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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------
(AMENDMENT NO. ___)
[x] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[x] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14-a6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LEUCADIA NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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NYFS04...:\30\76830\0146\1980\PXY3257L.360
<PAGE>
PRELIMINARY COPY
LEUCADIA NATIONAL CORPORATION
315 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD , 1997
-----------------------
, 1997
To Our Common Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Meeting") of Leucadia National Corporation (the "Company") to be held on
_________, 1997, at __ [p.m.], at Chase Manhattan Bank, 270 Park Avenue, 11th
Floor, New York, New York:
1. To consider and vote upon a proposal to approve and adopt a Purchase
Agreement, dated as of June 30, 1997 (the "Purchase Agreement"), among General
Electric Capital Corporation (the "Purchaser" or "GE Capital"), the Company and
the Company's subsidiaries, Charter National Life Insurance Company, Colonial
Penn Group, Inc. and Colonial Penn Holdings Inc. ("CP Holdings"), a copy of
which is attached as Annex A to the accompanying Proxy Statement. Pursuant to
the Purchase Agreement, CP Holdings has agreed to sell its Colonial Penn
property and casualty insurance operations (the "Colonial Penn P&C Group") to
the Purchaser for an amount equal to $950 million, plus an aggregate of $156,164
per day from and including January 1, 1997 through and including the closing
date. In addition, the Purchase Agreement provides that Colonial Penn Insurance
Company, a member of the Colonial Penn P&C Group, pay a $20 million cash
dividend on the Closing Date to CP Holdings.
2. To elect six directors.
3. To consider and vote upon a proposal to approve the issuance of
warrants (the "Warrants") to purchase 400,000 of the Company's common shares,
par value $1.00 per share (the "Common Shares"), to each of Ian M. Cumming, the
Chairman of the Board of the Company, and Joseph S. Steinberg, the President of
the Company, at a per share purchase price equal to 105% of the closing price of
a Common Share on the New York Stock Exchange Composite Tape on the date the
Warrants are authorized by the Shareholders of the Company.
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors to audit the Consolidated Financial Statements of the Company and its
subsidiaries for the year ended December 31, 1997.
5. To transact such other business as may properly come before the Meeting
or any adjournments of the Meeting.
Only holders of record of the Common Shares at the close of business on
_________ __, 1997 will be entitled to notice of and to vote at the Meeting.
Please sign, date and mail the enclosed proxy so that your shares may be
represented at the Meeting if you are unable to attend and vote in person.
By Order of the Board of Directors.
RUTH KLINDTWORTH
Secretary
NYFS04...:\30\76830\0227\1980\PXY6107U.19J
<PAGE>
PRELIMINARY COPY
LEUCADIA NATIONAL CORPORATION
315 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
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PROXY STATEMENT
-------------------
ANNUAL MEETING OF SHAREHOLDERS
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, 1997
This Proxy Statement is being furnished to the Shareholders (the
"Shareholders") of Leucadia National Corporation, a New York corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders (the "Meeting") of the
Company to be held on __________, 1997 and at any adjournments thereof.
At the Meeting, Shareholders will be asked:
1. To consider and vote upon a proposal to approve and adopt a Purchase
Agreement, dated as of June 30, 1997 (the "Purchase Agreement"), among General
Electric Capital Corporation (the "Purchaser" or "GE Capital"), the Company and
the Company's subsidiaries, Charter National Life Insurance Company ("Charter"),
Colonial Penn Group, Inc. ("CPG") and Colonial Penn Holdings Inc. ("CP Holdings"
and together with the Company, Charter and CPG, the "Sellers"), a copy of which
is attached hereto as Annex A. Pursuant to the Purchase Agreement, CP Holdings
has agreed to sell its Colonial Penn property and casualty insurance operations
(collectively, the "Colonial Penn P&C Group") to the Purchaser for an amount
equal to $950 million, plus an aggregate of $156,164 per day from and including
January 1, 1997 through and including the closing date (the "Proposed Sale"). In
addition, the Purchase Agreement provides that Colonial Penn Insurance Company
("CPI"), a member of the Colonial Penn P&C Group, pay a $20 million dividend on
the Closing Date to CP Holdings.
2. To elect six directors.
3. To consider and vote upon a proposal to approve the issuance of
warrants (the "Warrants") to purchase 400,000 of the Company's common shares,
par value $1.00 per share (the "Common Shares"), to each of Ian M. Cumming, the
Chairman of the Board of the Company, and Joseph S. Steinberg, the President of
the Company, at a purchase price equal to 105% of the closing price of a Common
Share on the New York Stock Exchange ("NYSE") Composite Tape on the date the
Warrants are authorized by the Shareholders of the Company.
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors to audit the Consolidated Financial Statements of the Company and its
subsidiaries for the year ended December 31, 1997.
5. To transact such other business as may properly come before the Meeting
or any adjournments of the Meeting.
The Board of Directors has fixed the close of business on _______, 1997 as
the record date (the "Record Date") for the determination of the holders of
Common Shares entitled to notice of and to vote at the Meeting. Each such
Shareholder will be entitled to one vote for each Common Share held on all
matters to come before the Meeting and may vote in person or by proxy authorized
in writing. At the close of business on___________ , 1997, there were 62,108,314
Common Shares entitled to vote.
<PAGE>
All references in this Proxy Statement to the Common Shares and to prices
of the Common Shares reflect a two-for-one stock split in the form of a 100%
stock dividend effective on November 15, 1995.
