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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
-------------
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-5721
LEUCADIA NATIONAL CORPORATION
- ---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York 13-2615557
- ------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
315 Park Avenue South
New York, New York 10010
(212) 460-1900
- ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------- -----------------------------------
Common Shares, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
10-3/8% Senior Subordinated Notes due New York Stock Exchange
June 15, 2002
5-1/4% Convertible Subordinated New York Stock Exchange
Debentures due February 1, 2003
7-3/4% Senior Notes due August 15, 2013 New York Stock Exchange
8-1/4% Senior Subordinated Notes due New York Stock Exchange
June 15, 2005
7-7/8% Senior Subordinated Notes due New York Stock Exchange
October 15, 2006
Securities registered pursuant to Section 12(g) of the Act:
None.
- ---------------------------------------------------------------------------
(Title of Class)
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
such filing requirements for the past 90 days. Yes [x] No [_]
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
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [x].
Aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant at March 19, 1997 (computed by reference to
the last reported closing sale price of the Common Stock on the New York
Stock Exchange on such date): $1,079,513,739.
On March 19, 1997, the registrant had outstanding 60,458,618 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with
the 1996 annual meeting of shareholders of the registrant are incorporated
by reference into Part III of this Report.
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<PAGE>
PART I
Item 1. Business.
------ --------
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 emphasiz-
ing 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 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), to a positive
shareholders' equity of $1,118,107,000 at December 31, 1996, equal to
a book value per common share of negative $.11 at December 31, 1978
and $18.51 at December 31, 1996.
The Company's principal operations are its insurance businesses,
where it is a specialty markets provider of property and casualty and
life and health 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 Medicare supplement and variable
annuity products. The Company's principal commercial lines are
property and casualty products provided for workers' compensation,
multi-family residential real estate, retail establishments and livery
vehicles in the New York metropolitan area. For the year ended
December 31, 1996, the Company's insurance segments contributed 83% of
total revenue and, at December 31, 1996, constituted 77% of
consolidated assets.
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 5.1% of the insurance subsidiaries' portfolio
at December 31, 1996.
From time to time several companies have expressed interest in the
acquisition of certain of the Company's insurance operations. Recently, the
Company has responded to certain of these overtures, conveying a
willingness to consider the sale of one or more of these operations in the
appropriate context and under acceptable circumstances. Presently the
Company is in discussions with certain interested parties. Although there
can be no assurance that any transaction will be entered into or that, if
entered into, any such transaction will be consummated, the price ranges
being discussed for such insurance operations are substantially in excess
of the book value of these operations. Unless and until a definitive
agreement is executed concerning any such transaction, the Company does not
intend to update the status of any discussions concerning any possible
transaction.
The Company's banking and lending operations principally consist
of making instalment loans to niche markets primarily funded by
customer banking deposits insured by the Federal Deposit Insurance
Corporation (the "FDIC"). 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.
Starting in 1994, the Company has made investments outside the
United States in Russia and Argentina. For more information
concerning these investments see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," of this
Report.
The Company and certain of its subsidiaries have substantial tax
loss carryforwards. The amount and availability of the tax loss
carryforwards are subject to certain qualifications, limitations and
uncertainties as more fully discussed in the Notes to the Consolidated
Financial Statements.
As used herein, the term "Company" refers to Leucadia National
Corporation, a New York corporation organized in 1968, and its
subsidiaries, except as the context otherwise may require.
<PAGE>
Financial Information About Industry Segments
---------------------------------------------
Certain information concerning the Company's operations is
presented in the following table.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
(In millions)
Revenues:
--------
<S> <C> <C> <C>
Property and Casualty Insurance $1,015.1 $ 984.3 $ 872.1
Life Insurance 240.8 223.6 223.3
Banking and Lending 55.1 58.6 49.0
Manufacturing 148.4 166.3 180.1
Corporate and Other (a) 47.2 125.5 59.9
-------- -------- --------
$1,506.6 $1,558.3 $1,384.4
======== ======== ========
Income (loss) before income taxes:
---------------------------------
Property and Casualty Insurance $ 95.5 $ 78.9 $ 96.4
Life Insurance 53.8 53.7 49.1
Banking and Lending 14.5 16.7 16.3
Manufacturing .4 (18.0) (11.7)
Corporate and Other (a)(b) (85.7) .9 (49.8)
-------- -------- --------
$ 78.5 $ 132.2 $ 100.3
======== ======== ========
Identifiable assets employed:
----------------------------
Property and Casualty Insurance $2,398.8 $2,374.2 $2,117.9
Life Insurance 1,631.3 1,538.4 1,515.1
Banking and Lending 291.3 336.8 316.4
Manufacturing 68.7 83.6 93.5
Corporate and Other (c) 803.8 774.9 631.1
-------- -------- --------
$5,193.9 $5,107.9 $4,674.0
======== ======== ========
</TABLE>
At December 31, 1996, the Company and its consolidated
subsidiaries had 3,919 full-time employees.
----------------
(a) Includes equity in losses of associated companies ($33,631,000 in
1996, $2,613,000 in 1995 and $5,176,000 in 1994), gains (losses)
from certain investments and real estate and other operations.
In 1995, includes a $41,030,000 gain related to the return of two
of the Company's legal subsidiaries, which were formerly under
the control of the Wisconsin Insurance Commissioner (the "WMAC
Companies").
(b) Includes corporate interest expense and overhead, including
expenses related to certain acquisition and investing activities.
(c) Principally consists of cash, investments, real estate,
receivables and the deferred income tax asset.
2
<PAGE>
INSURANCE OPERATIONS
GENERAL
The Company engages in the personal property and casualty and
life and health insurance businesses on a nationwide basis and
specializes in commercial property and casualty insurance business in
the New York metropolitan area. The Company's principal property and
casualty insurance operations are conducted through the Colonial Penn
P&C Group and the Empire Group. The Colonial Penn P&C Group consists
of Colonial Penn Insurance Company ("CPI"), Colonial Penn Madison
Insurance Company ("Madison"), Colonial Penn Franklin Insurance
Company ("Franklin"), Bayside Casualty Insurance Company ("Bayside")
and Bay Colony Insurance Company ("Bay Colony") and the Empire Group
consists of Empire Insurance Company ("Empire") and Allcity Insurance
Company ("Allcity"). The Company's principal life and health
insurance subsidiaries are Charter National Life Insurance Company
("Charter"), Colonial Penn Life Insurance Company ("CPL"),
Providential Life Insurance Company ("Providential") and Intramerica
Life Insurance Company ("Intramerica"). In conducting its insurance
operations, the Company focuses primarily on profitability and
persistency rather than volume.
A.M. Best Company ("Best"), an independent rating agency, has
rated CPL and Charter "A" (excellent), CPI, Madison, Franklin, Bay
Colony and Intramerica "A-" (excellent) and the Empire Group and
Providential "B++" (very good). Bayside has not been assigned a
rating. Ratings are subject to change at any time.
PROPERTY AND CASUALTY INSURANCE
The Colonial Penn P&C Group, which maintains its headquarters in
Valley Forge, Pennsylvania, is licensed in all 50 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands and writes
insurance throughout most of the United States. The Colonial Penn P&C
Group has regional offices in Valley Forge, Pennsylvania, Tampa,
Florida and Phoenix, Arizona. The Empire Group is licensed in six
states and operates primarily in the New York metropolitan area.
During the year ended December 31, 1996, 82%, 11% and 7% of net
earned premiums of the Company's property and casualty insurance
operations were derived from personal and commercial automobile lines,
other commercial lines and other personal lines, respectively. Total
property and casualty net earned premiums for the year ended December
31, 1996 were $823,500,000.
Set forth below is certain statistical information for the
Company's property and casualty operations prepared in accordance with
generally accepted accounting principles ("GAAP") and statutory
accounting principles ("SAP"). 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 GAAP. A Combined
Ratio below 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.
3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loss Ratio:
GAAP 87.7% 87.7% 81.2%
SAP 85.8% 85.9% 81.6%
Industry (SAP) (a) N/A 78.9% 81.1%
Expense Ratio:
GAAP 17.3% 15.8% 17.9%
SAP 15.7% 15.3% 17.2%
Industry (SAP) (a) N/A 27.5% 27.3%
Combined Ratio (b):
GAAP 105.0% 103.5% 99.1%
SAP 101.5% 101.2% 98.8%
Industry (SAP) (a) N/A 106.4% 108.4%
<FN>
_______________
(a) Source: Best's Aggregates & Averages, Property/Casualty, 1996 Edition.
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.
(b) For 1996 and 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. Additionally in 1996, the difference relates to the accounting
for certain expenses which are treated differently under SAP and GAAP.
</FN>
</TABLE>
The Colonial Penn P&C Group
The Colonial Penn P&C Group's primary business is providing
private passenger automobile and homeowners insurance coverage to the
mature adult population. Substantially all of the Group's policies
are written for a one-year period. However, in many states CPI and
Franklin offer a "guaranteed lifetime protection" provision to certain
qualifying policyholders that ensures their policies will be renewed
at rates then in effect for their classification. As of December 31,
1996, the Group had approximately 379,000 voluntary automobile policies in
force, representing a 6.6% increase over the prior year end. The
Company believes the Colonial Penn P&C Group will continue to grow its
voluntary automobile business during 1997, although the Company is
unable to estimate the rate of growth or state with certainty that
such growth will actually occur.
The Colonial Penn P&C Group primarily markets its insurance
products to the standard and preferred risk market segments through
direct response marketing methods. Direct response marketing includes
any form of marketing in which a company and a customer deal directly
with each other, rather than through an insurance agent. The Colonial
Penn P&C Group has become a low cost provider of its products to its
niche markets, enabling it to charge competitive rates.
Based on published reports, the Colonial Penn P&C Group's SAP
Expense Ratio for 1995, the last year for which annual industry data
is available, is among the lowest in the industry.
4
<PAGE>
For the years ended December 31, 1996, 1995 and 1994, net earned
premiums for the Colonial Penn P&C Group were $497,100,000,
$490,500,000 and $447,200,000, respectively. Net earned premiums for
the Colonial Penn P&C Group for the year ended December 31, 1996 were
concentrated in the states listed below:
<TABLE>
<CAPTION>
Percentage of Net
Earned Premiums
-----------------
State Automobile(1) Homeowners
----- ------------- ----------
<S> <C> <C>
California 20% 14%
Florida 18 25
New York 13 13
Arizona 7 7
Connecticut 6 5
New Jersey 6 4
Pennsylvania 4 6
All others 26 26
--- ---
Total 100% 100%
=== ===
<FN>
______________
(1) Excludes net earned premiums related to acquired blocks of assigned risk
business described below and mandatory assumed risk business, which generally
relates to the amount of writings in the applicable state.
</FN>
</TABLE>
In recent years, the Colonial Penn P&C Group has acquired blocks
of assigned risk business from other insurance companies (the "service
business") relating to private passenger automobile insurance. In
addition to the premiums paid by policyholders, the Group also
receives fee income from the insurance company from which the business
was acquired. The Group's low expense ratio enables it to bid
competitively. The Colonial Penn P&C Group currently has contracts in
force covering approximately $80,000,000 of annualized written
premium.
Prior to its acquisition by the Company, CPI wrote as primary
insurer or as a reinsurer a variety of diverse commercial property and
casualty insurance business known as "Special Risks." The nature of
most of this insurance, which was not written after 1988, involves
exposures which can be expected to develop over a relatively long
period of time before a definitive determination of ultimate losses
and loss adjustment expenses can be established and the relevant
reinsurance collected. Although losses with respect to this block of
business are particularly difficult to predict accurately, the Company
believes, based in part upon a recently completed independent
actuarial review, that it has recorded adequate reserves as of
December 31, 1996 ($49,700,000, before reinsurance).
The Empire Group
The Empire Group provides personal insurance coverage to
automobile owners and homeowners and commercial insurance for workers'
compensation, residential real estate, restaurants, retail
establishments, livery vehicles (both medallion and radio-controlled)
and several types of service contractors.
For the years ended December 31, 1996, 1995 and 1994, net earned
premiums and commissions for the Empire Group were $326,400,000,
$326,100,000 and $299,200,000, respectively. Substantially all of the
Empire Group's policies are written in New York for a one-year period.
The Empire Group is licensed in New York to write all lines of
insurance that may be written by a property and casualty insurer,
except residual value, credit, unemployment, animal and marine
protection and indemnity insurance and ocean marine insurance.
5
<PAGE>
The voluntary business of the Empire Group is produced through
general agents, local agents and insurance brokers, who are
compensated for their services by payment of commissions on the
premiums they generate. There are five general agents, one of which
is owned by Empire, and approximately 390 local agents and insurance
brokers presently acting under agreements with the Empire Group.
These agents and brokers also represent other competing insurance
companies.
Like the Colonial Penn P&C Group, the Empire Group also has
service business relating to private passenger and commercial
automobile insurance. The Empire Group currently has contracts in
force covering approximately $83,000,000 of annualized written
premiums. In addition, the Empire Group receives a fee for providing
administrative services, including claims processing, underwriting and
collection activities, for the New York Public Automobile Pool and the
Massachusetts Taxi and Limousine Pool. These latter arrangements do
not involve the assumption of any material underwriting risk by the
Empire Group.
Losses and Loss Adjustment Expenses
Liabilities for unpaid losses, which are not discounted (except
for certain workers' compensation liabilities), and loss adjustment
expenses ("LAE") are determined using case-basis evaluations,
statistical analyses and estimates for salvage and subrogation
recoverable and represent estimates of the ultimate claim costs of all
unpaid losses and LAE. Liabilities include a provision for losses
that have occurred but have not yet been reported. These estimates
are subject to the effect of trends in future claim severity and
frequency experience. Adjustments to such estimates are made from
time to time due to changes in such trends as well as changes in
actual loss experience. These adjustments are reflected in current
earnings.
The Company's property and casualty insurance subsidiaries rely
upon standard actuarial ultimate loss projection techniques to obtain
estimates of liabilities for losses and LAE. These projections
include the extrapolation of both losses paid and incurred by business
line and accident year and implicitly consider the impact of inflation
and claims settlement patterns upon ultimate claim costs based upon
historical patterns. In addition, methods based upon average loss
costs, reported claim counts and pure premiums are reviewed in order
to obtain a range of estimates for setting the reserve levels. For
further input, changes in operations in pertinent areas including
underwriting standards, product mix, claims management and legal
climate are periodically reviewed.
In the following table, the liability for losses and LAE of the
Company's property and casualty insurance subsidiaries are reconciled
for each of the three years ended December 31, 1996. Included therein
are current year data and prior year development.
6
<PAGE>
<TABLE>
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND
LOSS ADJUSTMENT EXPENSES
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net liability for losses
and LAE at
beginning of year $ 999,641 $ 923,905 $ 889,082
---------- ---------- ----------
Provision for losses and
LAE for claims occurring
in the current year 733,263 735,071 679,377
Decrease in estimated
losses and LAE for
claims occurring in
prior years (8,631) (16,378) (71,484)
---------- ---------- ----------
Total incurred losses
and LAE 724,632 718,693 607,893
---------- ---------- ----------
Reclassification of
uncollectible
reinsurance reserves
due to commutations-
prior years 2,947 - 15,528
---------- ---------- ----------
Losses and LAE payments for
claims occurring during:
Current year 304,533 276,212 259,295
Prior years 439,511 366,745 329,303
---------- ---------- ----------
744,044 642,957 588,598
---------- ---------- ----------
983,176 999,641 923,905
Reserve deducted above for
reinsurance not considered
collectible 14,511 22,432 26,547
---------- ---------- ----------
997,687 1,022,073 950,452
Reinsurance
recoverable 112,780 106,879 117,566
---------- ---------- ----------
Liability for losses and
LAE at end of year as
reported in financial
statements $1,110,467 $1,128,952 $1,068,018
========== ========== ==========
</TABLE>
The Company's property and casualty insurance subsidiaries'
liability for losses and LAE as of December 31, 1996 was $999,981,000
determined in accordance with SAP and $1,110,467,000 determined in
accordance with GAAP. The difference principally relates to
liabilities assumed by reinsurers, which are not deducted from GAAP
liabilities.
The following tables present the development of balance sheet
liabilities from 1986 through 1996 and include periods prior to
acquisition for the Empire Group and the Colonial Penn P&C Group.
Because of substantial differences in the development of reserves of
the Empire Group and the Colonial Penn P&C Group, loss and LAE
development data is presented separately for each group. The
liability line at the top of each table indicates the estimated
liability for unpaid losses and LAE recorded as of the dates
indicated. The middle
7
<PAGE>
section of the table shows the re-estimated amount of the previously
recorded liability based on experience as of the end of each
succeeding year. As more information becomes available and claims are
settled, the estimated liabilities are adjusted upward or downward
with the effect of decreasing or increasing net income at the time of
adjustment. The lower section of the table shows the cumulative
amount paid with respect to the previously recorded liability as of
the end of each succeeding year.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the
initial 1986 liability estimate indicated on the Empire Group table of
$182,133,000 has been re-estimated during the course of the succeeding
ten years, resulting in a re-estimated liability at December 31, 1996
of $169,021,000, or a redundancy of $13,112,000. If the re-estimated
liability exceeded the liability initially established, a cumulative
deficiency would be indicated. The cumulative deficiencies reflected
in the Colonial Penn P&C Group table are for periods prior to the
Company's acquisition of that Group. The Company believes that the
Colonial Penn P&C Group's loss reserving policies and improved claims
management procedures since acquisition in 1991 have contributed
significantly to the creation of the redundancies included in its
table below.
In evaluating this information, it should be noted that each
amount shown for "cumulative redundancy (deficiency)" includes the
effects of all changes in amounts for prior periods. For example, the
amount of the redundancy (deficiency) related to losses settled in
1990, but incurred in 1986, will be included in the cumulative
redundancy (deficiency) amount for 1986, 1987, 1988 and 1989. This
table is not intended to and does not present accident or policy year
loss and LAE development data. Conditions and trends that have
affected development of the liability in the past may not necessarily
occur in the future. Accordingly, it would not be appropriate to
extrapolate future redundancies or deficiencies based on these tables.
For further discussion of the Company's loss development
experience, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," of this Report.
8
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (THE EMPIRE GROUP)
Year Ended December 31
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for
Unpaid Losses
and Loss
Adjustment
Expenses $182,133 $206,709 $222,814 $235,223 $251,401 $280,679 $322,516 $353,917 $406,695 $476,692 $481,138
Liability
Re-estimated
as of:
One Year Later $180,975 $198,384 $213,671 $227,832 $249,492 $280,020 $321,954 $344,156 $441,165 $504,875 $ -
Two Years Later 175,305 194,530 206,088 217,432 245,141 277,866 324,262 374,158 467,659
Three Years Later 170,152 188,843 198,500 212,649 243,849 284,052 345,576 394,418
Four Years Later 168,574 184,564 194,324 211,859 247,314 296,484 361,903
Five Years Later 165,717 181,990 196,070 211,952 255,045 306,094
Six Years Later 164,487 183,015 196,646 216,545 260,031
Seven Years Later 166,266 183,082 199,502 219,786
Eight Years Later 165,953 185,609 201,600
Nine Years Later 167,719 187,252
Ten Years Later 169,021
Cumulative
Redundancy
(Deficiency) $ 13,112 $ 19,457 $ 21,214 $ 15,437 $ (8,630) $(25,415) $(39,387) $(40,501) $(60,964) $(28,183) $ -
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Cumulative Amount
of Liability
Paid Through:
One Year Later $ 54,359 $ 60,446 $ 64,140 $ 65,822 $ 78,954 $ 89,559 $113,226 $116,986 $152,904 $202,334 $ -
Two Years Later 88,770 97,627 101,206 109,479 126,908 150,043 182,250 199,214 270,020
Three Years Later 114,322 123,092 131,705 140,916 167,330 197,848 239,092 272,513
Four Years Later 130,433 142,910 152,330 166,023 196,099 233,244 285,880
Five Years Later 141,346 155,786 168,117 182,001 216,749 259,946
Six Years Later 149,079 164,213 178,095 193,943 231,892
Seven Years Later 153,681 170,215 185,310 203,169
Eight Years Later 157,332 175,117 191,292
Nine Years Later 160,497 179,368
Ten Years Later 164,019
Gross Liability -
End of Year $391,829 $451,442 $517,422 $532,319
Reinsurance 37,912 44,747 40,730 51,181
-------- -------- -------- --------
Net Liability -
End of Year as
Shown Above $353,917 $406,695 $476,692 $481,138
======== ======== ======== ========
Gross Re-estimated
Liability - Latest $452,063 $522,833 $557,475
Re-estimated
Reinsurance - Latest 57,645 55,174 52,600
-------- -------- --------
Net Re-estimated
Liability - Latest $394,418 $467,659 $504,875
======== ======== ========
Gross Cumulative
(Deficiency) $(60,234) $(71,391) $(40,053)
======== ======== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (THE COLONIAL PENN P&C GROUP)
Year Ended December 31
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for
Unpaid Losses
and Loss
Adjustment
Expenses $324,700 $386,200 $ 410,500 $ 448,800 $626,300 $657,700 $581,810 $535,165 $517,210 $522,949 $502,038
Liability
Re-estimated
as of:
One Year Later $352,600 $389,900 $ 445,600 $ 555,900 $659,800 $616,400 $497,994 $473,442 $466,362 $486,135 $ -
Two Years Later 340,600 409,000 506,800 588,600 619,600 574,000 463,885 444,554 451,115
Three Years Later 338,700 443,700 535,600 563,800 614,000 555,800 450,542 440,476
Four Years Later 359,400 467,300 522,800 565,800 605,900 547,800 450,742
Five Years Later 384,000 459,400 526,700 562,900 599,700 546,400
Six Years Later 375,700 464,700 526,200 559,200 600,300
Seven Years Later 381,300 465,300 524,400 559,000
Eight Years Later 384,900 464,800 524,500
Nine Years Later 386,000 465,000
Ten Years Later 385,900
Cumulative
Redundancy
(Deficiency) $(61,200) $(78,800)$(114,000) $(110,200)$ 26,000 $111,300 $131,068 $ 94,689 $ 66,095 $ 36,814 $ -
======== ======== ========= ========= ======== ======== ======== ======== ======== ======== ========
Cumulative Amount
of Liability
Paid Through:
One Year Later $177,100 $207,700 $ 243,300 $ 258,500 $279,300 $283,200 $205,200 $212,317 $213,841 $237,177 $ -
Two Years Later 249,800 304,000 353,300 387,500 432,500 390,100 317,492 319,253 326,809
Three Years Later 288,700 356,800 419,900 467,500 492,900 461,000 379,521 386,347
Four Years Later 313,700 393,100 462,200 496,400 536,500 496,400 419,428
Five Years Later 332,700 416,800 476,400 523,400 559,100 525,500
Six Years Later 343,600 425,500 496,900 536,500 583,900
Seven Years Later 349,200 441,800 505,800 553,700
Eight Years Later 366,000 448,900 520,200
Nine Years Later 371,600 461,200
Ten Years Later 382,000
Gross Liability -
End of Year $660,039 $616,576 $611,530 $578,148
Reinsurance 124,874 99,366 88,581 76,110
-------- -------- -------- --------
Net Liability -
End of Year as
Shown Above $535,165 $517,210 $522,949 $502,038
======== ======== ======== ========
Gross Re-estimated
Liability - Latest $543,402 $535,515 $561,191
Re-estimated
Reinsurance -
Latest 102,926 84,400 75,056
-------- -------- --------
Net Re-estimated
Liability - Latest $440,476 $451,115 $486,135
======== ======== ========
Gross Cumulative
Redundancy $116,637 $ 81,061 $ 50,339
======== ======== ========
</TABLE>
10
<PAGE>
LIFE INSURANCE
The principal life insurance products offered during the three
year period ended December 31, 1996 were "Graded Benefit Life" and a
variable annuity product. Through its various subsidiaries, the
Company is licensed in all 50 states, the District of Columbia, Puerto
Rico, Guam and the U.S. Virgin Islands and generally sells its
products throughout most of the United States. Total direct life
insurance in force as of December 31, 1996 was $2.1 billion.
The following table reflects premium receipts on variable annuity
and other investment oriented products and premiums earned on other
life and health insurance products. Variable annuity and other
investment oriented product premium receipts are not recorded as
revenue under GAAP but are recorded in a manner similar to a deposit,
and are included below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Graded Benefit Life $120,951 $117,691 $113,678
Variable Annuity 47,228 43,708 98,557
Other Investment
Oriented Products 5,044 6,494 9,523
Agent-sold Medicare
Supplement Products(1) 39,501 27,982 35,967
Other Health Products 11,941 13,919 16,225
Other 892 566 2,629
-------- -------- --------
Total $225,557 $210,360 $276,579
======== ======== ========
<FN>
__________________
(1) Includes Providential's agent-sold Medicare supplement products from
April 1996, the date of acquisition.
</FN>
</TABLE>
Life and Health Insurance Products
Graded Benefit Life. "Graded Benefit Life" is a guaranteed-issue
product. These modified-benefit, whole life policies are offered on
an individual basis primarily to persons age 50 to 80, principally in
face amounts of $350 to $10,000, without medical examination or
evidence of insurability. Premiums are paid as frequently as monthly.
Benefits paid are less than the face amount of the policy during the
first two years, except in cases of accidental death. Graded Benefit
Life is marketed using direct response marketing techniques. New
policyholder leads are generated primarily from television
advertisements. The Company intends to continue to concentrate its
marketing efforts towards soliciting new policyholders where the cost
is justified, upgrading existing policyholders' policy packages and
obtaining referrals from existing policyholders.
Investment Oriented Products. The principal investment oriented
product ("IOP" product) offered is a no-load variable annuity ("VA")
product. The VA product is marketed as an investment vehicle to
individuals seeking to defer, for federal income tax purposes, the
annual increase in their account balance. Premiums from this VA
product are invested at the policyholders' election in either
unaffiliated mutual funds, where the policyholder bears the entire
investment risk, or in a fixed account, where the funds earn interest
at rates determined by the Company. The Company's VA product is
currently marketed in conjunction with Scudder, Stevens and Clark, a
mutual fund manager.
11
<PAGE>
Medicare Supplement Products. In 1992, CPL discontinued
marketing its Medicare supplement products due to increased
competition in this market and expectations that such competition
would result in inadequate profitability. However, CPL has continued
to offer, on a profitable basis, renewals of its Medicare supplement
products. In April 1996, the Company acquired Providential, which
markets agent-sold standardized Medicare supplement products in
communities where health maintenance organizations are less prevalent.
The absence of health maintenance organizations allows Providential to
charge premium rates that provide for an adequate return on
investments. The Company will continue to explore the acquisition of
additional companies or blocks of this business in certain markets.
INSURANCE OPERATIONS - GENERAL
Investments
Investment activities represent a significant part of the
Company's insurance related revenues and profitability. Investments
are managed by the Company's investment advisors under the direction
of, and upon consultation with, the Company's several investment
committees.
The Company's insurance subsidiaries have a diversified
investment portfolio of securities, substantially all of which are
rated "investment grade" by Moody's and/or S&P or issued or guaranteed
by the U.S. Treasury or by governmental agencies. The Company's
insurance subsidiaries do not generally invest in less than
"investment grade" or "non-rated" securities, real estate or
mortgages, although from time to time they may make such investments
in amounts not expected to be material.
The composition of the Company's insurance subsidiaries'
investment portfolio as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
PROPERTY AND CASUALTY LIFE AND HEALTH
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. Government and agencies 85% 83% 72% 72%
Rated investment grade 9 13 16 18
Non rated - other 1 - 1 4
Rated less than investment grade 3 1 6 1
Policyholder loans - - 2 2
Equity securities 1 1 2 1
Other, principally accrued interest 1 2 1 2
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
Estimated average yield to maturity
of bonds and notes (a) 6.3% 6.6% 6.5% 6.8%
Estimated average remaining life of bonds
and notes (a) 3.9 yrs. 3.6 yrs. 7.2 yrs. 6.9 yrs.
Carrying value of investment portfolio $1,801,122 $1,861,301 $755,028 $780,633
Market value of investment portfolio $1,801,262 $1,862,094 $754,988 $780,710
<FN>
_________________
(a) Excludes trading securities, which are not significant.
</FN>
</TABLE>
Reinsurance
Reinsurance is obtained for investment oriented products for face
amounts in excess of $500,000 per life. The life insurance
subsidiaries generally do not obtain reinsurance for the Graded
Benefit Life products because these policies generally have a low face
amount. The Colonial Penn P&C Group obtained reinsurance for casualty
risks in excess of $2,000,000 in 1996, 1995 and 1994, although most
Colonial Penn P&C Group
12
<PAGE>
automobile policies do not have policy limits in excess of $100,000
per risk and $300,000 per accident. The Empire Group's maximum
retained limit was $500,000 for workers' compensation for 1996, 1995
and 1994; for other property and casualty lines, the Empire Group's
maximum retained limit was $300,000 for 1996 and $225,000 for 1995 and
1994.
Additionally, the Company's property and casualty insurance
subsidiaries have entered into certain excess of loss and catastrophe
treaties to protect against certain losses. The Colonial Penn P&C
Group's retention of lower level losses in such treaties was
$15,000,000 in 1996 and 1995 and $11,000,000 in 1994. In 1997, the
Colonial Penn P&C Group entered into "second event" reinsurance that
will provide up to $10,000,000 of recovery if multiple catastrophe
losses not covered under the Group's basic agreement exceed
$20,000,000. The Empire Group's retention of lower level losses in
such treaties is $5,000,000 for 1997 and was $3,000,000 for 1996, 1995
and 1994.
Although reinsurance does not legally discharge an insurer from
its primary liability for the full amount of the policy liability, it
does make the assuming reinsurer liable to the insurer to the extent
of the reinsurance ceded. The Company's reinsurance generally has
been placed with certain of the largest reinsurance companies,
including (with their respective Best ratings) General Reinsurance
Corporation (A++), Partner Re Co. Ltd. (A+), LaSalle Re Ltd. (A-), AXA
Reinsurance Company (A), Zurich Reinsurance Centre, Inc. (A), Munich
American Reinsurance Company (A+) and United Teachers Associates
Insurance (B++). In addition, the Company has reinsured a block of
business with a subsidiary of John Hancock Mutual Life Insurance
Company ("Hancock") as part of the sale of such business to Hancock.
The Company believes its reinsurers to be financially capable of
meeting their respective obligations. However, to the extent that any
reinsuring company is unable to meet its obligations, the Company's
insurance subsidiaries would be liable for the reinsured risks. The
Company has established reserves, which the Company believes are
adequate, for any nonrecoverable reinsurance.
Competition
The insurance industry is a highly competitive industry, in which
many of the Company's competitors have substantially greater financial
resources, larger sales forces, more widespread agency and broker
relationships, and more diversified lines of insurance coverage.
Additionally, certain competitors market their products with
endorsements from affinity groups, while the Company's products are
for the most part unendorsed, which may give such other companies a
competitive advantage. Recent federal administrative, legislative and
judicial activity may result in changes to federal banking laws that
will enable national banks to act as agents in order to offer certain
insurance products in direct competition with the Company. The
Company is unable to determine what effect, if any, such changes may
have on the Company's operations.
The Company believes that property and casualty insurers
generally compete on the basis of price, customer service, consumer
recognition and financial stability. The industry has historically
been cyclical in nature, with periods of less intense price competi-
tion generating significant profits, followed by periods of increased
price competition 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. The profitability of the property and
casualty insurance industry is affected by many factors, including
rate competition, severity and frequency of claims (including
catastrophe losses), interest rates, state regulation, court decisions
and judicial climate, all of which are outside the Company's control.
13
<PAGE>
Government Regulation
Insurance companies are subject to detailed regulation and
supervision in the states in which they transact business. Such
regulation pertains to matters such as approving policy forms and
various premium rates, minimum reserves and loss ratio requirements,
the type and amount of investments, minimum capital and surplus
requirements, granting and revoking licenses to transact business,
levels of operations and regulating trade practices. The majority of
the Company's property and casualty insurance operations are in states
requiring prior approval by regulators before proposed rates may be
implemented. Certain states have indicated that they may change the
bases (e.g., age, sex and geographic location) on which rates
traditionally have been established. Rates proposed for life
insurance generally become effective immediately upon filing.
Insurance companies are required to file detailed annual reports with
the supervisory agencies in each of the states in which they do
business, and are subject to examination by such agencies at any time.
Increased regulation of insurance companies at the state level and new
regulation at the federal level is possible, although the Company
cannot predict the nature or extent of any such regulation or what
impact it would have on the Company's operations.
The National Association of Insurance Commissioners ("NAIC") has
adopted model laws incorporating the concept of a "risk based capital"
("RBC") requirement for insurance companies. Generally, the RBC
formula is designed to measure the adequacy of an insurer's statutory
capital in relation to the risks inherent in its business. The RBC
formula is used by the states as an early warning tool to identify
weakly capitalized companies for the purpose of initiating regulatory
action. Each of the Company's insurance subsidiaries' RBC ratio as of
December 31, 1996 substantially exceeded minimum requirements.
The NAIC also has adopted various ratios for insurance companies
which, in addition to the RBC ratio, are designed to serve as a tool
to assist state regulators in discovering potential weakly capitalized
companies or companies with unusual trends. The insurance companies
had certain "other than normal" NAIC ratios for the year ended
December 31, 1996. The Company believes that there are no material
underlying problems or weaknesses in its insurance operations and that
it is unlikely that material adverse regulatory action will be taken.
The Company's insurance subsidiaries are members of state
insurance funds which provide certain protection to policyholders of
insolvent insurers doing business in those states. Due to
insolvencies of certain insurers in recent years, the Company's
insurance subsidiaries have been assessed certain amounts which have
not been material and are likely to be assessed additional amounts by
state insurance funds. The Company believes that it has provided for
all anticipated assessments and that any additional assessments will
not have a material adverse effect on the Company's financial
condition or results of operations.
BANKING AND LENDING
During 1996 the Company's banking and lending operations
principally were conducted through American Investment Bank, N.A.
("AIB"), its national bank subsidiary and American Investment
Financial ("AIF"), an industrial loan corporation. AIB and AIF take
money market and other non-demand deposits that are eligible for
insurance provided by the FDIC. AIB and AIF had deposits of
$209,261,000 and $203,061,000 at December 31, 1996 and 1995,
respectively. AIB and AIF currently have several deposit-taking and
lending facilities in the Salt Lake City area.
The Company's consolidated banking and lending operations had
outstanding loans (net of unearned finance charges) of $233,351,000
and $278,391,000 at December 31, 1996 and 1995, respectively. At
December 31, 1996, 41% were loans to individuals generally
collateralized by automobiles; 14% were
14
<PAGE>
unsecured loans to individuals acquired from others in connection with
investments in limited partnerships; 42% were unsecured loans to
executives and professionals; and 3% were instalment loans to
consumers, substantially all of which were collateralized by real or
personal property.
It is the Company's policy to charge to income an allowance for
losses which, based upon management's analysis of numerous factors,
including current economic trends, aging of the loan portfolio and
historical loss experience, is deemed adequate to cover reasonably
expected losses on outstanding loans. At December 31, 1996, the
allowance for loan losses for the Company's entire loan portfolio was
$12,177,000 or 5.2% of the net outstanding loans, compared to
$13,893,000 or 5% of net outstanding loans at December 31, 1995.
The funds generated by the deposits are primarily used to make
instalment loans, including collateralized personal automobile loans
to individuals who have difficulty in obtaining credit. These
automobile loans are made at interest rates above those charged to
individuals with good credit histories. In determining which
individuals qualify for these loans, the Company takes into account a
number of highly selective criteria with respect to the individual as
well as the collateral to attempt to minimize the number of defaults.
Additionally, the Company closely monitors these loans and takes
prompt possession of the collateral in the event of a default. For
the three year period ended December 31, 1996, the Company generated
$219,416,000 of these loans ($38,683,000 during 1996). Beginning in
1995, primarily as a result of increased competition, together with
the Company's tightening of its underwriting standards, the portfolio
has declined. Loan losses have increased and, at December 31, 1996,
the allowance for loan losses for this portfolio was $7,622,000 or
7.9% of net outstanding loans. The Company expects that the increased
level of competition will continue and, together with the Company's
tightened underwriting standards and the generally lower rates being
offered by competitors, is likely to result in a further contraction
in the size of this portfolio.
The Company's banking and lending operations compete with banks,
savings and loan associations, credit unions, credit card issuers and
consumer finance companies, many of which are able to offer financial
services on very competitive terms. Additionally, substantial
national financial services networks have been formed by major
brokerage firms, insurance companies, retailers and bank holding
companies. Some competitors have substantial local market positions;
others are part of large, diversified organizations.
The Company's principal banking and lending operations are
subject to detailed supervision by state authorities, as well as
federal regulation pursuant to the Federal Consumer Credit Protection
Act and regulations promulgated by the Federal Trade Commission. The
Company's banking operations are subject to federal and state
regulation and supervision by, among others, the Office of the
Comptroller of the Currency (the "OCC"), the FDIC and the State of
Utah. AIB's primary federal regulator is the OCC, while the primary
federal regulator for AIF is the FDIC.
The Competitive Equality Banking Act of 1987 ("CEBA") places
certain restrictions on the operations of AIB and restricts further
acquisitions of banks and savings institutions by the Company. CEBA
does not restrict AIF as currently operated.
MANUFACTURING
The Company's manufacturing operations consist primarily of the
manufacture of bathroom vanities and related products for the "do-it-
yourself" market, proprietary plastic netting for various industrial
markets and electrical products. During 1996, the Company sold one
division and discontinued certain non-performing product lines. For
the year ended December 31, 1996 this segment was profitable for the
first time since 1990.
15
<PAGE>
Bathroom vanities and related products are sold through
manufacturers' representatives, primarily to home improvement centers.
The plastics division manufactures and markets plastic netting used
for a variety of purposes including, among other things, construction,
packaging, carpet backing and filtration. The electrical division
primarily produces wire cable and power cords for industrial
customers.
The manufacturing operations are subject to a high degree of
competition, generally on the basis of price, service and quality.
Additionally, certain of these manufacturing operations are dependent
on cyclical industries, including the construction industry. Through
its various manufacturing divisions, the Company holds patents on
certain improvements to the basic manufacturing processes and on
applications thereof. The Company believes that the expiration of
these patents, individually or in the aggregate, is unlikely to have a
material effect on manufacturing operations.
OTHER OPERATIONS AND INVESTMENTS
The Company owns equity interests representing more than 5% of
the outstanding capital stock of each of the following domestic public
companies at December 31, 1996: Carmike Cinemas, Inc. ("Carmike")
(approximately 6% of Class A shares), HomeFed Corporation ("HFC")
(approximately 41%), Jordan Industries, Inc. ("JII") (approximately
11%) and MK Gold Company ("MK Gold") (approximately 46%).
In April 1996, the Company formed a joint venture, Pepsi
International Bottlers ("PIB"), with PepsiCo, Inc to be the exclusive
bottler and distributor of PepsiCo beverages in a large portion of
central and eastern Russia, Kyrgyzstan and Kazakstan. The Company and
PepsiCo have committed to make capital contributions to PIB of
$79,500,000 and $26,500,000, respectively. As of December 31, 1996,
the Company contributed $51,000,000; the balance was funded in January
1997. The Company has a 75% economic interest in PIB. At December
31, 1996, the carrying amount of the Company's investment in PIB was
$33,896,000, reflecting the Company's share of the start-up losses of
this venture. The Company anticipates that PIB will continue to
experience operating losses during the period that PIB is building
production and distribution capacity and market share.
The Company owns a 30% interest in Caja de Ahorro y Seguro S.A.
("Caja"), a holding company whose subsidiaries are engaged in
property and casualty insurance, life insurance and banking in
Argentina. Caja distributes its insurance products primarily on a
direct basis, and therefore does not pay commissions to agents. Caja
is the largest insurance company in Argentina, with total annual
premium revenues of approximately $516,700,000 and total assets
(including banking operations) of approximately $646,000,000.
At December 31, 1996, the carrying amount of the Company's investment
in Caja was $44,333,000. The Company's equity in Caja's results of
operations since acquisition has not been material.
A subsidiary of the Company is a partner in The Jordan Company
and Jordan/Zalaznick Capital Company. These partnerships each
specialize in structuring leveraged buyouts in which the partners are
given the opportunity to become equity participants. Since 1982, the
Company has invested an aggregate of $36,919,000 in these partnerships
and related companies and, through December 31, 1996, has received
$84,632,000 (including cash, interest bearing notes and other
receivables) relating to the disposition of investments and management
and other fees. At December 31, 1996, through these partnerships, the
Company had interests in JII, Carmike and a total of 19 other
companies (the "Jordan Associated Companies"), which in total are
carried at cost in the Company's consolidated financial statements at
$11,657,000.
The Company's real estate investments include a 615,000 square
foot office building located near Grand Central Terminal in New York
City (carried at $58,608,000 at December 31, 1996), and two luxury
residential condominium towers in downtown San Diego, California
(carried at $31,572,000 at December 31,
16
<PAGE>
1996). The New York City office building, which has 355,000 square
feet of contiguous space available for occupancy, is being marketed
for sale. The San Diego towers consist of 201 residential units, 125
of which were available for sale at December 31, 1996, and 42,000
square feet of retail space, of which 7,500 square feet have been leased
to a national restaurant chain.
For further information about the Company's business, reference
is made to Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Report and Notes to
Consolidated Financial Statements.
Item 2. Properties.
------ ----------
Through its various subsidiaries, the Company owns and utilizes
in its operations the following significant properties: two office
buildings located in Valley Forge, Pennsylvania used by the Colonial
Penn P&C Group (totaling approximately 198,700 sq. ft.), one of which
is located on land leased from a third party; two offices in Salt Lake
City, Utah used for corporate and banking and lending activities
(totaling approximately 77,000 sq. ft.); and an office building in
Philadelphia, Pennsylvania used by the life insurance companies
(approximately 127,000 sq. ft.). In addition, subsidiaries of the
Company own six facilities (totaling approximately 970,000 sq. ft.)
primarily used for manufacturing and storage located in Georgia, New
Jersey, New York, North Carolina, Pennsylvania and Canada.
The Company and its subsidiaries lease numerous manufacturing,
warehousing, office and headquarters facilities. The facilities vary
in size and have leases expiring at various times, subject, in certain
instances, to renewal options. See Notes to Consolidated Financial
Statements.
Item 3. Legal Proceedings.
------ -----------------
PINNACLE LITIGATION
On May 11, 1994, a shareholder of the Company filed a purported
derivative action entitled Pinnacle Consultants, Ltd. v. Leucadia
-------------------------- --------
National Corporation, et al. (C.A. No. 94 Civ. 3496) against the
----------------------------
Company's current Board of Directors and two former directors, John W.
Jordan II and Melvin Hirsch. The action, which was filed in the
United States District Court for the Southern District of New York,
alleged certain Racketeer Influence and Corrupt Organizations Act,
securities law, conversion and fraud claims. On December 10, 1996,
the Second Circuit Court of Appeals affirmed the judgment of the
District Court dismissing these claims.
OTHER PROCEEDINGS
In addition to the foregoing, the Company and its subsidiaries
are parties to legal proceedings that are considered to be either
ordinary, routine litigation incidental to their business or not
material to the Company's consolidated financial position.
The Company does not believe that any of the foregoing actions
will have a material adverse effect on its consolidated financial
position or consolidated results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
------ ---------------------------------------------------
Not applicable.
17
<PAGE>
Item 10. Executive Officers of the Registrant.
------- ------------------------------------
All executive officers of the Company are elected at the
organizational meeting of the Board of Directors of the Company held
annually and serve at the pleasure of the Board of Directors. As of
March 19, 1997, the executive officers of the Company, their ages, the
positions held by them and the periods during which they have served
in such positions were as follows:
NAME AGE POSITION WITH LEUCADIA OFFICE HELD SINCE
---- --- ---------------------- -----------------
Ian M. Cumming 56 Chairman of the Board June 1978
Joseph S. Steinberg 53 President January 1979
Thomas E. Mara 51 Executive Vice President May 1980;
and Treasurer January 1993
Joseph A. Orlando 41 Vice President and January 1994;
Chief Financial Officer April 1996
Barbara L. Lowenthal 42 Vice President and April 1996
Comptroller
Paul J. Borden 48 Vice President August 1988
Mark Hornstein 49 Vice President July 1983
Ruth Klindtworth 62 Secretary and Vice President- February 1976;
Corporate Administrator January 1990
Mr. Cumming has served as a director and Chairman of the Board of
the Company since June 1978. In addition, he has served as a director
of Allcity since February 1988 and MK Gold since June 1995. Mr.
Cumming has also been a director of Skywest, Inc., a Utah-based
regional air carrier, since June 1986.
Mr. Steinberg has served as a director of the Company since
December 1978 and as President of the Company since January 1979. In
addition, he has served as a director of Allcity since February 1988,
as a director of MK Gold since June 1995 and as a director of JII
since June 1988.
Mr. Mara joined the Company in April 1977 and was elected Vice
President of the Company in May 1977. He has served as Executive Vice
President of the Company since May 1980 and as Treasurer of the
Company since January 1993. In addition, he has served as a director
of Allcity since October 1994.
Mr. Orlando, a certified public accountant, has served as Chief
Financial Officer of the Company since April 1996 and as Vice
President of the Company since January 1994. Mr. Orlando previously
served in a variety of capacities with the Company and its
subsidiaries since 1987, including Comptroller of the Company from
March 1994 to April 1996.
