<PAGE>
<PAGE>
File No. 333-12071
Filed Pursuant to Rule 424(b)(1)
PROSPECTUS
$135,000,000
LEUCADIA NATIONAL CORPORATION
7 7/8% SENIOR SUBORDINATED NOTES DUE 2006
(Interest payable April 15 and October 15)
------------------------
The Notes will bear interest from the date of their original issue, at the
rate per annum set forth above, payable semiannually on each April 15 and
October 15, commencing April 15, 1997. The Notes will mature on October 15, 2006
and are not redeemable by the Company prior to maturity. Upon a Change of
Control (as defined), each Noteholder will have the right, subject to certain
conditions and restrictions, to require the Company to repurchase the Notes at
101% of the principal amount thereof, plus accrued interest.
The Notes will be subordinated to all Senior Indebtedness (as defined) of
the Company. At June 30, 1996, the Company's Senior Indebtedness was
$150,000,000 and the indebtedness of the Company's consolidated subsidiaries, to
which the Notes are effectively subordinated, was $21,939,000, exclusive of
customer banking deposits ('Deposits'). The Notes will rank pari passu with the
Company's 8 1/4% Senior Subordinated Notes due 2005, of which, at June 30, 1996,
$100,000,000 aggregate principal amount was outstanding, and any 10 3/8% Senior
Subordinated Notes due 2002 (the '10 3/8% Notes') that remain outstanding after
the Tender Offer (as defined), of which, at June 30, 1996, $125,000,000
aggregate principal amount was outstanding.
The Company has commenced a cash tender offer (the 'Tender Offer') for all
of the $125,000,000 outstanding aggregate principal amount of the 10 3/8% Notes
at a price of $1,072.50 per $1,000 principal amount, plus accrued interest
thereon to, but not including, the payment date for the 10 3/8% Notes pursuant
to the Tender Offer. The net proceeds of this offering will be used to purchase
10 3/8% Notes tendered pursuant to the Tender Offer. See 'Use of Proceeds.'
------------------------
Application to list the Notes on the New York Stock Exchange under the
symbol 'LUK/06' has been approved.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
------------- ----------- -------------
<S> <C> <C> <C>
Per Note............................................................ 99.487% 0.875% 98.612%
Total............................................................... $134,307,450 $1,181,250 $133,126,200
</TABLE>
- ------------
(1) Plus accrued interest, if any, from the date of original issue of the Notes.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(3) Before deducting expenses payable by the Company estimated at $380,000.
------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them, and subject to approval of certain legal
matters by counsel for the Underwriters. It is expected that delivery of the
Notes will be made against payment therefor in New York, New York on or about
October 21, 1996.
------------------------
JEFFERIES & COMPANY, INC. CS FIRST BOSTON
October 16, 1996
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material also can be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates. The Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov. In addition, material filed by the Company can be inspected
at the offices of the New York Stock Exchange, Inc. (the 'NYSE'), 20 Broad
Street, New York, New York 10005 and the Pacific Stock Exchange, Incorporated,
301 Pine Street, San Francisco, California 94104, on which the Company's common
shares, par value $1.00 per share (the 'Common Shares'), are listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments thereto, the 'Registration Statement') under
the Securities Act of 1933, as amended (the 'Securities Act'), with respect to
the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement. Such additional information
may be obtained from the Commission's principal office in Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company (File No.
1-5721) with the Commission are incorporated by reference in this Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the 'Annual Report');
(b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996; and
(c) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996 (the 'Second Quarter 10-Q').
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Notes contemplated hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference, other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
therein. Requests for such copies should be directed to: Leucadia National
Corporation, 315 Park Avenue South, New York, N.Y. 10010 (telephone number (212)
460-1900), Attention: Corporate Secretary.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY AND THE COMPANY'S OUTSTANDING 8 1/4% SENIOR SUBORDINATED NOTES DUE 2005,
10 3/8% SENIOR SUBORDINATED NOTES DUE 2002 AND 7 3/4% SENIOR NOTES DUE 2013 AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information
appearing elsewhere or incorporated by reference in this Prospectus. As used
herein, the term 'Company' means Leucadia National Corporation and its
subsidiaries, except as the context otherwise may require.
THE OFFERING
<TABLE>
<S> <C>
Issue........................................ $135,000,000 principal amount of 7 7/8% Senior Subordi-
nated Notes due 2006 (the 'Notes').
Maturity..................................... October 15, 2006.
Interest Rate................................ 7 7/8% per annum.
Interest Payment Dates....................... April 15 and October 15, commencing April 15, 1997.
Optional Redemption.......................... The Notes are not redeemable at the option of the Company prior to
maturity.
Mandatory Redemption......................... The Notes are not subject to sinking fund payments.
Certain Covenants............................ The indenture under which the Notes will be issued (the
'Indenture') will contain covenants which, among other things,
place restrictions on the ability of the Company and its
subsidiaries to incur additional indebtedness, to make certain
investments, to redeem or repurchase shares of capital stock of
the Company and to enter into certain transactions with
affiliates, on the ability of the Company's insurance
subsidiaries to invest in non-investment grade investments and
on the ability of the Company to pay dividends and to consummate
certain mergers. In addition, if the Company's Consolidated
Tangible Net Worth (as defined) is below a certain level at the
end of two consecutive fiscal quarters, the Company will be
required, under certain circumstances, to offer to repurchase a
portion of the Notes at 100% of their principal amount, plus
accrued but unpaid interest to the repurchase date. In the event
of a Change of Control (as defined) of the Company, each holder
of a Note (a 'Noteholder') will have the right, subject to
certain exceptions, to require the Company to repurchase all or
any portion of such Noteholder's Notes at 101% of the principal
amount thereof, plus accrued but unpaid interest to the date of
such repurchase.
Ranking...................................... The Notes will be subordinated to all existing and future Senior
Indebtedness. At June 30, 1996, the Company's Senior
Indebtedness was $150,000,000 and the indebtedness of the
Company's consolidated subsidiaries, to which the Notes are
effectively subordinated, was $21,939,000, exclusive of
Deposits. The Notes will rank pari passu with the Company's
8 1/4% Senior Subordinated Notes due 2005 (the '8 1/4% Notes'),
of which, at June 30, 1996, $100,000,000 aggregate principal
amount was outstanding, and any 10 3/8% Notes that remain
outstanding after completion of the Tender Offer, of which, at
June 30, 1996, $125,000,000 was outstanding. The Notes will rank
senior to the Company's 5 1/4% Convertible Subordinated
Debentures due 2003 (the '5 1/4% Debentures'), of which
$100,000,000 aggregate principal amount was outstanding at June
30, 1996. The Company may not incur any indebtedness senior to
the Notes which is not Senior Indebtedness.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Listing...................................... Application to list the Notes on the NYSE under the symbol
'LUK/06' has been approved.
Use of Proceeds.............................. The net proceeds to the Company from the sale of the Notes are
estimated to be approximately $132,750,000. Such net proceeds
will be used to purchase 10 3/8% Notes tendered pursuant to the
Tender Offer. To the extent the net proceeds of the offering
exceed the amount necessary to purchase the 10 3/8% Notes
tendered pursuant to the Tender Offer, such excess net proceeds
will be used for general corporate purposes, which may include
the purchase of 10 3/8% Notes in the open market or in privately
negotiated transactions or the redemption of the 10 3/8% Notes
(which are first redeemable on June 15, 1997 at a price of
104.5% of their principal amount, plus accrued and unpaid
interest, if any, to the date of redemption) or for working
capital, acquisitions or investment opportunities. See 'Use of
Proceeds.'