This Proxy Statement and the accompanying form of proxy are first being
sent to holders of the Common Shares on or about ________ __, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Such information may also be
accessed electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). In addition, such reports, proxy statements and other
information can be inspected at the NYSE, 20 Broad Street, New York, New York
10005 and the Pacific Stock Exchange, Incorporated, 301 Pine Street, San
Francisco, California 94104, on which the Common Shares are traded.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-5721) with the
Commission are incorporated by reference into this Proxy Statement:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Annual Report");
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (the "First Quarter 10-Q"); and
(c) the Company's Current Reports on Form 8-K dated January 14, 1997,
April 7, 1997, April 30, 1997 and June 30, 1997.
(ii)
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION................................................ ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................... ii
SUMMARY.............................................................. 1
The Meeting.................................................... 1
The Proposed Sale.............................................. 3
Other Transactions............................................. 7
SELECTED FINANCIAL DATA.............................................. 8
UNAUDITED PRO FORMA FINANCIAL DATA................................... 10
THE MEETING.......................................................... 15
Date, Time and Place........................................... 15
Matters to Be Considered....................................... 15
Record Date; Shares Outstanding and Entitled to Vote........... 15
Required Votes................................................. 15
Voting and Revocation of Proxies............................... 17
Proxy Solicitation............................................. 17
Independent Auditors........................................... 17
THE PROPOSED SALE.................................................... 17
General........................................................ 17
Description of the Colonial Penn P&C Group Business............ 18
Background of the Proposed Sale................................ 18
Fairness Opinion............................................... 19
Recommendation of the Board of Directors;
Reasons for the Proposed Sale.................................. 23
Use of Proceeds; Proposed Business of the Company
Subsequent to the Proposed Sale and the Conseco Transaction.... 24
The Conseco Transaction........................................ 25
Absence of Appraisal Rights.................................... 26
THE PURCHASE AGREEMENT............................................... 27
Purchase Price................................................. 27
The Closing.................................................... 27
Representations and Warranties................................. 27
Certain Covenants.............................................. 27
No Solicitation................................................ 28
Employment and Employee Benefit Plans.......................... 29
Other Agreements............................................... 29
Closing Date Cash Distributions................................ 30
Non-Competition Agreement...................................... 31
Conditions..................................................... 31
Termination.................................................... 32
(iii)
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Termination Fees............................................... 32
Indemnification; Survival of Representations and Warranties.... 33
Expenses....................................................... 33
MARKET PRICES AND DIVIDEND POLICY.................................... 34
ELECTION OF DIRECTORS................................................ 35
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND BOARD COMMITTEES... 37
Meetings and Committees........................................ 37
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES........................ 38
EXECUTIVE COMPENSATION............................................... 41
Summary Compensation Table..................................... 41
Option Grants in 1996.......................................... 43
Aggregate Option Exercises in 1996 and
Option Values at December 31, 1996............................. 44
Retirement Plan................................................ 44
Employment Agreements.......................................... 45
Compensation of Directors...................................... 46
Indemnification................................................ 46
Certain Relationships and Related Transactions................. 47
Report of the Compensation Committee of the Board of Directors. 47
Compensation Committee Interlocks and Insider Participation.... 50
Compliance with Section 16(a) of the Securities Exchange Act
of 1934........................................................ 50
Shareholder Return Performance Graph........................... 51
PROPOSED ISSUANCE OF WARRANTS........................................ 52
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.................... 53
ANNUAL REPORT........................................................ 54
PROPOSALS BY SHAREHOLDERS............................................ 54
ANNEX A - Purchase Agreement
ANNEX B - Opinion of Jefferies & Company, Inc.
ANNEX C - Sections 630 and 910 of the New York Business Corporation Law
ANNEX D - Form of Warrant
(iv)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference
herein and the Annexes hereto. As used herein, the term "Company" means Leucadia
National Corporation and its subsidiaries, except as the context otherwise may
require. Shareholders are urged to read this Proxy Statement, the Annexes
attached hereto and the documents incorporated herein by reference carefully and
in their entirety.
THE MEETING
Date, Time and Place...... _______ __, 1997 at ______ [p].m., local time, at
Chase Manhattan Bank, 270 Park Avenue, 11th Floor,
New York, New York.
Matters to be Considered.. The approval and adoption of the Purchase
Agreement; the election of six directors; the
approval of the issuance of the Warrants; the
ratification of the selection of the independent
auditors; and such other matters as may properly
come before the Meeting.
Record Date............... The close of business on _________ ___, 1997.
Shares Outstanding and
Entitled to Vote.......... ___________ Common Shares.
Required Votes............ The Board of Directors has determined that,
because of the significance of the Proposed Sale
to the Company, the affirmative vote of at least
two-thirds of the outstanding Common Shares shall
be required to approve and adopt the Purchase
Agreement. The Company believes that Shareholder
approval of the Purchase Agreement is not required
under New York law, inasmuch as the sale by CP
Holdings to the Purchaser of the Colonial Penn P&C
Group does not constitute a sale by the Company of
"all or substantially all" of the assets of the
Company within the meaning of Section 909 of the
Business Corporation Law of the State of New York
(the "NYBCL"). However, by requiring the approval
of at least two-thirds of the outstanding voting
shares of the Company, the Purchase Agreement
provides that the statutory two-thirds voting
requirement, which would be compulsory if Section
909 were applicable, will be satisfied in any
event. In the event that the Company fails to
obtain the requisite Shareholder approval, the
Company will either re-solicit Shareholder
approval or abandon the transaction.
Under New York law, the affirmative vote of a
plurality of the Common Shares voted at the
Meeting is required to elect directors.