Ms. Lowenthal, a certified public accountant, has served as Vice
President and Comptroller of the Company since April 1996. For the
prior four years, Ms. Lowenthal served as Director of Policies,
Systems and Procedures and Assistant Controller of W.R. Grace & Co., a
specialty chemicals company.
Mr. Borden joined the Company as Vice President in August 1988
and has served in a variety of other capacities with the Company and
its subsidiaries.
18
<PAGE>
Mr. Hornstein joined the Company as Vice President in July 1983
and has served in a variety of other capacities with the Company and
its subsidiaries.
Ms. Klindtworth has been employed by the Company since July 1960
and has served as Secretary of the Company since February 1976 and as
Vice President-Corporate Administrator of the Company since January
1990.
19
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
------ -------------------------------------------------
Stockholder Matters.
-------------------
(a) Market Information.
------------------
The Common Shares of the Company (the "Common Shares") are traded
on the New York Stock Exchange and Pacific Stock Exchange under the
symbol LUK. The following table sets forth, for the calendar periods
indicated, the high and low sales price per Common Share on the
consolidated transaction reporting system, as reported by the Dow
Jones Historical Stock Quote Reporter Service. On November 15, 1995,
the Company effected a two-for-one stock split of the Common Shares in
the form of a 100% stock dividend (the "Stock Split"). The dividend
was paid to shareholders of record at the close of business on
November 1, 1995. Per share amounts set forth in this Report have
been adjusted to reflect the Stock Split.
<TABLE>
<CAPTION>
COMMON SHARE
------------
HIGH LOW
---- ---
<S> <C> <C>
1995
----
First Quarter $24.31 $21.44
Second Quarter 26.00 21.81
Third Quarter 29.63 24.56
Fourth Quarter 29.44 24.50
1996
----
First Quarter $29.00 $23.75
Second Quarter 26.50 23.88
Third Quarter 25.00 21.63
Fourth Quarter 28.50 23.13
1997
----
First Quarter (through March 19, 1997) $29.00 $25.75
</TABLE>
(b) Holders.
-------
As of March 19, 1997, there were approximately 4,089 record
holders of the Common Shares.
(c) Dividends.
---------
The Company paid dividends of $.25 per Common Share on December
31, 1996 and $.25 per Common Share on December 29, 1995. The payment
of dividends in the future is subject to the discretion of the Board
of Directors and will depend upon general business conditions, legal
and contractual restrictions on the payment of dividends and other
factors that the Board of Directors may deem to be relevant.
In connection with the declaration of dividends or the making of
distributions on, or the purchase, redemption or other acquisition of
Common Shares, the Company is required to comply with certain
restrictions contained in certain of its debt instruments.
20
<PAGE>
Item 6. Selected Financial Data.
------ -----------------------
The following selected financial data have been summarized from
the Company's consolidated financial statements and are qualified in
their entirety by reference to, and should be read in conjunction
with, such consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA: (a)
Revenues $1,506,557 $1,558,314 $1,384,385 $1,408,058 $1,573,015
Net securities gains (losses) 39,429 20,027 (12,004) 51,923 51,778
Interest expense (b) 53,996 52,871 44,003 39,465 38,507
Insurance losses, policy benefits and
amortization of deferred acquisition costs 962,001 942,803 819,010 789,752 896,673
Income before income taxes,
cumulative effects of changes
in accounting principles and
extraordinary loss 78,512 132,182 100,318 176,868 143,553
Income before cumulative effects of
changes in accounting principles
and extraordinary loss 55,515 107,503 70,836 116,259 130,607
Cumulative effects of changes in
accounting principles - - - 129,195 -
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit (6,838) - - - -
Net income 48,677 107,503 70,836 245,454 130,607
Per share:
Primary earnings (loss) per common and dilutive
common equivalent share:
Income before cumulative effects
of changes in accounting principles
and extraordinary loss $ .91 $1.81 $1.22 $1.98 $2.67
Cumulative effects of changes in
accounting principles - - - 2.21 -
Extraordinary loss (.11) - - - -
----- ----- ----- ----- -----
Net income $ .80 $1.81 $1.22 $4.19 $2.67
===== ===== ===== ===== =====
Fully diluted earnings (loss) per common share:
Income before cumulative effects
of changes in accounting principles
and extraordinary loss $ .91 $1.77 $1.21 $1.94 $2.66
Cumulative effects of changes in
accounting principles - - - 2.10 -
Extraordinary loss (.11) - - - -
----- ----- ----- ----- -----
Net income $ .80 $1.77 $1.21 $4.04 $2.66
===== ===== ===== ===== =====
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA: (a)
Cash and investments $3,176,927 $3,146,639 $2,764,890 $2,989,384 $3,371,624
Total assets 5,193,936 5,107,874 4,674,046 4,689,272 4,330,580
Debt, including current maturities 525,719 520,862 425,848 401,335 225,588
Customer banking deposits 209,261 203,061 179,888 173,365 186,339
Common shareholders' equity 1,118,107 1,111,491 881,815 907,856 618,161
Book value per common share $18.51 $18.47 $15.72 $16.27 $11.06
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED INFORMATION ON PROPERTY AND CASUALTY
INSURANCE OPERATIONS (Unaudited): (a)(c)
GAAP Combined Ratio 105.0% 103.5% 99.1% 96.9% 101.7%
SAP Combined Ratio 101.5% 101.2% 98.8% 93.7% 102.8%
Industry SAP Combined Ratio (d) N/A 106.4% 108.4% 106.9% 115.7%
Premium to Surplus Ratio (e) 1.6x 1.8x 1.9x 1.6x 2.0x
<FN>
- --------------------------------
Footnotes on following page.
21
<PAGE>
(a) Data includes acquired companies from date of acquisition.
(b) Includes interest on customer banking deposits.
(c) 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.
The Combined Ratio does not reflect the effect of investment income. For 1996 and 1995, a change in the statutory
accounting treatment for retrospectively rated reinsurance agreements was the principal reason for the difference
between the GAAP Combined Ratios and the SAP Combined Ratios. Additionally in 1996, the difference relates to the
accounting for certain expenses which are treated differently under SAP and GAAP. For 1993, the difference reflects
the different treatment of certain costs for GAAP and SAP purposes. 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 GAAP purposes.
(d) Source: Best's Aggregates & Averages, Property/Casualty, 1996 Edition. 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.
(e) Premium to Surplus Ratio was calculated by dividing statutory property and casualty insurance premiums written by
statutory capital at the end of the year.
</FN>
</TABLE>
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations.
-------------------------
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and
results of operations. This analysis should be read in conjunction
with the consolidated financial statements and related notes which
appear elsewhere in this Report.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company Liquidity
Leucadia National Corporation (the "Parent") is a holding company
whose assets principally consist of the stock of its several direct
subsidiaries. The Parent continuously evaluates the retention and
disposition of its existing operations and investigates possible
acquisitions of new businesses in order to maximize shareholder value.
Accordingly, while the Parent does not have any material arrangement,
commitment or understanding with respect thereto (except as disclosed
in this Report), further acquisitions, divestitures, investments and
changes in capital structure are possible. Its principal sources of
funds are its available cash resources, bank borrowings, public
financings, repayment of subsidiary advances, funds distributed from
its subsidiaries as tax sharing payments, management and other fees,
and borrowings and dividends from its regulated and non-regulated
subsidiaries. It has no substantial recurring cash requirements other
than payment of interest and principal on its debt, tax payments and
corporate overhead expenses.
The Parent maintains the principal borrowings for the Company and its
non-banking subsidiaries and has provided working capital to certain
of its subsidiaries. These borrowings have primarily been made on an
unsecured basis from banks through various credit agreement facilities
and term loans, and through public financings. During the year ended
December 31, 1996, the Company did not use its $150,000,000 bank
credit agreement facilities, except for minor amounts borrowed to meet
daily cash requirements. At December 31, 1996, there were no amounts
outstanding under such bank credit agreement facilities. The
Company's bank borrowings bear interest based on the prime rate or
LIBOR.
In February 1997, the Company replaced these credit facilities and its
$50,000,000 of outstanding bank term loans with a new contractual bank
credit facility of $200,000,000. The new facility bears interest
based on the prime rate or LIBOR and matures in February 2002.
In October 1996, the Company sold $135,000,000 principal amount of its
newly authorized 7-7/8% Senior Subordinated Notes due 2006 in an
underwritten public offering at 99.487% of the principal amount. As
of December 31, 1996, $114,000,000 of the net proceeds were used to
purchase $102,656,000 aggregate principal amount of the Company's 10-3/8%
Senior Subordinated Notes due 2002 (the "10-3/8% Notes"), plus
accrued interest, through a tender offer and in open market purchases.
In the fourth quarter of 1996, the Company reported an extraordinary
loss on early extinguishment of these 10-3/8% Notes of $6,838,000, net
of income tax benefit of $3,682,000. The Company intends to retire
the 10-3/8% Notes that remain outstanding either through open market
purchases or through early redemption of the 10-3/8% Notes in June
1997. The refinancing of the 10-3/8% Notes will result in annual
expense savings of approximately $2,600,000.
At December 31, 1996, a maximum of approximately $33,962,000 was
available to the Parent as dividends from its regulated subsidiaries
without regulatory approval. Additional amounts may be available to
the Parent
23
<PAGE>
in the form of loans or cash advances from regulated subsidiaries,
although no amounts were outstanding at December 31, 1996 or borrowed
to date in 1997. There are no restrictions on distributions from the
non-regulated subsidiaries; the Parent and its non-regulated
subsidiaries had aggregate cash and temporary investments of
approximately $194,500,000 at December 31, 1996. The Parent also
receives tax sharing payments from subsidiaries included in its
consolidated income tax return, including certain regulated
subsidiaries. Because of the tax loss carryforwards available to the
Parent and certain subsidiaries, together with current interest
deductions and corporate expenses, the amount paid by the Parent for
income taxes is substantially less than tax sharing payments received
from its subsidiaries. In addition, the Parent receives payments from
the regulated and non-regulated entities for services provided by the
Parent. Payments from regulated subsidiaries for dividends, tax
sharing payments and other services totaled approximately $104,400,000
for the year ended December 31, 1996.
On March 12, 1997, the Company called for redemption on April 11, 1997
all of its outstanding $100,000,000 5-1/4% Convertible Subordinated
Debentures due 2003, at a redemption price of 102.625% of the
principal amount of the Debentures, plus accrued interest. The funds
to be used for this redemption are expected to be provided from
general corporate funds available to the Parent.
Based on discussions with commercial and investment bankers, the
Company believes that it has the ability to raise additional funds
under acceptable conditions for use in its existing businesses or for
appropriate investment opportunities. Since 1993, the Company's
senior debt obligations have been rated as investment grade by
Moody's, S&P and Duff & Phelps Inc. Ratings issued by bond rating
agencies are subject to change at any time.
Consolidated Liquidity
During each of the three years in the period ended December 31, 1996,
the Company operated profitably and net cash was provided from
operations.
The Company has entered into interest rate agreements to manage the
impact of changes in interest rates on its variable rate debt and
customer banking deposits. Counterparties to these agreements are
major financial institutions, which the Company believes are able to
fulfill their obligations; however, if they are not, the Company
believes that any losses are unlikely to be material.
In April 1996, the Company formed PIB with PepsiCo, Inc to be the
exclusive bottler and distributor of PepsiCo beverages in a large
portion of central and eastern Russia, Kyrgyzstan and Kazakstan. The
Company and PepsiCo have committed to make capital contributions to
PIB of $79,500,000 and $26,500,000, respectively. As of December 31,
1996, the Company contributed $51,000,000; the balance was funded in
January 1997. In February 1997, the Company, PepsiCo and PIB signed a
term sheet with third party lenders to provide $90,000,000 of
additional financing to PIB. Actual funding will require satisfactory
negotiation and execution of definitive loan agreements, as well as,
among other things, a license from the Russian Central Bank. Pending
satisfaction of such requirements, bridge financing to PIB to cover
operating costs and capital expenditures will be necessary. The
Company estimates that its share of the bridge financing should not
exceed $30,000,000.
The Company has a 75% economic interest in PIB and PepsiCo owns the
remaining 25%. Under the terms of the joint venture agreement, the
Company and PepsiCo have equal voting rights over all significant
aspects of PIB's operations. Accordingly, since the Company does not
control PIB despite its larger economic interest, the Company accounts
for its share of PIB's operating results under the equity method of
accounting. The Company's equity in losses of PIB was $17,104,000 for
the year ended December 31, 1996, resulting from
24
<PAGE>
significant start-up costs of this operation. The Company anticipates
that PIB will continue to experience operating losses during the
period that PIB is building production and distribution capacity and
market share.
In July 1996, the Company committed to invest up to $25,000,000 for a
57.5% equity interest in an 809,000 square foot office building and
garage and a minority interest in a Marriott hotel. This real estate
project in Brooklyn, New York is currently under construction. The
Company's equity investment is expected to be contributed toward the
end of the anticipated two year construction period. The Empire Group
will be a major tenant in the project, and as such will receive
certain benefits, primarily from the City of New York, with a present
value of approximately $36,000,000.
The Company's investments in Russia and Argentina are subject to
foreign exchange and other risks. Investing in the emerging markets
of Russia is subject to political risk and uncertainty concerning the
government's ability to succeed in its program to convert to a market
economy, both of which are beyond the Company's control. The
Company's investments in Argentina and Russia are subject to foreign
currency exchange risks, the volatility of the banking systems and
securities markets in these countries, the overall health of their
respective economies and the usual competitive factors experienced by
companies.
The funds for the investments described above were or are expected to
be provided from general corporate funds available to the Parent
company.
In January 1997, the Company sold $150,000,000 aggregate liquidation
amount of 8.65% trust issued preferred securities of its subsidiary,
Leucadia Capital Trust I, (the "Trust"). These Company-obligated
mandatorily redeemable preferred securities have an effective maturity
date of January 15, 2027 and represent undivided beneficial interests
in the Trust's assets, which consist solely of 8.65% Junior
Subordinated Deferrable Interest Debentures due 2027 of the Company.
The obligations of the Trust related to its preferred securities are
fully and unconditionally guaranteed by the Company.
The investment portfolios of the Company's insurance subsidiaries are
principally fixed maturity investments rated "investment grade" or
U.S. governmental agency issued or guaranteed obligations, although
limited investments in "non-rated" or rated less than investment grade
securities have been made from time to time. The investment strategy
of the insurance subsidiaries has been to maintain a high quality
portfolio of publicly traded, fixed income securities with a
relatively short duration. Principally as a result of increases in
market interest rates during 1996, the unrealized gain on investments
at the end of 1995 of approximately $30,086,000 (net of taxes)
decreased to approximately $1,759,000 (net of taxes) as of December
31, 1996. While this has resulted in a decrease in shareholders'
equity, it had no effect on results of operations or cash flows.
The Company provides collateralized automobile loans to individuals
with poor credit histories. In 1996, the Company continued to
experience increased competition resulting in reduced volume and
increased loan losses. During 1996, the Company tightened its
underwriting standards in an effort to improve its loan loss
experience and increased the reserve maintained on this portfolio.
The Company's investment in these loans was $96,338,000, $134,668,000
and $129,512,000 at December 31, 1996, 1995 and 1994, respectively.
The Company and certain of its subsidiaries have substantial loss
carryforwards and other tax attributes. The amount and availability
of tax loss carryforwards are subject to certain qualifications,
limitations and uncertainties. In order to reduce the possibility
that certain changes in ownership could impose limitations on the use
of these carryforwards, the Company's certificate of incorporation
contains provisions which generally restrict the ability of a person
or entity from accumulating at least five percent of the Common Shares
and the ability of persons or entities now owning at least five
percent of the Common Shares from acquiring additional Common Shares.
The Company has recognized as an asset (net of reserves) certain of
the benefits of such loss
25
<PAGE>
carryforwards and other tax attributes. As described in the Notes to
the Consolidated Financial Statements, significant additional amounts
may be available under certain circumstances.
RESULTS OF OPERATIONS
The Company's most significant operations are its insurance
businesses, where it is a specialty markets provider of property and
casualty and life and health insurance to its niche markets. For the
year ended December 31, 1996, the Company's insurance segments
contributed 83% of total revenues and, at December 31, 1996,
constituted 77% of total assets.
Earned premium revenues of the Colonial Penn P&C Group were
approximately $497,100,000, $490,500,000 and $447,200,000, for the
years ended December 31, 1996, 1995 and 1994, respectively. Earned
premiums from voluntary automobile policies were 10.2% higher in 1996
and voluntary automobile policies in force increased 6.6% from
December 31, 1995. Since the first quarter of 1995, the Colonial Penn
P&C Group has been successful in growing its voluntary automobile
business, principally through direct mail and referral marketing
techniques. The increase in earned premium revenues was partially
offset by reduced service business and the depopulation of state
assigned risk automobile pools. The growth in earned premiums in
1995, as compared to 1994, principally resulted from service business
and a modest increase in earned premiums related to voluntary
automobile polices.
Earned premium revenues and commissions of the property and casualty
insurance operations of the Empire Group were $326,400,000,
$326,100,000 and $299,200,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Beginning in the fourth quarter of
1995, higher premium rates were charged on certain lines of business,
including in 1996 amounts related to increased minimum automobile
liability coverage required by New York State. Such rate increases
were largely offset by a decrease in the number of policies in force.
This decrease primarily resulted from the depopulation of the assigned
risk pools and reduced volume in other lines of business that have not
been profitable, primarily certain specialty programs within voluntary
commercial automobile lines. In addition, the Empire Group has
experienced increased competition, primarily in workers' compensation
and commercial package policies, which has reduced volume. The
increase in 1995 as compared to 1994 principally was attributable to
growth in policies in force and increased premium rates. The majority
of the growth in 1995 resulted from service business.
26
<PAGE>
The Company's property and casualty insurance operations combined
ratios as determined under GAAP and SAP were as follows:
Year Ended December 31,
----------------------
1996 1995 1994
---- ---- ----
Colonial Penn P&C
Group:
GAAP 98.6% 97.0% 96.1%
SAP 97.4% 97.3% 97.1%
Empire Group:
GAAP 114.7% 113.0% 103.5%
SAP 107.9% 107.4% 101.3%
Property and Casualty
Insurance Group:
GAAP 105.0% 103.5% 99.1%
SAP 101.5% 101.2% 98.8%
The provision for insurance losses and policy benefits includes
catastrophe losses, net of reinsurance recoveries, estimated at
approximately $5,000,000, $4,600,000 and $18,300,000, for the years
ended December 31, 1996, 1995 and 1994, respectively. The 1994 losses
include approximately $11,700,000 related to the Northridge,
California earthquake.
In 1996, the combined ratios of the Colonial Penn P&C Group increased
due to increased levels of new voluntary automobile business for which
higher loss reserves are provided than on renewal business and a
retroactive adjustment to its New Jersey automobile pool involuntary
assignment, offset in part by a favorable settlement of a special risk
claim. The costs incurred to acquire new business combined with the
related loss reserving policies depress operating results while the
business grows. The Colonial Penn P&C Group believes that its strong
underwriting procedures, emphasis on mature adult insureds and claims
handling and settlement practices have enabled it to record combined
ratios that compare favorably with the industry. The combined ratios
for the Colonial Penn P&C Group increased slightly in 1995 as compared
to 1994. The 1995 combined ratios reflected higher losses related to
service business that were partially offset by increased service fee
income. In addition, the combined ratios in 1995 were favorably
affected by reduced catastrophe losses as compared to 1994.
The combined ratios of the Empire Group increased in 1996 due to
unusually high assessments from the New York State workers'
compensation fund, severance benefits for certain employees, a
reduction in the estimate of fees earned as a servicing carrier for
the New York Public Automobile Pool and reduced assigned risk
business, offset in part by an improved 1996 accident year loss ratio.
The Empire Group believes that the improvement in the 1996 accident
year loss ratio results from its efforts to increase the profitability
of its product lines, primarily through rate increases and improved
underwriting procedures. Included in the Empire Group's results for
1996 and 1995 were approximately $28,000,000 and $34,500,000,
respectively, for reserve strengthening related to losses from prior
accident years. In 1996, the reserve strengthening primarily related
to voluntary commercial automobile and commercial package lines of
business, while in 1995 the reserve strengthening primarily related to
automobile and workers' compensation lines of business. In 1995, the
Empire Group's combined ratios increased as compared to 1994 primarily
due to the reserve strengthening. The Empire Group will continue to
analyze the adequacy of its loss reserves on a quarterly basis.
27
<PAGE>
Premium revenue receipts on IOP products of the life insurance
subsidiaries (which are not reflected as revenues) were $52,272,000 in
1996, $50,202,000 in 1995 and $108,080,000 in 1994. The principal IOP
product sold during the three years ended December 31, 1996 was a VA
product marketed directly to consumers. The Company believes the
decline in premium revenue receipts of the VA product in 1995 was due
to a combination of factors, including the public's perception of
potential tax law changes, increased competition and the performance
of the fund manager.
Earned premium revenues of the life and health insurance operations
were $178,900,000 for 1996, $165,800,000 for 1995 and $172,400,000 for
1994. Included in these amounts were earned premium revenues for the
Company's Graded Benefit Life product of $121,000,000, $117,700,000
and $113,700,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The growth related to the Graded Benefit Life product
reflects the Company's increased marketing efforts with respect to
this product, which have been conducted at acquisition cost levels
that result in adequate profitability.
In addition to the growth in the Graded Benefit Life product, the
increase in this segment's earned premium revenues in 1996 was
primarily due to the acquisition of Providential in April 1996 which
generated $16,500,000 of earned premium revenues for agent-sold
Medicare supplement products. The Company had stopped marketing its
own agent-sold Medicare supplement products in 1992 due to inadequate
profitability. Providential markets its agent-sold Medicare
supplement products primarily in communities where health maintenance
organizations are less prevalent, which the Company believes results
in adequate profitability. The decline in earned premium revenues in
the prior years reflected the run-off of this product line prior to
the acquisition of Providential.
Insurance losses, policy benefits and amortization of deferred
acquisition costs of the life and health insurance operations were
$150,500,000, $133,200,000 and $138,300,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The increase in 1996
was primarily due to increased earned premium revenues and a
$3,500,000 gain in 1995 from the termination of a reinsurance
agreement. The decrease in 1995 reflected the run-off of the agent-
sold Medicare supplement business, which had less favorable loss
experience in 1995, reduced IOP insurance in force and the $3,500,000
reinsurance gain. The decrease in 1995 was partially offset by the
growth of the Graded Benefit Life product.
Manufacturing revenues declined during each of the last two years due
to the sale of certain divisions and the discontinuance of certain
non-performing product lines. The Company recorded charges of
$3,700,000 in 1996 and $7,300,000 in 1995 for losses on sales and
shutdown expenses, which are primarily reflected in the caption
"Selling, general and other expenses." The pre-tax results for this
segment improved in 1996, primarily due to manufacturing and operating
efficiencies at the bathroom vanities and plastics divisions and the
disposal of non-performing businesses.
Finance revenues and operating profits reflect the reduced level of
consumer instalment loans and the increase in automobile loan losses,
as discussed above. In addition, in 1996, the decline in operating
profit was also caused by increased interest expense on customer
banking deposits. In 1995, the increase in finance revenues from
consumer instalment loans as compared to 1994 was offset in part by
increased interest expense on customer banking deposits and greater
losses on automobile loans.
Investment and other income decreased in 1996 and increased in 1995
primarily due to the gain on the return of the WMAC Companies. In
1995, control of the WMAC Companies was returned to the Company and
such subsidiaries were consolidated, resulting in a gain of
$41,030,000, representing the difference between the carrying amount
of the Company's investment prior to consolidation and the net assets
of such subsidiaries. Interest and dividend income increased in 1995,
reflecting higher investment yields and increased funds available
28
<PAGE>
for investment. Investment and other income also reflected increased
fee income in 1995 related to service business. Investment and other
income in 1994 included $8,458,000 related to the disposition of El
Salvador government bonds and $14,490,000 related to the sale of the
Company's remaining shares in Bolivian Power Company.
Equity in losses of associated companies increased in 1996 primarily
due to start-up losses from the Company's equity investment in PIB of
$17,104,000, losses from its interest in MK Gold of $6,478,000
and a $7,041,000 write-off of the Company's investment in an
unsuccessful well drilled by its Siberian oil exploration joint
venture.
Higher interest expense in each of 1996 and 1995 compared to the prior
year principally reflected the increased level of outstanding debt.
Interest expense also reflected the increased level of deposits at AIB
and AIF and an increase in rates related to those deposits.
Generally, interest rates on deposits are lower than on other
available funds. Interest expense on deposits was $12,575,000 in
1996, $12,034,000 in 1995 and $8,304,000 in 1994.
The increase in 1995 as compared to 1994 in selling, general and other
expenses principally reflected the losses recorded by the
manufacturing segment as described above, operating expenses of real
estate properties acquired during 1994, expenses relating to certain
investing activities, including expenses related to exploring
opportunities in Russia, and increased provisions for bad debts at the
banking and lending segment. In 1995 and 1994, statistical studies
and estimates of service costs indicated that the recorded liability
for unredeemed trading stamps was in excess of the amount that
ultimately would be required to redeem trading stamps outstanding. As
a result, selling, general and other expenses applicable to the
trading stamp operations included credits of $9,400,000 and
$11,700,000 for the years ended December 31, 1995 and 1994,
respectively, reflecting adjustments made to the liability for
unredeemed trading stamps. The Company's most recent analysis of the
liability for unredeemed trading stamps had not identified any
remaining excess as of December 31, 1996.
The 1996 provision for income taxes was below the expected normal
corporate tax rate primarily due to the favorable resolution of
certain contingencies. The provision for income taxes for 1995 was
below the expected normal corporate income tax rate principally due to
the gain related to the return of the WMAC Companies, which was not
taxable, and the favorable resolution of certain contingencies. The
provision for income taxes for 1994 was below the expected normal
corporate income tax rate principally because of a reduction in the
valuation allowance applicable to the deferred tax asset due to the
resolution of certain contingencies.
The number of shares used to calculate primary earnings per share was
60,560,000, 59,271,000 and 58,202,000 for 1996, 1995 and 1994,
respectively. The number of shares used to calculate fully diluted
earnings per share was 60,560,000, 62,807,000 and 61,715,000 for 1996,
1995 and 1994, respectively. The increase in the number of shares
utilized in calculating per share amounts principally related to the
sale of common shares in an underwritten public offering in September
1995. In addition, for fully diluted per share amounts, the 5-1/4%
Convertible Subordinated Debentures due 2003 were not assumed to have
been converted in 1996 since the effect of such assumed conversion
would have been to increase earnings per share.
Item 8. Financial Statements and Supplementary Data.
------- --------------------------------------------
Financial Statements and supplementary data required by this
Item 8 are set forth at the pages indicated in Item 14(a) below.
Item 9. Disagreements on Accounting and Financial Disclosure.
------- -----------------------------------------------------
Not applicable.
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
-------- --------------------------------------------------
The information to be included under the caption "Nominees for
Election as Directors" in the Company's definitive proxy statement to
be filed with the Commission pursuant to Regulation 14A of the 1934
Act in connection with the 1997 annual meeting of shareholders of the
Company (the "Proxy Statement") is incorporated herein by reference.
In addition, reference is made to Item 10 in Part I of this Report.
Item 11. Executive Compensation.
------- ----------------------
The information to be included under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
------- ---------------------------------------------------
Management.
----------
The information to be included under the caption "Present
Beneficial Ownership of Common Shares" in the Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
------- ----------------------------------------------
The information to be included under the caption "Executive
Compensation - Certain Relationships and Related Transactions" in the
Proxy Statement is incorporated herein by reference.
30
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
------- ----------------------------------------------------------------
(a)(1)(2) Financial Statements and Schedules.
----------------------------------
Report of Independent Accountants . . . . . F-1
Financial Statements:
Consolidated Balance Sheets at
December 31, 1996 and 1995 . . . . . . . . F-2
Consolidated Statements of Income
for the years ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . F-3
Consolidated Statements of Cash
Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . F-4
Consolidated Statements of Changes
in Shareholders' Equity for the
years ended December 31, 1996, 1995
and 1994 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . F-7
Financial Statement Schedules:
Schedule II - Condensed Financial
Information of Registrant . . . . . . . . F-34
Schedule III - Supplementary
Insurance Information . . . . . . . . . . F-38
Schedule IV - Schedule of
Reinsurance . . . . . . . . . . . . . . . F-39
Schedule V - Valuation and
Qualifying Accounts . . . . . . . . . . . F-40
Schedule VI - Schedule of Supplemental
Information for Property and
Casualty Insurance Underwriters . . . . . F-41
31
<PAGE>
(3) Executive Compensation Plans and Arrangements.
---------------------------------------------
1982 Stock Option Plan, as amended August 28, 1991
(filed as Annex B to the Company's Proxy Statement
dated July 21, 1992).
1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).
Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Ian M. Cumming (filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1983 (the "1983
10-K")).
Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Joseph S. Steinberg (filed as
Exhibit 10.15 to the 1983 10-K).
Agreement dated as of August 1, 1988 among the
Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991 (the "1991 10-K")).
Agreement dated as of January 10, 1992 between Ian M.
Cumming, certain other persons listed on Schedule A
thereto and the Company (filed as Exhibit 10.7 to the
1991 10-K).
Agreement dated as of January 10, 1992 between Joseph
S. Steinberg, certain other persons listed on
Schedule A thereto and the Company (filed as Exhibit
10.8 to the 1991 10-K).
Agreement between Leucadia, Inc. and Ian M. Cumming,
dated as of December 28, 1992 (filed as Exhibit
10.12(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (the
"1992 10-K")).
Escrow and Security Agreement by and among Leucadia,
Inc., Ian M. Cumming and Weil, Gotshal & Manges, as
escrow agent, dated as of December 28, 1992 (filed as
Exhibit 10.12(b) to the 1992 10-K).
Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed as
Exhibit 10.13(a) to the 1992 10-K).
Escrow and Security Agreement by and among Leucadia,
Inc., Joseph S. Steinberg and Weil, Gotshal & Manges,
as escrow agent, dated as of December 28, 1992 (filed
as Exhibit 10.13(b) to the 1992 10-K).
Agreement made as of December 28, 1993 by and between
the Company and Ian M. Cumming (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (the "1993
10-K")).
Agreement made as of December 28, 1993 by and between
the Company and Joseph S. Steinberg (filed as Exhibit
10.18 to the 1993 10-K).
32
<PAGE>
Agreement between the Company and Ian M. Cumming
dated as of December 28, 1993 (filed as Exhibit
10.19(a) to the 1993 10-K).
Escrow and Security Agreement by and among the
Company, Ian M. Cumming and Weil, Gotshal & Manges,
as escrow agent, dated as of December 28, 1993 (filed
as Exhibit 10.19(b) to the 1993 10-K).
Agreement between the Company and Joseph S.
Steinberg, dated as of December 28, 1993 (filed as
Exhibit 10.20(a) to the 1993 10-K).
Escrow and Security Agreement by and among the
Company, Joseph S. Steinberg and Weil, Gotshal &
Manges, as escrow agent, dated as of December 28,
1993 (filed as Exhibit 10.20(b) to the 1993 10-K).
Deferred Compensation Agreement between the Company
and Lawrence S. Hershfield, dated March 29, 1995
(filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended
March 31, 1995).
Agreement between the Company and Lawrence S.
Hershfield, dated as of May 4, 1995 (filed as Exhibit
10.22(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (the
"1995 10-K")).
Escrow and Security Agreement by and among the
Company, Lawrence S. Hershfield and Weil, Gotshal &
Manges, as escrow agent, dated as of May 4, 1995
(filed as Exhibit 10.22(b) to the 1995 10-K).
(b) Reports on Form 8-K.
-------------------
Not applicable.
(c) Exhibits.
--------
3.1 Restated Certificate of Incorporation (filed as
Exhibit 5.1 to the Company's Current Report on Form
8-K dated July 14, 1993).*
3.2 Amended and Restated By-laws as amended through
December 4, 1996.
4.1 The Company undertakes to furnish the Securities
and Exchange Commission, upon request, a copy of
all instruments with respect to long-term debt not
filed herewith.
10.1 1982 Stock Option Plan, as amended August 28, 1991
(filed as Annex B to the Company's Proxy Statement
dated July 21, 1992).*
___________________
* Incorporated by reference.
33
<PAGE>
10.2 1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).*
10.3(a) Restated Articles and Agreement of General
Partnership, effective as of February 1, 1982, of
The Jordan Company (filed as Exhibit 10.3(d) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986).*
10.3(b) Amendments dated as of December 31, 1989 and
December 1, 1990 to the Partnership Agreement
referred to in 10.3(a) above (filed as Exhibit
10.2(b) to the 1991 10-K).*
10.3(c) Amendment dated as of December 17, 1992 to the
Partnership Agreement referred to in 10.3(a) above
(filed as Exhibit 10.3(c) to the 1992 10-K).*
10.3(d) Fourth Restatement, dated as of December 31, 1996,
of the Articles and Agreement of General
Partnership of The Jordan Company.
10.3(e) Articles and Agreement of General Partnership,
effective as of April 15, 1985, of Jordan/Zalaznick
Capital Company (filed as Exhibit 10.20 to the
Company's Registration Statement No. 33-00606).*
10.4 Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Ian M. Cumming (filed as Exhibit
10.14 to the 1983 10-K).*
10.5 Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Joseph S. Steinberg (filed as
Exhibit 10.15 to the 1983 10-K).*
10.6 Stock Purchase and Sale Agreement dated as of April
5, 1991, by and between FPL Group Capital Inc and
the Company (filed as Exhibit B to the Company's
Current Report on Form 8-K dated August 23, 1991).*
10.7 Agreement dated as of August 1, 1988 among the
Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.6 to the 1991 10-K).*
10.8 Agreement dated as of January 10, 1992 between Ian
M. Cumming, certain other persons listed on
Schedule A thereto and the Company (filed as
Exhibit 10.7 to the 1991 10-K).*
10.9 Agreement dated as of January 10, 1992 between
Joseph S. Steinberg, certain other persons listed
on Schedule A thereto and the Company (filed as
Exhibit 10.8 to the 1991 10-K).*
___________________
* Incorporated by reference.
34
<PAGE>
10.10(a) Agreement dated April 23, 1992 between AIC
Financial Services, Inc. (an Alabama corporation),
AIC Financial Services (a Mississippi corporation)
and AIC Financial Services (a South Carolina
corporation) (collectively, "Seller") and Norwest
Financial Resources, Inc. (filed as Exhibit
10.10(a) to the 1992 10-K).*
10.10(b) Purchase Agreement between A.I.C. Financial
Services, Inc., American Investment Bank, N.A.,
American Investment Financial and Terracor II d/b/a
AIC Financial Fund, Seller, and Associates
Financial Services Company, Inc., Buyer, dated
November 5, 1992 (filed as Exhibit 10.10(b) to the
Company's Registration Statement No. 33-55120).*
10.11(a) Agreement and Plan of Merger, dated as of October
22, 1992, by and among the Company, Phlcorp
Acquisition Company and PHLCORP, Inc. (filed as
Exhibit 5.2 to the Company's Current Report on Form
8-K dated October 22, 1992).*
10.11(b) Amendment dated December 10, 1992, to the Merger
Agreement referred to in 10.11(a) above (filed as
Exhibit 5.2 to the Company's Current Report on Form
8-K dated December 14, 1992).*
10.12(a) Agreement between Leucadia, Inc. and Ian M.
Cumming, dated as of December 28, 1992 (filed as
Exhibit 10.12(a) to the 1992 10-K).*
10.12(b) Escrow and Security Agreement by and among
Leucadia, Inc., Ian M. Cumming and Weil, Gotshal &
Manges, as escrow agent, dated as of December 28,
1992 (filed as Exhibit 10.12(b) to the 1992 10-K).*
10.13(a) Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed as
Exhibit 10.13(a) to the 1992 10-K).*
10.13(b) Escrow and Security Agreement by and among
Leucadia, Inc., Joseph S. Steinberg and Weil,
Gotshal & Manges, as escrow agent, dated as of
December 28, 1992 (filed as Exhibit 10.13(b) to the
1992 10-K).*
10.14 Settlement Agreement between Baldwin-United
Corporation and the United States dated August 27,
1985 concerning tax issues (filed as Exhibit 10.14
to the 1992 10-K).*
10.15 Acquisition Agreement, dated as of December 18,
1992, by and between Provident Mutual Life and
Annuity Company of America and Colonial Penn
Annuity and Life Insurance Company (filed as
Exhibit 10.15 to the 1992 10-K).*
___________________
* Incorporated by reference.
35
<PAGE>
10.16 Reinsurance Agreement, dated as of December 31,
1991, by and between Colonial Penn Insurance
Company and American International Insurance
Company (filed as Exhibit 10.16 to the 1992 10-K).*
10.17 Agreement made as of December 28, 1993 by and
between the Company and Ian M. Cumming (filed as
Exhibit 10.17 to the 1993 10-K).*
10.18 Agreement made as of December 28, 1993 by and
between the Company and Joseph S. Steinberg (filed
as Exhibit 10.18 to the 1993 10-K).*
10.19(a) Agreement between the Company and Ian M. Cumming,
dated as of December 28, 1993 (filed as Exhibit
10.19(a) to the 1993 10-K).*
10.19(b) Escrow and Security Agreement by and among the
Company, Ian M. Cumming and Weil, Gotshal & Manges,
as escrow agent, dated as of December 28, 1993
(filed as Exhibit 10.19(b) to the 1993 10-K).*
10.20(a) Agreement between the Company and Joseph S.
Steinberg, dated as of December 28, 1993 (filed as
Exhibit 10.20(a) to the 1993 10-K).*
10.20(b) Escrow and Security Agreement by and among the
Company, Joseph S. Steinberg and Weil, Gotshal &
Manges, as escrow agent, dated as of December 28,
1993 (filed as Exhibit 10.20(b) to the 1993 10-K).*
10.21 Deferred Compensation Agreement between the Company
and Lawrence S. Hershfield, dated March 29, 1995
(filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended
March 31, 1995).*
10.22(a) Agreement between the Company and Lawrence S.
Hershfield, dated as of May 4, 1995 (filed as
Exhibit 10.22(a) to the 1995 10-K).*
10.22(b) Escrow and Security Agreement by and among the
Company, Lawrence S. Hershfield and Weil, Gotshal &
Manges, as escrow agent, dated as of May 4, 1995
(filed as Exhibit 10.22(b) to the 1995 10-K).*
10.23 Revolving Credit Agreement dated as of February 28,
1997 between the Company, The First National Bank
of Boston, as Administrative Agent, The Chase
Manhattan Bank, as Syndication Agent, Bank of
America National Trust and Savings Association, as
Documentation Agent and the Banks signatory
thereto.
21 Subsidiaries of the registrant.
___________________
* Incorporated by reference.
36
<PAGE>
23 Consent of independent accountants with respect to
the incorporation by reference into the Company's
Registration Statements on Form S-8 (File No. 2-84303),
Form S-8 and S-3 (File No. 33-6054), Form
S-8 and S-3 (File No. 33-26434), Form S-8 and S-3
(File No. 33-30277), Form S-8 (File No. 33-61682)
and Form S-8 (File No. 33-61718).
27 Financial Data Schedule.
37
<PAGE>
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, thereunto duly
authorized.
LEUCADIA NATIONAL CORPORATION
March 26, 1997 By: /s/ Barbara L. Lowenthal
-------------------------------------
Barbara L. Lowenthal
Vice President and Comptroller
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, on the date
set forth above.
Signature Title
--------- -----
/s/ Ian M. Cumming Chairman of the Board
------------------------------ (Principal Executive Officer)
Ian M. Cumming
/s/ Joseph S. Steinberg President and Director
------------------------------ (Principal Executive Officer)
Joseph S. Steinberg
/s/ Joseph A. Orlando Vice President and Chief Financial
------------------------------ Officer
Joseph A. Orlando (Principal Financial Officer)
/s/ Barbara L. Lowenthal Vice President and Comptroller
------------------------------ (Principal Accounting Officer)
Barbara L. Lowenthal
/s/ Paul M. Dougan Director
------------------------------
Paul M. Dougan
/s/ Lawrence D. Glaubinger Director
------------------------------
Lawrence D. Glaubinger
/s/ James E. Jordan Director
------------------------------
James E. Jordan
/s/ Jesse Clyde Nichols, III Director
------------------------------
Jesse Clyde Nichols, III
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Leucadia National Corporation:
We have audited the consolidated financial statements and the financial
statement schedules of LEUCADIA NATIONAL CORPORATION and SUBSIDIARIES listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LEUCADIA NATIONAL
CORPORATION and SUBSIDIARIES as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, 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 required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands, except par value)
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
Investments:
Available for sale (aggregate cost of $2,561,221
and $2,618,363) $2,562,408 $2,664,471
Trading securities (aggregate cost of $58,732
and $52,153) 58,644 55,702
Held to maturity (aggregate fair value of $72,715
and $65,416) 72,745 64,546
Policyholder loans 18,329 17,768
Other investments, including accrued interest income 77,994 77,994
---------- ----------
Total investments 2,790,120 2,880,481
Cash and cash equivalents 386,807 266,158
Reinsurance receivables, net 267,540 261,267
Trade, notes and other receivables, net 459,949 497,753
Prepaids and other assets 223,573 238,306
Property, equipment and leasehold improvements, net 99,919 111,374
Deferred policy acquisition costs 105,667 92,144
Deferred income taxes 107,903 103,466
Separate and variable accounts 546,074 472,837
Investments in associated companies 206,384 184,088
---------- ----------
Total $5,193,936 $5,107,874
========== ==========
LIABILITIES
- -----------
Customer banking deposits $ 209,261 $ 203,061
Trade payables and expense accruals 230,663 209,362
Other liabilities 129,909 134,772
Income taxes payable 44,302 39,596
Policy reserves 1,940,645 1,971,080
Unearned premiums 440,943 434,773
Separate and variable accounts 545,019 472,837
Debt, including current maturities 525,719 520,862
---------- ----------
Total liabilities 4,066,461 3,986,343
---------- ----------
Minority interest 9,368 10,040
---------- ----------
SHAREHOLDERS' EQUITY
- --------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 60,417,579
and 60,163,824 shares issued and outstanding,
after deducting 54,353,691 and
54,319,654 shares held in treasury 60,418 60,164
Additional paid-in capital 161,026 159,914
Net unrealized gain on investments 1,759 30,086
Retained earnings 894,904 861,327
---------- ----------
Total shareholders' equity 1,118,107 1,111,491
---------- ----------
Total $5,193,936 $5,107,874
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Insurance revenues and commissions $1,002,442 $ 982,388 $ 918,886
Manufacturing 148,284 166,237 180,050
Finance 49,150 53,958 45,835
Investment and other income 300,883 338,317 256,794
Equity in losses of associated companies (33,631) (2,613) (5,176)
Net securities gains (losses) 39,429 20,027 (12,004)
---------- ---------- ----------
1,506,557 1,558,314 1,384,385
---------- ---------- ----------
Expenses:
Provision for insurance losses and policy
benefits 862,620 842,126 737,630
Amortization of deferred policy acquisition
costs 99,381 100,677 81,380
Manufacturing cost of goods sold 107,667 129,279 137,507
Interest 53,996 52,871 44,003
Salaries 89,430 90,334 87,650
Selling, general and other expenses 214,951 210,845 195,897
---------- ---------- ----------
1,428,045 1,426,132 1,284,067
---------- ---------- ----------
Income before income taxes and extraordinary
loss 78,512 132,182 100,318
---------- ---------- ----------
Income taxes:
Current 8,870 2,366 9,085
Deferred 14,127 22,313 20,397
---------- ---------- ----------
22,997 24,679 29,482
---------- ---------- ----------
Income before extraordinary loss 55,515 107,503 70,836
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $3,682 (6,838) - -
---------- ---------- ----------
Net income $ 48,677 $ 107,503 $ 70,836
========== ========== ==========
Earnings (loss) per common and dilutive common
equivalent share:
Income before extraordinary loss $ .91 $1.81 $1.22
Extraordinary loss (.11) - -
----- ----- -----
Net income $ .80 $1.81 $1.22
===== ===== =====
Fully diluted earnings (loss) per common share:
Income before extraordinary loss $ .91 $1.77 $1.21
Extraordinary loss (.11) - -
----- ----- -----
Net income $ .80 $1.77 $1.21
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from operating activities:
- -----------------------------------------
Net income $ 48,677 $ 107,503 $ 70,836
Adjustments to reconcile net income to net
cash provided by operations:
Extraordinary loss, net of income tax benefit 6,838 - -
Provision for deferred income taxes 14,127 22,313 20,397
Depreciation and amortization of property,
equipment and leasehold improvements 17,978 17,927 17,075
Other amortization 108,502 102,194 88,485
Provision for doubtful accounts 17,424 17,849 10,579
Net securities (gains) losses (39,429) (20,027) 12,004
Equity in losses of associated companies 33,631 2,613 5,176
(Gain) loss on disposal of real estate, property
and equipment (7,500) 3,418 (459)
(Gains) related to foreign power companies - - (22,948)
(Gain) related to the return of the WMAC Companies - (41,030) -
Purchases of investments classified as trading (304,939) (177,281) (132,752)
Proceeds from sales of investments classified
as trading 307,327 182,894 119,042
Deferred policy acquisition costs incurred and deferred (104,891) (118,285) (100,506)
Net change in:
Reinsurance receivables (5,285) 48,446 154,788
Trade, notes and other receivables (10,690) (26,548) (23,661)
Prepaids and other assets (63,873) (18,101) (23,488)
Trade payables and expense accruals 26,991 4,682 35,973
Other liabilities (5,057) (18,206) (22,285)
Income taxes payable 4,800 105 (1,844)
Policy reserves (34,691) 21,152 (123,376)
Unearned premiums 3,431 21,227 33,286
Other 1,044 4,452 3,214
--------- ---------- ----------
Net cash provided by operating activities 14,415 137,297 119,536
--------- ---------- ----------
Net cash flows from investing activities:
- -----------------------------------------
Acquisition of real estate, property, equipment
and leasehold improvements (25,468) (54,696) (122,122)
Proceeds from disposals of real estate, property
and equipment 46,064 22,533 7,741
Investment in Providential Life in 1996,
MK Gold in 1995 and Caja in 1994 (11,196) (22,593) (45,711)
Advances on loan receivables (113,787) (154,329) (182,289)
Principal collections on loan receivables 128,756 123,266 118,484
Purchases of investments (other than short-term) (2,252,680) (1,893,387) (1,251,643)
Proceeds from maturities of investments 610,095 636,076 425,582
Proceeds from sales of investments 1,742,547 1,091,573 888,474
---------- ---------- ----------
Net cash provided by (used for)
investing activities 124,331 (251,557) (161,484)
---------- ---------- ----------
(continued)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from financing activities:
- -----------------------------------------
Net change in short-term borrowings $ 207 $ (80) $ (582)
Net change in customer banking deposits 6,199 22,785 6,346
Net change in policyholder account balances (7,193) (14,802) (17,302)
Issuance of long-term debt, net of issuance
costs 141,581 101,390 50,000
Reduction of long-term debt (142,954) (9,475) (27,940)
Sale of common shares and exercise of warrants,
net of expenses - 43,857 -
Purchase of common shares for treasury (837) (727) (472)
Dividends paid (15,100) (15,025) (7,021)
---------- ---------- ----------
Net cash provided by (used for)
financing activities (18,097) 127,923 3,029
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 120,649 13,663 (38,919)
Cash and cash equivalents at January 1, 266,158 252,495 291,414
---------- ---------- ----------
Cash and cash equivalents at December 31, $ 386,807 $ 266,158 $ 252,495
========== ========== ==========
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the year for:
Interest $54,251 $52,919 $43,137
Income tax payments, net of refunds $ 4,077 $ 2,267 $10,731
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
Net
Common Unrealized
Shares Additional Gain (Loss)
$1 Par Paid-in On Retained
Value Capital Investments Earnings Total
----- ------- ----------- -------- -----
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $55,794 $ 97,116 $ 49,912 $705,034 $ 907,856
Exercise of options to
purchase common shares 330 1,507 1,837
Purchase of stock for treasury (24) (448) (472)
Net change in unrealized gain
(loss) on investments (91,221) (91,221)
Dividend ($.125 per common share) (7,021) (7,021)
Net income 70,836 70,836
------- -------- -------- -------- ----------
Balance, December 31, 1994 56,100 98,175 (41,309) 768,849 881,815
Exercise of options to
purchase common shares 415 2,201 2,616
Purchase of stock for treasury (29) (698) (727)
Exercise of warrants to purchase
common shares (net of expenses)
and related income tax benefit 3,200 47,845 51,045
Issuance of common shares, net
of underwriting discounts 478 12,391 12,869
Net change in unrealized gain
(loss) on investments 71,395 71,395
Dividend ($.25 per common share) (15,025) (15,025)
Net income 107,503 107,503
------- -------- -------- -------- ----------
Balance, December 31, 1995 60,164 159,914 30,086 861,327 1,111,491
Exercise of options to
purchase common shares 288 1,915 2,203
Purchase of stock for treasury (34) (803) (837)
Net change in unrealized gain
(loss) on investments (28,327) (28,327)
Dividend ($.25 per common share) (15,100) (15,100)
Net income 48,677 48,677
------- -------- -------- -------- ----------
Balance, December 31, 1996 $60,418 $161,026 $ 1,759 $894,904 $1,118,107
======= ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations:
--------------------
The Company is a diversified financial services holding company engaged in
personal and commercial lines of property and casualty insurance, life and
health insurance, banking and lending and manufacturing, principally in markets
throughout the United States. The Company's principal operations are its
insurance businesses, where it is a specialty markets provider of property and
casualty and life and health 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, variable annuity and Medicare supplement products. The
Company's principal commercial lines are property and casualty products provided
for workers' compensation, multi-family residential real estate, retail
establishments and livery vehicles in the New York metropolitan area.
