indemnifying Shareholders"), and certain other
shareholders who have executed this Agreement as "Restricted Individuals" and
are so identified on the signature pages.
W I T N E S S E T H:
WHEREAS, Liberty and State National desire to effect a business
combination of Liberty and State National pursuant to which State National will
merge with and into Liberty (the "Merger"), and the holders of State National
common stock, no par value ("State National Common Stock") will receive a
combination of cash and Liberty Stock, which may be Liberty Common Stock, no
par value ("Liberty Common Stock"), a special series of Liberty preferred stock,
no par value, established pursuant to Sections 5.2 and 6.15 ("Liberty Preferred
Stock 1994-A Series"), or a combination of Liberty Common Stock and Liberty
Preferred Stock 1994-A Series, all as more fully described herein:
WHEREAS, the Board of Directors of State National has approved the
Merger and has directed that this Agreement be submitted to the shareholders of
State National; and
WHEREAS, the Board of Directors of Liberty has approved the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
ARTICLE 1
THE BUSINESS COMBINATION
1.1 The Merger. At the Effective Time (as defined in Section 1.2
hereof), State National shall be merged with and into Liberty in accordance
with the provisions of this Agreement, the Louisiana Business Corporation Law
(the "LBCL") and the South Carolina Business Corporation Act, as amended (the
"SCBCA"), and the separate existence of State National shall thereupon cease,
and Liberty, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall continue its corporate existence under the laws of the
State of South Carolina. State National and Liberty are referred to
collectively as the "Constituent Corporations."
1.2 Effective Time of the Merger. As soon as practicable following
fulfillment of the conditions set forth in Article 7, and provided that this
Agreement has not been terminated pursuant to Article 9, Liberty, as the
Surviving Corporation, shall cause an appropriate Certificate of Merger and
appropriate Articles of Merger to be duly prepared, executed, verified,
acknowledged and filed with the Secretary of State of the State of Louisiana
and the Secretary of State of the State of South Carolina, respectively, in
accordance with the provisions of the LBCL and the SCBCA. The Merger shall
become effective at the time specified in the Articles of Merger and the
Certificate of Merger (the "Effective Time").
1.3 Effect of the Merger. At and after the Effective Time the
Merger shall have all of the effects provided by applicable law.
1.4 Characterization of the Merger for Tax Purposes. The parties
have structured the Merger to qualify as, and intend that the Merger be treated
for federal income tax purposes as, a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). The parties believe that the fair market value of the total
consideration to be received by the State National
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shareholders pursuant to the Merger (the "Merger Consideration") will be
approximately equal to the fair market value of the State National Common Stock
surrendered in the Merger.
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION
2.1 Conversion of Shares. At the Effective Time and as a result of
the Merger:
(a) State National Common Stock. Each issued share of
State National Common Stock, excluding any such shares held in the
treasury of State National and excluding any shares with respect to
which dissenters' rights shall have been (and are entitled to be)
properly exercised under Section 12:131 of the LBCL and perfected to
the extent necessary as of the Effective Time ("Dissenting Shares"),
shall automatically be converted into and shall thereafter represent
only the right to receive the Merger Consideration as set forth in
Section 2.2.
(b) Treasury Stock. Each share of State National Common
Stock, if any, held in the treasury of State National shall be
automatically cancelled and extinguished, and no payment shall be made
in respect thereof.
(c) Liberty Common Stock. Each share of Liberty Common
Stock and each share of any series of Liberty preferred stock issued
and outstanding prior to the Effective Time shall be unchanged by
virtue of the Merger.
(d) Dissenting Shares. Anything contained in this
Agreement or elsewhere to the contrary notwithstanding, each
Dissenting Share shall thereafter represent only such rights as are
provided by the LBCL, and shall be subject to compliance by the holder
thereof with the obligations imposed by the LBCL.
2.2 Merger Consideration. The Merger Consideration shall be
$27,500,000 (subject to rounding variations), of which $27,400,000 (subject to
rounding variations) shall be payable in cash, Liberty Common Stock or Liberty
Preferred Stock 1994-A Series, and $100,000 (subject to rounding variations)
shall be payable in cash as additional, Merger Consideration to certain
shareholders pursuant to paragraphs (a)(iii) and (c)(i) of this Section 2.2.
(a) General Allocation Objectives and Rules. The Merger
Consideration shall consist of a "Cash Portion" and a "Stock Portion"
(payable in Liberty Common Stock or Liberty Preferred Stock 1994-A
Series or a combination thereof), which shall be allocated among the
State National shareholders in a manner consistent with: (A) the
characterization of the Merger as a reorganization under Section
368(a)(1)(A) of the Code, and (B) compliance with Regulation D
("Regulation D") promulgated by the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "Securities
Act") and with exemptions from registration under the securities laws
of applicable states or other jurisdictions. To accomplish these
objectives and, in furtherance thereof, to provide that all existing
holders of fewer than 1,000 shares of State National Common Stock will
receive the Merger Consideration for their shares solely in the form
of cash which will include a special all cash bonus for such
shareholders (which will provide liquidity to these smaller
shareholders and will facilitate compliance with Regulation D), the
following allocation rules shall apply:
(i) The Cash Portion of the Merger Consideration
may be used to acquire up to, but not more than 50% of the
total shares of State National Common Stock outstanding as of
the Closing less any such shares as to which the procedure for
exercising dissenters' rights under Section 12:131 of the LBCL
has been commenced and not abandoned, as
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determined in good faith by Liberty, as of the Closing or as
of the date Schedule 2.2 is completed or otherwise revised
pursuant to Section 2.2(b);
(ii) The Stock Portion of the Merger
Consideration: (A) may be issued to up to, but not more than,
35 State National shareholders who establish to Liberty's
reasonable satisfaction that each such shareholder, alone or
with a qualified "Purchaser Representative" as defined in
Regulation D, has such knowledge and experience in financial
and business matters that such shareholder (with any Purchaser
Representative) is capable of evaluating the merits and risks
of an investment in Liberty stock, but who does not establish
to Liberty's reasonable satisfaction that such shareholder is
an "accredited Investor" as defined in Regulation D and (B) may
be issued to any additional State National shareholders who
establish to Liberty's reasonable satisfaction that they are
Accredited Investors.
(iii) Each State National shareholder who
currently owns of record fewer than 1,000 shares of State
National Common Stock, as shown on Schedule 2.2 attached
hereto (all such shareholders being referred to as "Cash Bonus
Shareholders", and all shares of State National Common Stock
shown on Schedule 2.2 as being owned by such shareholders
being referred to as the "Cash Bonus Shares"), as well as any
transferee of the Cash Bonus Shares, shall receive as
additional Merger Consideration, for each Cash Bonus Share
shown on Schedule 2.2 as owned by a Cash Bonus Shareholder, an
amount of cash reflecting a premium over the Merger
Consideration otherwise payable per share for shares of State
National Common Stock other than the Cash Bonus Shares, which
premium shall be computed pursuant to Section 2.2(c)(i).
(b) Specific Allocations. To ensure that the allocation
objectives described above can be achieved, Liberty and State National
have agreed that the Merger Consideration shall be allocated in the
manner set forth below:
(i) Cash Bonus Shares and Cash Bonus
Shareholders. All Cash Bonus Shareholders shall receive their
Merger Consideration for the Cash Bonus Shares solely in the
form of cash in an amount computed pursuant to Section
2.2(c)(i). If there are no changes in the number of
outstanding shares of State National Common Stock and no
changes in the ownership of the Cash Bonus Shares, the Cash
Bonus Shareholders will receive the amounts of cash shown on
Schedule 2.2 attached hereto. If any of the Cash Bonus Shares
are transferred prior to Closing, the transferee shall receive
for each Cash Bonus Share so transferred the Merger
Consideration, computed pursuant to Section 2.2(c)(i), solely
in cash.
(ii) Non-Cash Bonus Shares and Non-Cash Bonus
Shareholders. All outstanding shares of State National Common
Stock other than the Cash Bonus Shares and all holders
thereof, all as specifically shown on Schedule 2.2, are
referred to as the "Non-Cash Bonus Shares" and the "Non-Cash
Bonus Shareholders." Each Non-Cash Bonus Shareholder shall be
required to complete a "Merger Consideration Election Form"
specifying the form of Merger Consideration (cash, Liberty
Common Stock, Liberty Preferred Stock 1994-A Series or some
combination thereof) that such shareholder desires to receive
for such shareholder's Non-Cash Bonus Shares. A Merger
Consideration Election Form shall accompany the
"Proxy/Disclosure Statement" (as defined in Section 4.21)
distributed prior to the "State National Shareholders'
Meeting" (as defined in Section 6.2). Each Non-Cash Bonus
Shareholder must return a properly completed Merger
Consideration Election Form to Liberty no later than the fifth
business day prior to the State National Shareholders Meeting.
If any Non-Cash Bonus Shareholder fails to return a properly
completed Merger Consideration Election Form by this deadline,
such shareholder shall be deemed to have elected to receive
all cash as the Merger Consideration. If Liberty reasonably
determines that the total cash Merger Consideration designated
on the Merger Consideration Election Forms (or deemed to have
been elected by any Non-Cash Bonus Shareholder who fails to
return an
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Election Form) would cause the total Cash Portion otherwise
payable to such shareholders and to the Cash Bonus
Shareholders (or any transferee of the Cash Bonus Shares)
(after taking into account any modifications that may be
required pursuant to Section 2.2(b)(iii)) to exceed the
limitation stated in Section 2.2(a)(i), then Liberty shall
have the right, to the extent necessary to avoid exceeding
such limitation, to reduce the amount of cash Merger
Consideration payable to the Non-Cash Bonus Shareholders (on a
pro rata basis as nearly as practicable) and to pay to each
such shareholder an amount of Merger Consideration
corresponding to such cash reduction in the form of Liberty
Preferred Stock 1994-A Series instead. Except for any such
modification to comply with Section 2.2(a)(i) or any
modification contemplated by Section 2.2(b)(iii), the
elections as to the form of Merger Consideration expressed in
the Merger Consideration Election Forms shall be honored.
(iii) Certain Modifications. If: (A) the record or
beneficial ownership of any Non-Cash Bonus Shares is
transferred after the date of this Agreement in violation of
any "Transfer Restriction Agreement" (as defined in Section
6.17(a)), (B) any Non-Cash Bonus Shareholder who desires to
receive any part of the Stock Portion of the Merger
Consideration fails to deliver to Liberty at least five
business days prior to the State National Shareholder Meeting
a "Shareholder Agreement" (as defined in Section 6.17(b))
containing all confirmations and representations required
therein to comply with Regulation D and any other applicable
securities or tax law requirements, (C) any State National
shareholder commences a procedure to exercise dissenters'
rights under Section 12:131 of the LBCL or (D) any other
circumstance arises which Liberty reasonably concludes may
violate the general allocation objectives described in
subsection (a) above, then Liberty may modify the allocation
of the Merger Consideration with respect to any shares
transferred in violation of any Transfer Restriction
Agreement, any shares held by any Non-Cash Bonus Shareholder
who failed to deliver a Transfer Restriction Agreement or who
failed (when so required) to deliver a Shareholder's
Agreement, and any other shares held by any consenting
shareholder, to the extent necessary or appropriate to achieve
the general allocation objectives described in subsection (a)
above, so as to avoid the need to terminate this Agreement
pursuant to Article 9.
As soon as practicable following receipt of all Merger Consideration Election
Forms (and, if applicable, following any modification contemplated by Section
2.2(b)(iii)), Liberty shall revise and complete Schedule 2.2 to reflect the
allocation of Merger Consideration and shall provide copies thereof to State
National, each Indemnifying Shareholder, each Non-Cash Bonus Shareholder and
any other shareholder that was affected by any reallocation made pursuant to
Section 2.2(b)(iii), whereupon such revised and completed Schedule 2.2 shall
become a part of this Agreement and shall supersede and replace Schedule 2.2 as
initially attached.
(c) Merger Consideration per Share. Provided that there are
1,061,190 shares of State National Common Stock outstanding at the Closing, the
Merger Consideration per share of State National Common Stock shall be:
(i) the sum, in cash, of (A) $25.82 plus (B) an
amount (rounded to the nearest cent) computed by dividing
$100,000 by the total number of Cash Bonus Shares shown on
Schedule 2.2 payable to each Cash Bonus Shareholder (and any
transferee of the Cash Bonus Shares); and
(ii) $25.82, payable with respect to all Non-Cash
Bonus Shares in cash, shares of Liberty Common Stock, shares
of Liberty Preferred Stock 1994-A Series or any combination
thereof, subject, however, to compliance with all of the other
provisions of this Section 2.2 regarding the allocation of the
Merger Consideration.
(d) Calculation of Shares Issuable as Stock Portion of Merger
Consideration. The shares issuable in satisfaction of the Stock Portion of the
Merger Consideration payable to any State National shareholder
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shall be calculated as follows, depending on whether such Stock Portion is to
be paid in Liberty Common Stock or Liberty Preferred Stock 1994-A Series:
(i) Liberty Common Stock. For any Merger
Consideration to be paid in Liberty Common Stock, the number
of shares of Liberty Common Stock to be issued shall be
calculated by dividing the dollar amount of such Merger
Consideration by $28.00, which is the amount that Liberty and
State National have agreed to use for this purpose, based on
the range of market prices of Liberty Common Stock prior to
and during the parties' negotiations that preceded this
Agreement. The total number of shares to be issued will be
rounded up to the nearest whole share and there will not be
any cash settlement of any fractional share.
(ii) Liberty Preferred Stock 1994-A Series. For
any Merger Consideration to be paid in Liberty Preferred Stock
1994-A Series, the number of shares of Liberty Preferred Stock
1994-A Series to be issued shall be calculated by dividing the
dollar amount of such Merger Consideration by $35.00, which is
the stated value of each share of such stock. The total number
of shares to be issued to each applicable shareholder will be
rounded up to the nearest whole share and there will not be
any cash settlement of any fractional share.
2.3 Surrender of Certificates.
(a) Surrender. At the Closing, each State National
shareholder shall surrender each outstanding certificate formerly
representing shares of State National Common Stock, which certificates
shall represent all of the issued and outstanding stock of State
National, properly endorsed or otherwise in proper form for transfer,
for payment therefor.
(b) Lost or Destroyed Stock Certificates. If there be
delivered to Liberty by any person who is unable to produce such
person's certificate representing shares of State National Common
Stock for surrender to Liberty: (i) evidence to the satisfaction of
Liberty that such certificate has been lost, wrongfully taken or
destroyed, (ii) an indemnity bond sufficient to hold Liberty and any
transfer agent of Liberty harmless, and (iii) evidence to the
reasonable satisfaction of Liberty (A) that such person was the owner
of each share represented by each such certificate claimed by such
person to be lost, wrongfully taken or destroyed and (B) that such
person is the person who would be entitled to present such certificate
for exchange pursuant to this Agreement, then Liberty, in the absence
of actual notice to it that any shares represented by such certificate
have been acquired by a bona fide purchaser, shall deliver to such
person the Merger Consideration that such person would have been
entitled to receive upon surrender of each such lost, wrongfully taken
or destroyed certificate.
(c) Dividends on Liberty Stock. No holder of a
certificate or certificates representing shares of State National
Common Stock shall be entitled to receive any dividend or other
distribution from Liberty declared with respect to any Liberty Common
Stock or Liberty Preferred Stock 1994-A Series issuable as Merger
Consideration until such holder properly surrenders the certificate or
certificates representing such holder's shares of State National
Common Stock or such holder complies with Section 2.3(b) with respect
to such shares. Upon such surrender (or compliance with Section
2.3(b)), there shall be paid to the holder the amount of any dividends
or other distributions (without interest) that theretofore became
payable by Liberty, but were not paid by reason of the foregoing with
respect to the number of whole shares of Liberty Common Stock or
Liberty Preferred Stock 1994-A Series (or both) represented by the
certificate or certificates issued upon such surrender (or compliance
with Section 2.3(b)). From and after the Effective Time, however, the
certificate or certificates that previously represented shares of
State National Common Stock that have not yet been surrendered for
exchange (and as to which the procedures set forth in Section 2.3(b)
have not been satisfied) shall be deemed to represent any shares of
Liberty Common Stock and any shares of Liberty Preferred Stock 1994-A
Series into which the shares of State National Common Stock previously
represented by such certificate or certificates shall have been
converted pursuant to the Merger, notwithstanding any failure to
surrender such certificate or certificates.
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2.4 Payments by Surviving Corporation. At the Closing, Liberty, as
the Surviving Corporation, shall pay and distribute the Merger Consideration
payable to the State National shareholders as Merger Consideration in
accordance with Section 2.2 and Schedule 2.2, as completed and revised pursuant
to Section 2.2.
2.5 No Fractional Shares. No fraction of a share of Liberty Common
Stock or Liberty Preferred Stock 1994-A Series shall be issued upon conversion
of State National Common Stock, as provided in Section 2.2.
2.6 Stock Transfer Books. From and after the Effective Time, no
transfer of shares of State National Common Stock outstanding prior to the
Effective Time shall be registered on the stock transfer books of the Surviving
Corporation.
2.7 Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding shares of State National Common Stock shall be
changed into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares
or readjustment, or a stock dividend thereon shall be distributed as of a date
prior to the Effective Time, or declared with a record date prior to the
Effective Time and a distribution date after the Effective Time, or there is
any other change in the number of shares (1,061,190) of State National Common
Stock outstanding, the Merger Consideration per share shall be appropriately
adjusted.
2.8 Further Assurances. If at any time after the Effective Time
any further assignments or assurances are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of either of the Constituent Corporations, or otherwise to
carry out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered on behalf of the
respective Constituent Corporations, in the name of and on behalf of the
appropriate Constituent Corporation, to execute and deliver any and all things
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise to carry out the purposes
and provisions of this Agreement.
ARTICLE 3
ARTICLES OF INCORPORATION, BYLAWS,
BOARD OF DIRECTORS AND OFFICERS
3.1 Articles of Incorporation: Bylaws. The Restated Articles of
Incorporation, as amended, and Bylaws, as amended, of Liberty as in effect
immediately prior to the Effective Time shall continue to be the Restated
Articles of Incorporation and Bylaws of Liberty, as the Surviving Corporation,
until such time as they may be further amended in accordance with such
documents and applicable law.
3.2 Directors and Officers of Liberty. The persons who are
directors and officers of Liberty at the Effective Time will continue to serve
as the directors and officers of the Surviving Corporation until such time as
they may be replaced in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF STATE NATIONAL AND CERTAIN OTHERS
State National and each of the Indemnifying Shareholders, jointly and
severally, represent and warrant to, and agree with, Liberty as to all of the
following matters, and each other State National shareholder party
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to this Agreement, severally as to himself, herself or itself, represents and
warrants to, and agrees with, Liberty with respect to Section 4.2(b):
4.1 Organization and Qualification, etc. State National is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Louisiana, has the corporate power and authority to own
all of its properties and assets and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in good standing
in the respective jurisdictions shown on Schedule 4.1, which, except as set
forth on Schedule 4.1, are the only jurisdictions in which State National owns
any property or has any place of business or where such qualification is
required and where the failure to so qualify would affect materially and
adversely the financial condition of State National and its "Subsidiaries" (as
hereinafter defined). The copies of State National's Articles of Incorporation
and Bylaws, as amended to date, which have been delivered to Liberty, are
complete and correct, and such instruments, as so amended, are in full force
and effect at the date hereof. The minute books, stock records and other
corporate record books of State National are complete, accurate and up to date
in all material respects (and were complete, accurate and up to date in all
material respects when made available to Liberty and its representatives for
review). State National has provided Liberty with copies of any minutes or
other documents added to such corporate record books since July 8, 1993.
4.2 Authority Relative to Agreement.
(a) State National. State National has the corporate
power and authority to execute and deliver this Agreement and, subject to
obtaining the necessary approval of its shareholders, to consummate the
transactions contemplated on its part hereby. The execution and delivery by
State National of this Agreement and the consummation by State National of the
transactions contemplated on its part hereby have been duly authorized by all
necessary corporate action on the part of State National, except for the
adoption of this Agreement by the shareholders of State National. This
Agreement has been duly executed and delivered by State National and is a valid
and binding agreement of State National enforceable against State National in
accordance with its terms, subject to (i) bankruptcy, insolvency and other laws
of similar import, (ii) principles of equity, and (iii) applicable public
policy.
(b) Others. Each Indemnifying Shareholder and any other
State National shareholder that is party to this Agreement has the power,
authority and capacity to enter into and deliver this Agreement and to comply
with such person's or entity's obligations contemplated hereby. This Agreement
has been duly executed and delivered by each such person or entity and
constitutes a valid and binding obligation of such individual or entity. This
Agreement is enforceable against each such person or entity in accordance with
its terms, subject to (i) bankruptcy, insolvency and other laws of similar
import, (ii) principles of equity and (iii) applicable public policy.
4.3 Capital Stock. The authorized capital stock of State National
consists of 3,000,000 shares of State National Common Stock, of which: (a)
1,061,190 shares are validly issued and outstanding, fully paid and
nonassessable; and (b) no shares are held in the treasury of State National.
The issued and outstanding shares of State National are held of record by and
are registered in the names of the State National shareholders in the
respective amounts shown on Schedule 2.2. As of the date hereof, State National
has no commitments to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from State National, any shares of
its capital stock, and no securities or obligations evidencing any such rights
are outstanding.
4.4 Non-Contravention. Except as set forth in Schedule 4.4, the
execution and delivery of this Agreement by State National do not, and, subject
to the adoption of this Agreement by the shareholders of State National, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Articles of Incorporation or Bylaws of State National or any
of its Subsidiaries, or violate, or result with the giving of notice or the
lapse of time or both in a violation of, in any material respect, any provision
of, or result in the acceleration of or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both) any obligation
under, or result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon any of the property of State
National or any of its Subsidiaries
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pursuant to any provision of, any mortgage, lien, lease, agreement, license,
instrument, law, ordinance, regulation, order, arbitration award, judgment or
decree to which State National or any of its Subsidiaries is a party or by
which State National or any of its Subsidiaries is bound and do not and will
not violate or conflict with, in any material respect, any other restriction of
any kind or character to which State National or any of its Subsidiaries is
subject or by which any assets of State National or any of its Subsidiaries may
be bound, and the same does not and will not constitute an event permitting
termination of any mortgage, lien, lease, agreement, license or instrument to
which State National or any of its Subsidiaries is a party. Except as
specifically described in Schedule 4.4, no such violation, acceleration,
creation or imposition of a lien, charge, pledge, security interest or other
encumbrance, conflict or event shall cause any material damage, additional cost
or expense (including any payments or expenses incurred to obtain consents or
waivers) to State National, any of its Subsidiaries, or Liberty or otherwise
alter, in any material respect, the rights or impair the ability of State
National or any of its Subsidiaries to conduct its business as currently
conducted. Except as specifically described in Schedule 4.4, State National has
no reason to believe that State National will not be able to obtain (without
additional payment or expense) all consents and waivers necessary to avoid any
such violation, acceleration, entitlement to accelerate, creation or imposition
of a lien, charge, pledge, security interest or other encumbrance, conflict or
event.
4.5 Governmental and Other Consents. Except as set forth in
Schedule 4.5, and except for the filing of Articles of Merger with the
Secretary of State of South Carolina and a Certificate of Merger with the
Secretary of State of Louisiana, the filings with the Federal Trade Commission
and the Department of Justice as required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the required filings
with and approvals by the Louisiana Department of Insurance. (a) no consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body is required for or in
connection with the execution and delivery of this Agreement by State National
or any of its Subsidiaries and the consummation by State National or any of its
Subsidiaries of the transactions contemplated hereby; and (b) no consents or
other actions are necessary to permit Liberty (as the Surviving Corporation in
the Merger) to continue to enjoy, in all material respects, the same rights and
benefits as State National or any of its Subsidiaries now enjoy under all
reinsurance treaties, contracts, agreements and other instruments that are
disclosed on any schedule to this Agreement or that are otherwise material to
State National and its Subsidiaries and the conduct of their business.
4.6 Subsidiaries. Schedule 4.6 sets forth the name and
jurisdiction of incorporation or organization of each Subsidiary of State
National. As used in this Agreement, the term "Subsidiary" means, with respect
to any corporation or other entity ("Parent"), any corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is at
that time directly or indirectly owned or controlled by such Parent, or by any
one or more of its Subsidiaries, or by such Parent and one or more of its
Subsidiaries.
(a) Stock Ownership, Etc. Schedule 4.6 sets forth the
total number of outstanding shares of each Subsidiary of State
National, and the name of (and number of shares held by) each record
holder of such shares. Except as described in Schedule 4.6, State
National owns, directly or indirectly, all of the outstanding capital
stock of each of its Subsidiaries, free and clear of all liens,
charges, pledges, security interests or other encumbrances, and all
such capital stock is duly authorized, validly issued and outstanding,
fully paid and nonassessable, and State National has not, and none of
its Subsidiaries has, other than in the ordinary and usual course of
business, made any investment in, or advance of cash or other
extension of credit to, any person, corporation or other entity
("Person") other than its Subsidiaries. None of such Subsidiaries has
any commitment to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or
giving any person any right to acquire from such Subsidiary, any
shares of its capital stock, and no such securities or obligations are
outstanding.
(b) Organization, Qualification, Etc. Each such
Subsidiary is a corporation duly organized and validly existing in
good standing under the laws of its jurisdiction of incorporation and
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has the corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted. Each
such Subsidiary is duly qualified to do business and is in good
standing in the jurisdictions shown on Schedule 4.6, which are all
jurisdictions in which each such Subsidiary owns any property, has any
place of business, or where such qualification is required, except
those in which the failure to be so qualified or licensed would not
have a material adverse effect on State National and its Subsidiaries.
Each such insurance Subsidiary is licensed to write life, accident and
health and the other types of insurance shown on Schedule 4.6 in the
jurisdictions shown on Schedule 4.6, which are all types of insurance
written by such Subsidiaries and all jurisdictions in which each such
Subsidiary writes such insurance. The Articles or Certificates of
Incorporation or other charter documents and Bylaws, as amended to
date, of such Subsidiaries which have been delivered to Liberty are
complete and correct, and such documents, as so amended, are in full
force and effect at the date hereof. Except as disclosed on Schedule
4.6, the corporate record books of each State National Subsidiary are
complete, accurate and up to date in all material respects (and were
complete, accurate and up to date in all material respects when made
available to Liberty and its representatives for review), and State
National has provided Liberty with copies of any minutes or other
documents added to such record books since July 8, 1993.
(c) Certain Other Investments. Except as specified in
Schedule 4.6, State National does not directly or indirectly own any
interest in any partnership, joint venture or other non-corporate form
of business organization.
4.7 Financial Statements of State National and its Subsidiaries.
State National has previously furnished Liberty with true and complete copies
of the consolidated financial statements of State National and its Subsidiaries
set forth on Schedule 4.7 for the years ended December 31, 1991 and 1992 and
for the nine month periods ended September 30, 1992 and 1993 (the "Financial
Statements"). The Financial Statements, including the notes thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied and present accurately and fairly in all material respects
the consolidated financial position of State National and its Subsidiaries as
of their respective dates and their results of operations for the periods then
ended, subject, in the case of any interim financial statements, to ordinary
and reasonable non-material year-end audit adjustments and any other
adjustments described therein. The Board of Directors of State National has
reviewed the Financial Statements and has discussed with appropriate officers
of State National any questions they had regarding the Financial Statements.
4.8 Statutory Statements of Subsidiaries. State National has
previously furnished to Liberty the statutory annual statements of its
insurance Subsidiaries for the year ended December 31, 1992 and the statutory
semi-annual statements of its insurance Subsidiaries for the six months ended
June 30, 1993 (collectively, the "Statutory Statements"), as filed with the
Departments of Insurance in Louisiana as well as in other states where such
insurance Subsidiaries are licensed. Each Statutory Statement presents fairly
in all material respects: (a) the admitted assets, liabilities and surplus of
the respective insurance Subsidiary as of the date thereof, and the results of
its operations and the changes in its surplus for the period then ended and (b)
the assets and liabilities and the financial condition and affairs of the
respective insurance Subsidiary and its income and deductions therefrom for the
year to which such Statutory Statement relates, in conformity with accounting
practices prescribed or permitted by the respective Departments of Insurance in
Louisiana and in the other states where such insurance Subsidiaries are
licensed, as applicable, applied on a consistent basis, except as described in
such Statutory Statement.
4.9 Absence of Certain Changes or Events. Except for this
Agreement and the transactions contemplated hereby or as disclosed on Schedule
4.9 hereto, since June 30, 1993:
(a) Ordinary Course. State National and its Subsidiaries
each has operated its business in the ordinary and usual course.
(b) No Damage, Etc. There has not been any damage,
destruction or other casualty loss with respect to property owned by
State National or any of its Subsidiaries whether or not covered by
insurance, or any strike, work stoppage or slowdown or other labor
trouble involving State
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National or any of its Subsidiaries which, in any of such cases or in
the aggregate, materially and adversely affects the financial
condition of State National or any of its Subsidiaries.
(c) No Material Adverse Change. There has not been any
material adverse change in the financial condition, results of
operations or prospects of State National or any of its Subsidiaries.
(d) No Issuances, Etc. There has not been any issuance by
State National or any of its Subsidiaries of any shares, or options,
calls or commitments relating to shares of their capital stock, or any
securities or obligations convertible into or exchangeable for, or
giving any person any right to acquire from any of them, any shares of
their capital stock or any redemption, purchase or other acquisition
by State National or any of its Subsidiaries of any such shares.
(e) Changes in Shares. There has not been any split,
combination or other similar change in the outstanding shares of State
National.
(f) No Dividends, Etc. Except for regular cash dividends
totalling $265,297,50 paid in the third and fourth quarters of 1993
($.125 per share in each such quarter), and a dividend of $.125 per
share paid in January of 1994, there has not been any declaration,
setting aside or payment of any dividend (whether in cash, capital
stock or property) with respect to the capital stock of State
National, or any indebtedness incurred to the shareholders of State
National or any "Affiliate" of such shareholders (as the term
"affiliate" is defined in Rule 405 of Regulation C promulgated under
the Securities Act).
(g) Material Contracts. Neither State National nor any of
its Subsidiaries has entered into, amended or terminated any Material
Contract (as hereinafter defined).
(h) Certain Payments. Neither State National nor any of
its Subsidiaries has made any payments to any Affiliate of State
National or to the shareholders of State National other than
compensation, expense reimbursement and similar payments in the
ordinary course of business consistent with past practices and any
payments pursuant to the loans shown on Schedule 4.18 as having been
made by any Affiliate or shareholder of State National to State
National or any of its Subsidiaries;
(i) Compensation. Neither State National nor any of its
Subsidiaries has granted or agreed to grant any bonus to any current
employee or agent, any general increase in the rates of salaries,
commissions or compensation of its employees or agents or any specific
increase to any current employee or agent, except in accordance with
regularly scheduled periodic bonuses and increases consistent with
prior practices, or provided for any new pension, retirement or other
employee benefits to any of its current employees or agents or any
increase in any existing benefits.
(j) Property Interests. Neither State National nor any of
its Subsidiaries has sold, assigned, leased, transferred, encumbered,
granted a security interest in or license with respect to, or disposed
of, any of its assets or properties, tangible or intangible, other
than in the ordinary course of business, or has waived or released any
rights of value, or cancelled, compromised, released or assigned any
indebtedness owed to it or any claims held by it.
(k) Capital Expenditures. Neither State National nor any
of its Subsidiaries has made any capital expenditures except capital
expenditures made in the ordinary course of its business consistent
with past practices and not exceeding $10,000 individually or $50,000
in the aggregate.
(l) Indebtedness. There has not been any indebtedness
incurred by State National or any of its Subsidiaries.
(m) No Agreements as to the Foregoing. Neither State
National nor any of its Subsidiaries has agreed to do any of the
foregoing.
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4.10 Governmental Authorization and Compliance with Laws. Except as
set forth in Schedule 4.10, to the best knowledge, information and belief of
State National and its Subsidiaries, the businesses of State National and its
Subsidiaries have been operated in compliance with the laws, orders,
regulations, policies and guidelines of all governmental entities, except for
violations of such laws, orders, regulations, policies and guidelines which do
not individually or in the aggregate affect materially and adversely the
financial condition of State National and its Subsidiaries. Except as set forth
on Schedule 4.10, State National and its Subsidiaries have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of their businesses. Except as set forth in
Schedule 4.10, no notice has been issued and no investigation or review is
pending, or to State National's or any of its Subsidiaries' knowledge, is
contemplated or threatened by any governmental entity: (a) with respect to any
alleged violation by State National or any of its Subsidiaries of any law,
order, regulation, policy or guideline of any governmental entity, or (b) with
respect to any alleged failure to have all permits, certificates, licenses,
approvals and other authorizations required in connection with the operation of
the businesses of State National and its Subsidiaries. State National has
provided Liberty with copies of each and every registration, filing or
submission with any federal regulatory authority from January 1, 1991 to the
date hereof, each annual statement filed with or submitted to any state
insurance authority by State National or any of its Subsidiaries and any
reports of examinations with respect to State National or any of its
Subsidiaries issued by any such state insurance authority from January 1, 1991
to the date hereof, and each quarterly statement filed with or submitted to any
state insurance authority during 1993 by State National or any of its
Subsidiaries. Such filings or submissions were in material compliance with
applicable law when filed and no material deficiencies have been asserted by
any such authority with respect to such filings or submissions.
4.11 Absence of Undisclosed Liabilities and Obligations. Except as
specifically reflected or specifically reserved for in the Financial
Statements, neither State National nor any of its Subsidiaries: (a) had, as of
December 31, 1992 (the "Balance Sheet Date") any debts, liabilities or
obligations, whether accrued, absolute, contingent or otherwise and whether due
or to become due (including, without limitation, any liabilities resulting from
failure to comply with any law applicable to the conduct of their businesses),
or (b) has incurred since the Balance Sheet Date, any such debts, liabilities
or obligations other than any debts, liabilities and obligations incurred in
the ordinary and usual course of business after the Balance Sheet Date which do
not exceed $50,000 in the aggregate and the obligations to compensate Legg
Mason Wood Walker for its services as "Purchaser Representative" for certain
shareholders of State National, as provided in a letter agreement dated
February 16, 1994 (a true and correct copy of which has been provided to
Liberty). Neither State National nor any of its Subsidiaries is in violation of
any instrument, arbitration award, judgment or decree applicable to any of them
or any of their properties.
4.12 Tax Matters. Except as set forth in Schedule 4:
(a) Filing of Returns. State National and its
Subsidiaries have properly completed and filed in correct form all
returns for Taxes of every nature required to be filed by them and no
extensions of time in which to file any such returns are in effect.
(b) Copies of Returns. State National and its
Subsidiaries have delivered to Liberty true and correct copies of
their returns for Taxes for the taxable years ended December 31, 1988,
1989, 1990, 1991 and 1992.
(c) Payment of Taxes. State National and its Subsidiaries
have paid and satisfied on or before their respective due dates all
Taxes to the extent that such amounts have become due (whether or not
such Taxes are reflected on any returns) and none of such Taxes is
delinquent.