Under New York law, the affirmative vote of a
majority of all outstanding Common Shares entitled
to vote thereon is required to approve the
issuance of the Warrants.
1
<PAGE>
The ratification of the selection of Coopers &
Lybrand L.L.P. as independent auditors is being
submitted to Shareholders because the Board of
Directors believes that such action follows sound
corporate practice and is in the best interests of
the Shareholders. If the Shareholders do not
ratify the selection by the affirmative vote of
the holders of a majority of the Common Shares
voted at the Meeting, the selection of independent
auditors will be reconsidered by the Board. If the
Shareholders ratify the selection, the Board, in
its discretion, may still direct the appointment
of new independent auditors at any time during the
year if the Board believes that such a change
would be in the best interests of the Company and
its Shareholders.
Ian M. Cumming, Chairman of the Board of
Directors, beneficially owns 9,884,002 or
approximately 15.9% of the Common Shares out-
standing at the Record Date, Joseph S. Steinberg,
a Director and President, beneficially owns
9,112,340 or approximately 14.7% of the Common
Shares outstanding at the Record Date and two
trusts for the benefit of Mr. Steinberg's minor
children (the "Steinberg Children Trusts")
beneficially own 1,127,400 or approximately 1.8%
of the Common Shares outstanding at the Record
Date. Mr. Steinberg disclaims beneficial ownership
of the Common Shares held by the Steinberg
Children Trusts. The Cumming Foundation and the
Joseph S. and Diane H. Steinberg 1992 Charitable
Trust, private charitable foundations
independently established by Messrs. Cumming and
Steinberg, respectively, beneficially own 788,059
or approximately 1.3% and 542,408 or approximately
.9% of the Common Shares outstanding at the Record
Date, respectively. Mr. Cumming and Mr. Steinberg
each disclaims beneficial ownership of the Common
Shares held by their respective private charitable
foundations. Pursuant to a Voting Agreement, dated
as of June 30, 1997 (the "Voting Agreement") among
the Purchaser and Mr. Cumming and Mr. Steinberg,
Messrs. Cumming and Steinberg have agreed to cause
all Common Shares that they beneficially own and
all Common Shares beneficially owned by their
charitable foundations to be voted in favor of
approval and adoption of the Purchase Agreement
and Messrs. Cumming and Steinberg have advised the
Company that they intend to do so. Messrs. Cumming
and Steinberg have further advised the Company
that they intend to cause all Common Shares that
they beneficially own and all Common Shares
beneficially owned by their charitable foundations
to be voted in favor of each nominee named herein,
in favor of approval of the issuance of the
Warrants and in favor of ratification of the
selection of independent auditors. In addition to
Messrs. Cumming and Steinberg, all other directors
and officers of the Company beneficially own
approximately .7% of the Common Shares outstanding
at the Record Date (excluding Common Shares which
such directors and officers have the right to
acquire upon exercise of currently exercisable
options). ACCORDINGLY, ASSUMING MESSRS. CUMMING
AND STEINBERG, THE TWO PRIVATE CHARITABLE
FOUNDATIONS, ALL OF SUCH DIRECTORS AND OFFICERS
AND THE STEINBERG CHILDREN TRUSTS CAUSE ALL COMMON
SHARES BENEFICIALLY OWNED BY THEM (EXCLUDING
COMMON SHARES
2
<PAGE>
ACQUIRABLE UPON THE EXERCISE OF OPTIONS) TO BE
VOTED IN FAVOR OF APPROVAL AND ADOPTION OF THE
PURCHASE AGREEMENT AND IN FAVOR OF APPROVAL OF THE
ISSUANCE OF THE WARRANTS, APPROVAL AND ADOPTION OF
THE PURCHASE AGREEMENT WILL REQUIRE THE
AFFIRMATIVE VOTE OF AN ADDITIONAL APPROXIMATELY
31.4% OF THE OUTSTANDING COMMON SHARES AND
APPROVAL OF THE ISSUANCE OF THE WARRANTS WILL
REQUIRE THE AFFIRMATIVE VOTE OF AN ADDITIONAL
APPROXIMATELY 14.8% OF THE OUTSTANDING COMMON
SHARES. THE ADDITIONAL 31.4% OF THE OUTSTANDING
COMMON SHARES WILL BE OBTAINED IF 48.5% OF THE
COMMON SHARES HELD BY THE PUBLIC ARE VOTED IN
FAVOR OF APPROVAL AND ADOPTION OF THE PURCHASE
AGREEMENT AND THE ADDITIONAL 14.8% OF THE
OUTSTANDING COMMON SHARES WILL BE OBTAINED IF
22.9% OF THE COMMON SHARES HELD BY THE PUBLIC ARE
VOTED IN FAVOR OF THE ISSUANCE OF THE WARRANTS.
FURTHER, ASSUMING ALL OF THE FOREGOING PERSONS
CAUSE ALL COMMON SHARES BENEFICIALLY OWNED BY THEM
(EXCLUDING COMMON SHARES ACQUIRABLE UPON THE
EXERCISE OF OPTIONS) TO BE VOTED IN FAVOR OF EACH
NOMINEE AND IN FAVOR OF THE RATIFICATION OF THE
SELECTION OF INDEPENDENT AUDITORS, ELECTION OF
EACH NOMINEE AND RATIFICATION OF THE SELECTION OF
INDEPENDENT AUDITORS WILL BE ASSURED UNLESS MORE
THAN 70.7% OF THE OUTSTANDING COMMON SHARES ARE
VOTED ON SUCH MATTERS.