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 Corporation. The Company's manufacturing operations
primarily manufacture products for the "do-it-yourself" home improvement market
and for industrial markets.
2. Significant Accounting Policies:
-------------------------------
(a) Use of Estimates in Preparing Financial Statements: The preparation of
--------------------------------------------------
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
(b) Consolidation Policy: The consolidated financial statements include the
--------------------
accounts of the Company and all majority-owned and controlled entities. All
significant intercompany transactions and balances are eliminated in
consolidation. Prior to December 31, 1995, two of the Company's legal
subsidiaries (the "WMAC Companies") were not consolidated while under the
control of the Wisconsin Insurance Commissioner. Effective as of December 31,
1995, control of the WMAC Companies was returned to the Company and such
subsidiaries are included in the consolidated financial statements since such
date.
Investments in entities which the Company does not control but has the ability
to exercise significant influence are accounted for on the equity method of
accounting.
Certain amounts for prior periods have been reclassified to be consistent with
the 1996 presentation.
(c) Statements of Cash Flows: The Company considers short-term investments,
------------------------
which have maturities of less than three months at the time of acquisition, to
be cash equivalents. Cash and cash equivalents include short-term investments
F-7
<PAGE>
2. Significant Accounting Policies, continued:
-------------------------------
of $351,954,000 and $199,725,000 at December 31, 1996 and 1995, respectively.
(d) Investments: At acquisition, marketable debt and equity securities are
-----------
designated as either i) held to maturity, which are carried at amortized cost,
ii) trading, which are carried at estimated fair value with unrealized gains and
losses reflected in results of operations, or iii) available for sale, which are
carried at estimated fair value with unrealized gains and losses reflected as a
separate component of shareholders' equity, net of taxes. Held to maturity
investments are made with the intention of holding such securities to maturity,
which the Company has the ability to do. Estimated fair values are principally
based on quoted market prices.
Investments with an impairment in value considered to be other than temporary
are written down to estimated net realizable values. The writedowns are included
in "Net securities gains (losses)" in the Consolidated Statements of Income. The
cost of securities sold is based on average cost.
The Company's investments in Russian equity securities ($43,800,000 and
$39,700,000 as of December 31, 1996 and 1995, respectively), none of which is
held by the insurance or banking subsidiaries, do not have readily determinable
fair values. Given the uncertainties inherent in investing in the emerging
markets of Russia, the Company is accounting for these investments under the
cost recovery method, whereby all receipts are applied to reduce the investment.
These investments are included in "Other investments" in the Consolidated
Balance Sheets.
(e) Property, Equipment and Leasehold Improvements: Property, equipment and
----------------------------------------------
leasehold improvements are stated at cost, net of accumulated depreciation and
amortization ($99,214,000 and $101,568,000 at December 31, 1996 and 1995,
respectively). Depreciation and amortization are provided principally on the
straight-line method over the estimated useful lives of the assets or, if less,
the term of the underlying lease.
(f) Income Recognition from Insurance Operations: Premiums on property and
--------------------------------------------
casualty and health insurance products are recognized as revenues over the term
of the policy using the monthly pro rata basis.
Premiums for investment oriented insurance products ("IOP products") are
reflected in a manner similar to a deposit; revenues reflect only mortality
charges and other amounts assessed against the holder of the insurance policies
and annuity contracts. The principal IOP product offered during the three year
period ended December 31, 1996 was a variable annuity ("VA") product. Other life
premiums are recognized as revenues over the premium paying period.
Premiums for the VA product are directed by the policyholder to be invested in a
unit trust solely for the benefit and risk of the policyholder. Policyholders'
accounts are charged for the cost of insurance provided, administrative and
certain other charges. The amount included in the balance sheet liability
caption "Separate and variable accounts" represents the current value of the
policyholders' funds.
F-8
<PAGE>
2. Significant Accounting Policies, continued:
-------------------------------
(g) Policy Acquisition Costs: Policy acquisition costs principally consist of
------------------------
direct response marketing costs, commissions, premium taxes and other
underwriting expenses (net of reinsurance allowances). If recoverability of such
costs from future premiums and related investment income is not anticipated, the
amounts not considered recoverable are charged to operations.
Policy acquisition costs applicable to the property and casualty insurance
operations are deferred and amortized ratably over the terms of the related
policies. Policy acquisition costs applicable to life insurance products are
amortized over the expected premium paying period of the policies.
(h) Reinsurance: In the normal course of business, the Company seeks to reduce
-----------
the loss that may arise from catastrophes and to limit losses from large
exposures by reinsuring certain levels of risk with other insurance enterprises.
Catastrophe reinsurance treaties serve to reduce property and casualty insurance
risk in geographic areas where the Company is exposed to natural disasters,
principally Florida, California and the East Coast. The Company has also entered
into reinsurance transactions in connection with dispositions of blocks of
businesses. Reinsurance contracts do not necessarily legally relieve the Company
from its obligations to policyholders.
Reinsurance recoverables are reported as assets net of provisions for
uncollectible amounts. Premiums earned and other underwriting expenses are
stated net of reinsurance.
(i) Policy Reserves and Unearned Premiums: Policy reserves and unearned premiums
-------------------------------------
for life, health and traditional annuity policies are computed on a net level
premium method based upon standard and Company developed tables with provision
for adverse deviation and estimated withdrawals. Liabilities for unpaid losses
and loss adjustment expenses applicable to the property and casualty insurance
operations are determined using case basis evaluations, statistical analyses for
losses incurred but not reported and estimates for salvage and subrogation
recoverable and represent estimates of ultimate claim costs and loss adjustment
expenses. As more information becomes available and claims are settled, the
estimated liabilities are adjusted upward or downward with the effect of
decreasing or increasing net income at the time of adjustment.
(j) Liability for Unredeemed Trading Stamps: The Company's liability for
---------------------------------------
unredeemed trading stamps is estimated based upon recent experience, statistical
evaluation and estimated costs to service redemptions of unredeemed trading
stamps in the future. In prior years, statistical studies and estimates of
service costs indicated that the recorded liability for unredeemed trading
stamps was in excess of the amount that ultimately will be required to redeem
trading stamps outstanding. As a result, selling, general and other expenses
applicable to the trading stamp operations include credits of $9,400,000 and
$11,700,000 for the years ended December 31, 1995 and 1994, respectively,
reflecting the adjustments made to the liability for unredeemed trading stamps.
The Company's most recent analysis of the liability for unredeemed trading
stamps has not identified any remaining excess as of December 31, 1996.
F-9
<PAGE>
2. Significant Accounting Policies, continued:
-------------------------------
(k) Income Taxes: The Company provides for income taxes using the liability
------------
method. The future benefit of certain tax loss carryforwards and future
deductions is recorded as an asset and the provisions for income taxes are not
reduced for the benefit from utilization of tax loss carryforwards. A valuation
allowance is provided if deferred tax assets are not considered more likely than
not to be realized.
(l) Derivative Financial Instruments: The Company enters into interest rate
--------------------------------
agreements to manage the impact of changes in interest rates on its variable
rate debt and customer banking deposits. The difference between the amounts paid
and received is accrued and recognized as an adjustment to interest expense.
Gains and losses related to interest rate agreements are amortized as yield
adjustments over the remaining life of the underlying hedged security. Cash
flows related to the agreements are classified as operating activities in the
Consolidated Statements of Cash Flows, consistent with the interest payments on
the underlying debt. The Company does not have material derivative financial
instruments.
(m) Translation of Foreign Currency: Foreign currency denominated investments
-------------------------------
which are not subject to hedging agreements and currency rate swap agreements
not meeting the accounting requirements for hedges are converted into U.S.
dollars at exchange rates in effect at the end of the period. Resulting net
exchange gains or losses were not material.
3. Acquisitions:
------------
During 1994, the Company acquired a 30% interest in Caja de Ahorro y Seguro S.A.
("Caja") from the government of Argentina for a purchase price of $46,000,000,
including costs. Caja is a holding company whose subsidiaries are engaged in
property and casualty insurance, life insurance and banking in Argentina. The
difference between the Company's investment in Caja and its share of Caja's
underlying net tangible assets is being amortized over 20 years. At December 31,
1996, the carrying amount of the Company's investment in Caja was $44,333,000.
In June 1995, the Company purchased a 46.4% common stock interest in MK Gold
Company ("MK Gold") for an aggregate cash purchase price of $22,500,000. MK Gold
is an international gold mining company whose shares are quoted on the Nasdaq
National Market System. At December 31, 1996, the carrying amount of the
Company's investment in MK Gold was $15,716,000.
In July 1995, pursuant to the chapter 11 reorganization of HomeFed Corporation
("HFC"), the Company acquired 41.2% of HFC's common stock for net cash of
approximately $4,200,000. As part of the reorganization plan, the Company
provided HFC with a $20,000,000 eight year collateralized loan, which is
convertible into additional shares of HFC common stock after three years
(subject to certain conditions) and which bears interest at the rate of 12% per
annum. HFC is a public company whose subsidiaries develop real property. The
Company's investment in HFC was $21,385,000 at December 31, 1996.
F-10
<PAGE>
3. Acquisitions, continued:
------------
During 1996, the Company formed a joint venture, Pepsi International Bottlers
("PIB"), with PepsiCo, Inc to be the exclusive bottler and distributor of
PepsiCo beverages in a large portion of central and eastern Russia, Kyrgyzstan
and Kazakstan. The Company and PepsiCo have committed to make capital
contributions to PIB of $79,500,000 and $26,500,000, respectively. As of
December 31, 1996, the Company contributed $51,000,000; the balance was funded
in January 1997. The Company has a 75% economic interest in PIB and PepsiCo owns
the remainder. Under the terms of the joint venture agreement, the Company and
PepsiCo have equal voting rights over all significant aspects of PIB's
operations. Accordingly, since the Company does not control PIB despite its
larger economic interest, the Company accounts for its share of PIB's operating
results under the equity method of accounting. At December 31, 1996, the
carrying amount of the Company's investment in PIB was $33,896,000.
The Company's investments described above are included in the caption
"Investments in associated companies."
4. Investments in Associated Companies:
-----------------------------------
The Company has investments in several Associated Companies that have adopted
various fiscal year-ends. The Company records its portion of the earnings of
such companies based on fiscal periods ended up to three months prior to the end
of the Company's reporting period.
The following table provides certain summarized data with respect to the
Associated Companies accounted for on the equity method of accounting included
in 1996 results of operations. Such results were not material in 1995 and 1994.
(Amounts are in thousands.)
Assets $1,004,675
----------
Liabilities 915,703
----------
Minority interest 2,929
----------
Net assets $ 86,043
==========
The Company's portion of the
reported net assets $ 48,703
==========
Total revenues $ 627,658
(Loss) from continuing operations
before extraordinary items $ (90,607)
Net (loss) $ (90,607)
The Company's equity in net (loss) $ (33,631)
At December 31, 1996, investments in associated companies included common stock
equity interests of 5% or more in the following domestic publicly owned
non-consolidated companies: Carmike Cinemas, Inc. (6% of Class A shares), HFC
(41%) and MK Gold (46%).
F-11
<PAGE>
5. Insurance Operations:
--------------------
Premiums received on IOP products were $52,272,000, $50,202,000 and $108,080,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
The changes in deferred policy acquisition costs were as follows (in thousands):
1996 1995 1994
---- ---- ----
Balance, January 1, $ 92,144 $ 74,536 $ 55,410
Acquisition of Providential Life
Insurance Company 8,013 - -
Policy acquisition costs incurred
and deferred 104,891 118,285 100,506
Amortization of deferred
acquisition costs (99,381) (100,677) (81,380)
-------- --------- --------
Balance, December 31, $105,667 $ 92,144 $ 74,536
======== ========= ========
The effect of reinsurance on premiums written and earned for the years ended
December 31, 1996, 1995 and 1994 is as follows (in thousands):
1996 1995 1994
---- ---- ----
Premiums Premiums Premiums Premiums Premiums Premiums
Written Earned Written Earned Written Earned
------- ------ ------- ------ ------- ------
Direct $1,063,147 $1,058,262 $1,036,120 $1,004,496 $960,463 $923,131
Assumed 3,452 6,047 7,738 22,530 31,804 32,261
Ceded (62,743) (61,867) (49,092) (44,638) (39,722) (36,506)
---------- ---------- ---------- ---------- -------- --------
Net $1,003,856 $1,002,442 $ 994,766 $ 982,388 $952,545 $918,886
========== ========== ========== ========== ======== ========
Recoveries recognized on reinsurance contracts were $47,190,000 in 1996,
$28,900,000 in 1995 and $44,300,000 in 1994.
Net income and statutory surplus as determined in accordance with statutory
accounting principles as reported to the domiciliary state of the Company's
insurance subsidiaries are as follows (in thousands):
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Net income:
Property and casualty insurance $78,275 $69,145 $59,048
Life insurance $45,801 $13,465 $14,142
At December 31,
---------------
1996 1995 1994
---- ---- ----
Statutory surplus:
Property and casualty insurance $561,060 $520,700 $425,128
Life insurance $406,503 $376,223 $335,903
F-12
<PAGE>
5. Insurance Operations, continued:
--------------------
The statutory net income of the life insurance subsidiaries is net of certain
management and other fees paid to the Company or other subsidiaries of the
Company. Under generally accepted accounting principles, the reported income of
the life insurance segment is increased by these fees, since all intercompany
transactions are eliminated in consolidation.
Certain insurance subsidiaries are owned by other insurance subsidiaries. In the
data above, investments in such subsidiary-owned insurance companies are
reflected in statutory surplus of both the parent and subsidiary-owned insurance
company. As a result, at December 31, 1996, 1995 and 1994, statutory surplus of
$316,300,000, $292,800,000 and $252,800,000, respectively, related to property
and casualty operations is also included in the statutory surplus of the life
insurance parent, and statutory surplus of $24,500,000, $29,300,000 and
$35,900,000, respectively, related to life operations is also included in the
statutory surplus of the property and casualty insurance parent. The insurance
subsidiaries are subject to regulatory restrictions which limit the amount of
cash and other distributions available to the Company without regulatory
approval. At December 31, 1996, $27,082,000 could be distributed to the Company
without regulatory approval.
In December 1995, the Company entered into an agreement with the California
Department of Insurance to settle its Proposition 103 liability for $17,700,000.
The settlement did not exceed reserves established in prior years. The Company
paid the settlement amount during the first quarter of 1996.
The Company's insurance subsidiaries are contingently liable for possible
assessments under state regulatory requirements pertaining to potential
insolvencies of unaffiliated insurance companies. Liabilities, which are
established based upon regulatory guidance, have not been material.
For information with respect to the activity in property and casualty loss
reserves, see "Reconciliation of Liability for Losses and Loss Adjustment
Expenses" in Item 1 included elsewhere herein, which is incorporated by
reference into these consolidated financial statements.
F-13
<PAGE>
6. Investments:
-----------
The amortized cost, gross unrealized gains and losses and estimated fair value
of investments classified as held to maturity and as available for sale at
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Held to maturity:
1996
- ----
Bonds and notes:
United States Government
agencies and authorities $55,714 $ 422 $439 $55,697
States, municipalities
and political subdivisions 1,825 - - 1,825
Public utilities 309 - 3 306
All other corporates 639 - 10 629
Other fixed maturities 14,258 - - 14,258
------- ------ ---- -------
$72,745 $ 422 $452 $72,715
======= ====== ==== =======
1995
- ----
Bonds and notes:
United States Government
agencies and authorities $49,823 $1,011 $139 $50,695
States, municipalities
and political subdivisions 920 8 - 928
All other corporates 310 - 10 300
Other fixed maturities 13,493 - - 13,493
------- ------ ---- -------
$64,546 $1,019 $149 $65,416
======= ====== ==== =======
Available for sale:
1996
- ----
Bonds and notes:
United States Government
agencies and authorities $2,164,824 $ 9,626 $21,822 $2,152,628
States, municipalities
and political subdivisions 14,713 72 37 14,748
Foreign governments 12,571 6,060 17 18,614
Public utilities 49,919 534 515 49,938
All other corporates 313,448 10,840 3,713 320,575
---------- ------- ------- ----------
Total fixed maturities 2,555,475 27,132 26,104 2,556,503
---------- ------- ------- ----------
Equity securities:
Preferred stocks 2,293 331 1 2,623
Common stocks - industrial,
miscellaneous and all other 3,453 145 316 3,282
---------- ------- ------- ----------
Total equity securities 5,746 476 317 5,905
---------- ------- ------- ----------
$2,561,221 $27,608 $26,421 $2,562,408
========== ======= ======= ==========
</TABLE>
F-14
<PAGE>
6. Investments, continued:
-----------
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1995
- ----
Bonds and notes:
United States Government
agencies and authorities $2,161,873 $24,503 $3,097 $2,183,279
States, municipalities
and political subdivisions 3,367 50 32 3,385
Foreign governments 21,435 3,242 1,372 23,305
Public utilities 50,158 1,123 501 50,780
All other corporates 354,804 14,144 2,192 366,756
---------- ------- ------ ----------
Total fixed maturities 2,591,637 43,062 7,194 2,627,505
---------- ------- ------ ----------
Equity securities:
Common stocks:
Banks, trusts and
insurance companies 10,001 3,217 1 13,217
Industrial, miscellaneous
and all other 16,725 7,919 895 23,749
---------- ------- ------ ----------
Total equity securities 26,726 11,136 896 36,966
---------- ------- ------ ----------
$2,618,363 $54,198 $8,090 $2,664,471
========== ======= ====== ==========
</TABLE>
The amortized cost and estimated fair value of investments classified as held to
maturity and as available for sale at December 31, 1996, by contractual maturity
are shown below. Expected maturities are likely to differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------- ------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $29,805 $29,923 $ 307,309 $ 312,306
Due after one year
through five years 35,191 35,016 1,339,715 1,332,251
Due after five years
through ten years 2,146 2,153 258,598 259,499
Due after ten years 1,643 1,751 135,731 135,943
------- ------- ---------- ----------
68,785 68,843 2,041,353 2,039,999
Mortgage-backed securities 3,960 3,872 514,122 516,504
------- ------- ---------- ----------
$72,745 $72,715 $2,555,475 $2,556,503
======= ======= ========== ==========
</TABLE>
F-15
<PAGE>
6. Investments, continued:
-----------
At December 31, 1996 and 1995 securities with book values aggregating
$42,397,000 and $45,069,000, respectively, were on deposit with various
regulatory authorities.
Certain information with respect to trading securities at December 31, 1996 and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated Carrying
Cost Fair Value Value
---- ---------- -----
<S> <C> <C> <C>
1996
- ----
Fixed maturities -
Corporate bonds and notes $33,430 $33,897 $33,897
Equity securities:
Preferred stocks 16,260 16,823 16,823
Common stocks - industrial,
miscellaneous and all other 4,842 5,803 5,803
Options 4,200 2,121 2,121
------- ------- -------
Total trading securities $58,732 $58,644 $58,644
======= ======= =======
1995
- ----
Fixed maturities:
Corporate bonds and notes $26,356 $27,194 $27,194
Foreign governments 2,080 3,880 3,880
Equity securities:
Preferred stocks 17,785 19,079 19,079
Common stocks - industrial,
miscellaneous and all other 142 148 148
Options 5,790 5,401 5,401
------- ------- -------
Total trading securities $52,153 $55,702 $55,702
======= ======= =======
</TABLE>
F-16
<PAGE>
7. Trade, Notes and Other Receivables, Net:
---------------------------------------
A summary of trade, notes and other receivables, net at December 31, 1996 and
1995 is as follows (in thousands):
1996 1995
---- ----
Instalment loan receivables net of unearned
finance charges of $1,910 and $3,680 (a) $233,351 $268,470
Loans to small business concerns, including
accrued interest - 9,921
Premiums receivable 193,179 187,425
Trade receivables 20,856 22,669
Service fee receivable 7,806 5,176
Amount due on sale of securities 3,919 6,808
Other 20,226 17,786
-------- --------
479,337 518,255
Allowance for doubtful accounts (including
$12,177 and $13,893 applicable to loan
receivables of banking and lending subsidiaries) (19,388) (20,502)
-------- --------
$459,949 $497,753
======== ========
(a) Contractual maturities of instalment loan receivables at December 31, 1996
were as follows (in thousands): 1997 - $111,891; 1998 - $62,489; 1999 - $34,557;
2000 - $17,233 and 2001 and thereafter - $7,181. Experience shows that a
substantial portion of such notes will be repaid or renewed prior to contractual
maturity. Accordingly, the foregoing is not to be regarded as a forecast of
future cash collections.
8. Prepaids and Other Assets:
-------------------------
At December 31, 1996 and 1995, a summary of prepaids and other assets is as
follows (in thousands):
1996 1995
---- ----
Real estate assets, net $142,089 $147,508
Inventories, net 21,281 30,573
Excess of acquisition cost over net
tangible assets acquired - 173
Balances in risk sharing pools and associations 6,961 9,896
Prepaid reinsurance premium 9,081 6,528
Unamortized debt expense 7,415 7,588
Other 36,746 36,040
-------- --------
$223,573 $238,306
======== ========
F-17
<PAGE>
9. Trade Payables, Expense Accruals and Other Liabilities:
------------------------------------------------------
A summary of trade payables, expense accruals and other liabilities at December
31, 1996 and 1995 is as follows (in thousands):
1996 1995
---- ----
Trade Payables and Expense Accruals:
Payables related to securities $ 43,048 $ 43,635
Amount due on reinsurance 16,447 11,798
Trade and drafts payable 45,677 40,003
Accrued compensation, severance and other
employee benefits 27,758 28,084
Pension liability 5,712 5,735
Accrued interest payable 8,375 8,965
Taxes, other than income 21,608 23,505
Amounts withheld on account of others 17,238 2,914
Provision for servicing carrier claims 26,986 23,513
Other 17,814 21,210
-------- --------
$230,663 $209,362
======== ========
Other Liabilities:
Unearned service fees $ 41,576 $ 32,333
Lease obligations 1,588 3,815
Liability for unredeemed trading stamps 23,735 30,574
Postretirement and postemployment benefits 26,532 25,560
Premiums received in advance 3,588 4,871
Holdbacks on loans 3,806 6,035
Unclaimed funds and dividends 3,659 3,622
Other 25,425 27,962
-------- --------
$129,909 $134,772
======== ========
10. Long-term and Other Indebtedness:
--------------------------------
The principal amount, stated interest rate and maturity of long-term debt
outstanding at December 31, 1996 and 1995 are as follows (dollars in thousands):
1996 1995
---- ----
Senior Notes:
Term loans with banks $ 50,000 $ 50,000
7 3/4% Senior Notes due 2013, less debt
discount of $831 and $881 99,169 99,119
Industrial Revenue Bonds (with variable interest) 4,900 5,600
Other 15,076 14,493
-------- --------
169,145 169,212
-------- --------
Subordinated Notes:
10 3/8% Senior Subordinated Notes due 2002,
less debt discount of $92 and $605 22,252 124,395
8 1/4% Senior Subordinated Notes due 2005 100,000 100,000
7 7/8% Senior Subordinated Notes due 2006,
less debt discount of $678 134,322 -
6% Swiss Franc Bonds due March 10, 1996 - 27,255
5 1/4% Convertible Subordinated Debentures due 2003 100,000 100,000
-------- --------
356,574 351,650
-------- --------
$525,719 $520,862
======== ========
F-18
<PAGE>
10. Long-term and Other Indebtedness, continued:
--------------------------------
At December 31, 1996, credit agreements provided for aggregate contractual
credit facilities of $150,000,000, bore interest based on the prime rate or
LIBOR, plus commitment and other fees, and were due to expire in June 1997. No
amounts were borrowed under these facilities as of December 31, 1996 and 1995.
The term loans with banks also bore interest based on the prime rate or LIBOR.
In February 1997, the Company replaced these credit facilities and the
$50,000,000 of outstanding bank term loans with a new contractual bank credit
facility of $200,000,000. The new facility bears interest based on the prime
rate or LIBOR and expires in February 2002.
The most restrictive of the Company's debt instruments require maintenance of
minimum Tangible Net Worth and limit Indebtedness, as defined in the agreements.
In addition, the debt instruments contain limitations on dividends, investments,
liens, contingent obligations and certain other matters. Had the new credit
facility been in effect as of December 31, 1996, cash dividends of $300,300,000
would be eligible to be paid under the most restrictive covenants.
In October 1996, the Company sold $135,000,000 principal amount of its newly
authorized 7 7/8% Senior Subordinated Notes due 2006 in an underwritten public
offering at 99.487% of the principal amount. As of December 31, 1996,
$114,000,000 of the net proceeds were used to purchase $102,656,000 aggregate
principal amount of the 10 3/8% Senior Subordinated Notes due 2002 (the "10 3/8%
Notes") plus accrued interest through a tender offer and in open market
purchases. The Company intends to retire the 10 3/8% Notes that remain
outstanding either through open market purchases or through early redemption in
June 1997. In the fourth quarter of 1996, the Company reported an extraordinary
loss on early extinguishment of these 10 3/8% Notes of $10,520,000 ($6,838,000
after taxes or $.11 per share).
The 5 1/4% Convertible Subordinated Debentures due 2003 (the "5 1/4%
Debentures") are convertible into Common Shares at $28.75 per Common Share, an
aggregate of 3,478,261 Common Shares, subject to anti-dilution provisions. On
March 12, 1997, the Company called for redemption on April 11, 1997 all of its
outstanding $100,000,000 5 1/4% Debentures, at a redemption price of 102.625% of
the principal amount of the Debentures, plus accrued interest.
Approximately $9,425,000 of the manufacturing division's net property, equipment
and leasehold improvements are pledged as collateral for the Industrial Revenue
Bonds; and approximately $26,259,000 of other assets (primarily property) are
pledged for other indebtedness aggregating approximately $14,691,000.
Interest rate agreements are used to manage the potential impact of changes in
interest rates on term loans with banks, customer banking deposits and credit
agreement borrowings. Under interest rate swap agreements, the Company has
agreed with other parties to pay fixed rate interest amounts and receive
variable rate interest amounts calculated by reference to an agreed notional
amount. The variable interest rate portion of the swaps is a specified LIBOR
interest rate. At December 31, 1995, the notional amount of the Company's
interest rate swaps were $75,000,000. Swaps that expired in 1996 required fixed
rate payments of 7.23% on a $50,000,000 notional amount. The remaining
$25,000,000, which comprises the notional amount of the Company's interest rate
swaps at December 31, 1996, expire in 1999 and require fixed rate payments of
7.33%. The Company would have been required to pay $782,000 at December 31, 1996
and $2,351,000 at December 31, 1995 to retire these agreements. The LIBOR rate
at December 31, 1996 was 5.6%. Changes in LIBOR interest rates in the future
will change the amounts to be received under the agreements as well as interest
to be paid under the related variable debt obligations.
F-19
<PAGE>
10. Long-term and Other Indebtedness, continued:
--------------------------------
Counterparties to interest rate swap agreements are major financial
institutions, which management believes are able to fulfill their obligations.
However, any losses due to default by the counterparties are likely to be
immaterial.
The aggregate annual mandatory redemptions of debt during the five year period
ending December 31, 2001 are as follows (in thousands): 1997 - $2,817; 1998 -
$2,438; 1999 - $51,854; 2000 - $1,140; and, 2001 - $1,164.
The weighted average interest rate on short-term borrowings (primarily customer
banking deposits) was 5.8% and 6.1% at December 31, 1996 and 1995, respectively.
11. Common Shares, Stock Options, Warrants and Preferred Shares:
-----------------------------------------------------------
The Board of Directors from time to time has authorized acquisitions of the
Company's Common Shares. Pursuant to such authorization, during the three year
period ended December 31, 1996, the Company acquired 87,285 Common Shares
(34,037 shares in 1996, 29,276 shares in 1995 and 23,972 shares in 1994) at an
average price of $23.77 per Common Share.
The Company has a fixed stock option plan which provides for grants of options
or rights to non-employee directors and certain employees up to a maximum grant
of three hundred thousand shares to any individual in a given taxable year. The
plan provides for the issuance of stock options and stock appreciation rights at
not less than the fair market value of the underlying stock at the date of
grant. Options generally become exercisable in five equal annual instalments
starting one year from date of grant. No stock appreciation rights have been
granted.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"), establishes a fair value method for accounting for
stock-based compensation plans, either through recognition in the statements of
income or disclosure. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized in the statements of income for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been recorded
in the statements of income consistent with the provisions of SFAS 123, the
Company's net income and earnings per share for 1996 and 1995 would not have
been materially different from those reported.
F-20
<PAGE>
11. Common Shares, Stock Options, Warrants and Preferred Shares, continued:
-----------------------------------------------------------
A summary of activity with respect to the Company's stock options for the three
years ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Available
Common Weighted for
Shares Average Options Future
Subject Exercise Exercisable Option
to Option Prices at Year-End Grants
--------- ------ ----------- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 1,552,944 $ 9.31 443,992 1,587,000
======= =========
Granted 26,000 $18.28
Exercised (330,000) $ 5.57
Cancelled (33,000) $11.16
---------
Balance at December 31, 1994 1,215,944 $10.47 553,868 1,574,800
======= =========
Granted 10,000 $23.25
Exercised (414,826) $ 6.31
Cancelled (38,500) $12.16
---------
Balance at December 31, 1995 772,618 $12.79 443,018 1,583,100
======= =========
Granted 630,200 $26.54
Exercised (287,792) $ 7.66
Cancelled (41,100) $16.54
---------
Balance at December 31, 1996 1,073,926 $22.09 317,826 974,400
========= ======= =========
</TABLE>
The weighted-average fair value of the options granted was $7.04 per share for
1996 and $6.47 per share for 1995 as estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: (1) expected
volatility of 25.3% for 1996 and 27.4% for 1995; (2) risk-free interest rates of
6.0% for 1996 and 5.9% for 1995; (3) expected lives of 3.7 years for 1996 and
4.0 years for 1995; and (4) dividend yields of .9% for 1996 and 1.1% for 1995.
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -------------------------
Weighted
Common Average Weighted Common Weighted
Shares Remaining Average Shares Average
Range of Subject to Contractual Exercise Subject to Exercise
Exercise Prices Option Life Price Option Price
- --------------- ------ ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$ 6.13 127,326 0.7 years $ 6.13 127,326 $ 6.13
$11.25 - $14.25 14,800 1.0 years $12.87 12,400 $13.19
$17.88 - $21.50 314,100 2.9 years $20.33 176,100 $20.39
$23.25 - $26.63 617,700 5.1 years $26.49 2,000 $23.25
--------- -------
$ 6.13 - $26.63 1,073,926 3.9 years $22.09 317,826 $14.41
========= =======
</TABLE>
F-21
<PAGE>
11. Common Shares, Stock Options, Warrants and Preferred Shares, continued:
-----------------------------------------------------------
On September 13, 1995, Ian M. Cumming and Joseph S. Steinberg, Chairman of the
Board and President of the Company, respectively, and certain members of Mr.
Cumming's family exercised previously granted warrants to purchase an aggregate
of 3,188,000 Common Shares and sold such shares in an underwritten public
offering. In connection with such public offering, the Company granted the
underwriters an over allotment option, which was exercised, for 478,200 Common
Shares. Under the terms of the warrant agreement, the Company was required to
pay expenses of the sale, other than underwriting discounts. As a result of the
exercise of the warrants and the exercise of the over allotment option, the
Company realized aggregate cash proceeds, net of expenses, of $43,736,000. For
income tax purposes, the exercise of the warrants resulted in a current income
tax deduction of $57,305,000. For financial reporting purposes, the benefit of
such deduction ($20,057,000) was credited directly to shareholders' equity.
At December 31, 1996 and 1995, the Company's Common Shares were reserved as
follows:
1996 1995
---- ----
Stock Options 2,048,326 2,355,718
Convertible Debentures 3,478,261 3,478,261
--------- ---------
5,526,587 5,833,979
========= =========
At December 31, 1996 and 1995, 6,000,000 preferred shares (redeemable and
non-redeemable), par value $1 per share, were authorized.
12. Net Securities Gains (Losses):
-----------------------------
The following summarizes net securities gains (losses) for each of the three
years in the period ended December 31, 1996 (in thousands):
1996 1995 1994
---- ---- ----
Net realized gains (losses) on fixed maturities $20,491 $14,430 $(11,246)
Provision for write-down of fixed
maturity investments - - (3,126)
Net unrealized gain (loss) on trading
securities (2,230) 3,639 (1,500)
Net realized gains on equity and other
securities 21,168 1,958 3,868
------- ------- --------
$39,429 $20,027 $(12,004)
======= ======= ========
Proceeds from sales of investments classified as available for sale were
$1,732,272,000, $1,085,764,000 and $854,824,000 during 1996, 1995 and 1994,
respectively. Gross gains of $36,625,000, $22,766,000 and $8,461,000 and gross
losses of $5,600,000, $8,119,000 and $18,446,000 were realized on these sales
during 1996, 1995 and 1994, respectively.
F-22
<PAGE>
13. Other Results of Operations Information:
---------------------------------------
Investment and other income for each of the three years in the period ended
December 31, 1996 consist of the following (in thousands):
1996 1995 1994
---- ---- ----
Interest on short-term investments $ 23,861 $ 22,499 $ 13,555
Interest on fixed maturities 158,975 153,034 141,279
Service fee income 50,445 54,481 31,608
Trading stamp revenues 12,017 17,957 19,489
Rental income 11,281 10,730 7,691
Gains on sale of property, net of costs 11,078 4,833 1,741
Gain on sale of Transportation Capital Corp. 1,516 - -
Gains related to foreign power companies - - 22,948
Gain on return of the WMAC Companies - 41,030 -
Litigation settlements 5,434 4,666 -
Other 26,276 29,087 18,483
-------- -------- --------
$300,883 $338,317 $256,794
======== ======== ========
Effective as of December 31, 1995, control of the WMAC Companies was returned to
the Company and such subsidiaries were consolidated. The gain related to the
return of the WMAC Companies reflects the difference between the carrying amount
of the Company's investment prior to consolidation and the net assets of such
subsidiaries.
Taxes, other than income or payroll, included in operations amounted to
$33,907,000 (including $18,791,000 of premium taxes) for the year ended December
31, 1996, $36,978,000 (including $21,687,000 of premium taxes) for the year
ended December 31, 1995 and $37,310,000 (including $21,330,000 of premium taxes)
for the year ended December 31, 1994.
Advertising costs amounted to $13,351,000, $13,079,000 and $12,541,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-23
<PAGE>
14. Income Taxes:
------------
The principal components of the deferred tax asset at December 31, 1996 and 1995
are as follows (in thousands):
1996 1995
---- ----
Insurance reserves and unearned premiums $ 97,259 $ 95,453
Securities valuation reserves 13,544 8,392
Other accrued liabilities 7,212 15,030
Employee benefits and compensation 7,685 7,554
Unrealized (gains) on investments (504) (16,174)
Depreciation (3,870) (6,557)
Policy acquisition costs (10,421) (10,254)
Tax loss carryforwards, net of tax sharing payments 37,388 49,026
Other, net 194 5,056
-------- --------
148,487 147,526
Valuation allowance (40,584) (44,060)
-------- --------
$107,903 $103,466
======== ========
The valuation allowance principally relates to certain acquired tax loss
carryforwards, the usage of which is subject to certain limitations and certain
other matters which may restrict their availability, and unrealized capital
losses.
In addition, the amounts reflected above are based on the minimum tax loss
carryforwards of Phlcorp, Inc. ("Phlcorp"), a subsidiary of the Company. As
described more fully herein, substantial additional amounts may be available
under certain circumstances and as uncertainties are resolved. If these
uncertainties are resolved in the Company's favor, the deferred tax asset
related to tax loss carryforwards would increase by approximately $81,000,000,
exclusive of any additional valuation allowance.
The Company believes it is more likely than not that the recorded deferred tax
asset will be realized principally from taxable income generated by profitable
operations.
The provision for income taxes for each of the three years in the period ended
December 31, 1996 was as follows (in thousands):
1996 1995 1994
---- ---- ----
State income taxes (principally
currently payable) $ 1,200 $ 2,500 $ 6,000
Federal income taxes:
Current 7,170 (630) 2,906
Deferred 14,127 22,313 20,397
Foreign income taxes (principally
currently payable) 500 496 179
------- ------- -------
$22,997 $24,679 $29,482
======= ======= =======
F-24
<PAGE>
14. Income Taxes, continued:
------------
The table below reconciles expected statutory federal income tax to actual
income tax expense (in thousands):
1996 1995 1994
---- ---- ----
Expected federal income tax $27,479 $ 46,264 $35,111
State income taxes, net of federal
income tax benefit 780 1,625 3,900
Amortization of excess of acquisition
cost over net tangible assets acquired - 910 1,028
Tax exempt interest (30) (469) (1,144)
Return of the WMAC Companies - (14,360) -
Reduction in valuation allowance (3,476) - (5,340)
Recognition of additional tax benefits (2,500) (9,547) (4,450)
Other 744 256 377
------- -------- -------
Actual income tax expense $22,997 $ 24,679 $29,482
======= ======== =======
The valuation allowance applicable to the deferred income tax asset recorded
upon adoption of SFAS 109 gave effect to the possible unavailability of certain
income tax deductions. During 1996 and 1994 certain matters were favorably
resolved and the Company reduced the valuation allowance as reflected in the
above reconciliation. Since the WMAC Companies have previously been included in
the Company's consolidated federal income tax return, the gain recorded upon
return of the WMAC Companies is not taxable.
Phlcorp, in connection with its 1986 reorganization, entered into a tax
settlement agreement (the "Tax Settlement Agreement") with the United States
whereby, among other things, Phlcorp agreed that upon utilization of certain
pre-reorganization tax loss carryforwards, it would pay 25% of any resultant tax
savings to the government, subject to certain limitations. The Tax Settlement
Agreement provides that post-reorganization tax attributes and net operating
losses will be utilized prior to pre-reorganization operating losses in
calculating tax sharing payments. Due to unresolved issues concerning certain
post-reorganization deductions, Phlcorp is unable to state with certainty the
amount of its available carryforwards. However, Phlcorp believes that it has
minimum tax operating loss carryforwards of between $70,000,000 and $302,000,000
at December 31, 1996. The expiration dates for Phlcorp's carryforwards will
depend on the outcome of the matters referred to above, although it is unlikely
such carryforwards will begin to expire before 1998.
F-25
<PAGE>
14. Income Taxes, continued:
------------
At December 31, 1996 the Company had tax loss carryforwards, which have been
reflected in the deferred tax asset after applying the statutory federal income
tax rate, as follows (in thousands):
Year of Loss
Expiration Carryforwards
---------- -------------
1997 $ 463
1998 1,311
1999 433
2000 21
2002 272
2003 11,045
2005 13,150
2010 12,657
--------
39,352
Phlcorp minimum amount, as
described above 70,000
--------
Total minimum tax loss carryforwards $109,352
========
Limitations exist under the tax law which may restrict the utilization of the
Phlcorp carryforwards and the utilization of an aggregate of approximately
$2,797,000 of non-Phlcorp tax loss carryforwards. Further, certain of the future
deductions may only be utilized in the tax returns of certain life insurance
subsidiaries. These limitations are considered in the determination of the
valuation allowance.
Under certain circumstances, the value of the carryforwards available could be
substantially reduced if certain changes in ownership were to occur. In order to
reduce this possibility, the Company's certificate of incorporation was amended
to include certain charter restrictions which prohibit transfers of the
Company's Common Stock under certain circumstances.
Under prior law, Charter National had accumulated $15,447,000 of special federal
income tax deductions allowed life insurance companies and the Colonial Penn
life insurance subsidiaries had accumulated $161,000,000 of such special
deductions. Under certain conditions, such amounts could become taxable in
future periods. Except with respect to amounts applicable to Colonial Penn's
life insurance subsidiaries, the Company does not anticipate any transaction
occurring which would cause these amounts to become taxable. With respect to
Colonial Penn's life insurance subsidiaries, the IRS has asserted that certain
of such special federal income tax deductions should have been reflected in
taxable income in prior years, and has assessed additional taxes (excluding
interest) of $2,899,000 and $19,132,000, for 1989 and 1988, respectively. Under
the terms of the purchase agreement whereby Colonial Penn was acquired from FPL
Group Capital Inc (the "Seller"), the Seller assumed the obligation to reimburse
the Company for any such taxes.
Pursuant to the purchase agreement, the Company complied with the Seller's
instructions and agreed to the 1989 assessment. To date, Seller has failed to
F-26
<PAGE>
14. Income Taxes, continued:
------------
comply with its contractual obligation to reimburse the Company for payment of
the 1989 assessment, the related interest and the loss of certain minimum tax
credit carryforwards, an aggregate of $3,766,000, to which the Company is
entitled under Seller's indemnification. In a response to a legal proceeding
initiated by the Company to collect such amount due under the Seller's
indemnification obligation, the Seller has alleged that the Company has breached
the purchase agreement and, on that basis, Seller has denied liability for the
1989 assessment. The Company believes it has not breached the purchase agreement
and the Seller remains liable for all such taxes and interest. The Seller is
currently exercising its right under the purchase agreement to control the
contest of the 1988 IRS assessment. If the Seller is unsuccessful in contesting
the 1988 IRS assessment, no assurance can be given that the Seller will comply
with its indemnification obligations under the purchase agreement. The Company
intends to enforce its indemnification rights against the Seller and to seek
other relief, including relief for Seller's bad faith.