(d) Withholding, Etc. All Taxes which State National or
any of its Subsidiaries is or was required by law to withhold or
collect have been duly withheld and collected and have been paid over
to the proper governmental authorities in a timely fashion or are held
by State National in a depository bank account for such payment, and
all such withholdings and collections and all other payments due in
connection therewith are duly set forth on the books of State
National.
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(e) Examinations. Etc. Neither State National nor any of
its Subsidiaries has received notice that any return for Taxes filed
by it prior to the date hereof has been or is currently being examined
by the appropriate federal, state or local tax authorities, and
(without limiting the foregoing) all deficiencies asserted as a result
of such examinations have been paid or finally settled or are being
contested in good faith by appropriate proceedings, and no issue has
been raised by such authorities in any such examination which, by
application of similar principles, could be expected to result in a
proposed deficiency for any other year not so examined or to result in
any additional Taxes for years for which returns have not been filed.
(f) Statute of Limitations. There are no outstanding
agreements or waivers extending the statutory period of limitation
applicable to any return for Taxes for any period with respect to
State National or any of its Subsidiaries.
(g) Section 341. Neither State National nor any of its
Subsidiaries thereof nor any predecessor thereof, has filed an
election under Section 341 of the Code concerning collapsible
corporations.
(h) Section 280G. Neither State National nor any of its
Subsidiaries has made, or is obligated to make, any payments that will
not be deductible under Code Section 280G.
For purposes of this Agreement, the term "Taxes" means all taxes, assessments,
charges, duties, fees, levies or other governmental charges, including all
federal, state, local or other income, unitary, business, franchise, capital
stock, real property, personal property, intangible, withholding, FICA,
unemployment compensation, disability, transfer, sales, use, excise and other
taxes, assessments, charges, duties, fees, or levies of any kind whatsoever
(whether or not requiring the filing of returns), and all deficiency
assessments, additions to tax, penalties and interest with respect thereto.
4.13 Title to Properties: Absence of Liens and Encumbrances, Etc.
Except as set forth in Schedule 4.13, State National and its Subsidiaries have
good title to all of their properties and assets, real, personal and mixed,
used in their businesses, free and clear of any liens, charges, pledges,
security interests or other encumbrances, except as reflected in the Financial
Statements and except for such imperfections of title and encumbrances, if any,
as are not substantial in character, amount or extent, and do not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair the
business operations of State National and its Subsidiaries. All leases under
which State National or any of its Subsidiaries is the lessee of real or
personal property are valid and binding on the lessors thereunder in accordance
with their respective terms; there are no defaults, or conditions that with
lapse of time or notice or both would constitute defaults, by State National or
any of its Subsidiaries, as the case may be, or to the knowledge of State
National, any other party thereto, under any such lease, and consummation of
the transactions contemplated hereby will not alter or impair the rights of
State National or any of its Subsidiaries under any such lease. Except as set
forth on Schedule 4.13, neither State National nor any of its Subsidiaries has
leased to any other Person any of the properties owned by it or subleased to
any other Person any of the properties leased by it or granted any other Person
(other than State National or any of its Subsidiaries) the right to possess any
of its properties.
4.14 Adequacy: Condition. Except as set forth on Schedule 4.14: (a)
the real and personal properties owned or leased by State National and its
Subsidiaries are, to the best knowledge, information and belief of State
National and its Subsidiaries, adequate for the conduct of their businesses as
currently conducted; (b) neither State National nor any of its Subsidiaries is,
to the best knowledge, information and belief of State National and its
Subsidiaries, in violation, in any material respect, of any applicable
building, zoning, environmental, health, safety or other law, ordinance or
regulation in respect of such property, structures or equipment; (c) neither
State National nor any of its Subsidiaries has received notice or has knowledge
of (i) any pending or contemplated condemnation or eminent domain proceeding
affecting such properly, (ii) any proposal for increasing the assessed value of
such property for state, county, local or other ad valorem taxes, or (iii) any
pending or contemplated proceedings or public improvements which could or might
result in the levy of any special tax or assessment of a material nature or
amount against such property;
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and (d) there are no outstanding requirements or recommendations by State
National's or any of its Subsidiaries' insurance companies requiring or
recommending any repairs or work of a material nature or amount to be done with
reference to such property or any basis for such. Except as set forth in
Schedule 4.14, consummation of the transactions contemplated by this Agreement
will not alter the rights or impair the ability of State National or any of its
Subsidiaries to use such properties in the conduct of their businesses as they
are now being conducted.
4.15 Material Contracts. Except as disclosed in the Financial
Statements or on Schedule 4.15, State National and its Subsidiaries have no
outstanding employment agreements or any incentive compensation, deferred
compensation, profit sharing, stock option, stock purchase, savings,
consultant, retirement, pension or other "fringe benefit" plans or arrangements
with or for the benefit of any officer, employee or other person which are not
subject to cancellation by State National or the applicable Subsidiary, as the
case may be, without penalty or increased cost on not more than 30 days'
notice. Schedule 4.15 lists all Material Contracts to which State National or
any of its Subsidiaries is a party or by which any of them is otherwise bound.
For purposes of this Agreement, the term "Material Contract" when used with
respect to State National and its Subsidiaries shall mean: (a) all loan and
security agreements, insurance, reinsurance and other risk sharing agreements,
leases of real or personal property, consulting and employment agreements, and
other miscellaneous business agreements material to the operations of State
National or any of its Subsidiaries, which are to be performed after the
Effective Time: (b) any single contract pursuant to which any party thereto is
obligated to make payments after the date of this Agreement aggregating more
than $10,000; and (c) any contract for the purchase or sale of another business
or a significant amount of assets, entered into (i) since January 1, 1991 or
(ii) prior to January 1, 1991 if any indemnification, deferred payment or other
continuing obligations under such contract are still in effect; provided,
however, that the term "Material Contract" shall not include insurance policies
written by State National or any of State National's Subsidiaries in the
ordinary course of business and consistent with its general underwriting
standards. Except as disclosed in Schedule 4.15, all Material Contracts are in
full force and effect and constitute valid and binding obligations of State
National or its Subsidiaries and, to the knowledge of State National, any other
parties thereto. There are no defaults (including any conditions or events that
with lapse of time or notice or both would constitute defaults) in any
obligations to be performed by State National or any of its Subsidiaries, or to
the knowledge of any of them, any other party, pursuant to a Material Contract.
Except as expressly provided elsewhere in this Agreement or as disclosed on
Schedule 4.15, consummation of the transactions contemplated by this Agreement
will not alter the rights, impair the benefits or increase the obligations of
State National or any of its Subsidiaries under any such Material Contract or
require the consent of any other party to such contract. Except as disclosed in
Schedule 4.15, there are no contracts or options to sell or lease any property
or assets, real, personal or mixed, of State National or any of its
Subsidiaries. State National has provided Liberty true and correct copies of
all written contracts, plans, etc required to be listed on Schedule 4.15 and
complete descriptions of any arrangements required to be identified on Schedule
4.15 which are not in writing.
4.16 Litigation. Except for Terri A. Crosby v. State National Life
Insurance Company, C.A. # 92-3171 consolidated with EEOC v. State National Life
Insurance Company, C.A. # 92-3958 and except as otherwise disclosed in the
Financial Statements or on Schedule 4.16, (a) there is no claim, action, suit,
investigation or proceeding pending or, to the knowledge of State National,
contemplated or threatened against State National or any of its Subsidiaries,
or against any of their properties, which seeks damages or penalties in
connection with any of the transactions contemplated by this Agreement or
damages or penalties in excess of $10,000 in connection with any other matter
or to prohibit, restrict or delay the transactions contemplated hereby or any
of the conditions to consummation of the transactions contemplated hereby or to
limit in any manner the right of Liberty to control the Surviving Corporation
or any aspect of the businesses of State National and its Subsidiaries after
the Effective Time, or which, in the event of a final adverse determination,
considered individually or in the aggregate with all such other claims,
actions, suits or proceedings, would materially and adversely affect the
financial condition of State National or any of its Subsidiaries, and (b) there
is not any judgment, decree, injunction, ruling or order of any court,
governmental department, commission, agency or instrumentality, arbitrator or
any other person outstanding against State National or any of its Subsidiaries
involving an amount in excess of $10,000 or otherwise having any such effect.
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4.17 Labor Controversies. Each of State National and its
Subsidiaries has a stable work force in place and is not, except as set forth
on Schedule 4.17, party to any collective bargaining agreement, nor has any
labor union been recognized as the representative of the employees or agents of
State National or any of its Subsidiaries, and State National does not know of
any pending, threatened, or contemplated strikes, work stoppage or other labor
disputes involving the employees or agents of State National or any of its
Subsidiaries.
4.18 Insider Interests. Except as disclosed in the Financial
Statements or on Schedule 4.18: (i) no Affiliate, officer or director, or
former officer or former director of State National has any outstanding
financial obligations to State National or any of its Subsidiaries or any
agreement, whether formal or informal, with State National or any of its
Subsidiaries, or any interest in any property, real or personal, tangible or
intangible, including without limitation trade names or trademarks used in or
pertaining to the business of State National or any of its Subsidiaries, except
for the normal rights as a shareholder, director or employee, or has guaranteed
any obligations of State National or any of its Subsidiaries, and (ii) neither
State National nor any of its Subsidiaries has incurred any financial
obligations to any Affiliate, officer or director, or former officer or former
director of State National except in connection with normal rights as a
shareholder or employee. Without in any way limiting the foregoing, except as
disclosed on Schedule 4.18, neither State National nor any of its Subsidiaries
has ever requested any director, officer, employee or agent of such corporation
to serve as a director, trustee, officer, employee or agent of another domestic
or foreign, non-profit or for profit corporation (except for a State National
Subsidiary), partnership, joint venture, trust or other enterprise so as to
give rise to any insurance or indemnification obligation by State National or
any of its Subsidiaries with respect to any liability or expense arising in
connection with any such service to any other enterprise.
(a) Loans To Insiders. Each of the loans shown on
Schedule 4.18 as having been made by State National or any of its
Subsidiaries to any Affiliate, officer, director or former officer or
former director of State National: (i) was made in the ordinary course
of business; (ii) is represented by a written promissory note (a true
and correct copy of which has been delivered to Liberty), which
requires payments of principal and interest on a monthly or otherwise
regular periodic schedule; (iii) is current as to all such periodic
payments that have become due and (iv) is fully collectible. To the
extent such loans are shown as being secured by first or second
mortgages or other collateral, State National or the applicable
Subsidiary of State National holds a valid and duly recorded mortgage
having the designated priority (first or second) with respect to
mortgaged real estate, or a valid and perfected security interest in
any other type of collateral and, in each case, to the best knowledge,
information and belief of State National and its Subsidiaries the
value of the mortgaged real estate (net of any prior mortgage) and the
value of any other collateral equals or exceeds the balance of the
loan secured by such real property mortgage or other collateral. The
loans to Kenneth F. Domma on the one hand and Gerald W. Hughes and the
Hughes & Hughes Partnership, on the other hand, shown on Schedule 4.18
are full recourse as to Mr. Domma and Mr. Hughes personally,
respectively.
(b) Loans By Insiders. Each of the loans shown on
Schedule 4.18 as having been made by any Affiliate, officer, director
or former officer or former director of State National or any of its
Subsidiaries to State National or any of its Subsidiaries: (i) was
made in the ordinary course of business; (ii) is represented by a
written promissory note (a true and correct copy of which has been
delivered to Liberty), which requires payments of principal and
interest on a monthly or otherwise regular periodic schedule; and
(iii) is current as to all such periodic payments that have become
due.
4.19 Intellectual Property. Except as described in Schedule 4.19,
State National and its Subsidiaries own or possess adequate rights to use all
patents, trademarks, service marks, trade names, copyrights, or applications
for the foregoing, and all computer programs, software, firmware, databases and
documentation relating thereto, used in, relating to, or necessary for the
conduct of the businesses of State National and its Subsidiaries (collectively,
the "Intellectual Properly"). Schedule 4.19 lists all such Intellectual
Property and all licenses or other agreements (other than licenses of generally
available computer programs or software licenses which are immaterial to the
business of State National and its Subsidiaries) pursuant to which State
National or any of its Subsidiaries has any right to use or enjoy the
Intellectual Property that is owned by
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others or pursuant to which State National or any of its Subsidiaries is under
a duty of confidentiality with respect to any Intellectual Property owned by
others (the "Intellectual Property Agreements"). Except as otherwise described
on Schedule 4.19, as to the Intellectual Property owned by State National or
any of its Subsidiaries, such Intellectual Property is owned free and clear of
all claims of others, including present or former employees, agents or
independent contractors of State National, and neither State National nor any
of its Subsidiaries has received notice that use of such Intellectual Property
in its business violates or infringes upon the claimed rights of others. As to
the Intellectual Property Agreements: (a) all such agreements are in full force
and effect; (b) neither State National nor any of its Subsidiaries nor, to the
best knowledge, information and belief of State National, any other party
thereto, is in default under any such agreements; (c) neither State National
nor any of its Subsidiaries is or will become obligated to make any royalty or
similar payment under such agreements; (d) the rights of State National and its
Subsidiaries under such agreements will not be affected by the consummation of
the Merger; and (e) neither State National nor any of its Subsidiaries has
received notice that the exercise by State National or any of its Subsidiaries
of their rights under such agreement infringes upon the claimed rights of
others. In addition, neither State National nor any of its Subsidiaries has
received any notice that any of the products or services of State National or
any of its Subsidiaries infringes upon claimed rights of others. Except as
disclosed on Schedule 4.19, neither State National nor any of its Subsidiaries
has granted to any person any license or other right to use in any manner any
of the Intellectual Property owned by State National or any of its Subsidiaries
or has granted any sublicense or right to use any Intellectual Property
licensed to State National or any of its Subsidiaries under the Intellectual
Property Agreements: nor has State National or any of its Subsidiaries granted
any software licenses or sublicenses that would authorize any person to use any
software licensed or sublicensed thereunder for any purpose other than uses
limited solely to such person.
4.20 Insurance. Schedule 4.20 summarizes the amount and scope of
the insurance currently in force insuring State National, its Subsidiaries and
their respective properties against loss or liability. All such policies or
contracts of insurance are sufficient for compliance with all requirements of
law and of all agreements to which State National or any of its Subsidiaries is
a party. All insurance policies pursuant to which any such insurance is
provided are in full force and effect. No notice of cancellation or termination
of any insurance policy has been given to State National or any of its
Subsidiaries and all premiums required to be paid in connection with such
insurance policies have been paid in full.
4.21 Proxy/Disclosure Statement, Etc. The information with respect
to State National, its officers and directors and its Subsidiaries, supplied by
State National or its authorized representatives for use in the
proxy/disclosure statement to be distributed to the State National shareholders
prior to the meeting of such shareholders to vote with respect to the
transactions contemplated by this Agreement (the "Proxy/Disclosure Statement"),
as such Proxy/Disclosure Statement may be amended or supplemented, will not,
when furnished to the State National shareholders or as of the date of their
meeting or at the time of Closing, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or necessary to correct any statement in
any earlier communication to the State National shareholders with respect to
the Merger and the transactions contemplated hereby.
4.22 Employee and Fringe Benefit Plans.
(a) Schedule of Plans. Schedule 4.22 to this Agreement
lists each of the following that State National or any of its
Subsidiaries or any ERISA Affiliate (as defined below) either
maintains, is required to contribute to or otherwise participates in
(or at any time during the preceding seven years maintained,
contributed to or other vise participated in) or as to which State
National or any of its Subsidiaries or any ERISA Affiliate has any
unsatisfied liability or obligation, whether accrued, contingent or
otherwise:
(i) any employee pension benefit plan
(Pension/Profit-Sharing Plan) (as such term is defined in the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), including any pension, profit-sharing, retirement,
thrift or stock bonus plan;
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(ii) any "multi-employer plan" ("Multi-Employer
Plan) (as such term is defined in ERISA);
(iii) any employee welfare benefit plan ("Welfare
Plan") (as such term is defined in ERISA); or
(iv) any other compensation, stock option,
restricted stock, fringe benefit or retirement plan, program,
policy, understanding or arrangement of any kind whatsoever,
whether formal or informal, not included in the foregoing and
providing for benefits for, or the welfare of, any or all of
the current or former employees or agents of State National or
any of its Subsidiaries or any ERISA Affiliate or their
beneficiaries or dependents, including any group health, life
insurance, retiree medical, bonus, incentive or severance
arrangement;
(all of the foregoing in items (i), (ii), (iii) and (iv) being
referred to as "Employee Plans"). "ERISA Affiliate" means each trade
or business (whether or not incorporated) which together with State
National or any of its Subsidiaries is treated as a single employer
pursuant to Code Section 414(b), (c), (m) or (o). State National has
delivered to Liberty (and Schedule 4.22 lists each item delivered)
copies of the following: (A) each written Employee Plan, as amended
(including either the original plan or the most recent restatement and
all subsequent amendments); (B) the most recent Internal Revenue
Service ("IRS") determination letter issued with respect to each
Pension/Profit-Sharing Plan; (C) the latest actuarial valuation (if
any) for each Pension/Profit-Sharing Plan: (D) the three most recent
annual reports on the Form 5500 series: (E) each trust agreement,
insurance contract or document setting forth any other funding
arrangement, if any, with respect to each Employee Plan; (F) the most
recent ERISA summary plan description or other summary of plan
provisions distributed to participants or beneficiaries for each
Employee Plan; (G) each opinion or ruling from the IRS, the Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC")
concerning any Employee Plan; and (H) each Registration Statement,
amendment thereto and prospectus relating thereto filed with the SEC
or furnished to participants in connection with any Employee Plan.
(b) Qualification. Except as set forth in Schedule 4.22
each Pension/Profit-Sharing Plan: (i) has received a favorable
determination letter from the IRS to the effect that it is qualified
under Code Sections 401(a) and 501, both as to the original plan and
all restatements or material amendments; (ii) has never been subject
to any assertion by any governmental agency that it is not so
qualified; and (iii) has been operated so that it has always been so
qualified.
(c) Accruals: Funding
(i) Pension/Profit-Sharing Plans Subject to
ERISA Title IV. No Pension/Profit Sharing Plan listed on
Schedule 4.22 is subject to Title IV of ERISA.
(ii) Other Plans. Schedule 4.22 fully and
accurately discloses any funding liability under each Employee
Plan not subject to ERISA Title IV, whether insured or
otherwise, specifically setting forth any liabilities under
any retiree medical arrangement and specifically designating
any insured plan which provides for retroactive premium or
other adjustments. The levels of insurance reserves and
accrued liabilities with regard to each such Employee Plan are
reasonable and are sufficient to provide for all incurred but
unreported claims and any retroactive premium adjustments.
(iii) Contributions. Except as fully and
accurately disclosed in Schedule 4.22 (A) each of State
National and its Subsidiaries and each ERISA Affiliate have
made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and
applicable law, or required to be paid as expenses under such
Employee Plan, including PBGC premiums and amounts required to
be contributed under Code Section 412; (B) all contributions
have been made in accordance with the actuarial
recommendations; and
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(C) no excise taxes are assessable as a result of any
nondeductible or other contributions made or not made to an
Employee Plan.
(d) Reporting and Disclosure. Summary plan descriptions
and all other returns, reports, registration statements, prospectuses,
documents, statements and communications which are required to have
been filed, published or disseminated under ERISA or other federal law
and the rules and regulations promulgated by the Department of Labor
under ERISA and the Treasury Department or by the SEC with respect to
the Employee Plans have been so filed, published or disseminated.
(e) Prohibited Transactions; Terminations; Other
Reportable Events. Except as set forth in Schedule 4.22:
(i) neither State National, any of its
Subsidiaries, any ERISA Affiliate, any Employee Plan, any
trust or arrangement created under any of them, nor any
trustee, fiduciary, custodian, administrator or any person or
entity holding or controlling assets of any of the Employee
Plans has engaged in any "prohibited transaction" (as such
term is defined in ERISA or the Code) which could subject any
of the foregoing persons or entities, or any person or entity
dealing with them, to any tax, penalty or other cost or
liability of any kind;
(ii) no termination, whether partial or complete,
has occurred with respect to any Employee Plan; and
(iii) no "reportable event" (as such term is
defined in ERISA) (other than a reportable event for which the
statutory notice requirements have been waived by regulation)
has occurred with respect to any Employee Plan.
(f) Claims for Benefits. Other than claims for benefits
arising in the ordinary course of the administration and operation of
the Employee Plans, no claims, investigations or arbitrations are
pending or threatened against any Employee Plan or against State
National or any of its Subsidiaries, any ERISA Affiliate, any trust or
arrangement created under or as pan of any Employee Plan, any trustee,
fiduciary, custodian, administrator or other person or entity holding
or controlling assets of any Employee Plan, and no basis to anticipate
any such claim or claims exists.
(g) Other. State National, its Subsidiaries and all ERISA
Affiliates have fully complied in all material respects with all of
their obligations under each of the Employee Plans and with all
provisions of ERISA and any and all other law applicable to the
Employee Plans. No written notice has been received by State National
or any of its Subsidiaries of any claim by any participant in the
Employee Plans of any violations of such laws, and to the best
knowledge of State National, no such claims are pending or threatened.
(h) Creation of Obligations By Reason of Sale of Shares.
Except as set forth in such Schedule 4.22, neither the execution of,
nor the performance of the transactions contemplated by, this
Agreement will create, accelerate or increase any obligations under
any Employee Plan, including any obligation to make a payment that
would be nondeductible under Code Section 280G or any other Code
provision.
(i) No Multi-Employer Plans. Except as set forth in
Schedule 4.22, none of the Employee Plans are Multi- Employer Plans,
and neither State National, any of its Subsidiaries nor any ERISA
Affiliate has any liability, joint or otherwise, for any withdrawal
liability (potential, contingent or other vise) under ERISA Title IV
for a complete or partial withdrawal from any Multi-Employer Plan.
4.23 Hazardous Waste and Substances: Environmental Requirements. To
the best knowledge, information and belief of State National and its
Subsidiaries, except as set forth in Schedule 4.23, State National and its
Subsidiaries are in compliance in all material respects with all laws,
governmental standards,
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rules and regulations applicable to them or to any of their properties in
respect to occupational health and safety laws and environmental laws and have
obtained all governmental authorizations, kept all records and made all filings
required by applicable environmental laws with respect to emissions or
discharges into the environment and the proper disposal of any hazardous
wastes, hazardous substances, or other hazardous or toxic materials as defined
in the environmental laws. To the best knowledge, information and belief of
State National and its Subsidiaries, none of the properties occupied or used by
State National or any of its Subsidiaries has been contaminated with any such
hazardous wastes, hazardous substances or other hazardous or toxic materials as
a result of actions of State National or any of its Subsidiaries or, to the
best knowledge, information and belief of State National or any of its
Subsidiaries, as a result of actions of any other person or entity. Neither
State National nor any of its Subsidiaries has received any notices from the
United States Environmental Protection Agency that it is a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("Superfund Notices"), any citations from any governmental
authority for noncompliance with its requirements with respect to air, water or
environmental pollution, or the improper storage, use or discharge of any
hazardous waste, other waste or other substance or material pertaining to its
business ("Citations") or any written notice from any private party alleging
any such noncompliance or impropriety, and there are no pending or unresolved
Superfund Notices, Citations or written notices from private parties alleging
any such noncompliance or impropriety.
4.24 Bank Accounts. Schedule 4.24 lists all bank accounts and safe
deposit boxes of State National and its Subsidiaries, specifying the account
numbers.
4.25 Certain Expenses. The only fees and expenses which have been
or are expected to be incurred by State National and its Subsidiaries relating
to the Merger are the fees and expenses payable to Legg Mason Wood Walker to
act as "Purchaser Representative" for certain shareholders of State National,
as provided in a letter agreement dated February 16, 1994, customary fees and
expenses of State National's independent accounting firm and outside counsel,
which are disclosed on Schedule 4.25, and any other fees and expenses disclosed
on Schedule 4.25.
4.26 Reserves. Except as described in Schedule 4.26, the reserves
carried on the books of State National's Subsidiaries for payment of all
benefits, losses, claims and expenses under all outstanding insurance policies
of State National's Subsidiaries and under all obligations that State
National's Subsidiaries have assumed under any reinsurance treaties are
adequate to cover the total amount of all reasonably anticipated liabilities of
State National's Subsidiaries. Except as described in Schedule 4.26. State
National's Subsidiaries' reserves have been properly computed in accordance
with all applicable laws and all applicable regulations and accounting
principles imposed by any regulatory bodies having jurisdiction over State
National's Subsidiaries.
4.27 Policy Forms: Agents. Policy forms that have been used or are
currently being used by State National's past or present Subsidiaries have been
filed with the appropriate state insurance authorities in the states where
State National's past and present Subsidiaries have offered the types of
insurance or insurance products covered by such policies. The policies
currently in use meet (and those previously in use met) all applicable legal
requirements of each such state. Each employee and agent of State National's
past or present Subsidiaries is duly licensed (and has been duly licensed
during all relevant periods) in each state where such employee or agent offers
or sells (or sold) the insurance or insurance products of any past or present
State National Subsidiary.
4.28 Directors and Officers. Schedule 4.28 lists the name of each
individual serving as a director or officer of State National or any of its
Subsidiaries as of the date hereof.
4.29 Accuracy of Schedules, Certificates and Documents. All
information concerning State National and its Subsidiaries contained in this
Agreement, in any certificate furnished to Liberty pursuant hereto and in each
schedule attached hereto is both complete (in that, except as otherwise stated
therein, it represents all the information called for by the description of the
respective schedule in this Agreement and does not omit to state any material
fact necessary to make the statements contained therein not misleading) and
accurate in all material respects. All documents furnished to Liberty pursuant
to this Agreement as being
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documents described in this Agreement or in any schedule attached hereto are
true and correct copies of the documents which they purport to represent.
4.30 Special Tax Matters. Neither State National nor any of its
Subsidiaries is an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code. The fair market value of the assets of
State National and its Subsidiaries will equal or exceed the sum of the
liabilities, if any, assumed by Liberty, plus the amount of liabilities, if
any, to which the transferred assets are subject. The liabilities of State
National to be assumed by Liberty and subject to which the assets of State
National will be transferred were incurred by State National in the ordinary
course of its businesses or will be liabilities to pay expenses of the
transaction that are solely and directly related to the Merger.
4.31 Guaranty Fund Obligations. Except as set forth on Schedule
4.31, neither State National nor any of its Subsidiaries has received at any
time since December 31, 1990 any notice of, or has any knowledge of or reason
to know of, any assessments imposed or to be imposed on any of them by any
state authorities administering any insurance guaranty funds in any state where
any of them does business or any events or circumstances likely to result in
any such assessments.
4.32 Inapplicability of LBCL Sec. 12:133. On January 31, 1994,
prior to the execution of any Transfer Restriction Agreements, the Board of
Directors duly adopted the resolution set forth on Schedule 4.32, which
irrevocably exempted the Merger from the requirements of Section 12:133 of the
LBCL. Such resolution is in full force and effect, has not been amended or
rescinded, and by its terms is irrevocable.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LIBERTY
Liberty represents and warrants to, and agrees with, State National
and the Indemnifying Shareholders as follows:
5.1 Organization and Qualification, Etc. Liberty is a corporation
duly organized, validly existing and in good standing under the laws of the
State of South Carolina and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being
conducted.
5.2 Authorization, Etc. Liberty has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby on the part of Liberty. The execution and
delivery by Liberty of this Agreement and the consummation by Liberty of the
transactions contemplated on its pan hereby have been duly authorized by the
Board of Directors of Liberty, subject only to the final determinations
described in the following sentence. Liberty's Board of Directors has approved
and authorized the establishment of Liberty's Preferred Stock 1994-A Series
having the rights, terms and conditions set forth in Schedule 6.15, subject
only to a final determination of the number of shares that will constitute such
series and certain applicable dates, which determinations shall be made in the
manner described on Schedule 6.15. Except for the final determinations
described above with respect to the Liberty Preferred Stock 1994-A Series, no
other corporate action on the part of Liberty is necessary to authorize the
execution and delivery of this Agreement by Liberty or the consummation by
Liberty of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Liberty and is a valid agreement of Liberty,
enforceable against Liberty in accordance with its terms, subject to (a)
bankruptcy, insolvency and other laws of similar import, (b) principles of
equity, and (c) applicable public policy.
5.3 Non-Contravention. Except to the extent Liberty has reason to
believe that it will be able to obtain (without additional payment or expense)
all consents and waivers necessary to avoid any such violation, acceleration,
entitlement to accelerate, creation or imposition of a lien, charge, pledge,
security interest or other encumbrance, conflict or event, the execution and
delivery of this Agreement by Liberty does not, and consummation of the
transactions contemplated hereby will not, violate or result, with the giving
of
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notice or the lapse of time or both, in a violation of any provision of, or
result in the acceleration of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any obligation under, or result
in the creation or imposition of any lien, charge, pledge, security interest or
other encumbrance upon any of the property of Liberty pursuant to any provision
of any mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment or decree to which Liberty is a
party or by which Liberty is bound and do not and will not violate or conflict
with any other restriction of any kind or character to which Liberty is subject
or by which any of its assets may be bound, and the same does not and will not
constitute an event permitting termination of any mortgage, lien, lease,
agreement, license or instrument to which Liberty is a party, if such
violation, acceleration, entitlement to accelerate, creation or imposition of a
lien, charge, pledge, security interest or other encumbrance, conflict or event
would, when taken together with all other such violations, accelerations,
entitlements to accelerate, creations and impositions of liens, charges,
pledges, security interests and other encumbrances, conflicts and events,
affect materially and adversely the business of Liberty or any of its
Subsidiaries or Liberty's ability to consummate the transactions contemplated
by this Agreement.
5.4 Consents, etc. Except for (a) applicable notices to and
filings with the SEC pursuant to Regulation D promulgated under the Securities
Act and pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (b) the filings with the Federal Trade Commission and the
Department of Justice as required by the HSR Act, (c) any filings required to
be made with, and any approvals required to be obtained from, the Insurance
Department of the State of Louisiana and any other applicable state insurance
authority, (d) the filing of the "Preferred Stock 1994-A Amendment" with the
Secretary of State of South Carolina (as defined in and contemplated by Section
6.15) and (e) the filing of Articles of Merger with the Secretary of State of
South Carolina and a Certificate of Merger with the Secretary of State of
Louisiana, no consent, authorization, order or approval, or filing or
registration with, any governmental commission, board or other regulatory body
is required to be made or obtained by Liberty for or in connection with the
execution and delivery of this Agreement by Liberty and the consummation by
Liberty of the transactions contemplated hereby, if the failure to make such
filing or registration or to obtain such consent, authorization, order or
approval would have a material and adverse effect on the consummation of the
transactions contemplated by this Agreement.
5.5 Periodic Reports. The information in Liberty's Annual Report
on Form 10-K (including the Annual Report to Shareholders) for the year ended
December 31, 1992 (the "Liberty Form 10-K Report"), Liberty's Quarterly Report
on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September
30, 1993 (the "Liberty Quarterly Reports") and Liberty's Proxy Statement for
Liberty's Annual Meeting of Shareholders held on May 4, 1993 did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information with respect to Liberty, its officers and directors and its
Subsidiaries, and (subject in all respects to the representations made
elsewhere herein by State National and the Indemnifying Shareholders with
respect to the financial statements of State National reflected therein) the
pro forma financial information reflecting the combined results of Liberty and
State National that shall have been included by Liberty in the Proxy/Disclosure
Statement, as such Proxy/Disclosure Statement may be amended or supplemented,
will not, when furnished to the State National shareholders or on the date of
their meeting or at the time of Closing, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or necessary to correct statements in any
earlier communication to the shareholders of State National (the preparation of
which Liberty participated in) with respect to the transactions contemplated by
this Agreement.
5.6 Financial Statements. The consolidated balance sheets of
Liberty and its Subsidiaries as of December 31, 1991 and 1992 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years ended December 31, 1990, 1991 and 1992, including the notes
thereto, certified by Ernst & Young, independent certified public accountants,
included in the Annual Report to Shareholders contained in the Liberty Form
10-K Report and the financial statements, including the notes thereto,
contained in the Liberty Quarterly Reports have been prepared in conformity
with generally accepted accounting principles consistently applied in all
material respects (subject to the adjustments required to reflect
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Liberty's adoption, effective January 1, 1993, of certain Financial Accounting
Standards, as described in Liberty's Quarterly Report for the quarter ended
March 31, 1993) and present fairly the consolidated financial position of
Liberty and its Subsidiaries as of such respective dates and their consolidated
results of operations for the periods then ended, subject, in the case of any
interim financial statements, to normal year-end audit adjustments and any
other adjustments described therein.
5.7 Absence of Certain Changes or Events. Since December 31, 1992,
there has not been (a) any damage, destruction or other casualty loss with
respect to property owned by Liberty or any of its Subsidiaries whether or not
covered by insurance, or any strike, work stoppage or slowdown or other labor
trouble involving Liberty or any of its Subsidiaries which, in any of such
cases or in the aggregate, materially and adversely affected the financial
condition of Liberty and its Subsidiaries considered as a whole, or (b) any
material adverse change in the financial condition or results of operations of
Liberty and its Subsidiaries, considered as a whole.
5.8 Absence of Undisclosed Liabilities and Agreements. Except as
set forth on the balance sheet as of September 30, 1993 included in the most
recent Liberty Quarterly Report, neither Liberty nor any of its Subsidiaries
had, as of September 30, 1993, any debts, liabilities or obligations, whether
accrued, absolute, contingent or otherwise and whether due or to become due
(including without limitation any uninsured liabilities resulting from failure
to comply with any law applicable to the conduct of its business) required by
generally accepted accounting principles to be set forth on the balance sheet
or disclosed in the notes thereto.
5.9 Litigation. There is no claim, action, suit, investigation or
proceeding pending or, to the knowledge of Liberty, contemplated or threatened
against Liberty or any of its properties, which seeks damages in connection
with any of the transactions contemplated by this Agreement or to prohibit,
restrict or delay the transactions contemplated hereby or any of the conditions
to consummation of the transactions contemplated hereby or to limit in any
manner the right of Liberty to control State National and its Subsidiaries or
any aspect of the business of State National and its Subsidiaries after the
Effective Time, or which, in the event of a final adverse determination,
considered individually or in the aggregate with all such other claims,
actions, suits or proceedings, would materially and adversely affect the
financial condition of Liberty, and there is not any judgment, decree,
injunction, ruling or order of any court, governmental department commission,
agency or instrumentality, arbitrator or any other person outstanding against
Liberty having any such effect.
5.10 Accuracy of Schedules. Certificates and Documents. All
information concerning Liberty contained in this Agreement. in any certificate
furnished by Liberty to the other parties to this Agreement pursuant hereto and
in each schedule attached hereto is both complete (in that, except as otherwise
stated therein, it represents all the information called for by the description
of the respective schedule in this Agreement and does not omit to state any
material fact necessary to make the statements contained therein not
misleading) and accurate in all material respects; and all documents furnished
by Liberty to the other parties to this Agreement pursuant to this Agreement as
being documents described in this Agreement or in any schedule attached hereto
are true and correct copies of the documents which they purport to represent.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Conduct of Business. State National covenants that during the
period from the date hereof to the Effective Time:
(a) Operations by State National in the Ordinary Course of
Business. Except as otherwise provided in or contemplated by this
Agreement, State National shall, and shall cause each Subsidiary to,
conduct its operations according to its ordinary and usual course of
business and use its best efforts to: preserve intact its business
organization: keep available the services of its officers,
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employees and agents; maintain satisfactory relationships with
licensors, suppliers, distributors, customers and others having
business relationships with it; and continue to apply the underwriting
practices and principles it has previously applied. Officers of State
National shall confer with representatives of Liberty to keep it
informed with respect to operational matters of a material nature and
to report the general status of the on-going operations of the
businesses of State National and its Subsidiaries.