</TABLE>
4
<PAGE>
<PAGE>
THE COMPANY
GENERAL
The Company is a diversified financial services holding company principally
engaged in personal and commercial lines of property and casualty insurance,
life and health insurance, banking and lending and manufacturing. The Company
concentrates on return on investment and cash flow to build long-term
shareholder value, rather than emphasizing volume or market share. Additionally,
the Company continuously evaluates the retention and disposition of its existing
operations and investigates possible acquisitions of new businesses in order to
maximize shareholder value.
Shareholders' equity has grown to $1,102,402,000 at June 30, 1996 from a
deficit of $7,657,000 at December 31, 1978 (prior to the acquisition of a
controlling interest in the Company by the Company's Chairman and President),
and book value per common share has grown to $18.28 at June 30, 1996 from
negative $.11 at December 31, 1978. The Company's Chairman and President and
their families currently beneficially own in the aggregate approximately 35% of
the Company's outstanding Common Shares.
The Company's principal operations are its insurance businesses, where it
is a specialty markets provider of property and casualty and life insurance
products to niche markets. The Company's principal personal lines insurance
products are automobile insurance, homeowners insurance, graded benefit life
insurance marketed primarily to the age 50-and-over population and variable
annuity products. The Company's principal commercial lines are property and
casualty products provided for multi-family residential real estate, retail
establishments and taxicabs and other livery vehicles in the New York
metropolitan area. For the year ended December 31, 1995, the Company's insurance
segments contributed 78% of total revenues and, at December 31, 1995,
constituted 77% of consolidated assets.
The property and casualty insurance industry, which is highly regulated and
competitive, has historically been cyclical in nature, with periods of less
intense price competition and high underwriting standards generating significant
profits, followed by periods of increased price competition and lower
underwriting standards resulting in reduced profitability or loss. The current
cycle of intense price competition has continued for a longer period than in the
past, suggesting that the significant infusion of capital into the industry in
recent years, coupled with larger investment returns has been, and may continue
to be, a depressing influence on policy rates. As indicated in the Selected
Financial Data included herein, the statutory combined ratios for the Company's
property and casualty business have been better than the industry averages for
each of the past five years. This has been due, in part, to the low expense
ratios of the Company's insurance subsidiaries.
The Company's insurance subsidiaries have a diversified investment
portfolio of securities, substantially all of which are issued or guaranteed by
the U.S. Treasury or by U.S. governmental agencies or are rated 'investment
grade' by Moody's Investors Service Inc. ('Moody's') and/or Standard & Poor's
Corporation ('S&P'). Investments in mortgage loans, real estate and
non-investment grade securities represented 2.5% of the insurance subsidiaries'
portfolio at December 31, 1995.
The Company's banking and lending operations principally consist of making
instalment loans to niche markets primarily funded by Deposits insured by the
Federal Deposit Insurance Company. One of the Company's principal lending
activities is providing automobile loans to individuals with poor credit
histories. The Company's manufacturing operations primarily manufacture products
for the 'do-it-yourself' home improvement market and for industrial markets.
At December 31, 1995, the Company had minimum tax loss carryforwards of
approximately $141,600,000. The amount and availability of the tax loss
carryforwards are subject to certain qualifications, limitations and
uncertainties as more fully discussed in Note 14 of Notes to Consolidated
Financial Statements contained in the Annual Report.
5
<PAGE>
<PAGE>
RECENT DEVELOPMENTS
The Company has commenced the Tender Offer to purchase for cash all of the
outstanding $125,000,000 aggregate principal amount of the 10 3/8% Notes at a
price of $1,072.50 per $1,000 principal amount, plus accrued interest thereon
to, but not including the payment date therefor. The Tender Offer, which is
scheduled to expire at 5:00 p.m. New York City time on October 18, 1996, will be
funded by the application of the net proceeds from this offering, which is
intended to replace the indebtedness represented by the 10 3/8% Notes with
indebtedness bearing interest at a lower rate and maturing at a later date.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are estimated to
be approximately $132,750,000. Such net proceeds will be used to purchase
10 3/8% Notes tendered pursuant to the Tender Offer, of which $125,000,000
aggregate principal amount is outstanding. To the extent the net proceeds of the
offering exceed the amount necessary to purchase the 10 3/8% Notes tendered
pursuant to the Tender Offer, such excess net proceeds will be used for general
corporate purposes, which may include the purchase of 10 3/8% Notes in the open
market or in privately negotiated transactions or the redemption of the 10 3/8%
Notes (which are first redeemable on June 15, 1997 at a price of 104.5% of their
principal amount, plus accrued and unpaid interest, if any, to the date of
redemption) or for working capital, acquisitions or investment opportunities.
The stated maturity of the 10 3/8% Notes is June 15, 2002. Except as otherwise
publicly disclosed, the Company has no material arrangement, commitment or
understanding with respect to any acquisition or investment opportunity. Pending
such uses, the proceeds will be invested in short-term investment grade
obligations.
6
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the (unaudited) consolidated capitalization
of the Company at June 30, 1996, and as adjusted to give effect to the sale of
the Notes and the use of the net proceeds therefrom to purchase all outstanding
10 3/8% Notes pursuant to the Tender Offer.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (a):
Revolving bank credit agreement borrowings....................................... $ -- $ --
Term loans with banks, due in 1999............................................... 50,000 50,000
7 3/4% Senior Notes due 2013, less debt discount of $856......................... 99,144 99,144
Industrial revenue bonds......................................................... 5,600 5,600
Other senior debt................................................................ 16,339 16,339
7 7/8% Senior Subordinated Notes due 2006, less debt discount of $693............ -- 134,307
8 1/4% Senior Subordinated Notes due 2005........................................ 100,000 100,000
10 3/8% Senior Subordinated Notes due 2002, less debt
discount of $559............................................................... 124,441 --
5 1/4% Convertible Subordinated Debentures due 2003.............................. 100,000 100,000
---------- ----------
Total long-term debt, including current maturities.......................... 495,524 505,390
---------- ----------
Shareholders' Equity (b):
Common shares, par value $1 per share, authorized 150,000,000 shares; 60,316,825
shares issued and outstanding, after deducting shares held in treasury.......... 60,317 60,317
Additional paid-in capital....................................................... 160,506 160,506
Net unrealized (loss) on investments............................................. (8,522) (8,522)
Retained earnings................................................................ 890,101 881,582(c)
---------- ----------
Total shareholders' equity.................................................. 1,102,402 1,093,883
---------- ----------
Total.................................................................. $1,597,926 $1,599,273
---------- ----------
---------- ----------
</TABLE>
- ------------
(a) Excludes Deposits of approximately $211,020,000. For information with
respect to interest rates, maturities, priorities and restrictions related
to outstanding long-term debt and the Notes, see Note 10 of Notes to
Consolidated Financial Statements contained in the Annual Report and
'Description of Notes,' respectively.