During 1995, the Company entered into an agreement with the Seller to settle a
lawsuit initiated by the Company to collect certain amounts due from the Seller
under a tax indemnification included in the purchase agreement for other taxable
periods. The settlement required the Seller to pay certain amounts to the
Company, which are reflected in investment and other income for the year ended
December 31, 1995.
15. Pension Plans and Postretirement Benefits:
-----------------------------------------
The Company maintains defined benefit pension plans covering employees of
certain units who meet age and service requirements. Benefits are generally
based on final average salary and years of service. The Company funds its
pension plans in amounts sufficient to satisfy minimum ERISA funding
requirements.
Pension expense charged to operations included the following components (in
thousands):
1996 1995 1994
---- ---- ----
Service cost $ 5,306 $ 4,603 $ 5,529
Interest cost 7,317 7,020 6,596
Actual return on plan assets (6,329) (11,501) 2,610
Net amortization and deferral 2,160 4,400 (8,507)
------- -------- -------
Net pension expense $ 8,454 $ 4,522 $ 6,228
======= ======== =======
F-27
<PAGE>
15. Pension Plans and Postretirement Benefits, continued:
-----------------------------------------
The funded status of the pension plans at December 31, 1996 and 1995 was as
follows (in thousands):
1996 1995
---- ----
Actuarial present value of
accumulated benefit obligation:
Vested $74,562 $ 81,245
Non-vested 2,021 1,880
------- --------
$76,583 $ 83,125
======= ========
Projected benefit obligation $98,733 $103,683
Plan assets at fair value 90,902 85,033
------- --------
Funded status (7,831) (18,650)
Unrecognized prior service cost 2,773 2,953
Unrecognized net loss at January 1, 1987 431 1,706
Unrecognized net (gain) loss from experience
differences and assumption changes (1,085) 8,256
------- --------
Accrued pension liability $(5,712) $ (5,735)
======= ========
The plans' assets consist primarily of U.S. government and agencies' bonds and
corporate bonds and notes. The projected benefit obligation at December 31, 1996
and 1995 was determined using an assumed discount rate of 7.5% and 7.0%,
respectively, and an assumed compensation increase rate of 5.0% and 5.6%,
respectively. The assumed long-term rate of return on plan assets was 7.4% at
December 31, 1996 and 1995.
The Company also has defined contribution pension plans covering certain
employees. Contributions and costs are a percent of each covered employee's
salary. Amounts charged to expense related to such plans were $2,315,000,
$2,262,000 and $3,292,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Several subsidiaries provide certain health care and other benefits to certain
retired employees under plans which are currently unfunded. The Company pays the
cost of postretirement benefits as they are incurred. Amounts charged to expense
(principally interest) related to such benefits were $1,795,000 in 1996,
$1,679,000 in 1995 and $1,762,000 in 1994.
F-28
<PAGE>
15. Pension Plans and Postretirement Benefits, continued:
-----------------------------------------
Included in other liabilities at December 31, 1996 and 1995 are the following
(in thousands):
1996 1995
---- ----
Accumulated postretirement benefit obligation:
Retirees $12,624 $16,091
Fully eligible active plan participants 2,818 2,827
Other active plan participants 450 2,218
------- -------
Accumulated postretirement benefit obligation 15,892 21,136
Unrecognized prior service cost 5,623 455
Unrecognized net gain from experience
differences and assumption changes 1,580 436
------- -------
Accrued postretirement benefit obligation $23,095 $22,027
======= =======
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% at December 31, 1996 and 1995, respectively. The
assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were between 7.3% and 13.0% for 1996 and 7.6%
and 14.0% for 1995, declining to an ultimate rate of between 5.0% and 8.0% by
2006.
If the health care cost trend rates were increased by 1%, the accumulated
postretirement obligation as of December 31, 1996 and 1995 would have increased
by $1,046,000 and $1,317,000, respectively. The effect of this change on the
aggregate of service and interest cost for 1996 and 1995 would be immaterial.
16. Commitments:
-----------
The Company and its subsidiaries rent office space and office equipment under
non-cancelable operating leases with terms generally varying from one to twenty
years. Rental expense (net of sublease rental income) charged to operations was
$15,235,000 in 1996, $14,461,000 in 1995 and $16,566,000 in 1994. Aggregate
minimum annual rentals (exclusive of real estate taxes, maintenance and certain
other charges) relating to facilities under lease in effect at December 31, 1996
are as follows (in thousands): 1997 - $8,589; 1998 - $7,703; 1999 - $9,845; 2000
- - $7,213; 2001 - $6,329; and thereafter - $109,896. Future minimum sublease
rental income is not material.
Included in the amounts shown above are the gross future minimum annual rental
payments relating to a twenty year lease which the Empire Group entered into
beginning November 1998 for its executive and administrative offices. These
offices will be in an office building in which the Company has an equity
interest. The above amounts have not been reduced for the Company's share of
rental income due to its equity participation in this office building. In
connection with this equity investment, the Company has committed to invest up
to $25,000,000, which is expected to be contributed in 1998.
In connection with the sale of certain subsidiaries, the Company has made or
guaranteed the accuracy of certain representations given to the acquiror. No
material loss is expected in connection with such matters.
F-29
<PAGE>
16. Commitments, continued:
-----------
In connection with the return of the WMAC Companies, the WMAC Companies have
guaranteed the collectibility of reinsurance agreements applicable to a block of
mortgage reinsurance business. The maximum amount of such contingency is
$26,237,000 at December 31, 1996. The reinsurance agreements are with highly
rated institutions and/or are secured in part by letters of credit or trust
funds; as a result the Company does not expect a material loss in connection
with this guarantee.
The insurance and the banking and lending subsidiaries are limited by regulatory
requirements and agreements in the amount of dividends and other transfers of
funds that are available to the Company. Principally as a result of such
restrictions, the net assets of subsidiaries which are subject to limitations on
transfer of funds to the Company were approximately $907,295,000 at December 31,
1996.
17. Litigation:
----------
The Company is subject to various litigation which arises in the course of its
business. Based on discussions with counsel, management is of the opinion that
such litigation will have no material adverse effect on the consolidated
financial position of the Company or its consolidated results of operations.
18. Earnings (Loss) Per Common Share:
--------------------------------
Earnings (loss) per common and dilutive common equivalent share was calculated
by dividing net income by the sum of the weighted average number of Common
Shares outstanding and the incremental weighted average number of Common Shares
issuable upon exercise of options and warrants for the periods they were
outstanding. The number of common and dilutive common equivalent shares used for
this calculation was 60,560,000 in 1996, 59,271,000 in 1995 and 58,202,000 in
1994.
Fully diluted earnings (loss) per share was calculated as described above except
that in 1994 the incremental number of shares utilized the year end market price
for the Company's Common Shares, since the year end market price was above the
average for that year. In addition, for 1995 and 1994 the calculations assume
the 5 1/4% Debentures had been converted into Common Shares for the period they
were outstanding and earnings increased for the interest on such debentures, net
of the income tax effect. Conversion was not assumed for 1996 since the effect
of such assumed conversion would have been to increase earnings per share. The
number of shares used for this calculation was 60,560,000 in 1996, 62,807,000 in
1995 and 61,715,000 in 1994.
19. Fair Value of Financial Instruments:
-----------------------------------
The following table presents fair value information about certain financial
instruments, whether or not recognized on the balance sheet. Where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
F-30
<PAGE>
19. Fair Value of Financial Instruments, continued:
-----------------------------------
the assumptions used, including the discount rate and estimates of future cash
flows. The fair value amounts presented do not purport to represent and should
not be considered representative of the underlying "market" or franchise value
of the Company. The methods and assumptions used to estimate the fair values of
each class of the financial instruments described below are as follows:
(a) Investments: The fair values of marketable equity securities and fixed
maturity securities are substantially based on quoted market prices, as
disclosed in Note 6. It is not practicable to determine the fair value of
policyholder loans since such loans generally have no stated maturity, are not
separately transferable and are often repaid by reductions to benefits and
surrenders.
(b) Cash and cash equivalents: For cash equivalents, the carrying amount
approximates fair value.
(c) Loans receivable of banking and lending subsidiaries: The fair value of
loans receivable of the banking and lending subsidiaries is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings for the same remaining
maturities.
(d) Separate and variable accounts: Separate and variable accounts assets and
liabilities are carried at market value, which is a reasonable estimate of fair
value.
(e) Investments in associated companies: The fair values of a foreign power
company are principally estimated based upon quoted market prices. The carrying
value of the remaining investments in associated companies approximates fair
value.
(f) Derivatives: The fair values of derivatives generally reflect the amounts
that the Company would receive or pay to terminate the interest rate and
currency swap contracts.
(g) Customer banking deposits: The fair value of customer banking deposits is
estimated using rates currently offered for deposits of similar remaining
maturities.
(h) Long-term and other indebtedness: The fair values of non-variable rate debt
are estimated using quoted market prices and estimated rates which would be
available to the Company for debt with similar terms. The fair value of variable
rate debt is estimated to be the carrying amount.
(i) Investment contract reserves: Single premium deferred annuity reserves are
carried at account value, which is a reasonable estimate of fair value. The fair
value of other investment contracts is estimated by discounting the future
payments at rates which would currently be offered for contracts with similar
terms.
F-31
<PAGE>
19. Fair Value of Financial Instruments, continued:
-----------------------------------
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Investments:
Practicable to estimate
fair value $2,771,791 $2,771,761 $2,862,713 $2,863,583
Policyholder loans 18,329 - 17,768 -
Cash and cash equivalents 386,807 386,807 266,158 266,158
Loans receivable of banking and
lending subsidiaries, net of
allowance 221,174 234,771 264,498 277,676
Separate and variable accounts 546,074 546,074 472,837 472,837
Investments in associated
companies 206,384 214,462 184,088 192,166
Other assets (derivatives) - - 1,838 9,180
Financial Liabilities:
Customer banking deposits 209,261 210,160 203,061 204,192
Long-term and other indebtedness 525,719 535,150 520,862 546,140
Investment contract reserves 37,658 41,404 67,254 72,803
Separate and variable accounts 545,019 545,019 472,837 472,837
Other liabilities (derivatives) 886 2,335 259 2,610
</TABLE>
20. Segment Information:
-------------------
For information with respect to the Company's business segments, see "Financial
Information about Industry Segments" in Item 1 included elsewhere herein, which
is incorporated by reference into these consolidated financial statements.
F-32
<PAGE>
21. Selected Quarterly Financial Data (Unaudited):
---------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996:
- -----
Revenues $384,506 $378,633 $377,796 $365,622
======== ======== ======== ========
Income before extraordinary loss $ 15,601 $ 13,173 $ 19,185 $ 7,556
======== ======== ======== ========
Extraordinary loss from early extinguishment
of debt, net of income tax benefit $ - $ - $ - $ (6,838)
======== ======== ======== ========
Net income $ 15,601 $ 13,173 $ 19,185 $ 718
======== ======== ======== ========
Earnings (loss) per common and dilutive
common equivalent share:
Income before extraordinary loss $.26 $.22 $.32 $ .12
Extraordinary loss - - - (.11)
---- ---- ---- -----
Net income $.26 $.22 $.32 $ .01
==== ==== ==== =====
Number of shares used in calculation 60,586 60,552 60,534 60,571
====== ====== ====== ======
Earnings (loss) per fully diluted common share:
Income before extraordinary loss $.26 $.22 $.31 $ .12
Extraordinary loss - - - (.11)
---- ---- ---- -----
Net income $.26 $.22 $.31 $ .01
==== ==== ==== =====
Number of shares used in calculation 60,586 60,552 64,022 60,571
====== ====== ====== ======
1995:
- -----
Revenues $360,688 $376,757 $390,987 $429,882
======== ======== ======== ========
Net income $ 16,323 $ 17,409 $ 21,726 $ 52,045
======== ======== ======== ========
Earnings per common and dilutive
common equivalent share $.28 $.30 $.37 $.86
==== ==== ==== ====
Number of shares used in calculation 58,590 58,591 59,427 60,565
====== ====== ====== ======
Earnings per fully diluted common share $.28 $.29 $.36 $.83
==== ==== ==== ====
Number of shares used in calculation 62,069 62,218 62,984 64,043
====== ====== ====== ======
</TABLE>
In 1996 and 1995, the totals of quarterly per share amounts do not necessarily
equal annual per share amounts.
F-33
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - Condensed Financial Information of Registrant
LEUCADIA NATIONAL CORPORATION
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
(Thousands of dollars)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 61,330 $ 14,877
Investments 115,443 107,087
Deferred income taxes 107,903 103,466
Miscellaneous receivables and other assets 42,221 52,119
Investments in and advances to/from subsidiaries, net 1,321,381 1,364,275
---------- ----------
$1,648,278 $1,641,824
========== ==========
LIABILITIES
- -----------
Accounts payable, expense accruals and income taxes $ 24,043 $ 29,386
Debt, including current maturities 506,128 500,947
---------- ----------
530,171 530,333
---------- ----------
SHAREHOLDERS' EQUITY
- --------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 60,417,579
and 60,163,824 shares issued and
outstanding, after deducting 54,353,691
and 54,319,654 shares held in treasury 60,418 60,164
Additional paid-in capital 161,026 159,914
Net unrealized gain on investments 1,759 30,086
Retained earnings 894,904 861,327
---------- ----------
Total shareholders' equity 1,118,107 1,111,491
---------- ----------
$1,648,278 $1,641,824
========== ==========
</TABLE>
See notes to this schedule.
F-34
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - Condensed Financial Information of Registrant, continued:
LEUCADIA NATIONAL CORPORATION
STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Investment income, net $ 32,469 $ 38,931 $ 22,700
Equity in losses of associated companies (14,720) (24) -
Net securities gains (losses) 96 (1) (2,160)
Equity in income of subsidiaries 124,162 153,213 130,266
-------- -------- --------
142,007 192,119 150,806
-------- -------- --------
Interest expense 62,242 58,723 50,060
Other expenses, net 24,250 25,893 29,910
-------- -------- --------
86,492 84,616 79,970
-------- -------- --------
Income before extraordinary loss 55,515 107,503 70,836
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $3,682 (6,838) - -
-------- -------- --------
Net income $ 48,677 $107,503 $ 70,836
======== ======== ========
Earnings (loss) per common and dilutive
common equivalent share:
Income before extraordinary loss $ .91 $1.81 $1.22
Extraordinary loss (.11) - -
----- ----- -----
Net income $ .80 $1.81 $1.22
===== ===== =====
Fully diluted earnings (loss) per common share:
Income before extraordinary loss $ .91 $1.77 $1.21
Extraordinary loss (.11) - -
----- ----- -----
Net income $ .80 $1.77 $1.21
===== ===== =====
</TABLE>
See notes to this schedule.
F-35
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - Condensed Financial Information of Registrant, continued:
LEUCADIA NATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from operating activities:
- -----------------------------------------
Net income $ 48,677 $ 107,503 $ 70,836
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Amortization (487) 681 1,486
Net securities (gains) losses (96) 1 2,160
Equity in earnings of subsidiaries (124,162) (153,213) (130,266)
Equity in losses of associated companies 14,720 24 -
Extraordinary loss, net of income tax benefit 6,838 - -
Net change in:
Miscellaneous receivables 1,121 (582) 221
Other assets (7,327) (1,714) (5,347)
Investments in and advances to/from
subsidiaries, net 125,508 26,641 (19,051)
Accounts payable, expense accruals and income taxes (1,661) 9,047 3,881
Other 2,204 2,616 1,840
--------- --------- ---------
Net cash provided by (used for)
operating activities 65,335 (8,996) (74,240)
--------- --------- ---------
Net cash flows from investing activities:
- -----------------------------------------
Dividends received from subsidiaries 32,581 10,076 8,422
Capital contribution to subsidiaries (12,068) (13,319) (6,008)
Investment in Providential Life in 1996 and
MK Gold Company in 1995 (11,504) (22,593) -
Purchases of investments (other than short-term) (149,228) (124,855) (8,022)
Proceeds from maturities of investments 116,930 43,300 1,000
Proceeds from sales of investments 25,117 76 68,268
--------- --------- ---------
Net cash provided by (used for)
investing activities 1,828 (107,315) 63,660
--------- --------- ---------
Net cash flows from financing activities:
- -----------------------------------------
Net change in short-term borrowings 207 (80) (402)
Issuance of long-term debt, net of issuance costs 132,793 98,590 50,000
Reduction of long-term debt (137,773) (5,702) (21,250)
Sale of common shares and exercise of warrants,
net of expenses - 43,857 -
Purchase of common shares for treasury (837) (727) (472)
Dividends paid (15,100) (15,025) (7,021)
--------- --------- ---------
Net cash provided by (used for)
financing activities (20,710) 120,913 20,855
--------- --------- ---------
Net increase in cash and cash equivalents 46,453 4,602 10,275
Cash and cash equivalents at January 1, 14,877 10,275 -
--------- --------- ---------
Cash and cash equivalents at December 31, $ 61,330 $ 14,877 $ 10,275
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $40,238 $39,768 $33,512
Income tax payments, net of refunds $ 2,490 $(3,723) $ 5,799
</TABLE>
See notes to this schedule.
F-36
<PAGE>
SCHEDULE II - Condensed Financial Information of Registrant, continued:
LEUCADIA NATIONAL CORPORATION
NOTES TO SCHEDULE
A. The notes to consolidated financial statements of Leucadia National
Corporation and Subsidiaries are incorporated by reference to this
schedule.
B. The statements of shareholders' equity are the same as those presented
for Leucadia National Corporation and Subsidiaries.
C. Equity in the income of the subsidiaries is after reflecting income taxes
recorded by the subsidiaries. In 1996, 1995 and 1994, there was no
provision or benefit for income taxes provided by the parent company,
other than the benefit related to the extraordinary loss. Tax sharing
payments received from subsidiaries were $48,017,000 in 1996, $42,078,000
in 1995 and $35,385,000 in 1994.
D. The deferred income tax asset of $107,903,000 and $103,466,000 at
December 31, 1996 and 1995, respectively, had not been allocated to
the individual subsidiaries.
F-37
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III - Supplementary Insurance Information
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
Insurance
Losses,
Policy
Benefits
and
Separate Amortization
Deferred and Policy of
Policy Future Variable and Net Deferred Other Non-Life
Acquisition Policy Unearned Accounts Contract Premium Investment Acquisition Operating Premiums
Costs Benefits Premiums Liabilities Claims Revenue Income Costs Expenses Written
----- -------- -------- ----------- ------ ------- ------ ----- -------- -------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
- ----
Life insurance $ 64,013 $801,635 $ 9,620 $545,019 $ 28,543 $ 178,925 $ 57,200 $150,523 $ 61,699 $ 50,392
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
Property and casualty
insurance:
Automobile 29,092 - 349,419 - 807,207 676,726 88,012 682,545 24,020 685,743
Commercial 8,847 - 43,336 - 267,034 92,414 21,948 81,349 16,638 84,187
Miscellaneous
and personal 3,715 - 38,568 - 36,226 54,377 5,812 47,584 5,987 56,262
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
41,654 - 431,323 - 1,110,467 823,517 115,772 811,478 46,645 826,192
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
$105,667 $801,635 $440,943 $545,019 $1,139,010 $1,002,442 $172,972 $962,001 $108,344 $876,584
======== ======== ======== ======== ========== ========== ======== ======== ======== ========
1995
- ----
Life insurance $ 45,423 $815,310 $ 7,950 $472,837 $ 26,818 $ 165,820 $ 56,651 $133,214 $ 65,068 $ 39,885
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
Property and casualty
insurance:
Automobile 34,054 - 338,439 - 805,926 667,365 80,228 688,708 12,594 684,683
Commercial 10,141 - 51,808 - 285,637 102,722 19,936 85,493 9,679 100,351
Miscellaneous
and personal 2,526 - 36,576 - 37,389 46,481 5,601 35,388 5,672 49,134
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
46,721 - 426,823 - 1,128,952 816,568 105,765 809,589 27,945 834,168
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
$ 92,144 $815,310 $434,773 $472,837 $1,155,770 $ 982,388 $162,416 $942,803 $ 93,013 $874,053
======== ======== ======== ======== ========== ========== ======== ======== ======== ========
1994
- ----
Life insurance $ 32,286 $870,910 $ 10,039 $419,355 $ 25,802 $ 172,445 $ 55,218 $138,324 $ 68,872 $ 49,319
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
Property and casualty
insurance:
Automobile 29,741 - 314,145 - 766,276 599,180 70,275 553,916 33,093 629,555
Commercial 10,567 - 54,208 - 263,400 101,394 18,107 77,471 12,302 101,221
Miscellaneous
and personal 1,942 - 35,154 - 38,342 45,867 4,964 49,299 6,220 46,968
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
42,250 - 403,507 - 1,068,018 746,441 93,346 680,686 51,615 777,744
-------- -------- -------- -------- ---------- ---------- -------- -------- -------- --------
$ 74,536 $870,910 $413,546 $419,355 $1,093,820 $ 918,886 $148,564 $819,010 $120,487 $827,063
======== ======== ======== ======== ========== ========== ======== ======== ======== ========
</TABLE>
F-38
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV - Schedule of Reinsurance
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
Percentage
of
Ceded Assumed Amount
Direct to Other from Other Net Assumed
Business Companies Companies Amount to Net
-------- --------- --------- ------ ------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
1996
- ----
Life insurance in force $2,119,000 $152,000 $ 32,000 $1,999,000 1.60%
========== ======== ======== ==========
Premiums:
Life insurance $ 128,469 $ 969 $ 132 $ 127,632 .10%
Accident and health insurance 52,020 577 3 51,446 .01%
Property and liability
insurance 877,773 60,321 5,912 823,364 .72%
---------- -------- -------- ----------
Total premiums $1,058,262 $ 61,867 $ 6,047 $1,002,442 .60%
========== ======== ======== ==========
1995
- ----
Life insurance in force $2,168,000 $187,000 $ 36,000 $2,017,000 1.78%
========== ======== ======== ==========
Premiums:
Life insurance $ 124,576 $ 904 $ 392 $ 124,064 .32%
Accident and health insurance 43,538 617 4 42,925 .01%
Property and liability
insurance 836,382 43,117 22,134 815,399 2.71%
---------- -------- -------- ----------
Total premiums $1,004,496 $ 44,638 $ 22,530 $ 982,388 2.29%
========== ======== ======== ==========
1994
- ----
Life insurance in force $2,285,000 $271,000 $161,000 $2,175,000 7.40%
========== ======== ======== ==========
Premiums:
Life insurance $ 120,761 $ 1,484 $ 1,121 $ 120,398 .93%
Accident and health insurance 53,775 683 6 53,098 .01%
Property and liability
insurance 748,595 34,339 31,134 745,390 4.18%
---------- -------- -------- ----------
Total premiums $ 923,131 $ 36,506 $ 32,261 $ 918,886 3.51%
========== ======== ======== ==========
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V - Valuation and Qualifying Accounts
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
Additions Deductions
--------------------------------- -----------------------
Charged
Balance at (Credited) Balance
Beginning to Costs and Sale of at End of
Description of Period Expenses Recoveries Other Write-Offs Receivables Period
----------- ---------- ------------ ---------- ----- ---------- ----------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
1996
- ----
Loan receivables of banking
and lending subsidiaries $13,893 $ 9,966 $5,104 $ - $16,174 $612 $12,177
Trade, notes and other
receivables 6,609 8,446 1,269 5 9,040 78 7,211
------- ------- ------ ------- ------- ---- -------
Total allowance for
doubtful accounts $20,502 $18,412 $6,373 $ 5 $25,214 $690 $19,388
======= ======= ====== ======= ======= ==== =======
Reinsurance receivable $ 4,804 $ (988) $ - $ - $ 358 $ - $ 3,458
======= ======= ====== ======= ======= ==== =======
1995
- ----
Loan receivables of banking
and lending subsidiaries $12,308 $ 9,467 $4,163 $ - $12,045 $ - $13,893
Trade, notes and other
receivables 5,773 6,832 1,283 - 7,124 155 6,609
------- ------- ------ ------- ------- ---- -------
Total allowance for
doubtful accounts $18,081 $16,299 $5,446 $ - $19,169 $155 $20,502
======= ======= ====== ======= ======= ==== =======
Reinsurance receivable $ 4,046 $ 969 $ - $ - $ 211 $ - $ 4,804
======= ======= ====== ======= ======= ==== =======
1994
- ----
Loan receivables of banking
and lending subsidiaries $ 8,341 $ 7,634 $2,702 $ - $ 6,369 $ - $12,308
Trade, notes and other
receivables 5,185 5,744 1,449 - 6,605 - 5,773
------- ------- ------ ------- ------- ---- -------
Total allowance for
doubtful accounts $13,526 $13,378 $4,151 $ - $12,974 $ - $18,081
======= ======= ====== ======= ======= ==== =======
Reinsurance receivable $83,825 $(2,799) $ - $ - $76,980 (a) $ - $ 4,046
======= ======= ====== ======= ======= ==== =======
<FN>
(a) Principally relates to the write-off of fully reserved receivables for unpaid losses.
</FN>
</TABLE>
F-40
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI - Schedule of Supplemental Information for Property and Casualty Insurance
Underwriters
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
Discount, if any, Claims and Claim
Deducted in Reserves Adjustment Expenses Paid Claims
for Unpaid Claims and Incurred Related to: and Claim
Claim Adjustment ----------------------- Adjustment
Expenses Current Year Prior Year Expenses
---------------------- ----------------------- -----------
(Thousands of dollars)
<S> <C> <C> <C> <C>
1996
- ----
Automobile $ - $622,948 $ (6,995) $629,163
Commercial 347 64,171 (465) 75,069
Miscellaneous and personal - 45,687 (3,707) 41,793
---- -------- -------- --------
Total property and casualty $347 $732,806 $(11,167) $746,025
==== ======== ======== ========
1995
- ----
Automobile $ - $626,781 $ (6,614) $573,055
Commercial 252 71,329 (7,604) 38,497
Miscellaneous and personal - 36,961 (6,040) 31,640
---- -------- -------- --------
Total property and casualty $252 $735,071 $(20,258) $643,192
==== ======== ======== ========
1994
- ----
Automobile $ - $556,736 $(55,771) $483,120
Commercial 276 70,658 (12,822) 59,436
Miscellaneous and personal - 51,983 (6,221) 46,042
---- -------- -------- --------
Total property and casualty $276 $679,377 $(74,814) $588,598
==== ======== ======== ========
</TABLE>
F-41
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------ ----------- ----------
3.1 Restated Certificate of Incorporation (filed as
Exhibit 5.1 to the Company's Current Report on
Form 8-K dated July 14, 1993).*
3.2 Amended and Restated By-laws, as amended through
December 4, 1996.
4.1 The Company undertakes to furnish the Securities
and Exchange Commission, upon request, a copy of
all instruments with respect to long-term debt
not filed herewith.
10.1 1982 Stock Option Plan, as amended August 28,
1991 (filed as Annex B to the Company's Proxy
Statement dated July 21, 1992).*
10.2 1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).*
10.3(a) Restated Articles and Agreement of General
Partnership, effective as of February 1, 1982,
of The Jordan Company (filed as Exhibit 10.3(d)
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986).*
10.3(b) Amendments dated as of December 31, 1989 and
December 1, 1990 to the Partnership Agreement
referred to in 10.3(a) above (filed as Exhibit
10.2(b) to the 1991 10-K).*
10.3(c) Amendment dated as of December 17, 1992 to the
Partnership Agreement referred to in 10.3(a)
above (filed as Exhibit 10.3(c) to the 1992 10-K).*
10.3(d) Fourth Restatement, dated as of December 31,
1996, of the Articles and Agreement of General
Partnership of The Jordan Company.
10.3(e) Articles and Agreement of General Partnership,
effective as of April 15, 1985, of
Jordan/Zalaznick Capital Company (filed as
Exhibit 10.20 to the Company's Registration
Statement No. 33-00606).*
10.4 Agreement made as of March 12, 1984 by and
between Leucadia, Inc. and Ian M. Cumming (filed
as Exhibit 10.14 to the 1983 10-K).*
10.5 Agreement made as of March 12, 1984 by and
between Leucadia, Inc. and Joseph S. Steinberg
(filed as Exhibit 10.15 to the 1983 10-K).*
_________________________
* Incorporated by reference.
<PAGE>
Exhibit Exemption
Number Description Indication
------ ----------- ----------
10.6 Stock Purchase and Sale Agreement dated as of
April 5, 1991, by and between FPL Group Capital
Inc and the Company (filed as Exhibit B to the
Company's Current Report on Form 8-K dated
August 23, 1991).*
10.7 Agreement dated as of August 1, 1988 among the
Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.6 to the 1991 10-K).*
10.8 Agreement dated as of January 10, 1992 between
Ian M. Cumming, certain other persons listed on
Schedule A thereto and the Company (filed as
Exhibit 10.7 to the 1991 10-K).*
10.9 Agreement dated as of January 10, 1992 between
Joseph S. Steinberg, certain other persons
listed on Schedule A thereto and the Company
(filed as Exhibit 10.8 to the Company's 1991 10-K).*
10.10(a) Agreement dated April 23, 1992 between AIC
Financial Services, Inc. (an Alabama
corporation), AIC Financial Services (a
Mississippi corporation) and AIC Financial
Services (a South Carolina corporation)
(collectively, "Seller") and Norwest Financial
Resources, Inc. (filed as Exhibit 10.10(a) to
the 1992 10-K).*
10.10(b) Purchase Agreement between A.I.C. Financial
Services, Inc., American Investment Bank, N.A.,
American Investment Financial and Terracor II
d/b/a AIC Financial Fund, Seller, and Associates
Financial Services Company, Inc., Buyer, dated
November 5, 1992 (filed as Exhibit 10.10(b) to
the Company's Registration Statement No. 33-55120).*
10.11(a) Agreement and Plan of Merger, dated as of
October 22, 1992, by and among the Company,
Phlcorp Acquisition Company and PHLCORP, Inc.
(filed as Exhibit 5.2 to the Company's Current
Report on Form 8-K dated October 22, 1992).*
10.11(b) Amendment dated December 10, 1992, to the Merger
Agreement referred to in 10.11(a) above (filed
as Exhibit 5.2 to the Company's Current Report
on Form 8-K dated December 14, 1992).*
10.12(a) Agreement between Leucadia, Inc. and Ian M.
Cumming, dated as of December 28, 1992 (filed as
Exhibit 10.12(a) to the 1992 10-K).*
10.12(b) Escrow and Security Agreement by and among
Leucadia, Inc., Ian M. Cumming and Weil, Gotshal
& Manges, as escrow agent, dated as of December
28, 1992 (filed as Exhibit 10.12(b) to the 1992
10-K).*
10.13(a) Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed
as Exhibit 10.13(a) to the 1992 10-K).*
_________________________
* Incorporated by reference.
40
<PAGE>
Exhibit Exemption
Number Description Indication
------ ----------- ----------
10.13(b) Escrow and Security Agreement by and among
Leucadia, Inc., Joseph S. Steinberg and Weil,
Gotshal & Manges, as escrow agent, dated as of
December 28, 1992 (filed as Exhibit 10.13(b) to
the 1992 10-K).*
10.14 Settlement Agreement between Baldwin-United
Corporation and the United States dated August
27, 1985 concerning tax issues (filed as Exhibit
10.14 to the 1992 10-K).*
10.15 Acquisition Agreement, dated as of December 18,
1992, by and between Provident Mutual Life and
Annuity Company of America and Colonial Penn
Annuity and Life Insurance Company (filed as
Exhibit 10.15 to the 1992 10-K).*
10.16 Reinsurance Agreement, dated as of December 31,
1991, by and between Colonial Penn Insurance
Company and American International Insurance
Company (filed as Exhibit 10.16 to the 1992 10-K).*
10.17 Agreement made as of December 28, 1993 by and
between the Company and Ian M. Cumming (filed as
Exhibit 10.17 to the 1993 10-K).*
10.18 Agreement made as of December 28, 1993 by and
between the Company and Joseph S. Steinberg
(filed as Exhibit 10.18 to the 1993 10-K).*
10.19(a) Agreement between the Company and Ian M.
Cumming, dated as of December 28, 1993 (filed as
Exhibit 10.19(a) to the 1993 10-K).*
10.19(b) Escrow and Security Agreement by and among the
Company, Ian M. Cumming and Weil, Gotshal &
Manges, as escrow agent, dated as of December
28, 1993 (filed as Exhibit 10.19(b) to the 1993
10-K).*
10.20(a) Agreement between the Company and Joseph S.
Steinberg, dated as of December 28, 1993 (filed
as Exhibit 10.20(a) to the 1993 10-K).*
10.20(b) Escrow and Security Agreement by and among the
Company, Joseph S. Steinberg and Weil, Gotshal &
Manges, as escrow agent, dated as of December
28, 1993 (filed as Exhibit 10.20(b) to the 1993
10-K).*
10.21 Deferred Compensation Agreement between the
Company and Lawrence S. Hershfield, dated March
29, 1995 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarterly
Period ended March 31, 1995).*
10.22(a) Agreement between the Company and Lawrence S.
Hershfield, dated as of May 4, 1995 (filed as
Exhibit 10.22(a) to the 1995 10-K).*
_________________________
* Incorporated by reference.
41
<PAGE>
Exhibit Exemption
Number Description Indication
------ ----------- ----------
10.22(b) Escrow and Security Agreement by and among the
Company, Lawrence S. Hershfield and Weil,
Gotshal & Manges, as escrow agent, dated as of
May 4, 1995 (filed as Exhibit 10.22(b) to the
1995 10-K).*
10.23 Revolving Credit Agreement dated as of February
28, 1997, between the Company, The First
National Bank of Boston as Administrative Agent,
The Chase Manhattan Bank as Syndication Agent,
Bank of America National Trust and Savings
Association as Documentation Agent and the Banks
signatory thereto.
21 Subsidiaries of the registrant.
23 Consent of independent accountants with respect
to the incorporation by reference into the
Company's Registration Statements on Form S-8
(File No. 2-84303), Form S-8 and S-3 (File No.
33-6054), Form S-8 and S-3 (File No. 33-26434),
Form S-8 and S-3 (File No. 33-30277), Form S-8
(File No. 33-61682) and Form S-8 (File No. 33-61718).
27 Financial Data Schedule.
_______________
* Incorporated by reference
AMENDED AND RESTATED
BY- LAWS
OF
LEUCADIA NATIONAL CORPORATION
Incorporated under the laws of the State of New York -
May 24, 1986
As amended through December 4, 1996
<PAGE>
AMENDED AND RESTATED
--------------------
BY-LAWS
-------
of
LEUCADIA NATIONAL CORPORATION
-----------------------------
ARTICLE I. SHAREHOLDERS MEETING
Section 1. The annual meeting of shareholders of the
Corporation shall be held at the principal office of the Corporation,
or at such other place within or without the State of New York, on
such date and at such time as shall be determined by the Board of
Directors in each year for the purpose of electing Directors, and for
the transaction of such other business as may be brought before the
meeting.
Section 2. Special meetings of shareholders may be called at
any time by a majority of the Board of Directors. It shall also be
the duty of the Chairman of the Board, and in his absence the duty of
the President, and in the absence of both the duty of a Vice
President, to call such meetings whenever so requested in writing by
shareholders owning a majority of the shares of capital stock entitled
to vote at a meeting.
Section 3. Written notice of meetings of shareholders shall
be given whenever shareholders are to take any action at a
<PAGE>
meeting. Such notice shall state the place, date and hour of the
meeting and, unless it is the annual meeting, indicate that it is
being issued by or at the direction of the person or persons calling
the meeting. Notice of a special meeting shall, in addition, state
the purpose or purposes for which the meeting was called.
A copy of the notice of any meeting shall be
given, personally or by mail, not less than ten nor more than fifty
days before the date of the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice is given when deposited
in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of
shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that such notices to him be mailed to
some other address, then directed to him at such other address.
Section 4. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any
proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the
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<PAGE>
purpose of any other action, the Board shall fix, in advance, a date
as the record date for any such determination of shareholders. Such
date shall not be more than fifty nor less than ten days before the
date of such meeting, nor more than fifty days prior to any other
action.
Section 5. Except as may be otherwise required by laws of the
State of New York, the Certificate of Incorporation or these By-Laws,
the holders of a majority of the shares entitled to vote thereat
present in person or by proxy shall constitute a quorum at a meeting
of shareholders for the transaction of any business, provided that
when a specified item of business is required to be voted on by a
class or a series, voting as a class, the holders of a majority of
shares of such class or series present in person or by proxy shall
constitute a quorum for the transaction of such specified item of
business.
ARTICLE II. DIRECTORS
Section 1. The number of the Directors of the Corporation
shall be such number not less than three, as is designated from time
to time by resolution adopted by a majority of the members of the
Board of Directors, plus the number of Directors, if any, elected by
the holders of the Preferred Stock,
3
<PAGE>
voting as a class, pursuant to Section 5 of the General Provisions
Relating to All Series of the Preferred Stock in Article FOURTH of the
Certificate of Incorporation of the Corporation. The terms of the
Directors, if any, elected by the holders of the Preferred Stock,
voting as a class, pursuant to Section 5 of the General Provisions
Relating to All Series of the Preferred Stock in Article FOURTH of the
Certificate of Incorporation of the Corporation shall be as set forth
in such Section 5. The Directors other than those, if any, elected by
the holders of the Preferred Stock, voting as a class, shall, except
as otherwise set forth herein, be elected for one year terms which
shall expire at each annual meeting of shareholders and when their
successors shall have been elected and qualified. Such election shall
be by ballot by the shareholders entitled to vote and present in
person or by proxy at such meeting. In case of any vacancy in the
Board of Directors (including any vacancy due to an increase in the
size of the Board of Directors), the remaining Directors, although
less than a quorum, by affirmative vote of a majority thereof, may
elect a successor to fill such vacancy to serve until the next annual
meeting of shareholders and when such Director's successor shall have
been elected and qualified. Any Director or Directors (other than a
Director or Directors elected by the holders of the Preferred Stock
pursuant to Section 5 of the General Provisions Relating to All Series
of
4
<PAGE>
the Preferred Stock in Article FOURTH of the Certificate of
Incorporation of the Corporation) may be removed for cause by the
affirmative vote of a majority of the Directors present (including by
means of a conference telephone or similar communications equipment)
at a meeting at which such action is considered, provided a quorum is
present.
Section 2. Nominations for the election of Directors may be
made by a committee appointed by the Board of Directors (or, in the
absence of such committee, by the Board of Directors) or by any
shareholder entitled to vote generally in the election of Directors.
However, any shareholder entitled to vote generally in the election of
Directors may nominate one or more persons for election as Directors
at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary
of the Corporation (1) with respect to an election to be held at an
Annual Meeting of shareholders, (a) not less than sixty (60) days
prior to the first anniversary date of the Corporation's proxy
statement in connection with the last Annual Meeting or (b) if no
Annual Meeting was held in the previous year, not less than a
reasonable time, as determined by the Board of Directors, prior to the
date of the applicable Annual Meeting and (2) with respect to an
5
<PAGE>
election to be held at a Special Meeting of Shareholders, the close of
business on the tenth (10th) day following the date on which notice of
such meeting is first given to shareholders.
Each such notice to the Secretary shall set forth (i)
the name and address of the shareholder and his or her nominees; (ii)
a representation that the shareholder is entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the
shareholder and each such nominee; (iv) such other information as
would be required to be included in a proxy statement soliciting
proxies for the election of the nominees of such shareholder; and (v)
the consent of each nominee to serve as a Director of the Corporation
if so elected. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to
serve as a Director of the Corporation. The presiding officer of the
meeting may, if the facts warrant, determine that a nomination was not
made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
6
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Section 3. The Board of Directors may adopt such rules and
regulations for the conduct of their meetings and management of the
affairs of the Corporation as they may deem proper, not inconsistent
with the laws of the State of New York, the Certificate of
Incorporation or these By-Laws.
Section 4. The regular meetings of the Board of Directors
shall be held as determined by the Board of Directors. Special
meetings shall be held whenever called by direction of the Chairman of
the Board or any Vice Chairman, or the President or of any two of the
Directors, on at least three days previous notice by mail or two days
previous notice by telegraph to each Director. Notice of such meeting
shall be effective as of the sending of the notice by mail or
telegram. Unless otherwise indicated in the notice thereof or
otherwise provided by the laws of the State of New York, the
Certificate of Incorporation or these By-Laws, any and all business
may be transacted at a special meeting. One-third of the Directors
shall constitute a quorum at any meeting of the Board of Directors.
At the first meeting of the Board of Directors held after the annual
meeting of shareholders, the Board shall proceed to the election of
the officers of the Corporation.
7
<PAGE>
Section 5. Any action required or permitted to be taken by
the Board of Directors may be taken without a meeting if all members
of the Board of Directors consent in writing to the adoption of a
resolution authorizing such action.
Section 6. Any one or more members of the Board of Directors
may participate in a meeting of the Board of Directors by means of a
conference telephone or similar communications equipment allowing all
persons participating in such meeting to hear each other at the same
time. Participation by such means shall constitute presence in person
at such meeting.
ARTICLE III. COMMITTEES OF THE BOARD
Section 1. The Board of Directors may, by resolution or
resolutions adopted by a majority of the members of the Board of
Directors designate a committee of the board to be known as the
Finance Committee of the Board ("Finance Committee") and to consist of
the Chairman of the Board and such number of other Directors as shall
be designated from time to time by resolution adopted by a majority of
the members of the Board of Directors. The Board of Directors may
designate one or more Directors as alternate members of the Finance
Committee, who may replace any absent member or members of the
Committee at any meeting of the
8
<PAGE>
Finance Committee. The Board shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve the Finance
Committee. The Finance Committee shall have and may exercise, when
the Board is not in session, all authority of the Board of Directors
with respect to designating as a depository any bank, banker or trust
company, opening lines of credit with any bank, banker or trust
company and all matters appertaining thereto, including, but not
limited to, the authorization of all resolutions and agreements and
the execution of all instruments required by any bank, banker or trust
company in connection therewith, including the certification thereof
by the Secretary of the Corporation, the designation of officers and
employees of the Corporation authorized to withdraw or charge any of
the funds of the Corporation so deposited upon checks, notes, drafts,
bills of exchange, acceptances, undertakings or other instruments or
orders for the payment of money drawn against the account of the
Corporation, the designation of officers authorized to borrow or
obtain credit for the Corporation from any bank, banker or trust
company or to endorse for discount or otherwise, negotiable or non-
negotiable instruments held by the Corporation, the authorization of
leases of safe deposit boxes, the designation of officers and
employees authorized to have access to said boxes, and the
authorization of guarantees required by symbol endorsement.
9
<PAGE>
Section 2. The Board of Directors may, by resolution or
resolutions, passed by a majority of the members of the Board of
Directors designate a committee of the Board to be known as the
Executive Committee of the Board ("Executive Committee") and to
consist of the Chairman of the Board of Directors, who shall be
Chairman of the Executive Committee, and such number of other
Directors as shall be designated from time to time by resolution
adopted by a majority of the members of the Board of Directors. The
Executive Committee shall have and may exercise when the Board of
Directors is not in session, all authority of the Board of Directors,
except as may be limited by Section 712 of the Business Corporation
Law of New York State. The Board of Directors may designate one or
more Directors as alternate members of such committee who may replace
any absent member or members at any meeting of the Executive
Committee.
Section 3. The Board of Directors shall, by resolution or
resolutions, designate three of its members, none of whom are members
of management, as the Audit Committee of the Board ("Audit
Committee"), and will further designate one member as Chairman of the
Audit Committee. The Audit Committee shall have responsibility for
recommending to the Board the retention or replacement of the
independent auditors of the company; for administration of the
internal audit function of the corporation;
10
<PAGE>
and for such other matters pertaining to the internal control, audit,
or reporting of the financial affairs of the company as the Audit
Committee, in its sole discretion, deems advisable and necessary. A
full report of the activities of the Audit Committee will be made by
the Chairman or his designee to each meeting of the Board of
Directors.
Section 4. The Board of Directors may, by resolution or
resolutions, passed by a majority of the members of the Board of
Directors designate three of its members as the Nominating Committee
of the Board ("Nominating Committee"), and will further designate one
member as Chairman of the Nominating Committee. The Nominating
Committee shall meet annually for the purpose of considering and
presenting to the Board its nominations for officers and directors.
Section 5. Such committees may meet either regularly at
stated times or specially on notice given twenty-four hours in advance
by any member thereof by mail, telegraph or telephone to all the other
members thereof provided such notice is received before the meeting
takes place; but no notice of any regular meeting need be given; and
no notice need be given of any special meeting at which all the
members shall be present or notice of which shall be waived by all the
absent members before or after
11
<PAGE>
such meeting. Such committees may make rules for the holding and
conduct of their meetings and may appoint such subcommittees and
assistants as they shall from time to time deem necessary. A number
of regular members or alternate members or both equal to a majority of
the number of regular members of a committee shall constitute a quorum
and the act of a majority of those present at a meeting at which a
quorum is present and action shall be the act of a committee. All
action taken by a committee shall be reported to the Board of
Directors at its meeting next succeeding such action. The Secretary
or an Assistant Secretary shall attend and act as secretary of all
meetings of a committee and keep the minutes thereof.