(b) Forbearances by State National. Except as otherwise
provided in or contemplated by this Agreement, neither State National
nor any of its Subsidiaries shall, without the prior written consent
of Liberty:
(i) take any action which would increase the
total consolidated indebtedness of State National or any of
its Subsidiaries for borrowed money and capitalized leases,
incur any debt, liability or obligation, direct or indirect,
whether accrued, absolute, contingent or otherwise, other than
current liabilities incurred in the ordinary and usual course
of business, or pay any debt, liability or obligation of any
kind other than such current liabilities and current
maturities of existing long-term debt;
(ii) assume, guarantee, endorse or otherwise
become responsible for the obligations of any other
individual, corporation or other entity, or make any loans or
advances to any individual, corporation or other entity,
except in the ordinary and usual course of business;
(iii) declare, set aside or pay any dividend
(whether in cash, capital stock or property) with respect to
its capital stock, or declare or make any distribution on,
redeem, purchase or otherwise acquire, any shares of State
National Common Stock or split, combine or otherwise similarly
change the outstanding shares of State National Common Stock,
or authorize the creation or issuance of or issue or sell any
shares of its capital stock, or any securities or obligations
convertible into or exchangeable for, or give any person any
right to acquire from it, any shares of its capital stock, or
agree to take any such action, provided that if the Closing
has not occurred by March 31, 1994, then State National may
declare and pay a cash dividend of $.125 per share in the
second quarter of 1994, and if the Closing has not occurred by
June 30, 1994, then State National may declare and pay a cash
dividend of $.125 per share in the third quarter of 1994.
(iv) mortgage, pledge or otherwise encumber any
material property or asset;
(v) sell, lease, transfer or dispose of any of
its properties or assets, except in the ordinary and usual
course of business, waive or release any rights of value, or
cancel, compromise, release or assign any indebtedness owed to
it or any claims held by it;
(vi) make any investment of a capital nature
either by purchase of stock or securities, contributions to
capital, property transfers or otherwise, or by the purchase
of any property or assets of any other individual, corporation
or other entity, except in the ordinary and usual course of
business;
(vii) make any one capital expenditure in an
amount exceeding $10,000 or any series of capital expenditures
in an aggregate amount exceeding $50,000;
(viii) enter into or terminate any contract,
agreement, plan, lease or reinsurance treaty, or make any
change in any of its contracts, agreements, plans, leases or
reinsurance treaties other than in the ordinary and usual
course of business;
(ix) increase in any manner the compensation or
fringe benefits of any of its officers, employees or agents or
pay or agree to pay any pension or retirement allowance not
required by any existing plan or agreement to any such
officers, employees or agents, or commit itself
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to or enter into any employment agreement or any incentive
compensation, deferred compensation, profit sharing, stock
option, stock purchase, savings, consultant, retirement,
pension or other "fringe benefit" plan or arrangement with or
for the benefit of any officer, employee or other person,
provided that State National may continue to accrue for its
Profit Sharing Plan on a monthly basis, consistent with past
practices, at a rate comparable to that of the prior year
(totalling approximately $125,000 for the year);
(x) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination or cancellation
replacement policies providing substantially the same coverage
are in full force and effect;
(xi) amend its Articles of Incorporation or
Bylaws or those of any of its Subsidiaries;
(xii) enter into any collective bargaining
agreement; or
(xiii) enter into an agreement to do any of the
things described in clauses (i) through (xii).
6.2 Shareholders' Meeting; Proxy/Disclosure Statement. State
National shall (a) cause a meeting of its shareholders to be duly called and
held as soon as reasonably practicable for the purpose of considering and
acting upon this Agreement and all actions contemplated hereby which require
the approval of State National shareholders (the "State National Shareholders'
Meeting"), (b) recommend approval of this Agreement to the State National
shareholders, and (c) use its reasonable efforts to cause such meeting to take
place and to obtain the approval by the State National shareholders of the
Merger and the other transactions contemplated by this Agreement. Liberty shall
prepare and distribute, and State National shall cooperate with and assist
Liberty in preparing and distributing, to the State National shareholders a
reasonable time before the State National Shareholders' Meeting the
Proxy/Disclosure Statement (and any amendments or supplements thereto which may
be necessary or desirable) describing the transactions contemplated hereby and
providing other information relevant to the decisions by the State National
shareholders with respect to the Merger and other matters contemplated hereby.
State National will furnish to Liberty all information about State National
which is required to be set forth in the Proxy/Disclosure Statement to comply
with Regulation D promulgated under the Securities Act. If at any time prior to
the Effective Time, State National shall become aware that any event has
occurred relating to State National which should be set forth in an amendment
of, or a supplement to, the Proxy/Disclosure Statement, State National shall
promptly inform Liberty and will furnish to Liberty all necessary information
known to State National with respect thereto.
6.3 HSR Act Filings. State National and Liberty have made
appropriate filings with the Federal Trade Commission and the Department of
Justice under the HSR Act, with respect to the transactions contemplated by
this Agreement. In connection with such filings, State National and Liberty
shall, in cooperation with each other, and as promptly as reasonably
practicable from time to time hereafter, make all such further filings and
submissions, and take such further action, as may be required in connection
therewith. Each party shall furnish the other all information in its possession
necessary for compliance by the other with the provisions of this Section 6.3.
No party shall withdraw any such filing or submission prior to the termination
of this Agreement without the written consent of the other party.
6.4 Consents, Authorizations, Etc. Each party hereto will use its
best efforts to obtain all consents, authorizations, waivers, orders and
approvals from any governmental commission, board or other regulatory body, and
to make all related filings and registrations which such party is required to
obtain or make for the consummation of the Merger, for Liberty to control State
National's Subsidiaries following the Merger and for Liberty to continue to
enjoy, following the Merger, all of the rights and benefits of State National,
or which such party is required to obtain or make in connection with the
performance by such party of this Agreement and the consummation by it of the
transactions contemplated hereby. Each party hereto also will use its best
efforts to obtain all consents, authorizations, waivers and approvals from any
non-governmental third party which such party hereto is required to obtain or
make pursuant to any contract or
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agreement to which it is a party for the consummation of the Merger, for
Liberty to control State National's Subsidiaries following the Merger and for
Liberty to continue to enjoy, following the Merger, all of the rights and
benefits of State National, or which such party is required to obtain or make
pursuant to any contract to which it is a party in connection with the
performance by such party of this Agreement and the consummation by it of the
transactions contemplated hereby. Each party hereto also will cooperate fully
with the other parties in assisting them to obtain such consents,
authorizations, waivers, orders and approvals that the other parties are
required to obtain or make.
6.5 Investigation; Confidentiality.
(a) Investigation. Liberty may, prior to the Effective
Time, make or cause to be made such investigation of the business and
properties of State National and its Subsidiaries and their financial
and legal condition as Liberty deems necessary or advisable to
familiarize itself therewith, provided that such investigation shall
not interfere with normal operations of State National and its
Subsidiaries. State National agrees to permit Liberty and its
authorized representatives to have or cause them to be permitted to
have, after the date hereof and until the Effective Time, full access
to the premises, books and records, officers and employees of State
National and its Subsidiaries at reasonable hours, and the officers of
State National and its Subsidiaries will furnish Liberty with such
financial and operating data and other information with respect to the
business and properties of State National and its Subsidiaries as
Liberty shall from time to time request. State National will permit
Liberty and its representatives, including its accounting firm, to
review the workpapers of the accounting firm of State National
relating to their review or audit of the financial statements as of
and for the three most recent years.
(b) Confidentiality. Except as otherwise required in
connection with any disclosures included as necessary or desirable in
the Proxy/Disclosure Statement (or any amendments or supplements
thereto) or required in filings which any party makes with the
Securities and Exchange Commission or other regulatory entities, any
information which any party provides to the other or to the other's
Representatives, whether written or oral, shall be treated as
confidential material (the "Confidential Material"), except that this
shall not apply to information that is generally available to the
public or becomes generally available to the public other than as a
result of a disclosure by the receiving party or its Representatives.
For purposes of this Agreement, the term "Representatives" shall mean
a party's directors, officers, employees, attorneys, accountants,
investment bankers, brokers, bankers and others engaged by such party
or intended to be engaged by such party to advise it regarding the
Confidential Material or the transactions contemplated hereby or to
assist in financing the transactions contemplated hereby and who
receive Confidential Material. It is hereby agreed that the
Confidential Material will be used by the receiving party and/or its
Representatives only for purposes of evaluating and facilitating the
transactions contemplated hereby, and that the Confidential Material
will be kept confidential by the receiving party and its
Representatives; provided, however, that (A) any of such information
may be disclosed to the receiving party's Representatives who need to
know such information for purposes relating to the transactions
contemplated hereby (it being understood that such Representatives
shall be informed by the receiving party of the confidential nature of
such information and shall be directed by the receiving party to treat
such information confidentially), and (B) any other disclosure of such
information may be made to which the party providing the information
consents in writing.
(i) State National hereby acknowledges that it is
aware (and that its Representatives and shareholders who are
apprised of this matter have been, or upon becoming so
apprised will be, advised) of the restrictions imposed by the
United States federal securities laws on a person possessing
material nonpublic information about a public company.
(ii) The provisions of this Section 6.5(b) shall
remain in effect for a period of three years after the date
hereof; provided, however, that nothing herein shall
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limit Liberty's rights to disclose any information covered
hereby following any consummation of the transactions
contemplated hereby.
6.6 Expenses. If the Merger is not consummated, all costs and
expenses (including any brokerage commissions or any finder's fees and
including reasonable attorneys' and accountants' fees) incurred in connection
with this Agreement and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses. If the Merger is consummated, all
such costs and expenses incurred by Liberty or State National shall be paid by
Liberty as the Surviving Corporation; any additional costs and expenses
incurred by any State National shareholders in their individual capacities
shall be paid by the shareholders incurring such costs and expenses.
6.7 Taxes.
(a) Filing of Returns. State National shall cause the
preparation and filing of all returns and reports for Taxes for State
National and its Subsidiaries for all taxable periods ending on or
before the Effective Time. Such returns shall be completed and filed
no later than the due date thereof, including any extensions. At least
20 days prior to the due date thereof, including any extensions, or,
if earlier, at least 20 days prior to the date on which State National
(or any such Subsidiary) intends to file any such return. State
National shall provide Liberty with a copy of each such return for
approval by Liberty prior to the filing of such return.
(b) Access and Assistance. State National shall provide
Liberty with such access and information as Liberty may reasonably
request in connection with the preparation of any return of Taxes, any
audit or other examination by any taxing authority, and any judicial
or administrative proceeding relating to liability for Taxes of State
National and its Subsidiaries.
6.8 Approval by State Insurance Departments. Each party hereto
shall (and State National shall cause each of its Subsidiaries to) use its best
efforts to file all applications and other documents, and to obtain all
consents and approvals, as are required to be filed or obtained by it under the
applicable laws of the State of Louisiana and other jurisdictions, including
all requisite approvals of the insurance regulatory authorities in such states
and all other governmental approvals required for consummation of the
transactions contemplated by this Agreement, in each case as promptly as is
practicable. State National shall (and shall cause each of its Subsidiaries to)
take all such actions (other than the payment of money not then due and owing
or the provision of other consideration) as are reasonably requested by Liberty
to assist Liberty in completing all such filings and obtaining all such
consents and approvals as Liberty are required to make and obtain. Liberty
shall take all such actions (other than the payment of money not then due and
owing or the provision of other consideration) as are reasonably requested by
State National to assist State National (and its Subsidiaries) in completing
all filings and obtaining all consents and approvals as State National (or any
of its Subsidiaries) is required to make and obtain.
6.9 Publicity. Except as otherwise required by law, State National
and Liberty shall coordinate with each other with respect to any notices to
third parties, press releases or other public announcements or filings with
respect to this Agreement and the transactions contemplated hereby. Neither
Liberty nor State National shall act unilaterally in this regard, except as may
be required by law or pursuant to the advice of counsel, without the prior
approval of the other party, which approval shall not be unreasonably withheld.
6.10 Resignations of Directors and Officers. Except for the
officers of State National Subsidiaries identified on Schedule 6.10 with
respect to the positions identified thereon, State National shall use its best
efforts to obtain appropriate resignations, effective as of the Effective Time,
from each director and officer of State National and its Subsidiaries,
including, but not limited to, the directors and officers identified on
Schedule 4.28.
6.11 Noncompetition, Nondisclosure and Nonsolicitation. State
National shall obtain from each of the individuals listed on Schedule 6.11(a),
each of whom is a shareholder of State National (the "Restricted Individuals),
to the extent such individuals have not signified their acknowledgment and
agreement by
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executing this Agreement, a written acknowledgment of the matters described
below and agreement to be bound by all of the terms of this Section (as well as
Sections 12.1, 12.9 and 12.10 (a "Noncompete Agreement"). Each Restricted
Individual acknowledges (or shall acknowledge if not a signatory to this
Agreement) that the consideration to be paid to him pursuant to the Merger
reflects a substantial portion of the future value to Liberty of State
National's business and related goodwill. In addition, each of the Restricted
Individuals acknowledges (or shall acknowledge if not a signatory to this
Agreement) that in the course of his employment with and/or service as a
director for State National or any of its Subsidiaries, he has received trade
secrets and confidential and proprietary information concerning State
National's or its Subsidiaries' business and customers. Each of the Restricted
Individuals further acknowledges (or shall acknowledge if not a signatory to
this Agreement) that the restrictions contained in this Section 6.11 are
necessary and reasonable to give Liberty the full value of State National's
business and the related goodwill being purchased. Each of the Restricted
Individuals therefore covenants and agrees (or shall covenant and agree if not
a signatory to this Agreement) with Liberty that:
(a) From the effective date of the Merger until the
second anniversary of the effective date of the Merger, no such Restricted
Individual will, directly or indirectly, carry on or engage in pan or all of
the "Defined Business" (as defined below) within the "Territory" (as defined
below), or solicit any of the policyholders or other customers of State
National or its Subsidiaries for the purpose of providing any of the types of
insurance included in the Defined Business.
(i) Carrying on or engaging in a business shall
include, but not be limited to, acting as consultant, advisor,
independent contractor, officer, manager, employee, principal
or agent of any corporation, partnership, association or
agency, or being a member or employee of any partnership or
any owner or employee of any other business, any of which
conducts, directly or through a subsidiary or other controlled
entity, any pan of the Defined Business, but, notwithstanding
the foregoing, shall not include acting solely in a capacity
completely unrelated to the Defined Business.
(ii) "Defined Business" shall mean the type of
insurance business conducted by State National and its
Subsidiaries at the time of this Agreement, including the
provision through the issuance of policies and the acceptance
of risks through reinsurance treaties, of individual life
insurance and accident and health insurance.
(iii) "Territory" shall mean the geographical
regions identified on Schedule 6.11(b). The Territory is
hereby acknowledged as comprising the primary territory served
by State National and its Subsidiaries and the territory in
which State National and its Subsidiaries have actively
solicited policyholders and other customers as of the date
hereof and a territory in which Liberty, directly or through
one or more of Liberty's subsidiaries, plans to solicit
policyholders and other customers and carry on a like business
to that now conducted by State National and its Subsidiaries.
(b) No Restricted Individual shall disclose to third
parties or use for his own or others' benefit any "Proprietary Information (as
defined below) of State National or any of its Subsidiaries of which he became
informed during his employment and/or service as a director, whether or not
such information or material was developed by him. As used herein, the tenn
"Proprietary Information" refers to any and all information of a confidential,
proprietary or secret nature which is or may be either applicable to or related
in any way to (i) the business of State National or any of its Subsidiaries, or
(ii) the research and development or investigations of State National or any of
its Subsidiaries, and shall include, but not be limited to, trade secrets,
processes, formulas, data, algorithms, source codes, object codes,
documentation, flow-charts, drawings, correspondence, know-how, improvements,
inventions, techniques, concepts, technologies, programs, designs, personnel
records, marketing plans and strategies, policyholder and other customer lists,
pricing and underwriting policies and practices, cost information, salaries,
commissions and other compensation, proposals to policyholders and other
customers, and data, confidential information or property entrusted to State
National or any of its Subsidiaries by any policyholders or other customers and
confidential information concerning policyholders and other customers or
employees of State National or any of its Subsidiaries. Each
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of the Restricted Individuals shall remain under this obligation of
confidentiality for a period from the effective date of the Merger until the
second anniversary of the effective date of the Merger unless and until he is
expressly released from it in a writing signed by Liberty or he or she learns
with certainty that the information or material in question has become public
knowledge other than through any breach of his confidentiality agreement
hereunder.
6.12 Cancellation of Employment Agreements. Effective as of the
Closing, except for the agreements set forth on Schedule 6.12, State National
shall cancel all employment or salary continuation agreements with any officers
or key employees of State National and its Subsidiaries, in each case without
any payment by State National or any of its Subsidiaries for such cancellation
and, except for retirement benefits and health insurance coverages in effect
prior to the date hereof, without any continuing obligation on the pan of State
National or any of its Subsidiaries for any continuation of such person's
compensation, except any payment or continuing obligation agreed to in writing
by Liberty.
6.13 Actions to Avoid, and Notices of, Breaches of Representations
and Warranties. State National and the Indemnifying Shareholders shall: (a)
take such actions (and cause State National's Subsidiaries to take such
actions) so that State National's representations and warranties in this
Agreement remain true and correct and shall not take any action that would
cause such representations and warranties to cease to be true and correct: and
(b) inform Liberty promptly of any facts or circumstances that could be
reasonably expected to constitute or result in a breach of any of State
National's representations and warranties in this Agreement.
6.14 Periodic Reports. Liberty covenants that, for a period of
three years following the Effective Time of the Merger, it will file all
reports required to be filed by it under Section 13 or 15(d) of the Exchange
Act, and the rules and regulations adopted by the SEC thereunder, so as to
comply with the current public information requirements of Rule 144(c)(i);
provided, however, that if Liberty's obligation to file such reports under
Section 13 or 15(d) of the Securities Exchange Act of 1934 is suspended or
terminated in accordance with the provisions of the Exchange Act. Liberty shall
not be obligated to satisfy the alternative requirements of Rule 144(c)(2) in
order to facilitate the availability of Rule 144 for resales of Liberty Common
Stock by the State National shareholders. Subject to the foregoing proviso,
Liberty will take such further action as any holder of Liberty Common Shares
issued in connection with the Merger may reasonably request, or to the extent
required from time to time to enable such shareholders to sell within the
limitation of the exemption provided by (a) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC.
6.15 Liberty Preferred Stock 1994-A Series. Prior to the Closing,
Liberty shall take all remaining actions and make all filings (including filing
an appropriate amendment to Liberty's Articles of Incorporation (the "Preferred
Stock 1994-A Series Amendment")) necessary or desirable to establish the
Liberty Preferred Stock 1994-A Series to be issued pursuant to this Agreement
as a distinct series, having the rights, terms and conditions set forth on
Schedule 6.15.
6.16 Stock Exchange Listing. Liberty shall cause the shares of
Liberty Common Stock to be issued in connection with the transactions
contemplated by this Agreement (including shares of Liberty Common Stock issued
upon conversion of the Liberty Preferred Stock) to be authorized for listing on
the New York Stock Exchange, but Liberty shall not have any obligation to cause
the shares of Liberty Preferred Stock to be authorized for listing on the New
York Stock Exchange or otherwise authorized for trading on any stock exchange
or in any over-the-counter market or through any similar facilities.
6.17 Shareholder Matters.
(a) Transfer Restrictions. Each Non-Cash Bonus
Shareholder has previously executed and delivered to Liberty a letter
agreement in the form attached hereto as Schedule 6.17(a) (the
"Transfer Restriction Agreement") agreeing, as an inducement to
Liberty to enter into this Agreement and proceed with the transactions
contemplated hereby, not to transfer record or beneficial ownership of
any shares of State National Common Stock owned by such shareholder
(as shown on Schedule 2.2)
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prior to the proper termination of this Agreement or, if earlier.
September 30, 1994, except to Liberty pursuant to the Merger or with
Liberty's advance written consent.
(b) Shareholder Agreements. State National and the
Indemnifying Shareholders shall use their best efforts to cause each
State National shareholder desiring to receive any part of the Stock
Portion of the Merger Consideration to execute and deliver to Liberty
no later than the fifth business day prior to the State National
Shareholders Meeting a "Shareholder Agreement" in the form attached
hereto as Schedule 6.17(b), containing representations and agreements
deemed appropriate by Liberty to assure compliance with Regulation D
and any applicable exemptions from registration under the securities
laws of applicable states or other jurisdictions.
(c) Rights of Liberty. If: (i) any Non-Cash Bonus
Shareholder transfers any record or beneficial ownership of State
National Common Stock in violation of any Transfer Restriction
Agreement, or (ii) any Non-Cash Bonus Shareholder who desires to
receive any part of the Stock Portion of the Merger Consideration
fails to deliver a Shareholder Agreement to Liberty at least five
business days prior to the State National Shareholders Meeting, then
Liberty shall be entitled, in its discretion, to terminate this
Agreement pursuant to Section 9.1(b) or to revise the allocation of
Merger Consideration pursuant to Section 2.2(b)(iii) to the extent
appropriate to avoid issuing any part of the Stock Portion of the
Merger Consideration in circumstances which Liberty reasonably
determines may fail to qualify for the exemption from registration
provided by Regulation D or any exemption from registration provided
under the securities laws of any applicable state or other
jurisdiction.
6.18 Repayment of Certain Insider Loans; Modification Regarding
Domma Loan.
(a) Loans To Insiders. State National and its
Subsidiaries shall repay at or prior to Closing all of the insider
loans to State National or any of its Subsidiaries that are designated
on Schedule 4.18 for repayment prior to Closing. The amount repaid
shall be limited to the unpaid principal plus the amount of interest
accrued through March 31, 1994. State National shall obtain and
deliver to Liberty at Closing all promissory notes and any other
documents evidencing such loans properly cancelled by the payees to
show that they have been satisfied in full.
(b) Domma's Loan. By executing this Agreement. Mr. Domma
agrees that at or prior to Closing, he shall enter into any
modifications to the documentation for the loan to him by State
National or its Subsidiary shown on Schedule 4.18 in the "Other Loan"
column which Liberty may deem necessary or appropriate to provide for
the substitution of Liberty Common Stock or Liberty Preferred Stock
1994-A Series (or both) issued to Mr. Domma in the Merger for the
State National Common Stock presently securing such loan. The amount
of Liberty stock securing the Domma loan shall at all times be in an
amount satisfactory to Liberty, treating such loan as a "purpose
credit" pursuant to the Securities Exchange Act of 1934 and Regulation
G thereunder, as amended (which would presently require Liberty stock
securing such loan to have a value of at least 200% of the balance of
the loan).
6.19 Termination of Benefits to Non-State National Employees. State
National shall take all actions necessary to terminate from coverage under its
Employee Plans any persons who are not employees or sales agents of State
National or its Subsidiaries (or their family members or other dependents)
including, without limitation, employees and principals of the law firm of
Watson, Blanche, Wilson & Posner who are currently covered under The State
National Life Insurance Company Employee Health and Life Benefits Plan. The
elimination of such benefits shall not result in any payment by or continuing
obligation on the part of State National (or any of its Subsidiaries) or
Liberty. State National shall deliver to Liberty at Closing evidence
satisfactory to Liberty of compliance with this Section 6.19.
6.20 Additional Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its best
efforts to take, or cause to be taken all actions and to do, or cause to be
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done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated by this Agreement.
ARTICLE 7
CONDITIONS TO THE MERGER
7.1 Conditions to Merger Relating to Both Parties. Consummation of
the Merger is subject to the fulfillment to the reasonable satisfaction of
Liberty and State National, prior to or at the Closing, of each of the
following conditions:
(a) Approval by State National Shareholders. State
National's shareholders shall have duly adopted this Agreement in
accordance with the Articles and Bylaws of State National and the LBCL
(b) Insurance Department Approvals, Etc. All required
approvals shall have been obtained from the insurance departments of
the State of Louisiana and, if applicable, any other insurance
regulatory agency having jurisdiction over the transactions
contemplated hereby.
(c) Hart-Scott-Rodino. The applicable waiting period
under the HSR Act shall have expired or been terminated without any
requirement that a divestment be made by Liberty or State National,
and no proceeding by the Department of Justice or the FTC shall be
pending or threatened with respect to the transactions hereunder,
which if determined adversely, would have a material adverse effect on
the financial condition or results of operations of State National and
its Subsidiaries.
7.2 Conditions to Merger Relating to Liberty. Consummation of the
Merger is subject to the fulfillment to the reasonable satisfaction of Liberty,
prior to or at the Closing, of each of the following conditions:
(a) Consents, Authorizations, etc. Except for the filing
of Articles of Merger with the Secretary of State of South Carolina
and a Certificate of Merger with the Secretary of State of Louisiana,
in addition to the approvals required in Section 7.1, all consents,
authorizations, waivers, orders and approvals of, and filings and
registrations with, any governmental commission, board or other
regulatory body or any non-governmental third party which are required
for or in connection with the execution and delivery by State National
of this Agreement and the consummation by State National of the Merger
or the other transactions contemplated hereby or which State National
must obtain to permit Liberty to control State National's Subsidiaries
following the Merger or to permit Liberty and its Subsidiaries to
continue to enjoy, in all material respects, following the Merger, all
of the rights and benefits of State National and its Subsidiaries,
including the ability of State National's Subsidiaries to continue
conducting their business in all material respects in the same manner
as it is now being conducted, shall have been obtained or made.
(b) Injunction, etc. At the Closing there shall be no
judgment, decree, injunction, ruling or order of any court,
governmental department, commission, agency or instrumentality
outstanding against Liberty or State National which prohibits,
restricts or delays consummation of the Merger or any of Liberty's
conditions to the consummation of the Merger, or limits the right of
Liberty to control in any material respect the business of State
National and its Subsidiaries after the Effective Time.
(c) Representations and Warranties; Compliance with
Covenants and Obligations. The representations and warranties of State
National, each Indemnifying Shareholder, and each other shareholder of
State National party to this Agreement contained in this Agreement
shall have been true and correct at the date hereof and shall also be
true and correct in all material respects at and
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as of the Closing, except for changes contemplated in this Agreement,
with the same force and effect as if made at and as of the Closing,
except as such representations and warranties by their terms relate
only to periods of time prior to the Closing; State National and each
Indemnifying Shareholder shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Closing; and Liberty shall have received one or more certificates of
the Chairman and/or President of State National and, if requested, one
or more certificates of such other parties certifying, to the best of
his or their knowledge, to all of the foregoing effects.
(d) Resignations of Directors and Officers. In accordance
with and subject to the exceptions contemplated by Section 6.10,
Liberty shall have received appropriate resignations from each
director and officer of State National and any of its Subsidiaries.
(e) Cancellation of Employment Agreements. Liberty shall
have received evidence satisfactory to it that, except for the
agreements set forth on Schedule 6.12, all employment or salary
continuation agreements with any officers or key employees of State
National and its Subsidiaries have been cancelled, effective as of the
Effective Time. in each case without any payment by State National or
any of its Subsidiaries for such cancellation and, except for
retirement benefits and health insurance coverages in effect prior to
the date hereof, without any continuing obligation on the part of
State National for any continuation of such person's compensation,
except any payment or continuing obligation agreed to in writing by
Liberty.
(f) Opinion of State National's Counsel. Liberty shall
have received an opinion of counsel to State National. dated as of
the Closing and satisfactory in form and substance to Liberty and
their counsel:
(i) To substantially the same effect as
Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.32 and, to
counsel's knowledge, to the same effect as Section 4.16;
(ii) To the effect that upon the filing of the
Certificate of Merger with the Secretary of State of Louisiana
and Articles of Merger with the Secretary of State of South
Carolina in accordance with Section 1.2 of this Agreement, the
Merger shall become effective in accordance with the terms
hereof under the laws of Louisiana; and
(iii) To the effect that nothing has come to the
attention of such counsel which leads such counsel to believe
that, at the time of the State National Shareholders' Meeting
or at the time the Proxy/Disclosure Statement was distributed
to the State National shareholders or at the time of Closing,
the information regarding State National included in the
Proxy/Disclosure Statement, as amended or supplemented (except
for the financial statements and any other financial or
statistical data, as to which such counsel need express no
opinion), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) Exchange Listing. The shares of Liberty Common Stock
issuable as part of the Merger Consideration or upon conversion of the
Liberty Preferred Stock 1994-A Series shall have been authorized for
listing on the New York Stock Exchange upon official notice of
issuance.
(h) Dissenting Shareholders. The holders of shares of
State National Common Stock outstanding immediately prior to the
Effective Time shall not have elected, pursuant to the LBCL to seek
payment for more than 5% of the total number of such shares in
accordance therewith.
(i) Shareholder Agreements; Compliance with Regulation D.
Liberty shall have received: (i) a Shareholder's Agreement in the form
attached hereto as Schedule 6.17(b) from each State National
shareholder who will receive any pan of the Stock Portion of the
Merger Consideration
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(which Shareholder's Agreements shall have been received by Liberty at
least five business days prior to Closing); (ii) evidence reasonably
satisfactory to Liberty that each such shareholder will acquire any
Liberty Common Stock and/or Liberty Preferred Stock 1994-A Series
issuable to such shareholder in accordance with such agreement; (iii)
evidence that no State National shareholder transferred record or
beneficial ownership of any State National Common Stock in violation
of such shareholder's Transfer Restriction Agreement; and (iv) such
other evidence as Liberty may reasonably request to indicate that
Liberty is entitled to rely on the exemption from registration
provided by Rule 506 of Regulation D promulgated under the Securities
Act in connection with the issuance of Liberty Preferred Stock and
Liberty Common Stock as contemplated by this Agreement and exemptions
from registration under the securities laws of any applicable state or
other jurisdiction.
(j) Valuations. Liberty shall be satisfied, as a result
of its investigation of State National and its Subsidiaries that the
statutory capital and surplus accounts of each Subsidiary of State
National as of Closing are equal to or in excess of the levels reponed
as of December 31, 1992.
(k) Repayment of Insider Loans. Each of the insider loans
designated on Schedule 4.18 for repayment prior to Closing shall have
been repaid in full.
(l) Noncompete Agreements. Liberty shall have received
each of the Noncompete Agreements contemplated by Section 6.11.
(m) Additional Certificates, etc. State National shall
have furnished to Liberty such additional certificates, opinions and
other documents as Liberty may have reasonably requested as to any of
the conditions set forth in this Section 7.2.
7.3 Conditions to the Merger Relating to State National.
Consummation of the Merger is subject to the fulfillment to the reasonable
satisfaction of State National, prior to or at the Closing, of each of the
following conditions:
(a) Consents, Authorizations, etc. Except for the filing
of Articles of Merger with the Secretary of State of South Carolina
and the Certificate of Merger with the Secretary of State of
Louisiana, in addition to the approvals required by Section 7.1, all
consents, authorizations, orders and approvals of, and filings and
registrations with, any governmental commission, board or other
regulatory body or any non-governmental third party (including,
without limitation, the filing of the Preferred Stock 1994-A Series
Amendment with the Secretary of State of South Carolina) which are
required for or in connection with the execution and delivery by
Liberty of this Agreement and the consummation by Liberty of the
Merger or the other transactions contemplated hereby shall have been
obtained or made, if the failure to obtain such consent,
authorization, or approval would have a material and adverse effect on
the Merger or on the financial condition, results of operations,
business or prospects of Liberty and its Subsidiaries, taken as a
whole.
(b) Injunction, etc. At the Closing there shall be no
judgment, decree, injunction, ruling or order of any court,
governmental department, commission, agency or instrumentality
outstanding against Liberty or State National which prohibits,
restricts or delays consummation of the Merger or any of State
National's conditions to consummation of the Merger.
(c) Representations and Warranties: Compliance with
Covenants and Obligations. The representations and warranties of
Liberty contained in this Agreement shall have been true and correct
at the date hereof and shall also be true and correct in all material
respects at and as of the Closing, except for changes contemplated in
this Agreement, with the same force and effect as if made at and as of
the Closing, except as such representations and warranties by their
terms relate only to periods of time prior to the Closing; Liberty
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it at or prior to the Closing; and State National
shall have received a certificate of the President or a Vice President
of Liberty certifying, to the best of his knowledge, to the foregoing
effect.
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(d) Opinion of Liberty's Counsel. State National shall
have received an opinion of the General Counsel for Liberty, dated as
of the Closing and in a form reasonably satisfactory to State National
and its counsel:
(i) To substantially the same effect as Sections
5.1. 5.2, 5.3 and 5.4 and, to counsel's knowledge, to
substantially the same effect as Section 5.9;
(ii) To the effect that upon the filing of
Articles of Merger with the Secretary of State of South
Carolina and the Certificate of Merger with the Secretary of
State of Louisiana in accordance with Section 1.2 of this
Agreement, the Merger shall become effective in accordance
with the terms hereof under the laws of South Carolina; and
(iii) To the effect that nothing has come to the
attention of such counsel which leads such counsel to believe
that, at the time of the State National shareholders' meeting
or at the time the Proxy/Disclosure Statement was distributed
to the State National shareholders or at the time of Closing,
any information contained in the Proxy/Disclosure Statement
(except for information furnished by State National for use
therein and any financial statements and other financial and
statistical data included therein, as to which such counsel
need express no opinion), contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
(e) Additional Certificates etc. Liberty shall have
furnished to State National such additional certificates, opinions and
other documents as State National may have reasonably requested as to
any of the conditions set forth in this Section 7.3.
7.4 Waiver of Conditions. Any party may, at its option, waive in
writing any or all of the conditions herein contained to which its obligations
hereunder are subject, except that the conditions contained in Section 7.1 may
not be so waived.
ARTICLE 8
CLOSING
8.1 Closing. Evidence of the fulfillment or waiver of the
conditions set forth in Article 7 shall be provided by the parties hereto to
each other at a closing (the "Closing") to be held at the offices of Watson,
Blanche, Wilson & Posner, 505 North Boulevard, Baton Rouge, Louisiana at 10:00
a.m. local time, on the third business day following approval of this Agreement
by the State National shareholders (or on such other date, time and place as
State National and Liberty may mutually agree); provided, however, that such
date shall be extended to the extent required to obtain any necessary
governmental consents or approvals or the termination of any "waiting period"
under the HSR Act and the rules thereunder, and provided further that the
parties shall use their reasonable efforts to complete the Closing in time for
the Merger to become effective by March 31, 1994.
8.2 Documents to be Delivered at the Closing by State National. At
the Closing, State National shall deliver, or cause to be delivered, to Liberty
the following:
(a) A copy of this Agreement on which the Secretary or
Assistant Secretary of State National shall have certified that the
shareholders of State National have approved this Agreement and the
President or a Vice President of State National shall have re-signed
and acknowledged before a notary this Agreement as so certified, all
in compliance with Section 12:112D of the LBCL and Section 35:511 of
the Louisiana Revised Statutes.