(b) For information with respect to stock options and contingent obligations,
see Notes 11 and 17 of Notes to Consolidated Financial Statements contained
in the Annual Report.
(c) Reflects a $8,519,000 extraordinary loss, net of taxes, related to the
early extinguishment of the 10 3/8% Notes pursuant to the Tender Offer.
7
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from and
should be read in conjunction with the audited financial statements and other
financial information contained in the Annual Report and with the unaudited
financial statements contained in the Second Quarter 10-Q, which are
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:(a)
Revenues................. $763,139 $737,445 $1,558,314 $1,384,385 $1,408,058 $1,573,015 $1,086,748
Net securities gains
(losses)............... 11,575 (228) 20,027 (12,004) 51,923 51,778 50,391
Interest expense(b)...... 27,282 24,405 52,871 44,003 39,465 38,507 36,925
Insurance losses, policy
benefits and
amortization of
deferred acquisition
costs.................. 486,284 452,428 942,803 819,010 789,752 896,673 558,127
Income before income
taxes and cumulative
effects of changes in
accounting
principles............. 40,422 47,703 132,182 100,318 176,868 143,553 95,030
Income before cumulative
effects of changes in
accounting
principles(c).......... 28,774 33,732 107,503 70,836 116,259 130,607 94,830
Cumulative effects of
changes in accounting
principles............. -- -- -- -- 129,195 -- --
Net income............... 28,774 33,732 107,503 70,836 245,454 130,607 94,830
Ratio of earnings to
fixed charges:(d)
Excluding interest on
Deposits............. 2.89x 3.20x 3.84x 3.49x 5.80x 5.24x 4.54x
Including interest on
Deposits............. 2.50x 2.75x 3.26x 3.08x 4.86x 4.14x 3.27x
Per share:
Primary earnings per
common and dilutive
common equivalent
share:
Income before
cumulative effects of
changes in accounting
principles........... $.48 $.58 $1.81 $1.22 $1.98 $2.67 $2.00
Cumulative effects of
changes in accounting
principles........... -- -- -- -- 2.21 -- --
---- ---- ----- ----- ----- ----- -----
Net income........... $.48 $.58 $1.81 $1.22 $4.19 $2.67 $2.00
---- ---- ----- ----- ----- ----- -----
---- ---- ----- ----- ----- ----- -----
Fully diluted earnings
per common share:
Income before
cumulative effects of
changes in accounting
principles........... $.48 $.57 $1.77 $1.21 $1.94 $2.66 $1.98
Cumulative effects of
changes in accounting
principles........... -- -- -- -- 2.10 -- --
---- ---- ----- ----- ----- ----- -----
Net income........... $.48 $.57 $1.77 $1.21 $4.04 $2.66 $1.98
---- ---- ----- ----- ----- ----- -----
---- ---- ----- ----- ----- ----- -----
Number of shares used in
calculation:
Primary................ 60,569 58,587 59,271 58,202 58,539 48,870 47,409
Fully Diluted.......... 60,569 62,140 62,807 61,715 61,486 49,032 47,835
</TABLE>
- ------------
Footnotes on following page.
8
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<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:(a)
Cash and investments..... $3,055,323 $3,146,639 $2,764,890 $2,989,384 $3,371,624 $3,627,542
Total assets............. 5,150,133 5,107,874 4,674,046 4,689,272 4,330,580 4,590,096
Debt, including current
maturities............. 495,524 520,862 425,848 401,335 225,588 220,728
Customer banking
deposits............... 211,020 203,061 179,888 173,365 186,339 194,862
Common shareholders'
equity................. 1,102,402 1,111,491 881,815 907,856 618,161 365,495
Book value per Common
Share.................. $18.28 $18.47 $15.72 $16.27 $11.06 $7.95
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INFORMATION ON
PROPERTY
AND CASUALTY INSURANCE
OPERATIONS
(Unaudited):(a)(e)(f)
GAAP Combined Ratio...... 104.5% 102.2% 103.5% 99.1% 96.9% 101.7% 102.1%
SAP Combined Ratio....... 100.5% 99.4% 101.2% 98.8% 93.7% 102.8% 103.3%
Industry SAP Combined
Ratio(g)............... N/A 106.3% 106.4% 108.4% 106.9% 115.7% 108.8%
Premium to Surplus
Ratio(h)............... N/A N/A 1.8x 1.9x 1.6x 2.0x 2.2x
</TABLE>
- ------------
(a) Data includes acquired companies from date of acquisition.
(b) Includes interest on customer banking deposits of $12,034,000, $8,304,000,
$9,001,000, $11,954,000 and $15,138,000 for the years ended December 31,
1995, 1994, 1993, 1992 and 1991, respectively, and $6,322,000 and
$5,680,000 for the six month periods ended June 30, 1996 and 1995,
respectively.
(c) The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 and for the six month periods ended June 30, 1996 and 1995 were
calculated under Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes,' which does not reflect the benefit from
utilization of tax loss carryforwards. The provision for income taxes for
the years ended December 31, 1992 and 1991 have been reduced for the
benefit from utilization of tax loss carryforwards.
(d) For purposes of computing these ratios, earnings represent consolidated
pre-tax income before cumulative effects of changes in accounting
principles and equity in undistributed earnings or loss of less than 50%
owned companies, plus 'fixed charges.' Fixed charges excluding interest on
Deposits include interest expense (other than on Deposits), the portion of
net rental expense representative of the interest factor and amortization
of debt expense. Fixed charges including interest on Deposits include all
interest expense, the portion of net rental expense representative of the
interest factor and amortization of debt expense.
(e) Combined Ratios and the Premium to Surplus Ratios include both Colonial
Penn Group, Inc. and its subsidiaries for the relevant periods since August
16, 1991 and Empire Insurance Company.
(f) The Combined Ratio is the sum of the Loss Ratio and the Underwriting
Expense Ratio determined in accordance with generally accepted accounting
principles or statutory accounting principles ('SAP'), as the case may be.
The Loss Ratio is the ratio of incurred losses and loss adjustment expenses
to net premiums earned. The Expense Ratio is the ratio of underwriting
expenses (policy acquisition costs, commissions and a portion of
administrative, general and other expenses attributable to underwriting
operations) to net premiums written, if determined in accordance with SAP,
or to net premiums earned, if determined in accordance with generally
accepted accounting principles. A Combined Ratio under 100% indicates an
underwriting profit and a Combined Ratio above 100% indicates an
underwriting loss. The Combined Ratio does not include the effect of
investment income. Certain accident and health insurance business, which is
included in the statutory results of operations of the property and
casualty insurance segment and is reflected in the SAP Combined Ratio, is
reported in the life insurance segment for financial reporting purposes and
therefore is not included in the GAAP Combined Ratios reflected herein. For
the six month periods ended June 30, 1996 and 1995, the difference between
the GAAP Combined Ratio and the SAP Combined Ratio principally reflects
adjustments to SAP reinsurance reserves and, in 1996, the accounting for
certain expenses which are treated differently under SAP and generally
accepted accounting principles. For 1995, a change in the statutory
accounting treatment for retrospectively rated reinsurance agreements was
the principal reason for the difference between the GAAP Combined Ratio and
the SAP Combined Ratio. For 1993, the difference in the treatment of costs
for generally accepted accounting principles and SAP purposes was a
principal reason for the difference between the GAAP Combined Ratio and the
SAP Combined Ratio. For 1992, the results of certain accident and health
insurance business had a non-recurring income item which reduced the SAP
Combined Ratio. In addition, in 1992, certain income credits were
recognized only for generally accepted accounting principles purposes.