THE PROPOSED SALE
The Company............... 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. In April 1997, the
Company signed an agreement with Conseco, Inc.
("Conseco") to sell its subsidiaries engaged in
the sale of graded benefit life insurance policies
through direct marketing and agent-sold Medicare
supplement insurance. See "The Proposed Sale-The
Conseco Transaction."
The Purchaser............. The Purchaser, General Electric Capital
Corporation, is engaged in the financial services
business. General Electric Capital Corporation is
a wholly owned subsidiary of General Electric
Company.
Business to Be Sold....... Pursuant to the Purchase Agreement, CP Holdings,
an indirect wholly owned subsidiary of the
Company, has agreed to sell the Colonial Penn P&C
Group to the Purchaser. The Colonial Penn P&C
Group's primary business is providing private
passenger automobile insurance to the mature adult
population through direct response marketing. See
"The Proposed Sale-Description of the Colonial
Penn P&C Group Business." The Proposed Sale does
not include CPI's subsidiary, Intramerica Life
Insurance Company ("Intramerica").
Purchase Price............ The Purchase Agreement provides for a purchase
price equal to $950 million, plus an aggregate of
$156,164 per day from and including January 1,
1997 through and including the Closing Date (as
defined below). See "The Purchase
Agreement-Purchase Price."
3
<PAGE>
Closing Date Cash
Distributions............. Pursuant to the Purchase Agreement, the Colonial
Penn P&C Group will declare and to the extent
permitted by applicable law pay the following cash
dividends: (a) a $3 million cash dividend from
Colonial Penn Franklin Insurance Company ("CPF")
that is to be funded by the proceeds from the
Conseco Transaction (as defined below); and (b) a
cash dividend from CPI, which shall consist of the
dividend from CPF, together with a $20 million
cash dividend from CPI, the sources of which may
include dividends from CPI's subsidiaries. See
"The Purchase Agreement-Closing Date Cash
Distributions."
Non-Competition
Agreement................. Pursuant to the Purchase Agreement, the Company
has agreed, for a period of three years following
the Closing Date, to restrict its insurance
activities in certain respects. See "The Purchase
Agreement-Non-Competition Agreement."
Closing Date.............. If the Purchase Agreement is approved and adopted
by the Shareholders at the Meeting, the Proposed
Sale will be consummated on the second business
day after satisfaction or waiver of certain
conditions specified in the Purchase Agreement
(the "Closing Date").
Conditions to the
Proposed Sale............. The respective obligations of the Sellers and the
Purchaser to consummate the Proposed Sale are
conditioned on, among other things, receipt of
governmental and regulatory consents (including
termination or expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act")
and approvals of various state insurance
commissioners), receipt of Shareholder approval,
the distribution of Intramerica from CPI to CP
Holdings and the absence of injunctions or
restraints preventing consummation of such
transaction. See "The Purchase
Agreement-Conditions."
Use of Proceeds; Proposed
Business of the Company
Subsequent to the Proposed
Sale and the Conseco
Transaction............... The Company has made no determination as to the
use of the proceeds of the Proposed Sale (which is
expected to be approximately $1 billion). The
Company may use such proceeds for working capital,
acquisitions or investment opportunities. The
Company has no material arrangement, commitment or
understanding with respect to any acquisition or
investment opportunity. Pending such uses, the
proceeds will be primarily invested in
short/intermediate-term investment grade
obligations.
Inasmuch as the Company does not intend to conduct
its affairs in a manner which would require
registration as an investment company under the
Investment Company Act of 1940, as amended (the
"Investment Company Act"), such considerations
will be taken into
4
<PAGE>
account in determining the use of the proceeds
from the Proposed Sale. If the Company were
required to register as an investment company
under the Investment Company Act, it could have a
material adverse effect on the Company. See "The
Proposed Sale-Use of Proceeds; Proposed Business
of the Company Subsequent to the Proposed Sale and
the Conseco Transaction."
Recommendation of the
Board of Directors........ The Company's Board of Directors believes the
Proposed Sale is in the best interests of the
Company. The Board of Directors has unanimously
approved the Purchase Agreement and the
transactions contemplated thereunder and
recommends that the Shareholders vote FOR approval
and adoption of the Purchase Agreement. See "The
Proposed Sale-Recommendation of the Board of
Directors."
Fairness Opinion.......... Jefferies & Company, Inc. ("Jefferies") was
retained by the Company to render an opinion as to
the fairness from a financial point of view of the
consideration to be received by the Company in
connection with the Proposed Sale. On June 27,
1997, the date the Board of Directors of the
Company approved the Purchase Agreement, Jefferies
delivered to the Board of Directors its written
opinion to the effect that, as of the date of its
opinion and subject to the considerations set
forth in such opinion, the consideration to be
received by the Company pursuant to the Purchase
Agreement is fair from a financial point of view
to the Company. A copy of the opinion of Jefferies
is attached to this Proxy Statement as Annex B.
The attached opinion sets forth the assumptions
made, the matters considered, the scope and
limitations of the review undertaken and
procedures followed by Jefferies. See "The
Proposed Sale-Fairness Opinion."
Absence of Appraisal
Rights ................... The Company does not believe that rights of
dissent are available under New York law in
connection with the Purchase Agreement, since the
sale of the Colonial Penn P&C Group by CP Holdings
does not constitute a sale by the Company of "all
or substantially all" of the assets of the Company
within the meaning of Section 909 of the NYBCL.