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(b) The certificates referred to in Section 7.2(c).
(c) The written resignations of the directors and
officers of State National and its Subsidiaries contemplated by
Section 7.2(d).
(d) The evidence referred to in Section 7.2(e).
(e) The opinion referred to in Section 7.2(f).
(f) The agreements and other evidence referred to in
Section 7.2(i), (k) and (l) (to the extent not previously delivered to
Liberty).
(g) Each outstanding certificate formerly representing
shares of State National Common Stock, properly endorsed or otherwise
in proper form for transfer.
(h) A copy of the resolution set forth on Schedule 4.32
as adopted by the Board of Directors of State National, a copy of the
resolutions of the Board of Directors of State National authorizing
the execution, delivery and performance of this Agreement by State
National, a copy of the resolutions of the shareholders of State
National approving this Agreement, and a certificate of the Secretary
or Assistant Secretary of State National, dated as of the Effective
Time, that all such resolutions were duly adopted and are in full
force and effect.
(i) The consents or other authorizations, waivers, orders
and approvals required to be obtained by State National pursuant to
Section 6.4.
(j) The evidence referred to in Section 6.18.
(k) The evidence referred to in Section 6.19.
(l) Such additional certificates, opinions and other
documents as Liberty may reasonably request as to any of the
conditions set forth in Section 7.2.
8.3 Documents to be Delivered at the Closing by Liberty. At the
Closing, Liberty shall deliver to State National, the following:
(a) The Articles of Merger and the Certificate of Merger,
both executed by Liberty.
(b) The Preferred Stock 1994-A Series Amendment as filed
with the South Carolina Secretary of State.
(c) Copies of the resolutions of the Board of Directors
of Liberty authorizing the execution, delivery and performance of this
Agreement by Liberty and establishing (and finalizing all terms of)
the Liberty Preferred Stock l994-A Series, and a certificate of the
Secretary or Assistant Secretary of Liberty, dated as of the Effective
Time, that all such resolutions were duly adopted and are in full
force and effect.
(d) The certificate referred to in Section 7.3(c).
(e) The opinion referred to in Section 7.3(d).
(f) Such additional certificates, opinions and other
documents as State National may reasonably request as to any of the
conditions set forth in Section 7.3.
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8.4 Delivery of Stock Certificates. As soon as practicable
following the Closing, Liberty shall deliver the stock certificates evidencing
the shares of Liberty Common Stock and Liberty Preferred Stock to be delivered
pursuant to Article 2 to the State National shareholders.
ARTICLE 9
TERMINATION AND ABANDONMENT
9.1 Termination and Abandonment. This Agreement and the Merger may
be terminated and abandoned at any time prior to the filing of the Articles of
Merger with the Secretary of State of South Carolina or the Certificate of
Merger with the Secretary of State of Louisiana (the "Merger Filings"),
notwithstanding any prior approval by the shareholders of State National:
(a) By Mutual Action. By mutual action of the Boards of
Directors of State National and Liberty.
(b) By Liberty. By Liberty if any condition set forth in
Section 7.2 shall not have been complied with or performed in any
material respect and such noncompliance or nonperformance shall not
have been cured or eliminated (or by its nature cannot be cured or
eliminated) by State National on or before June 30, 1994; provided,
however, that such deadline shall be extended for up to 45 days to the
extent required to obtain any required regulatory approvals or
otherwise comply with any applicable regulatory requirements.
(c) By State National. By State National if any condition
set forth in Section 7.3 shall not have been complied with or
performed in any material respect and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its
nature cannot be cured or eliminated) by Liberty on or before June 30,
1994; provided, however, that such deadline shall be extended for up
to 45 days to the extent required to obtain any required regulatory
approvals or other vise comply with any applicable regulatory
requirements.
(d) By Liberty or State National. By Liberty or State
National if any action, suit or proceeding shall have been instituted
by any person, or, to the knowledge of Liberty or State National,
shall have been threatened by any public authority, which seeks to
prohibit, restrict or delay consummation of the Merger or any of the
conditions to consummation of the Merger or to limit the right of
Liberty to control the business of State National and its Subsidiaries
after the Effective Time, or to subject Liberty, State National, or
their respective directors or officers to liability on the ground that
it or they have breached any law or regulation or other vise acted
improperly in relation to the transactions contemplated by this
Agreement, other than an action, suit or proceeding instituted by a
person other than a public authority which, in the opinion of counsel
to Liberty and counsel to State National, does not have a substantial
likelihood of success.
(e) Deadline Date. In the event that the Merger is not
consummated pursuant to this Agreement on or before September 30,
1994, this Agreement may be terminated and abandoned by Liberty or
State National unless the Boards of Directors of Liberty and State
National shall have agreed upon an extension of time in which to
consummate the Merger; provided, however, that such deadline shall be
extended for up to 45 days to the extent required to obtain any
required regulatory approvals or otherwise comply with any applicable
regulatory requirements.
9.2 Procedure for Termination. The termination of this Agreement
by Liberty or by State National, shall be effective only upon the giving of
such notice of such termination, stating the grounds for such termination and
signed by each terminating party, to the other party.
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9.3 Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Merger (a) by mutual action of the Boards
of Directors of Liberty and State National pursuant to Section 9.1(a); or (b)
by either State National or Liberty pursuant to Sections 9.1(b), (c) or (d), no
party shall have any liability hereunder (except pursuant to Sections 6.5 and
6.6, which shall survive any such termination) unless such failure to
consummate or fulfill a condition is within the reasonable control of either
State National or Liberty, in which case such party having reasonable control
shall continue to be liable hereunder.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND
WARRANTS; INDEMNITIES
10.1 Survival. The representations, warranties, covenants and
agreements made by the Restricted Individuals, the Indemnifying Shareholders
and by Liberty in this Agreement and in the schedules to this Agreement shall
survive the Merger and shall not be affected by any investigation or finding
made by the parties hereto prior to the date hereof or the Effective Time. The
representations, warranties, covenants and agreements made by State National
shall not be affected by any investigation or finding made by the parties
hereto prior to the date hereof or the Effective Time, but shall not survive
the Merger; such non-survival with respect to State National shall not in any
way limit the liability of the Indemnifying Shareholders pursuant to this
Agreement.
10.2 Indemnification. Subject to the provisions of Sections 10.3
and 10.4 hereof:
(a) By the Indemnifying Shareholders and State National.
Each of the Indemnifying Shareholders after the Effective Time,
jointly and severally, and State National if the Closing does not
occur, hereby agree to indemnify, defend and hold Liberty (and, in the
case of matters relating to the Proxy/Disclosure Statement, Liberty's
officers, directors and other controlling persons) harmless from and
in respect of any liability, loss, cost, damage, expense, failure to
collect or payment, including, without limitation, related reasonable
attorneys' and accountants' fees and expenses (each such liability,
loss, cost, damage, expense, payment or other item listed below being
referred to herein as a "Liberty Loss") incurred or suffered as a
result of any misrepresentation or breach of warranty, or failure to
comply with any covenant or agreement, given or made by State National
or the Indemnifying Shareholders in this Agreement.
(b) By Liberty. Liberty hereby agrees to indemnify,
defend and hold State National and the Indemnifying Shareholders
before the Effective Time, and the Indemnifying Shareholders after the
Effective Time, harmless from and in respect of any liability, loss,
cost, damage, expense, failure to collect or payment, including,
without limitation, related reasonable attorneys' and accountants'
fees and expenses (each such liability, loss, cost, damage, expense,
payment or other item listed below being referred to herein as a
"Shareholder Loss"), incurred or suffered as a result of any
misrepresentation or breach of warranty, or failure to comply with any
covenant or agreement, given or made by Liberty in this Agreement
Notwithstanding the foregoing, Liberty shall not indemnify or hold
State National or the Indemnifying Shareholders harmless from and in
respect of any Shareholder Loss incurred or suffered as a result of
the Merger not constituting a "reorganization" within the meaning of
Section 368 of the Code.
10.3 Indemnification Procedure: Certain Limitations.
(a) Certain Definitions. For purposes of this Article 10:
(i) In the case of a Liberty Loss, the
"Indemnified Party" shall be Liberty (and, in the case of
matters relating to the Proxy/Disclosure Statement, Liberty's
officers, directors
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and other controlling persons), and the "Indemnifying Party"
shall be State National and the Indemnifying Shareholders
prior to the Effective Time and thereafter shall be the
Indemnifying Shareholders in the aggregate;
(ii) In the case of a Shareholder Loss, the
"Indemnified Party" shall be State National and the
Indemnifying Shareholders prior to the Effective Time and
thereafter shall be the Indemnifying Shareholders, and the
"Indemnifying Party" shall be Liberty; and
(iii) A "Loss" shall mean a Liberty Loss or a
Shareholder Loss, as the context requires.
(b) Notice of Claim. The Indemnified Party shall give the
Indemnifying Party a written notice (the "Notice of Claim") within 90
days of the discovery of any matter in respect of which the right to
indemnification contained in Section 10.2 may be claimed; provided
that the failure to give such notice within such 90-day period shall
not result in the waiver or loss of any right to bring such claim
hereunder after such 90-day period except to the extent the
Indemnifying Party has been materially and adversely affected thereby.
(c) Notice of Possible Claim. In the event a claim is
pending or threatened or there exists a reasonable basis for such
claim and the Indemnified Party has notice of such basis, the
Indemnified Party may give written notice (the "Notice of Possible
Claim") of such claim to the Indemnifying Party, regardless of whether
a Loss has arisen from such claim; provided, however, that any Notice
of Possible Claim shall expire two years after given (the "Expiration
Date"), with the effect of such expiration being that if there has not
been any action or proceeding instituted or overtly threatened based
on the subject matter of such notice on or before such Expiration
Date, the respective Indemnifying Party or parties shall cease as of
the day immediately after such Expiration Date to have any
indemnification obligation with respect to such subject matter except
to the extent a subsequent Notice of Claim or Notice of Possible Claim
is properly given within the time specified in Section 10.3(d).
(d) Time Limitations. The indemnification obligations
contained in Section 10.2 are subject to the limitation that a Notice
of Claim or a Notice of Possible Claim for a Loss must be given
hereunder on or prior to the third anniversary of the Effective Time,
except for matters involving Taxes, which shall not be subject to any
time limitation.
(e) Tax Benefit. All determinations of Losses shall be
made with a view towards making the Indemnified Party whole on an
after-tax, rather than a pre-tax, basis.
(f) Control of Litigation.
(i) Subject to the provisions of subsection (ii)
below, the Indemnified Party shall have the responsibility of
contesting, defending, litigating or settling any claim made
against the Indemnified Party (a "Third Party Claim") in
respect of which the right to indemnification is claimed. The
Indemnifying Party shall have the right to be represented by
counsel at its or his own expense in any such contest,
defense, litigation or settlement, but the Indemnified Party
shall not be liable for any expense or legal fees incurred by
an Indemnifying Party in any such participation. The
Indemnified Party shall have the exclusive right, in its or
his discretion exercised in good faith and upon the advice of
counsel, to settle any such Third Party Claim, either before
or after the initiation of litigation, at such time and upon
such terms as it or he would deem fair and reasonable if the
loss resulting therefrom were to be paid by it or him,
provided that at least 20 days prior to any such settlement
written notice of its or his intention to settle such Third
Party Claim be given to the Indemnifying Party.
(ii) Notwithstanding the provisions of the
foregoing subsection (i), if an Indemnifying Party shall admit
in writing to the Indemnified Party, within 45 days after the
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Indemnifying Party received the Notice of Claim or 15 days
after such Indemnifying Party received the notice last
mentioned under subsection (i) above, that any Third Party
Claim is payable in full by such Indemnifying Party (in an
amount equal to the amount, if any, due on the Third Party
Claim as finally determined by litigation or settlement of the
Third Party Claim), and if the Indemnified Party has paid all
or any portion of such Third Party Claim, and the Indemnifying
Party reimburses the Indemnified Party for the amount so paid,
then such Indemnifying Party shall have the right and
responsibility of contesting, defending, litigating or
settling any matter in respect of which the right to
indemnification is claimed, and all expenses (including, but
not by way of limitation, legal fees) incurred by such
Indemnifying Party in connection therewith shall be paid by it
or him. The Indemnified Party shall have the right to be
represented by counsel at its or his own expense in any such
contest, defense, litigation or settlement. The Indemnifying
Party shall have the exclusive right, in its or his discretion
exercised in good faith and upon the advice of counsel, to
settle any such matter, either before or after the initiation
of litigation, at such time and upon such terms as it or he
deems fair and reasonable, provided that at least 20 days
prior to any such settlement written notice of its or his
intention to settle shall be given to the Indemnified Party,
and provided further, that in the event the Indemnified Party
is Liberty, no such settlement may be effected, unless the
settlement proposal only requires the payment of monetary
damages, without Liberty's prior written consent.
10.4 Satisfaction of Obligations. The Indemnifying Party shall pay
to the Indemnified Party the amount of any Loss within 30 days after the
"Determination Date" of such Loss. For purposes of this Section, the
"Determination Date" shall mean, with respect to any Loss, the date on which
the amount of such Loss is determined by agreement of the Indemnified Party and
the Indemnifying Party, by payment of a Third Party Claim, or by a decision
rendered by a court of competent jurisdiction determining the liability of the
Indemnifying Party for, and the amount of, the Loss.
ARTICLE 11
MISCELLANEOUS
11.1 Specific Performance, Etc. The parties hereto acknowledge that
the rights of the other party or parties to consummate the transactions
contemplated hereby and the rights of Liberty to enforce Section 6.11 with
respect to the Restricted Individuals are special, unique, and of extraordinary
character, and that, in the event that State National or a Restricted
Individual on the one hand or Liberty on the other hand violates or threatens
to violate or fails and refuses to perform any covenant made by it herein, then
Liberty or State National, respectively, will be without adequate remedy at
law. Therefore, State National, each Restricted Individual (who is a signatory)
and Liberty agrees, that, in the event that it violates, breaches, threatens to
violate or breach, or fails and refuses to perform any covenant made by it
herein, then the other applicable party hereto, so long as it is not in breach
hereof, may, in addition to any remedies at law, institute and prosecute an
action in a court of competent jurisdiction to enforce specific performance of
such covenant or seek any other equitable relief against the defaulting party.
11.2 Waiver. The failure of any party hereto at any time or times
to require performance of any provisions hereof shall in no manner affect the
right to enforce the same. No waiver by any party of any condition, or the
breach of any term, provision, warranty, representation, agreement or covenant
contained in this Agreement or the other agreements contemplated hereby,
whether by conduct or otherwise, in any one or more instances shall be deemed
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition or of the breach of any other term,
provision, warranty, representation, agreement or covenant herein or therein
contained.
11.3 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if either (a) delivered
personally or by courier, (b) transmitted by telecopy mechanism,
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provided that any notice so given is also sent for delivery as provided in
clause (a) or mailed as provided in clause (c), or (c) sent by registered or
certified mail, postage prepaid, addressed to the Indemnifying Shareholders at
the addresses listed on the signature pages to this Agreement and to Liberty
and State National as follows (or to such other address or person as any party
shall have designated by notice to the other party):
If to Liberty Mr. Ralph L Ogden
or to The Liberty Corporation
State National 2000 Wade Hampton Blvd.
after the Greenville, South Carolina 29615
Effective Time: Telecopier: (803) 292-4443
with a copy to: Mrs. Martha G. Williams
The Liberty Corporation
2000 Wade Hampton Blvd.
Greenville, South Carolina 29615
Telecopier: (803) 292-4443
If to State National Mr. Jack H. Cutrer
before the Effective State National Capital Corporation
Time: 224 Florida Street
Baton Rouge, Louisiana 70821
Telecopier: (504) 387-2504
with a copy to: Robert L Roland
Watson, Blanche, Wilson & Posner
505 North Boulevard
Baton Rouge, Louisiana 70821-2995
Telecopier: (504) 387-5972
11.4 Brokers. Except as disclosed on Schedule 12.4, no broker's or
finder's fee or commission is due or payable from or by any of the parties
hereto, nor has any such fee or commission been earned by any other third party
on behalf of any of the foregoing in connection with the negotiation and
execution of this Agreement or in any other manner affecting or involving the
businesses of State National and its Subsidiaries or in connection with the
negotiation or execution of this Agreement, or the consummation of any
transaction contemplated hereby. State National and the Indemnifying
Shareholders agree to indemnify and save Liberty harmless from and against any
and all claims or demands for broker's or finder's fees or commissions by or
from any person or persons whatsoever, based on any arrangement made by State
National. Liberty agrees to indemnify and save State National harmless from and
against any and all claims or demands for broker's or finder's fees or
commissions from any person or persons whatsoever based on any arrangement made
by Liberty.
11.5 Counterparts: Facsimile Delivery. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Any party may deliver an executed copy of this Agreement and an
executed copy of any documents contemplated hereby by facsimile transmission to
another party except when the law expressly requires physical delivery with
respect to stock certificates or other special types of documents, and such
delivery shall have the same force and effect as any other delivery of a
manually signed copy of this Agreement or such other document.
11.6 Headings. The headings herein are for convenience of
reference only, do not constitute a part of this Agreement, and shall not be
deemed to limit or affect any of the provisions hereof.
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48
11.7 Variation and Amendment. This Agreement may be varied or
amended at any time by the Boards of Directors of Liberty and State National,
by written instrument executed by the parties hereto prior to filing the
Articles of Merger with the Secretary of State of South Carolina and the
Certificate of Merger with the Secretary of State of Louisiana; provided,
however, that no amendment made subsequent to the adoption of this Agreement by
the shareholders of State National shall (a) alter or change the amount or kind
of shares, securities, cash, property and/or rights to be received in exchange
for any of the shares of State National Common Stock (it being understood that
this shall not restrict adjustments contemplated by and made pursuant to
Section 2.2 or 2.7), (b) alter or change any term of the articles of
incorporation of the Surviving Corporation to be effected by the Merger, or (c)
alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of State National
Common Stock.
11.8 Schedules. Any matter described or included in any schedule
delivered herewith in response to any disclosure obligation hereunder shall be
deemed disclosed for all other purposes of this Agreement. The cross-references
contained in the schedules delivered herewith to particular provisions of this
Agreement are included therein for convenience only and shall not be deemed a
part of the schedules delivered herewith or to affect the construction thereof.
11.9 Severability. If any tenn or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible. In furtherance of the foregoing, the parties intend that the
covenants set forth in Section 6.11 be deemed to be separate covenants, and
that if in any judicial proceeding a court shall refuse to enforce all of the
separate covenants included therein because, taken together, they cover too
extensive a geographic area or because any one includes too large an area or
because they cover too long a period of time or are other vise too broad in
scope, the parties intend that such covenants shall be reduced in scope to the
extent required by law or, if necessary, eliminated from the provisions hereof,
and that all remaining covenants of such Section not so affected shall remain
fully effective and enforceable.
11.10 Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties, with respect to the subject matter hereof; (b) is
not intended to confer upon any other person any rights or remedies hereunder;
(c) shall not be assigned, by operation of law or other vise; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Louisiana
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49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, and their seals affixed, on the date first above written.
LIBERTY:
-------
[CORPORATE SEAL] THE LIBERTY CORPORATION
By: /s/ Martha G. Williams
---------------------------------
Name: Martha G. Williams
Title: Vice President
Attest:
/s/ Susan E. Cyr
---------------------------------
Name: Susan E. Cyr
Title: Assistant Secretary
STATE NATIONAL:
--------------
[CORPORATE SEAL] STATE NATIONAL CAPITAL CORPORATION
By: /s/ Jack H. Cutrer
---------------------------------
Name: Jack H. Cutrer
Title: President & CEO
Attest:
/s/ Charles W. Wilson, III
---------------------------------
Name: Charles W. Wilson, III
Title: Secretary
THE RESTRICTED INDIVIDUALS:
--------------------------
/s/ Jack H. Cutrer /s/ Joseph B. Grezaffi (L.S.)
--------------------------------- --------------------------------
Jack H. Cutrer Joseph B. Grezaffi
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THE INDEMNIFYING SHAREHOLDERS:
-----------------------------
/s/Jack H. Cutrer (L.S.) /s/ Kenneth F. Domma (L.S.)
----------------------------------- ---------------------------------
Jack H. Cutrer Kenneth F. Domma
929 Rodney Drive 6161 Overton
Baton Rouge, LA 70808 Baton Rouge, LA 70808
/s/ Amy Blanche Slowey (L.S.) /s/ Linda W Landry (L.S.)
----------------------------------- ---------------------------------
Amy Blanche Slowey Linda W. Landry, individually
2078 Ramsey Drive and as usufructuary
Baton Rouge, LA 70808 2278 Eliza Beaumont Lane
Baton Rouge, LA 70808
/s/ Diana Slowey White (L.S.) /s/ Polly P. Blanche (L.S.)
----------------------------------- ---------------------------------
Diana Slowey White Polly P. Blanche
1312 Beckenham Drive 3022 McConnell Drive
Baton Rouge, LA 70808 Baton Rouge, LA 70809
Fred A. Blanche, III Trust Lauren Blanche Andrews Trust
By: /s/ Jack H. Cutrer By: /s/ Jack H. Cutrer
-------------------------------------- ------------------------------------
Jack H. Cutrer, Trustee Jack H. Cutrer, Trustee
224 Florida Street, Box 3557 224 Florida Street, Box 3557
Baton Rouge, LA 70821 Baton Rouge, LA 70821
Robert V. Blanche Trust Rebecca Lynn Watson Trust
By: /s/ Jack H. Cutrer By: /s/ Harvey H. Posner
-------------------------------------- ------------------------------------
Jack H. Cutrer, Trustee Harvey H. Posner, Co-Trustee
224 Florida Street, Box 3557
Baton Rouge, LA 70821
By: /s/ Robert L. Roland
------------------------------------
Robert L. Roland, Co-Trustee
P.O. Box 2995
Baton Rouge, LA 70821
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Judith Elaine Watson Trust Janie Ann Watson Trust
By: /s/ Harvey H. Posner By: /s/ Harvey H. Posner
----------------------------------- ---------------------------------
Harvey H. Posner, Co-Trustee Harvey H. Posner, Co-Trustee
By: /s/ Robert L. Roland By: /s/ Robert L. Roland
----------------------------------- ---------------------------------
Robert L. Roland, Co-Trustee Robert L. Roland, Co-Trustee
P. O. Box 2995 P. O. Box 2995
Baton Rouge, LA 70821 Baton Rouge, LA 70821
Amy Blanche Slowey Hall Trust Warren O. Watson Testamentary Trust
By: /s/ Diana Slowey White By: City National Bank of Baton
----------------------------------- Rouge, Co-Trustee
Diana Slowey White, Co-Trustee
By /s/ Peggy King Scott
---------------------------------
Name: Peggy King Scott
By: /s/ Fred A. Blanche Title: Vice President & Trust Officer
-----------------------------------
Fred A. Blanche, III, Co-Trustee
1312 Beckenham Drive
Baton Rouge, LA 70808 By: /s/ Harvey H. Posner
---------------------------------
Harvey H. Posner, Co-Trustee
The Mighty Mite Corporation
By: /s/ Robert L. Roland
---------------------------------
Robert L. Roland, Co-Trustee
By: /s/ Charles W. Wilson, III P. O. Box 1231
----------------------------------- Baton Rouge, LA 70821
Name: Charles W. Wilson, III
Title: President
2615 Bickham Road
Jackson, Louisiana 70748
82
EX-3.1
3
AMENDMENT TO ARTICLES OF INCORPORATION
1
EXHIBIT 3.1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 3-10-106 of the 1976 South Carolina Code, as
amended, the undersigned corporation adopts the following Articles of Amendment
to its Articles of Incorporation:
1. The name of the corporation is THE LIBERTY CORPORATION
2. On February 23, 1995, the corporation adopted the following
Amendment(s) of its Articles of Incorporation:
(Type or attach the complete text of each Amendment)
SEE EXHIBIT A ATTACHED HERETO
3. The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert
"not applicable" or "NA").
NOT APPLICABLE
4. Complete either a or b, whichever is applicable.
a. [ ] Amendment(s) adopted by shareholder action. At the date of
adoption of the amendment, the number of outstanding shares of
each voting group entitled to vote separately on the Amendment,
and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the meeting For Against
------ ----------- -------------- --------------- --------------------
DATE FEB. 24, 1995
---------------------------
CERTIFIED TO BE A TRUE AND CORRECT COPY
AS TAKEN FROM AND COMPARED WITH THE
(S.C.-253-1/1/89) ORIGINAL ON FILE IN THIS OFFICE.
Jim Miles
---------------------------------------
Jim Miles
SECRETARY OF STATE OF SOUTH CAROLINA
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*NOTE: Pursuant to Section 33-10-106(6) (i), the corporation can
alternatively state the total number of undisputed shares cast
for the amendment by each voting group together with a
statement that the number of shares cast for the amendment by
each voting group was sufficient for approval by that voting
group.
b. [X] 131 The Amendment(s) was duly adopted by the
incorporators or board of directors without
shareholder approval pursuant to Sec. 33-6-102(d),
33-10-102 and 33-10-105 of the 1976 South Carolina
Code as amended, and shareholder action was not
required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendment shall be the date of acceptance for filing by
the Secretary of State (See Sec. 33-1-230(b)):
---------------------
DATE February 24, 1995 THE LIBERTY CORPORATION
----------------- -------------------------------------
(Name of Corporation)
By: Martha G. Williams
-------------------------------------
(Signature)
Martha G. Williams, Vice President,
General Counsel and Secretary
-------------------------------------
(Type or Print Name and Office)
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FILING INSTRUCTIONS
1. Two copies of this form, the original and either a duplicate original
or a conformed copy, must be filed.
2. In the space in this form is insufficient, please attach additional
sheets containing a reference to the appropriate paragraph in this
form.
3. Filing fees and taxes payable to the Secretary of State at time of
filing application.
Filing Fee $ 10.00
Filing Tax 100.00
Total $110.00
Form Approved by South Carolina
Secretary of State 1/89
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4
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF
THE LIBERTY CORPORATION
ESTABLISHING
SERIES 1995-A VOTING 5%
CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Restated Articles of Incorporation of The Liberty Corporation (the
"Corporation"), as previously amended, are hereby further amended to establish
a special series of preferred stock and to set forth the preferences,
limitations and relative rights of such series of preferred stock, all in
accordance with resolutions adopted by the Board of Directors on November 8,
1994 and December 20, 1994 and resolutions adopted by a Special Committee of
the Board of Directors on February 23, 1995 (acting under specific
authorization of the Board of Directors), all pursuant to the authority granted
by Article 4 of the Restated Articles of Incorporation of the Corporation,
which preferences, limitations and relative rights are as follows:
1. Designation and Number of Preferred Shares. The series of
preferred stock, no par value, established by the Board of Directors as
described herein shall consist of 600,000 shares and shall be designated
"Series 1995-A Voting 5% Cumulative Convertible Preferred Stock" (hereinafter,
the "1995-A Preferred Stock").
2. Dividends. Dividends on the 1995-A Preferred Stock shall be-at
the rate of 5% per annum (based on an assigned value of $35.00), shall accrue
daily (whether or not declared) on the basis of a 360-day year of twelve 30-day
months, shall be paid on or before the last day of each calendar quarter, but
only as and when declared by the Board of Directors in accordance with
applicable law (and subject to the Corporation's right to defer payment of
dividends with respect to affected shares of 1995-A Preferred Stock until the
owners complete applicable procedures for the issuance to them of stock
certificates pursuant to the merger of Love Broadcasting Company into the
Corporation's subsidiary, Cosmos Broadcasting Corporation (the "Love
Broadcasting Merger")), and shall commence to accrue and shall be cumulative
(but unpaid, accumulated dividends shall not accrue dividends or bear
interest), as follows:
(a) if issued as of the effective date of the Love
Broadcasting Merger, then from and including the effective date of the
Love Broadcasting Merger;
(b) if issued as of a date after the effective date of
the Love Broadcasting Merger but during the period commencing
immediately after the record date for a dividend on the 1995-A
Preferred Shares and ending at the close of the calendar quarter for
such dividend, then from the end of the calendar quarter for which
such last dividend payment was made; and
86
5
(c) otherwise from the beginning of the calendar quarter
in which such shares are issued.
3. Rank. No dividends or any other distributions on the common
shares of the Corporation (the "Common Stock") or any other stock of the
Corporation ranking junior to the 1995-A Preferred Stock shall be paid or
declared and set apart for payment unless all accumulated and unpaid dividends
(whether or not declared) on the 1995-A Preferred Stock have been paid or
declared and set apart for payment. The 1995-A Preferred Stock shall be on a
parity with all other series of preferred stock of the Corporation as to
payment of dividends or other distributions (including upon liquidation),
whether such series are now existing or are created in the future, unless a
series of preferred stock of the Corporation expressly provides that it is
either senior or junior to the 1995-A Preferred Stock.
4. Voting Rights. The holders of shares of 1995-A Preferred Stock
shall be entitled to one vote per share on any matters submitted to a vote of
the shareholders of the Corporation and on any other matters required by
applicable law to be submitted to a vote of the holders of the 1995-A Preferred
Stock.
5. Redemption--At Election of the Corporation.
(a) Generally. Subject to applicable law, the Corporation
has the right to elect to redeem any or all of the 1995-A Preferred Stock from
time to time at any time after March 28, 2000 in exchange for either cash or
Common Stock in an amount determined in accordance with Section 8 hereof and
otherwise on the terms set forth in this Section 5. If less than all of the
issued and outstanding shares of 1995-A Preferred Stock are to be redeemed,
then the shares of 1995-A Preferred Stock to be redeemed shall be selected
either pro rata, by lot, or in such other equitable-manner as determined by the
Board of Directors.
(b) Notice of Redemption. The Corporation shall give
written notice of its election to redeem 1995-A Preferred Stock pursuant to
this Section 5 to each registered holder of the shares of 1995-A Preferred
Stock to be redeemed. Such notice shall set forth the total number of shares of
1995-A Preferred Stock being redeemed from such holder and in the aggregate and
the date of the redemption selected by the Corporation. The Corporation's
redemption notice shall be mailed to each such registered holder's address
specified in the share records of the Corporation by first class mail, postage
prepaid, not less than 30 days nor more than 60 days prior to the redemption
date selected by the Corporation.
(c) The Redemption. The 1995-A Preferred Stock as to
which the Corporation's redemption notice has been given shall be redeemed on
the date specified in such notice. On the redemption date: (i) the Corporation
shall deliver (or make available for delivery upon compliance with clause (ii)
of this Section 5(c)) the Redemption Consideration (defined in Section 8
hereof) to the registered holders of shares of 1995-A Preferred Stock being
redeemed, which Redemption Consideration shall include any
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6
accumulated and unpaid dividends (whether or not declared) to and including the
redemption date; and (ii) such holders shall deliver (or shall have delivered
prior to such redemption date) to the Corporation in exchange for such
Redemption Consideration the share certificates representing the 1995-A
Preferred Stock being redeemed, duly endorsed by the registered holders in
blank or with executed stock powers duly executed by the registered holders in
blank, in each case with signatures guaranteed by a financial institution or
brokerage firm having membership in good standing in a recognized guarantee
program. In case less than all the shares of 1995-A Preferred Stock represented
by any such certificates are redeemed, new share certificates representing the
unredeemed shares of 1995-A Preferred Stock shall be issued to such holders
without cost to such holders.
6. Failure to Surrender Certificates. Effect of Redemption. When
the Corporation has duly and properly given notice for redemption of 1995-A
Preferred Stock in accordance with Section 5(b) and applicable law and any
registered holder of the 1995-A Preferred Stock fails to present the
certificate(s) representing the 1995-A Preferred Stock to be redeemed or
otherwise take action required by the Corporation's redemption notice in
accordance with the Restated Articles of Incorporation and applicable law then,
as of the redemption date: (i) the 1995-A Preferred Stock held by such
registered holder shall be deemed to have been redeemed and to be no longer
outstanding; (ii) each such holder's right to receive dividends on such 1995-A
Preferred Stock shall cease to accrue; and (iii) all other rights with respect
to such 1995-A Preferred Stock shall cease and terminate, except the right of
each such holder to receive the Redemption Consideration distributable to such
holder upon such redemption, without interest.
7. Redemption Consideration. The consideration delivered by the
Corporation in exchange for the shares of 1995-A Preferred Stock redeemed (the
"Redemption Consideration") shall be paid, at the Corporation's option, in
cash, shares of Common Stock, or a combination of cash and Common Stock, as
follows:
(a) for shares redeemed in cash, an amount equal to
$35.00 per share of 1995-A Preferred Stock redeemed, plus any accumulated and
unpaid dividends (whether or not declared) to and including the redemption
date, such consideration to be paid by check; and
(b) for shares redeemed in Common Stock, the Corporation
shall deliver share certificates representing: (i) the number of shares of
Common Stock having a "market value" equal to the sum of $35.00 plus the amount
of any accumulated and unpaid dividends per share (whether or not declared) on
the 1995-A Preferred Stock times the number of shares of 1995-A Preferred Stock
being redeemed, or (ii) the number of shares of Common Stock into which the
1995-A Preferred Stock could have been converted on the last business day
before the redemption date (as if such conversion were permissible under
Section 10), but only if such number of shares is higher than the number of
shares computed pursuant to clause (i). As used herein, "market value" shall be
based on the average of the daily closing prices of the shares of Common Stock
as reported by the New York Stock Exchange for the ten consecutive business
days ending on the third day before the redemption date.
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7
8. Negotiated Repurchase. In addition to or in lieu of exercising
any redemption rights provided herein, the Corporation and any holder of the
1995-A Preferred Stock may negotiate and agree upon terms pursuant to which the
Corporation will repurchase any or all of the shares of 1995-A Preferred Stock
held by such shareholder. Any such negotiated purchase may be consummated
without restriction or requirement as to time, amount paid by the Corporation,
pro rata repurchase by the Corporation, or any other restriction or requirement
contained herein.
9. No Sinking Fund. No sinking fund exists for the redemption of
1995-A Preferred Stock.
10. Conversion Rights of 1995-A Preferred Stock into Common Stock.
(a) Right to Convert. At the option of the holder thereof
and upon compliance with the provisions of this Section 10 as to surrender
thereof, each share of the 1995-A Preferred Stock shall be convertible at any
time into fully paid and nonassessable Common Stock at the rate of one share of
Common Stock of the Corporation for each such share of 1995-A Preferred Stock;
provided, however, that if the Corporation has given notice for redemption of
such holder's shares of 1995-A Preferred Stock, the right of conversion as to
such shares shall terminate at the close of business on the seventh day prior
to the redemption date; and provided, further, that if default shall be made by
the Corporation in the payment of the Redemption Consideration for such shares,
then conversion rights in respect thereof, if any, shall again be in full force
and effect.
(b) Procedure. Before any holder of shares of the 1995-A
Preferred Stock shall be entitled to convert the same into Common Stock, such
holder shall surrender the certificate or certificates for such 1995-A
Preferred Stock, duly assigned to the Corporation at its principal executive
office, or at such other office or agency designated by the Corporation for
such purpose, accompanied by written notice to the Corporation of the election
to convert such shares into Common Stock, stating therein the name or names in
which the certificate or certificates of Common Stock are to be issued. In case
such notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of any and all transfer taxes payable
upon the issue of Common Stock in such name or names and such other
documentation reasonably requested by the Corporation.