(g) Source: Best's Aggregate & Averages, Property/Casualty, 1996 edition, with
respect to annual information for 1991 through 1995, and Best Week P/C
Supplement, September 18, 1995 Release 12, with respect to interim
information for 1995. Industry Combined Ratios may not be fully comparable
as a result of, among other things, differences in geographical
concentration and in the mix of property and casualty insurance products.
(h) The Premium to Surplus Ratio was calculated by dividing statutory property
and casualty insurance premiums written by statutory capital at the end of
the year.
9
<PAGE>
<PAGE>
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture to be dated as of October 21,
1996, between the Company and Fleet National Bank, as Trustee (the 'Trustee').
The statements herein relating to the Notes and the Indenture are summaries
and make use of defined terms in the Indenture, which are incorporated herein by
reference, and are qualified in their entirety by express reference to the
Indenture, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
GENERAL
The Notes will bear interest from the date of original issue at the rate
shown on the cover page of this Prospectus, payable on April 15 and October 15
in each year to the Noteholders of record at the close of business on the April
1 and October 1 immediately preceding such interest payment date, commencing
April 15, 1997. The Notes will be due on October 15, 2006, will be issued only
in denominations of $1,000 and integral multiples of $1,000, and will be general
unsecured obligations of the Company. The Indenture authorizes an aggregate
principal amount of $135,000,000 of the Notes.
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to
maturity.
SINKING FUND
The Notes are not subject to sinking fund payments.
SUBORDINATION OF NOTES
The payment of all Obligations with respect to the Notes will be
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness (as defined in the Indenture) of the
Company whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. Upon (a) the maturity of Senior Indebtedness by
lapse of time, acceleration or otherwise or (b) any distribution of the assets
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company, the holders of Senior Indebtedness will be entitled to receive
payment in full before the Noteholders are entitled to receive any payment. In
addition, the Indenture will provide that no payments in respect of any
Obligations with respect to the Notes may be made if (i) any payment default on
any Senior Indebtedness shall have occurred or (ii) any other default under any
Senior Indebtedness shall have occurred which would permit the holders thereof
to accelerate such Indebtedness and the Company shall have received notice of
such default, unless, in the case of clauses (i) or (ii), such default shall
have been cured or waived; provided, that (a) payments on the Notes may resume
in the case of any default described in clause (ii) on the date which is 179
days after the giving of such notice (provided there is not then a default under
clause (i)) and (b) in no event shall such payment blockage be applicable for
more than 179 days in each 360-day period. If in any of the situations referred
to in clause (i) or (ii) above a payment is made to the Trustee or to
Noteholders before all Senior Indebtedness has been paid in full or provision
has been made for such payment, the payment to the Trustee or Noteholders must
be paid over to the holders of the Senior Indebtedness.
The Indenture defines 'Senior Indebtedness' to mean all Obligations of the
Company with respect to the following, whether outstanding at the date of
original execution of the Indenture or thereafter incurred, created or assumed:
(a) indebtedness of the Company for money borrowed, including, without
limitation, indebtedness of the Company for money borrowed which is evidenced by
notes, debentures, bonds or other securities issued under the provisions of an
indenture or other instrument, and also including indebtedness represented by
Purchase Money Obligations (as defined), but only to the extent such
indebtedness is enforceable by a money judgment; (b) guarantees or assumptions
by the Company of indebtedness of others of any of the kinds described in the
preceding clause (a); and (c) renewals, extensions and refundings of, and
indebtedness of a successor corporation issued in exchange for or in
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replacement of, indebtedness, guarantees and assumptions of the kinds described
in the preceding clauses (a) or (b), unless, in the case of any particular
indebtedness, obligation, guarantee, assumption, renewal, extension or
refunding, the instrument creating or evidencing the same expressly provides
that such indebtedness, obligation, guarantee, assumption, renewal, extension or
refunding is not superior in right of payment to the Notes; provided, that
Senior Indebtedness shall not be deemed to include (i) any indebtedness of the
Company to any Subsidiary, (ii) any liability for taxes, (iii) any amounts
payable or other liabilities to trade creditors arising in the ordinary course
of business, (iv) any indebtedness which is subordinate or junior by its terms
to any other indebtedness of the Company, (v) the 8 1/4% Notes, (vi) the 10 3/8%
Notes or (vii) the 5 1/4% Debentures. At June 30, 1996, the amount of
outstanding Senior Indebtedness of the Company was $150,000,000 and the amount
of indebtedness of Subsidiaries of the Company, to which the Notes are
effectively subordinated, was $21,939,000, exclusive of $211,020,000 of
Deposits. The Indenture will provide that no indebtedness of the Company shall
be senior in right of payment to the Notes unless such indebtedness is pari
passu in right of payment with the Company's other Senior Indebtedness.
'Obligations' means any principal, interest, penalties, fees, indemnities
and other obligations and liabilities payable under the documentation governing
the applicable Indebtedness.
By reason of such subordination, in the event of insolvency, general
creditors of the Company may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than Noteholders or holders of other
subordinated indebtedness of the Company.
The Notes will rank senior in right of payment to the 5 1/4% Debentures and
pari passu with the 8 1/4% Notes and any 10 3/8% Notes that remain outstanding.
CERTAIN COVENANTS
The Indenture will contain the following covenants:
Restriction on Incurrence of Indebtedness by the Company and on Incurrence
of Indebtedness and Issuance of Preferred Stock by Its Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, create, incur, assume or
guarantee the payment of any Indebtedness, and shall not permit any of its
Subsidiaries to issue any Preferred Stock, if, at the time of such event and
after giving effect thereto on a pro forma basis, the Company's ratio of
Consolidated Debt to Consolidated Tangible Net Worth, as of the most recent date
for which consolidated financial statements are available and adjusted for the
incurrence of all Indebtedness and the issuance of all Preferred Stock by
Subsidiaries (other than Permitted Indebtedness) since that date, would be
greater than 1.75 to 1. This restriction shall not preclude the incurrence of
Permitted Indebtedness.
'Consolidated Debt' means, on any date, the sum of (i) total Indebtedness
of the Company and its Subsidiaries, at such date, determined in accordance with
generally accepted accounting principles as in effect on December 31, 1995
('GAAP') on a consolidated basis, and (ii) the aggregate liquidation preference
of all Preferred Stock of Subsidiaries of the Company, at such date, other than
Preferred Stock to the extent held by the Company and its Subsidiaries;
provided, that Consolidated Debt shall not include Permitted Indebtedness.
'Indebtedness' of any Person means (i) any liability of such Person (a) for
borrowed money, (b) evidenced by a note, debenture or similar instrument
(including a Purchase Money Obligation or deferred payment obligation) given in
connection with the acquisition of any property or assets (other than inventory
or similar property acquired in the ordinary course of business), including
securities, (c) for the payment of a Capitalized Lease Obligation of such Person
or (d) with respect to the reimbursement of any letter of credit, banker's
acceptance or similar credit transaction (other than trade letters of credit
issued in the ordinary course of business; provided, that the failure to make
prompt reimbursement of any trade letter of credit shall be deemed to be the
incurrence of Indebtedness); and (ii) any guarantee by such Person of any
liability of others described in clause (i) above or any obligation of such
Person with respect to any liability of others described in clause (i) above.