If, however, Section 909 of the NYBCL were
applicable to the Proposed Sale, Shareholders
entitled to vote would be able, pursuant to
Sections 910 and 623 of the NYBCL, a copy of each
of which is attached hereto as Annex C, to dissent
from the proposed transaction and demand payment
of the fair value of their Common Shares in the
event the Proposed Sale is consummated. To
exercise such right, a Shareholder opposing the
sale would be required to first file with the
Company a written objection to the sale prior to
the taking of the vote thereon, would not be able
to vote any of his Common Shares in favor of the
proposed transaction and would otherwise be
required to follow the procedures specified in
Section 623.
AS STATED ABOVE, THE COMPANY DOES NOT BELIEVE THAT
SECTION 909 IS APPLICABLE AND INTENDS TO DISPUTE
THE RIGHT OF A SHAREHOLDER TO
5
<PAGE>
DISSENT FROM THE PROPOSED TRANSACTION. See "The
Proposed Sale-Absence of Appraisal Rights."
Termination............... The Purchase Agreement may be terminated at any
time prior to the Closing Date, whether before or
after approval by the Shareholders at the Meeting:
(a) by mutual written consent of the Purchaser and
the Sellers; (b) by either the Purchaser or the
Sellers, if the Proposed Sale shall not have been
consummated on for before December 31, 1997; (c)
by either the Purchaser or the Sellers, upon any
court order prohibiting the Proposed Sale becoming
final; (d) by either the Purchaser or the Sellers,
if, upon a vote at the Meeting (or any adjournment
thereof), Shareholder approval of the Purchase
Agreement shall not have been obtained; (e) by the
Purchaser, if the Board of Directors of the
Company shall have taken any Permitted Action (as
defined under "The Purchase Agreement-No
Solicitation"); or (f) by the Sellers, if the
Company enters into a definitive agreement
providing for the implementation of an Acquisition
Proposal (as defined under "The Purchase
Agreement-No Solicitation").
In the event of termination of the Purchase
Agreement by either the Sellers or the Purchaser
as provided above, the Purchase Agreement will
become void and there will be no liability or
obligation on the part of the Purchaser or the
Sellers, other than under certain specified
provisions of the Purchase Agreement, which
include the payment of a fee to the Purchaser
under certain circumstances. See "The Purchase
Agreement-Termination" and "The Purchase
Agreement-Termination Fees."
Termination Fee........... If (a) the Purchase Agreement is terminated by any
party because Shareholder approval has not been
obtained and (b) at or prior to the Meeting, there
shall have been an Acquisition Proposal, whether
or not such Acquisition Proposal shall have been
rejected or shall have been withdrawn prior to the
time of such termination or of the Meeting, the
Sellers shall pay to the Purchaser a termination
fee of $10 million in cash; if, within one year of
any such termination described in clause (a)
above, a transaction implementing any Acquisition
Proposal shall have been consummated, the Sellers
shall pay to the Purchaser an additional
termination fee of $20 million in cash.
Alternatively, if the Purchase Agreement is
terminated by the Purchaser pursuant to clause (e)
under "Termination" above, or by the Sellers
pursuant to clause (f) under "Termination" above,
the Sellers shall pay to the Purchaser a
termination fee of $30 million in cash. In no
event shall the Sellers be obligated to pay more
than $30 million in termination fees to the
Purchaser. See "The Purchase Agreement-Termination
Fees."
6
<PAGE>
OTHER TRANSACTIONS
The Conseco Transaction... On April 30, 1997, the Company signed an agreement
(the "Conseco Agreement") to sell its
subsidiaries, Colonial Penn Life Insurance Company
("CPL") and Providential Life Insurance Company
("PLC") and certain related assets, including its
health insurance operations, to Conseco for $460
million, including $400 million in notes secured
by non-cancelable letters of credit and $60
million in cash (the "Conseco Transaction"). CPL,
PLC and PLC's subsidiaries (the "Colonial Penn
Life Group") are engaged in the sale of graded
benefit life insurance policies through direct
marketing and agent-sold Medicare supplement
insurance. The sale is subject to customary terms
and conditions, including the receipt of
regulatory approvals, and is expected to close in
the third quarter of 1997. The Conseco Transaction
is not subject to Shareholder approval and is not
conditioned on the consummation of the Proposed
Sale and the Proposed Sale is not conditioned on
the consummation of the Conseco Transaction. The
Colonial Penn Life Group has been classified as
discontinued operations.
7
<PAGE>
SELECTED FINANCIAL DATA
The information set forth below reflects the life and health insurance
businesses conducted by the Colonial Penn Life Group as discontinued operations.