(1) As soon as practicable after such surrender
of certificate or certificates, the Corporation shall issue and deliver to such
holder, or to his nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled. Such conversion
shall be deemed to have been made as of the next business day following the
Corporation's receipt of such certificate or certificates for shares of 1995-A
Preferred Stock to be converted, accompanied by any required taxes or other
documentation, and on and after such date the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
-4-
89
8
(2) No payment or adjustment shall be made on
account of any dividends accumulated and unpaid on any shares of 1995-A
Preferred Stock surrendered for conversion or on account of any dividends on
the Common Stock issuable on such conversion.
(c) Conversion Adjustments.
(1) If the Corporation shall (i) pay a dividend
payable in Common Stock, (ii) subdivide outstanding Common Stock into a larger
number of shares of Common Stock by reclassification or otherwise, or (iii)
combine its outstanding Common Stock into a smaller number of shares of Common
Stock by reclassification or otherwise, then in each such case, the holder of
each share of 1995-A Preferred Stock shall thereafter be entitled to receive
upon the conversion of such share, the number of shares of Common Stock which
such holder would have owned or have been entitled to receive after the
happening of any of the events described above had such 1995-A Preferred Stock
been converted immediately prior to the happening of such event.
(2) In the case of any capital reorganization of
the Corporation or of any reclassification of the Common Stock, or in the case
of the consolidation of the Corporation with or the merger of the Corporation
with or into any other entity or of the sale, lease or other transfer of all or
substantially all of the assets of the Corporation to any other person, the
1995-A Preferred Stock shall after such capital reorganization,
reclassification, consolidation, merger, sale, lease or other transfer be
convertible into the number of shares of stock or other securities or property
which a holder of the Common Stock issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease or other
transfer) upon conversion of the 1995-A Preferred Stock would have been
entitled upon such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and interest thereafter
of the holders of the 1995-A Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion of the
1995-A Preferred Stock. The subdivision or combination of Common Stock issuable
upon conversion of 1995-A Preferred Stock at any time outstanding into a
greater or lesser number of shares of Common Stock (whether with or without par
value) shall not be deemed to be a reclassification of the Common Stock of the
Corporation for the purposes of this Section 10(c)(2).
(3) No fractional shares of Common Stock shall be
issued on any conversion, but in lieu thereof the Corporation shall, at its
option: (i) pay therefor cash in an amount equal to the current market value of
such fractional interest, or (ii) make such arrangements as the Board of
Directors shall approve to enable the holder of a fractional interest to sell
such interest or buy an additional fractional interest sufficient to make one
whole share of Common Stock.
-5-
90
9
(d) Reservation of Common Stock. The Corporation shall
reserve at all times while any 1995-A Preferred Stock remains outstanding, free
from preemptive rights, out of its treasury shares or its authorized but
unissued Common Stock, or both, solely for the purposes of effecting the
conversion of the 1995-A Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding 1995-A Preferred Stock.
(e) Valid Issuance. All shares of Common Stock which may
be issued upon conversion of the 1995-A Preferred Stock will, upon issuance by
the Corporation, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance of them,
and the Corporation shall take no action which causes a contrary result.
11. Liquidation Rights. Upon the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation,
the registered holders of the 1995-A Preferred Stock then outstanding shall be
entitled to receive out of the net assets of the Corporation, before any
payment or distribution shall be made on the Common Stock, cash or other
property having a fair market value or some combination thereof in an amount
equal to $35.00 per share, plus an amount equal to all accumulated and unpaid
dividends (whether or not earned or declared) to and including the date of
final distribution to the registered holders of the 1995-A Preferred Stock, and
no more, before any distribution shall be made to the registered holders of
Common Stock. If the assets of the Corporation available for distribution to
the registered holders of 1995-A Preferred Stock shall be insufficient to pay
the full amount to which all such holders are entitled pursuant to the
foregoing, then each such holder shall be entitled to share pro rata in the
amounts so available. Neither the merger or consolidation of the Corporation,
nor the sale, lease or conveyance of all or a part of its assets, shall be
deemed to be a liquidation, dissolution or winding up of the affairs of the
Corporation.
-6-
91
EX-11
4
EARNINGS PER SHARE COMPUTATION
1
Exhibit 11
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED EARNINGS PER SHARE COMPUTATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In $000's, except per share data)
1994 1993 1992
-----------------------------------------
PRIMARY SHARES
Weighted average common shares outstanding 19,721 19,327 16,165
Weighted average common stock options outstanding 87 169 143
------------------------------------
Total primary shares 19,808 19,496 16,308
====================================
FULLY DILUTED SHARES
Weighted average common shares outstanding 19,721 19,327 16,165
Weighted average common stock options outstanding 89 174 156
Assumed conversion of redeemable preferred stock 1,010 --- ---
------------------------------------
Total fully diluted shares 20,820 19,501 16,321
====================================
NET INCOME
Earnings $ 26,178 $ 39,147 $ 40,885
====================================
PREFERRED STOCK DIVIDENDS
Dividends $ 2,117 $ --- $ ---
====================================
Primary earnings per share (Net income minus preferred dividends
divided by total primary shares) $ 1.22 $ 2.01 $ 2.51
====================================
Fully diluted earnings per share (Net income divided by total fully
diluted shares) $ 1.26 $ 2.01 $ 2.51
====================================
92
2
STOCK DATA
The Liberty Corporation's Common Stock is listed on the New York Stock
Exchange. Its symbol is LC. As of December 31, 1994 1,486 shareholders of
record in 43 states, the District of Columbia, Canada, Australia and New
Zealand held the 19,841,470 Common Stock shares outstanding. Quarterly high and
low stock prices and dividends per share as reported by the Wall Street Journal
were:
Quarterly
Market Price Per Share Dividend Per
High Low Share
-------------------------------------------
1994
----------------------------
Fourth Quarter 27 1/4 24 1/4 .155
Third Quarter 28 3/4 25 3/4 .155
Second Quarter 29 7/8 23 7/8 .155
First Quarter 28 24 1/8 .155
1993
----------------------------
Fourth Quarter 31 24 .140
Third Quarter 34 5/8 30 .140
Second Quarter 33 5/8 29 .140
First Quarter 31 7/8 28 3/8 .140
1992
----------------------------
Fourth Quarter 28 1/2 25 5/8 .140
Third Quarter 32 1/4 26 1/2 .125
Second Quarter 30 3/4 22 1/2 .125
First Quarter 25 3/8 20 7/8 .125
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they are
dependent on future earnings, capital requirements and financial condition.
Also, the payment of dividends is subject to the restrictions described in
Notes 5 and 8 of the Consolidated Financial Statements.
CO-REGISTRAR AND CO-TRANSFER AGENTS
--------------------------------------------------------------------------------
Wachovia Bank of North Carolina, N.A. The Bank of New York
P. O. Box 3001 101 Barclay Street
Winston-Salem, NC 27102 New York, NY 10286
For a Copy of the 10-K or other information, contact:
The Liberty Corporation Shareholder Relations
Box 789
Greenville, SC 29602
Telephone (803) 268-8436
Stock Exchange Listing:
New York Stock Exchange
Symbol: LC
Annual Meeting
The Liberty Corporation will hold its annual meeting on Tuesday, May 2, 1995,
at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South
Carolina. All Shareholders are invited to attend.
93
3
SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries
December 31, 1994
(In 000's, except per share data) 1994 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------------------------------
Revenues
Insurance $ 439,451 $ 384,132 $ 305,934 $ 271,806 $ 246,661 $ 232,706
Broadcasting 98,266 87,984 89,989 88,174 89,709 124,652
Parent & Minor Subsidiaries 19,600 16,089 20,301 19,254 12,936 8,717
Adjustments & Eliminations (16,071) (15,260) (13,468) (14,752) (13,707) (8,022)
---------------------------------------------------------------------------------------------------------------------------
Total Revenues * $ 541,246 $ 472,945 $ 402,756 $ 364,482 $ 335,599 $ 358,053
---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes &
Cumulative Effect of Accounting Changes
Insurance $ 31,590 $ 71,518 $ 53,962 $ 43,255 $ 42,442 $ 30,103
Broadcasting 21,701 16,180 16,859 16,417 22,158 34,939
Parent & Minor Subsidiaries (14,423) (12,846) (13,690) (20,439) (25,911) (25,709)
Adjustments & Eliminations --- 2,472 4,768 4,217 --- 1,236
---------------------------------------------------------------------------------------------------------------------------
Consolidated Income Before Income
Taxes & Cumulative Effect of Accounting
Changes $ 38,868 $ 77,324 $ 61,899 $ 43,450 $ 38,689 $ 40,569
---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
Insurance $ 21,803 $ 33,459 $ 35,369 $ 30,077 $ 28,094 $ 28,545
Broadcasting 12,919 12,217 10,262 9,967 13,600 20,939
Parent & Minor Subsidiaries (8,544) (8,141) (8,153) (12,514) (16,136) (16,877)
Adjustments & Eliminations --- 1,612 3,407 3,036 --- 926
---------------------------------------------------------------------------------------------------------------------------
Net Income $ 26,178 $ 39,147 $ 40,885 $ 30,566 $ 25,558 $ 33,533
---------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 1.22 $ 2.01 $2.51 $ 1.93 $ 1.55 $ 1.97
---------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Investment
Gains (Losses) ($58,286) $ 1,276 ($78) $ 7,316 ($4,613) ($3,609)
---------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.62 $ 0.56 $ 0.515 $ 0.47 $ 0.46 $ 0.40
---------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
Insurance $ 5,125 $ 3,286 $ 3,424 $ 3,381 $ 3,371 $ 6,556
Broadcasting 6,276 6,566 6,848 10,654 11,044 13,323
Parent & Minor Subsidiaries 4,618 3,670 4,628 4,631 4,814 4,615
---------------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 16,019 $ 13,522 $ 14,900 $ 18,666 $ 19,229 $ 24,494
---------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
Insurance $ 2,270 $ 5,814 $ 3,618 $ 2,264 $ 3,534 $ 4,268
Broadcasting 3,900 2,168 2,513 2,961 6,476 4,268
Parent & Minor Subsidiaries 3,446 7,483 698 1,088 895 4,251
---------------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 9,616 $ 15,465 $ 6,829 $ 6,313 $ 10,905 $ 12,787
---------------------------------------------------------------------------------------------------------------------------
Assets
Insurance $2,494,944 $2,057,126 $1,937,908 $1,528,901 $1,357,406 $1,325,909
Broadcasting 98,705 101,982 110,849 119,714 141,467 145,879
Parent & Minor Subsidiaries 666,319 581,406 565,135 504,199 484,401 489,462
Adjustments & Eliminations (592,024) (553,481) (539,014) (438,610) (438,899) (428,962)
---------------------------------------------------------------------------------------------------------------------------
Total Assets $2,667,944 $2,187,033 $2,074,878 $1,714,204 $1,544,375 $1,532,288
---------------------------------------------------------------------------------------------------------------------------
Notes, Mortgages and Other Debts $ 231,647 $ 149,489 $ 176,632 $ 226,925 $ 246,531 $ 228,297
---------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock $ 45,816 --- --- --- --- ---
---------------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity $ 395,589 $ 433,845 $ 389,188 $ 277,108 $ 243,465 $ 264,116
---------------------------------------------------------------------------------------------------------------------------
* See Note 13 to the Consolidated Financial Statements related to 1994
acquisitions.
94
EX-13
5
PORTIONS OF THE LIBERTY CORP. ANNUAL REPORT
1
EXHIBIT 13
Management's Discussion and Analysis The Liberty Corporation and
Subsidiaries
December 31, 1994
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1994 was $38.9 million, a decrease of $38.4 million from the $77.3
million reported for 1993. The $38.4 million decrease includes non-recurring
charges of $31.2 million related to 1) the write-off of deferred costs
associated with the development of a software system for administration of
Liberty's insurance business and 2) a decision to cease marketing products
through the general agency distribution system. In addition there was a $26.8
million unfavorable fluctuation in realized investment gains and losses.
(In 000's) 1994 1993 1992
---------------------------------------------------------------------------------------------------
Income before income taxes and the cumulative effect of $38,868 $ 77,324 $61,899
accounting changes
Income taxes 12,690 26,237 21,014
---------------------------------------------------------------------------------------------------
Income before the cumulative effect of accounting changes 26,178 51,087 40,885
Cumulative effect of accounting changes --- (11,940) ---
---------------------------------------------------------------------------------------------------
Net income $26,178 $ 39,147 $40,885
---------------------------------------------------------------------------------------------------
Adjusting for the non-recurring charges and excluding realized investment gains
and losses, income before income taxes and cumulative effect of accounting
changes was $82.2 million in 1994 compared with $62.6 million (excluding
realized investment gains) reported in 1993. The increase was primarily the
result of contributions from insurance acquisitions closed in 1994 ($10.3
million) and improvement in broadcasting results ($5.5 million).
The write-off of the deferred systems charges is in connection with an
agreement with a joint development partner to develop a state-of-the-art
software system to handle the administration of Liberty's insurance operations.
After a comprehensive internal review of the project, Liberty engaged an
independent consultant to provide an estimate of the value of the software.
The value was less than the cost previously deferred by Liberty, resulting in a
pre-tax charge to earnings of $20.9 million. The non-cash charge will have no
impact on Liberty's cash flow, and there are no further expenses to be incurred
by Liberty related to the project. Even though Liberty will not be able to
realize all of the competitive advantages the system would have brought, its
current systems for its home service, mortgage protection and pre-need
businesses are proven and reliable.
Liberty has decided to cease sales of its products through its general agency
distribution system due to the absence of critical volume. The decision to
close the general agency distribution system resulted in an pre-tax charge to
earnings of $10.3 million, primarily to reduce deferred acquisition costs no
longer considered recoverable. Premiums and policy charges from the general
agency division represented approximately 2% of Liberty's total premiums and
policy charges in 1994.
The realized investment losses incurred in 1994 were the result of a decision
by Liberty to take advantage of available market conditions and its tax
position to sell securities with yields lower than those currently available.
The cumulative effect of accounting changes reported in 1993 represented a
one-time, non-cash charge of $11.9 million relating to the implementation of
Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1993 was $77.3 million, an increase of $15.4 million over 1992's
$61.9 million. Excluding realized investment gains, the increase was $6.4
million and was generated from having a full year's results from 1992 insurance
acquisitions. Income taxes for 1993 included a $3.6 million charge to reflect
the 1% increase in the corporate tax rate during the third quarter of 1993. Of
the increase, $0.4 million related to the 1993 first and second quarter
operations and $3.2 million of the increased tax expense was due to applying
the 1% increase to existing deferred tax liabilities.
95
2
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
Consolidated 1994 revenues of $541.2 million were up $68.3 million (14%) over
last year's $472.9 million. This revenue growth consisted primarily of a $55.3
increase in revenues from the Insurance Group and a $10.3 million increase in
broadcasting revenues. The increase in the Insurance Group's revenue was a
combination of the 1994 insurance acquisitions contributing revenues of $84.3
million offset by a decline of $29.0 million from existing insurance
operations. The decline from existing insurance operations was due to a $26.2
million decline in realized investment gains coupled with the 1993 sale of
Liberty's medicare supplement business that generated $12.5 million in revenues
in 1993.
Consolidated 1993 revenues of $472.9 million were up $70.1 million (17%) over
1992 revenues of $402.8 million. This revenue growth consisted of a $78.2
million increase in revenues from the Insurance Group, which was offset by a
decrease in broadcasting and other revenues. The increase in the Insurance
Group's revenues was principally a function of including the 1992 acquisitions
for a full year, which accounted for $57.8 million of the increase, an increase
of $5.0 million from Liberty Insurance Services and a $14.7 million increase in
realized investment gains. The 1993 realized investment gains resulted from
higher prepayments on fixed maturity securities brought about by lower market
interest rates.
BUSINESS SEGMENTS
Liberty reports the results of its business operations in two segments:
Insurance and Broadcasting. The insurance segment consists of the Liberty
Insurance Group, which specializes in providing home service, pre-need and
mortgage protection insurance. The broadcasting segment consists of Cosmos
Broadcasting, which owns and operates seven network-affiliated television
stations. Activities of Corporate and other includes financing and real estate
operations. In order to make meaningful comparisons, the segment data excludes
the effect of realized investment gains and losses, non-recurring special
charges, and accounting changes. A reconciliation of the segment operations to
net income is as follows:
(in 000's) 1994 1993 1992
------------------------------------------------------------------------------
Segment Operating Earnings:
Insurance $ 46,396 41,107 $35,660
Broadcasting 12,919 9,716 10,262
Corporate and other (6,446) (5,456) (8,812)
------------------------------------------------------------------------------
Total operating earnings 52,869 45,367 37,110
Net realized investment gains (losses) (6,440) 9,281 3,775
Non-recurring special charges (20,251) (3,561)
Cumulative effect of accounting changes (11,940)
------------------------------------------------------------------------------
Net income $ 26,178 $39,147 $40,885
------------------------------------------------------------------------------
Earnings per Common Share:
Operating earnings $ 2.56 $ 2.33 $ 2.28
Net realized investment gains (losses) (0.32) 0.47 0.23
Non-recurring special charges (1.02) (0.18)
Cumulative effect of accounting changes (0.61)
------------------------------------------------------------------------------
Earnings per common share $ 1.22 $ 2.01 $ 2.51
------------------------------------------------------------------------------
96
3
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
INSURANCE RESULTS OF OPERATIONS
Operating earnings for the Insurance Group increased 13% in 1994 following a
15% increase in 1993. Substantially all of the increase in both years was due
to acquisitions (see Insurance Acquisitions section below). Operating earnings
of Liberty Life were essentially flat during the period 1992 to 1994 as lower
investment yields and higher mortality (in 1994) and higher lapses (in 1993)
offset the benefit of lower general insurance expenses.
(in 000's) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
Revenues (exclusive of realized investment gains
and losses) $451,299 369,812 306,617
Policy benefits 226,425 159,452 126,182
Commissions 49,178 44,491 40,870
General insurance expenses 62,639 63,670 52,984
Amortization of deferred acquisition costs and cost of business
acquired 41,454 39,402 29,294
Other 1,429 2,211 2,773
--------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 70,174 60,586 54,514
Income taxes 23,778 19,479 18,854
--------------------------------------------------------------------------------------------------------------
Income from operations $ 46,396 $ 41,107 $ 35,660
--------------------------------------------------------------------------------------------------------------
Revenues from the Insurance Group in 1994 were $451.3 million, an increase of
22% over last year's $369.8 million. Premiums and policy charges were $315.8
million, an increase of $ 64.9 million (26%) over last year. The increase in
premiums from 1993 was due substantially to the acquisitions closed in 1994.
Investment income increased 22% to $129.9 million in 1994. The acquisitions
fueled this increase as well. Without the acquisitions, investment income would
have been level with the prior year. Overall portfolio yields continued to
decline in 1994, reflecting the fact that new cash flows and repayments of
existing investments had to be invested at lower rates.
Insurance Group revenues increased $63.2 million (21%) in 1993 from 1992.
Premiums and policy charges increased 20% to $250.9 million and investment
income increased 19% to $106.9 million in 1993. The increases in 1993 over
1992 were also primarily the result of acquisitions.
Policy benefits as a percent of premium increased to 72% in 1994 compared to
64% in 1993 and 60% in 1992. The increase is principally attributable to the
product characteristics of the pre-need companies. The pre-need companies sell
primarily limited-pay or single-premium products that have a higher benefit
ratio than products historically sold by Liberty. However, Liberty Life also
experienced adverse mortality, particularly in the first half of 1994. While
the mortality experience moderated in the second half of the year it remained
in excess of prior year levels for the year. Management does not believe that
the increased mortality experienced in 1994 is indicative of a trend, but
rather reflects the inherent variability of claims that can occur from year to
year.
Commissions increased 11% in 1994 compared to a 26% increase in premiums. As
the pre-need products increase as a percent of total premium, the lower
commission paid on the limited-pay and single-premium products lowers the
commission-to-premium ratio. In addition, Liberty Life successfully reduced
the commissions paid as a percent of premium on its home service line of
business. In 1993 a similar decline in the commission-to-premium ratio
occurred, again primarily as a result of the lower commission rates on the
pre-need products.
General expenses in the Insurance Group for 1994 were down $1.0 million
compared to 1993. In 1993, general expenses in the Insurance Group increased
20% from 1992. The 1994 decrease was after adding general expenses of $9.4
million from the 1994 acquisitions and was the result of continued emphasis on
expense control by the Insurance Group. The increase in 1993 over 1992 was
primarily the result of acquisitions closed in the last half of 1992 and
expenses associated with the first full year of Liberty Insurance Services'
operations.
97
4
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
Amortization of deferred acquisition costs and cost of business acquired
increased 5% over last year. Excluding the expense from the acquisitions,
amortization expense declined $3.4 million from 1993. In 1993 amortization
expense, excluding the impact of acquisitions, was up $6.5 million (22%) over
1992. The amortization expense in 1993 reflected high lapses in both home
service and mortgage protection lines. Management believes that the high lapse
experience in 1993 in the home service line was related to Liberty's
consolidation of branch offices and, for mortgage protection, the high level of
home mortgage refinancing in 1993 due to the low interest rates. As expected,
the persistency in both lines improved substantially in 1994, resulting in
reduced amortization expense.
INSURANCE ACQUISITIONS
Since the beginning of 1992 Liberty has acquired several pre-need and home
service companies. The purchase of Pierce National Life in July 1992 provided
Liberty with a substantial presence in the pre-need market and the opportunity
to expand its presence on an international level. Pierce National markets its
products through funeral directors and independent agents in the U.S. and
Canada. In April 1993, Liberty further expanded its presence in the pre-need
market with the acquisition of the assets of Estate Assurance Company, a
pre-need insurance subsidiary of Stewart Enterprises, Inc. Additional
expansion of Liberty's pre-need operations occurred in February, 1994 with the
acquisitions of North American National Corporation, headquartered in Columbus,
Ohio, and American Funeral Assurance Company, headquartered in Amory,
Mississippi. North American is a holding company whose principal subsidiaries,
Pan-Western Life Insurance Company, Howard Life Insurance Company, and
Brookings International Life Insurance Company, are providers of pre-need life
insurance. The acquisition adds strategic Midwest markets to Liberty's pre-need
territory. American Funeral is one of the largest providers of pre-need life
insurance and has extensive affiliations within the funeral industry. On
January 1, 1995, Howard Life Insurance Company was merged into Pierce National
Life Insurance Company. Liberty will continue the process of consolidating the
pre-need operations in 1995 to allow for operating efficiencies and expense
savings. Liberty currently is designing a new pre-need product portfolio to
be implemented in 1995. It is expected that the common product portfolio will
allow for marketing advantages as well as increase the profitability of the
products.
In addition to the pre-need acquisitions, Liberty increased its home service
lines through acquisitions. In October 1992, Liberty expanded its home service
business with the acquisition of Magnolia Life Insurance Company headquartered
in Lake Charles, Louisiana. On April 1, 1994, Liberty acquired State National
Capital Corporation, headquartered in Baton Rouge, Louisiana. State National
Capital Corporation's primary operating companies were State National Life
Insurance Company, State National Fire Insurance Company, and State National
Mortgage Corporation. Both Magnolia Life and State National Life were
integrated into Liberty Life during 1994.
BROADCASTING RESULTS OF OPERATIONS
(In 000's) 1994 1993 1992
------------------------------------------------------------------------------
Gross broadcasting revenues $98,266 $87,984 $89,989
Broadcasting expenses 69,523 64,705 66,415
------------------------------------------------------------------------------
Income from operations before interest and taxes 28,743 23,279 23,574
Interest expense 7,042 7,099 6,715
------------------------------------------------------------------------------
Income from operations before income taxes 21,701 16,180 16,859
Income taxes 8,782 6,464 6,597
------------------------------------------------------------------------------
Income from operations $12,919 $ 9,716 $10,262
------------------------------------------------------------------------------
Gross broadcasting revenues for 1994 were $98.3 million, an increase of $10.3
million (12%) over last year's $88.0 million. Strong national revenues and the
highest political revenues ever drove the revenue increase in 1994. For the
year, political revenues were up $5.0 million and national revenues were up
$2.5 million. Gross broadcasting revenues for 1993 were $88.0 million, a
decrease of 2% over 1992. The decrease was primarily a function of a decline
in political revenues from 1992. As the revenue trend for the three years
ended in 1994 indicates, years ended in even numbers (e.g. 1992 and 1994) tend
to have higher revenues than years ended in odd numbers (e.g. 1993). This
occurs primarily due to the concentration of political advertising in
even-number years. Looking forward to 1995, this trend is expected to be
mitigated to some degree by new network compensation contracts. As a result of
the networks' competing for affiliations with local stations, the three major
networks re-negotiated network compensation contracts. Cosmos, due to the
strength of its stations in the local market, benefited from the new contracts
and expects significantly higher network compensation in 1995.
98
5
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
Income from operations in 1994 was up $3.2 million (33%) over 1993, with 1993
being down $0.5 million from 1992, largely due to revenue trends.
The Company closed the acquisition of WLOX-TV on February 28, 1995. The
purchase price of $41,000,000 was funded with a combination of 600,000 shares
of 1995-A Series redeemable preferred stock with a stated value of $35 per
share; cash of approximately $6,200,000; and a note payable for $13,800,000.
The acquisition is not expected to have a significant impact on earnings for
1995.
BALANCE SHEET
INVESTMENTS
As of December 31, 1994, approximately 68% of Liberty's $1.7 billion
consolidated invested assets were in fixed maturity securities with an overall
average credit rating of AA. Approximately 5% of the bond portfolio was rated
below investment grade and Liberty has approximately $17 million (1.4%) of its
bond portfolio in Mexican issues. The Mexican issues are U.S. dollar
denominated, are diversified by industry and have relatively short maturities.
Liberty adopted Statement of Financial Accounting Standard "SFAS" No. 115
"Accounting for Certain Investments in Debt and Equity Securities" effective
January 1, 1994. SFAS No. 115 requires that all debt and equity securities be
classified into one of three categories -- held to maturity, available for
sale, or trading. The Company has no securities classified as trading. Prior
to the adoption of SFAS No. 115 all fixed maturity securities were carried at
amortized cost and, in accordance with SFAS No. 115, prior year financial
statements have not been restated. As of January 1, 1994, shareholders' equity
was increased $11,357,000 (net of deferred income taxes and adjustment to
deferred acquisition costs) to reflect the unrealized gain on securities
previously carried at cost. Primarily as a result of the rising interest rate
environment during 1994, the Company reported a net unrealized loss of
$53,109,000 as of December 31, 1994, on fixed maturity securities available for
sale and equity securities.
As of December 31, 1994, approximately 76% of fixed maturity securites (based
on amortized cost) have been classified as available for sale because they did
not meet stringent requirements of SFAS 115 to be classified as held to
maturity. Even though a large percentage of the portfolio has been classified
as available for sale, Liberty follows a value-oriented, as opposed to a
trading-oriented, investment philosophy concerning its securities portfolios.
Purchases generally are made with the intention of holding securities to
maturity. Accordingly, turnover in the portfolios has historically been very
low. Portfolio turnover in 1994 was higher than normal as 1) investment
portfolios from the companies acquired in 1994 were restructured to meet
Liberty guidelines as to quality, yield and duration and 2) Liberty took
advantage of its tax position at the end of 1994 to sell securities with yields
lower than those currently available. Gains trading, which Liberty believes is
short-sighted, is not consistent with our investment philosophy of longer term
value-oriented investing.
Approximately 54% of Liberty's $1.2 billion fixed maturity portfolio at
December 31, 1994 was comprised of mortgage-backed securities. This compares
to approximately 57% at year-end 1993. Certain mortgage-backed securities are
subject to significant prepayment risk or extension risk due to changes in
interest rates. In periods of declining interest, rates mortgages may be
repaid more rapidly than scheduled as borrowers refinance higher rate mortgages
to take advantage of the lower current rates. As a result, holders of
mortgage-backed securities may receive large prepayments on their investments
which cannot be reinvested at interest rates comparable to the rates on the
prepaid mortgages. In a rising interest rate environment refinancings are
significantly curtailed and the payments to the holders of the securities
decline, limiting the ability of the holder to reinvest at the higher interest
rates. Mortgage-backed pass-through securities and sequential collateralized
mortgage obligations ("CMO's"), which comprised 17% of the book value of
Liberty's mortgage-backed securities at December 31, 1994, and 22% at year-end
1993, are sensitive to prepayment or extension risk. The remaining 83% of
Liberty's mortgage-backed investment portfolio at December 31, 1994 consisted
of planned amortization class ("PAC") instruments. This compares to 78% at
December 31, 1993. These investments are designed to amortize in a more
predictable manner by shifting the primary prepayment and extension risk of the
underlying collateral to investors in other tranches of the CMO. PAC's are
tranches of CMO's specifically designed to protect against prepayment or
extension risk. In periods of declining interest rates, prepayments are first
applied to the non-PAC tranches of the CMO, creating improved call protection
for the PAC tranches. Only after all non-PAC tranches have been paid off are
prepayments applied to the PAC tranche. In periods of increasing interest
rates, prepayments are first applied to the PAC tranche, thus reducing
extension risk for PACs. As a result, PACs have a more stable cash flow than
most other mortgage securities because they have better call protection and
less extension risk.
99
6
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
Mortgage loans of $203.4 million comprised 12% of the consolidated investment
portfolio at December 31, 1994. This compares to mortgage loans of $165.8
million, or 12%, of the consolidated investment portfolio at December 31, 1993.
Substantially all of these mortgage loans are commercial mortgages with a
loan-to-value ratio not exceeding 75% when made. Approximately 48% of these
loans at December 31, 1994, are concentrated in North and South Carolina; and
78% are in the states of North Carolina, South Carolina, Virginia, Florida,
Georgia and Tennessee. Mortgage loan delinquencies, defined as payments 60 or
more days past due, have historically been low and were 2.82% at the end of
1994 compared to the latest industry rate of 3.38%.
As of December 31, 1994 and 1993, investment real estate comprised 8% and 6%,
respectively, of the consolidated investment portfolio. The increase in
investment real estate in 1994 was due to the purchase of approximately $43
million of real estate assets from SCANA Development Corporation. Of Liberty's
investment real estate, 97% is located in South Carolina, Florida, Georgia, and
North Carolina. Investment real estate consists of the following:
(In 000's) 1994 1993
----------------------------------------------------------------------------
Residential land development projects $ 54,230 $33,959
Business parks 29,635 20,675
Business rental properties 23,909 21,399
Shopping centers 19,895 4,204
Other 7,876 4,293
----------------------------------------------------------------------------
Total investment real estate $135,545 $84,530
----------------------------------------------------------------------------
Liberty has experienced impairments on investment assets of $2.7 million, $6.2
million, and $8.2 million for the years ended December 31, 1994, 1993, and
1992, respectively. The high level of impairments in 1992 was the result of
the real estate market recession and a weak economy. In 1994 and 1993, there
were no material impairments taken on real estate investments. Over half of
the impairments in 1993 were related to other long-term investments, consisting
of oil and gas investments and a long-term note. Impairments in 1994 were
substantially below the 1993 and 1992 levels. Prior to 1994, the level of
impairments over the last several years had been above average. While the level
of impairments is not predictable, management does not expect impairments to
have a significant impact on Liberty's results of operations or liquidity.
Statement of Financial Accounting Standard No. 114, "Accounting by Creditors
for Impairments of a Loan" was issued by the Financial Accounting Standards
Board in May 1993. This statement will require the Company to recognize
impairments by establishing valuation allowances that will result in
corresponding charges to income. Impaired loans subject to SFAS No. 114 will
be required to be valued by discounting future cash flows or at the fair value
of collateral if the loan is collateral dependent. The income recognition
method in SFAS No. 114 was amended by SFAS No. 118 "Accounting by Creditors for
Impairments of a Loan - Income Recognition and Disclosure." Both SFAS No. 114
and SFAS No. 118 are effective for fiscal years beginning after December 15,
1994. The Company plans to adopt this statement effective for the first
quarter of 1995. The adoption is not expected to have a material impact on the
net income or financial position of the Company.
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In February 1995, Liberty received commitments to refinance its $325,000,000
revolving credit facility into a new $375,000,000, multi-tranche credit
facility. The new facility consists of a $225,000,000 three-year revolving
credit facility; a $100,000,000 seven year term loan facility; and a
$50,000,000 facility substantially identical to the revolving facility, which
is convertible into terms substantially identical to the term facility within
two years of the closing date of this loan. This facility will be used to
refinance existing indebtedness under the previous $325,000,000 facility, as
well as to provide funds to meet working capital requirements and finance
acquisitions. The credit facility contains various restrictive covenants
typical of a credit facility agreement of this size and nature. These
restrictions primarily pertain to levels of indebtedness, limitations on
payment of dividends, limitations on the quality and types of investments, and
capital expenditures. Additionally, Liberty must also comply with several
financial covenant restrictions under the revolving credit agreement including
defined ratios of consolidated debt to cash flow, consolidated debt to
consolidated total capital, and fixed charges coverage.
100
7
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
Liberty has entered into various interest rate caps and corridors in an attempt
to minimize the impact of a potential significant rise in short-term interest
rates on Liberty's outstanding variable-rate debt. See Note 5 to the
Consolidated Financial Statements for additional discussion of these contracts.
In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative
Preferred Stock having a total redemption value of $23,387,000 or $35.00 per
share, in connection with the acquisition of State National Capital Corporation
and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a
total redemption value of $22,449,000, or $37.50 per share, in connection with
the acquisition of American Funeral Assurance Company. The shares have
preference in liquidation and each share is entitled to one vote on any matters
submitted to a vote of the shareholders of the Company. Both the Company and
the holders of the preferred stock have the right to redeem any or all of the
shares from time to time beginning five years and one month after the date of
issue in exchange for cash or shares of the Company's common stock. There is
no sinking fund for the redemption of either series of preferred stock.
During December 1992 and January 1993, Liberty completed its public stock
offering of 2,725,100 shares of its common stock at a per share price of
$28.25, which generated $73 million in net proceeds that were used to pay down
outstanding bank debt. Of the total shares issued, 2,400,000 were issued
during December 1992. The remaining 325,100 shares were issued in January 1993
as a result of the underwriters exercising the over-allotment provision of the
stock offering.
In 1992, Liberty acquired Pierce National Life Insurance Company and, in 1994,
Liberty acquired American Funeral Asssurance Company, North American National
Corporation, State National Capital Corporation and a portion of the real
estate assets of SCANA Development Corporation. These acquisitions were funded
with a combination of cash, redeemable preferred stock and common stock. See
Note 13 to the Consolidated Financial Statements for additional information on
these acquisitions.
Effective December 31, 1993, the NAIC adopted Risk-Based Capital ("RBC")
requirements for life/health insurance companies to evaluate the adequacy of
statutory capital and surplus in relation to investment and insurance risks
such as asset quality, mortality and morbidity, asset and liability matching,
and other business factors. The RBC formula will be used by states as an early
warning tool to identify companies that potentially are inadequately
capitalized for the purpose of initiating regulatory action. In addition, the
formula defines new minimum capital standards that will supplement the current
system of low fixed minimum capital and surplus requirements on a
state-by-state basis. The RBC ratios for Liberty's insurance subsidiaries
exceed the minimum capital requirements at December 31, 1994.