Section 6. Any action required or permitted to be taken by
any committee of the Board may be taken without a meeting if all
members of the committee consent in writing to the adoption of a
resolution authorizing such action.
Section 7. Any one or more members of any committee of the
Board may participate in a meeting of such committee by means of a
conference telephone or similar communications equipment allowing all
persons participating in such meeting to hear each other at the same
time. Participation by such means shall constitute presence in person
at such meeting.
12
<PAGE>
ARTICLE IV. OFFICERS
Section 1. The officers of the Corporation shall be a
Chairman of the Board of Directors, a President, one or more Vice
Presidents, one or more of whom may be designated Executive Vice
President and one or more of whom may be designated Senior Vice
President, a Treasurer, a Secretary and a Comptroller, all of whom may
be appointed by the Board of Directors, and such other officers as the
Board of Directors, from time to time may appoint and each officer
shall serve at the discretion of the Board of Directors until the next
annual election of officers. One person may serve as more than one of
such officers, except that the same person shall not serve both as
President and Secretary.
Section 2. The Board of Directors shall appoint from their
number a Chairman of the Board of Directors who shall be the chief
executive officer of the Corporation and, subject to the control of
the Board of Directors, shall have general charge of the management of
the affairs of the Corporation. He shall preside at meetings of the
Board of Directors and of the shareholders of the Corporation.
Section 3. The Board of Directors may appoint from their
number one or more Vice Chairmen of the Board of Directors who
13
<PAGE>
shall perform such duties as may be assigned to them by the Board of
Directors or the Chairman of the Board of Directors. In the absence
or incapacity of the Chairman of the Board of Directors, the Vice
Chairmen, in order of seniority determined by time of appointment to
office, shall preside over meetings of the Board of Directors. The
Board of Directors may appoint from their number a Chairman of the
Executive Committee who shall preside at meetings of the Executive
Committee and perform such other duties as may be assigned to him by
the Board of Directors.
Section 4. The Board of Directors shall appoint from their
number a President who shall be the chief operating officer of the
Corporation and, subject to the direction of the Board of Directors
and of the Chairman of the Board of Directors, shall direct and
supervise the administration of the business and affairs of the
Corporation. In the absence or incapacity of the Chairman of the
Board of Directors, the President shall exercise all of the powers and
duties of the Chairman of the Board of Directors, provided that he
shall preside at meetings of the Board of Directors only in the
absence or incapacity of all the Vice Chairmen, if any, of the Board
of Directors.
Section 5. The Board of Directors shall appoint one or more
Vice Presidents, one or more of whom may be designated
14
<PAGE>
Executive Vice President or Senior Vice President, and one of whom may
be designated Vice President-Finance, who shall have such powers and
shall perform such duties as may be assigned by the Board of
Directors. In the absence or incapacity of the President, the
Executive Vice Presidents, in order of seniority determined by time of
appointment to office, shall exercise all of the powers and duties of
the President.
Section 6. The Board of Directors shall elect a Treasurer who
shall have such powers and shall perform such duties as may be
assigned to him by the Board of Directors.
Section 7. The Board of Directors shall appoint a Secretary
who shall keep the minutes of all meetings of the Board of Directors
and of the shareholders of the Corporation. He shall give or cause to
be given notice of all meetings of the shareholders and of such
meetings of the Board of Directors as may require notice. He shall
keep in safe custody the seal of the Corporation and shall affix the
same to all instruments requiring it when authorized by the Board of
Directors, the Chairman of the Board of Directors or the President.
He shall have such further powers and shall perform such further
duties as may be assigned to him by the Board of Directors. The
Secretary shall enforce the restrictions on the transfer of the
capital
15
<PAGE>
stock of the Corporation set forth in Part III of Article FOURTH of
the Certificate of Incorporation. In connection therewith, the
Secretary shall supervise the Corporation's transfer agent and/or
registrar for the capital stock.
Section 8. The Board of Directors shall elect a Comptroller
who shall be the chief accounting officer of the Corporation and shall
be in charge of its books of account and accounting records and of its
accounting procedures. He shall have such further powers and shall
perform such further duties as may be assigned to him by the Board of
Directors.
Section 9. The Board of Directors shall from time to time
appoint such other officers to have such powers and to perform such
duties as may be assigned to them by the Board of Directors.
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation, to the full extent permitted and in the manner
required by the laws of the State of New York as in effect at the time
of the adoption of this Article V or as the law may be amended from
time to time, shall (i) indemnify any person (and the heirs and legal
representatives of such person) made, or
16
<PAGE>
threatened to be made, a party in an action or proceeding (including,
without limitation, one by or in the right of the Corporation to
procure a judgement in its favor), whether civil, criminal,
administrative or investigative, including an action by or in the
right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the
Corporation served in any capacity at the request the Corporation, by
reason of the fact that he, his testator or intestate, was a director
or officer of the Corporation or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity and (ii) provide to any such person (and
their heirs and legal representatives of such person) advances for
expenses incurred in pursuing such action or proceeding, upon receipt
of an undertaking by or on behalf of such director or officer to repay
such amount as, and to the extent, required by Section 725(a) of the
Business Corporation Law.
The indemnification and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to
which the person seeking indemnification or advancement of expenses
may be entitled (i) under the Certificate of Incorporation or By-Laws
of this or any other corporation, or
17
<PAGE>
(ii) by any resolution of shareholders, resolution of directors or
agreement providing for such indemnification or advancement, all of
which are authorized by these By-Laws (except with respect to matters
which at the time of indemnification is sought are prohibited by
applicable law), or (iii) otherwise.
ARTICLE VI. CAPITAL STOCK
Section 1. Subject to Part III of Article FOURTH of the
Certificate of Incorporation, certificates for each class and series
of stock shall be in such form as shall be adopted by the Board of
Directors, shall be duly numbered and registered in the order issued
and shall be signed by the Chairman or Vice Chairman of the Board or
the President or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the
Corporation, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate
may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation itself
or its employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer before such certificate is issued, it
18
<PAGE>
may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
Section 2. Subject to Part III of Article FOURTH of the
Certificate of Incorporation, transfers of shares shall only be made
upon the books of the Corporation by the registered holder in person
or by attorney, duly authorized, and upon surrender of the certificate
or certificates for such shares, properly signed for transfer.
Section 3. A new certificate of stock may in the discretion
of the Board of Directors, and under such regulations with respect to
indemnification and otherwise as they may prescribe, be issued in
place of the certificate claimed to have been lost, stolen or
destroyed.
Section 4. So long as the restrictions set forth in Part III
of Article FOURTH of the Certificate of Incorporation shall not have
lapsed, all share certificates representing shares of capital stock
shall bear a conspicuous legend as follows:
"THE SHARES OF STOCK REPRESENTED HEREBY ARE
SUBJECT TO RESTRICTIONS PURSUANT TO PART III OF ARTICLE FOURTH OF
19
<PAGE>
THE CERTIFICATE OF INCORPORATION OF THE CORPORATION REPRINTED IN ITS
ENTIRETY ON THE BACK OF THE CERTIFICATE."
Section 5. Subject to Part III of Article FOURTH of the
Certificate of Incorporation, the Corporation shall be entitled to
treat the registered holder of any share or shares as the holder
thereof in fact and law and shall not be bound to recognize any
equitable or other claim to, or interest in, such share or shares on
the part of any other person, whether or not it shall have express or
other notice thereof, save as otherwise expressly provided by statute.
ARTICLE VII. DIVIDENDS
Dividends shall be declared and paid out of the earned surplus of
the Corporation as often and at such times as the Board of Directors
may determine, and in accordance with the New York Business
Corporation Law.
ARTICLE VIII. INSPECTORS OF ELECTION
The Board of Directors, in advance of any shareholders' meeting,
shall appoint two inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the
20
<PAGE>
person presiding at a shareholders' meeting shall appoint two
inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board of Directors in
advance of the meeting or at the meeting by the person presiding
thereat.
ARTICLE IX. SEAL
The seal of the Corporation shall be in the form of a circle and
shall bear the name of the Corporation and the year of its
incorporation.
ARTICLE X. AMENDMENTS
By-Laws of the Corporation may be adopted, amended or repealed by
vote of the holders of the shares at the time entitled to vote in the
election of any Directors. By-Laws may also be adopted, amended or
repealed by the Board of Directors by vote of a majority of the
Directors present at the time of the vote if a quorum is then present.
If any By-Law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be
set forth in the notice of the next meeting of shareholders for the
election of Directors
21
<PAGE>
the By-Law so adopted, amended or repealed, together with a concise
statement of the changes made.
ARTICLE XI. WAIVERS OF NOTICE
Whenever the Corporation or the Board of Directors or any
committee of the Board is authorized to take any action after notice
to any person or persons or after the lapse of a prescribed period of
time, such action may be taken without notice and without the lapse of
such period of time, if at any time before or after such action is
completed the person or persons entitled to such notice or entitled to
participate in the action to be taken or, in the case of a
shareholder, his attorney-in-fact or proxy, submits a signed waiver of
notice of such requirement.
22
NYFS04...:\30\76830\0146\1197\AGR2277K.170
THE JORDAN COMPANY
FOURTH RESTATEMENT,
dated as of December 31, 1996, of the
ARTICLES AND AGREEMENT OF GENERAL PARTNERSHIP
Effective as of February 1, 1982
The undersigned, consisting of THE JOHN W. JORDAN II
REVOCABLE TRUST, DAVID W. ZALAZNICK and LEUCADIA, INC., a New York
corporation (hereinafter referred to collectively as the "Partners"
and individually as a "Partner"), hereby restate in their entirety the
terms of a general partnership (hereinafter called the "Partnership")
formed by John W. Jordan II, David W. Zalaznick and Leucadia, Inc. as
of February 1, 1982 (as heretofore restated). The Partnership shall
be governed by, and operated pursuant to, the terms and provisions
hereinafter set forth.
ARTICLE I
ORGANIZATION
------------
Section 1.1. Formation and Name of Partnership
-----------------------------------------------
The parties do hereby form a partnership pursuant to the
provisions of the Partnership Law of the State of New York to engage,
for the period and upon the terms and conditions hereinafter set
forth, in the business of generating fees by seeking out attractive
businesses for acquisition; arranging the terms of acquisition and the
financing thereof and assisting the management of such businesses
after acquisition (the companies
<PAGE>
acquiring such businesses are hereinafter collectively called the
"Clients" and individually as a "Client"). The Partnership business
shall be conducted under the name The Jordan Company.
Section 1.2. Purposes and Powers
---------------------------------
The purposes for which the Partnership is formed are as
follows:
(a) to seek out attractive businesses (other than in the
financial services area) for acquisition (herein referred to as "Buy-
Outs") for Clients, to arrange the terms of the Buy-Outs, to arrange
financing to effect the Buy-Outs for Clients, to negotiate
opportunities to invest in Clients in connection with the Buy-Outs, to
assist Clients in the management and financing of their businesses
after Buy-Outs, and to perform investment banking services generally;
(b) to hold, maintain and/or invest all or any part of the
assets, properties or funds of the Partnership in cash or in cash
equivalents, including, without limitation, interest-bearing
securities of the United States of America or any agency or
instrumentality thereof, or other governmental securities, high-rated
state and municipal bonds and debt obligations of U.S. national banks;
(c) to lend (for any term or period, whether or not beyond
the term of the Partnership hereunder) any of its assets, properties
or funds, either with or without security;
2
<PAGE>
(d) to open, maintain and close accounts, including margin
accounts, with brokers;
(e) to open, maintain and close bank accounts and draw
checks and other orders for the payment of monies;
(f) to engage appraisers, accountants, custodians,
investment advisors, attorneys and all other agents and assistants,
both professional and non-professional, and to compensate them in such
amounts as may be necessary or advisable;
(g) to enter into, make and perform all contracts,
agreements and other undertakings as may be reasonably necessary or
advisable or incident to carrying out its purposes; and
(h) to sue, prosecute, settle or compromise claims against
third parties, to compromise, settle or accept judgment or claims
against the Partnership and to execute all documents and to make all
representations and waivers in connection therewith.
In furtherance of the aforesaid purposes, the Partnership
shall have all powers necessary, suitable or convenient for the
accomplishment thereof, alone or with others, as principal or agent.
Section 1.3. Principal Office
------------------------------
The principal place of business of the Partnership shall be
at 9 West 57th Street, New York, New York 10019, or at
3
<PAGE>
such place as may be designated by a Managing Partner (hereinafter
defined).
Section 1.4. Term
------------------
The Partnership shall commence as of the date hereof and
shall continue until dissolved as provided in Section 5.4 hereof.
Section 1.5. Definitions
-------------------------
(a) For purposes of this Agreement, the following terms (in
addition to other terms defined herein) shall have the following
meanings:
"Additional Capital Contributions" shall have the meaning
set forth in Section 3.3 hereof.
"Affiliate" shall mean a natural person, partnership,
corporation or other entity that, directly or indirectly, through one
or more intermediaries, controls or is controlled by or is under
common control with another person, partnership, corporation or other
entity.
"Bankruptcy" with respect to any Partner shall mean an
adjudication that the Partner is bankrupt or insolvent, the admission
by the Partner of inability to pay debts as they mature, the making by
the Partner of an assignment for the benefit of creditors, the filing
by the Partner of a petition in bankruptcy or a petition for relief
under any section of the United States Federal Bankruptcy Act or any
other applicable
4
<PAGE>
state insolvency statute or an answer admitting or failing to deny the
allegations of such petition, the filing against the Partner of any
such petition unless such petition is discharged, vacated or stayed
within 60 days from the date of filing thereof, the appointment of a
trustee, conservator or receiver for all or a substantial part of the
Partner's assets unless such appointment is discharged, vacated or
stayed within 60 days from its effective date, or the imposition of a
judicial or statutory lien on all or a substantial part of the
Partner's assets unless such lien is discharged or vacated or the
enforcement thereof stayed within 60 days from its effective date.
"Capital Accounts" shall have the meaning set forth in
Section 3.1 hereof.
"Capital Contributions" shall mean, with respect to any
Capital Account, the sum of the Initial Capital Contribution and any
Additional Capital Contributions made with respect to such Capital
Account.
"Committee" shall mean the four individuals then serving,
one of whom shall be appointed by each Managing Partner so long as
there are two Managing Partners (initially John W. Jordan II as
appointee of The John W. Jordan II Revocable Trust and David W.
Zalaznick as appointee of David W. Zalaznick) and two of whom shall be
appointed by Leucadia, Inc. (initially Ian M. Cumming and Joseph S.
Steinberg). If, at any time, there
5
<PAGE>
shall only be one Managing Partner, he shall have the right to appoint
two members of the Committee.
"Initial Capital Contribution" shall have the meaning set
forth in Section 3.2 hereof.
"Legal Representative" shall mean any and all executors,
administrators, personal representatives, committees, guardians,
receivers, fiduciaries, conservators or trustees, in Bankruptcy or
otherwise, of a Partner.
"Leucadia Committee Members" shall mean Ian M. Cumming and
Joseph S. Steinberg, or such other members of the Committee as shall
be appointed by Leucadia, Inc.
"Liquidating Agent" shall have the meaning set forth in
subsection (b) of Section 5.4 hereof.
"Managing Partner" shall mean each of The John W. Jordan II
Revocable Trust and David W. Zalaznick and, unless the context
indicates otherwise, shall include any successor Managing Partner.
Where action is required to be take under this Agreement by a Managing
Partner, the Managing Partners shall mutually agree on which Managing
Partner shall so act. If the Managing Partners are unable to so
agree, the Managing Partner to take action shall be determined by the
Leucadia Committee Members.
"Permanent Disability" shall mean, with respect to any
natural person, (i) his inability, by reason of illness, insanity
6
<PAGE>
or incompetence (whether or not adjudicated) or otherwise to perform
his principal duties and functions hereunder for a period of four
consecutive months or (ii) the earlier adjudication of his insanity or
incompetency.
"Termination" shall mean, with respect to The John W. Jordan
II Revocable Trust, (i) the revocation or other termination of such
trust, (ii) the failure of John W. Jordan II to be sole trustee or
(iii) the death or Permanent Disability of John W. Jordan II, unless
in the case of (ii) and (iii) the Partners, each in the exercise of
its sole discretion, shall have unanimously approved a substitute
therefor.
(b) The words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole as the same
may from time to time be amended or supplemented, and not to any
particular Article, Section or subsection contained in this Agreement.
Section 1.6. Fiscal Year
-------------------------
The fiscal year of the Partnership for financial, accounting
and tax purposes shall end upon each December 31.
7
<PAGE>
ARTICLE II
MANAGEMENT OF BUSINESS
----------------------
Section 2.1. Services of Messrs. Jordan and Zalaznick
----------------------------------------
Throughout the term of the Partnership:
(a) Leucadia, Inc. shall include Messrs. Jordan and
Zalaznick and the Partnership's other employees under its medical and
other employee benefit plans (other than pension, stock option,
retirement, bonus and similar plans) if arrangements toward that end
can be effected with the carriers and the Partnership shall reimburse
Leucadia, Inc. for the incremental costs thereof;
(b) The John W. Jordan II Revocable Trust agrees to use its
best efforts to cause John W. Jordan II (or, in the event of his death
or Permanent Disability, such substitute, if any, as the Partners
shall unanimously approve) to fulfill the obligations set forth in
Section 2.1(a)(ii) hereof; and
(c) Each of Messrs. Jordan (or his substitute, if any) and
Zalaznick, and any other individual retained pursuant to Section 2.2
hereof shall, for the term of the Partnership, not be obligated to
devote full time to the conduct of the Partnership's affairs but shall
devote so much of his business time as shall be necessary for the
proper conduct of the Partnership's affairs, to implement the purposes
set forth in Section 1.2 hereof and to
8
<PAGE>
perform services for The Jordan/Zalaznick Capital Company ("JZCC"),
Mezzanine Capital & Income Trust 2001 PLC, Jordan/Zalaznick Advisors,
Inc., Jordan Industries, Inc. ("JII"), Mountbatten Management
Corporation and any other partnerships or entities of which The John
W. Jordan II Revocable Trust, David W. Zalaznick and Leucadia, Inc.
are the sole general partners or controlling shareholders.
Section 2.2. Managing Partners
-------------------------------
Third parties dealing with the Partnership may rely
conclusively upon the power and authority of a Managing Partner as
herein set forth.
A Managing Partner shall have the right to manage the
Partnership's business including the right to (i) sign, endorse,
negotiate, and transfer any check, draft or other instrument of
Partnership; and (ii) take all other action on behalf of the
Partnership authorized by this Agreement to be taken by a Managing
Partner. A Managing Partner shall have the right to select an
individual to be retained by the Partnership to perform services in
implementation of the purposes set forth in Section 1.2 hereof,
subject to the terms set forth in Section 2.1 hereof.
A Managing Partner shall not, without the written consent of
three other members of the Committee, have the authority to do any of
the following: (i) to pledge, hypothecate, assign, encumber or
otherwise so act with respect to
9
<PAGE>
Partnership assets; (ii) to borrow on behalf of the Partnership; (iii)
to take any action in contravention of this Agreement; (iv) to taken
any action which would make it impossible to carry on the
Partnership's business; (v) to sell or exchange all or substantially
all of the Partnership's assets; (vi) to admit any additional
Partners; (vii) to amend this Agreement or to change or reorganize the
Partnership into any other legal form; or (viii) modify the terms
under which Messrs. Jordan and Zalaznick are retained by the
Partnership.
Section 2.3. Delegation of Authority
-------------------------------------
Each of the Managing Partners is delegated the authority to
cause or permit the Partnership to do any and all other things not
specifically permitted in Section 2.2 as in his judgment shall be
necessary or desirable for the benefit of the Partnership, with the
prior written consent of at least three members of the Committee;
provided the Partnership shall not without the unanimous prior written
consent of the Partners engage in any business activity other than as
set forth in Section 1.2.
Section 2.4. Permitted Transactions
------------------------------------
(a) Each of the Partners consents that any Partner and any
Affiliate of any Partner may, directly or indirectly, engage in or
possess an interest in any other present or future business venture of
any nature or description for his or its own account,
10
<PAGE>
independently or with others, including, without limitation, any
aspect of the securities or financing business; and neither the
Partnership nor any Partner shall have any rights in or to such
independent venture or the outcome or profit derived therefrom.
Notwithstanding the foregoing, neither the John W. Jordan II Revocable
Trust, John W. Jordan II nor David W. Zalaznick shall, during the term
hereof, engage in any activities of the nature set forth in Section
1.2 except (i) for the account of and on behalf of the Partnership,
the Jordan/Zalaznick Capital Company or any other partnership of which
The John W. Jordan II Revocable Trust, David W. Zalaznick and
Leucadia, Inc. are the sole general partners or (ii) as set forth in
Exhibit A hereto.
(b) The fact that any employee, partner, officer or
director of either a Partner or an Affiliate of a Partner, or that any
Partner, Affiliate of a Partner or member of any individual Partner's
family, is employed by, or is directly or indirectly interested in or
connected with, or is, any person, firm or corporation employed by the
Partnership to render or perform a service, or from or through whom
the Partnership may make any sale or purchase, shall not prohibit the
Partnership from engaging in any transaction with such person, firm or
corporation, or create any duty of legal justification additional to
that which would exist if such person, firm or corporation was not so
related to the Partnership, and neither the Partnership
11
<PAGE>
nor any other Partner shall have any rights in or to any income or
profit derived from such transaction by such Partner, person, firm or
corporation.
(c) The Partnership is specifically authorized to utilize
any Affiliate of a Partner, or any of the legal counsel, accountants
and/or other experts or advisers heretofore or hereafter utilized by a
Partner or any of his or its Affiliates, to provide services to the
Partnership. Each Managing Partner is specifically authorized to
cause the Partnership to pay any such Affiliate, legal counsel,
accountant and/or other expert or adviser a fee for any such services
to the Partnership, provided that the Managing Partner, in good faith,
determines that such fee is comparable to that which would be charged
to customers not affiliated with a Partner for similar services.
(d) The retention by the Partnership of the services of any
Affiliates of a Partner shall not constitute any such affiliate a co-
partner or joint venturer with the Partnership, and the relationship
of the Partnership to each such Affiliate shall at all times remain
that of principal and independent contractor, respectively.
Section 2.5. Loans
-------------------
Any Partner may, but shall not be required to, make loans to
the Partnership and in respect of such loans shall, to the extent
permitted by applicable law, be treated as a creditor
12
<PAGE>
of the Partnership. Such loans and interest thereon (at terms agreed
upon by the lending Partner and at least three members of the
Committee) shall constitute obligations of the Partnership. Any such
loans shall not increase such Partner's capital contribution or
entitle him or it to any increase in his or its share of the profits
of the Partnership nor subject him or it to any greater allocated
portion of losses which he or it may sustain as provided herein.
Section 2.6. Exculpation
-------------------------
None of the Partners (including a Managing Partner) shall be
liable, in damages or otherwise, to the Partnership or to any of the
Partners, for any act or omission on his or its part, or any act or
omission of any employee, agent or attorney-in-fact of the
Partnership, except for the results of his or its own gross
negligence, willful misconduct or bad faith. The Partnership shall
indemnify, defend and hold harmless each Partner (including a Managing
Partner) from and against any costs, expenses, damages, claims and
personal liability including judgments, fines, amounts paid in
settlement (with the consent of three members of the Committee) and
related expenses (including fees and expenses of counsel) arising out
of any claim or liability of any nature whatsoever in respect of the
assets or business of the Partnership, except where attributable to
the gross negligence, willful misconduct or bad faith of the Partner
13
<PAGE>
(including a Managing Partner) and except to the extent
indemnification is provided or is available from Clients. The
Partners (including a Managing Partner) shall be entitled to rely on
the advice of counsel, public accountants or other experts, and any
act or omission of any Partner (including a Managing Partner) in
reliance in good faith on such advice shall in no event subject such
Partner to liability to any other Partner or the Partnership.
Section 2.7. Partnership Liabilities in Excess
-----------------------------------------------
of Partnership Assets
---------------------
Any liabilities or obligations of the Partnership shall
first be paid or satisfied from the assets of the Partnership. In the
event and to the extent that the Partnership shall incur or suffer
liabilities or obligations in excess of the assets of the Partnership,
the Partners shall pay or repay to the Partnership amounts necessary
to discharge or pay such liabilities or obligations in proportion to
their respective percentages applicable at the time of incurrence or
sufferance set forth in Section 5.1(a)(i); and provided further that,
to the extent that any Partner repays or pays a greater amount than is
provided for above in this Section 2.7, such Partner shall have a
right of contribution from each other Partner to the extent that such
other Partner has repaid or paid to the Partnership a lesser amount
than as provided for above in this Section 2.7.
14
<PAGE>
ARTICLE III
CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS
---------------------------------------
Section 3.1. Capital Accounts
------------------------------
There shall be one class of capital account ("Capital
Accounts") maintained on the books of the Partnership. Separate
Capital Accounts shall be maintained for each Partner for the
Partner's respective capital contributions to the Partnership. Each
Capital Account for a Partner shall consist of (i) the Initial Capital
Contribution with respect to such Capital Account, (ii) increased by
(a) any Additional Capital Contributions to such Capital Account made
by the Partner and (b) the Partner's share of income and gains
allocated to such Capital Account and (iii) decreased by (a) any
distributions made to the Partner with respect to such Capital Account
and (b) the Partner's share of losses and deductions with respect to
such Capital Account.
Section 3.2. Initial Capital Contributions
-------------------------------------------
The initial Capital Contributed in cash on behalf of each
Partner with respect to each Capital Account (the "Initial Capital
Contribution") was as follows: The John W. Jordan II Revocable Trust
- $1; David W. Zalaznick - $1; and Leucadia, Inc. - $75,000.
15
<PAGE>
Section 3.3. Additional Capital Contributions
----------------------------------------------
During the time of the Partnership, Leucadia, Inc. shall
make additional cash contributions to the Partnership with respect to
its Capital Account as follows: (i) on each of January 2, 1990, April
1, 1990, July 1, 1990 and October 1, 1990 - $625,000; (ii) on each of
January 2, 1991, April 1, 1991, July 1, 1991 and October 1, 1991 -
$687,500 and (iii) on each of January 2, 1992, April 1, 1992, July 1,
1992 and October 1, 1992 - $750,000 and each such quarterly period
thereafter.
Section 3.4. No Interest on or Withdrawal of Capital
-----------------------------------------------------
Contributions
-------------
No interest shall be paid to any Partner on his or its
Capital Contributions to the Partnership. No Partner shall be
entitled to withdraw any of his or its Capital contributions to the
Partnership, nor shall any Partner have any right to receive any funds
or property of the Partnership, except as provided in this Agreement.
ARTICLE IV
ADMISSION AND WITHDRAWAL OF PARTNERS
------------------------------------
Section 4.1. Withdrawal by Partner
-----------------------------------
Without the written consent of at least three members of the
Committee, no Partner shall withdraw from the Partnership prior to its
dissolution pursuant to subsection (a) of Section 5.4 hereof.
16
<PAGE>
Section 4.2. Admission of Additional Partners
----------------------------------------------
Except as provided in Section 4.3 hereof or as otherwise
agreed to in writing by all Partners, no additional Partner shall be
admitted to the Partnership.
Section 4.3. Sale of Partnership Interest; Substituted
-------------------------------------------------------
Partner
-------
Without the written consent of all members of the Committee,
no Partner may sell, assign, transfer, pledge, hypothecate or encumber
all or any part of his interest (including a beneficial interest in
the right to receive distributions and allocations of profit and loss)
in the Partnership.
Section 4.4. Resignation, Removal, Termination,
------------------------------------------------
Bankruptcy, Death or Permanent Disability
-----------------------------------------
of a Managing Partner
---------------------
(a) A Managing Partner shall be removed as Managing Partner
by a writing signed by at least three members of the Committee.
(b) In the event of the resignation, removal, Bankruptcy,
Termination, death or Permanent Disability of all Managing Partners,
if at such time there is more than one Managing Partner, or, if there
is only one Managing Partner at such time, in the event of such sole
Managing Partner's resignation, removal, Bankruptcy, Termination,
death or Permanent Disability, the Partnership shall dissolve;
provided, however, that the Partners acting unanimously may appoint a
successor Managing Partner(s) within 60 days of the resignation,
removal,
17
<PAGE>
Bankruptcy, Termination, death or Permanent Disability of the Managing
Partner(s) to continue the business of the Partnership. For purposes
of the appointment of a successor Managing Partner, a Managing Partner
who has been removed or otherwise is no longer serving as such
pursuant to (a) above shall be deemed to have appointed such successor
as shall have been designated by the other Partners.
(c) Notwithstanding anything to the contrary contained
herein, a Managing Partner who has resigned or been removed shall have
the right to retain his interest in the Partnership, and the Legal
Representative of such a Managing Partner shall succeed to the rights
of the Managing Partner to receive allocations and distributions
hereunder. In the event that the Partners elect to continue the
business of the Partnership in accordance with subsection (b) above
following the Termination, death or Permanent Disability of the
Managing Partner, the right of the Managing Partner (or his Legal
Representative) to receive distributions pursuant to Section 5.1(a)
shall be limited to, and shall terminate in full upon payment of, (i)
Net Buy-Out Fees and Net Investment Banking Fees in respect of Buy-
Outs completed on or before the date of Termination, death or
Permanent Disability or for which a definitive agreement had been
executed on or before such date and (ii) Net Consulting Fees (and
directors fees) accrued to the date of Termination, death or Permanent
Disability.
18
<PAGE>
Section 4.5. Bankruptcy, Dissolution, Liquidation,
---------------------------------------------------
Termination, Death or Permanent Disability
------------------------------------------
of a Partner
------------
(a) In the event of the Bankruptcy, dissolution,
liquidation, Termination, death or Permanent Disability of a Partner
(other than an event dealt with under Section 4.4 hereof) (the
"Withdrawing Partner"), the Partnership shall dissolve; provided,
however, that the remaining Partners acting unanimously shall have the
right, but not the obligation, to continue the business of the
Partnership by notifying a Managing Partner within 60 days after the
Bankruptcy, dissolution, liquidation, Termination, death or Permanent
Disability of the Withdrawing Partner. In the event that the Partners
so elect to continue the business of the Partnership, the Legal
Representative of the Withdrawing Partner shall succeed to the rights
of such Withdrawing Partner hereunder.
(b) In the event that the Partners elect to continue the
business of the Partnership in accordance with subsection (a) above
following the Termination, death or Permanent Disability of a Partner
other than the Managing Partner, the right of the Withdrawing Partner
to receive distributions pursuant to Section 5.1(a) shall be limited
to, and shall terminate in full upon payment of, (i) Net Buy-Out Fees
and Net Investment Banking Fees in respect of Buy-Outs completed on or
before the date of Termination, death or Permanent Disability or for
which a
19
<PAGE>
definitive agreement had been executed on or before such date and (ii)
Net Consulting Fees (and directors fees) accrued to the date of
Termination, death or Permanent Disability.
ARTICLE V
DISTRIBUTIONS AND EXPENSES;
ALLOCATION OF PROFIT AND LOSS; OPPORTUNITIES;
DISSOLUTION AND LIQUIDATION; RESERVES
---------------------------------------------
Section 5.1. Distributions
---------------------------
(a) A Managing Partner, upon the written consent of at
least three members of the Committee, may cause the Partnership to
make distributions to the Partners. The amount of distributions to
which each Partner shall be entitled shall be calculated by the
Managing Partner based on fees received to date. Specifically, the
Managing Partner shall allocate fees to the Partners as follows:
(i) Fees received by the Partnership in connection
with effecting Buy-Outs ("Net Buy-Out Fees") shall be
allocated as follows:
(A) Fees earned prior to December 31, 1983 (plus
the David B. Lilly transaction) - The John W. Jordan II
Revocable Trust - 30%; David W. Zalaznick - 20%; and
Leucadia, Inc. - 50%.
20
<PAGE>
(B) Fees earned in calendar 1984 - The John W.
Jordan II Revocable Trust - 39%; David W. Zalaznick -
26%; and Leucadia, Inc. - 35%.
(C) Fees earned in calendar 1985 - The John W.
Jordan II Revocable Trust - 35%; David W. Zalaznick -
35%; and Leucadia, Inc. - 30%.
(D) Fees earned in calendar 1986 - The John W.
Jordan II Revocable Trust - 37.5%; David W. Zalaznick -
37.5%; and Leucadia, Inc. - 25%.
(E) Fees earned in calendar 1987 and thereafter -
The John W. Jordan II Revocable Trust - 37.5%; David W.
Zalaznick - 37.5%; and Leucadia, Inc. - 25%.
(ii) Fees received from other investment banking
services ("Net Investment Banking Fees") shall be allocated
in the same manner as the Net Buy-Out Fees.
(iii) Fees received by the Partnership for consulting,
management or financing services after Buy-Outs ("Net
Consulting Fees") shall be allocated as follows:
(A) Fees earned from companies involved in Buy-
Outs which closed prior to December 31, 1983 (plus the
David B. Lilly transaction) - The John
21
<PAGE>
W. Jordan II Revocable Trust - 25%; David W. Zalaznick
- 25%; and Leucadia, Inc. - 50%.
(B) Fees earned from companies involved in Buy-
Outs which closed in calendar 1984 (except David B.
Lilly) - The John W. Jordan II Revocable Trust - 32-1/2%;
David W. Zalaznick - 32-1/2%; and Leucadia, Inc.- 35%.
(C) Fees earned from companies involved in Buy-
Outs which closed in calendar 1985 - The John W. Jordan
II Revocable Trust - 35%; David W. Zalaznick - 35%; and
Leucadia, Inc. - 30%.
(D) Fees earned from companies involved in Buy-
Outs which closed in calendar 1986 - The John W. Jordan
II Revocable Trust - 37-1/2%; David W. Zalaznick - 37-1/2%;
and Leucadia, Inc. - 25%.
(E) Fees earned from companies involved in Buy-
Outs which closed in calendar 1987 and thereafter - The
John W. Jordan II Revocable Trust - 37-1/2%; David W.
Zalaznick - 37-1/2%; and Leucadia, Inc. - 25%.
(iv) Any directors fees earned from Clients shall
belong to the individual directors and shall not be
Partnership property.
22
<PAGE>
(b) Any distributions pursuant to Section 5.1 shall be made
in cash, unless a Managing Partner, with the written consent of at
least three members of the Committee, shall determine to make all or
any portion of such determinations in kind.
Section 5.2. Allocation of Net Profit and Net Loss
---------------------------------------------------
For federal, state and local income tax purposes, the
Partnership's income, gains, deductions and losses shall be allocated
among the Partners as follows:
(a) For each fiscal year of the Partnership, the income and
gains of the Partnership (other than Client reimbursement) shall be
allocated among the parties in the same ratio as cash was distributed
or would be distributable pursuant to Section 5.1(a) for the fiscal
year.
(b) For each fiscal year of the Partnership, the deductions
and losses (other than the expenses reimbursed by Clients) of the
Partnership shall be allocated as follows:
(i) first, to Leucadia, Inc. an amount of deductions
and losses equal to, in respect of the Partnership's initial
fiscal year, the sum of Leucadia, Inc.'s Initial Capital
Contribution and Additional Capital Contributions pursuant
to subsection (a) of Section 3.3 hereof to the Partnership
for such fiscal year and, in respect of each fiscal year of
the Partnership thereafter, the amount of Leucadia, Inc.'s
23
<PAGE>
Additional Capital Contributions pursuant to subsection (a)
of Section 3.3 hereof to the Partnership for such fiscal
year;
(ii) then, to the Partners to the extent of income and
gains of the Partnership for such fiscal year, in the same
manner as income and gains are allocated for such fiscal
year; and
(iii) then, to the Partners (including Leucadia, Inc.)
in the ratio of any other Additional Capital Contributions
pursuant to Section 2.7 hereof by Partners to the
Partnership for such fiscal year of the Partnership.
Section 5.3. Client Opportunities
----------------------------------
To the extent that the Partnership, in arranging Buy-Outs,
becomes aware of opportunities to invest in Clients in connection with
Buy-Outs, the Partnership shall make available such opportunities to
the Partners i the percentages set forth in Section 5.01(a)(i). If
any Partner chooses not to so invest after being given 10 days to
decide, the Partnership shall make the opportunity available to the
Partners who choose to invest in the Client, each such opportunity to
be made available to the Partners pro rata in accordance with the
percentages set forth in Section 5.1(a)(i). It is contemplated that
the Partnership, in each case subject to the written approval of each
of the
24
<PAGE>
Partners, shall make a portion of the opportunities of which it
becomes aware available to persons other than Partners, and that the
opportunities made available to the Partners in accordance with the
two preceding sentences of this paragraph shall be net of the
opportunities accepted by such other persons.
It is acknowledged and agreed that Jordan/Zalaznick Advisors
Inc./Mezzanine Capital & Income Trust 2001 PLC constituted the
"Vehicle" referred to in the Second Restatement of the Articles and
Agreement of General Partnership of the Partnership in which the
opportunity was made available to the Partners in the following
percentages: The John W. Jordan II Revocable Trust - 45; David W.
Zalaznick - 45%; and Leucadia, Inc. - 10%.
Leucadia, Inc. shall be given the opportunity to name a
director of each Client to the extent that such naming is within the
control of the Partners or the Managing Partners. The Committee shall
meet at least once every three months to review the activities of the
Managing Partner.
Sections 5.4. Dissolution and Liquidation
------------------------------------------
(a) The Partnership shall be dissolved on the earliest to
occur of the following:
(i) the sale, transfer or other disposition of all or
substantially all of the assets held by the Partnership;
25
<PAGE>
(ii) the removal, resignation, Bankruptcy, Termination,
death or Permanent Disability of both of the Managing
Partners, unless the Partners unanimously elect to continue
the business of the Partnership, as provided for in
Section 4.4(b) hereof;
(iii) Upon the consent in writing of at least three
members of the Committee;
(iv) The Bankruptcy, dissolution, liquidation,
Termination, death or Permanent Disability of a Partner
(other than that of both of the Managing Partners), unless
the Partners unanimously elect to continue the business of
the Partnership as provided for in Section 4.5 hereof;
(v) On the last day of a calendar quarter upon at
least 30 days' prior written notice to that effect given by
The John W. Jordan II Revocable Trust or David Zalaznick, as
a Managing Partner, which notice may only be given if such
Managing Partner has raised a "Fund." For this purpose, a
"Fund" shall be an arrangement or arrangements pursuant to
which such Managing Partner or his Affiliate shall have the
right to direct the investment of at least $100 million of
capital;
26
<PAGE>
(vi) On the last day of any calendar year upon at least
90 days prior written notice to that effect is given by any
Partner; or
(vii) December 31, 1999.
(b) Upon dissolution of the Partnership for any reason, the
Partnership shall continue in existence for the purpose of winding up
its affairs, and the property and business of the Partnership shall be
liquidated (except as otherwise provided in subsection (d) of this
Section 5.4) by a Managing Partner, or in the event of the
unavailability of either of the Managing Partners, by such Partner or
other person (the "Liquidating Agent") as shall be designated by
Leucadia, Inc.
(c) As soon as practicable after the effective date of
dissolution of the Partnership, the Partnership's assets shall be
distributed in the following manner and order of priority:
(i) claims of all creditors of the Partnership who are
not Partners shall be paid and discharged;
(ii) claims of all creditors of the Partnership who are
Partners shall be paid and discharged;
(iii) the remaining assets shall be distributed to the
Partners in accordance with Section 5.1(a)(i).
(d) Whether any assets of the Partnership shall be
liquidated through sale or shall be distributed in kind, shall be a
matter for the discretion of the Managing Partner (or the
27
<PAGE>
Liquidating Agent) acting with the written consent of three members of
the Committee; provided, however, that if distribution is made in
kind, in whole or in part, to the extent practicable, amount of
particular securities held by the Partnership shall be distributed pro
rata in accordance with the applicable priorities set forth in
subsections (c)(ii) and (iii) of this Section 5.4. Upon dissolution
of the Partnership the name "Jordan Company" shall belong to The John
W. Jordan II Revocable Trust; provided, however, that in the event of
the death or Permanent Disability of John W. Jordan II, such name
shall belong to David W. Zalaznick (if he shall be alive).
(e) Each of the Partners shall be furnished with a
statement prepared by the Partnership's accountants which shall set
forth the assets and liabilities of the Partnership as at the date of
complete liquidation. Upon compliance by a Managing Partner with the
foregoing distribution plan, the Partners shall cease to be such, and
a Managing Partner shall execute, acknowledge and cause to be filed a
certificate of cancellation of the Partnership; however, a Managing
Partner shall retain full authority to direct the disbursement and/or
the distribution of the funds, if any, held pursuant to the provisions
of this Agreement (including subsection (a) of Section 5.5), which
funds shall be distributed in accordance with the priorities set forth
in subsection (c) of this Section 5.4.
28
<PAGE>
(f) No Partner shall be personally liable to any other
Partner for the return of his or its Capital Contributions or any
portion thereof; any such return shall be made solely from Partnership
assets in accordance with the priorities established by this
Agreement.
Section 5.5. Amounts Reserved
------------------------------
(a) If there is any pending transaction or claim by or
against the Partnership as to which the interest or obligation of the
Partnership therein cannot, in the judgment of a Managing Partner (or
the Liquidating Agent), be then ascertained, then, notwithstanding any
other provision of this Agreement to the contrary, (i) if such
transaction or claim shall constitute an asset or potential asset of
the Partnership, the value or potential value thereof as specified by
a Managing Partner with the written consent of three members of the
Committee, shall be added to the valuation of the assets of the
Partnership for purposes of computing the distributions to be made
pursuant to Section 5.1 and/or Section 5.4 hereof, or (ii) if such
transaction or claim shall constitute a liability or potential
liability of the Partnership, then an amount specified by a Managing
Partner acting with the written consent of three members of the
Committee as a reserve for any loss or probable loss therefrom shall
be deducted from the valuation of assets of the Partnership for
purposes of computing the distributions to be
29
<PAGE>
made pursuant to Section 5.1 and/or Section 5.4 hereof, whether or not
such reserve is required to be established therefor for financial
accounting purposes.
(b) Upon determination by a Managing Partner (or the
Liquidating Agent) with the written consent of three members of the
Committee that circumstances no longer require the retention of any
sum or assets as provided in this Section 5.5, a Managing Partner (or
the Liquidating Agent) shall, at the earliest practical time pay such
sum or deliver such assets, without interest, in accordance with
applicable priorities set forth in this Agreement.
Section 5.6. Special Arrangements
----------------------------------
(a) If the John W. Jordan II Revocable Trust or David W.
Zalaznick, as a Managing Partner or any of their respective Affiliates
raises a "Fund," then Leucadia, Inc. shall have a 10% interest in all
profit participations received by such Managing Partner or his
Affiliates from such Fund and a 10% interest in all Net Consulting
Fees and Net Investment Banking Fees (collectively, "Net Fees")
received by such Managing Partner or his Affiliates from transactions
and/or investee companies of the Fund, but Leucadia, Inc. shall have
no interest in any Management Fees received by such Managing Partner
or his Affiliates from such Fund or in any profit participations, Net
Fees or Management Fees received by such Managing Partner or his
Affiliates from or
30
<PAGE>
in respect of any other fund raised by the Managing Partner or his
Affiliates. For example, if such Managing Partner or his Affiliates
receives from such Fund a $500,000 asset management fee, $500,000 in
Net Fees and $2,000,000 in profit participation, Leucadia, Inc. shall
be entitled to no part of the asset management fee, $50,000 of the Net
Fees ($500,000 x 10% = $50,000) and $200,000 of the profit
participation ($2,000,000 x 10% = $200,000) received by the Managing
Partner or his Affiliates from or in respect of the Fund. Payments in
respect of Leucadia, Inc.'s interest in such sums shall be made
promptly upon receipt thereof by the Managing Partner or his
Affiliates from or in respect of the Fund.
(b) If the Partnership is dissolved pursuant to Section
5.04(a) because of any of the events enumerated therein, then,
(i) in addition to all other sums to which Leucadia,
Inc. shall be entitled under this Agreement, Leucadia, Inc.
shall be entitled to receive its pro rata partnership
interest in all Net Buyout Fees and Net Investment Banking
Fees received from Clients pursuant to definitive agreements
entered into prior to the dissolution of the Partnership;
and
(ii) for so long as either or both of The John W.
Jordan II Revocable Trust and David W. Zalaznick or any
31
<PAGE>
Affiliate receive Net Consulting Fees from Clients
(including Clients of the affiliated entities referred to in
subparagraph (d) below) existing at the time of dissolution
of the Partnership, Leucadia, Inc. shall be entitled to
promptly receive from The John W. Jordan II Revocable Trust
and David W. Zalaznick a percentage of Net Consulting Fees
received from Clients. The percentages to be received by
Leucadia, Inc. are as follows:
(A) Fees earned from companies involved in Buy-
Outs which closed prior to December 3, 1983 (plus the
David B. Lilly transaction) - 50% (See Exhibit I,
Schedule A);
(B) Fees earned from companies involved in Buy-
Outs which closed in calendar year 1984 (except David
B. Lilly) - 35% (See Exhibit I, Schedule B);
(C) Fees earned from companies involved in Buy-
Outs which closed in calendar year 1985 - 30% (See
Exhibit I - Schedule C);
(D) Fees earned from companies involved in Buy-
Outs which closed in calendar year 1986 and all years
thereafter - 25% (See Exhibit I, Schedule D).
32
<PAGE>
The foregoing percentages shall only be payable with
respect to that portion of Net Consulting Fees received
from each Client that exceeds $50,000 in any calendar
year. A Managing Partner shall cause Exhibit I, Schedule D
to be updated annually as of December 31 of each year and
each such updated Exhibit I shall be incorporated
automatically as an exhibit to this Agreement.