Certain previously reported amounts have been restated to segregate the results
of these discontinued businesses from continuing operations. Except for such
restatements, 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," contained in the Company's
Annual Report and with the unaudited financial statements contained in the First
Quarter 10-Q, which are incorporated by reference herein. The information set
forth below for the three months ended March 31, 1997 and 1996 is unaudited;
however, in the opinion of the Company's management, such financial information
contains all adjustments, consisting only of normal recurring items, necessary
to present fairly the financial information for such periods. The results of
operations for the three months ended March 31, 1997 may not be indicative of
annual results of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts)
SELECTED INCOME
STATEMENT DATA: (a)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $310,558 $329,933 $1,276,329 $1,347,786 $1,172,423 $1,175,888 $1,272,883
Net securities gains (losses) 2,172 7,061 34,953 20,687 (8,440) 44,696 39,494
Interest expense (b) 12,958 13,879 53,931 52,819 43,999 39,442 38,476
Insurance losses, policy benefits
and amortization of deferred
acquisition costs 196,896 207,218 813,324 809,123 688,703 639,358 705,629
Income from continuing operations
before income taxes, minority expense
of trust preferred securities,
cumulative effects of changes in
accounting principles
and extraordinary loss 12,287 10,519 30,183 89,483 51,174 137,086 91,035
Income from continuing
operations before cumulative
effects of changes in accounting
principles and extraordinary loss 5,751 7,384 24,174 80,203 35,483 57,373 87,521
Income from discontinued operations 6,969 8,217 31,341 27,300 35,353 58,676 43,086
Cumulative effects of changes in
accounting principles - - - - - 129,405 -
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit - - (6,838) - - - -
Net income 12,720 15,601 48,677 107,503 70,836 245,454 130,607
Per share:
Primary earnings (loss) per common
and dilutive common equivalent share:
Income from continuing operations
before cumulative effects of
changes in accounting principles
and extraordinary loss $.09 $.12 $ .40 $1.35 $ .61 $ .98 $1.79
Income from discontinued operations .12 .14 .51 .46 .61 1.00 .88
Cumulative effects of changes in
accounting principles - - - - - 2.21 -
Extraordinary loss - - (.11) - - - -
---- ---- ---- ---- ---- ---- ----
Net income $.21 $.26 $ .80 $1.81 $1.22 $4.19 $2.67
- ------------------------------ ==== ==== ==== ==== ==== ==== =====
Footnotes on following page.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Fully diluted earnings (loss)
per common share:
Income from continuing operations
before cumulative effects of
changes in accounting principles
and extraordinary loss $.09 $.12 $ .40 $1.33 $ .64 $ .99 $1.78
Income from discontinued operations .12 .14 .51 .44 .57 .95 .88
Cumulative effects of changes in
accounting principles - - - - - 2.10 -
Extraordinary loss - - (.11) - - - -
---- ---- ---- ---- ---- ---- ----
Net income $.21 $.26 $ .80 $1.77 $1.21 $4.04 $2.66
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ -------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA: (a)
Cash and investments $2,511,522 $2,400,656 $2,381,087 $1,997,014 $2,174,405 $2,501,412
Total assets 4,496,274 4,331,361 4,265,516 3,819,703 3,849,530 3,460,078
Debt, including current maturities 523,703 523,366 518,177 425,848 401,335 225,588
Customer banking deposits 206,299 209,261 203,061 179,888 173,365 186,339
Common shareholders' equity 1,106,376 1,118,107 1,111,491 881,815 907,856 618,161
Book value per common share $18.30 $18.51 $18.47 $15.72 $16.27 $11.06
</TABLE>
<TABLE>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INFORMATION ON
PROPERTY AND CASUALTY
INSURANCE OPERATIONS
(Unaudited): (a)(c)
GAAP Combined Ratio 102.8% 104.3% 105.0% 103.5% 99.1% 96.9% 101.7%
SAP Combined Ratio 100.9% 99.3% 101.5% 101.2% 98.8% 93.7% 102.8%
Industry SAP Combined Ratio (d) 101.2% 106.7% 105.9% 106.4% 108.4% 106.9% 115.7%
Premium to Surplus Ratio (e) N/A N/A 1.6x 1.8x 1.9x 1.6x 2.0x
</TABLE>
- -------------------
(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 statutory accounting principles ("SAP") and
generally accepted accounting principles ("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 with
respect to annual information for 1992 through 1995, and Best Week P/C
Supplement, March 24, 1997 Release 1, with respect to annual and interim
information for 1996 and Insurance Services Office, Inc., First-Quarter
1997 Analysis, June 9, 1997, with respect to interim information for 1997.
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.
9
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma balance sheet gives pro forma effect to the
Proposed Sale and the Conseco Transaction as if such transactions had been
consummated on March 31, 1997. The following unaudited pro forma income
statements give pro forma effect to the Proposed Sale to GE Capital as if such
sale had occurred on January 1, 1996 and January 1, 1997 and do not give pro
forma effect to the Conseco Transaction in as much as the Colonial Penn Life
Group is classified as discontinued operations. The pro forma adjustments are
described in the following notes and are based upon available information and
certain assumptions that the Company believes are reasonable. The pro forma data
may not be indicative of the results of operations and financial position of the
Company as it may be in the future or as it might have been had the transactions
been consummated on the respective dates assumed. The information should be read
in conjunction with the Company's historical financial statements and
accompanying notes incorporated by reference in this Proxy Statement and the
Company's unaudited interim financial data appearing elsewhere in this Proxy
Statement. See "Selected Financial Data."
The unaudited pro forma financial statements included in this Proxy Statement
should be read in conjunction with the following notes:
1. Pro Forma Adjustments for Proposed Sale:
The pro forma balance sheet reflects proceeds from the Proposed Sale of the
Colonial Penn P&C Group of approximately $1,025 million in cash (before
reduction for the Colonial Penn P&C Group's cash acquired by the
Purchaser), consisting of a purchase price of $950 million plus an
aggregate of $156,164 per day from and including January 1, 1997 through
and including the Closing Date (estimated at approximately $40 million), a
$20 million cash dividend from CPI and approximately $15 million for the
Company's retention of certain employee benefit plan liabilities; the
elimination of the assets and liabilities of the Colonial Penn P&C Group;
estimated expenses related to the transaction; estimated income taxes; and
increased retained earnings for the estimated after-tax gain of
approximately $422 million. The pro forma income statements reflect the
elimination of the Colonial Penn P&C Group.