CASH FLOWS
The parent company's short-term cash needs consist primarily of: (1) working
capital requirements, (2) interest on corporate debt, (3) dividends to
shareholders and (4) funds for real estate investments. The parent company's
primary long-term cash need is the repayment of corporate debt. The parent
company depends primarily on dividends, debt service payments and consolidated
tax return benefits paid to it by its subsidiaries to meet its short-term and
long-term cash needs. Historically, Liberty's primary businesses - insurance
and broadcasting - have provided sufficient liquidity to fund their operations
and the operations of the parent company. Liberty receives funds from its
insurance subsidiaries primarily in the form of dividends. Dividends from each
insurance subsidiary are restricted under applicable state law. Annual
dividends in excess of maximum amounts prescribed by state statutes
("extraordinary dividends") may not be paid without the approval of the
insurance commissioner of each state in which an insurance subsidiary is
domiciled. Recently the National Association of Insurance Commissioners
("NAIC") proposed, and certain states adopted, legislation that lowers the
threshold amount for determining what constitutes an extraordinary dividend.
Such legislative changes could make it more difficult for insurance
subsidiaries to pay dividends to their parent. See Note 8 to the Consolidated
Financial Statements.
Liberty has also agreed with certain state regulators not to take dividends
from a subsidiary, Pierce National Life Insurance Company, until certain
surplus levels are achieved and, if necessary, will contribute additional
amounts to meet required capital levels for regulatory purposes.
Management believes liquidity risk of the Insurance Group is minimized by
investment strategies that stress high quality assets and an integrated
asset/liability matching process. Investments are primarily in intermediate to
long-term maturities in order to match the long-term nature of insurance
liabilities. Liberty has a block of universal life products that are
interest-sensitive. Liberty actively manages the rates credited on these
policies to maintain an acceptable spread between the earned and credited rate.
In addition, Liberty has an integrated asset/liability matching process to
minimize the liquidity risk that is associated with interest-sensitive
101
8
Management's Discussion and Analysis - Continued The Liberty Corporation and
Subsidiaries
December 31, 1994
products. Accordingly, most long-term investments are held to maturity and
interim market fluctuations present no significant liquidity problems. Liberty
uses derivative financial instruments to minimize its exposure on its variable
rate debt; however, derivatives are not used in managing exposure on
interest-sensitive products.
On a consolidated basis, Liberty's net cash flow from operating activities was
$87.1 million for 1994 compared with $34.7 million last year. The increase in
net cash flow from operating activities over last year is due to a higher
portion of Liberty's expenses being non-cash charges for increase in policy
benefits, amortization of deferred acquisition costs and cost of business
acquired. Liberty's net cash used in investing activities was $176.3 million
for 1994 compared to $49.0 million last year. The increase in net cash used in
investing activities was concentrated in purchase of real estate investment
properties (increase of $54.5 million) and purchases of insurance companies
($53.4 million increase). Cash flow provided from financing activities was
$111.2 million for 1994 compared to cash provided of $11.6 million for 1993. An
increase in debt of $82.2 million accounted for the majority of the cash flow
increase. As a result of its activities, Liberty had net cash generated of
$21.9 million compared with a net decrease in cash of $2.7 million in 1993.
Liberty believes that its current level of cash and future cash flows from
operations is sufficient to meet the needs of its business and to satisfy its
debt service. If suitable opportunities arise for additional acquisitions,
Liberty plans to draw on its revolving credit facility or use Common Stock or
Preferred Stock as payment of all or part of the consideration for such
acquisitions; or Liberty may seek additional funds in the equity or debt
markets. Under the restructured credit facility, there exists no restriction
on acquisition funding; however, consolidated debt is limited to a maximum of
$385 million.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Under present law, most assessments can be
recovered through a credit against future premium taxes. Liberty has reviewed
its exposure to potential assessments, and the effect on its financial position
and results of operations is not expected to be material.
Other Company commitments are shown in Note 7 to the Consolidated Financial
Statements. Further discussion of investments and valuation is contained in
Notes 1, 2 and 14 to the Consolidated Financial Statements.
102
9
CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
At December 31 1994 1993
--------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
Fixed maturity securities
Available for sale, at market, cost of $947,522 in 1994 $ 883,029 ----
Held to maturity, at cost, market of $311,129 in 1994, $975,309 in
1993 299,118 $ 908,854
Equity securities, primarily at market, cost of $78,116 in 1994,
$62,947 in 1993 78,208 70,533
Mortgage loans 203,381 165,784
Investment real estate, at cost less accumulated depreciation $12,882
in 1994, $10,503 in 1993 135,545 84,530
Policy loans 96,160 86,942
Other long-term investments 31,624 26,047
Short-term investments 7,264 16,006
--------------------------------------------------------------------------------------------------------------------
Total Investments 1,734,329 1,358,696
--------------------------------------------------------------------------------------------------------------------
Cash 51,400 29,487
Accrued investment income 18,708 13,541
Receivables net of bad debt reserves, $1,493 in 1994, $1,027 in 1993 37,879 46,648
Receivable from reinsurers 258,969 245,210
Deferred acquisition costs 260,479 231,873
Cost of business acquired 98,056 56,762
Buildings and equipment, at cost, less accumulated depreciation 66,360 63,499
$100,362 in 1994, $94,553 in 1993
Intangibles related to television operations, at cost, net of amortization 46,934 48,418
$16,278 in 1994, $14,794 in 1993
Goodwill related to insurance acquisitions, at cost, net of amortization 40,308 27,683
$6,490 in 1994, $5,039 in 1993
Other assets 54,522 65,216
--------------------------------------------------------------------------------------------------------------------
Total Assets $2,667,944 $2,187,033
--------------------------------------------------------------------------------------------------------------------
103
10
At December 31 1994 1993
----------------------------------------------------------------------------------------------------------------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,732,334 $1,345,504
Claims and benefits payable 24,812 17,860
Policyholder funds 27,157 25,812
----------------------------------------------------------------------------------------------------------------
1,784,303 1,389,176
Notes, mortgages and other debt 131,647 149,489
Long-term debt 100,000 ---
Accrued income taxes 4,418 12,054
Deferred income taxes 112,707 110,004
Accounts payable and accrued expenses 66,608 61,932
Other liabilities 26,856 30,533
----------------------------------------------------------------------------------------------------------------
Total Liabilities 2,226,539 1,753,188
----------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock:
1994-A Series, $35.00 redemption value, 668,207 shares issued and 23,387 ---
outstanding
1994-B Series, $37.50 redemption value, 598,101 shares issued and
outstanding 22,429 ---
----------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock 45,816 ---
----------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 19,841,470 shares in 1994, 19,497,515
shares in 1993 152,956 143,939
Preferred Stock
Authorized - 10,000,000 shares
Issued and outstanding - 1,266,308 shares in 1994 (redeemable
preferred stock) and -0- in 1993
Unearned stock compensation (5,319) (4,475)
Unrealized appreciation (depreciation) on fixed maturity securities
available for sale and equity securities (53,109) 5,177
Cumulative foreign currency translation adjustment (1,491) (1,529)
Retained earnings 302,552 290,733
----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 395,589 433,845
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $2,667,944 $2,187,033
----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
104
11
CONSOLIDATED STATEMENTS OF INCOME
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In $000's, except per share data)
For the Years Ended December 31 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
REVENUES
Insurance premiums and policy charges $315,789 $250,922 $209,133
Broadcasting revenues 98,266 87,984 89,989
Net investment income 133,679 110,966 94,624
Service contract revenues 5,585 8,383 3,393
Realized investment gains (losses) (12,073) 14,686 5,617
Other income --- 4 --
-------------------------------------------------------------------------------------------------------------
Total revenues 541,246 472,945 402,756
-------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits 226,425 159,452 126,182
Commissions 49,178 44,491 40,870
General insurance expenses 84,930 66,213 51,759
Amortization of deferred acquisition costs and cost of
business acquired 45,035 39,402 29,581
Broadcasting expenses 69,523 64,705 66,415
Interest expense 11,097 9,945 16,130
Other expenses 16,190 11,413 9,920
-------------------------------------------------------------------------------------------------------------
Total expenses 502,378 395,621 340,857
-------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting changes 38,868 77,324 61,899
Provision for income taxes 12,690 26,237 21,014
-------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 26,178 51,087 40,885
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- (10,068) ---
SFAS 112 - Postemployment benefits --- (1,872) ---
-------------------------------------------------------------------------------------------------------------
Net income $ 26,178 $ 39,147 $ 40,885
-------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting changes $ 1.22 $ 2.62 $ 2.51
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- (.52) ---
SFAS 112 - Postemployment benefits --- (.09) ---
-------------------------------------------------------------------------------------------------------------
Net earnings per common share $ 1.22 $ 2.01 $ 2.51
-------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
105
12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)
UNEARNED UNREALIZED CUMULATIVE
SHARES CAPITAL IN STOCK SECURITY FOREIGN
OUTSTAND- COMMON EXCESS OF COMPEN- APPRECIATION CURRENCY RETAINED
ING STOCK PAR VALUE SATION (DEPRECIATION) TRANSLATION EARNINGS TOTAL
---------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1992 15,837 $ 15,837 $30,250 $(2,761) $ 3,979 --- $229,803 $277,108
Net income 40,885 40,885
Net unrealized investment (78) (78)
losses
Dividends - Common Stock -
$0.515 per share (8,260) (8,260)
Foreign currency translation
adjustment (880) (880)
Stock issued for employee
benefit and performance
incentive compensation
programs 202 2,088 2,917 (461) 4,544
Stock offering 2,400 64,274 64,274
Elimination of par value 33,167 (33,167) ---
Stock issued as part of the
purchase price of acquisitions 420 11,595 11,595
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 18,859 126,961 --- (3,222) 3,901 (880) 262,428 389,188
Net income 39,147 39,147
Net unrealized investment gains 1,276 1,276
Dividends - Common Stock -
$0.56 per share (10,842) (10,842)
Foreign currency translation
adjustment (649) (649)
Stock issued for employee
benefit and performance
incentive compensation
programs 314 8,434 (1,253) 7,181
Stock offering 325 8,544 8,544
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 19,498 143,939 --- (4,475) 5,177 (1,529) 290,733 433,845
Cumulative effect of change in
accounting principle 11,357 11,357
Net income 26,178 26,178
Net unrealized investment (69,643) (69,643)
losses
Dividends - Common Stock -
$0.62 per share (12,242) (12,242)
Dividends - Redeemable
Preferred Stock - $0.525 per
share (2,117) (2,117)
Foreign currency translation
adjustment 38 38
Stock issued for employee
benefit and performance
incentive compensation programs 229 5,816 (844) 4,972
Stock issued as part of the
purchase price of acquisitions 113 3,180 3,180
Stock issued for conversion of
redeemable preferred stock 1 21 21
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 19,841 $152,956 --- $(5,319) $(53,109) $(1,491) $302,552 $395,589
---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
106
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
For the Years Ended 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 26,178 $ 39,147 $ 40,885
Adjustments to reconcile net income to net cash provided (used) in
operating activities:
Increase (decrease) in policy liabilities 54,641 30,763 (3,090)
Increase in accounts payable and accrued expenses 1,142 4,948 2,843
(Increase) in receivables (7,374) (11,569) (2,495)
Amortization of deferred acquisition costs and cost of business acquired 45,035 39,402 29,581
Policy acquisition costs deferred (59,744) (58,017) (53,272)
Realized investment (gains) losses 12,073 (14,686) (5,617)
Gain on sale of operating assets (3,214) (3,136) (1,707)
Depreciation and amortization 16,019 13,522 14,900
Amortization of bond premium and discount (4,904) (6,033) (4,084)
Provision for deferred income taxes (1,481) (4,062) 7,132
All other operating activities, net 8,679 4,421 (8,584)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,050 34,700 16,492
---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment securities sold:
Available for sale (equity securites in 1993 and 1992) 225,100 40,698 32,049
Held to maturity (fixed maturities in 1993 and 1992) --- 10,124 13,897
Investment securities matured or redeemed by issuer:
Available for sale 61,216 --- ---
Held to maturity 65,910 241,000 91,331
Cost of investment securities acquired:
Available for sale (420,244) --- ---
Held to maturity --- (351,900) (153,494)
Mortgage loans made (31,957) (28,883) (25,491)
Mortgage loan repayments 20,621 23,648 19,408
Purchase of investment properties, buildings and equipment (87,115) (32,563) (13,488)
Sale of investment properties, buildings and equipment 31,158 40,374 31,769
Purchases of short-term investments (388,465) (781,400) (752,840)
Sales of short-term investments 394,673 794,284 791,906
Net cash paid on purchases of insurance companies (54,087) (722) (66,841)
Net cash paid on sale of insurance business --- (2,250) ---
All other investment activities, net 6,860 (1,439) (4,940)
---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (176,330) (49,029) (36,734)
---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 2,544,735 2,192,635 1,699,000
Principal payments on debt (2,467,819) (2,219,778) (1,749,293)
Dividends paid (14,358) (13,108) (7,892)
Stock issued for employee benefit and compensation programs 3,487 5,771 2,866
Common stock offering --- 8,544 64,274
Return of policyholders' account balances (30,025) (26,201) (22,287)
Receipts credited to policyholders' account balances 75,173 63,773 59,282
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 111,193 11,636 45,950
---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 21,913 (2,693) 25,708
Cash at beginning of year 29,487 32,180 6,472
---------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 51,400 $ 29,487 $ 32,180
---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
107
14
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements of The Liberty Corporation and Subsidiaries (the Company) include
the accounts of the Company after elimination of all significant intercompany
balances and transactions. Primary operating entities are The Liberty
Insurance Group and Cosmos Broadcasting Corporation. Subsidiaries that comprise
the Liberty Insurance Group are Liberty Life Insurance Company, Pierce National
Life Insurance Company, American Funeral Assurance Company, North American
National Corporation and Liberty Insurance Services Corporation.
INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life insurance
and accident and health insurance are recognized over the premium paying period
as they become due. For limited payment whole life products, the excess of the
premiums received over the portion of the premiums required to establish
reserves is deferred and recognized in income over the anticipated life of the
policy. For universal life products, revenues consist of policy charges for
the cost of insurance, administration of the policies and surrender charges
during the period. Policy issue fees are deferred and recognized in income
over the life of the policies in relation to the incidence of expected gross
profits.
BENEFITS TO POLICYHOLDERS AND BENEFICIARIES - Benefits for traditional life
insurance and accident and health insurance products include claims paid during
the period, accrual for claims reported but not yet paid, and accrual for
claims incurred but not reported based on historical claims experience modified
for expected future trends. Benefits for universal life products are the
amount of claims paid in excess of the policy value accrued to the benefit of
the policyholder.
INSURANCE RESERVES AND POLICY MAINTENANCE EXPENSES - Insurance reserves and
policy maintenance expenses for traditional life insurance and accident and
health insurance are associated with earned premiums so as to recognize profits
over the premium paying period. This association is accomplished by
recognizing the liabilities for insurance reserves on a net level premium
method based on assumptions deemed appropriate at the date of issue as to
future investment yield, mortality, morbidity, withdrawals and maintenance
expenses and including margins for adverse deviations. Interest assumptions
are based on Company experience. Mortality, morbidity, and withdrawal
assumptions are based on recognized actuarial tables or Company experience, as
appropriate. Accident and health reserves consist principally of unearned
premiums and claims reserves, including provisions for incurred but unreported
claims.
Insurance reserves for universal life products are determined following the
retrospective deposit method and consist of policy values that accrue to the
benefit of the policyholder, unreduced by surrender charges. Insurance
reserves also include deferred revenues arising from unamortized policy issue
fees.
DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the
process of acquiring new business are deferred and amortized to income as
discussed below. Costs deferred consist primarily of commissions and certain
policy underwriting, issue and agency expenses that vary with and are directly
related to production of new business.
COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of
acquired insurance companies at the date of acquisition.
For traditional insurance products, the amortization of deferred acquisition
costs and the cost of business acquired is recognized in proportion to the
ratio of annual premium revenue to the total anticipated premium revenue, which
gives effect to actual terminations. Deferred acquisition costs and the cost of
business acquired are amortized over the premium paying period (not to exceed
30 years) of the related policies. Anticipated premium revenue is determined
using assumptions consistent with those utilized in the determination of
liabilities for insurance reserves.
For universal life products, the deferred acquisition costs are amortized in
relation to the incidence of expected gross profits over the life of the
policies (not to exceed 30 years). Gross profits are equal to revenues, as
defined previously, plus investment income (including applicable realized
investments gains and losses) less expenses. Expenses include interest
credited to policy account balances, policy administration expenses, and
expected benefit payments in excess of policy account balances.
108
15
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
INVESTMENTS - The Company adopted Statement of Financial Accounting Standard
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" effective January 1, 1994. SFAS No. 115 requires that all debt and
equity securities be classified into one of three categories -- held to
maturity, available for sale, or trading. The Company has no securities
classified as trading. Prior to the adoption of SFAS No. 115 all fixed
maturity securities were carried at amortized cost and, in accordance with the
provisions of the standard, prior year financial statements have not been
restated. As of January 1, 1994, shareholders' equity was increased
$11,357,000 (net of deferred income taxes and adjustment to deferred
acquisition costs) to reflect the unrealized gain on securities previously
carried at cost. Primarily as a result of the rising interest rate environment
during 1994, the Company reported a net unrealized loss of $53,109,000 as of
December 31, 1994.
Investments are reported on the following basis:
- Fixed maturities (bonds and redeemable preferred stock) are classified
as either held to maturity or available for sale. Management
determines the appropriate classification of fixed maturities at the
time of purchase. Fixed maturities are classified as held to maturity
when the Company has the positive intent and ability to hold the
securities to maturity. Fixed maturities classified as held to
maturity are stated at amortized cost, including impairments for other
than temporary declines in value. All other fixed maturities are
classified as available-for-sale and are stated at fair value with
unrealized gains and losses, after adjustment for deferred income
taxes and deferred acquisition costs, reported directly in
shareholders' equity. Fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality,
and maturity of the investments.
- Equity securities (common stocks and nonredeemable preferred stocks)
are all considered available for sale and are carried at fair value.
The fair values for equity securities are based on quoted market
prices.
- Mortgage loans on real estate are carried at amortized cost, which
includes provision for impaired value where appropriate.
- Investment real estate is carried at cost less accumulated
depreciation and provisions for impaired value where appropriate.
Depreciation over the estimated useful lives of the properties is
determined principally using the straight-line method.
- Policy loans are carried at cost.
- Other long-term investments are carried at cost which includes
provisions for impaired value where appropriate. Included in other
long-term investments are investments in venture capital funds and oil
and gas properties.
- Short-term investments are carried at cost which approximates fair
value.
UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value,
net of deferred taxes and adjustment for deferred acquisition costs related to
universal life products, are recorded directly in shareholders' equity.
REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific
identification method to determine the cost of investments sold. Gains or
losses on the sale of real estate held for investment are included in realized
investment gains (losses). Gains and losses on the sale of real estate
acquired for development and resale are included in net investment income.
Realized gains and losses include write-downs for impaired values of investment
assets. The Company establishes impairments on individual, specific assets at
the time the Company judges the assets to have been impaired and this
impairment can be estimated (See Note 2). Realized gains and losses also
include provisions for impairments of $ -0- in 1994, $1,200,000 in 1993, and
$2,188,000 in 1992 related to notes receivable.
BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the estimated
useful lives of the properties is determined principally using the
straight-line method.
INTANGIBLE ASSETS arose in the acquisition of certain television stations.
Amounts not being amortized ($4,071,000) represent the excess of the total cost
over the underlying value of the tangible and amortizable intangible assets
acquired prior to 1970. Amounts being amortized are expensed principally over
forty years.
GOODWILL arose in the acquisition of insurance companies and is being amortized
over lives ranging from twenty to forty years.
FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS No.
52, "Foreign Currency Translation." The assets and liabilities of the Canadian
operations of Pierce National Life Insurance Company are translated into U.S.
dollars at the
109
16
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
year-end rate of exchange. Net exchange gains and losses resulting from
translation are included as a separate component of shareholders' equity.
Revenues and expenses are translated at average exchange rates. Gains and
losses from foreign currency transactions are included in net income.
INTEREST RATE CAPS are used to protect against potential significant increases
in interest rates on the Company's floating rate debt. Premiums paid are
amortized to interest expense over the term of the cap. In prior years, the
Company used interest rate swaps to fix the interest rate on a portion on its
debt. The swap agreements terminated in October 1993.
INCOME TAXES are computed using the liability method required by Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and law that will be in effect
when the differences are expected to reverse.
EARNINGS PER COMMON SHARE is based on net income after preferred stock dividend
requirements and the weighted average number of shares outstanding during the
year, including the average number of dilutive shares under stock options.
NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and
life insurance benefits to eligible retirees and their dependents. Effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" whereby the cost of providing the benefits is accrued during the
employees' working years. The Company elected to immediately recognize this
obligation, resulting in a $15,254,000 charge ($10,068,000 after-tax) to 1993
operations. The Company also provides certain other postemployment benefits to
qualified former and inactive employees. To account for these benefits the
Company adopted Statement of Financial Accounting Standard No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. SFAS 112
requires the accrual of benefits provided to former or inactive employees after
employment but before retirement, be accrued when it is probable a benefit will
be provided. The adoption of this standard resulted in a $2,837,000 charge
($1,872,000 after-tax) which was expensed during 1993. With the exception of
the one-time transition obligations, the adoption of these accounting standards
did not have a material impact on the Company's annual earnings.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 114, "Accounting by Creditors
for Impairments of a Loan" was issued by the Financial Accounting Standards
Board in May 1993. This statement will require the Company to recognize
impairments by establishing valuation allowances that will result in
corresponding charges to income. Impaired loans subject to SFAS No. 114 will
be required to be valued by discounting future cash flows or at the fair value
of collateral if the loan is collateral dependent. The income recognition
method in SFAS No. 114 was amended by SFAS No. 118 "Accounting by Creditors for
Impairments of a Loan - Income Recognition and Disclosure." Both SFAS No. 114
and SFAS No. 118 are effective for fiscal years beginning after December 15,
1994. The Company plans to adopt this statement as of January 1, 1995. The
adoption is not expected to have a material impact on the net income or
financial position of the Company.
RECLASSIFICATIONS have been made in the 1993 and 1992 Consolidated Financial
Statements to conform to the 1994 presentation.
110
17
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
2. INVESTMENTS
Amortized cost and estimated fair values of investment in available for sale
and held to maturity securities at December 31, 1994 and 1993 are as follows:
Gross Gross
Amortized Unrealized Unrealized
1994 (In 000's) Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Fixed maturity securities
US Treasury securities and obligations of US
government corporations and agencies $ 33,723 $ 3 $ 2,341 $ 31,385
Obligations of states and political subdivisions 45,514 3 3,081 42,436
Debt securities issued by foreign governments 23,543 1 2,916 20,628
Corporate securities 381,823 2,222 28,666 355,379
Mortgage-backed securities 462,919 267 29,985 433,201
---------------------------------------------------------------------------------------------------------------
Total 947,522 2,496 66,989 $883,029
Equity securities 78,116 7,503 7,411 78,208
---------------------------------------------------------------------------------------------------------------
Total $1,025,638 $ 9,999 $74,400 961,237
---------------------------------------------------------------------------------------------------------------
HELD TO MATURITY:
US Treasury securities and obligations of US
government corporations and agencies $ 5,574 $ 38 $ 319 $ 5,293
Debt securities issued by foreign governments 454 104 -- 558
Corporate securities 86,723 10,352 1,019 96,056
Mortgage-backed securities 206,367 4,787 1,932 209,222
---------------------------------------------------------------------------------------------------------------
Total $ 299,118 $15,281 $ 3,270 $311,129
---------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
1993 (In 000's) Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------------------
HELD TO MATURITY:
US Treasury securities and obligations of US
government corporations and agencies $ 28,056 $ 834 $ 148 $ 28,742
Obligations of states and political subdivisions 18,530 1,264 205 19,589
Debt securities issued by foreign governments 23,418 702 103 24,017
Corporate securities 316,865 34,538 1,351 350,052
Mortgage-backed securities 521,161 31,240 839 551,562
Other debt securities 824 620 97 1,347
---------------------------------------------------------------------------------------------------------------
Total $ 908,854 $69,198 $ 2,743 $975,309
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Equity securities $ 62,947 $ 9,620 $ 1,535 $ 71,032
---------------------------------------------------------------------------------------------------------------
111
18
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
Realized gains (losses) and the change in unrealized gains (losses) on the
Company's fixed maturities and equity securities are summarized as follows:
Total Gains
Fixed Equity (Losses) on
(In 000's) Maturities Securities Investments
------------------------------------------------------------------------------------------------------------------
1994
Realized investment gains (losses) $ (11,957) $ 2,699 $ (9,258)
Change in unrealized investment gains (losse) (118,937) (7,494) $(126,431)
------------------------------------------------------------------------------------------------------------------
Combined $(130,894) $(4,795) $(135,689)
------------------------------------------------------------------------------------------------------------------
1993
Realized investment gains $ 10,705 $ 6,546 $ 17,251
Change in unrealized investment gains (losses) 1,084 1,965 3,049
------------------------------------------------------------------------------------------------------------------
Combined $ 11,789 $ 8,511 $ 20,300
------------------------------------------------------------------------------------------------------------------
1992
Realized investment gains $ 2,834 $ 3,026 $ 5,860
Change in unrealized investment gains (losses) (11,911) (129) (12,040)
------------------------------------------------------------------------------------------------------------------
Combined $ (9,077) $ 2,897 $ (6,180)
------------------------------------------------------------------------------------------------------------------
The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.
(In 000's) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
Interest on
Bonds $ 89,518 $ 74,438 $ 60,137
Mortgage loans 18,137 15,452 15,786
Policy Loans 4,946 4,162 4,097
Short-term investments 869 1,376 1,542
Dividends on
Preferred stocks 8,370 7,469 4,697
Common stocks 1,361 376 623
Investment property rentals 6,255 4,265 5,828
Net gain on investment real estate held for development 5,268 4,501 2,885
Other investment income 7,556 5,987 5,970
------------------------------------------------------------------------------------------------------------------
Total investment income 142,280 118,026 101,565
Investment expenses 8,601 7,060 6,941
------------------------------------------------------------------------------------------------------------------
Net investment income $133,679 $110,966 $ 94,624
------------------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed maturities and the related gross realized gains
and losses for the three years ended December 31 are shown below. The amounts
shown below do not include those related to unscheduled redemptions or
prepayments, nor do they reflect any impairments taken during the years
presented. No held to maturity securities were sold, and there were no
transfers between the held to maturity and available for sale portfolios during
1994.
(In 000's) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
Proceeds from sales $187,597 $ 10,124 $ 13,897
Gross realized gains 986 383 328
Gross realized losses $(13,437) (294) (214)
112
19
Notes to the Consolidated Financial Statements The Liberty Corporation
Subsidiaries
December 31, 1994
The following investment assets were non-income producing for the
twelve months ended December 31, 1994:
(In 000's) Balance Sheet
Amount
----------------------------------------------------------------------------------------------------------------------------
Investment real estate $17,295
Other long-term investments 29,535
Mortgage loans 3,674
Fixed maturities 107
----------------------------------------------------------------------------------------------------------------------------
Total $50,611
----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1994, the Company incurred realized losses of
$2,660,000 due to impairment of assets included in the year-end investment
portfolio. Cumulative provisions for impairments on the total investment
portfolio by asset category at December 31, 1994, are as follows:
(In 000's) CUMULATIVE
PROVISION FOR
IMPAIRMENTS
-----------------------------------------------------------------------------------------------------------------------------
Mortgage loans $ 3,445
Investment real estate 3,231
Other long-term investments 4,807
Equity securities 2,181
Fixed maturities 1,380
----------------------------------------------------------------------------------------------------------------------------
Total $15,044
----------------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
AVAILABLE FOR SALE
(In 000's) Amortized Cost Fair Value
------------------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 8,696 $ 8,654
Due after one year through five years 89,408 86,301
Due after five years through ten years 212,421 196,999
Due after ten years 174,078 157,874
-----------------------------------------------------------------------------------------------------------------------------------
484,603 449,828
Mortgage-backed securities primarily maturing in
five to twenty-five years 462,919 433,201
-----------------------------------------------------------------------------------------------------------------------------------
Total $947,522 $883,029
-----------------------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY
(In 000's) Amortized Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 3,873 $ 3,928
Due after one year through five years 42,035 45,080
Due after five years through ten years 34,513 40,402
Due after ten years 12,330 12,497
----------------------------------------------------------------------------------------------------------------------------------
92,751 101,907
Mortgage-backed securities primarily maturing in
five to twenty-five years 206,367 209,222
----------------------------------------------------------------------------------------------------------------------------------
Total $299,118 $311,129
----------------------------------------------------------------------------------------------------------------------------------
113
20
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
Below is listed investment information relative to the Company's
insurance operations reflected in the consolidated financial statements, after
elimination of intercompany items.
(In 000's) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------------
Invested assets $1,661,102 $1,308,312 $1,229,215
Gross investment income 132,326 111,346 93,953
Net investment income 129,925 106,864 90,120
Gross realized investments gains (losses) (11,848) 14,320 (383)
Gross unrealized investment gains 9,999 9,410 8,595
Gross unrealized investment losses 74,380 1,535 2,684
Change in equity due to net change in
unrealized investment gains (losses) (58,286) 1,276 (78)
3. REINSURANCE AGREEMENTS
The Company uses reinsurance as a risk management tool in the normal course of
business and in isolated, strategic assumption transactions to effectively buy
or sell blocks of in force business. The reinsurance contracts do not relieve
the Company from its contract with its policyholders, and it remains liable
should any reinsurer be unable to meet its obligations. At December 31, 1994,
$4.8 billion (22%) of the Insurance Group's total $21.6 billion gross insurance
in force was ceded to other companies. In the accompanying financial
statements, insurance premiums and policy charges, policyholder benefits and
deferred acquisition costs are reported net of reinsurance ceded with policy
liabilities being reported gross of reinsurance ceded.
Amounts paid or deemed to be paid for reinsurance contracts are recorded as
reinsurance receivables. The cost of reinsurance related to long-term duration
contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying
policies.
In 1991 Liberty Life entered into an agreement with Life Reassurance
Corporation (Life Re) to coinsure its General Agency Division's universal life
policies in force. The agreement provided for 80% coinsurance on policies in
force at December 31, 1991, and 50% coinsurance on policies issued subsequent
to such date. Under the terms of the agreement, assets supporting the business
ceded are required to be held in escrow. At December 31, 1994, Liberty Life's
interest in the assets held in escrow consisted of investments with an
amortized cost of $62.7 million and a fair value of $59.3 million. Comparable
book and fair value at December 31, 1993 was $56.8 million and $59.2 million,
respectively. These investments had an average rating of AA+. The total face
value of insurance ceded to Life Re at December 31, 1994, was $2.9 billion and
the Company has recorded a receivable related to this transaction from Life Re
of $243.5 million as of December 31, 1994. Currently, Life Re has an A.M. Best
rating of A+. During 1994 and 1993, Liberty Life had ceded premiums and policy
charges of $18.0 and $18.3 million, respectively, under the agreement.
Effective September 30, 1991, Liberty Life entered into an agreement to
coinsure 50% of its Home Service line of business. Under generally accepted
accounting principles this agreement has been treated as financial reinsurance,
and no reserve reduction had been taken for the business ceded. The
reinsurance contract contains an escrow agreement that requires assets equal to
the reserves reinsured, as determined under statutory accounting principles, be
held in escrow for the benefit of this block of business. At December 31,
1994, the amortized cost of the invested assets held in escrow was
approximately $217.5 million.
The Insurance Group also reinsures with other insurance companies portions of
the life insurance it writes in order to limit its exposure on large or
substandard risks. Due to this broad allocation of reinsurance with several
insurance companies, there exists no significant concentration of credit risk.
The maximum amount of life insurance that Liberty Life will retain on any life
is $300,000, plus an additional $50,000 in the event of accidental death. This
maximum is reduced for higher ages and for special classes of risks. The
maximum amount of life insurance that the other insurance subsidiaries will
retain on any life is $50,000. Insurance in excess of the retention limits is
either automatically ceded under reinsurance agreements or is reinsured on an
individually agreed basis with other insurance companies.
114
21
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
The effect of reinsurance on premiums and policy charges and benefits was as
follows for the years ending December 31:
(In 000's) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Direct premiums and policy charges $344,119 $278,454 $237,603
Reinsurance assumed 1,728 2,089 2,826
Reinsurance ceded (30,058) (29,621) (31,296)
---------------------------------------------------------------------------------------------------------------------------------
Net premiums and policy charges $315,789 $250,922 $209,133
---------------------------------------------------------------------------------------------------------------------------------
Gross benefits $243,719 $174,588 $137,088
Reinsurance recoveries (17,124) (15,136) (10,906)
---------------------------------------------------------------------------------------------------------------------------------
Net benefits $226,425 $159,452 $126,182
---------------------------------------------------------------------------------------------------------------------------------
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED AND FUTURE
POLICY BENEFITS
A summary of the changes in deferred acquisition costs is as follows:
(In 000's) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Beginning balance $231,873 $211,945 $181,563
Deferred during the year 59,744 58,017 53,272
Amortized during the year (33,324) (31,917) (22,860)
Adjustment related to unrealized investment losses on securities
carried at fair value 2,379 --- ---
Related to insurance in force ceded --- (6,082) ---
Adjustment for foreign currency translation (193) (90) (30)
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $260,479 $231,873 $211,945
---------------------------------------------------------------------------------------------------------------------------------
A summary of the changes in costs of business acquired through acquisitions is
as follows:
(In 000's) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Beginning balance $56,762 $63,930 $30,266
Additions from acquisitions 53,139 317 40,617
Interest accrued 6,620 4,426 2,938
Foreign currency adjustment (134) --- (232)
Amortized during the year (18,331) (11,911) (9,659)
---------------------------------------------------------------------------------------------------------------------------------
Ending balance $98,056 $56,762 $63,930
---------------------------------------------------------------------------------------------------------------------------------
The Company accounts for these costs in a manner consistent with deferred
acquisition costs. The Company's interest rate used to amortize these costs is
7.75% for a majority of the asset. Periodically, the Company performs tests to
determine that the cost of business acquired remains recoverable from future
premiums on the acquired business. The Company incurred no write-offs due to
impairments as a result of these tests during the three years ended December
31, 1994. Under current assumptions, amortization of these costs for the next
five years is expected to be as follows:
(In 000's) Amortization
----------------------------------------------------------------------------------------------------------------------------------
1995 $18,125
1996 15,528
1997 13,658
1998 12,101
1999 11,993
115
22
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
The liabilities for traditional life insurance and accident and health
insurance policy benefits and expenses are computed using a net level premium
method, including assumptions based on the Company's experience, modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations. Reserve interest assumptions are graded and range from
3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory
values or cash values at or prior to maturity. The weighted average assumed
investment yield for all traditional life and accident and health policy
reserves was 6.9%, 6.8%, and 6.8% in 1994, 1993, and 1992, respectively.