Notwithstanding anything to the contrary contained herein,
with respect to Net Consulting Fees paid by JII, Leucadia, Inc.
shall be entitled to receive (x) 16.975% of the first $1 million
of Net Consulting Fees paid in any calendar year, and (y) for so
long as Leucadia remains a shareholder of JII, 10% of all Net
Consulting Fees paid in excess of $1 million in any calendar
year. The foregoing fees shall not be reduced by the $50,000
amount referenced above.
With respect to Jordan/Zalaznick Advisors, Inc. ("JZAI"), no
provision of this Agreement shall affect Leucadia, Inc.'s right
to receive 10% of the net income of JZAI for so long as JZAI
remains in existence. The foregoing payments shall not be
reduced by the $50,000 amount referenced.
33
<PAGE>
(c) It is expressly agreed by the Partners that all
consulting fees paid to the Partnership by the companies listed on
Exhibit I, Schedule E, shall be the exclusive property of The John W.
Jordan II Revocable Trust and David W. Zalaznick.
(d) It is expressly acknowledged that all companies listed
on Exhibit I, Schedules A,B,C & D are Clients of either the
Partnership, JZCC or TJC Management Corp. ("TJM"). For purposes of
this Agreement, JZCC and TJM shall each be deemed an Affiliated
Entity. In the event that the Partnership is dissolved pursuant to
Section 5(a) hereof, all of The John W. Jordan II Revocable Trust's
and David W. Zalaznick's obligations to make payments to Leucadia,
Inc. pursuant to Section 5.06(b) hereof may be satisfied by any
Affiliated Entity.
ARTICLE VI
PARTNERSHIP COSTS AND EXPENSES
------------------------------
Section 6.1. Compensation to Managing Partners
-----------------------------------------------
(a) The Partnership shall pay, as a fee (the "Management
Fee") for the services set forth in Section 2.1(a)(iii), the excess of
the Additional Capital Contributions made by Leucadia, Inc. over the
expenses of the Partnership (to the extent not reimbursed by Clients)
to John W. Jordan II and David W. Zalaznick in such proportions as
they may agree but not in excess of $625,000 per calendar quarter of
1990, $687,500 per calendar quarter of 1991 and $750,000 per calendar
quarter of
34
<PAGE>
1992 and thereafter. The Management Fee will be treated by the
Partnership as a deduction. Any Managing Partner is authorized to
make the payments set forth in this paragraph.
The Managing Partners shall not receive any other
compensation or fee for services hereunder, except as provided for in
this Agreement.
(b) In 1991, the Partnership acquired a controlling
interest in Fannie May Candy Company, a Chicago based candy
manufacturer. The Partnership will open a Chicago office to allow the
John W. Jordan II Revocable Trust, as a Managing Partner, to monitor
the Partnership's investment in Fannie May Candy Company as well as to
more closely monitor its continuing investment in Jordan Industries,
Inc., which is headquartered in Deerfield, Illinois, a Chicago suburb.
In order to manage the Partnership's increasing Chicago area business
investments better, in 1991 Mr. Jordan relocated his permanent
residence from New York to Illinois. The Partnership's continued New
York business interests, however, requires Mr. Jordan periodically to
return to New York. In recognition of the additional expenses
incurred by Mr. Jordan on behalf of the Partnership in maintaining a
New York place of abode for this purpose, and in order to facilitate
Mr. Jordan's New York business trips, as compensation for the expenses
Mr. Jordan incurs in continuing to maintain a New York place of abode
for Partnership business
35
<PAGE>
purposes, it is hereby agreed that for purposes of Section 6.1(a)
hereof, Messrs. Jordan and Zalaznick agree that the Partnership shall
pay to Mr. Jordan the first $250,000 of the Management Fee per
calendar year commencing in calendar 1992, with the balance of the
Management Fee to be allocated as agreed upon by Messrs. Jordan and
Zalaznick pursuant to Section 6.1(a). The allocation of $250,000 of
the Management Fee pursuant to this subsection 6.1(b) will be reviewed
annually.
Section 6.2. Organizational Expenses
-------------------------------------
The Partnership shall pay all expenses, including any legal
and accounting fees and disbursements, incurred in connection with the
organization of the Partnership.
Section 6.3. Operating Expenses
--------------------------------
(a) A Managing Partner may, in his sole discretion, as
needed for the proper conduct of the Partnership business, incur
telephone, telegraph, secretarial, bookkeeping, publication,
consulting, accounting and legal expenses, and such other ordinary
operating costs and expenses.
(b) Messrs. Jordan and Zalaznick shall be reimbursed for
their reasonable out-of-pocket expenses incurred by them in
discharging their functions and responsibilities hereunder.
(c) The expenses of the Partnership, including the
management fee, shall be paid from the Additional Capital
Contributions, to the extent thereof.
36
<PAGE>
ARTICLE VII
REPORT TO PARTNERS
------------------
Section 7.1. Books of Account
------------------------------
Appropriate books of account shall be kept at the principal
place of business of the Partnership, and each Partner and its
representatives shall have access to all books, records and accounts
and the right to make copies thereof during regular business hours.
Section 7.2. Audit and Reports
-------------------------------
(a) If requested by at least two members of the Committee,
the books and records of the Partnership shall be audited as of the
end of each fiscal year of the Partnership by a firm of independent
accountants selected by three members of the Committee. Within 90
days after the end of each fiscal year, the Partnership shall furnish
to each Partner a report setting forth as at the end of such fiscal
year:
(i) a balance sheet and income statement (for each
such fiscal year) of the Partnership reported on by such
accounting firm, if applicable;
(ii) such Partner's Capital Account;
(iii) the amount of such Partner's share in the
Partnership's taxable income or loss for such year, in
sufficient detail to enable him or it to prepare his or
37
<PAGE>
its applicable federal, state and other tax returns; and
(iv) any other additional information which a Managing
Partner shall deem necessary or appropriate.
(b) A Managing Partner shall prepare or cause to be
prepared all applicable federal, state and local tax returns
("Returns") for each year for which such Returns are required to be
filed. With the approval of at least three members of the Committee,
a Managing Partner shall also determine whether to make any applicable
election, claim any available credit or adopt any other method or
procedure relating to the preparation of the Returns, and shall have
the power to take any and all action necessary or appropriate under
applicable or relevant laws or regulations thereunder. All tax
elections and determinations so made by the Managing Partner shall be
final and binding upon all Partners and their respective successors,
assigns, heirs and Legal Representatives.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. Binding Effect
----------------------------
This Agreement shall be binding upon and inure to the
benefit of the successors, assigns, heirs and Legal Representatives of
the respective Partners.
38
<PAGE>
Section 8.2. Notices
---------------------
All notices hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered or mailed by
registered or certified mail, postage prepaid, return receipt
requested, to the Partnership, 9 West 57th Street, New York, New York
10019, and to Leucadia at 315 Park Avenue South, New York, New York
10010, or such other address of the Partnership as to which the
Partners shall have been given notice, and to the Partners, at the
respective addresses last made known to the Partnership. A Partner
may designate a new address by notice to that effect given to the
Partnership.
Section 8.3. Counterparts
--------------------------
This Agreement may be executed in any number of
counterparts, each of which shall be an original instrument and all of
which, when taken together, shall constitute one and the same
Agreement.
Section 8.4. Completeness; Amendment
-------------------------------------
This Agreement sets forth the entire understanding of the
parties hereto, and no provision hereof may be amended, waived or
modified at any time except with the written consent of all Partners.
Section 8.5. Power of Attorney
-------------------------------
Each of the Partners hereby irrevocably constitutes and
appoints each of the Managing Partners his or its true and lawful
representative and attorney in fact, in his or its name, place
39
<PAGE>
and stead, to make, execute, acknowledge and file with the appropriate
authority:
(i) any certificate and other instruments which may be
required to be filed by the Partnership under the laws of
any jurisdiction or which such Managing Partner shall deem
advisable, in his sole discretion, to file; and
(ii) any certificate or other instruments which may be
required to effectuate the dissolution and termination of
the Partnership as provided for hereunder; it being
expressly understood and intended by each of the Partners
that such power of attorney shall be irrevocable and shall
survive any assignment or attempted assignment of the whole
or any part of the interest in the Partnership of a Partner
and, in the event of a permitted assignment hereunder, shall
be binding upon the assignee thereof.
Section 8.6. Section Headings
------------------------------
The section headings contained in this Agreement are for
convenience of reference only and shall not limit or define the text
hereof.
Section 8.7. Governing Law
---------------------------
This Agreement shall be governed by and construed in
accordance with the laws of New York.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE JOHN W. JORDAN II REVOCABLE TRUST
By: /s/ John W. Jordan II
---------------------------
John W. Jordan II, Trustee
/s/ David W. Zalaznick
---------------------------
DAVID W. ZALAZNICK
LEUCADIA, INC.
By: /s/ Joseph S. Steinberg
---------------------------
Joseph S. Steinberg,
President
REVOLVING CREDIT AGREEMENT
Dated as of February 28, 1997
between
LEUCADIA NATIONAL CORPORATION
and
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent,
THE CHASE MANHATTAN BANK,
as Syndication Agent,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Documentation Agent,
and
the BANKS listed on Schedule 1 hereto
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS
1.1 Defined Terms...............................1
1.2 Other Definitional Provisions..............11
SECTION 2 REVOLVING CREDIT FACILITY
2.1 Revolving Credit Commitment................11
2.2 Notes......................................12
2.3 Procedure for Credit Borrowing.............12
2.4. Interest Rate..............................14
2.5. Interest Rate Conversion Options...........14
2.6. Termination or Reduction of Commitment.....15
2.7. Prepayments................................15
2.8. Repayment of Loans.........................16
SECTION 3 SWING LINE FACILITY
3.1. The Swing Line Loans.......................16
3.2. Notice of Borrowing........................16
3.3. Interest on Swing Line Loans...............17
3.4. Repayment of Swing Line Loans..............17
3.5. The Swing Line Note........................17
SECTION 4 CERTAIN GENERAL PROVISIONS
4.1. Use of Proceeds............................18
4.2. Annual/Commitment Fees.....................18
4.3. Agents' Fees...............................18
4.4. Computation of Interest and Fees...........18
4.5. Inability to Determine Interest Rate.......19
4.6. Overdue Amounts; Interest Payments.........19
4.7. Payments...................................19
4.8. Foreign Taxes..............................20
4.9. Illegality.................................20
4.10. Additional Costs, Etc......................20
4.11. Indemnity..................................23
SECTION 5 REPRESENTATIONS AND WARRANTIES
5.1. Financial Condition........................23
5.2. No Change..................................24
5.3. Corporate Existence; Compliance with Law...24
5.4. Corporate Power; Authorization; Enforceable
Obligations.............................24
5.5. No Legal Bar...............................24
5.6. No Material Litigation.....................25
5.7. No Default.................................25
5.8. Ownership of Property; Liens...............25
5.9. No Burdensome Restrictions.................25
5.10. Taxes......................................25
5.11. Federal Regulations........................26
5.12. ERISA......................................26
5.13. Investment Company Act.....................26
5.14. Full Disclosure............................26
5.15. Certain Contingent Obligations.............26
5.16. Environmental Compliance...................27
5.17 Nonrecourse Indebtedness...................27
SECTION 6 CONDITIONS PRECEDENT
6.1. Conditions of Initial Loan.................27
<PAGE>
6.2. Conditions to All Loans....................28
SECTION 7 AFFIRMATIVE COVENANTS
7.1. Financial Statements.......................29
7.2. Certificates; Other Information............29
7.3. Payment of Obligations.....................30
7.4. Conduct of Business, and Maintenance
of Existence ...........................30
7.5. Maintenance of Property, Insurance.........31
7.6. Inspection of Property; Books and Records;
Discussions.............................31
7.7. Notices....................................31
SECTION 8 NEGATIVE COVENANTS
8.1. Maintenance of Consolidated Tangible
Net Worth ..............................32
8.2. Debt Leverage Ratio........................33
8.3. Limitations on Liens.......................33
8.4. Prohibition of Fundamental Changes.........34
8.5. Investments................................34
8.6. Limitation on Contingent Obligations.......34
8.7. Limitation on Subsidiary Indebtedness......34
SECTION 9 EVENTS OF DEFAULT..........................35
SECTION 10 THE AGENTS
10.1. Authorization..............................37
10.2. Employees and Agents.......................38
10.3. No Liability...............................38
10.4. No Representations.........................38
10.5. Payments...................................38
10.6. Holders of Notes...........................39
10.7. Indemnity..................................39
10.8. Administrative Agent as Bank...............39
10.9. Resignation................................40
10.10. Notification of Defaults and Events of
Default.................................40
SECTION 11 ASSIGNMENT AND PARTICIPATION
11.1. Conditions to Assignment by Banks..........40
11.2. Certain Representations and Warranties;
Limitations; Covenants..................41
11.3. Register...................................41
11.4. New Notes..................................42
11.5. Participations.............................42
11.6. Disclosure.................................43
11.7. Assignee or Participant Affiliated
with the Company........................43
<PAGE>
11.8. Miscellaneous Assignment Provisions........43
11.9. Assignment by the Company..................43
SECTION 12 MISCELLANEOUS
12.1. Consents, Amendments and Waivers...........43
12.2. Notices....................................44
12.3. No Waiver; Cumulative Remedies.............46
12.4. Survival of Representations and Warranties.46
12.5. Payment of Expenses........................46
12.6. Indemnification............................47
12.7. Successors and Assigns.....................47
12.8. Set-off....................................47
12.9. Termination................................48
12.10. Counterparts...............................49
12.11. Governing Law..............................49
Schedules
Schedule 1 List of Banks
Schedule 4.1 Indebtedness To Be Repaid
Schedule 5.16 Environmental Compliance
Schedule 5.17 Nonrecourse Indebtedness
Schedule 8.3 Permitted Liens
Exhibits
Exhibit A Revolving Credit Note
Exhibit B Swing Line Note
Exhibit C Legal Opinion
Exhibit D Officer's Certificate
Exhibit E Assignment and Acceptance
<PAGE>
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT (this "Agreement")
is entered into as of February 28, 1997 between
LEUCADIA NATIONAL CORPORATION, a New York corporation
(the "Company"), the lending institutions listed on
Schedule 1 attached hereto (the "Banks"), THE FIRST
NATIONAL BANK OF BOSTON, as administrative agent for
itself and the other Banks (the "Administrative
Agent"), THE CHASE MANHATTAN BANK, as syndication
agent for itself and the other Banks (the "Syndication
Agent") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as documentation agent for itself and the
other Banks (the "Documentation Agent").
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms have the following meanings:
"Affiliate": any Person that would be considered
to be an affiliate of the Company under Rule 144(a) of
the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof,
if the Company were issuing securities.
"Administrative Agent": The First National Bank of
Boston acting in the capacity of administrative agent
for the Banks, or any successor in such capacity.
"Agreement": this Revolving Credit Agreement, as
it may be further amended, supplemented or modified
from time to time.
"Annual Fee": as defined in Subsection 4.2.
"Assignment and Acceptance": as defined in
Subsection 11.1.
"Available Commitment": at a particular time, an
amount equal to the positive remainder of (a) the
aggregate amount of the Total Commitment at such time,
less (b) the aggregate unpaid principal amount of all
Loans.
"Banking Subsidiaries": (i) so long as they are
Subsidiaries of the Company, (x) American Investment
Bank, N.A., and (y) American Investment Financial and
(ii) any other Subsidiary of the Company taking Federal
Deposit Insurance Corporation (or other similar entity)
insured deposits.
"Banks": at any time of reference thereto, those
lending institutions listed on Schedule 1 hereto
(including without limitation the Swing Line Bank
acting in such capacity) and any other Person who
becomes an Assignee of any rights and obligations of a
Bank pursuant to Section 11 hereof; and any one of the
<PAGE>
Banks individually, a "Bank".
"Base Rate": the interest rate per annum equal to
the higher of (a) the rate of interest publicly
announced by the Administrative Agent at its head
office in Boston, Massachusetts from time to time as
its base rate (the base rate is not intended to be the
lowest rate of interest charged by The First National
Bank of Boston in connection with extensions of credit
to debtors), and (b) one-half of one percentage point
(0.5%) above the overnight Federal Funds Effective
Rate. For the purposes of this definition, "Federal
Funds Effective Rate" shall mean, for any day, the
rate per annum equal to the weighted average of the
rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or,
if such day is not a Business Day for the next
preceding Business Day) by the Federal Reserve Bank of
New York, or, if such rate is not so published for any
day that is a Business Day, the average of the
quotations for such day on such transactions received
by the Administrative Agent from three funds brokers of
recognized standing selected by the Administrative
Agent.
"Base Rate Loans": Loans hereunder at any time of
reference bearing interest at a rate based upon the
Base Rate.
"Borrowing Date": any Business Day specified in a
notice pursuant to Subsections 2.3, 3.2 or 3.4 as a
date on which the Company requests (or is deemed to
have requested) the Banks to make Revolving Credit
Loans or the Swing Line Bank to make a Swing Line Loan
hereunder.
"Business Day": any day on which banking
institutions in Boston, Massachusetts, are open for the
transaction of banking business and, in the case of
Eurodollar Loans, which is also a Eurodollar Business
Day.
"Code": the Internal Revenue Code of 1986, as
amended and in effect from time to time.
<PAGE>
"Commitment": with respect to each Bank, the
amount set forth herein as its commitment to make Loans
to the Company as such amount may be reduced from time
to time as provided herein.
"Commitment Fee": as defined in Subsection 4.2.
"Commitment Percentage": with respect to each
Bank, the percentage set forth beside its name in
Schedule 1 (subject to adjustment upon any assignment
permitted by Section 11 hereof) as such Bank's
percentage of the Total Commitment and such Bank's
interest in the aggregate amount of all Swing Line
Loans.
"Commitment Period": the period from and including
the date hereof to, but not including, the Termination
Date or such earlier date as the Commitment shall
terminate as provided herein.
"Commonly Controlled Entity": an entity, whether
or not incorporated, which is under common control with
the Company within the meaning of Section 414(b) or (c)
of the Code.
"Company": Leucadia National Corporation, a New
York corporation.
"Consolidated" or "consolidated": with reference
to any term defined herein, that term as applied to the
accounts of the Company and its Subsidiaries,
consolidated in accordance with GAAP.
"Consolidated Intangibles": at a particular date,
all assets of the Company and its Subsidiaries,
determined on a consolidated basis at such date, that
would be classified as intangible assets in accordance
with GAAP, but in any event including, without
limitation, unamortized debt discount and expense,
unamortized organization and reorganization expense,
costs in excess of the net asset value of acquired
companies, patents, trade or service marks, franchises,
trade names, goodwill and deferred tax assets.
Notwithstanding anything to the contrary contained in
<PAGE>
the preceding sentence, Consolidated Intangibles shall
not include deferred insurance policy acquisition costs
or the value of life insurance in force.
"Consolidated Net Worth": as to any Person at a
particular date, all amounts which should be included
under shareholders' equity on a balance sheet of such
Person and its Subsidiaries determined on a
consolidated basis as at such date; provided that, in
calculating shareholders' equity, marketable securities
that have not suffered a decline in value (other than a
decline of a temporary nature) shall be reflected at
the amortized cost thereof and marketable securities
that have suffered a decline in value considered to be
other than temporary shall be reflected at the current
value thereof. For purposes of this definition, the
recorded value of the Company's outstanding preferred
stock shall be included under shareholders' equity.
"Consolidated Tangible Net Worth": at a particular
date, the excess, if any, of Consolidated Net Worth
over Consolidated Intangibles as at such date.
"Contingent Obligation": as to any Person, any
reimbursement obligation of such Person in respect of
the face amount of all letters of credit for the
account of such Person and (without duplication) all
drafts thereunder (other than trade letters of credit
or interest or currency swap transactions entered into
in the ordinary course of business) and any obligation
of such Person guarantying or in effect guarantying any
Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any
obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any
property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary
<PAGE>
obligation of the ability of the primary obligor to
make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of such
primary obligation against loss in respect thereof;
provided, however, that the term Contingent
Obligation shall not include (i) endorsements of
instruments for deposit or collection in the ordinary
course of business, (ii) indemnities granted in the
ordinary course of business (including in connection
with dispositions by the Company and/or its
Subsidiaries), (iii) any insurance or reinsurance
obligation of any Subsidiary of the Company entered
into in the ordinary course of the insurance business
of such Subsidiary, (iv) any guaranty by a Subsidiary
of the Company of the obligation of another Subsidiary
(other than the Company, if the guarantied obligation
of the Subsidiary is reflected in the Company's
consolidated financial statements as a liability, (v)
any obligation (other than the guaranty by a Subsidiary
of an obligation of the Company) reflected as a
liability in the Company's consolidated financial
statements, including without limitation the Company's
obligations in respect of the $150,000,000 8.65%
Capital Trust Pass-through Securities issued by
Leucadia Capital Trust I, all of the common capital
securities of which are owned by the Company and (vi)
any Indebtedness. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation
in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as
determined by the Company in good faith. For the
purposes of this definition, Contingent Obligations
shall not include (x) any guaranty or indemnification
undertaking given in connection with the return of the
assets of Colonial Penn Madison Insurance Company
("Madison"), Commercial Loan Insurance Corporation
("CLIC") and WMAC Credit Insurance Corporation ("WMAC
Credit"), or the assets of any other Insurance
Subsidiary under the jurisdiction of the Wisconsin
Insurance Commissioner (collectively, the "Returned
Companies") to the control of the Company or any of its
Subsidiaries, or (y) any contingent obligation arising
from the operations of such Returned Companies;
<PAGE>
provided, that, any such guaranty, indemnification,
undertaking or contingent obligation has recourse
solely to such Returned Companies and the operations of
such Returned Companies are kept separate and apart
from those of the Company and each of the Company's
other Subsidiaries.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of
any agreement, instrument or undertaking to which such
Person is a party or by which it or any of its property
is bound.
"Default": any of the events specified in Section
9, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Delinquent Bank": any Bank that fails to make
available when due to the Administrative Agent its pro
rata share of any Loan, or fails to make available
when due to the Swing Line Bank its pro rata share of
any Swing Line Loan.
"Documentation Agent": Bank of America National
Trust and Savings Association acting as documentation
agent for the Banks.
"Dollars or $:" dollars in lawful currency of the
United States of America.
"Domestic Lending Office": initially, the office
of each Bank; thereafter, such other office of such
Bank, if any, located within the United States that
will be making or maintaining Base Rate Loans.
"Eligible Assignee": Any of (i) a commercial bank
organized under the laws of the United States, or any
State thereof or the District of Columbia, and having
total assets in excess of $1,000,000,000; (ii) a
savings and loan association or savings bank organized
under the laws of the United States, or any State
thereof or the District of Columbia, and having a net
worth of at least $500,000,000, calculated in
accordance with generally accepted accounting
<PAGE>
principles; (iii) a commercial bank organized under the
laws of any other country which is a member of the
Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such
country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting
through a branch or agency located in the country in
which it is organized or another country which is also
a member of the OECD; (iv) the central bank of any
country which is a member of the OECD; and (v) if, but
only if, any Event of Default has occurred and is
continuing, any other bank, insurance company,
commercial finance company or other financial
institution approved by the Administrative Agent, such
approval not to be unreasonably withheld.
"Entity": any partnership, corporation, limited
liability company, business trust, joint stock company,
trust, unincorporated association, joint venture or
other business entity of whatever nature.
"Environmental Laws": any judgment, decree, order,
law, license, rule or regulation of any Governmental
Authority pertaining to protection of the environment,
or any United States state or local statute,
regulation, ordinance, order or decree relating to
health, safety or the environment.
"ERISA": the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurodollar Business Day": any day on which
commercial banks are open for international business
(including dealings in Dollar deposits) in London or
such other eurodollar interbank market as may be
selected by the Administrative Agent in its sole
discretion acting in good faith.
"Eurodollar Lending Office": initially, the office
of each Bank; thereafter, such other office of such
Bank, if any, that shall be making or maintaining
Eurodollar Rate Loans.
"Eurodollar Loans": Loans hereunder at any time of
reference bearing interest at a rate based upon the
<PAGE>
Eurodollar Rate.
"Eurodollar Rate": with respect to each Interest
Period pertaining to Eurodollar Loans, the rate of
interest per annum (rounded upwards to the nearest
1/100 of one percent) determined by the Administrative
Agent to be equal to the quotient of (a) the rate at
which its Eurodollar Lending Office is offered Dollar
deposits two Eurodollar Business Days prior to the
beginning of such Interest Period pertaining to any
such Eurodollar Loan in the eurodollar interbank market
selected by the Administrative Agent in its sole
discretion in good faith at 10:00 a.m., Boston time, for
delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount
equal to the amount of the Eurodollar Loan to be
outstanding during such Interest Period, divided by (b)
a number equal to l.00 minus the daily average of the
maximum rates in effect on each day of such Interest
Period (expressed as a decimal fraction) at which the
Banks subject thereto would be required to maintain
reserves under Regulation D of the Board of Governors
of the Federal Reserve System (or any successor or
similar regulations relating to such reserve
requirements) against "Eurocurrency Liabilities" (as
such term is used in Regulation D), if such liabilities
were outstanding.
"Event of Default": any of the events specified in
Section 9, provided that any requirement for the giving
of notice or the lapse of time, or both, or any other
condition specified therein, has been satisfied.
"Foreign Recipient": any Bank or Participant which
is a recipient of payments under Subsection 4.8 and
that is organized under a jurisdiction other than the
United States of America or a state thereof.
"Foreign Taxes": as defined in Subsection 4.8.
"Funded Debt": all Indebtedness of the Company and
its Subsidiaries on a consolidated basis in respect of
(i) Loans under this Agreement, and (ii) any other
Indebtedness for borrowed money (other than Nonrecourse
Debt); provided that Funded Debt shall not be deemed to
<PAGE>
include customer deposits of Banking Subsidiaries.
"F&H Guaranty": the Guaranty of the Company in the
form of Exhibit E to the Master Agreement dated as of
November 1989, by and among CX Partners, L.P., a
Delaware limited partnership, each of its Limited
Partners, including F&H Associates, C.V., a Netherlands
Antilles limited partnership ("F&H"), its Liquidating
Trustee, and the parties named therein, with respect to
the obligations of F&H under said Master Agreement.
"GAAP": (i) When used in Section 8 means generally
accepted accounting principles that are consistent with
the accounting practices of the Company reflected in
its financial statements for the fiscal year ended on
December 31, 1995 referred to in Subsection 5.1, and
(ii) when used in general, other than in Section 8,
means generally accepted accounting principles that are
consistent with the principles promulgated or adopted
by the Financial Accounting Standards Board and its
predecessors, as in effect from time to time.
"Governmental Authority": any nation or government
(other than Kazakstan, Kyrgyzstan, or Russia), any
state or other political subdivision thereof, and any
entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining
to such government.
"Hazardous Substances": hazardous waste,
pollutants or contaminants, toxic substances, oil or
hazardous materials or other chemicals or substances
regulated by any Environmental Laws.
"Indebtedness": as to any Person at a particular
time, all items which, in conformity with GAAP, would
be classified as liabilities on a balance sheet of such
Person as at such time and which constitute (a)
indebtedness for borrowed money or constituting the
deferred purchase price of assets or other property,
(b) obligations with respect to any conditional sale
agreement or title retention agreement, (c)
indebtedness arising under acceptance facilities and
all drafts drawn under all letters of credit issued for
the account of such Person, (d) all liabilities secured
<PAGE>
by any Lien on any property owned by such Person even
though it has not assumed or otherwise become liable
for the payment thereof, (e) obligations under leases
which have been, or under GAAP are required to be,
capitalized, (f) obligations with respect to interest
payable and (g) any asserted withdrawal liability of
such Person or a Commonly Controlled Entity to a
Multiemployer Plan.
"Insurance Subsidiary": Any Subsidiary of the
Company licensed as an insurance company.
"Interest Payment Date": (a) as to any Base Rate
Loan, the last day of each March, June, September and
December and the Termination Date or such earlier date
as the Commitment shall terminate as provided herein,
and (b) as to any Eurodollar Loan in respect of which
the Interest Period is (i) three months or less, the
last day of such Interest Period and (ii) more than
three months, the date which is three months from the
first day of such Interest Period and in addition the
last day of such Interest Period.
"Interest Period": (a) with respect to any
Eurodollar Loan, the period commencing on the Borrowing
Date with respect to such Eurodollar Loan and ending
one, two, three or six months thereafter, as selected
by the Company in its notice of borrowing as provided
in Subsection 2.3; (b) with respect to any Base Rate
Loan, the period commencing on the Borrowing Date with
respect to such Base Rate Loan and ending on the
earlier to occur of the date of repayment or conversion
of such Base Rate Loan or the Termination Date; and (c)
with respect to any Swing Line Loan, the period
commencing on the Borrowing Date and ending on the
maturity date specified in the request therefor
pursuant to Subsection 3.2; provided, that, all of the
foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day which is
not a Eurodollar Business Day, that Interest Period
shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would
<PAGE>
be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on
the immediately preceding Eurodollar Business Day;
(ii) if any Interest Period pertaining to a
Base Rate Loan or Swing Line Loan would otherwise end
on a day which is not a Business Day, such Interest
Period shall be extended to the next succeeding
Business Day;
(iii) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the
calendar month at the end of such Interest Period)
shall end on the last Eurodollar Business Day of a
calendar month; and
(iv) any Interest Period that would otherwise
extend beyond the Termination Date shall end on the
Termination Date.
"Investments": any advance, loan, extension of
credit or capital contribution to, or purchase of any
stocks, bonds, notes, debentures or other securities
of, or any other investment in, any Person.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority or other
security agreement or preferential arrangement of any
kind or nature whatsoever (including, without
limitation, any conditional sale or other title
retention agreement, and any financing lease having
substantially the same economic effect as any of the
foregoing).
"Loans": the Revolving Credit Loans and the Swing
Line Loans; and any one of such Loans individually, a
"Loan".
"Majority Banks": as of any date, the Banks
holding at least fifty-one percent (51%) of the
outstanding principal amount of the Revolving Credit
Notes on such date; and if no such principal is
<PAGE>
outstanding, the Banks whose aggregate Commitments
constitute at least fifty-one percent (51%) of the
Total Commitment.
"Market Price": with reference to the Company's
Common Shares ("Common Share") for any Trading Day, the
last reported sale price of a Common Share as reported
on the New York Stock Exchange or on any principal
stock exchange on which the Common Shares are then
listed or admitted to trading or on the National
Association of Securities Dealers National Market
System, if quoted; or, if the Common Shares are not
then listed or admitted to trading on any national
securities exchange and there is no reported last sale
price or bid and asked prices available, the average of
the reported high-bid and low-asked prices on such day
as reported by a reputable quotation service or a
newspaper of general circulation in the Borough of
Manhattan, City and State of New York, customarily
published on each business day; or, in the absence of
one or more such quotations, the current market price
determined in good faith by the Board of Directors of
the Company on the basis of such quotations or factors
as it deems appropriate.
"Market Value": with reference to the Company's
Common Shares, the average Market Price of such Common
Shares for the twenty Trading Days immediately
preceding the date of the sale, transfer of disposition
giving rise to the need to determine Market Value.
"Maximum Swing Line Loan Amount": as defined in
Subsection 3.1.
"Multiemployer Plan": a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
"Nonrecourse Debt": (x) Indebtedness of any
Subsidiary of the Company which is not guaranteed by,
is not secured by assets (other than assets of such
Subsidiary) of, and does not otherwise have recourse
to, the Company or its assets (other than assets of
such Subsidiary) and (y) Indebtedness of the Company
incurred to finance one or more assets of the Company,
<PAGE>
which Indebtedness has recourse only to such asset or
assets for payment.
"Note Record": the grid attached to a Revolving
Credit Note or the Swing Line Note, or the continuation
of such grid, or any other similar record, including
computer records, maintained by any Bank with respect
to any Loan referred to in such Note.
"Notes": the Revolving Credit Notes and the Swing
Line Note; and any one of such Notes individually, a
"Note".
"Participant": as defined in Subsection 11.5.
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of
ERISA.
"Permitted Distribution": any distribution to the
Company's shareholders of equity shares of one or more
Subsidiaries, provided, that (i) the aggregate book
value of such Subsidiary or Subsidiaries, when added
together with the aggregate book value of all other
Subsidiaries with respect to which such a Permitted
Distribution has been effected from and after January
1, 1997, shall not exceed $150,000,000, and (ii) no
Default or Event of Default exists at the time of
declaration of such distribution or at the time of the
consummation thereof, either before or after giving
effect thereto.
"Permitted Liens": as defined in Subsection 8.3.
"Permitted Voluntary Proceeding": the commencement
by the Company of a voluntary case or proceeding under
Title 11, U.S. Code or any similar federal or state law
for the relief of debtors with respect to any
Subsidiary if (i) the sum of the Company's total
investment at cost, after write-downs, in such
Subsidiary and the Company's Contingent Obligations in
respect of liabilities of such Subsidiary does not
exceed $90,000,000, and (ii) the commencement of such
case or proceeding does not create nor occasion any
violation or noncompliance with other provisions of
<PAGE>
this Agreement.
"Person": an individual, Entity or Governmental
Authority.
"Plan": any pension plan which is covered by Title
IV of ERISA and in respect of which the Company or a
Commonly Controlled Entity is an "employer" as defined
in Section 3(5) of ERISA.
"Real Estate": the real properties owned or leased
by the Company or any of its Subsidiaries.
"Recipient": as defined in Subsection 12.9.
"Register": as defined in Subsection 11.3.
"Reportable Event": any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"Requirements of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person,
and (other than with respect to Kazakstan, Kyrgyzstan
and Russia) any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the Chairman of the Board
of Directors, President, Treasurer or any Vice
President of the Company.
"Revolving Credit Loans": as defined in Subsection
2.1.
"Revolving Credit Notes": as defined in Subsection
2.2.
"Shareholders' Equity": at any particular date,
the total shareholders' equity of the Company
(including without limitation equity in respect of the
Company's outstanding preferred stock, if any),
determined on a consolidated basis in accordance with
<PAGE>
GAAP; provided that, if any Nonrecourse Debt is
excluded from the computation of Funded Debt under
Subsection 8.2, then, for purposes of determining
Shareholders' Equity under Subsection 8.2,
Shareholders' Equity shall be reduced (x) by the
carrying value of the assets of the Company to which
such Nonrecourse Debt has recourse, to the extent of
such Nonrecourse Debt of the Company, and/or (y) by the
Company's equity investment in any Subsidiary having
such Nonrecourse Debt, to the extent of such
Subsidiary's Nonrecourse Debt.
"Single Employer Plan": any Plan which is not a
Multiemployer Plan.
"Subsidiary": as to any Person, any Entity which
is consolidated in such Person's consolidated financial
statements determined in accordance with GAAP as in
effect on December 31, 1995.
"Swing Line Bank": The First National Bank of
Boston acting in such capacity under Section 3 hereof,
or any successor in such capacity.
"Swing Line Loan": any loan made by the Swing Line
Bank pursuant to Section 3.
"Swing Line Loan Maturity Date": as defined in
Subsection 3.2.
"Swing Line Note": as defined in Subsection 3.5.
"Syndication Agent": The Chase Manhattan Bank
acting in the capacity of syndication agent for the
Banks.
"Taxes": as defined in Subsection 4.10.
"Terminating Event": any of the events specified
in Subsection 12.9, whether or not any requirement for
the lapse of time, or any other condition, has been
satisfied.
"Termination Date": February 28, 2002.
<PAGE>
"Total Commitment": the aggregate amount of the
Commitments of the Banks to make Loans to the Company
as provided herein.
"Trading Day": any day on which the principal
exchange or quotation system on which the Company's
Common Shares are listed or traded, is open for
trading.
"Type": as to all or any portion of any Loan, its
nature as a Base Rate Loan or Eurodollar Loan.
"Voting Stock": as to the Company, shares of stock
having ordinary voting power (other than stock having
such power only by reason of the happening of a
contingency).
1.2. Other Definitional Provisions.
(a) All terms defined in this Agreement shall
have the defined meanings when used in the Notes or any
certificate or other document made or delivered
pursuant hereto or thereto.
(b) As used herein and in the Notes, and any
certificate or other document made or delivered
pursuant hereto, accounting terms relating to the
Company and its Subsidiaries not defined in Subsection
1.1, and accounting terms partly defined in Subsection
1.1 to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and
"hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement,
and section, subsection, schedule and exhibit
references are to this Agreement unless otherwise
specified.
SECTION 2. REVOLVING CREDIT FACILITY
2.1. Revolving Credit Commitment.
(a) Subject to the terms and conditions
<PAGE>
hereof, each of the Banks severally agrees to make
revolving credit loans (individually, a "Revolving
Credit Loan"; collectively the "Revolving Credit
Loans") to the Company from time to time during the
Commitment Period upon notice by the Company to the
Administrative Agent given in accordance with
Subsection 2.3 hereof, in an amount equal to such
Bank's Commitment Percentage of the aggregate principal
amount of Loans requested in the Company's notice. The
respective amount of each Bank's Commitment and its
Commitment Percentage shall be as set forth in Schedule
1 attached hereto.
(b) Notwithstanding any other provision of
this Agreement but subject to the following paragraph
(c) of this Subsection 2.1, at no time shall the sum of
(i) the aggregate principal amount of all Revolving
Credit Loans outstanding (after giving effect to all
Loans requested), plus (ii) the aggregate principal
amount of all Swing Line Loans outstanding exceed the
Total Commitment of the Banks then in effect. The
principal amount of the Revolving Credit Loans
outstanding from each Bank to the Company shall not at
any time exceed in the aggregate an amount (after
giving effect to all Loans requested) equal to such
Bank's Commitment Percentage times (i) the Total
Commitment minus (ii) the aggregate principal amount of
all Swing Line Loans outstanding. Within the foregoing
limits, and subject to all of the other terms and
conditions set forth in this Agreement, the Company may
borrow, prepay pursuant to Subsection 2.7 hereof, and
reborrow Revolving Credit Loans.
(c) Notwithstanding the foregoing, each of the
Banks agree to, on one or more occasions during the
Commitment Period, and regardless of whether the
conditions set forth in Section 6 are satisfied, make
Revolving Credit Loans to the Company solely for the
purposes of repaying Swing Line Loans pursuant to
Subsection 3.4 hereof. Section 3 hereof shall govern
the Company's obligations with respect to Swing Line
Loans. In the event that any advances of Revolving
Credit Loans pursuant to this Subsection 2.1(c) cause
the sum of the aggregate principal amount of Revolving
Credit Loans and Swing Line Loans outstanding to exceed
<PAGE>
the Total Commitment then in effect, the Company shall
immediately prepay such excess amount together with any
interest accrued thereon.
(d) The Revolving Credit Loans may be
Eurodollar Loans or Base Rate Loans, or combinations
thereof, as determined by the Company and notified to
the Administrative Agent and the Banks in accordance
with Subsection 2.3; provided that no Eurodollar Loan
shall be made with an Interest Period extending beyond
the Termination Date. Eurodollar Loans shall be made
and maintained by the Administrative Agent for the
accounts of the Banks at its Eurodollar Lending Office,
and Base Rate Loans shall be made and maintained by the
Administrative Agent for the accounts of the Banks at
its Domestic Lending Office.
2.2. Notes. The Revolving Credit Loans made
pursuant hereto are evidenced by separate promissory
notes of the Company, substantially in the form of
Exhibit A (together with any promissory notes in
substantially such form issued in substitution or
replacement therefor, the "Revolving Credit Notes" or,
in the singular, a "Revolving Credit Note"); one
Revolving Credit Note being payable to the order of
each Bank in a principal amount equal to such Bank's
Commitment and representing the obligation of the
Company to pay to such Bank the amount of the
Commitment or, if less, the aggregate unpaid principal
amount of all Revolving Credit Loans made by such Bank
hereunder, plus accrued interest thereon, as set forth
below. Each Bank is hereby authorized to record the
date and amount of its Revolving Credit Loan, the
maturity date thereof, the date and amount of each
repayment of principal thereof, and, in the case of
Eurodollar Loans, the interest rate with respect
thereto, on such Bank's Note Record. The outstanding
amount of the Revolving Credit Loans set forth on such
Bank's Note Record shall be prima facie evidence of the
principal amount thereof owing and unpaid to such Bank,
but the failure to record, or any error in so
recording, any such amount on such Bank's Note Record
shall not limit or otherwise affect the actual amount
of the obligations of the Company hereunder or under
any Revolving Credit Note to make payments of principal
<PAGE>
of or interest on any Revolving Credit Note when due.
2.3. Procedure for Revolving Credit Borrowing.
(a) The Company may borrow Revolving Credit
Loans under the Commitments during the Commitment
Period on any Eurodollar Business Day if the borrowing
is a Eurodollar Loan or on any Business Day if the
borrowing is a Base Rate Loan; provided, that, the
Company shall give the Administrative Agent irrevocable
notice, which notice must be received by the
Administrative Agent (i) prior to 10:00 A.M., Boston
time two Eurodollar Business Days prior to the
requested Borrowing Date, in the case of Eurodollar
Loans, and (ii) prior to 12:00 noon Boston time on the
requested Borrowing Date, in the case of Base Rate
Loans, specifying (A) the amount to be borrowed, (B)
the requested Borrowing Date, (C) whether the borrowing
is to be a Eurodollar Loan or a Base Rate Loan, or a
combination thereof, and (D) the length of the Interest
Period for each Eurodollar Loan included in such
notice. No more than ten (10) Eurodollar Loans with
different Interest Periods shall be outstanding at one
time. Promptly upon receipt of such notice, the
Administrative Agent shall notify each of the Banks
thereof. Each borrowing of Base Rate Loans pursuant to
the Commitments shall be in a minimum aggregate
principal amount equal to the lesser of (i) $1,000,000
and (ii) the Available Commitment, and shall be in an
integral multiple of $250,000 in excess thereof. Each
borrowing of Eurodollar Loans pursuant to the
Commitments shall be in a minimum amount equal to
$4,000,000 and shall be in an integral multiple of
$500,000 in excess thereof.
(b) Not later than 2:00 P.M. (Boston time) on
any requested Borrowing Date (including without
limitation pursuant to notice under Subsection 3.4 with
regard to the repayment of any Swing Line Loan), each
of the Banks will make available to the Administrative
Agent, at its head office, in immediately available
funds, the amount of the Revolving Credit Loan to be
loaned by it on such Borrowing Date. Upon receipt from
each Bank of the amount of its Revolving Credit Loan,
the Administrative Agent will make the aggregate amount
<PAGE>
of such Revolving Credit Loans available to the
Company. The failure or refusal of any Bank to make
available to the Administrative Agent at the aforesaid
time on any Borrowing Date the amount of the Revolving
Credit Loan to be made by such Bank shall not relieve
any other Bank from its several obligations hereunder
to make its respective Commitment Percentage of any
requested Loans.
(c) The Administrative Agent may (unless
notified to the contrary by a Bank prior to a Borrowing
Date) assume that each Bank has made available to the
Administrative Agent on such Borrowing Date such Bank's
Commitment Percentage of the Revolving Credit Loans to
be made on such Borrowing Date, and the Administrative
Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the
Company a corresponding amount. If any Bank makes
available all or any portion of such amount to the
Administrative Agent on a date after such Borrowing
Date, then such Delinquent Bank shall pay to the
Administrative Agent on demand an amount equal to the
product of (i) the average computed for the period
referred to in clause (iii) below, of the weighted
average interest rate paid by the Administrative Agent
for federal funds acquired by the Administrative Agent
during each day included in such period, times (ii) the
amount equal to the lesser of such Bank's Commitment
Percentage of such borrowing or the portion thereof
made available after such Borrowing Date, times (iii) a
fraction, the numerator of which is the number of days
that elapse from and including such Borrowing Date to
the date on which such Bank's Commitment Percentage of
such borrowing shall become immediately available to
the Administrative Agent, and the denominator of which
is 360. A statement of the Administrative Agent
submitted to any Bank with respect to any amounts owing
under this paragraph shall be prima facie evidence of
the amount due and owing. If any portion of such
Bank's Commitment Percentage of such Loan is not in
fact made available to the Administrative Agent by such
Bank within three Business Days of such Borrowing Date,
the Administrative Agent shall be entitled to recover
such amount from the Company on demand, with interest
thereon at the rate per annum applicable to the Loans
<PAGE>
made on such Borrowing Date.
(d) The provisions of Subsection 2.3(a)
notwithstanding, if the Company shall not have given a
timely notice of a borrowing to be made on the last day
of any Interest Period for an outstanding Eurodollar
Loan, then unless the Administrative Agent shall have
received notice that the Company elects not to make a
borrowing on such a day (such notice to have been
received at least one Business Day prior to such day)
the Company shall be deemed irrevocably to have
requested a Base Rate Loan to be made on such day in an
amount equal to the amount of such outstanding Loan
(reduced to the extent necessary to reflect any
reductions of the Total Commitment on or prior to such
day).
(e) If the Administrative Agent, for the
account of a Bank, makes a new Revolving Credit Loan on
a day on which the Company is to repay all or any part
of any outstanding Revolving Credit Loan from such
Bank, such Bank shall apply the proceeds of its new
Loan to make such repayment, and only an amount equal
to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made
available by such Bank to the Company or remitted by
the Company to such Bank as provided in Subsection 4.7,
as the case may be.