2. Pro Forma Adjustments for Conseco Transaction:
The pro forma balance sheet reflects proceeds from the pending sale of the
Colonial Penn Life Group to Conseco of $460 million (consisting of $400
million in notes secured by non-cancelable letters of credit and $60
million in cash); the elimination of the net assets of the Colonial Penn
Life Group; estimated expenses related to the transaction; estimated income
taxes; and increased retained earnings for the estimated after-tax gain of
approximately $228 million. The "Historical" columns reflect the Colonial
Penn Life Group as a discontinued operation. At March 31, 1997, the
Colonial Penn Life Group had total assets of approximately $1,005 million
and total liabilities of approximately $862 million. The Conseco
Transaction is not subject to Shareholder approval and is not conditioned
on the consummation of the Proposed Sale of the Colonial Penn P&C Group.
See "The Conseco Transaction."
3. Other:
The pro forma income statements do not reflect earnings on the net cash
proceeds from the Proposed Sale or the net cash proceeds or interest on the
notes from the pending Conseco Transaction. Assuming the net cash proceeds
from the Proposed Sale were invested in short/intermediate-term investment
grade obligations (with yields of 5.36% and 6.04% at January 1, 1996 and
January 1, 1997, respectively), the after tax earnings (assuming a 35%
statutory rate) on the net proceeds from the Proposed Sale would have been
approximately
10
<PAGE>
$31.0 million ($.51 per share on a fully diluted basis) for the year ended
December 31, 1996 and $8.7 million ($.14 per share on a fully diluted basis)
for the three months ended March 31, 1997. Assuming the net cash proceeds from
the Conseco Transaction were invested in the same manner as described above
and using the interest rate of the notes (as set forth in such notes), the
after tax earnings (assuming a 35% statutory rate) on the combined net
proceeds from the Conseco Transaction and the Proposed Sale would have been
approximately $47.4 million ($.78 per share on a fully diluted basis) for the
year ended December 31, 1996 and $12.8 million ($.21 per share on a fully
diluted basis) for the three months ended March 31, 1997.
Certain amounts in the "Historical" column of the pro forma balance sheet have
been reclassified to be consistent with the pro forma presentation.
11
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Pro Forma Pro Forma After Proposed
Adjustments for After Adjustments Sale to GE Capital
Proposed Sale Proposed Sale for Conseco and Conseco
Historical to GE Capital to GE Capital Transaction Transaction
---------- ------------- ------------- ----------- -----------
(In Thousands)
ASSETS
<S> <C>
Investments $2,180,297 $(921,333) $1,258,964 $ $1,258,964
Cash and cash equivalents 331,225 871,024 1,202,249 60,000 1,262,249
Reinsurance receivable, net 252,721 (67,830) 184,891 184,891
Trade, notes and other receivables, net 476,840 (149,183) 327,657 400,000 727,657
Prepaids and other assets 223,088 (13,000) 210,088 210,088
Property, equipment and leasehold
improvements, net 88,479 (18,414) 70,065 70,065
Deferred policy acquisition costs 43,213 (15,536) 27,677 27,677
Separate and variable accounts 445,627 445,627 445,627
Investments in associated companies 224,529 (3,864) 220,665 220,665
Net assets of discontinued operations 143,316 143,316 (143,316)
---------- --------- ---------- -------- ----------
Total $4,409,335 $(318,136) $4,091,199 $316,684 $4,407,883
========== ========= ========== ======== ==========
LIABILITIES
Customer banking deposits $206,299 $ $ 206,299 $ $ 206,299
Trade payables and expense accruals 170,782 (42,750) 128,032 6,000 134,032
Other liabilities 135,925 (43,928) 91,997 91,997
Income taxes payable 43,789 157,955 201,744 15,000 216,744
Deferred income taxes (86,939) 65,773 (21,166) 68,000 46,834
Policy reserves 1,258,232 (585,975) 672,257 672,257
Unearned premiums 446,859 (288,180) 158,679 158,679
Separate and variable accounts 445,017 445,017 445,017
Debt, including current maturities 523,703 (3,474) 520,229 520,229
---------- --------- ---------- -------- ----------
Total liabilities 3,143,667 (740,579) 2,403,088 89,000 2,492,088
---------- --------- ---------- -------- ----------
Minority interest 9,292 9,292 9,292
---------- --------- ---------- -------- ----------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company securities 150,000 150,000 150,000
---------- --------- ---------- -------- ----------
SHAREHOLDERS' EQUITY
Common shares 60,460 60,460 60,460
Additional paid-in capital 161,402 161,402 161,402
Net unrealized (loss) on investments (23,110) (23,110) (23,110)
Retained earnings 907,624 422,443 1,330,067 227,684 1,557,751
---------- --------- ---------- -------- ----------
Total shareholders' equity 1,106,376 422,443 1,528,819 227,684 1,756,503
---------- --------- ---------- -------- ----------
Total $4,409,335 $(318,136) $4,091,199 $ 316,684 $4,407,883
========== ========= ========== ======== ==========
</TABLE>
See accompanying notes.