Indebtedness shall not include Deposits.
'Permitted Indebtedness' means (i) any Indebtedness of the Company and its
Subsidiaries outstanding on the date of the Indenture, or any refinancing or
replacement thereof; provided, that the
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aggregate amount of such Indebtedness is not increased, (ii) Acquired
Indebtedness, (iii) Preferred Stock of Subsidiaries held by the Company or its
Subsidiaries (it being understood that the sale of such Preferred Stock by the
Company or such Subsidiary to any Person other than the Company or a Subsidiary
of the Company or such Subsidiary no longer being a Subsidiary shall be deemed
the issuance of Preferred Stock for purposes of the above test) and (iv)
intercompany Indebtedness.
'Acquired Indebtedness' means Indebtedness or Preferred Stock of a Person
either (i) existing at the time such Person becomes a Subsidiary, (ii) assumed
in connection with the acquisition of assets of such Person or (iii) any
refinancing or replacement by such Person of such Indebtedness or Preferred
Stock; provided, that the aggregate amount of such Indebtedness or Preferred
Stock then outstanding is not increased. Acquired Indebtedness shall not include
(x) any such Indebtedness created or Preferred Stock issued in anticipation of
such Person becoming a Subsidiary (other than a refinancing or replacement of
Indebtedness or Preferred Stock of such Person, which original Indebtedness or
Preferred Stock was not incurred or issued in anticipation of such Person
becoming a Subsidiary), or (y) any Indebtedness or Preferred Stock that is
recourse to the Company or any Subsidiary or any of their respective assets,
other than to such Person and its Subsidiaries and their respective assets.
Restriction on Investments by Insurance Subsidiaries. The Indenture will
provide that the Company shall not permit any Subsidiary which is an insurance
company to make, directly or indirectly, any Investment other than in Investment
Grade Securities if, after giving effect thereto at the time of such Investment,
less than 80% of the aggregate Investments of such insurance company would
consist of Investment Grade Securities, valuing Investments for purposes of this
restriction at original cost. The foregoing restriction shall not (i) apply to
Investments in the Company or any Subsidiary of the Company, (ii) prevent the
Company or its Subsidiaries from acquiring the Capital Stock of, or all or
substantially all of the assets of, an insurance company or (iii) apply to
securities issued in a restructuring or exchange offer or similar transaction
offered generally to all holders of another security then held by such
Subsidiary.
'Investment Grade Securities' means (i) securities having any of the
following ratings: at least BBB- or the equivalent thereof by S&P or at least
Baa3 or the equivalent thereof by Moody's or at least BBB- or the equivalent
thereof by Duff & Phelps Inc. ('Duff & Phelps') or (ii) cash or Cash
Equivalents.
'Cash Equivalents' shall mean (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof, (ii) U.S. dollar denominated time deposits, certificates of deposit,
eurodollar time deposits, eurodollar certificates of deposit and bankers
acceptances of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million, (iii) commercial paper having a
rating from S&P of at least A-2 or the equivalent thereof or from Moody's of at
least P-2 or the equivalent thereof or from Duff & Phelps of at least D-2 or the
equivalent thereof and maturing within nine months from the date of acquisition,
and (iv) tax-exempt commercial paper of United States municipal, state or local
governments rated at least A-2 or the equivalent thereof by S&P or at least P-2
or the equivalent thereof by Moody's or at least D-2 or the equivalent thereof
by Duff & Phelps and maturing within nine months from the date of acquisition.
Restricted Payments and Restricted Investments. The Company shall not, and
shall not permit any Subsidiary to, make, directly or indirectly, any Restricted
Payment or Restricted Investment if, immediately after giving effect to such
Restricted Payment or Restricted Investment, as the case may be: (a) a Default
or Event of Default under the Indenture shall have occurred and be continuing,
(b) the Company's Consolidated Tangible Net Worth would be less than $250
million, (c) the Company would not be permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant contained under 'Restriction on Incurrence of Indebtedness by the
Company and on Incurrence of Indebtedness and Issuance of Preferred Stock by its
Subsidiaries' above or (d) the sum of (x) the aggregate amount expended for all
Restricted Payments subsequent to March 31, 1992 and (y) the aggregate amount of
Restricted Investments made subsequent to March 31, 1992 and then outstanding
reduced by any write down of any such Restricted Investment to the extent that
such write down otherwise reduced Consolidated Net Income (the amount so
expended for a Restricted Payment or a Restricted Investment, if other than in
cash, to be determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board
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Resolution) would exceed the sum of (1) $35 million, (2) 50% of the aggregate
Consolidated Net Income of the Company (or minus 100% of the aggregate
Consolidated Net Loss of the Company) accrued on a cumulative basis subsequent
to March 31, 1992, and (3) the aggregate net proceeds, including the fair value
of property other than cash (as determined by the Board of Directors of the
Company, whose determination shall be conclusive and evidenced by a Board
Resolution), received by the Company in respect of the issue or sale subsequent
to March 31, 1992 of (i) any shares of Capital Stock of the Company, or (ii) any
Indebtedness of the Company to the extent converted into or exchanged for
Capital Stock of the Company subsequent to March 31, 1992. The foregoing
restrictions shall not prevent (x) the payment of any dividend or distribution
within 60 days after the date of declaration thereof, if at such date of
declaration such payment complied with the foregoing provisions, or (y) the
retirement of any shares of the Company's Capital Stock by exchange for, or upon
conversion of, or out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of, other shares of the Capital Stock of the
Company, and neither such retirement, exchange or conversion nor the proceeds of
any such sale shall be included in any computation made above. At June 30, 1996,
the amount available for Restricted Payments and Restricted Investments was
approximately 38% of the Company's total shareholders' equity at that date. On
the first day on which the aggregate Restricted Payments and Restricted
Investments exceed by $100 million (calculated on the date of payment or
investment) the amount of Restricted Payments and Restricted Investments that
could otherwise be made pursuant to this paragraph if gains on sales of
segments, businesses or major lines of business, net of losses on such sales
(whether sold as assets or stock), had been excluded from the definition of
'Consolidated Net Income,' then each Noteholder shall have the right, at such
Noteholder's option, to require the Company to purchase all or any portion (in
integral multiples of $1,000) of such Noteholder's Notes at 101% of the
principal amount thereof, plus accrued interest; provided, that the Company will
not be obligated to purchase any of such Notes unless Noteholders holding at
least 10% of the Notes outstanding at the date of such Restricted Payment or
Restricted Investment (other than Notes held by the Company and its Affiliates)
shall have tendered their Notes for repurchase. The mechanics, timing and other
terms of the offer will be substantially the same as those with respect to a
'Change of Control,' as described below.