2.4. Interest Rate.
(a) Each Eurodollar Loan shall bear interest,
for the period commencing on the Borrowing Date thereof
and ending on the last day of the Interest Period with
respect thereto, on the unpaid principal amount thereof
at a rate per annum equal to the Eurodollar Rate
determined by the Administrative Agent for the Interest
Period therefor plus 0.625%.
(b) Each Base Rate Loan shall bear interest
for the period commencing on the Borrowing Date thereof
on the unpaid principal amount thereof at a fluctuating
rate per annum equal to the Base Rate.
<PAGE>
2.5. Interest Rate Conversion Options.
(a) The Company may elect from time to time to
convert any outstanding Loan (other than a Swing Line
Loan) to a Loan of another Type, provided that (i) with
respect to any such conversion of a Eurodollar Loan to
a Base Rate Loan, the Company shall give the
Administrative Agent at least one (1) Business Day
prior written notice of such election; (ii) with
respect to any such conversion of a Base Rate Loan to a
Eurodollar Loan, the Company shall give the
Administrative Agent at least two (2) Eurodollar
Business Days' prior written notice of such election;
(iii) with respect to any such conversion of a
Eurodollar Loan into a Base Rate Loan, such conversion
shall only be made on the last day of the Interest
Period with respect thereto, and (iv) no Base Rate Loan
may be converted into a Eurodollar Loan when any
Default or Event of Default has occurred and is
continuing. On the date on which such conversion is
being made each Bank shall take such action as is
necessary to transfer its portion of such Loans to its
Domestic Lending Office or its Eurodollar Lending
Office, as the case may be. All or any part of
outstanding Revolving Credit Loans of any Type may be
converted into a Revolving Credit Loan of another Type
as provided herein, provided that any conversion shall
comply with the minimum aggregate principal amount
requirements set forth in Subsection 2.3(a). Each
Conversion Request relating to the conversion of a Base
Rate Loan to a Eurodollar Loan shall be irrevocable by
the Company.
(b) Any Revolving Credit Loan of any Type may
be continued as a Revolving Credit Loan of the same
Type upon the expiration of an Interest Period with
respect thereto by compliance by the Company with the
notice provisions contained in Subsection 2.5(a)
hereof; provided that no Eurodollar Loan may be
continued as such when any Default or Event of Default
has occurred and is continuing, but shall be
automatically converted to a Base Rate Loan on the last
day of the first Interest Period relating thereto
ending during the continuance of any Default or Event
of Default. The Administrative Agent shall notify the
Banks promptly when any such automatic conversion
<PAGE>
contemplated by this Subsection 2.5(b) is scheduled to
occur.
(c) Any conversion to or from Eurodollar Loans
shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the
aggregate principal amount of all Eurodollar Loans
having the same Interest Period shall not be less than
$4,000,000 or a whole multiple of $500,000 in excess
thereof. No more than ten (10) Eurodollar Loans with
different Interest Periods shall be outstanding at one
time.
2.6. Termination or Reduction of Commitment. The
Company shall have the right, upon not less than five
(5) Business Days' notice to the Administrative Agent,
to terminate the Total Commitment or, from time to
time, reduce the amount of the Total Commitment,
provided, that, (i) each reduction (other than a
termination) shall be in a minimum amount of
$10,000,000 and in integral multiples of $5,000,000 in
excess thereof, (ii) no such reduction or termination
shall be permitted if, after giving effect thereto and
to any prepayments of the Loans made on the effective
date thereof, the then outstanding principal amount of
the Loans would exceed the amount of the Total
Commitment then in effect and (iii) each Bank's
Commitment shall be reduced proportionately.
Termination of the Commitments shall also terminate the
obligation of the Banks to make Loans. The portions of
Commitments once terminated or reduced may not be
reinstated.
2.7. Prepayments. The Company may (i) at any time
and from time to time prepay the Base Rate Loans, in
whole or in part, without premium or penalty and (ii)
subject to payment of the amounts set forth in
Subsection 4.11, prepay the Eurodollar Loans, in either
case upon at least one Business Day's irrevocable
notice to the Administrative Agent, specifying the date
and amount of prepayment and whether the prepayment is
of Eurodollar Loans or Base Rate Loans, or a
combination thereof, and if of a combination thereof,
the amount of prepayment allocable to each. If such
notice is given, the Administrative Agent shall
<PAGE>
thereupon transmit such notice to the Banks, the
Company shall make such prepayment to the
Administrative Agent for the accounts of the Banks, and
the prepayment amount specified in such notice shall be
due and payable on the date specified therein, together
with accrued interest to such date on the amount
prepaid. Partial prepayments shall be in an amount
equal to $100,000 or a whole multiple thereof and may
only be made if, after giving effect thereto,
Subsection 2.6 shall not have been contravened, and
each partial prepayment shall be allocated among the
Banks, in proportion, as nearly as practicable, to the
respective unpaid principal amount of each Bank's
Revolving Credit Note, with adjustments to the extent
practical to equalize any prior prepayments not exactly
in proportion.
2.8. Repayment of Loans. The Company will pay to
the Administrative Agent for the accounts of the Banks
the unpaid principal amount of each Revolving Credit
Loan made by the Banks on the last day of the Interest
Period therefor.
SECTION 3. SWING LINE FACILITY
3.1. The Swing Line Loans. Subject to the terms
and conditions hereinafter set forth, upon notice by
the Company made to the Swing Line Bank in accordance
with Subsection 3.2 hereof, the Swing Line Bank agrees
to lend to the Company Swing Line Loans on any Business
Day during the Commitment Period in an aggregate
principal amount not to exceed $10,000,000 (the
"Maximum Swing Line Loan Amount"). Each Swing Line
Loan shall be in such minimum amount as determined by
the Swing Line Bank. Notwithstanding any other
provisions of this Agreement and in addition to the
limit set forth above, (a) at no time shall the
aggregate principal amount of all outstanding Swing
Line Loans exceed the Total Commitment of the Banks
then in effect minus the aggregate principal amount of
all Revolving Credit Loans outstanding, provided
however that, subject to the limitations set forth in
this Subsection, from time to time the sum of the
aggregate outstanding Swing Line Loans plus all
outstanding Revolving Credit Loans made by the Swing
<PAGE>
Line Bank may exceed the Swing Line Bank's Commitment
then in effect.
3.2. Notice of Borrowing. When the Company
desires the Swing Line Bank to make a Swing Line Loan,
it shall send to the Administrative Agent and the Swing
Line Bank a Swing Line Loan request, which shall set
forth the principal amount of the proposed Swing Line
Loan and the date on which the proposed Swing Line Loan
would mature (the "Swing Line Loan Maturity Date")
which shall be not earlier than the first day after the
Borrowing Date nor later than the third day after the
Borrowing Date thereof, and in no event shall be later
than the last day of the Commitment Period. Each such
Loan request must be received by the Swing Line Bank
not later than 3:00 p.m. (Boston time) on the date of
the proposed borrowing. Each Swing Line Loan request
shall be irrevocable and binding on the Company and
shall obligate the Company to borrow the Swing Line
Loan from the Borrowing Date thereof. Upon
satisfaction of the applicable conditions set forth in
this Agreement, on the proposed Borrowing Date the
Swing Line Bank shall make the Swing Line Loan
available to the Company by 5:00 p.m. (Boston time) on
the proposed Borrowing Date by crediting the amount of
the Swing Line Loan to the Company's account maintained
with the Administrative Agent at the Head Office;
provided that the Swing Line Bank shall not advance
any Swing Line Loans after it has received notice that
a Default or Event of Default has occurred and has not
been cured or waived in accordance with the provisions
of this Agreement. The Swing Line Bank shall not be
obligated to make any Swing Line Loans at any time when
any Bank is a Delinquent Bank unless the Swing Line
Bank has entered into arrangements satisfactory to it
to eliminate the Swing Line Bank's risk with respect to
such Delinquent Bank, including by cash collateralizing
such Delinquent Bank's Commitment Percentage of the
outstanding Swing Line Loans and any such additional
Swing Line Loans to be made.
3.3. Interest on Swing Line Loans. Each Swing
Line Loan shall bear interest from the Borrowing Date
thereof until the Swing Line Loan Maturity Date thereof
at the rate quoted by the Administrative Agent in its
<PAGE>
sole discretion (which shall not be greater than the
then applicable Base Rate) at the time the request for
such Swing Line Loan is made.
3.4. Repayment of Swing Line Loans. The Company
shall repay each outstanding Swing Line Loan on the
Swing Line Loan Maturity Date. Upon notice by the
Swing Line Bank on any Business Day, the Company shall
be deemed irrevocably to have requested, and each of
the Banks hereby agrees to make, a Revolving Credit
Loan bearing interest at the Base Rate to the Company
on the next succeeding Business Day following such
notice, in an amount equal to such Bank's Commitment
Percentage of the aggregate amount of all Swing Line
Loans outstanding. The proceeds thereof shall be
applied directly to repay the Swing Line Bank for such
outstanding Swing Line Loans. In the event that it is
impracticable for such Revolving Credit Loan to be made
for any reason on the date otherwise required above,
then each Bank hereby agrees that it shall forthwith
purchase (as of the date such Revolving Credit Loan
would have been made, but adjusted for any payments
received from the Company on or after such date and
prior to such purchase) from the Swing Line Bank, and
the Swing Line Bank shall sell to each Bank, such
participations in the Swing Line Loans (including all
accrued and unpaid interest thereon) outstanding as
shall be necessary to cause the Banks to share in such
Swing Line Loans pro rata based on their respective
Commitment Percentages by making available to the Swing
Line Bank an amount equal to such Bank's participation
in the Swing Line Loans; provided that all interest
payable on the Swing Line Loans shall be for the
account of the Swing Line Bank as a funding and
administrative fee until the date as of which the
respective participation is purchased. The obligation
of each Bank to make such Revolving Credit Loan, or as
the case may be to purchase such participation in a
Swing Line Loan, upon one Business Day's notice as set
forth above, is absolute, unconditional and irrevocable
notwithstanding (i) that the amount of such Loan may
not comply with the applicable minimums set forth in
Subsection 2.3 hereof, (ii) the failure of the Company
to meet the conditions set forth in Section 6 hereof,
(iii) the occurrence or continuance of a Default or an
<PAGE>
Event of Default hereunder, (iv) the date of such
Revolving Credit Loan or participation, and (v) the
Commitment of the Swing Line Bank in effect at such
time.
3.5. The Swing Line Note. The obligation of the
Company to repay the Swing Line Loans made pursuant to
this Agreement and to pay interest thereon as set forth
in this Agreement shall be evidenced by a promissory
note of the Company with appropriate insertions
substantially in the form of Exhibit B attached hereto
(the "Swing Line Note"), of even date herewith and
payable to the order of the Swing Line Bank in a
principal amount stated to be the lesser of (i) the
Maximum Swing Line Loan Amount, or (ii) the aggregate
principal amount of Swing Line Loans at any time
advanced by the Swing Line Bank and outstanding
thereunder. The Borrower irrevocably authorizes the
Swing Line Bank to make or cause to be made, at or
about the time of the Borrowing Date of any Swing Line
Loan or at the time of receipt of any payment of
principal on the Swing Line Note, an appropriate
notation on the Note Record reflecting the making of
such Swing Line Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the
Swing Line Loans set forth on such Note Record shall be
prima facie evidence of the principal amount thereof
owing and unpaid to the Swing Line Bank, but the
failure to record, or any error in so recording, any
such amount on such Note Record shall not limit or
otherwise affect the actual amount of the obligations
of the Company hereunder or under the Swing Line Note
to make payments of principal of or interest on the
Swing Line Note when due.
SECTION 4. CERTAIN GENERAL PROVISIONS
4.1. Use of Proceeds. The Company shall use the
proceeds of the Loans to refinance existing senior
revolver and term debt set forth on Schedule 4.1 and
for general corporate purposes in the ordinary course
of its business. No part of the proceeds of any Loans
hereunder will be used (a) for "purchasing" or
"carrying" any "margin security" or "margin stock"
within the respective meanings of each of the quoted
<PAGE>
terms under Regulations U and X of the Board of
Governors of the Federal Reserve System as now and from
time to time hereafter in effect unless (i) the Company
shall have theretofore furnished to the Banks a
statement on Federal Reserve Form U-1 with respect to
such Loans or (ii) not more than 25% of the value of
the assets of either the Company or the Company and its
Subsidiaries on a consolidated basis, respectively, is
represented by "margin stock" as so defined, or (b) for
any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of
the Board of Governors of the Federal Reserve System.
4.2. Annual/Commitment Fees. The Company agrees
to pay to the Administrative Agent for the accounts of
the Banks in accordance with their respective
Commitment Percentages:
(a) an annual fee (the "Annual Fee") computed
at the rate of 0.025% per annum on the amount of the
Total Commitment, and payable on the date hereof and on
each successive anniversary of the date hereof up to
but not including the Termination Date or such earlier
date as the Commitment shall terminate as provided
herein, and
(b) an unused commitment fee (the "Commitment
Fee") from and including the date hereof to the
Termination Date, computed at the rate of 0.375% per
annum on the average daily amount of the Available
Commitment during the period for which payment is made,
payable quarterly on the last day of each March, June,
September and December and on the Termination Date or
such earlier date as the Commitment shall terminate as
provided herein, commencing on the first of such dates
to occur after the date hereof.
4.3. Agents' Fees. The Company shall pay to each
of the Administrative Agent, Syndication Agent, and
Documentation Agent on the date hereof an agent's
closing fee for each agent's own respective account,
and shall pay to the Administrative Agent on the date
hereof and on each anniversary of such date, up to but
not including the Termination Date or such earlier date
as the Commitment shall terminate as provided herein,
<PAGE>
an administration fee for the Administrative Agent's
own account, all as set forth in a certain letter
agreement of even date herewith.
4.4. Computation of Interest and Fees. (a)
Interest in respect of Base Rate Loans shall be
calculated on the basis of a 365-day year for the
actual number of days elapsed (including the first day
but excluding the last day). Commitment fees and
interest in respect of Eurodollar Loans and Swing Line
Loans shall be calculated on the basis of a 360-day
year for the actual number of days elapsed. The
Administrative Agent shall as soon as practicable
notify the Company and the Banks of each determination
of a Eurodollar Rate. Any change in the interest rate
on a Loan resulting from a change in the Base Rate
shall become effective as of the opening of business on
the day on which such change in the Base Rate is
announced. The Administrative Agent shall as soon as
practicable notify the Company of the effective date
and the amount of each such change. The outstanding
amount of the Loans as reflected on the Administrative
Agent's records from time to time shall be considered
correct and binding on the Company and the Banks unless
within five Business Days after receipt of any notice
by the Administrative Agent of such outstanding amount,
the Company or any of the Banks, as the case may be,
shall notify the Administrative Agent to the contrary.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this
Agreement shall be conclusive and binding on the
Company in the absence of manifest error. The
Administrative Agent shall, at the request of the
Company, deliver to the Company a statement showing the
quotations used by the Administrative Agent in
determining any interest rate pursuant to Subsection
2.4(a).
4.5. Inability to Determine Interest Rate. In the
event that the Administrative Agent shall have
determined (which determination shall be conclusive and
binding upon the Company) that, by reason of
circumstances affecting the eurodollar interbank
markets, adequate and reasonable means do not exist for
<PAGE>
ascertaining the Eurodollar Rate applicable pursuant to
Subsection 2.4(a) for any requested Interest Period
with respect to a proposed Loan that the Company has
requested be made as a Eurodollar Loan, the
Administrative Agent shall forthwith give telex or
telecopy notice of such determination to the Company
and the Banks at least one day prior to the proposed
Borrowing Date for such Eurodollar Loan. If such
notice is given, any requested Eurodollar Loan shall be
made as a Base Rate Loan. Until such notice has been
withdrawn by the Administrative Agent, no further
Eurodollar Loans may be requested by the Company.
4.6. Overdue Amounts; Interest Payments.
(a) Overdue principal of any Loan and (to the
extent permitted by law) overdue interest on the Loans
and all other overdue amounts payable hereunder shall,
without limiting any rights of the Administrative Agent
under Section 9, bear interest at a rate per annum
which is 2% above the Base Rate until paid in full
(after as well as before judgment).
(b) Interest on each Loan shall be payable in
arrears on each Interest Payment Date with respect
thereto and after the occurrence of any Event of
Default, shall be payable upon demand.
4.7. Payments. All payments (including
prepayments) to be made by the Company on account of
principal, interest and fees shall be made without set
off or counterclaim and shall be made to the
Administrative Agent for the accounts of the Banks at
the Administrative Agent's office set forth in
Subsection 12.2 in lawful money of the United States of
America and in immediately available funds. If any
payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day
other than a Business Day, such payment shall be
extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon
shall be payable at the Base Rate. If any payment on a
Eurodollar Loan becomes due and payable on a day other
than a Eurodollar Business Day, the maturity thereof
shall be extended to the next succeeding Eurodollar
<PAGE>
Business Day unless the result of such extension would
be to extend such payment into another calendar month
in which event such payment shall be made on the
immediately preceding Eurodollar Business Day.
4.8. Foreign Taxes. All payments made by the
Company under this Agreement shall be made free and
clear of, and without reduction for or on account of,
any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental
Authority excluding income and franchise taxes of the
United States of America or any political subdivision
or taxing authority thereof or therein (including
Puerto Rico), and the country in which the
Administrative Agent's Eurodollar Lending Office is
located or any political subdivision or taxing
authority thereof or therein (such non-excluded taxes
being herein called "Foreign Taxes"). If any Foreign
Taxes are required to be withheld from any amounts
payable to the Banks hereunder or under the Notes, the
amounts so payable to the Banks shall be increased to
the extent necessary to yield to the Banks (after
payment of all Foreign Taxes) interest or any such
other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the Notes.
Whenever any Foreign Tax is payable by the Company, as
promptly as possible thereafter, the Company shall send
to the Administrative Agent a certified copy of an
original official receipt showing payment thereof. If
the Company fails to pay any Foreign Taxes when due to
the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other
required documentary evidence, the Company shall
indemnify the Administrative Agent and the Banks for
any incremental taxes, interest or penalties that may
become payable by the Banks as a result of any such
failure.
4.9. Illegality. Notwithstanding any other
provisions herein, (i) if any Requirement of Law
enacted after the date hereof, or (ii) if any change in
the interpretation or application of any Requirement of
Law as in effect on the date hereof, shall make it
<PAGE>
unlawful for the Banks to make or maintain Eurodollar
Loans as contemplated by this Agreement, (a) the
Commitment to make Eurodollar Loans shall forthwith be
cancelled and (b) the Loans then outstanding as
Eurodollar Loans, if any, shall be repaid on the last
day of the Interest Period therefor, or within such
earlier period as required by law, and reborrowed as
Base Rate Loans. If any such prepayment of a
Eurodollar Loan is made on a day which is not the last
day of the Interest Period therefor, the Company shall
pay to the Administrative Agent for the accounts of the
Banks such amounts, if any, as may be required pursuant
to Subsection 4.11.
4.10. Additional Costs, Etc.
(a) In the event that any Requirement of Law or
any change therein or in the interpretation or
application thereof or compliance by any Bank with any
request or directive (whether or not having the force
of law) from any central bank or other Governmental
Authority or any agency or instrumentality thereof:
(i) does or shall subject any Bank to any tax
of any kind whatsoever other than taxes imposed on or
measured by the net income or any franchise taxes
imposed in lieu of a tax on or measured by net income
of such Bank or any Participant (such non-excluded
items being hereinafter referred to as "Taxes") with
respect to this Agreement, the Notes or any Loans made
hereunder, or changes the basis of taxation of payments
to such Bank of principal, Annual Fees, Commitment
Fees, interest or any other amount payable hereunder
(except for changes in the rate of tax on the overall
net income of such Bank);
(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory
loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such
Bank which are not otherwise included in the
determination of the Eurodollar Rate; or
<PAGE>
(iii) does or shall impose on such Bank any
other condition;
and the result of any of the foregoing is, in respect
of Eurodollar Loans, to increase the cost to such Bank
of making, renewing or maintaining Loans or extensions
of credit hereunder or to reduce any amount receivable
hereunder, then the Company shall promptly pay to the
Administrative Agent, for the account of such Bank,
upon demand, any additional amounts necessary to
compensate such Bank for such additional cost or
reduced amount receivable which such Bank deems to be
material as determined by such Bank with respect to
such Eurodollar Loans. If such Bank becomes entitled
to claim any additional amounts pursuant to this
subsection, it shall promptly notify the Administrative
Agent which will promptly notify the Company of the
event by reason of which such Bank has become so
entitled. A statement as to any additional amounts
payable pursuant to the foregoing sentence submitted by
the Administrative Agent to the Company shall be
conclusive in the absence of manifest error. This
covenant shall survive the termination of this
Agreement and payment of the Notes.
(b) If any change in, or the introduction,
adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law or regulation,
directive, guideline, decision or request (whether or
not having the force of law) of any court, central
bank, regulator or other Governmental Authority affects
or would affect the amount of capital required or
expected to be maintained by any Bank or any
corporation controlling any Bank, and such Bank
determines (in its sole and absolute discretion) that
the rate of return on such Bank's or such controlling
corporation's capital as a consequence of its
obligation hereunder is reduced to a level below that
which such Bank or such controlling corporation could
have achieved but for the occurrence of any such
circumstance, then, in any such case, upon the notice
from time to time by the Administrative Agent or such
Bank to the Company, the Company shall pay to the
Administrative Agent, for the account of such Bank, on
demand, any additional amount or amounts as may be
<PAGE>
sufficient to compensate such Bank or such controlling
corporation for such reduction in rate of return. A
statement of the Administrative Agent or such Bank as
to any such additional amount or amounts (including
calculations thereof in reasonable detail) shall, in
the absence of manifest error, be conclusive and
binding on the Company. In determining such amount or
amounts, such Bank may use any method of averaging and
attribution that it (in its sole and absolute
discretion) shall deem applicable. This covenant shall
survive the termination of this Agreement and payment
of the Notes.
(c) Any Foreign Recipient, no later than the date
of the initial Loan (or the date of assignment or
transfer, as the case may be) and, subject to clause
(e) below, annually (or at such other times as the
Company may reasonably request) thereafter, shall
timely deliver two accurate and complete signed
originals of either of Internal Revenue Forms 1001 or
4224 (or any successor of such form) to the Company (or
in the case of a Participant which holds a
participation interest which it acquired from any Bank,
to such Bank which shall provide copies thereof to the
Company), in either case, indicating that all payments
by the Company of principal of, and interest on, the
Loans and all other amounts payable hereunder to such
Foreign Recipient may be made free and clear of, and
without deduction for, any United States withholding
tax. In addition, if required under statute, treaty,
regulation, or administrative practice of the United
States, the Foreign Recipient that is claiming
exemption from U.S. withholding tax under a treaty
agrees to provide the Company with proof of tax
residence in the applicable country by providing a
certified taxpayer identification number (TIN), a
certificate of residence or other documentary evidence.
The obligation to deliver forms set forth in the
preceding sentence shall not apply for any period
during which any change in law or circumstance shall
have eliminated any and all obligations imposed on the
Company to withhold or deduct United States withholding
tax in respect of payments made by the Company
hereunder; provided that the Foreign Recipient has
complied with all requirements, if any, imposed by
<PAGE>
statute, treaty, regulation or administrative practice
of the United States necessary to eliminate such
obligation to withhold by the Company.
(d) The Company shall not be required to pay any
additional amounts to a Foreign Recipient in respect of
United States withholding tax pursuant to Subsection
4.08 or this Subsection 4.10 if the obligation to pay
such additional amounts would not have arisen but for a
failure by such Foreign Recipient to comply with the
provisions of Subsection 4.10(c) for any reason
(including a change in circumstances that renders such
Foreign Recipient unable to so comply) other than (x) a
change in applicable law, regulation or official
interpretation thereof or (y) an amendment,
modification or revocation of any applicable tax treaty
or a change in official position regarding the
application or interpretation thereof, in each case
after the date hereof (and in the case of a
Participant, after the date of assignment or transfer).
In no event, however, will the Company be required to
pay additional amounts if any obligation to pay such
additional amounts would not have arisen but for the
failure of the Foreign Recipient to comply with any
requirement under a statute, treaty, regulations, or
administrative practice of the United States to
establish exemption from all or part of the tax in
respect of which the additional amount would otherwise
be paid.
(e) If, solely as a result of an event described
in clause (x) or (y) of Subsection 4.10(d), after the
date hereof (or, in the case of a Participant, after
the date of assignment or transfer), (i) any Foreign
Recipient is unable to furnish the Company with a form
otherwise required to be delivered by it pursuant to
Subsection 4.10(c), or (ii) any Bank or any Foreign
Recipient makes any payment or becomes liable to make
any payment on account of any Taxes, other than a
United States withholding tax, with respect to payments
by the Company hereunder, the Company may, at its
option, either (x) prepay the Loans held by such Bank
(or such Foreign Recipient) or (y) continue to make
payments to the Administrative Agent on behalf of such
Bank or such Foreign Recipient under the terms of this
<PAGE>
Agreement and the Notes, which payments shall be made
in accordance with the provisions hereof if the
condition set forth in the next succeeding sentence is
satisfied. If the Company exercises its option under
clause (y) of the preceding sentence, the Company's
obligation to make payments to the Administrative Agent
on behalf of such Bank (or such Foreign Recipient)
under the terms of this Agreement and the Notes without
deduction for Taxes shall be conditioned on such Bank
(or such Foreign Recipient), prior to the time that the
next payment under the Notes is due (and thereafter as
is required by applicable law), having furnished the
Company with such certificate as may be required, and
having taken such other steps as reasonably may be
available to it, under applicable tax laws and any
applicable tax treaty or convention to obtain an
exemption from, or reduction (to the lowest applicable
rate) of, such Taxes.
4.11. Indemnity. The Company agrees to indemnify
each Bank and to hold each Bank harmless from and
against any loss, cost or expense or loss of margin
that such Bank may sustain or incur as a consequence of
(i) default by the Company in payment of the principal
amount of or any interest on any Eurodollar Loans as
and when due and payable, including any such loss or
expense arising from interest or fees payable by such
Bank to lenders of funds obtained by it in order to
maintain its Eurodollar Loans, (ii) default by the
Company in making a borrowing or conversion after the
Company has given (or is deemed to have given) a notice
of borrowing or conversion in accordance with
Subsections 2.3 and 2.5 hereof, (iii) default by the
Company in making any prepayment of a Loan after the
Company has given a notice in accordance with
Subsection 2.7 hereof or (iv) the making of any payment
of a Eurodollar Loan (including, without limitation,
any prepayment made as a result of action taken under
Subsection 4.9 or as a result of the Administrative
Agent's exercise of rights under Section 9 hereof) on a
day that is not the last day of the applicable Interest
Period with respect thereto, or the making of any
payment on a Swing Line Loan on a day other than the
maturity date thereof, including (in the case of either
such Eurodollar Loan or Swing Line Loan payments)
<PAGE>
interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain any such
Loans. This covenant shall survive termination of this
Agreement and payment of the Notes.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement
and to make the Loans herein provided for, the Company
hereby covenants, represents and warrants to the Banks
that:
5.1. Financial Condition. The consolidated
balance sheet of the Company and its consolidated
Subsidiaries as at December 31, 1995, and the related
consolidated statements of income, statements of
changes in shareholders equity and statements of cash
flows for the fiscal year ended on such date, certified
by Coopers & Lybrand, copies of which have heretofore
been furnished to the Banks, are complete and correct
and present fairly in accordance with GAAP the
consolidated financial condition of the Company and its
consolidated Subsidiaries as at such date, and the
consolidated results of their operations and changes in
cash flows for the fiscal year then ended. All such
financial statements, including the related schedules
and notes thereto, have been prepared in accordance
with GAAP applied consistently with the preceding year.
5.2. No Change. Except as set forth in the
filings of the Company with the Securities and Exchange
Commission prior to the date hereof, copies of which
have been delivered to the Banks, since December 31,
1995 there has been no material adverse change in the
business, operations, assets or financial or other
condition of the Company and its Subsidiaries taken as
a whole.
5.3. Corporate Existence; Compliance with Law.
Each of the Company and its Subsidiaries (a) is duly
organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (b)
has the corporate power and authority and the legal
right to own and operate its property, to lease the
property it operates and to conduct the business in
<PAGE>
which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business
requires such qualification, except in those
jurisdictions in which the failure to be so qualified
or in good standing would not be reasonably likely to
have a material adverse effect upon the business,
operations or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole, and (d)
is in compliance with all Requirements of Law, except
(with reference to each of clauses (a), (b), (c) and
(d) above) to the extent that the failure to comply
therewith would not, in the aggregate, be reasonably
likely to have a material adverse effect on the
business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as
a whole, and would not be reasonably likely to have a
material adverse affect on the ability of the Company
to perform its obligations under this Agreement and the
Notes.
5.4. Corporate Power; Authorization; Enforceable
Obligations. The Company has the corporate power and
authority and the legal right to make, deliver and
perform this Agreement and the Notes and to borrow
hereunder and has taken all necessary corporate action
to authorize the borrowings on the terms and conditions
of this Agreement and the Notes and to authorize the
execution, delivery and performance of this Agreement
and the Notes. No consent or authorization of, filing
with, or other act by or in respect of any Governmental
Authority, is required in connection with the
borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this
Agreement or the Notes. This Agreement has been, and
the Notes will be, duly executed and delivered on
behalf of the Company and this Agreement constitutes,
and the Notes when executed and delivered will
constitute, legal, valid and binding obligations of the
Company enforceable against the Company in accordance
with their terms, except as enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally.
<PAGE>
5.5. No Legal Bar. The execution, delivery and
performance of this Agreement and the Notes, the
borrowings hereunder and the use of the proceeds
thereof, (a) will not violate any Requirement of Law,
(b) will not violate any Contractual Obligation of the
Company or any of its Subsidiaries, and (c) will not
result in, or require, the creation or imposition of
any Lien on any of its or their respective properties
or revenues pursuant to any Requirement of Law or
Contractual Obligation, except in the case of clauses
(b) and (c) any contractual violations and/or Liens
which in the aggregate would not be reasonably likely
to have a material adverse effect on the business,
operations, property or financial or other condition of
the Company and its Subsidiaries taken as a whole and
would not be reasonably likely to have a material
adverse affect on the ability of the Company to perform
its obligations under this Agreement and the Notes.
5.6. No Material Litigation. Except as set forth
in the filings of the Company with the Securities and
Exchange Commission, copies of which have been
delivered to the Banks, no litigation, investigation or
proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of
its Subsidiaries or against any of its or their
respective properties or revenues (a) with respect to
this Agreement or the Notes or any of the transactions
contemplated hereby, or (b) which would be reasonably
likely to result in any material adverse change in the
business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as
a whole.
5.7. No Default. Neither the Company nor any of
its Subsidiaries is in default under or with respect to
any Contractual Obligation in any respect which would
be reasonably likely to be materially adverse to the
business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as
a whole, or which would be reasonably likely to
materially adversely affect the ability of the Company
to perform its obligations under this Agreement and the
<PAGE>
Notes. No Default or Event of Default has occurred and
is continuing.
5.8. Ownership of Property; Liens. Each of the
Company and its Subsidiaries (a) has good record and
marketable title in fee simple to or valid leasehold
interests in all its real property, and good title to
all its other property (except that such representation
is not made for any such property with a book value of
$1,000,000 or less provided that the aggregate book
value of such property for which such representation is
not made shall not exceed $10,000,000), and (b) none of
such property is subject to any Lien, except as
permitted in Subsection 8.3, except (with reference to
clauses (a) and (b)) any defects in title or Liens
which in the aggregate would not be reasonably likely
to have a material adverse effect on the business,
operations, property or financial or other condition of
the Company and its Subsidiaries taken as a whole and
would not be reasonably likely to have a material
adverse affect on the ability of the Company to perform
its obligations under this Agreement and the Notes.
5.9. No Burdensome Restrictions. No Contractual
Obligation of the Company or any of its Subsidiaries
and no Requirement of Law materially adversely affects,
or insofar as the Company may reasonably foresee may so
affect, the business, operations, property or financial
or other condition of the Company and its Subsidiaries
taken as a whole.
5.10. Taxes. Each of the Company and its
Subsidiaries has filed or caused to be filed all tax
returns which to the knowledge of the Company are
required to be filed, and has paid all taxes shown to
be due and payable on said returns or on any
assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority
(other than (i) those the amount or validity of which
is currently being contested in good faith by
appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on
the books of the Company or its Subsidiaries, as the
case may be or (ii) those which if not paid would not,
<PAGE>
either individually or in the aggregate, be reasonably
likely to have a material adverse effect upon the
business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as
a whole); and no tax liens have been filed (other than
those which, if foreclosed, would not, either
individually or in the aggregate, be reasonably likely
to have a material adverse effect upon the business,
operations, property or financial or other condition of
the Company and its Subsidiaries taken as a whole) and,
to the knowledge of the Company, no claims are being
asserted with respect to any such taxes, fees or other
charges.
5.11. Federal Regulations. Neither the Company
nor any of its Subsidiaries is engaged or will engage,
principally or as one of its important activities, in
the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms
under Regulations U and X of the Board of Governors of
the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any
Loans hereunder will be used (a) for "purchasing" or
"carrying" "margin stock" as so defined unless (i) the
Company shall have theretofore furnished to the Banks a
statement on Federal Reserve Form U-1 with respect to
such Loans or (ii) not more than 25% of the value of
the assets of either the Company or the Company and its
Subsidiaries on a consolidated basis, respectively is
represented by "margin stock" as so defined, or (b) for
any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of
such Board of Governors.
5.12. ERISA. As of January 1, 1996 the actuarially
determined aggregate amount of unfunded vested benefits
under the Plans administered by the Company and its
Subsidiaries was less than $1,000,000. The Company and
its Subsidiaries are in compliance with all applicable
provisions of ERISA except for any noncompliance which,
either individually or in the aggregate with all other
instances of such noncompliance, would not be
reasonably likely to have a material adverse effect
upon the business, operations or condition, financial
<PAGE>
or otherwise, of the Company and its Subsidiaries taken
as a whole.
5.13. Investment Company Act. The Company is not
an "investment company" or a company "controlled" by an
"investment company", within the meaning of the
Investment Company Act of 1940, as amended.
5.14. Full Disclosure. Neither this Agreement nor
any other certificate, report, statement or other
writing furnished to the Administrative Agent or the
Banks by the Company in connection with the negotiation
of this Agreement, at the time of execution or
delivery, contained any untrue fact or omits to state a
material fact necessary to make the statements
contained herein or therein, in light of the
circumstances under which they were made, not
misleading.
5.15. Certain Contingent Obligations. As of
September 30, 1996, each of Madison, CLIC and WMAC
Credit has assets in excess of its liabilities. The
guaranties or indemnification undertakings given by
Madison, CLIC and/or WMAC Credit referenced in the
definition of Contingent Obligation are obligations of
Madison, CLIC or WMAC Credit, as the case may be,
without recourse to the Company.
5.16. Environmental Compliance. With respect to
the Real Estate and operations thereon by the Company
or its Subsidiaries, and except as set forth on
Schedule 5.16, to the knowledge of the Company:
(a) none of the Company, its Subsidiaries or
any operator of the Real Estate which is a Subsidiary,
has received any written notice from any Governmental
Authority of any actual or alleged violation of any
Environmental Laws which has not heretofore been
resolved, which violation would be reasonably likely to
have a material adverse effect on the business, assets
or financial condition of the Company and its
Subsidiaries taken as a whole;
(b) neither the Company nor any of its
Subsidiaries has received any written notice from any
<PAGE>
Governmental Authority or other third party (i) that
any one of them is currently identified by the United
States Environmental Protection Agency as a potentially
responsible party under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as
amended, with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B, or that
any of them is currently identified as a potentially
responsible party for environmental damage under any
state or local Environmental Laws; (ii) that any
Hazardous Substances which any one of them has
generated, transported or disposed of has been found at
any site at which a federal, state or local
governmental agency has conducted or has ordered that
the Company or any of its Subsidiaries conduct a
remedial investigation, removal or other response
action pursuant to any Environmental Law and which has
not heretofore been resolved or from which the Company
or its Subsidiaries have not heretofore been dismissed;
or (iii) that it is currently a named party to any
claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or
otherwise) arising out of any third party's incurrence
of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous
Substances and which would be reasonably likely to have
a material adverse effect on the business, assets or
financial condition of the Company and its Subsidiaries
taken as a whole; and
(c) in the conduct of its business by the
Company and its Subsidiaries, the Company or its
Subsidiaries have exercised reasonable diligence in
taking appropriate measures so that no Hazardous
Substances are generated, stored, used or disposed of
except in material compliance with applicable
Environmental Laws.
5.17. Nonrecourse Indebtedness. Schedule 5.17
sets forth, as of September 30, 1996, the aggregate
outstanding amount on a consolidated basis of the
Nonrecourse Debt.
<PAGE>
SECTION 6. CONDITIONS PRECEDENT
6.1. Conditions of Initial Loan. The obligation
of the Banks to make Loans hereunder on the first
Borrowing Date is subject to the satisfaction of the
following conditions precedent:
(a) Loan Documents. This Agreement shall have
been duly executed and delivered to the Administrative
Agent by the respective parties and shall be in full
force and effect. The Administrative Agent shall have
received each of the Notes, conforming to the
requirements hereof and executed by a duly authorized
officer of the Company.
(b) Legal Opinion. The Banks shall have
received an opinion addressed to the Administrative
Agent and the Banks of Weil, Gotshal & Manges LLP,
counsel to the Company, dated the first Borrowing Date,
substantially in the form of Exhibit C. Such opinion
shall also cover such other matters incident to the
transactions contemplated by this Agreement as the
Administrative Agent shall reasonably require.
(c) Payment of Existing Notes, Etc. The
Administrative Agent shall have received evidence in
form and substance satisfactory to it that the
principal of and interest on the notes and all other
obligations and liabilities of the Company under the
credit agreements listed on Schedule 4.1 shall have
been paid in full or discharged; and each of the Banks
holding notes of the Company evidencing Indebtedness to
be paid off listed on Schedule 4.1 shall have returned
such notes to the Company or other arrangements
satisfactory to the Company have been made with respect
thereto.
(d) Officer's Certificate. The Administrative
Agent shall have received an Officer's Certificate
dated the first Borrowing Date, substantially in the
form of Exhibit D, with appropriate insertions and
attachments satisfactory to the Administrative Agent
and its counsel, executed by the Secretary or Assistant
Secretary of the Company.
(e) Additional Matters. All other documents
and legal matters in connection with the transactions
<PAGE>
contemplated by this Agreement shall be satisfactory in
form and substance to the Administrative Agent and its
counsel.
6.2. Conditions to All Loans. The obligation of
the Banks to make any Loans to be made by them
hereunder (including the initial Loans) is subject to
the satisfaction of the following conditions precedent
on the relevant Borrowing Date:
(a) Representations and Warranties. The
representations and warranties contained in Section 5
shall be correct on and as of the Borrowing Date for
such Loan with the same effect as if made on and as of
such date.
(b) No Existing Default. No Default, Event of
Default or Terminating Event shall have occurred and be
continuing hereunder on the Borrowing Date with respect
to such Loan or after giving effect to the Loans to be
made on such Borrowing Date.
Each borrowing by the Company hereunder shall
constitute a representation and warranty by the Company
hereunder as of the date of each such borrowing that
the conditions in clauses (a) and (b) of this
Subsection applicable thereto have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the
Commitment remains in effect, any Note remains
outstanding and unpaid or any other amount is owing to
any of the Banks hereunder, the Company shall, and in
the case of the agreements set forth in Subsections
7.3, 7.4, 7.5, and 7.6 shall cause each of its
Subsidiaries to:
7.1. Financial Statements. Furnish to each of the
Banks:
(a) as soon as available, but in any event
within one hundred days after the end of each fiscal
year of the Company, a copy of (i) the consolidated
balance sheet of the Company and its consolidated
<PAGE>
Subsidiaries as at the end of such year and the related
consolidated statements of income, statements of change
in shareholder equity and statements of cash flows for
such year, setting forth in each case in comparative
form the figures for the previous year, certified,
without a going concern or like qualification or
exception arising out of the scope of the audit, by
independent certified public accountants of nationally
recognized standing not unacceptable to the
Administrative Agent, (ii) the consolidating balance
sheet of the Company and its consolidated Subsidiaries
as at the end of such fiscal year and the related
consolidating statements of income for such fiscal
year, showing in each case inter-company eliminations,
certified by a Responsible Officer as being fairly
stated in all material respects when considered in
relation to the consolidated financial statements of
the Company and its consolidated Subsidiaries taken as
a whole; and
(b) as soon as available, but in any event not
later than fifty-five days after the end of each of the
first three quarterly periods of each fiscal year of
the Company, (i) the Company's quarterly report to
shareholders on Form 10-Q, as filed with the Securities
and Exchange Commission, certified by a Responsible
Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments) and (ii)
the consolidating balance sheet of the Company and its
Subsidiaries as at the end of each such quarter,
showing inter-company eliminations, and the related
consolidating statements of income, showing
inter-company eliminations, certified by a Responsible
Officer as being fairly stated in all material
respects;
all such financial statements to be prepared in
accordance with GAAP applied consistently throughout
the periods reflected therein except as approved by
such accountants or Responsible Officer, as the case
may be, and disclosed therein.
7.2. Certificates; Other Information. Furnish to
each of the Banks:
<PAGE>
(a) concurrently with the delivery of the
financial statements referred to in Subsection 7.1(a)
above, a certificate of the independent certified
public accountants certifying such financial statements
stating that in making the examination necessary
therefor no knowledge was obtained of any Default or
Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the
financial statements referred to in Subsections 7.1(a)
and (b) above, a certificate of a Responsible Officer
(i) stating that, to the best of such officer's
knowledge, the Company during such period has observed
or performed all of its covenants and other agreements,
and satisfied every condition contained in this
Agreement and in the Notes to be observed, performed or
satisfied by it, and that such officer has obtained no
knowledge of any Default or Event of Default except as
specified in such certificate, and (ii) showing in
detail the calculations supporting such statement in
respect of Subsections 8.1, 8.2, 8.6, and 8.7;
(c) within ten days after the same are sent,
copies of all financial statements and reports which
the Company sends to its stockholders, and within ten
days after the same are filed, copies of all financial
statements and reports which the Company may make to,
or file with, the Securities and Exchange Commission or
any successor or analogous Governmental Authority;
(d) as soon as available, but in any event
within thirty days after filing with the appropriate
insurance department, the annual statements for each
Insurance Subsidiary as filed with the insurance
department in its state of domicile, provided that the
Company shall deliver one copy thereof to the
Administrative Agent who shall make such copy available
upon request to the Banks, and upon request by any Bank
the Company shall deliver additional copies thereof to
such Bank; and
(e) promptly, any such additional financial
and other information as the Administrative Agent or
any Bank may from time to time reasonably request.
<PAGE>
7.3. Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, all its
Indebtedness and other obligations of whatever nature,
except (a) when the amount or validity thereof is
currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with
respect thereto have been provided on the books of the
Company or its Subsidiaries, as the case may be, or (b)
where the failure so to pay, discharge or satisfy would
not be reasonably likely to have a material adverse
effect on the business, operations, property or
financial or other condition of the Company and its
Subsidiaries taken as a whole; provided that for
purposes of this Subsection 7.3, the term
"Indebtedness" shall not include any Nonrecourse Debt.
7.4. Conduct of Business, and Maintenance of
Existence. (a) Continue to engage in business of the
same general type as now conducted by it, and preserve,
renew and keep in full force and effect its corporate
existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or
desirable in the normal conduct of its business,
provided, however, that a Permitted Distribution
shall not be prohibited or limited by this Subsection
7.4 and further provided that, subject to Section 8
hereof, this Subsection 7.4 shall not prohibit the
Company or any Subsidiary from taking any action if
such action would not reasonably be likely to have a
material adverse effect upon the business, operations,
property or financial or other condition of the Company
and its Subsidiaries taken as a whole; and (b) comply
with all Contractual Obligations and Requirements of
Law except to the extent that the failure to comply
therewith would not be reasonably likely to, in the
aggregate, have a material adverse effect on the
business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as
a whole.
<PAGE>
7.5. Maintenance of Property, Insurance. Keep all
property useful and necessary in its business in good
working order and condition, except where the failure
to comply herewith would not be reasonably likely to
have a material adverse effect on the business,
operations, property, or financial or other condition
of the Company and its Subsidiaries taken as a whole;
to the extent obtainable on terms which its management
deems reasonable, maintain with financially sound and
reputable insurance companies insurance on all its
property against such casualties and contingencies and
in such types and amounts as, in the judgment of its
executive officers, is deemed adequate; and furnish to
the Administrative Agent, upon written request, full
information as to the insurance carried.
7.6. Inspection of Property; Books and Records;
Discussions. Keep proper books of record and account
in which entries, which are accurate and complete in
all material respects, in conformity with GAAP and
Requirements of Law shall be made of all dealings and
transactions in relation to its business and
activities; and permit the Banks, through the
Administrative Agent or any of their designated
representatives, to visit and inspect any of its
properties and examine and make abstracts from any of
its books and records at any reasonable time and as
often as may reasonably be desired, and to discuss the
business, investments, operations, properties and
financial and other condition of the Company and its
Subsidiaries with officers and employees of the Company
and its Subsidiaries and with its independent certified
public accountants.