Benefit reserves for traditional life insurance policies include certain
deferred profits on limited-payment policies that are being recognized in
income over the policy term. Policy benefit claims are charged to expense in
the period that the claims are incurred.
Benefit reserves for universal life insurance and investment products are
computed under a retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for universal
life and investment products range from 5.5% to 7.0% in 1994, 5.8% to 8.0% in
1993, and 6.5% to 8.3% in 1992.
Participating business accounts for approximately 1% of the Company's life
insurance in force and premium income. The dividend to be paid is determined
annually by the Board of Directors.
5. NOTES, MORTGAGES, AND REVOLVING CREDIT AGREEMENT
The debt obligations at December 31 are as follows:
(In 000's) INTEREST RATE 1994 1993
---------------------------------------------------------------------------------------------------------------------------------
Borrowings under revolving credit agreement and
lines of credit 6.5% $220,500 $145,500
Other notes due to banks 4.8% 554 792
Mortgage loans on investment property 7.5 % to 12.5% 4,882 3,146
Other 0%-2.9% 5,711 51
---------------------------------------------------------------------------------------------------------------------------------
Total $231,647 $149,489
---------------------------------------------------------------------------------------------------------------------------------
The mortgage loans are secured by property with a net carrying value of $16.9
million at December 31, 1994.
Maturities of the debt obligations at December 31, 1994, after giving effect to
the February 1995 refinancing discussed below, are as follows:
Maturities Amount
---------------------------------------------------------------------------------------------------------------------------------
1995 $ 21,359
1996 3,352
1997 16,375
1998 122,845
1999 20,724
Thereafter 46,992
---------------------------------------------------------------------------------------------------------------------------------
Total $231,647
---------------------------------------------------------------------------------------------------------------------------------
In February 1995, the Company received commitments to refinance its
$325,000,000 revolving credit facility into a new $375,000,000, multi-tranche
credit facility. The new facility consists of a $225,000,000 three-year
revolving credit facility; a $100,000,000 seven-year term loan facility; and a
$50,000,000 facility substantially identical to the revolving facility, which
is convertible into terms substantially identical to the term facility within
two years of the closing date of this loan. This facility will be used to
refinance existing indebtedness under the previous $325,000,000 facility as
well as to provide funds to meet working capital requirements and finance
acquisitions. The revolving portion of the credit facility will mature in
March 1998, while the term portion shall be repaid in twenty quarterly
installments of $5,000,000 commencing June 1997, and ending in March 2002.
The Company borrowed $51.9 million during 1994 to finance the acquisition of
North American National Corporation ("North American"), $5.6 million to
partially finance the acquisition of American Funeral Assurance Company
("American Funeral"),
116
23
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
and $0.9 million to partially finance the acquisition of State National Capital
Corporation ("State National") (See Note 13). Additionally, the Company
borrowed $43 million to finance a bulk real estate purchase. A portion of the
$43 million has been repaid through the use of internal funds. At December 31,
1994 the Company's borrowings against the revolving credit facility were
$102,000,000 and against the term facility were $100,000,000. During 1994, the
maximum amount outstanding on the revolving facility amounted to approximately
$236,000,000, with an average balance outstanding of approximately $198,750,000
and an average weighted interest rate of 4.98%. In addition to the revolving
facility, the Company also uses several lines of credit totaling $55,500,000 to
manage day-to-day cash flow. The amount borrowed against the lines of credit
at December 31, 1994 was $18,500,000. The average balance outstanding on the
lines of credit was approximately $29,667,000 during 1994, with a maximum
borrowing of $52,500,000 and an average weighted interest rate of 4.88%.
The revolving credit agreement provides for borrowing at interest rates based
on a formula that incorporates the use of the London Interbank Offered Rate
("LIBOR"), certificate of deposit, prime rate, or federal funds rate. The
applicable interest rate for loans based on LIBOR includes a that varies
according to the Company's ratio of consolidated debt to cash flow. The
Company also has the option to solicit money market interest quotes from the
bank group on the amount of the unused commitments of the credit facility. A
facility fee is charged on the facility based on $275,000,000 of the total
commitment and varies depending on the Company's ratio of consolidated debt to
cash flow.
The revolving credit agreement contains various restrictive covenants typical
of a credit facility agreement of this size and nature. These restrictions
primarily pertain to levels of indebtedness, limitations on payment of
dividends, limitations on the quality and types of investments, and capital
expenditures. Additionally, the Company must also comply with several
financial covenant restrictions under the revolving credit agreement, including
defined ratios of consolidated debt to cash flow, consolidated debt to
consolidated total capital, and fixed charges coverage. As of December 31,
1994, the Company was in compliance with all covenants under its debt
agreement.
The Company has entered into various interest rate caps and corridors in an
attempt to minimize the impact of a potential significant rise in short-term
interest rates on the Company's outstanding variable-rate debt. As of December
31, 1994, the Company had entered into the following interest rate protection
instruments: (1) a $50,000,000 notional amount, one-year, 8% interest rate cap
which is based on the 3-month LIBOR rate and expires in December, 1995; (2) a
$50,000,000 notional amount, two-year interest rate corridor from 8%-10%,
which is based on the 3-month LIBOR rate and caps the Company's rate at 8% if
the index rate exceeds 8% but is less than 10%, and at LIBOR minus 2% if the
rate exceeds 10%, and expires in December 1996; and (3) a $50,000,000 notional
amount, three-year cap with a strike rate of 9% which will be permanently
eliminated if rates exceed 11%, which is based on the 3-month LIBOR rate and
expires in December, 1997. The combination of the above instruments protects
a portion ($150,000,000 for one year, $100,000,000 for two years, and
$50,000,000 for three years) of the Company's variable rate debt from a
potential significant rise in short-term interest rates. The Company was
required to pay up-front fees related to these instruments at inception of each
contract, which are being amortized straight-line over the term of each
contract.
Interest paid, net of amounts capitalized, amounted to approximately
$12,957,000, $12,580,000 and $15,918,000 in 1994, 1993, and 1992, respectively.
Interest capitalized amounted to $2,030,000, $1,161,000, and $1,049,000 in
1994, 1993, and 1992, respectively.
6. REDEEMABLE PREFERRED STOCK
On February 24, 1994, the Company issued 598,656 shares of Series 1994-B Voting
Cumulative Preferred Stock having a total redemption value of $22,449,000, or
$37.50 per share, in connection with the acquisition of American Funeral
Assurance Company. Additionally, on April 1, 1994, the Company issued 668,207
shares of Series 1994-A Voting Cumulative Preferred Stock having a total
redemption value of $23,387,000, or $35.00 per share, in connection with the
acquisition of State National Capital Corporation. The shares have preference
in liquidation, and each share is entitled to one vote on any matters submitted
to a vote of the shareholders of the Company. In accordance with the
financial reporting requirements of the Securities and Exchange Commission, the
preferred stock has been classified outside of permanent equity as Redeemable
Preferred Stock.
Both the Company and the holders of the preferred stock have the right to
redeem any or all of the shares from time to time beginning five years and one
month after the date of issue in exchange for cash or shares of the Company's
common stock. The Company will determine the form of all redemptions, which
will consist of cash, common stock, or a combination of both. Generally, the
amount of consideration on the 1994-A Series will be equivalent to $35.00 per
share plus the amount of any
117
24
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
accumulated and unpaid dividends; and for the 1994-B Series will be
equivalent to $37.50 per share plus the amount of any accumulated and unpaid
dividends. In addition, each share of the 1994-A Series and 1994-B Series is
convertible, at the option of the shareholder, at any time into one share of
the Company's common stock (plus a corresponding attached right to acquire a
share of the Company's Series A Participating Cumulative Preferred Stock).
There is no sinking fund for the redemption of either series of preferred
stock.
Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and on
the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are
cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B
Series are on a parity in rank with all other series of preferred stock of the
Company whether or not such series exist now or are created in the future, with
respect to payment of all dividends and distributions, unless a series of
preferred stock expressly provides that it is junior or senior to the 1994-A
and 1994-B Series. No dividends or distributions on the Company's common stock
shall be declared or paid until all accumulated and unpaid dividends on the
1994-A Series and 1994-B Series have been declared and set aside for payment.
7. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are defendants in various lawsuits arising
primarily from claims made under insurance policies. Where applicable, these
lawsuits are considered in establishing the Company's policy liabilities. It
is the opinion of management and legal counsel that the settlement of these
actions will not have a material effect on the financial position or results of
operations of the Company.
The Company has lease agreements, primarily for branch offices, data
processing and telephone equipment, which expire on various dates through 2004,
none of which are material capital leases. Most of these agreements have
optional renewal provisions covering additional periods of one to ten years.
All leases were made in the ordinary course of business and contain no
significant restrictions or obligations. Future commitments under operating
leases are not material. Annual rental expense amounted to approximately
$5,497,000, $6,225,000, and $4,491,000 in 1994, 1993, and 1992, respectively.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Due to the recent increase in the number
of companies that are under regulatory supervision, there is expected to be an
increase in assessments by state guaranty funds. Under present law, most
assessments can be recovered through a credit against future premium taxes.
The Company has reviewed its exposure to potential assessments, and the effect
on its financial position and results of operations is not expected to be
material.
At December 31, 1994, the Company had commitments for additional investments
and other items totaling $20,978,000.
118
25
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
8. SHAREHOLDERS' EQUITY
The components of the balance sheet caption unrealized appreciation
(depreciation) on fixed maturity securities available for sale and equity
securities in shareholders' equity as of December 31 are as follows:
(In 000's) 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
Carrying value of securities $ 961,237 $70,533
Amortized cost of securities 1,025,638 62,947
-----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) (64,401) 7,586
Adjustment to deferred acquisition costs 2,379 ---
Deferred income taxes (net of a valuation allowance of $11,021 in 1994) 8,913 (2,409)
-----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on fixed maturity
securities available for sale and equity securities $ (53,109) $ 5,177
-----------------------------------------------------------------------------------------------------------------------------------
On December 17, 1992, the Company completed the public offering of 2,400,000
shares of its common stock at a price of $28.25 per share. The offering
generated net proceeds of $64,274,000 which were used to repay bank debt. On
January 8, 1993, the underwriters of the offering exercised the over-allotment
provision, resulting in the issuance of an additional 325,100 shares at the
same per share price of $28.25. This provided the Company with additional net
proceeds of $8,544,000, which were also used to repay bank debt (See Note 5).
On April 1, 1994, the Company issued 113,611 shares of its common stock as part
of the purchase price of State National Capital Corporation. On October 1,
1992, the Company issued 409,795 shares of its common stock as part of the
purchase price of Magnolia Life Insurance Company. On July 2, 1992, the
Company issued 10,000 shares of its common stock in connection with the
purchase of Pierce National Life Insurance Company.
On May 5, 1992 the Company's shareholders adopted an amendment to the Articles
of Incorporation (the "Amendment") to eliminate the concept of par value with
respect to the Company's shares of stock. Effective May 14, 1992, the
Amendment serves to conform the Company's Articles of Incorporation to the
South Carolina Business Corporations Act of 1988, which revised substantially
all of the South Carolina law governing general business corporations, South
Carolina being the jurisdiction in which the Company's principal place of
business is located and its state of incorporation.
The Company has a Performance Incentive Compensation Program (the "Program")
which provides that the Compensation Committee of the Board of Directors may
grant: (a) incentive stock options within the meaning of Section 422 of the
Internal Revenue Code; (b) non-qualified stock options; (c) performance
units; (d) awards of restricted shares of the Company's common stock; or (e)
all or any combination of the foregoing to officers and key employees. Only
common stock, not to exceed 2,800,000 shares, may be delivered under the
Program; and shares so delivered will be made available from the authorized but
unissued shares or from shares reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares that may be
acquired by any participant in the Program shall not exceed 20% of the shares
subject to the Program. As of December 31, 1994, 56 officers and employees
were participants in the Program.
Restricted shares awarded to participants under the Program vest in equal
annual installments, generally over the five-year period commencing on the date
the shares are awarded. Non-vested shares may not be assigned, transferred,
pledged or otherwise encumbered or disposed of. During the applicable
restriction period, the Company retains possession of the certificates for the
restricted shares with executed stock powers attached. Participants are
entitled to dividends and voting rights with respect to the restricted shares.
Stock options under the Program are issued at 100% of the market price on the
date of grant, are vested over such period of time, which may not be less than
one year, as may be established by the Compensation Committee, and expire ten
years after the grant. Of the incentive stock options outstanding, 81,465 were
exercisable at December 31, 1994; 116,240 were exercisable at December 31,
1993; and 191,700 were exercisable at December 31, 1992. Of the non-qualified
options outstanding, 268,500 were exercisable at December 31, 1994; 191,800
were exercisable at December 31, 1993; and 137,200 were exercisable at December
31, 1992. The options expire on various dates beginning February 12, 1996, and
ending November 2, 2004.
The following schedule summarizes activity in the Program during three years
ending December 31, 1994.
119
26
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
Non-Qualified Stock
Restricted Shares Incentive Stock Options Stock
------------------------------------------------------------------------------------------------------------
Market Average
Number of Price at Number of Average Number of Exercise
Shares Date Given Options Exercise Price Options Price
------------------------------------------------------------------------------------------------------------
Outstanding 1/1/92 275,300 207,300 $16.83 282,000 $21.02
Awarded 83,490 $25.63 --- 127,000 24.89
Vested (86,940) 20.00
Exercised (15,600) 17.74 (1,210) 19.50
Forfeited --- --- (3,790) 19.50
-----------------------------------------------------------------------------------------------------------
Outstanding 12/31/92 271,850 191,700 $16.75 404,000 $22.26
Awarded 90,220 29.23 --- 75,500 29.38
Vested (98,638) 31.43
Exercised (75,460) 14.80 (30,200) 20.20
Forfeited (4,749) 27.97 --- (3,200) 24.31
-----------------------------------------------------------------------------------------------------------
Outstanding 12/31/93 258,683 116,240 $18.02 446,100 $23.59
Awarded 108,835 25.78 --- 104,500 25.76
Vested (85,643) 26.90
Exercised --- (34,775) 17.35 (4,000) 25.63
Forfeited (19,241) 24.82 (6,000) 25.63
-----------------------------------------------------------------------------------------------------------
Outstanding 12/31/94 262,634 81,465 $18.31 540,600 $23.97
-----------------------------------------------------------------------------------------------------------
At December 31, 1994, there were 533,795 shares of the Company's stock reserved
for future grants under the Program.
The Company had an earlier non-qualified Stock Option Plan (the "Plan") which
expired March 31, 1985. The last of the options expired on May 7, 1992, and
all available options were exercised before the expiration date. During 1992,
there were 26,000 shares exercised at an average price of $6.75 per share.
The Company has adopted a Shareholder Rights Plan and declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
Upon becoming exercisable, each right entitles the holder to purchase for a
price of $150.00 one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock. All of the rights may be redeemed by the Company at
a price of $.01 per right until ten business days (or such later date as the
Board of Directors determines) after the public announcement that a person or
group has acquired beneficial ownership of 20 percent or more of the
outstanding common shares ("Acquiring Person"). Upon existence of an Acquiring
Person, the Company may redeem the rights only with the concurrence of a
majority of the directors not affiliated with the Acquiring Person. The
rights, which do not have voting power and are not entitled to dividends,
expire on August 7, 2000. The rights are not exercisable until ten business
days after the public announcement that a person either (i) has become an
Acquiring Person, or (ii) has commenced, or announced an intention, to make a
tender offer or exchange offer if, upon consummation, such person or group
would become an Acquiring Person. If, after the rights become exercisable, the
Company becomes involved in a merger or certain other major corporate
transactions, each right will entitle its holder, other than the Acquiring
Person, to receive common shares with a deemed market value of twice such
exercise price.
There are 10,000,000 shares of preferred stock, no par value per share
authorized for issuance. At December 31, 1994, there were 1,266,308 shares of
preferred stock outstanding (See Note 6), and 140,000 shares of preferred
stock were reserved for issuance in connection with the Shareholder Rights
Plan.
Shareholders' equity as determined under generally accepted accounting
principles of the Company's Insurance Group was $525,478,000 and $484,357,000
at December 31, 1994 and 1993, respectively. The comparable amounts as
determined under statutory accounting practices were $161,023,000 and
$151,646,000 at December 31, 1994 and 1993, respectively. The amount that
retained earnings exceed statutory unassigned surplus ($402,800,000) is
restricted and, therefore, not available for dividends. Without regulatory
approval, dividends are generally limited to prior year statutory gain from
operations.
120
27
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
9. EMPLOYEE BENEFITS
The Company has several postretirement plans that provide medical and life
insurance benefits for qualified retired employees. The postretirement medical
plans are generally contributory with retiree contributions adjusted annually
to limit employer contributions to predetermined amounts. The postretirement
life plans provide free insurance coverage up to a maximum of $5,000 for
retirees prior to January 1, 1993, of the Company with the exception of Cosmos,
whose retirees are insured with an outside company.
Net periodic postretirement benefit cost was $1,516,000 and $1,477,000 for the
years ended December 31, 1994 and 1993, respectively, and included the
following components:
1994 1993
-----------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life
-----------------------------------------------------------------------------------------
Service cost $ 139 $--- $ 129 $---
Interest cost 1,067 282 1,071 277
Amortization of unrecognized net loss 226 6 --- ---
-----------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,228 $288 $1,200 $277
-----------------------------------------------------------------------------------------
The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
December 31:
1994 1993
-----------------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life
-----------------------------------------------------------------------------------------------
Retirees $12,457 $3,678 $14,172 $4,140
Fully eligible active plan participants 771 --- 757 ---
Other active plan participants 920 --- 880 ---
-----------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation 14,148 3,678 15,809 4,140
Unrecognized net loss (158) (80) (1,957) (362)
-----------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $13,990 $3,598 $13,852 $3,778
-----------------------------------------------------------------------------------------------
At December 31, 1994, the weighted-average annual assumed rate of increase in
the per capita cost of covered medical benefits is 10% for 1995, and is assumed
to decrease by 0.5% per year to 8% in 1999, then decrease 1% per year to 6% in
2001 and thereafter. At December 31, 1993, the health care cost trend rate
assumption was 13% and the rate graded down by 1% per year to 5% in 2002 and
thereafter. A 1% increase in the per capita cost of health care benefits
results in a $645,000 increase in the accrued postretirement benefit obligation
and a $55,000 increase in postretirement benefit expense. The assumed weighted
average discount rate used in determining the accrued postretirement medical
and life benefit obligation was 8% and 7% at December 31, 1994 and 1993,
respectively.
The Company has profit sharing plans for substantially all of its employees.
Contributions to these plans are made at the discretion of the Board of
Directors and are paid into a trust that is administered by a separate trustee.
Contributions for these plans were $4,840,000, $4,234,000, and $3,952,000 in
1994, 1993 and 1992, respectively.
The Company has a voluntary thrift and investment plan, qualified under Section
401(k) of the Internal Revenue Code, for substantially all of its employees.
The Company makes a matching contribution to the plan of up to 3% of the
employee's compensation. The Company's matching contributions percentage may
be changed at the discretion of each participating subsidiary's Board of
Directors. The Company's contributions for this plan were $2,148,000,
$2,020,000, and $1,632,000 in 1994, 1993, and 1992, respectively.
121
28
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
10. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
(In 000's) 1994 1993 1992
-----------------------------------------------------------
Current:
Federal $12,625 $23,017 $12,735
State 1,546 1,131 1,147
-----------------------------------------------------------
Total current 14,171 24,148 13,882
Deferred:
Federal (1,361) 2,217 7,182
State (120) (128) (50)
-----------------------------------------------------------
Total deferred (1,481) 2,089 7,132
-----------------------------------------------------------
Total tax provision $12,690 $26,237 $21,014
-----------------------------------------------------------
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1994 and 1993,
are as follows:
(In 000's) 1994 1993
----------------------------------------------------------------------------------------------------------------------------
Insurance operations deferred tax liabilities:
Policy acquisition costs expensed on tax return and deferred on books $100,601 $85,276
Deduction for increase in life insurance reserves on tax return in excess of
amount on books 21,922 16,622
Bond market discount accrued on books but not on tax return 8,044 8,394
Tax over book partnership losses 4,651 4,642
Software development costs expensed on tax return 1,108 7,438
Unrealized investment gains recognized in equity --- 2,699
Non-insurance companies deferred tax liabilities:
Tax over book depreciation 6,446 6,559
Tax over book amortization 4,485 4,375
----------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $147,257 $136,005
----------------------------------------------------------------------------------------------------------------------------
Insurance operations deferred tax assets:
Taxable income from financial reinsurance not included in income per books 3,359 5,040
Postretirement benefits not deducted for tax 6,752 7,188
Unrealized investment losses recognized in equity 19,934 ---
Other 9,038 4,418
Non-insurance companies deferred tax assets:
Net operating loss carryover 3,889 7,953
Other 3,441 1,402
----------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets before valuation allowance 46,413 26,001
Valuation allowance for deferred tax asset (11,863) ---
----------------------------------------------------------------------------------------------------------------------------
Deferred tax asset net of valuation allowance 34,550 26,001
----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $112,707 $110,004
----------------------------------------------------------------------------------------------------------------------------
At December 31, 1994, the Company had unrealized losses from securities
classified as available for sale and equity securities of $64,401,000. For
financial reporting purposes, a valuation allowance of $11,021,000 has been
established to offset a portion of the deferred tax asset related to these
unrealized losses. The Company has also established a valuation allowance of
$842,000 in connection with certain capital loss carryforwards. The valuation
allowances have been recognized because it is management's determination that
it is more likely than not that a portion of the deferred tax asset may not be
realized.
122
29
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
The reconciliation of income taxcomputed at the U.S. federal statutory tax
rates to income tax expense is:
(In 000's) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------------
Federal income tax rate 35% 35% 34%
Rate applied to pre-tax income before the cumulative
effect of accounting changes $ 13,604 $ 27,063 $ 21,046
Release of tax reserves (500) (3,350) ---
Rate change expense on beginning deferred tax liability --- 3,216 ---
Tax exempt interest and dividends (1,765) (1,466) (1,143)
State and local income taxes 928 652 757
Other 423 122 354
-----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 12,690 $ 26,237 $ 21,014
-----------------------------------------------------------------------------------------------------------------------------------
The Company has net operating loss carryforwards of $11,110,000 and $22,722,000
at December 31, 1994 and 1993, which will expire between the years 2002 and
2007.
Income taxes paid were approximately $21,911,000, $18,437,000, and $16,300,000
in 1994, 1993, and 1992, respectively.
Under prior tax law, a portion of the life insurance subsidiaries' earnings was
not taxed when earned. Such accumulated income ("policyholders' surplus")
amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax
Reform Act of 1984, was frozen at that amount. That amount is not taxable
unless it is distributed to the Company or unless it exceeds certain
limitations under the Internal Revenue Code. The Company does not intend to
take actions nor does it expect any events to occur that would cause tax to be
payable on policyholders' surplus; therefore, no income tax provision on that
amount has been made in the accompanying financial statements. However, if
such taxes were assessed, the amount of the taxes payable would be
approximately $22,853,000.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations for each of the years ended December 31, 1994
and 1993, are as follows:
Quarter Ended
----------------------------------------------------------------------------------------------------------------------------------
1994 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31
----------------------------------------------------------------------------------------------------------------------------------
Revenues $119,621 $143,124 $141,562 $136,939
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 16,135 $ 22,343 $ 19,631 $(19,241)
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 10,573 $ 14,600 $ 12,902 $(11,897)
----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.53 $ 0.70 $ 0.62 $ (0.63)
----------------------------------------------------------------------------------------------------------------------------------
Quarter Ended
----------------------------------------------------------------------------------------------------------------------------------
1993 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31
----------------------------------------------------------------------------------------------------------------------------------
Revenues $115,554 $120,978 $115,749 $120,664
----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting changes $ 21,183 $ 20,460 $ 17,569 $ 18,112
----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes, net of taxes $(11,940) $ --- $ --- $ ---
----------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,074 $ 13,281 $ 8,078 $ 15,714
----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share before cumulative effect of
accounting changes $ 0.72 $ 0.68 $ 0.41 $ 0.80
----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share $ 0.11 $ 0.68 $ 0.41 $ 0.80
----------------------------------------------------------------------------------------------------------------------------------
123
30
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
The fourth quarter of 1994 contained an after-tax $20,300,000 charge related to
two unique situations: a write-off of deferred costs connected with the
development of a software system for administration of the Company's insurance
business, and a decision to cease marketing products through the general agency
distribution system.
The write-off of the deferred systems costs is in connection with an agreement
with a joint development partner to develop a state-of-the-art software system
to handle the administration of the Company's insurance operations. After an
internal review of the project, the Company engaged an independent consultant
to provide an estimate of the value of the software. The value was less than
the cost previously deferred by the Company, resulting in an after-tax charge
to earnings of $13,600,000.
The Company has decided to cease sales of its products through its general
agency distribution system due to the absence of critical volume. The decision
to close the general agency distribution system resulted in an after-tax charge
to earnings of $6,700,000 million, primarily to reduce deferred acquisition
costs no longer considered recoverable. For 1994, approximately 2% of total
premiums and policy charges were generated by the general agency division.
In addition to the charges discussed above, the Company had realized investment
losses of $6,900,000 for the quarter. The losses are the result of a decision
by the Company to take advantage of available market conditions and its tax
position to sell securities with a yield lower than those currently available.
12. STATUTORY RESULTS OF OPERATIONS
Statutory net income of the Insurance Group for each of the years ended
December 31, 1994, 1993, and 1992 was $16.4 million, $22.1, million and $14.4
million, respectively. The results of the insurance companies acquired (See
Note 13) are included in the above amounts from the date of acquisition.
13. ACQUISITIONS
The Company's strategy to expand through internal growth and acquisitions
continued during 1994 through the acquisition of three insurance companies and
one real estate acquisition. All of the acquisitions have been accounted for
as purchases and included in the accompanying consolidated financial statements
from the date of acquisition.
In February 1994, the Company completed the acquisition of North American and
American Funeral, two pre-need companies which have significantly expanded the
Company's pre-need life insurance business.
North American is a holding company whose principal subsidiaries, Pan-Western
Life Insurance Company, Howard Life Insurance Company and Brookings
International Life Insurance Company, are providers of pre-need life insurance.
The acquisition added strategic midwest markets to Liberty's pre-need
territory. The $51.9 million purchase price was funded with proceeds from the
Company's credit facility. North American was relocated to Greenville, South
Carolina, in May 1994.
American Funeral, headquartered in Amory, Mississippi, is one of the largest
providers of pre-need insurance. The $28.1 million purchase price was funded
through a combination of proceeds from the Company's credit facility and a new
class of redeemable preferred stock (see Note 6) issued at the time of closing.
In addition to the pre-need insurance acquisitions, the Company completed the
purchase of State National headquartered in Baton Rouge, Louisiana in April
1994. State National is the parent company of State National Life Insurance
Company, a home service company, and several other small subsidiaries. The
$27.5 million purchase price was funded through a combination of proceeds from
the Company's credit facility, a new class of redeemable preferred stock issued
at closing (see Note 6), and common stock. State National was relocated to
Greenville, South Carolina, in August 1994 and merged into Liberty Life.
The Company completed the purchase a portion of the real estate assets of SCANA
Development Corporation, a subsidiary of SCANA Corporation for approximately
$43 million. The real estate assets acquired from SCANA consisted of
residential properties under development, undeveloped land held for future
development, business parks, and retail and office properties
124
31
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
(rental income producing). A substantial majority of the projects are located
in South Carolina. The purchase price was funded with proceeds from a
combination of internally generated funds and the Company's credit facility.
The following unaudited pro forma combined results of operations for the years
ended December 31, 1994 and 1993, give effect to the acquisitions of American
Funeral, North American and State National as though they had occurred at the
beginning of that year. Pro forma results are not necessarily indicative of
the results that actually would have occurred or that will be obtained in the
future.
(In 000's, except per share data) 1994 1993
------------------------------------------------------------------------------------------------------------------------------------
Revenues $559,857 $587,738
Net income $ 27,640 $ 37,856
Earnings per share $ 1.26 $ 1.79
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires
the disclosure of the estimated fair value of all financial instruments,
including both assets and liabilities unless specifically exempted. The
following methods were used to estimate the fair values of the Company's
financial instruments.
- Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
- Investment securities: Fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
- Mortgage loans and policy loans: The fair values for mortgage loans
and policy loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
- Other long-term investments: Other long-term investments consist
primarily of venture capital investments and investments in oil and
gas producing property. The Company determined that it was not
practicable to estimate the fair values of its venture capital
investments because of a lack of primary and secondary market prices
and the inability to estimate fair values without incurring excessive
costs. The Company's investment in venture capital totaled
$16,055,000 and $8,059,000 at December 31, 1994 and 1993,
respectively.
- Policy liabilities: Fair values for the Company's liabilities under
investment-type insurance contracts that are not subject to
policyholder mortality or morbidity risk are estimated using
discounted cash flow calculations, based on interest rates currently
being offered for similar contracts with remaining maturities
consistent with those for the contracts being valued.
- Short and long-term debt: Substantially all of the Company's short
and long-term debt is floating rate debt. Accordingly, the carrying
amount approximates its fair value.
- Other liabilities: Fair values on film contract obligations related
to the Company's broadcasting operations were determined by
discounting future cash flows using current fixed borrowing rates for
similar types of borrowing arrangements.
125
32
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
1994 1993
---------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in 000's) Amount Value Amount Value
---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Fixed maturity securities
available for sale $883,029 $883,029
Fixed maturity securities
held to maturity 299,118 311,129 $908,854 $975,309
Equity securities 78,208 78,208 70,533 71,032
Mortgage loans 203,381 197,715 165,784 176,338
Policy loans 96,160 93,678 86,942 84,029
Other long-term investments 31,624 31,624 26,047 26,047
Short-term investments and cash 58,664 58,664 45,493 45,321
LIABILITIES
Investment-type insurance contracts 59,208 55,907 30,000 28,100
Notes, mortgages and other debt 131,647 131,647 149,489 149,489
Long-term debt 100,000 100,000 --- ---
Film contract obligations included in other
liabilities 5,365 4,963 7,189 6,582
SFAS No. 107 excludes insurance contract liabilities, except for
investment-type contracts, from the definition of financial instruments.
However, the fair value of the liabilities under all insurance contracts is
taken into consideration in the overall management of interest rate risk.
Because of the exclusion of the majority of the Company's insurance contracts
as well as other non-financial assets and liabilities from fair value
disclosure, care should be taken in deriving conclusions about the Company's
financial position based on the fair value information presented above.
15. BUSINESS SEGMENT INFORMATION
The Company is actively engaged through certain of its subsidiaries in two
major business segments: insurance and broadcasting. Sales between the
various subsidiaries of the Company are not material and are eliminated.
Information for these segments is contained in the Selected Financial Data on
page 43 and, with respect to the years 1992 through 1994, is incorporated by
reference.
16. SUBSEQUENT EVENT
The Company closed the acquisition of WLOX-TV on February 28, 1995. The
purchase price of $41,000,000 was funded with a combination of 600,000 shares
of 1995-A Series redeemable preferred stock with a stated value of $35 per
share; cash of approximately $6,200,000; and a note payable for $13,800,000.
126
33
Notes to the Consolidated Financial Statements The Liberty Corporation and
Subsidiaries
December 31, 1994
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE LIBERTY CORPORATION
We have audited the accompanying consolidated balance sheets of The Liberty
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Liberty Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for certain
investments in debt securities and, effective January 1, 1993, the Company
changed its methods of accounting for postemployment benefits and
postretirement benefits other than pensions.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 17, 1995, except for Note 16,
as to which the date is February 28, 1995
127
EX-21
6
SUBSIDIARIES OF THE LIBERTY CORP.
1
Exhibit 21
THE LIBERTY CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
DECEMBER 31, 1994
Percentage of Voting Stock
Jurisdiction of Incorporation Owned by Immediate Parent
----------------------------- --------------------------
A. The Liberty Corporation S. C.
B. Liberty Life Insurance Company S. C. 100
C. Orion Life Insurance Company Delaware 100
C. Park Avenue Associates, Inc. S. C. 100
C. Tanyard Creek Partnership S. C. 60
C. Exchange Place Corporation N. C. 100
C. Greensboro Holdings, Inc. S. C. 100
C. State National Fire Insurance Company Louisiana 100
C. State National Title Guaranty Company Louisiana 100
C. State National Mortgage Corporation Louisiana 100
B. Liberty Insurance Services Corporation S.C. 100
B. Pierce National Life Insurance Co. California 100
B. North American National Corporation Delaware 100
C. Pan-Western Life Insurance Company Ohio 100
C. Brookings International Life Insurance Co. South Dakota 100
B. Magnolia Life Insurance Company Louisiana 100
B. American Funeral Assurance Company Mississippi 100
B. State National Life Agency Corporation Louisiana 100
B. State National General Insurance Agency, Inc Louisiana 100
B. Delta National Life Insurance Company Louisiana 100
B. Delta National Equity Corporation Louisiana 100
B. Cosmos Broadcasting Corporation S. C. 100
C. CableVantage Inc. S. C. 100
D. Special Services Corporation S. C. 100
D. Hampton Insurance Agency, Inc. S. C. 100
D. The Liberty Marketing Corporation S. C. 100
D. Bent Tree Corporation Georgia 100
D. TLC Business Ventures, Inc. S. C. 100
D. LC Limited Insurance Company Bermuda 100
D. Liberty Investment Group, Inc. S. C. 100
D. Liberty Capital Advisors, Inc. S. C. 100
D. Liberty Properties Group, Inc. S. C. 100
D. LPG Development Corporation S. C. 100
D. SouthChase Development Corporation S. C. 100
D. LIBCO of Virginia, Inc. Virginia 100
D. LIBCO of Florida, Inc. Florida 100
D. LPC of S. C., Inc. S. C. 100
D. LIBCO of Tennessee, Inc. Tennessee 100
D. Commerce Center of Greenville, Inc. S. C. 100
D. Liberty Stone Associates, Inc. S. C. 50
A. Separate condensed financial statements filed as a schedule to the
consolidated financial statements. Also included in the consolidated
financial statements.
B. Separate financial statements not filed. Included in the consolidated
financial statements.
C. Consolidated with the applicable parent.
D. Minor subsidiaries. Included in the condensed financial statements of
The Liberty Corporation.
128
EX-23
7
CONSENT OF INDEPENDENT AUDITORS
1
Consent of Independent Auditors
We consent to the incorporation by reference and the inclusion herein in this
Annual Report (Form 10-K) of The Liberty Corporation of our report dated
February 17, 1995, included in the 1994 Annual Report to Shareholders of The
Liberty Corporation and included in Form 10-K in Exhibit 13.
Our audits also included the financial statement schedules of The Liberty
Corporation listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in Post-Effective Amendment
No. 5 to the Registration Statement (form S-8 No. 2-53890) pertaining to the
Company's Stock Option Plan, in the Registration Statement (Form S-8 No.