'Consolidated Net Income' and 'Consolidated Net Loss' mean, for any period,
the net income or loss, as the case may be, of the Company and its Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP
(provided, that, for periods ended prior to January 1, 1995, Consolidated Net
Income shall mean the reported income before cumulative effects of changes in
accounting principles of the Company and its Subsidiaries); provided, that there
shall be excluded therefrom (to the extent otherwise included therein) (i) the
net income (or net loss) of any Person that is not the Company or a Subsidiary
of the Company, except net income of such Person may be included to the extent
of the amount of dividends or other distributions actually paid or made to the
Company or any of its Subsidiaries by such other Person during such period, (ii)
except to the extent includible pursuant to the foregoing clause (i), the net
income (or net loss) of any other Person accrued prior to the date it becomes a
Subsidiary of the Company or is merged into or consolidated with the Company or
any of its Subsidiaries or such other Person's assets are acquired by the
Company or any of its Subsidiaries, (iii) all extraordinary gains, to the extent
they exceed extraordinary losses, in each case, determined in accordance with
GAAP and (iv) all gains or losses resulting from the effect of any accounting
change.
'Consolidated Tangible Net Worth' with respect to the Company means, as of
any date, the total shareholders' equity of the Company determined in accordance
with GAAP less (a) (to the extent not otherwise deducted from total
shareholders' equity at such date) the amount of Restricted Investments of the
Company and its Subsidiaries outstanding on such date and (b) any and all
goodwill and other intangible assets reflected on the consolidated balance sheet
of the Company as of such date. Deferred policy acquisition costs ('DPAC') and
that portion of the value of insurance in force resulting from an acquisition
and equivalent to the amount of DPAC of the acquired entity outstanding
immediately prior to such acquisition shall not be deemed goodwill or other
intangible assets for purposes of determining Consolidated Tangible Net Worth.
'Restricted Investment' means, with respect to the Company or any
Subsidiary of the Company, an Investment by such Person in an Affiliate of the
Company (other than (x) in the Company or a
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Subsidiary of the Company or (y) in a Person that is an Affiliate of the Company
solely because of (i) the ownership of securities of such Person by the Company
or its Subsidiaries, (ii) contractual arrangements between the Company and its
Subsidiaries and such Person or (iii) a combination of (i) and (ii)).
'Restricted Payment' means (i) the declaration or making of any dividend or
of any other payment or distribution on or with respect to the Company's Capital
Stock (other than dividends, payments or distributions payable solely in shares
of the Company's Capital Stock), (ii) any payment on account of the purchase,
redemption, retirement or other acquisition for value of the Company's Capital
Stock; provided, that so long as there shall not be a Default or Event of
Default under the Indenture any payment to the estate of Ian M. Cumming or
Joseph S. Steinberg (or any trustee or other legal representative on behalf of
the legatees or heirs of such Persons) on account of the repurchase or
redemption of Voting Stock owned by such estates (or trustees or legal
representatives), solely from the net proceeds of any life insurance maintained
by the Company on either of such Persons, shall not be a Restricted Payment and
(iii) the declaration or making of any dividend or any other payment or
distribution with respect to the Capital Stock of any Subsidiary of the Company
and any payment on account of the purchase, redemption, retirement or other
acquisition for value of the Capital Stock of any Subsidiary of the Company but,
with respect to this clause (iii), only to the extent such dividend, payment or
distribution is received by an Affiliate of the Company (other than (x) the
Company or a Subsidiary of the Company or (y) a Person that is an Affiliate of
the Company solely because of (A) the ownership of securities of such Person by
the Company or its Subsidiaries, (B) contractual arrangements between the
Company and its Subsidiaries and such Person or (C) a combination of (A) and
(B)).
Maintenance of Consolidated Tangible Net Worth. The Company is required to
furnish the Trustee with an Officers' Certificate within 55 days after the end
of any fiscal quarter (100 days after the end of any fiscal year) notifying the
Trustee that the Company's Consolidated Tangible Net Worth has declined below
the Minimum Tangible Net Worth at the end of any fiscal quarter in which the
Company's Consolidated Tangible Net Worth has so declined. If, on the last day
of each of any two consecutive fiscal quarters (the last day of the second
fiscal quarter being referred to herein as a 'Deficiency Date'), the Company's
Consolidated Tangible Net Worth is less than the Minimum Tangible Net Worth,
then the Company is required, no later than 65 days after each such Deficiency
Date (110 days if such Deficiency Date is the last day of the Company's fiscal
year), to make an offer to all Noteholders to purchase (an 'Offer') 10% of the
aggregate principal amount of the Notes originally issued (the 'Offer Amount')
at a purchase price of 100% of the principal amount of the Notes, plus accrued
interest to the date of purchase. The Offer is required to remain open for a
period of 20 business days following its commencement (unless required to remain
open for a longer period by applicable law) and the Company is required to
purchase the Offer Amount of the Notes on a designated date no later than five
business days after the termination of the Offer or, if less than the Offer
Amount has been tendered, all Notes then tendered; provided, however, that the
Company will not be obligated to purchase any of such Notes unless Noteholders
holding at least 10% of the Offer Amount of Notes shall have tendered and not
subsequently withdrawn their Notes for repurchase. If the aggregate principal
amount of Notes tendered to the Company exceeds the Offer Amount, the Company is
required to purchase the Notes tendered to it pro rata among the Notes tendered
(with such adjustments as may be appropriate so that only Notes in denominations
of $1,000 and integral multiples thereof shall be purchased). The Company will
comply with all applicable Federal and state securities laws in connection with
each Offer. In no event will the failure of the Company's Consolidated Tangible
Net Worth to equal or exceed the Minimum Tangible Net Worth at the end of any
fiscal quarter be counted toward the making of more than one Offer. The Company
may reduce the principal amount of Notes to be purchased pursuant to the Offer
by subtracting 100% of the principal amount of Notes acquired by the Company
subsequent to the Deficiency Date through purchase or exchange and surrendered
for cancellation. The Company, however, may not credit Notes that have been
previously used as a credit against any obligation to repurchase Notes pursuant
to this provision, pursuant to a Change of Control offer or pursuant to the
repurchase obligation described under 'Restricted Payments and Restricted
Investments.'
'Minimum Tangible Net Worth' means $250 million.
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Limitation on Payment Restrictions Affecting Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, directly or indirectly,
create or otherwise cause to exist or become effective any encumbrance or
restriction on the ability of any Subsidiary to (a) pay dividends or make any
other distributions on its Capital Stock or any other interest or participation
in, or measured by, its profits, owned by the Company or any Subsidiary, or pay
any Indebtedness owed to the Company or any Subsidiary, (b) make loans or
advances to the Company or any Subsidiary or (c) transfer any of its properties
or assets to the Company, except for such encumbrances or restrictions existing
under or by reasons of (i) applicable law, (ii) the Indenture, (iii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Company or any Subsidiary, (iv) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
such Person and its Subsidiaries, or the property or assets of such Person and
its Subsidiaries, so acquired, (v) Indebtedness existing on the date of the
Indenture and any refinancing of such existing Indebtedness so long as the terms
and conditions of any such refinancing agreements are no less favorable to the
Company than those contained in the agreements governing the Indebtedness being
refinanced or (vi) other Indebtedness; provided, that the Board of Directors of
the Company shall have concluded, in good faith, that the terms thereof do not
have a materially adverse effect on the Company, on a stand-alone basis, or the
Company's ability, on a stand-alone basis, to meet its obligations.