7.7. Notices. Promptly give notice in writing to
each of the Banks:
(a) of the occurrence of any Default,
Terminating Event or Event of Default;
(b) of any (i) default or event of default
under any Contractual Obligation of the Company or any
of its Subsidiaries or (ii) litigation, investigation
or proceeding which may exist at any time between the
Company or any of its Subsidiaries and any Governmental
Authority, which in either case would be reasonably
likely to have a material adverse effect on the
business, operations, property or financial or other
<PAGE>
condition of the Company and its Subsidiaries taken as
a whole;
(c) of any litigation or proceeding affecting
the Company or any of its Subsidiaries in which the
relief sought is $30,000,000 or more and not covered by
insurance, or in which injunctive or similar relief is
sought and, if granted, would be reasonably likely to
have a material adverse effect on the business, assets,
operations, financial or other condition of the Company
and its Subsidiaries taken as a whole;
(d) of the following events, as soon as
possible and in any event within 30 days after the
Company knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable
Event with respect to any Plan, or (ii) the institution
of proceedings or the taking or expected taking of any
other action by PBGC or the Company or any Commonly
Controlled Entity to terminate, withdraw or partially
withdraw from any Plan and with respect to a
Multiemployer Plan, the reorganization or insolvency of
the Plan, and in addition to such notice, deliver to
each of the Banks whichever of the following may be
applicable: (A) a certificate of a Responsible Officer
of the Company setting forth details as to such
Reportable Event and the action that the Company or
Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of
such Reportable Event that may be required to be filed
with PBGC, or (B) any notice delivered by PBGC
evidencing its intent to institute such proceedings or
any notice to PBGC that such Plan is to be terminated,
as the case may be; and
(e) of a material adverse change in the
business, operations, property or financial or other
condition of the Company, or the Company and its
Subsidiaries taken as a whole.
Each notice pursuant to this subsection shall be
accompanied by a statement of a Responsible Officer of
the Company setting forth details of the occurrence
referred to therein and stating what action the Company
proposes to take with respect thereto. For all
<PAGE>
purposes of clause (d) of this subsection, the Company
shall be deemed to have all knowledge of all facts
attributable to the administrator of such Plan.
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the
Commitment of any Bank remains in effect, any Note
remains outstanding and unpaid or any other amount is
owing to any Bank hereunder:
8.1. Maintenance of Consolidated Tangible Net
Worth. At any time during each fiscal year
commencing after December 31, 1995 the Company will not
permit Consolidated Tangible Net Worth to be less than
an amount equal to the sum of (i) $700,000,000 (the
"Baseline Amount"), minus (ii) the sum of (x) an
amount equal to the aggregate amount by which the
capital stock account of the Company shall have been
reduced as a result of purchases by the Company of
shares of its capital stock during the period from
January 1, 1996 to and including the date of computation
of Consolidated Tangible Net Worth and (y) the
aggregate amount by which the assets of the Company
constituting costs in excess of the net asset value of
acquired companies and deferred taxes, as determined in
accordance with GAAP, shall have increased by reason of
acquisitions made by the Company during the period from
January 1, 1996 to and including the date of computation
of Consolidated Tangible Net Worth (provided that, for
purposes of this Subsection 8.1 only, any amount by
which the aggregate cumulative decrease in Consolidated
Tangible Net Worth computed pursuant to clauses (x) and
(y) exceeds $50,000,000 shall not be counted as a
reduction of the Baseline Amount), minus (iii) in the
event of any Permitted Distribution, an amount equal to
the amount by which Consolidated Tangible Net Worth is
reduced as a result of such Permitted Distribution,
plus (iv) an amount equal to the sum of 40% of the
Consolidated Net Income of the Company and its
Subsidiaries (as determined in accordance with GAAP)
for each prior full calendar year commencing after
December 31, 1996 (provided (A) that the amount
determined pursuant to clause (iv) shall be equal to
zero for any calendar year for which there is a net
<PAGE>
loss and (B) that the amounts included in net income
(determined in accordance with GAAP) resulting from
changes in accounting principles to the extent that
such changes increase intangibles shall not be included
in net income for purposes of this Subsection).
8.2. Debt Leverage Ratio. The Company will not at
any time permit the ratio of (a) Funded Debt to (b) the
sum of (x) Shareholders' Equity and (y) Funded Debt to
exceed 0.6 to 1.0.
8.3. Limitations on Liens. The Company will not,
nor shall it permit any Subsidiary to, at any time
directly or indirectly create, incur, assume or suffer
to exist, any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired,
other than the following ("Permitted Liens"):
(a) Liens for taxes not yet due or which are
being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or its
Subsidiaries, as the case may be, in accordance with
GAAP;
(b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising
in the ordinary course of business which are not
overdue for a period of more than 30 days or which are
being contested in good faith and by appropriate
proceedings;
(c) pledges or deposits in connection with
workmen's compensation, unemployment insurance and
other social security legislation;
(d) pledges or deposits to secure the
performance of bids, trade contracts (other than for
borrowed money), option agreements (other than for
borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary
course of business;
(e) easements, rights-of-way, restrictions and
<PAGE>
other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not
substantial in amount, and which do not in any case
materially detract from the value of the property
subject thereto or interfere with the ordinary conduct
of the business of the Company or its Subsidiaries;
(f) Liens described in Schedule 8.3;
(g) Liens on assets owned by the Company or
any Subsidiary securing an amount not to exceed (i)
$315,000,000 in the aggregate for all such assets or
(ii) $200,000,000 in the aggregate for Liens imposed in
connection with any single transaction or related
series of transactions, provided that the aggregate
book value of all assets securing such Liens shall not
exceed 200% of the aggregate amounts secured thereby;
(h) pledges or deposits effected by the
Company or any Insurance Subsidiary as a condition to
obtaining or maintaining any license, permit or
authorization to transact insurance or reinsurance
business;
(i) deposits with insurance regulatory
authorities; and
(j) Liens arising under ceding reinsurance
agreements entered into by any Insurance Subsidiary.
8.4. Prohibition of Fundamental Changes. The
Company will not, nor will it permit any Subsidiary to,
at any time enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of
transactions, all or substantially all of its business
or assets, except that:
(a) any Subsidiary of the Company may be
merged or consolidated with or into the Company
(provided, that, the Company shall be the continuing
or surviving corporation) or with any one or more
Subsidiaries of the Company;
<PAGE>
(b) the Company or any Subsidiary may sell,
lease, transfer or otherwise dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to
the Company or any Subsidiary;
(c) the Company may, or may permit a
Subsidiary to, liquidate, sell or dispose of all or
substantially all of a Subsidiary's business or assets
at any time, provided that (i) the book value of the
Subsidiary business or assets being liquidated, sold or
disposed of shall not exceed 10% of the then
Consolidated Tangible Net Worth of the Company, and
(ii) no Default or Event of Default then exists or
shall exist after giving effect to such liquidation,
sale or disposition;
(d) for purposes of this Subsection, a
Permitted Distribution shall not constitute a transfer
or disposition of all or substantially all of the
Company's business or assets; and
(e) a Permitted Voluntary Proceeding shall not
be prohibited by this Subsection.
8.5. Investments. The Company will not nor will
it permit any Subsidiary to make or commit to make any
Investment in a single Person, other than an Investment
in any Governmental Authority of the United States of
America, in an aggregate amount exceeding the then
Consolidated Tangible Net Worth of the Company.
8.6. Limitation on Contingent Obligations. The
Company will not, nor will it permit any Subsidiary to,
create, incur, assume, guarantee, endorse or otherwise
in any way be or become responsible or liable for,
directly or indirectly, or suffer to exist Contingent
Obligations in an aggregate amount for the Company and
its Subsidiaries in excess of $200,000,000; provided,
that such amount shall not include the F&H Guaranty
and provided, further, that, as of any time of
determination under this Subsection 8.6, if the
aggregate amount of any then outstanding Contingent
Obligations of the Company and/or any Subsidiary would
be permitted under Subsection 8.2 hereof had the amount
<PAGE>
of such Contingent Obligations been incurred as Funded
Debt, then for the purposes of this Subsection 8.6,
only 50% of the amount of such Contingent Obligations
shall be counted towards the $200,000,000 limitation.
8.7. Limitation on Subsidiary Indebtedness. At
the end of any calendar quarter commencing after
December 31, 1996, the Company will not permit the
aggregate Indebtedness of all of the Company's
consolidated Subsidiaries to be greater than 25% of
Consolidated Tangible Net Worth at such date; provided
that, for purpose of this Subsection, Indebtedness of a
Subsidiary shall not include:
(i) any Indebtedness outstanding at
December 31, 1996;
(ii) any Indebtedness secured by
Permitted Liens ;
(iii) any Indebtedness of the Company's
Banking Subsidiaries;
(iv) Indebtedness of any Subsidiary the
ownership of which is acquired by the Company, directly
or indirectly, after the date hereof, or which is
established by the Company after the date hereof for
the purpose of acquiring assets or equity of any Person
not owned, directly or indirectly, by the Company on
the date hereof; provided, that, such Indebtedness is
not guarantied by, is not secured by assets (other than
assets of such Subsidiary) of, and does not otherwise
have recourse to the Company or its assets (other than
the assets of such Subsidiary); and
(v) Any Indebtedness of a Subsidiary to
another Subsidiary or to the Company.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) The Company shall fail to pay any
principal of the Notes when due in accordance with the
terms thereof or hereof; or
<PAGE>
(b) The Company shall fail to pay any interest
on the Notes, any Commitment Fees, agents' fees or
other sums due hereunder or under the Notes, when the
same become due in accordance with the terms thereof or
hereof, and such default shall continue unremedied for
a period of five Business Days; or
(c) Any representation or warranty made or
deemed made by the Company herein or which is contained
in any certificate, document or financial or other
statement furnished at any time under or in connection
with this Agreement shall prove to have been incorrect
in any material respect on or as of the date made or
deemed made; or
(d) The Company shall default in the
observance or performance of any agreement contained in
Sections 7.4, 7.7 or 8; or
(e) The Company shall default in the
observance or performance of any other agreement
contained in this Agreement, and such default shall
continue unremedied for a period of 30 days; or
(f) The Company or any of its Subsidiaries
shall (i) default in any payment of principal of or
interest on any Indebtedness (other than the Notes and
other than any Nonrecourse Debt) or in the payment of
any Contingent Obligation, in any case having a
principal amount exceeding $30,000,000 or in the
aggregate having a principal amount exceeding
$50,000,000, in either case beyond the period of grace
(not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness
or Contingent Obligation was created; or (ii) default
in the observance or performance of any other agreement
or condition relating to any such Indebtedness or
Contingent Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the
effect of which default or other event or condition is
to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or Administrative
<PAGE>
Agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving
of notice if required, such Indebtedness to become due
prior to its stated maturity or such Contingent
Obligation to become payable; or
(g) (i) The Company or any Subsidiary shall
commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement,
adjustment, rehabilitation, winding-up, liquidation,
dissolution, composition or other relief with respect
to it or its debts (and except for the commencement of
a Permitted Voluntary Proceeding), or (B) seeking
appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial
part of its assets, or the Company or any Subsidiary
shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the
Company or any Subsidiary any case, proceeding or other
action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of
60 days; or (iii) there shall be commenced against the
Company or any Subsidiary any case, proceeding or other
action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or
any substantial part of its assets which results in the
entry of an order for any such relief which shall not
have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof;
or (iv) the Company or any Subsidiary shall have taken
any action indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause
(i), (ii) or (iii) above; or (v) the Company or any
Subsidiary shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its
debts as they become due; or
(h) (i) Any Person shall engage in any
<PAGE>
"prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined
in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable
opinion of the Administrative Agent, likely to result
in the termination of such Plan for purposes of Title
IV of ERISA, and, in the case of a Reportable Event,
the continuance of such Reportable Event unremedied for
ten days after notice of such Reportable Event pursuant
to Section 4043(a), (c) or (d) of ERISA is given or the
continuance of such proceedings for ten days after
commencement thereof, as the case may be, (iv) any
Single Employer Plan shall terminate for purposes of
Title V of ERISA, or (v) any other event or condition
shall occur or exist with respect to a Single Employer
Plan; and in each case in clauses (i) through (v)
above, such event or condition, together with all other
such events or conditions, if any, could subject the
Company or any of its Subsidiaries to any tax, penalty
or other liabilities which are, in the aggregate,
material in relation to the business, operations,
property or financial or other conditions of the
Company and its Subsidiaries taken as a whole; or
(i) One or more judgments or decrees shall be
entered against the Company or any of its Subsidiaries
involving in the aggregate a liability (not paid or
fully covered by insurance) of $30,000,000 or more and
all such judgments or decrees shall not have been
vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof;
then, and in any such event, (A) if such event is an
Event of Default specified in clauses (i), (ii) or (iv)
of paragraph (g) above, automatically the Commitment
shall immediately terminate and the Loan or Loans
hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Notes shall
immediately become due and payable, and (B) if such
<PAGE>
event is any other Event of Default, either or both of
the following actions may be taken: (I) the
Administrative Agent may, and upon the request of the
Majority Banks shall, by notice of default to the
Company, declare the Commitment to be terminated
forthwith whereupon the Commitment shall immediately
terminate; and (II) the Administrative Agent may, and
upon the request of the Majority Banks shall, by notice
of default to the Company, declare the Loan or Loans
hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as
expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 10. THE AGENTS
10.1. Authorization.
(a) Each Bank hereby irrevocably designates
and appoints The First National Bank of Boston as the
Administrative Agent, Bank of America National Trust
and Savings Association as the Documentation Agent, and
The Chase Manhattan Bank as the Syndication Agent under
this Agreement and irrevocably authorizes said agents
for such Bank to take such action on its behalf under
the provisions of this Agreement and to exercise such
powers and perform such duties as are expressly
delegated to said agents by the terms of this Agreement
together with such other powers as are reasonably
incident thereto, provided that no duties or
responsibilities not expressly assumed herein or
therein shall be implied to have been assumed by said
agents.
(b) The relationship between the
Administrative Agent, the Documentation Agent and the
Syndication Agent and each of the Banks is that of an
independent contractor. The use of the term "Agent" is
for convenience only and is used to describe, as a form
of convention, the independent contractual relationship
between the respective party and each of the Banks.
Nothing contained in this Agreement shall be construed
<PAGE>
to create an agency (except to the extent of the
specific contractual obligations of the Administrative
Agent hereunder), trust or other fiduciary relationship
between any of the Administrative Agent, the
Documentation Agent or the Syndication Agent and any of
the Banks.
10.2. Employees and Agents. The Administrative Agent may
exercise its powers and execute its duties by or through employees
or agents and shall be entitled to take, and to rely on, advice of
counsel concerning all matters pertaining to its rights and duties
under this Agreement. The Administrative Agent may utilize the
services of such Persons as the Administrative Agent in its sole
discretion may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by the Company.
10.3. No Liability. Neither the Administrative Agent nor any of
its shareholders, directors, officers or employees nor any other
Person assisting them in their duties nor any Administrative Agent
or employee thereof, shall be liable for any waiver, consent or
approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder, or in connection herewith, or be
responsible for the consequences of any oversight or error of
judgment whatsoever, except that the Administrative Agent or such
other Person, as the case may be, may be liable for losses due to
its willful misconduct or gross negligence.
10.4. No Representations. The Administrative Agent shall not be
responsible for the execution or validity or enforceability of this
Agreement, the Notes, or for any recitals or statements, warranties
or representations made herein or in any certificate or instrument
hereafter furnished to it by or on behalf of the Company or any of
its Subsidiaries, or be bound to ascertain or inquire as to the
performance or observance of any of the terms, conditions, covenants
or agreements herein or in any books or records of the Company or
any of its Subsidiaries. The Administrative Agent shall not be
<PAGE>
bound to ascertain whether any notice, consent, waiver or request
delivered to it by the Company or any holder of any of the Notes
shall have been duly authorized or is true, accurate and
complete. The Administrative Agent has not made nor does it now
make any representations or warranties, express or implied, nor
does it assume any liability to the Banks, with respect to the
credit worthiness or financial conditions of the Company or any
of its Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent
or any other Bank, and based upon such information and documents
as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
10.5. Payments.
(a) Payments to Administrative Agent. A payment by the Company
to the Administrative Agent hereunder for the account of any Bank
shall constitute a payment to such Bank. The Administrative Agent
agrees promptly to distribute to each Bank such Bank's pro rata
share of payments received by the Administrative Agent for the
account of the Banks except as otherwise expressly provided herein.
(b) Distribution by Administrative Agent. If in the opinion of
the Administrative Agent the distribution of any amount received by
it in such capacity hereunder or under the Notes might involve it in
liability, it may refrain from making distribution until its right
to make distribution shall have been adjudicated by a court of
competent jurisdiction. If a court of competent jurisdiction shall
adjudge that any amount received and distributed by the
Administrative Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the
Administrative Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such manner and
to such Persons as shall be determined by such court.
(c) Delinquent Banks. Notwithstanding anything to the contrary
contained in this Agreement, any Bank that fails to make available
<PAGE>
to the Administrative Agent its pro rata share of any Loan, or
fails to make available to the Swing Line Bank its pro rata share
of any Swing Line Loan, when and to the full extent required by
the provisions of this Agreement, shall be deemed a Delinquent
Bank and shall be deemed a Delinquent Bank until such time as
such delinquency is satisfied. A Delinquent Bank shall be deemed
to have assigned any and all payments due to it from the Company
to the remaining nondelinquent Banks for application to, and
reduction of, their respective pro rata shares of all outstanding
Loans. The Delinquent Bank hereby authorizes the Administrative
Agent to distribute such payments to the nondelinquent Banks in
proportion to their respective pro rata shares of all outstanding
Loans. A Delinquent Bank shall be deemed to have satisfied in
full a delinquency when and if, as a result of application of the
assigned payments to all outstanding Loans of the nondelinquent
Banks, the Banks' respective pro rata shares of all outstanding
Loans have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing
such delinquency.
10.6. Holders of Notes. The Administrative Agent may deem and
treat the payee of any Note as the absolute owner or purchaser
thereof for all purposes hereof until it shall have been furnished
in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
10.7. Indemnity. The Banks ratably agree hereby to indemnify
and hold harmless the Administrative Agent from and against any and
all claims, actions and suits (whether groundless or otherwise),
losses, damages, costs, expenses (including without limitation, any
expenses for which the Administrative Agent has not been reimbursed
by the Company as required by Subsection 10.5 hereof), and
liabilities of every nature and character arising out of or related
to this Agreement, the Notes, or the transactions contemplated or
evidenced hereby, or the Administrative Agent's actions taken
hereunder, except to the extent that any of the same shall be caused
by
<PAGE>
the Administrative Agent's willful misconduct or gross
negligence.
10.8. Administrative Agent as Bank. In its individual capacity,
The First National Bank of Boston shall have the same obligations
and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the
Notes, as it would have were it not also the Administrative Agent.
10.9. Resignation. The Administrative Agent may resign at any
time by giving sixty (60) days prior written notice thereof to the
Banks and the Company. Upon any such resignation, the Majority Banks
shall have the right to appoint a successor Administrative Agent.
Unless a Default or Event of Default shall have occurred and be
continuing, such successor Administrative Agent shall be reasonably
acceptable to the Company. If no successor Administrative Agent
shall have been so appointed by the Majority Banks and shall have
accepted such appointment within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Banks, appoint a
successor Administrative Agent, which shall be a financial
institution having a rating of not less than A or its equivalent by
Standard & Poor's Corporation. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's
resignation, the provisions of this Agreement shall continue in
effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
10.10. Notification of Defaults and Events of Default. Each
Bank hereby agrees that, upon learning of the
<PAGE>
existence of a Default or an Event of Default, it shall promptly
notify the Administrative Agent thereof. The Administrative Agent
hereby agrees that upon receipt of any notice under this
Subsection it shall promptly notify the other Banks of the
existence of such Default or Event of Default.
SECTION 11. ASSIGNMENT AND PARTICIPATION
11.1. Conditions to Assignment by Banks. Except as provided
herein, each Bank may assign to one or more Eligible Assignees all
or a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment Percentage
and Commitment and the same portion of the Loans at the time owing
to it and the Notes held by it); provided that (i) each of the
Administrative Agent and, unless (x) a Default or Event of Default
shall have occurred and be continuing or (y) the Assignee is an
Affiliate of the assigning Bank, the Company shall have given its
prior written consent to such assignment, which consent will not be
unreasonably withheld, (ii) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's
rights and obligations under this Agreement, (iii) each assignment
shall be in an amount that is a whole multiple of $10,000,000, (iv)
the parties to such assignment shall execute and deliver to the
Administrative Agent, for recording in the Register, an Assignment
and Acceptance, substantially in the form of Exhibit E hereto (an
"Assignment and Acceptance"), together with any Notes subject to
such assignment, and (v) the Company shall not, at the time of such
assignment, incur any additional expenses solely as a result of such
assignment other than as contemplated under Subsection 11.4 hereof.
Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business
Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder, and
(ii) the assigning Bank shall, to the extent provided in such
assignment and upon payment to the
<PAGE>
Administrative Agent of the registration fee referred
to in Subsection 11.3, be released from its obligations
under this Agreement.
11.2. Certain Representations and Warranties; Limitations;
Covenants. By executing and delivering an Assignment and Acceptance,
the parties to the assignment thereunder confirm to and agree with
each other and the other parties hereto as follows:
(a) other than the representation and warranty
that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any
adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and
assumes no responsibility with respect to any
statements, warranties or representations made in or in
connection with this Agreement or the execution,
legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto;
(b) the assigning Bank makes no representation
or warranty and assumes no responsibility with respect
to the financial condition of the Company and its
Subsidiaries, or the performance or observance by the
Company and its Subsidiaries of any of their
obligations under this Agreement or any other
instrument or document furnished pursuant hereto or
thereto;
(c) such assignee confirms that it has received
a copy of this Agreement, together with copies of the
most recent financial statements referred to herein and
such other documents and information as it has deemed
appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and
without reliance upon the assigning Bank, the
Administrative Agent or any other Bank and based on
such documents and information as it shall deem
appropriate at the time, continue to make its own
credit decisions in taking or not taking action under
<PAGE>
this Agreement;
(e) such assignee represents and warrants that
it is an Eligible Assignee;
(f) such assignee appoints and authorizes the
Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such
powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with
such powers as are reasonably incidental thereto;
(g) such assignee agrees that it will perform
all of the obligations that by the terms of this
Agreement are required to be performed by it as a Bank;
(h) such assignee represents and warrants that
it is legally authorized to enter into such Assignment
and Acceptance.
11.3. Register. The Administrative Agent shall maintain a copy
of each Assignment and Acceptance delivered to it and a register or
similar list (the "Register") for the recordation of the names and
addresses of the Banks and the Commitment Percentage of, and
principal amount of the Loans owing to the Banks from time to time.
The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Administrative Agent and the
Banks may treat each Person whose name is recorded in the Register
as a Bank hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Company and the Banks at
any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Bank agrees to pay
to the Administrative Agent a registration fee in the sum of $2,500.
11.4. New Notes. Upon its receipt of an Assignment and
Acceptance executed by the parties to such assignment, together with
each Note subject to such assignment, the Administrative Agent shall
(i) record the information contained therein in the Register, and
(ii) give prompt
<PAGE>
notice thereof to the Company and the Banks (other than the
assigning Bank). Within five (5) Business Days after receipt of
such notice, the Company, at its own expense, shall execute and
deliver to the Administrative Agent, in exchange for each
surrendered Note, a new Note to the order of such Eligible
Assignee in an amount equal to the amount assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance and,
if the assigning Bank has retained some portion of its
obligations hereunder, a new Note to the order of the assigning
Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the
surrendered Notes, shall be in an aggregate principal amount
equal to the aggregate principal amount of the surrendered Notes,
shall be dated the effective date of such in Assignment and
Acceptance and shall otherwise be substantially the form of the
assigned Notes. The surrendered Notes shall be cancelled and
returned to the Company.
11.5. Participations. Each Bank may sell participations to one
or more banks or other entities (any such entity, a "Participant" in
all or a portion of such Bank's rights and obligations under this
Agreement; provided that (i) each such participation shall be in an
amount of not less than $10,000,000, (ii) any such sale or
participation shall not affect the rights and duties of the selling
Bank hereunder to the Company, (iii) the only rights granted to the
Participant pursuant to such participation arrangements with respect
to waivers, amendments or modifications of this Agreement shall be
the rights to approve waivers, amendments or modifications that
would reduce the principal of or the interest rate on any Loans,
extend the term or increase the amount of the Commitment of such
Bank as it relates to such Participant, reduce the amount of any
Annual Fees or Commitment Fees to which such Participant is entitled
or extend any regularly scheduled payment date for principal or
interest and (iv) the Company shall not, at the time of such
transfer of a participation interest, incur any additional expenses
solely as a result of such transfer. The Company agrees that each
Participant may, subject to the provisions of this
<PAGE>
Agreement, exercise all rights of payment with respect to the
portion of such Loans held by it as fully as if such Participant
were the direct holder thereof, and that each Participant shall
be entitled to the benefits of Subsections 4.7, 4.9 and 4.10
(including without limitation, with respect to Subsection 4.10,
that the covenants therein shall survive termination of this
Agreement and payment of the Notes) with respect to its
participation in any Eurodollar Loans; provided that such
Participant complies with the provisions of such Subsections, and
provided further that the Company shall not be obligated to pay
to a Bank and its Participants collectively, in respect of such
Subsections, any greater amount than the Company would be
obligated to pay to such Bank had it not entered into any
participations.
11.6. Disclosure. The Company agrees that in addition to
disclosures made in accordance with standard and customary banking
practices any Bank may disclose information obtained by such Bank
pursuant to this Agreement to Eligible Assignees or Participants and
potential Eligible Assignees or Participants hereunder; provided
that such Eligible Assignees or Participants or potential Eligible
Assignees or Participants shall agree (i) to treat in confidence
such information unless such information otherwise becomes public
knowledge, (ii) not to disclose such information to a third party,
except as required by law or legal process and (iii) not to make use
of such information for purposes of transactions unrelated to such
contemplated assignment or participation.
11.7. Assignee or Participant Affiliated with the Company. If
any assignee Bank is an Affiliate of the Company, then any such
assignee Bank shall have no right to vote as a Bank hereunder for
purposes of granting consents or waivers or for purposes of agreeing
to amendments or other modifications to this Agreement, and the
determination of the Majority Banks shall for all purposes of this
Agreement be made without regard to such assignee Bank's interest in
any of the Loans. If any Bank sells a participating interest in any
of the
<PAGE>
Loans to a Participant, and such Participant is the Company or an
Affiliate of the Company, then such transferor Bank shall
promptly notify the Administrative Agent of the sale of such
participation. A transferor Bank shall have no right to vote as a
Bank hereunder for purposes of granting consents or waivers or
for purposes of agreeing to amendments or modifications to this
Agreement to the extent that such participation is beneficially
owned by the Company or any Affiliate of the Company, and the
determination of the Majority Banks shall for all purposes of
this Agreement be made without regard to the interest of such
transferor Bank in the Loans to the extent of such participation.
11.8. Miscellaneous Assignment Provisions. Any assigning Bank
shall retain its rights to be indemnified pursuant to Subsection
12.6 with respect to any claims or actions arising prior to the date
of such assignment. If any assignee Bank is not incorporated under
the laws of the United States of America or any state thereof, it
shall, prior to the date on which any interest or fees are payable
hereunder for its account, deliver to the Company and the
Administrative Agent certification as to its exemption from
deduction or withholding of any United States federal income taxes.
Anything contained in this Subsection to the contrary
notwithstanding, any Bank may at any time pledge all or any portion
of its interest and rights under this Agreement (including all or
any portion of its Notes) to any of the twelve Federal Reserve Banks
organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341.
No such pledge or the enforcement thereof shall release the pledgor
Bank from its obligations hereunder.
11.9. Assignment by the Company. The Company shall not assign
or transfer any of its rights or obligations under any of this
Agreement without the prior written consent of each of the Banks.
SECTION 12. MISCELLANEOUS
12.1. Consents, Amendments and Waivers. Any
consent or approval required or permitted by this
Agreement to be given by all of the Banks may be given,
<PAGE>
and any term of this Agreement or any instrument
related hereto may be amended, and the performance or
observance by the Company or any of its Subsidiaries of
any terms of this Agreement or the continuance of any
Default or Event of Default may be waived (either
generally or in a particular instance and either
retroactively or prospectively) with, but only with,
the written consent of the Company and the written
consent of the Majority Banks. Notwithstanding the
foregoing, the rate of interest on the Notes, the term
of the Notes, the Total Commitment, the Commitment
Percentage of any Bank, and the amount of the Annual
Fee and Commitment Fee hereunder may not be changed
without the written consent of the Company and the
written consent of each Bank affected thereby; the
definition of Majority Banks may not be amended without
the written consent of all of the Banks; and the amount
of the agents' fees and Section 10 may not be amended
without the written consent of the Administrative Agent
and, if affected thereby, the Syndication Agent and/or
Documentation Agent. No waiver shall extend to or
affect any obligation not expressly waived or impair
any right consequent thereon. No course of dealing or
delay or omission on the part of the Administrative
Agent or any Bank in exercising any right shall operate
as a waiver thereof or otherwise be prejudicial
thereto. No notice to or demand upon the Company shall
entitle the Company to other or further notice or
demand in similar or other circumstances.
12.2. Notices. All notices, requests and demands
to or upon the respective parties hereto to be
effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been
duly given or made when delivered by hand, or when
deposited in the mail, postage prepaid, or, if sent by
telecopy, when received, addressed as follows or to
such other address as may be hereafter notified by the
respective parties hereto and any future holders of the
Notes:
The Company: Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
<PAGE>
Attention: President
Telecopy: 212-598-4869
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen E. Jacobs, Esq.
Telecopy: 212-310-8007
The Banks: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Maura C. Wadlinger
Telecopy: 617-434-6685
<PAGE>
The Chase Manhattan Bank
380 Madison Avenue, 14th Floor
New York, New York 10017-2591
Attention: Leonard D. Noll
Telecopy: 212-622-4407
Bank of America Illinois or
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Elizabeth W.F.
Bishop
Telecopy: 312-987-0889
Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attention: Thomas DeGeorge
Telecopy: 212-525-5676
First Union National Bank of
North Carolina
c/o First Union Capital
Markets Group
550 Broad Street, NJ1535
Newark, NJ 07102
Attention: Joseph DiFrancesco
Telecopy: 201-565-6681
First Bank National
Association
First Bank Place, MPFP 0704
601 Second Avenue, South
Minneapolis, Minnesota
55402-5302
Attention: Jose A. Peris
Telecopy: 612-973-0832
Fleet National Bank
777 Main Street, MS CT MO 0367
Hartford, Connecticut 06115
Attention: Howard Carpenter
Telecopy: 860-986-1264
<PAGE>
- 77-
National Bank of Canada
125 55th Street, 23rd Floor
New York, New York 10019
Attention: Teresa Carrasco
Telecopy: 212-632-8545
The Administrative Agent: The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Maura C. Wadlinger
Telecopy: 617-434-6685
provided that any notice, request or demand to or upon the
Administrative Agent pursuant to Subsections 2.3 or 3.2
shall be subject to the time restrictions stated in those
Subsections.
12.3. No Waiver; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of
the Administrative Agent or the Banks, any right,
remedy, power or privilege hereunder, shall operate as
a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and
privileges provided by law.
12.4. Survival of Representations and Warranties.
All representations and warranties made hereunder and
in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement and the
Notes.
12.5. Payment of Expenses. Subject to a Bank's
compliance with Subsection 4.10 hereof, the Company
agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement, (b) any taxes (including
any interest and penalties in respect thereto) payable
by the Administrative Agent or any of the Banks (other
than taxes based upon the Administrative Agent's or any
Bank's net income) on or with respect to the
transactions contemplated by this Agreement (the
Company hereby agreeing to indemnify the Administrative
Agent and each Bank with respect thereto), (c) the
reasonable fees, expenses and disbursements of the
Administrative Agent's counsel incurred in connection
with the preparation, administration or interpretation
of this Agreement, each closing hereunder, and
amendments, modifications, approvals, consents or
waivers hereto or hereunder, (d) the fees, expenses and
disbursements of the Administrative Agent incurred by
the Administrative Agent in connection with the
preparation, administration or interpretation of this
Agreement, and (e) all reasonable out-of-pocket
expenses (including without limitation reasonable
attorneys' fees and costs, which attorneys may be
<PAGE>
employees of any Bank or the Administrative Agent, and
reasonable consulting, accounting, appraisal,
investment banking and similar professional fees and
charges) incurred by any Bank or the Administrative
Agent in connection with (i) the enforcement of or
preservation of rights under this Agreement against the
Company or any of its Subsidiaries or the
administration thereof after the occurrence of a
Default or Event of Default and (ii) any litigation,
proceeding or dispute whether arising hereunder or
otherwise, in any way related to any Bank's or the
Administrative Agent's relationship with the Company or
any of its Subsidiaries. The agreements in this
subsection shall survive repayment of the Notes and all
other amounts payable hereunder.
12.6. Indemnification. The Company agrees to
indemnify and hold harmless the Administrative Agent
and the Banks from and against any and all claims,
actions and suits whether groundless or otherwise, and
from and against any and all liabilities, losses,
damages and expenses of every nature and character
arising out of this Agreement or the transactions
contemplated hereby including, without limitation, (i)
any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans, (ii)
the Company or any of its Subsidiaries entering into or
performing this Agreement or any of the other Loan
Documents or (iii) with respect to the Company and its
Subsidiaries and their respective properties and
assets, the violation of any Environmental Law, the
presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of
any Hazardous Substances or any action, suit,
proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not
limited to, claims with respect to wrongful death,
personal injury or damage to property), in each case
including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of
internal counsel incurred in connection with any such
investigation, litigation or other proceeding. The
Company shall have control of any such litigation and
the Company shall pay the reasonable fees and expenses
of one counsel to be selected jointly by the
Administrative Agent and the Banks, which counsel shall
be reasonably acceptable to the Company. If, and to
the extent that the obligations of the Company under
this subsection are unenforceable for any reason, the
<PAGE>
Company hereby agrees to make the maximum contribution
to the payment in satisfaction of such obligations
which is permissible under applicable law. The
agreements in this subsection shall survive repayment
of the Notes and all other amounts payable hereunder.
12.7. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the
Company, the Administrative Agent, the Banks, all
future holders of the Notes and their respective
successors and assigns, except that the Company may not
assign or transfer any of its rights under this
Agreement without the prior written consent of each of
the Banks.
12.8. Set-off. In addition to any rights or
remedies of the Banks provided by law, each Bank shall
have the right, without prior notice to the Company,
any such notice being expressly waived by the Company
to the extent permitted by applicable law, upon the
acceleration of obligations under and in respect of
this Agreement and the Notes pursuant to Section 9, the
filing of a petition under any of the provisions of the
federal bankruptcy act or amendments thereto, by or
against the Company, the making of an assignment for
the benefit of creditors by the Company, the
application for the appointment, or the actual
appointment, of any receiver of the Company, or of any
of the property of the Company, the issuance of any
execution against any of the property of the Company,
the issuance of a subpoena or order, in supplementary
proceedings, against or with respect to any of the
property of the Company, or the issuance of a warrant
of attachment against any of the property of the
Company, to set-off and apply against any indebtedness,
whether matured or unmatured of the Company to such
Bank, any amount owing from such Bank to the Company
at, or at any time after, the happening of any of the
above mentioned events, and the aforesaid right of
set-off may be exercised by such Bank against the
Company or against any trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor
of the Company, the Company or such trustee in
bankruptcy, debtor in possession, assignee for the
<PAGE>
benefit of creditors, receiver or execution, judgment
or attachment creditor, notwithstanding the fact that
such right of set-off shall not have been exercised by
such Bank prior to the making, filing or issuance, or
service upon such Bank (either directly or through the
Administrative Agent) of, or of notice of, any such
petition; assignment for the benefit of creditors;
appointment or application for the appointment of a
receiver; or issuance of execution, subpoena, order or
warrant. Such Bank agrees promptly to notify the
Company and the Administrative Agent after any such
set-off and application made by the Bank, provided,
that, the failure to give such notice shall not
affect the validity of such set-off and application.
Each Bank agrees with the other Banks that (i) if an
amount to be set off is to be applied to Indebtedness
of the Company to a Bank, other than Indebtedness
evidenced by the then outstanding Notes held by all of
the Banks, such amount shall be applied ratably to such
other Indebtedness and to the Indebtedness evidenced by
all such Notes, and (ii) if a Bank shall receive from
the Company, whether by voluntary payment, exercise of
the right of set-off, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by
a Bank by proceeding against the Company at law or in
equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar
proceedings, or otherwise, and shall retain and apply
to the payment of the Note or Notes held by a Bank any
amount in excess of its ratable portion of the payments
received by all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution,
pro tanto assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in
respect of the Notes held by it its proportionate
payment as contemplated by this Agreement; provided,
however, that if all or any part of such excess
payment is thereafter recovered from such Bank, such
disposition and arrangements shall be rescinded and the
amount restored to the extent of such recovery, but
without interest.
12.9. Termination. This Agreement shall terminate
in the event (I) Ian Cumming and Joseph Steinberg cease
<PAGE>
to own, directly or indirectly, 32% or more of the
Voting Stock of the Company, provided, that Messrs.
Cumming and/or Steinberg may cease to own, directly or
indirectly, 32% or more of the Voting Stock of the
Company if: (a) in the aggregate, they own, directly
or indirectly, at least 23% of the outstanding Voting
Stock, and (b)(i) if during the lifetime of Mr. Cumming
or Mr. Steinberg, the aggregate Market Value of the
Voting Stock owned by them, directly or indirectly, is
at least $200,000,000 or (ii) if upon the death of
either Mr. Cumming or Mr. Steinberg, the aggregate
Market Value of the Voting Stock owned, directly or
indirectly, by the survivor would be at least
$100,000,000 or (II) either Mr. Cumming or Mr.
Steinberg ceases to be a principal executive officer
(which shall include the office of Chairman of the
Board of Directors) of the Company. For purposes
hereof, the term "owned, directly or indirectly" shall
be deemed to include all Voting Stock received 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
Voting Stock is held by a Recipient during the lifetime
of Mr. Cumming or Mr. Steinberg. 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.
Such termination shall be immediate if it arises from
any event other than the death or incapacity of either
or both of Ian Cumming and Joseph Steinberg. If such
termination shall arise from the death or incapacity of
either or both of Ian Cumming and Joseph Steinberg such
termination shall take effect 120 days after such
event. Upon any such termination, the Company shall
pay to the Administrative Agent for the accounts of the
Banks all amounts owing under this Agreement and the
Notes. No such termination shall affect any rights
acquired by the Banks under this Agreement prior to or
as a result of such termination.
<PAGE>
12.10. Counterparts. This Agreement may be
executed by one or more of the parties to this
Agreement in any number of separate counterparts and
all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
12.11. Governing Law. This Agreement and the
Notes and the rights and obligations of the parties
under this Agreement and the Notes shall be governed
by, and construed and interpreted in accordance with,
the laws (excluding the laws applicable to conflicts or
choice of law) of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by
their proper and duly authorized officers as of the day
and year first above written.
LEUCADIA NATIONAL CORPORATION
By: /s/ Barbara L. Lowenthal
Name: Barbara L. Lowenthal
Title:
THE FIRST NATIONAL BANK OF
BOSTON,
as Administrative Agent
By: /s/ Maura C. Wadlinger
Name: Maura C. Wadlinger
Title:
THE CHASE MANHATTAN BANK,
as Syndication Agent
By: /s/ Leonard D. Noll
Name: Leonard D. Noll
Title:
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Documentation Agent
By: /s/ Gary R. Peet
Name: Gary R. Peet
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ Maura C. Wadlinger
Name: Maura C. Wadlinger
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Leonard D. Noll
Name: Leonard D. Noll
Title:
BANK OF AMERICA ILLINOIS
By: /s/ Elizabeth W.F. Bishop
Name: Elizabeth W.F. Bishop
Title:
REPUBLIC NATIONAL BANK OF NEW
YORK
By: /s/ Thomas DeGeorge
Name: Thomas DeGeorge
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Gail M. Golightly
Name: Gail M. Golightly
Title:
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Jose A. Peris
Name: Jose A. Peris
Title:
FLEET NATIONAL BANK
By: /s/ Howard G. Carpenter
Name: Howard G. Carpenter
Title:
NATIONAL BANK OF CANADA
By: /s/ Teresa Carrasco
Name: Teresa Carrasco
Title:
By: /s/ Theresa White
Name: Theresa White
Title:
LEUCADIA NATIONAL CORPORATION EXHIBIT 21
SUBSIDIARIES AS OF DECEMBER 31, 1996
STATE OF
NAME INCORPORATION
- ---- -------------
Providential Life Insurance Company Arkansas
Andrus Vineyard Co., LLC California
Bay Colony Insurance Company California
CDS Devco, Inc. California
HSD Venture California
San Elijo Ranch, Inc. California
Baldwin Enterprises, Inc. Colorado
NSAC, Inc. Colorado
RRP, Inc. Colorado
330 Mad. Parent Corp. Delaware
AIC Financial Corporation Delaware
American Investment Company Delaware
Baldwin-CIS L.L.C. Delaware
Baldwin Forest Products L.L.C. Delaware
Bellpet, Inc. Delaware
CDS Holding Corporation Delaware
Colonial Penn Administrative Services, Inc. Delaware
Colonial Penn Group, Inc. Delaware
Colonial Penn Holdings, Inc. Delaware
Conwed Corporation Delaware
CPAX, Inc. Delaware
CPI Investment, Inc. Delaware
International Bottlers L.L.C. Delaware
Leucadia Aviation, Inc. Delaware
Leucadia Cellars, Ltd. Delaware
LNC Investments, Inc. Delaware
Neward Corporation Delaware
Pepsi International Bottlers L.L.C. Delaware
Rastin Investing Corp. Delaware
RERCO, Inc. Delaware
Wedgewood Investments L.L.C. Delaware
The Village at Inlet Beach, Inc. Florida
Pennpark Investors, L.L.C. Illinois
College Life Development Corporation Indiana
Professional Data Management, Inc. Indiana
Charter National Life Insurance Company Missouri
Bayside Casualty Insurance Company New Jersey
The Sperry and Hutchinson Company, Inc. New Jersey
Allcity Insurance Company New York
Empire Insurance Company New York
Centurion Insurance Company New York
1
<PAGE>
LEUCADIA NATIONAL CORPORATION
SUBSIDIARIES AS OF DECEMBER 31, 1996
STATE OF
NAME INCORPORATION
- ---- -------------
Intramerica Life Insurance Company New York
Leucadia, Inc. New York
Leucadia Investors, Inc. New York
LUK-REN, Inc. New York
Colonial Penn Franklin Insurance Company Pennsylvania
Colonial Penn Insurance Company Pennsylvania
Colonial Penn Life Insurance Company Pennsylvania
Phlcorp, Inc. Pennsylvania
Pine Ridge Associates, L.P. Texas
American Investment Bank, N.A. United States
American Investment Financial Utah
Leucadia Bottling L.L.C. Utah
Leucadia Film Corporation Utah
Leucadia Financial Corporation Utah
Leucadia Power Holdings, Inc. Utah
Leucadia Properties, Inc. Utah
Silver Mountain Industries, Inc. Utah
Solana Corporation Utah
Telluride Properties Acquisition, Inc. Utah
Terracor II Utah
Colonial Penn Madison Insurance Company Wisconsin
Commercial Loan Insurance Corporation Wisconsin
WMAC Credit Insurance Corporation Wisconsin
WMAC Investment Corporation Wisconsin
Colonial Penn De Mexico, Inc. Mexico
- ------------------------------------
Subsidiaries not included on this list, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary as of December 31,
1996.
2
NYFS04...:\30\76830\0146\1197\EXH3197V.150
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Leucadia National Corporation on (i) Form S-8 (File No. 2-84303), (ii) Form S-8
and S-3 (File No. 33-6054), (iii) Form S-8 and S-3 (File No. 33-26434), (iv)
Form S-8 and Form S-3 (File No. 33-30277), (v) Form S-8 (File No. 33-61682) and
(vi) Form S-8 (File No. 33-61718) of our report dated March 21, 1997, on our
audits of the consolidated financial statements and financial statement
schedules of Leucadia National Corporation and Subsidiaries as of December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, which
report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 24, 1997
1
NYFS04...:\30\76830\0146\1197\EXH3037P.340
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-K and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 386,807
<SECURITIES> 2,790,120
<RECEIVABLES> 727,489
<ALLOWANCES> 22,846
<INVENTORY> 21,281
<CURRENT-ASSETS> 0
<PP&E> 99,919
<DEPRECIATION> 99,214
<TOTAL-ASSETS> 5,193,936
<CURRENT-LIABILITIES> 0
<BONDS> 525,719
0
0
<COMMON> 60,418
<OTHER-SE> 1,057,689
<TOTAL-LIABILITY-AND-EQUITY> 5,193,936
<SALES> 148,284
<TOTAL-REVENUES> 1,506,557
<CGS> 107,667
<TOTAL-COSTS> 1,070,656
<OTHER-EXPENSES> 285,969
<LOSS-PROVISION> 17,424
<INTEREST-EXPENSE> 53,996
<INCOME-PRETAX> 78,512
<INCOME-TAX> 22,997
<INCOME-CONTINUING> 55,515
<DISCONTINUED> 0
<EXTRAORDINARY> (6,838)
<CHANGES> 0
<NET-INCOME> 48,677
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