33-34314) pertaining to the 1983 Performance Incentive Compensation Program, in
the Registration Statement (Form S-8 No. 33-34816) pertaining to The Liberty
Corporation and Adopting Related Employers' 401(k) Thrift Plan, in the
Registration Statement (Form S-8 No. 33-34814) pertaining to the Cosmos Profit
Sharing Retirement Plan and Trust, and in the Registration Statement (Form S-8
No. 33-34815) pertaining to The Liberty Corporation Profit Sharing Plan and
Trust of our report dated February 17, 1995 with respect to the consolidated
financial statements and schedules of The Liberty Corporation included and
incorporated by reference in the annual report on Form 10-K and our report
dated March 8, 1995 with respect to the financial statements and schedules
included in the annual report on Form 11-K of The Liberty Corporation and
Adopting Related Employers' 401(k) Thrift Plan for the year ended December 31,
1994.
/s/ Ernst & Young LLP
March 24, 1995
129
EX-24
8
POWERS OF ATTORNEY
1
SPECIAL POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Lawrence M. Gressette, Jr.,
Director of The Liberty Corporation, do hereby appoint Martha G. Williams and
R. David Black, or either of them, Special Attorney for me and in my name and
on my behalf to sign the Annual Report on Form 10-K and any amendments thereto
for The Liberty Corporation to be filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, for each fiscal year
ended December 31, and generally to do and to perform all things necessary to
be done in the premises as fully and effectually in all respects as I could do
if personally present.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day
of March, 1995.
/s/ Lawrence M. Gressette, Jr.
---------------------------------
Lawrence M. Gressette, Jr.
Director, The Liberty Corporation
A South Carolina Corporation
KNOW ALL MEN BY THESE PRESENTS that I, J. Thurston Roach., Director of
The Liberty Corporation, do hereby appoint Martha G. Williams and R. David
Black, or either of them, Special Attorney for me and in my name and on my
behalf to sign the Annual Report on Form 10-K and any amendments thereto for
The Liberty Corporation to be filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, for each fiscal year ended December
31, and generally to do and to perform all things necessary to be done in the
premises as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 10th day
of March, 1995.
/s/ J. Thurston Roach
---------------------------------
J. Thurston Roach
Director, The Liberty Corporation
A South Carolina Corporation
130
EX-27
9
FINANCIAL DATA SCHEDULE
7
1,000
YEAR
DEC-31-1994
JAN-01-1994
DEC-31-1994
883,029
299,118
311,129
78,208
203,381
135,545
1,734,329
51,400
258,969
358,535
2,667,944
1,732,334
0
24,812
27,157
231,647
45,816
0
152,956
242,633
2,667,944
315,789
133,679
(12,073)
0
226,425
45,035
134,108
38,868
12,690
26,178
0
0
0
26,178
1.22
1.26
0
0
0
0
0
0
0
EX-99
10
ADDITIONAL EXHIBITS
1
EXHIBIT 99-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________
FORM 11-K
__________________
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities Exchange Act of 1934
The Liberty Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
For the Year Ended December 31, 1994
__________________
THE LIBERTY CORPORATION
AND ADOPTING RELATED EMPLOYERS'
401(K) THRIFT PLAN
The Liberty Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
-1-
132
2
Item 1. Changes in the Plan
Effective January 1, 1994, the plan was amended to comply with Section
401(a)(17) of the code as amended by Omnibus Budget Reconciliation Act of 1993
to limit compensation taken into account under a plan in any year to $150,000,
as adjusted for increases in the cost of living.
Item 2. Changes in Investment Policy
None.
Item 3. Contributions Under the Plan
Contributions under the Plan by The Liberty Corporation (the "Company") and its
participating subsidiaries (the Company and the participating subsidiaries
being collectively referred to as the "employers") are measured by reference to
the employees' contributions which may be on a pre-tax or after-tax basis.
Employer matching contributions are made only on pre-tax employee contributions
in accordance with a formula set each year by the employer's board of
directors. During 1994, the Company and all participating subsidiaries,
contributed an amount equal to 100% of a participant's pre-tax contribution, up
to a maximum of 3% of the participant's compensation.
Employer matching contributions totaling $2,045,000 in 1994, $2,052,000 in
1993, $1,655,000 in 1992, $1,388,000 in 1991, and $1,298,000 in 1990, were
credited to the accounts of participating employees.
Item 4. Participating Employees
There were 2,085 enrolled participants in the Plan as of December 31, 1994.
-2-
133
3
Item 5. Administration of the Plan
(a) Parties responsible for the administration of the Plan are: (1) the
Plan Committee, made up of at least three members named by the
Company, (2) the Trustee and (3) the Plan Administrator which is named
by the Plan Committee.
The Plan Committee is responsible for the administration and operation
of the Plan, except as to responsibilities which have been
specifically assigned to the Trustee, to an Investment Manager, or to
the Plan Administrator. Present members of the Plan Committee, their
positions with the Company and its subsidiaries, and their addresses
are as follows:
Jennie M. Johnson
Vice President, Administration
The Liberty Corporation
P.O. Box 789
Greenville, South Carolina 29602
Porter B. Rose
President
Liberty Investment Group, Inc.
Chairman of the Board
Liberty Capital Advisors, Inc.
Liberty Properties Group, Inc.
P.O. Box 789
Greenville, South Carolina 29602
William C. Schulze
Vice President, Administration
Pierce National Life Insurance Company
P.O. Box 789
Greenville, South Carolina 29602
Neil Smith
Vice President, Controller
Cosmos Broadcasting Corporation
P.O. Box 789
Greenville, South Carolina 29602
Martha G. Williams
Vice President, General Counsel and Secretary
The Liberty Corporation
P.O. Box 789
Greenville, South Carolina 29602
-3-
134
4
The Trustee is responsible for the management, investment and control
of the assets of the Trust established by the Plan, and for the
disbursements of benefits therefrom, except to the extent that the
Trustee may be relieved of investment responsibility by the
appointment of an Investment Manager or by direction of the Plan
Committee. The present Trustee is Wachovia Bank of NC, N.A., P.O. Box
3099, Winston-Salem, North Carolina 27102. Wachovia Bank of NC, N.A.,
is also trustee under Profit-Sharing Plans maintained by the Company
and its subsidiaries for employees. Neuberger & Berman Pension
Management, Inc. ("Neuberger & Berman") is Investment Manager of a
portion of the Common Stock Fund, one of the four funds comprising the
Plan (see page 9, Notes to Financial Statements - Description of Plan
for further details). Neuberger & Berman's address is 522 Fifth
Avenue, New York, New York 10036. Hellman, Jordan Management Company,
Inc. ("Hellman, Jordan") is also Investment Manager of a portion of
the Common Stock Fund. Their address is P.O. Box 389, Boston, MA
02101. Wachovia has investment responsibility for one of the Plan's
other three funds, The Liberty Corporation Stock Fund. Liberty
Capital Advisors, Inc., a subsidiary of the Company and a
participating employer of the Plan, was given investment
responsibility of the Plan's Money Market Fund, effective January 1,
1988 and of the Plan's Intermediate Bond Fund, effective July 1, 1990.
Liberty Capital Advisor's address is Post Office Box 789, Greenville,
South Carolina 29602.
The Plan Administrator is currently an Administrative Committee which
is responsible for the daily administration and operational functions
of the Plan, including filing all reports with governmental agencies,
providing Plan participants with information, preparing year-end
reports to participants, maintaining all required records,
interpreting the provisions of the Plan and settling disputes over the
rights of employees, participants and beneficiaries. Present members
of the Administrative Committee, their positions with the Company and
its Subsidiaries, and their addresses are as follows:
Mary Anne Bunton, Assistant Vice President of the Benefits
Department of The Liberty Corporation, whose address is P.O.
Box 789, Greenville, South Carolina 29602
Susan E. Cyr, Counsel and Assistant Secretary of the Legal
Department of The Liberty Corporation, whose address is P.O.
Box 789, Greenville, South Carolina 29602
The Plan Committee members, the Trustee and the Administrative
Committee members do not have any positions or offices with the
Company or any of its affiliates except as indicated above.
(b) For the year ended December 31, 1994, expenses of administration of
the Plan of approximately $241,000, including fees and expenses of the
Trustee and two of the Investment Managers, Neuberger & Berman and
Hellman, Jordan, were paid out of the assets of the Plan. Expenses of
Liberty Capital Advisors were paid by the employers rather than out of
the Plan assets.
Item 6. Custodian of Investments
(a) Wachovia Bank of NC, N.A., P.O. Box 3099, Winston-Salem, North
Carolina 27102 serves as Trustee of the Plan and the assets of the
Plan.
(b) The Trustee received compensation from the assets of the Plan of
$37,465 during the year ended December 31, 1994.
(c) No bond was furnished by the custodian (Wachovia).
-4-
135
5
Item 7. Reports to Participating Employees
Each Plan participant receives a quarterly statement showing the balance in his
Plan account (including a breakdown of the amounts invested in each investment
medium offered), amounts contributed by him and by his Employer, dividends,
interest and other gains credited to his account, any amounts forfeited or
otherwise charged against his account, and additional shares purchased if the
employee has elected to have some or all of his and his Employer's
contributions invested in the Company's stock. These individualized reports, a
copy of the proxy statement and a copy of the annual report are the reports
that were distributed to Plan participants during the year ended December 31,
1994.
Item 8. Investment of Funds
(a) Employee contributions and matching Employer contributions may be
invested in increments of 25% in: the Liberty Corporation Stock Fund
which consists solely of Company common stock, the Money Market Fund
which consists of various money market instruments and U.S. Government
securities, the Intermediate Bond Fund which consists of intermediate
- term government and good quality corporate bonds, or the Common
Stock Fund which consists of high quality common stock or securities
convertible into common stock, other than Company stock. For the
years ended December 31, 1994, 1993, and 1992, there were no brokerage
commissions paid by the Plan for the Intermediate Bond Fund and the
Money Market Fund, but there were brokerage commissions paid by the
Plan for the Common Stock Fund.
(b) No brokerage transactions effected for the Plan, during the three
years ended December 31, 1994, were directed to brokers because of
research services provided.
Item 9. Financial Statements and Exhibits
Page No.
(a) Financial Statements
Report of Independent Auditors 6
(The Consent of Independent Auditors is Exhibit 23 of
the Form 10-K of which this report is also an exhibit.)
Statements of Net Assets Available for Plan Benefits -
December 31, 1994 and 1993 7
Statements of Changes in Net Assets Available for Plan
Benefits - For the Years Ended December 31, 1994 and 1993 8
Notes to Financial Statements - December 31, 1994 9 to 13
Schedule of Assets Held for Investments - December 31, 1994 14
Schedule of Transactions or Series of Transactions in Excess
of 5% of the Current Value of Plan Assets - December 31, 1994 16
(b) Exhibits
None
-5-
136
6
REPORT OF INDEPENDENT AUDITORS
To the Administrative Committee of The Liberty Corporation
and Adopting Related Employers' 401(k) Thrift Plan
and Board of Directors
The Liberty Corporation
We have audited the accompanying statements of net assets available for plan
benefits of The Liberty Corporation and Adopting Related Employers' 401(k)
Thrift Plan as of December 31, 1994 and 1993, and the related statements of
changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial status of the Plan at December 31, 1994
and 1993, and the changes in its financial status for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment as of December 31, 1994 and transactions or
series of transactions in excess of 5% of the current value of plan assets for
the year then ended are presented for purposes of complying with the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1976 and are not a required part of
the basic financial statements. The supplemental schedules have been subjected
to the auditing procedures applied in our audit of the 1994 financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the 1994 financial statements taken as a whole.
/s/ Ernst & Young LLP
March 8, 1995
-6-
137
7
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1994 and 1993
(In $000's)
1994
-----------------------------------------------------------
Liberty Money Common Inter.
Stock Market Stock Bond
Fund Fund Fund Fund Total
-------- -------- -------- -------- --------
ASSETS
Cash $ -- $ 10 $ 3 $ -- $ 13
Investments
Short-term investments
(total cost of $6,129 in
1994 and $5,956 in 1993) 12 4,224 982 911 6,129
The Liberty Corporation
common stock (total cost of
$8,420 in 1994 and $7,611
in 1993) 9,004 -- -- -- 9,004
Other common stocks
(total cost of $17,346 in 1994
and $14,088 in 1993) -- -- 18,518 -- 18,518
Securities of US government and
agencies (total cost of $9,306
in 1994 and $9,149 in 1993) -- 5,699 -- 3,266 8,965
Corporate collateralized mortgage
obligations (total cost of $193
in 1994) -- -- -- 194 194
Due from broker for securities sold 212 10 156 5 383
Participant loans receivable 831 971 1,383 143 3,328
Accrued investment income 55 113 24 43 235
-------- -------- -------- -------- --------
10,114 11,027 21,066 4,562 46,769
-------- -------- -------- -------- --------
LIABILITIES
Expenses payable 16 16 31 7 70
Due to broker for securities
purchased 212 10 192 -- 414
-------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 9,886 $ 11,001 $ 20,843 $ 4,555 $ 46,285
======== ======== ======== ======== ========
1993
------------------------------------------------------------
Liberty Money Common Inter.
Stock Market Stock Bond
Fund Fund Fund Fund Total
-------- -------- -------- -------- --------
ASSETS
Cash $ -- $ -- $ 4 $ -- $ 4
Investments
Short-term investments
(total cost of $6,129 in
1994 and $5,956 in 1993) -- 2,834 1,529 1,593 5,956
The Liberty Corporation
common stock (total cost of
$8,420 in 1994 and $7,611
in 1993) 7,913 -- -- -- 7,913
Other common stocks
(total cost of $17,346 in 1994
and $14,088 in 1993) -- -- 16,661 -- 16,661
Securities of US government and
agencies (total cost of $9,306
in 1994 and $9,149 in 1993) -- 6,411 -- 2,889 9,300
Corporate collateralized mortgage
obligations (total cost of $193
in 1994) -- -- -- -- --
Due from broker for securities sold 2 252 229 -- 483
Participant loans receivable 730 838 1,136 111 2,815
Accrued investment income 43 115 16 45 219
-------- -------- -------- -------- --------
8,688 10,450 19,575 4,638 43,351
-------- -------- -------- -------- --------
LIABILITIES
Expenses payable 10 13 24 6 53
Due to broker for securities
purchased 90 -- 291 252 633
-------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 8,588 $ 10,437 $ 19,260 $ 4,380 $ 42,665
======== ======== ======== ======== ========
See notes to financial statements.
-7-
138
8
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(In $000's)
1994
-----------------------------------------------------------
Liberty Money Common Inter.
Stock Market Stock Bond
Fund Fund Fund Fund Total
-------- -------- -------- -------- --------
INVESTMENT INCOME
Income
Dividends
The Liberty Corporation
common stock $ 215 $ -- $ -- $ -- $ 215
Other stocks -- -- 268 -- 268
Interest on securities 1 492 68 239 800
Interest on participant loans 50 35 85 15 185
Miscellaneous -- -- 4 3 7
------- -------- -------- -------- --------
Total Investment Income 266 527 425 257 1,475
Net realized and unrealized
appreciation (depreciation) in
fair value of investments 330 (206) (481) (251) (608)
CONTRIBUTIONS
Employer 477 408 913 247 2,045
Employee 872 675 1,686 475 3,708
------- -------- -------- -------- --------
Total Contributions 1,349 1,083 2,599 722 5,753
------- -------- -------- -------- --------
TRANSFERS FROM OTHER QUALIFIED PLANS 3 4 13 2 22
TRANSFERS BETWEEN FUNDS (25) 177 131 (283) --
WITHDRAWALS
Benefits paid (602) (998) (920) (261) (2,781)
PLAN EXPENSES (23) (23) (184) (11) (241)
-------- --------- -------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 1,298 564 1,583 175 3,620
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 8,588 10,437 19,260 4,380 42,665
------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 9,886 $ 11,001 $ 20,843 $ 4,555 $ 46,285
======= ======== ======== ======== ========
1993
----------------------------------------------------------
Liberty Money Common Inter.
Stock Market Stock Bond
Fund Fund Fund Fund Total
-------- -------- -------- -------- --------
INVESTMENT INCOME
Income
Dividends
The Liberty Corporation
common stock $ 159 $ -- $ -- $ -- $ 159
Other stocks -- -- 200 -- 200
Interest on securities 8 477 69 205 759
Interest on participant loans 43 31 74 14 162
Miscellaneous -- -- 5 -- 5
-------- -------- -------- -------- --------
Total Investment Income 210 508 348 219 1,285
Net realized and unrealized
appreciation (depreciation) in
fair value of investments (1,442) (23) 1,101 (19) (383)
CONTRIBUTIONS
Employer 481 452 878 241 2,052
Employee 858 744 1,559 453 3,614
-------- -------- -------- -------- --------
Total Contributions 1,339 1,196 2,437 694 5,666
-------- -------- -------- -------- --------
TRANSFERS FROM OTHER QUALIFIED PLANS 212 541 334 313 1,400
TRANSFERS BETWEEN FUNDS 749 (481) (793) 525 --
WITHDRAWALS
Benefits paid (414) (997) (853) (238) (2,502)
PLAN EXPENSES (19) (26) (173) (9) (227)
--------- --------- --------- --------- --------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 635 718 2,401 1,485 5,239
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 7,953 9,719 16,859 2,895 37,426
-------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 8,588 $ 10,437 $ 19,260 $ 4,380 $ 42,665
======== ======== ======== ======== ========
See notes to financial statements.
-8-
139
9
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting records of the Plan are maintained on the accrual
basis. Investments are carried in the financial statements at market
value. Securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the Plan
year; investments traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at
the average of the last reported bid and ask prices. The difference
between proceeds received and the cost of investments sold is
recognized as realized gains (losses) in the statements of changes in
net assets available for plan benefits. Cost is determined based on
the average cost method for The Liberty Corporation stock, and the
first-in, first-out basis for other investments. The net change in
the aggregate market value of investments is reflected in the
statements of net assets available for plan benefits as unrealized
gains (losses).
2. DESCRIPTION OF THE PLAN
The Plan was first offered to eligible employees beginning January,
1982. Effective July 1, 1985, the Plan was amended to include a
provision for a "qualified cash or deferred arrangement" under Section
401(k) of the Internal Revenue Code, to provide for the merger and
consolidation of the Cosmos Broadcasting Corporation Thrift and
Investment Plan into the Company's Plan and to rename the Plan The
Liberty Corporation and Adopting Related Employers' 401(k) Thrift
Plan. Any employee of the Company or participating subsidiaries who
(a) is at least 21 years old, (b) works a minimum of 500 hours per
year and (c) has completed at least one year of service in which they
worked at least 1,000 hours is eligible to participate in the Plan.
Subsidiaries of the Company presently participating in the Plan
consist of Liberty Life Insurance Company, Special Services
Corporation, Cosmos Broadcasting Corporation, Liberty Capital
Advisors, Inc., Liberty Properties Group, Inc., Liberty Insurance
Services Corporation, Liberty Investment Group, Inc., and Pierce
National Life Insurance Company. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA). Administrative costs of the Plan incurred are paid either
out of Plan assets or by the Company or its subsidiaries.
Participation in the Plan is voluntary and eligible employees may
elect to contribute up to a total of 13% of their compensation on
either a pre-tax or after-tax basis, or a combination of both, through
payroll deductions. Each participating employer makes matching
contributions on pre-tax employee contributions of up to 3% of each
employee participants' annual compensation. The matching percentage
may be changed by resolution of the Board of Directors of a
participating company, effective at the beginning of any plan year
(January 1).
Each participant's account is credited with the participant's
contributions and allocations of (a) the Company's contributions and
(b) Plan earnings, and is charged with an allocation of administrative
expenses. Allocations are based on participant contributions or
account balances, as defined. Forfeited balances of terminated
participants' nonvested accounts are used to reduce future company
contributions.
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10
The Plan is comprised of four separate funds with different investment
alternatives. The Liberty Corporation Stock Fund ("Liberty Stock
Fund") invests in the common stock of The Liberty Corporation. The
Money Market Fund invests in certificates of deposit, government
securities and other money market instruments. The Intermediate Bond
Fund invests in intermediate term government and good quality
corporate bonds with three year to seven year average maturity. The
Common Stock Fund invests in common stock, or securities convertible
into common stock, other than The Liberty Corporation stock. Certain
investments in the Money Market Fund and idle investments waiting to
be invested in stock in The Liberty Corporation Stock Fund,
Intermediate Bond Fund, and Common Stock Fund are invested in
short-term investments.
Employee participants may elect to invest their contributions in
increments of 25% in any fund. Beginning January 1, 1993, the plan
was changed to provide for the quarterly transfers of a participant's
or former participant's future and/or existing account balances under
the plan. Matching employer contributions will be invested in the
same way as the employee's pre-tax contributions upon which they are
based. At December 31, 1994, there were 2,085 active participants in
the Plan of whom 1,150, 1,014, 720 and 1,527 were electing to invest,
either wholly or partially, in the Liberty Stock Fund, Money Market
Fund, Intermediate Bond Fund and Common Stock Fund, respectively.
Amounts credited to a participant's employee account, either before
tax or after tax, are fully vested at all times. Amounts credited to
a participant's employer matching account vest based on the total
number of years of service (as defined under the Plan) with the
Company or its Related Employers:
Number of Years Percentage
of Service of Vesting
----------------- ----------
Less than 3 years ---
3 years 25%
4 years 50%
5 years 75%
6 years 100%
All amounts credited to a participant's employee (before tax or after
tax) and employer matching accounts are fully vested upon termination
of employment due to a participant's death, total disability or
retirement, or after a participant has completed six or more years of
service.
A participant who has completed less than six years of service and is
terminated for any reason other than those mentioned above forfeits
the non-vested amounts in his employer matching account. All amounts
credited to the employee's account (before tax or after tax) and all
vested amounts credited to the employer's matching account are
distributable upon termination.
The Plan allows participants to obtain loans, within stated limits,
from the vested portion of their account balance. Repayment is
required over a period not to exceed five years, unless the loan is
used for the purchase of a principal residence. Interest is charged
on outstanding loans at a rate determined by the plan administrator.
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11
3. INVESTMENTS
During 1994 and 1993, the Plan's investments (including investments
bought, sold, and held during the year) appreciated (depreciated) in
value by $608,000 and $383,000, respectively, as follows:
Net Appreciation
(Depreciation) in Fair Value
Fair Value At End of
During Year Year
----------------- ----------
($000's)
Year ended December 31, 1994
----------------------------
Short-term investments $ --- $ 6,129
The Liberty Corporation
common stock 330 9,004
Other common stock (481) 18,518
U.S. Government and
agency securities (457) 9,159
----------- ----------
$ (608) $ 42,810
=========== ==========
Year ended December 31, 1993
----------------------------
Short-term investments $ --- $ 5,956
The Liberty Corporation
common stock (1,442) 7,913
Other common stock 1,103 16,661
Convertible preferred stock (2) ---
U.S. Government and
agency securities (42) 9,300
----------- ----------
$ (383) $ 39,830
=========== ==========
The market value of individual investments that represent 5% or more
of the Plan's total assets are as follows:
December 31,
1994 1993
-------- --------
(000's)
Wachovia Short-Term Investment Fund $ 6,129 $ 5,956
The Liberty Corporation Common Stock 9,004 7,913
(354,830 shares and 326,326 shares
in 1994 and 1993, respectively)
4. INCOME TAX STATUS
The Plan is an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974. The Plan has
received a determination letter from the Internal Revenue Service
stating that the Plan is qualified under Section 401(a) of the
Internal Revenue Code, and is not subject to income taxation. The
Plan is required to operate in conformity with the Internal Revenue
Code to maintain its qualification. The Plan Committee is not aware
of any course of action or events that have occurred that might
adversely affect the Plan's qualified status.
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12
Contributions made by a participant and a participating Company on or
after July 1, 1985 which constitute employee before-tax contributions
will not be currently taxable to participants when they are
contributed to the Plan, assuming this part of the Plan constitutes a
"qualified cash or deferred arrangement" within the meaning of section
401(k) of the Code. To constitute a "qualified cash or deferred
arrangement," the ratio of contributions to compensation for highly
compensated eligible employees must not exceed the ratio of
contributions to compensation for the non-highly compensated eligible
employees by more than certain percentages specified in section 401(k)
and 401(m) of the Code. These percentage tests have been satisfied,
and the above tax consequences relating to employee before tax
contributions are based on the assumption that they are governed by
the provisions of section 401(k).
Participating Company matching contributions and investment earnings
on all contributions are not taxable to a participant until these
amounts are paid to the participant. The participating Company is
entitled to a business expense deduction for its contributions.
After-tax contributions (contributions not designated as employee
before-tax contributions) made by a participant are not deductible in
computing the participant's federal taxable income.
5. SOURCES OF CONTRIBUTIONS
The sources of contributions for the two years ended December 31,
1994, consist of the following:
1994 1993
-------- --------
(000's)
Employer:
The Liberty Corporation $ 83 $ 76
Liberty Life Insurance Company 1,180 1,232
Cosmos Broadcasting Corporation 460 486
Special Services Corporation 6 6
Liberty Capital Advisors, Inc. 12 13
Liberty Properties Group, Inc. 33 29
Pierce National Life Insurance Co. 41 20
Liberty Investment Group 17 12
Liberty Insurance Services 213 178
------ ------
Total employer contributions 2,045 2,052
------ ------
Employee:
The Liberty Corporation 180 141
Liberty Life Insurance Company 2,138 2,182
Cosmos Broadcasting Corporation 822 842
Special Services Corporation 12 11
Liberty Capital Advisors, Inc. 31 31
Liberty Property Group 62 56
Pierce National Life Insurance Co. 74 38
Liberty Investment Group 32 19
Liberty Insurance Services 357 294
------ ------
Total employee contributions 3,708 3,614
------ ------
Total contributions $5,753 $5,666
====== ======
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13
Forfeitures of non-vested balances in employer accounts of $124,000 in
1994 and $80,000 in 1993 were used to reduce employer contributions.
Additionally, amounts contributed by the employer during 1994 and 1993
included non-cash contributions of the Company's common stock which
had a market value, at date of contribution, of $1,579,000 and
$1,518,000, respectively. All other employer contributions were made
in cash.
6. PRIORITIES ON TERMINATION OF PLAN
In the event that the Plan is terminated, all expenses will be paid
and the accounts of the affected participants will be proportionately
adjusted to reflect such expenses and all contributions and
withdrawals up to the date of termination. The Plan will then be
revalued and each participant will be paid all amounts credited to his
accounts. The accounts of all participants become fully vested as of
the date of termination.
An exception to this method of distribution at termination is made for
the case in which termination is due to revocation of the Plan's
exemption from income taxes under Section 401 of the Internal Revenue
Code. In that case, all contributions, including those made by the
employer, would be returned to the respective contributors.
7. TRANSACTIONS WITH PARTIES-IN-INTEREST
During 1994 and 1993, the Plan purchased and sold securities of
parties-in-interest as summarized below:
1994 1993
------------------------- -------------------------
Shares or Shares or
Principal Principal
Amount Cost Amount Cost
--------- -------- --------- --------
(In $000's, except number of share data)
Common Stock of The Liberty
Corporation:
Purchases 88,755 $ 2,329 89,183 $ 2,697
Sales 60,251 $ 1,520 19,007 $ 438
Short-term investments of Plan
trustee (Wachovia Bank &
Trust Co., N. A.):
Purchases 21,823 $ 21,823 24,515 $ 24,515
Sales 21,649 $ 21,649 24,535 $ 24,535
The Plan also received dividends of $215,000 in 1994 and $159,000 in
1993 from The Liberty Corporation and interest of $256,000 in 1994 and
$449,000 in 1993 from a short-term investment fund sponsored by the
Plan trustee.
Liberty Capital Advisors, Inc., a subsidiary of The Liberty
Corporation and a participating employer in the Plan, was given
investment responsibility of the Money Market Fund effective January
1, 1988 and the Intermediate Bond Fund effective July 1, 1990. All
expenses for services performed by Liberty Capital Advisors, Inc. were
paid by the participating employers.
8. AMOUNTS PAYABLE TO WITHDRAWN PARTICIPANTS
At December 31, 1994 and 1993, amounts payable to withdrawn
participants totaled $742,000 and $492,000, respectively. These
amounts were disbursed in the first quarter of the following year.
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14
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1994
(In $000's except number of shares data)
Principal Amount
Name of Issuer and of Bonds & Notes, Purchase Market
Title of Each Issue Number of Shares Price Value
------------------------------------------------------------ ---------------- -------- --------
Short-Term Investments
Wachovia Short-Term Investment Fund $ 6,129 $ 6,129 $ 6,129
-------- --------
Common Stocks
The Liberty Corporation Common Stock 354,830 8,420 9,004
-------- --------
Other Common Stocks
McDonnell Douglas Corp. 2,000 232 284
Rockwell Intl Corp. 8,000 285 286
United Technologies Corp. 5,000 337 314
Chrysler Corp. 7,000 309 343
General Mtrs Corp. 8,500 406 358
General Mtrs Corp. CL H 7,500 266 262
Citicorp 14,000 550 579
NationsBank Corp. 6,000 286 271
Wells Fargo & Co. 1,800 181 261
Pepsico Inc. 10,000 315 362
Hercules Inc. 2,500 250 288
Monsanto Company 6,500 512 458
Gillette Co. 5,000 188 374
Procter & Gamble Co. 6,000 339 372
Abbott Labs 13,500 401 440
Intel Corp. 7,000 448 447
Loral Corp. 7,500 263 284
Rayonier Inc. 10,000 286 305
Mattel Inc. 15,000 206 377
Federal Natl Mgt Assn. 5,500 249 401
Merrill Lynch & Co. Inc. 9,000 333 322
McDonalds Corp. 12,000 187 351
American Intl Group Inc. 3,750 223 367
MBIA Inc. 8,500 464 477
Torchmark Corp. 5,000 168 174
Varity Corp. 10,000 372 363
Columbia/HCA Healthcare Corp. 12,000 354 438
Foundation Health Corp. 7,000 254 217
First USA Inc. 12,000 410 394
Price/Costco Inc. 24,000 387 309
Tosco Corp. 6,000 184 175
Xerox Corp. 3,500 329 346
Times Mirror Co. 9,000 268 282
Conrail Inc. 6,000 317 303
Southern Pacific Rail Corp. 12,500 251 227
Rite-Aid Corp. 15,000 285 351
Goodyear Tire & Rubber Co. 8,000 277 269
Marriott International Inc. 10,000 284 281
MCI Communications Corp. 15,000 372 276
Philip Morris Cos Inc. 4,000 250 230
UST, Inc. 7,000 192 195
Chrysler Corp. 4,800 239 235
Ford Motor Co Del 6,300 193 176
Bay Networks Inc. 6,300 128 186
Cisco Sys Inc. 5,900 136 207
Compaq Computer Corp. 2,700 107 107
Silicon Graphics Inc. 4,400 104 137
BMC Software Inc. 1,700 89 97
FTP Software Inc. 5,000 106 158
Microsoft Corp. 2,800 124 171
Alza Corp. 3,800 133 68
United Healthcare Corp. 1,200 56 54
DSC Communications Corp. 3,700 86 133
General Instr Corp. New 7,300 230 219
Intel Corp. 3,800 223 243
Micron Technology Inc. 2,500 93 110
Motorola Inc. 3,500 205 203
Scientific Atlanta Inc. 5,700 92 120
Tandy Corp. 1,400 70 70
Texas Instrs Inc. 2,100 156 157
Autotote Corp. CL A 7,800 155 89
Callaway Golf Co. 2,900 111 96
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15
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT (continued)
DECEMBER 31, 1994
(In $000's except number of shares data)
Principal Amount
Name of Issuer and of Bonds & Notes, Purchase Market
Title of Each Issue Number of Shares Price Value
--------------------------------------------------------- ---------------- -------- --------
Corning Inc. 1,500 49 45
General Re Corp. 1,000 119 124
SCI System Inc. 3,400 45 61
Tektronix Inc. 2,500 100 86
Charter Med Corp. 2,000 50 43
Columbia/HCA Healthcare Corp. 6,347 223 232
Humana Inc. 3,100 62 70
Value Health Inc. 2,600 104 97
First USA Inc. 2,800 95 92
Stone Container Corp. 5,300 81 92
Union Camp Corp. 1,000 49 47
Xerox Corp. 2,200 234 218
Best Buy Inc. 4,700 148 147
Officemax Inc. 4,400 100 117
Biogen Inc 3,800 145 159
Elan Plc Adr 6,200 223 221
Comcast Uk Cable Partners LTD 6,200 101 99
Ortel Corp. 2,100 50 55
Petersburg Long Distance Inc. 10,000 62 64
------- -------
Total Other Common Stock 17,346 18,518
------- -------
Securities of United States Government & Agencies
United States Treasury Notes 4.625% due 08/15/1995 500 498 493
United States Treasury Notes 3.875% due 02/28/1995 750 744 748
United States Treasury Notes 4.25% due 07/31/1995 750 750 739
United States Treasury Notes 3.875% due 10/31/1995 500 498 487
United States Treasury Notes 7.375% due 05/15/1996 750 780 749
United States Treasury Notes 7.50% due 01/31/1996 1,000 1,051 1,002
Federal Home Loan Banks Cons DB 7.875% due 03/27/1995 500 503 501
Federal Home Loan Banks Cons BDS 5.00% due 10/25/1995 1,000 997 981
United States Treasury Notes 3.875% due 02/28/1995 250 248 249
United States Treasury Notes 4.375% due 08/15/1996 250 250 238
United States Treasury Notes 4.375% due 11/15/1996 500 499 471
United States Treasury Notes 4.25% due 12/31/1995 250 250 243
Federal Home Loan Banks Cons BD 6.85% due 02/25/1997 250 259 245
Federal National Mortgage Assn Deb 6.10% due 02/10/2000 500 516 459
Federal Home Loan Mortgage Corp 7.00% due 05/15/2020 300 287 290
Federal Home Loan Mortgage Corp 7.00% due 04/15/2002 400 417 370
Federal Home Loan Mortgage Corp 6.00% due 11/15/2006 350 334 314
Federal National Mortgage Assn Gtd 7.00% due 08/25/2005 127 121 117
Federal National Mortgage Assn 6.00% due 04/25/2001 300 304 269
------- -------
Total Securities of United States Government & Agencies 9,306 8,965
------- -------
Corporate Collateralized Mortgage Obligations
Prudential Home Mtg Secs Co 7.75% 10/25/2024 200 193 194
------- -------
Total Investments $41,394 $42,810
======= =======
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16
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF
PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In $000's, except number of shares data)
Category (iii) - series of securities transactions
--------------------------------------------------
Value on Realized
Purchase Sales Expenses Transaction Gain
Party Involved Description of Assets Price Price Incurred Cost Date (Loss)
------------------------- -------------------------------------------------------------------------------------------------------
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$21,823 principal amount, various
interest rates $ 21,823 $ --- $ --- $ 21,823 $ 21,823 $ ---
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$ 21,649 principal amount, various
interest rates $ --- $ 21,649 $ --- $ 21,649 $ 21,649 $ ---
The Liberty Corporation The Liberty Corporation Common Stock
- 88,755 shares $ 2,329 $ --- $ --- $ 2,329 $ 2,329 $ ---
The Liberty Corporation The Liberty Corporation Common Stock
- 60,251 shares $ --- $ 1,561 $ --- $ 1,520 $ --- $ 41
There were no category (i), (ii), or (iv) reportable transactions during 1994.
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