Limitation on Issuance of Other Subordinated Debt. The Company shall not
issue, assume, guarantee, incur or otherwise become liable, directly or
indirectly, for any Indebtedness subordinate or junior in ranking in any respect
to any Senior Indebtedness but senior in right of payment to the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
In the event of any Change of Control, each Noteholder shall have the
right, at such Noteholder's option, to require the Company to purchase all or
any portion (in integral multiples of $1,000) of such Noteholder's Notes on the
date (the 'Change of Control Payment Date') which is 20 business days after the
date the Change of Control Notice (as defined below) is mailed (or such later
date as is required by applicable law) at 101% of the principal amount thereof,
plus accrued interest to the Change of Control Payment Date; provided, that the
Company will not be obligated to purchase any of such Notes unless Noteholders
holding at least 10% of the Notes outstanding at the Change of Control Payment
Date (other than Notes held by the Company and its Affiliates) shall have
tendered their Notes for repurchase. In addition, in the event of any Change of
Control, the Company will not, and will not permit any of its Subsidiaries to,
purchase or redeem any Indebtedness ranking junior to the Notes pursuant to any
analogous provisions prior to the Change of Control Payment Date.
The Company is obligated to send to all Noteholders, within five business
days after the occurrence of each Change of Control, a notice of the occurrence
of such Change of Control (the 'Change of Control Notice'), specifying a date by
which a Noteholder must notify the Company of such Noteholder's intention to
exercise the repurchase right and describing the procedure that such Noteholder
must follow to exercise such right. The Company is required to deliver a copy of
such notice to the Trustee and to cause a copy of such notice to be published in
a daily newspaper of national circulation. To exercise the repurchase right, the
Noteholder must deliver, on or before the fifth calendar day prior to the Change
of Control Payment Date, written notice (which shall be irrevocable, except as
provided below) to the Company (or an agent designated by the Company for such
purpose) of the Noteholder's exercise of such right, together with (i) the Note
or Notes with respect to which the right is being exercised, duly endorsed for
transfer with the form entitled 'Option of Holder to Elect Purchase' on the
reverse of the Note completed, and (ii) if the Change of Control Payment Date
falls between any record date for the payment of interest on the Notes and the
next succeeding interest payment date, an amount equal to the interest which the
Noteholder is entitled to receive on such interest payment date. The Company
will comply with all applicable Federal and state securities laws in connection
with each Change of Control Notice.
A 'Change of Control' shall be deemed to occur if (i) the Company has any
other Indebtedness outstanding (other than Indebtedness under a bank credit
agreement or similar bank financing) which provides for a Change of Control (as
defined in the instrument governing such Indebtedness) if Ian M.
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Cumming, Chairman of the Board of the Company, or Joseph S. Steinberg, President
of the Company, ceases to beneficially own, in the aggregate, a certain
percentage of the outstanding Common Shares, which percentage ownership
requirement is in excess of 10%, and a Change of Control (as defined in the
instrument governing such Indebtedness) occurs under such Indebtedness or (ii)
at any time when the Company does not have any other Indebtedness outstanding of
the type referred to in clause (i), Ian M. Cumming or Joseph S. Steinberg,
individually or in the aggregate, sells, transfers or otherwise disposes of (a
'Disposition'), after the date of the Indenture, Common Shares so that, after
giving effect thereto, the sole beneficial ownership of outstanding Common
Shares by Mr. Cumming and/or Mr. Steinberg would, in the aggregate, fall below
10% of the then outstanding Common Shares; provided, that no Change of Control
shall be deemed to have occurred under clause (ii) if the Notes are rated by
Moody's or S&P as Investment Grade both at the time of such Disposition and for
a period of 90 days from the date of such Disposition (it being understood that,
with respect to the foregoing proviso, a Change of Control shall be deemed to
occur on the first date during such 90-day period when the Notes are rated below
Investment Grade by both Moody's and S&P). The term 'Common Shares' shall
include any securities issued as dividends or distributions on the Common
Shares. For purposes hereof, 'sole beneficial ownership' of Common Shares shall
be deemed to include (i) all Common Shares received after June 15, 1992 from Mr.
Cumming or Mr. Steinberg by any member of their respective immediate families or
by any trust for the benefit of either of them or any member of their respective
immediate families (a 'Recipient'), which Common Shares remain held by a
Recipient during the lifetime of Mr. Cumming or Mr. Steinberg (unless sold,
transferred or disposed of by such Recipient during the lifetime of Mr. Cumming
or Mr. Steinberg, as the case may be, in which case such Disposition by such
Recipient shall constitute a Disposition by Mr. Cumming or Mr. Steinberg, as the
case may be) and (ii) after the death of Mr. Cumming and/or Mr. Steinberg, all
Common Shares owned as of the date of death by the decedent, and any Recipient
of the decedent, regardless of whether such Recipient continues to own such
Common Shares after the date of death. In determining the number of outstanding
Common Shares then held by Messrs. Cumming and Steinberg and the total number of
outstanding Common Shares, there shall be excluded Common Shares issued by the
Company after December 31, 1991, or the conversion into or exchange for, after
December 31, 1991, Common Shares or securities convertible into or exchangeable
for Common Shares. As calculated pursuant to this provision, Messrs. Cumming and
Steinberg beneficially owned, in the aggregate, approximately 45.8% of the
Common Shares as of June 30, 1996.
As of the date hereof, the Company's most restrictive outstanding
Indebtedness that contains a change of control provision requires that Mr.
Cumming and/or Mr. Steinberg continue to have sole beneficial ownership of
outstanding Common Shares equal to at least 32% of the then outstanding Common
Shares; provided that, under such Indebtedness, Messrs. Cumming and/or Steinberg
may sell, transfer or otherwise dispose of additional Common Shares if, after
giving effect thereto, they would, in the aggregate, then have sole beneficial
ownership of Common Shares equal to at least 23% of the then outstanding Common
Shares, but only if, after giving effect to any such Disposition, the aggregate
market value of the Common Shares then so owned by Mr. Cumming and/or Mr.
Steinberg on the date of such Disposition would be at least $200 million;
provided, further, that, under such Indebtedness, upon the death of either Mr.
Cumming or Mr. Steinberg, the aggregate market value of the Common Shares then
so owned by the survivor on the date of such Disposition would be at least $100
million. There can be no assurance that the Company will have sufficient funds
or the financing to satisfy its obligations to repurchase the Notes and other
Indebtedness that may come due upon a Change of Control. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture.
The Noteholders holding a majority in principal amount of Notes then
outstanding may waive compliance by the Company of its obligation to repurchase
Notes upon a Change of Control. The Company may not waive such provisions. See
'Modification of the Indenture.'
The term 'Investment Grade' is defined as BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by Moody's or S&P.
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TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, enter into any transaction or series of related transactions with
any Affiliate (other than (a) with the Company or a Wholly Owned Subsidiary or
(b) the making of a Restricted Payment or Restricted Investment otherwise
permitted by the covenant described under 'Restricted Payments and Restricted
Investments' above), including, without limitation, any loan, advance or
investment or any purchase, sale, lease or exchange of property or the rendering
of any service, unless such transaction or series of transactions is in good
faith and at arm's-length and on terms which are at least as favorable as those
available in a comparable transaction from an unrelated Person. Any such
transaction that involves in excess of $10 million shall be approved by a
majority of the Independent Directors on the Board of Directors of the Company;
or, in the event that at the time of any such transaction or series of related
transactions there are no Independent Directors serving on the Board of
Directors of the Company, such transaction or series of related transactions
shall be approved by a nationally recognized expert with experience in
appraising the terms and conditions of the type of transaction for which
approval is required.
SUCCESSOR CORPORATION
The Company may not consolidate with, merge into or transfer all or
substantially all of its assets (i.e., 90% or more) to another corporation
unless (a) the successor corporation shall be existing under the laws of the
United States, any state thereof or the District of Columbia, (b) there shall
not be any Default or Event of Default under the Indenture, (c) such successor
corporation assumes all of the Obligations of the Company under the Notes and
the Indenture, (d) after giving effect to such transaction, such successor
corporation shall have a Consolidated Net Worth equal to or greater than the
Company and (e) after giving effect to such transaction, the Company or such
successor corporation is permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) as provided in the Indenture.
Thereafter all such obligations of the Company will terminate.
REPORTS TO NOTEHOLDERS
The Company will mail copies of its annual reports and quarterly reports
mailed to its shareholders to Noteholders. If the Company is not required to
furnish annual or quarterly reports to its shareholders, the Company will, upon
request, mail to each Noteholder, at such Noteholder's address as appearing on
the Note register, audited annual financial statements and unaudited condensed
quarterly financial statements. Such financial statements shall be accompanied
by management's discussion and analysis of the results of operations and
financial condition of the Company for the period reported upon in substantially
the form required under the rules and regulations of the Commission in effect
from time to time.
THE TRUSTEE
Fleet National Bank will be the Trustee under the Indenture.
The Noteholders holding a majority in principal amount of all outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. The Indenture
will provide that, in case an Event of Default thereunder shall occur and be
continuing, the Trustee will be required to use the degree of care of a prudent
person in the conduct of his own affairs in the exercise of its power. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the
Noteholders, unless they shall have offered to the Trustee security and
indemnity satisfactory to it.
EVENTS OF DEFAULT AND NOTICE THEREOF
The term 'Event of Default' when used in the Indenture shall mean any one
of the following: (i) failure to pay (whether or not prohibited by the
subordination provisions) interest for 30 days or principal; (ii) failure to
perform any covenants not described in clause (i) for 30 days after receipt of
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notice; (iii) the occurrence of any event of default under an instrument
evidencing or securing other indebtedness of the Company or any Material
Subsidiary for borrowed money in excess of $15 million resulting in the
acceleration of such indebtedness, which acceleration is not rescinded or
annulled pursuant to the terms of such instrument; and (iv) certain events of
bankruptcy, insolvency or reorganization relating to the Company or any Material
Subsidiary.
The term 'Material Subsidiary' means (i) any Subsidiary of the Company
which at December 31, 1995 was a 'significant subsidiary' under Regulation S-X
promulgated by the Commission or any successor to such Subsidiary and (ii) any
other Subsidiary of the Company; provided that the Company's investments in and
advances to such Subsidiary at the date of determination thereof, without giving
effect to any write-downs in such investments or advances taken within the prior
12 months, represent 20% or more of the Company's Consolidated Tangible Net
Worth as of such time; provided, however, that this clause (ii) shall not
include any Subsidiary if, at the time that it became a Subsidiary, the Company
contemplated commencing a voluntary case or proceeding under the Bankruptcy Law
with respect to such Subsidiary.
The Indenture will provide that the Trustee shall, within 90 days after the
occurrence of a default, provide to the Noteholders notice of all uncured
defaults known to it (the term default to include the events specified above
without grace or notice); provided, that, except in the case of default in the
payment of principal of or interest on any of the Notes, the Trustee shall be
protected in withholding such notice if and so long as a committee of its Trust
Officers in good faith determines that the withholding of such notice is in the
interests of the Noteholders.
In case an Event of Default shall have occurred and be continuing, the
Trustee or the Noteholders holding at least 25% in aggregate principal amount of
the Notes then outstanding, by notice in writing to the Company and to the
Trustee, may declare to be due and payable immediately the outstanding principal
amount and accrued interest, premiums, penalties and other amounts in respect of
the Notes and the Indenture. Such declaration may be annulled and past defaults
(except, unless theretofore cured, a default in payment of principal of or
interest on the Notes) may be waived by the holders of a majority in principal
amount of the Notes, upon the conditions provided in the Indenture.
The Indenture will include a covenant that the Company will file annually
with the Trustee a statement regarding compliance by the Company with the terms
thereof and specifying any defaults of which the signers may have knowledge.
MODIFICATION OF THE INDENTURE
Under the Indenture, the rights and obligations of the Company and the
rights of Noteholders may be modified by the Company and the Trustee only with
the consent of the Noteholders holding a majority in principal amount of the
Notes then outstanding; but no extension of the maturity of any Notes, or
reduction in the interest rate or extension of the time of payment of principal
of or interest on, or any change in the subordination of the Notes that is
adverse to the Noteholders, or any other modification in the terms of payment of
the principal of or interest on the Notes or reduction of the percentage
required for modification will be effective against any Noteholder without such
Noteholder's consent. The Noteholders holding a majority in principal amount of
Notes then outstanding may waive compliance by the Company with certain
covenants, including those described under 'Certain Covenants -- Maintenance of
Consolidated Tangible Net Worth' and 'Repurchase at Option of Holders Upon a
Change of Control.'
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged and cancelled upon payment of all the
Notes or upon deposit with the Trustee, within not more than one year prior to
the maturity of the Notes, of funds sufficient for such payment.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between Jefferies & Company, Inc. and CS First Boston Corporation (collectively,
the 'Underwriters') and the Company, such Underwriters have severally agreed to
purchase from the Company $101,250,000 and $33,750,000 aggregate principal
amount of the Notes, respectively.
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if they purchase any
of the Notes.
The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of .50% of the
principal amount of the Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of .25% of the principal amount of the Notes
to certain other dealers. After the initial public offering, the offering price,
concession and discount may be changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act or to contribute to
payments the Underwriters may be required to make in respect thereof.
Each of Jefferies & Company, Inc. and CS First Boston Corporation has
previously performed investment banking and other financial advisory services
for the Company for which they have received customary compensation. Jefferies &
Company, Inc. is also acting as Dealer Manager of the Tender Offer, for which it
will receive compensation in connection therewith.
LEGAL MATTERS
The validity of the securities offered hereby and certain legal matters
will be passed upon by Weil, Gotshal & Manges LLP, New York, New York, General
Counsel to the Company (members of which own approximately 165,000 Common
Shares). Certain legal matters will be passed upon for the Underwriters by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
Prospectus Summary................................ 3
The Company....................................... 5
Use of Proceeds................................... 6
Capitalization.................................... 7
Selected Financial Data........................... 8
Description of Notes.............................. 10
Underwriting...................................... 19
Legal Matters..................................... 19
Experts........................................... 19
</TABLE>
$135,000,000
LEUCADIA NATIONAL
CORPORATION
7 7/8% SENIOR SUBORDINATED NOTES
DUE 2006
PROSPECTUS
JEFFERIES & COMPANY, INC.
CS FIRST BOSTON
OCTOBER 16, 1996
<PAGE>