12
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
for Proposed After Proposed
Sale to Sale to
Historical GE Capital GE Capital
---------- ---------- ----------
(In thousands, except per share amounts)
REVENUES:
<S> <C> <C> <C>
Insurance revenues and commissions $ 203,135 $(126,165) $ 76,970
Manufacturing 35,951 35,951
Finance 10,609 10,609
Investment and other income 69,702 (21,618) 48,084
Net securities gains (losses) 2,172 (2,214) (42)
Equity in losses of associated companies (11,011) (11,011)
--------- --------- ---------
310,558 (149,997) 160,561
--------- --------- ---------
EXPENSES:
Provision for insurance losses and policy benefits 175,412 (107,560) 67,852
Amortization of deferred policy acquisition costs 21,484 (7,961) 13,523
Manufacturing cost of goods sold 25,002 25,002
Interest 12,958 (76) 12,882
Salaries 19,353 (7,878) 11,475
Selling, general and other expenses 44,062 (7,210) 36,852
--------- --------- ---------
298,271 (130,685) 167,586
--------- --------- ---------
Income (loss) from continuing operations before income taxes
and minority expense of trust preferred securities 12,287 (19,312) (7,025)
--------- --------- ---------
Income taxes:
Current 1,715 (1,190) 525
Deferred 3,064 (5,580) (2,516)
--------- --------- ---------
4,779 (6,770) (1,991)
--------- --------- ---------
Income (loss) from continuing operations before minority expense
of trust preferred securities 7,508 (12,542) (5,034)
Minority expense of trust preferred securities, net of taxes 1,757 1,757
--------- --------- ---------
Income (loss) from continuing operations $ 5,751 $ (12,542) $ (6,791)
========= ========= =========
Earnings (loss) from continuing operations per common and dilutive common
equivalent share $ .09 $ (.11)
========= =========
Fully diluted earnings (loss) from continuing operations per common share $ .09 $ (.11)
========= =========
Number of shares in calculation:
Primary 60,614 60,614
========= =========
Fully diluted 60,614 60,614
========= =========
</TABLE>
See accompanying notes.
13
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
for Proposed After Proposed
Sale to Sale to
Historical GE Capital GE Capital
---------- ---------- ----------
(In thousands, except per share amounts)
REVENUES:
<S> <C> <C> <C>
Insurance revenues and commissions $ 827,758 $ (497,084) $ 330,674
Manufacturing 148,284 148,284
Finance 49,150 49,150
Investment and other income 249,815 (88,477) 161,338
Net securities gains (losses) 34,953 (10,126) 24,827
Equity in losses of associated companies (33,631) (33,631)
----------- ----------- -----------
1,276,329 (595,687) 680,642
----------- ----------- -----------
EXPENSES:
Provision for insurance losses and policy benefits 723,485 (421,823) 301,662
Amortization of deferred policy acquisition costs 89,839 (34,507) 55,332
Manufacturing cost of goods sold 107,667 107,667
Interest 53,931 (332) 53,599
Salaries 77,089 (32,590) 44,499
Selling, general and other expenses 194,135 (33,231) 160,904
----------- ----------- -----------
1,246,146 (522,483) 723,663
----------- ----------- -----------
Income (loss) from continuing operations before
income taxes and extraordinary loss 30,183 (73,204) (43,021)
----------- ----------- -----------
Income taxes:
Current 5,904 (3,752) 2,152
Deferred 105 (19,754) (19,649)
----------- ----------- -----------
6,009 (23,506) (17,497)
----------- ----------- -----------
Income (loss) from continuing operations before
extraordinary loss $ 24,174 $ (49,698) $ (25,524)
=========== =========== ===========
Earnings (loss) from continuing operations before extraordinary loss
per common and dilutive common equivalent share $ .40 $ (.42)
=========== ===========
Fully diluted earnings (loss) from continuing operations before
extraordinary loss per common share $ .40 $ (.42)
=========== ===========
Number of shares in calculation:
Primary 60,560 60,560
=========== ===========
Fully diluted 60,560 60,560
=========== ===========
</TABLE>
See accompanying notes.
14
<PAGE>
THE MEETING
DATE, TIME AND PLACE
The Meeting will be held on ______ __, 1997, at ____ [p.m.], local time,
at Chase Manhattan Bank, 270 Park Avenue, 11th Floor, New York, New York.
MATTERS TO BE CONSIDERED
At the Meeting, Shareholders will be asked to consider and vote upon a
proposal to approve and adopt the Purchase Agreement, to elect six directors, to
approve the issuance of the Warrants and to ratify the selection of independent
auditors. See "THE PROPOSED SALE," "THE PURCHASE AGREEMENT," "ELECTION OF
DIRECTORS," "PROPOSED ISSUANCE OF WARRANTS" and "RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS." The Board of Directors knows of no matters that are to be
brought before the Meeting other than as set forth in the Notice of Meeting. If
any other matters properly come before the Meeting, the persons named in the
enclosed form of proxy or their substitutes will vote in accordance with their
best judgment on such matters.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
Shareholders as of the Record Date (i.e., the close of business on _____
__, 1997) are entitled to notice of and to vote at the Meeting. As of the Record
Date, there were 62,108,314 Common Shares outstanding and entitled to vote, with
each share entitled to one vote.
REQUIRED VOTES
Approval and Adoption of the Purchase Agreement. The Board of Directors
has determined that, because of the significance of the Proposed Sale to the
Company, the affirmative vote of at least two-thirds of the outstanding Common
Shares shall be required to approve and adopt the Purchase Agreement. The
Company believes that Shareholder approval of the Purchase Agreement is not
required under New York law, inasmuch as the sale by CP Holdings to the
Purchaser of the Colonial Penn P&C Group does not constitute a sale by the
Company of "all or substantially all" of the assets of the Company within the
meaning of Section 909 of the NYBCL. However, by requiring the approval of at
least two-thirds of the outstanding voting shares of the Company, the Purchase
Agreement provides that the statutory two-thirds voting requirement, which would
be compulsory if Section 909 were applicable, will be satisfied in any event. In
the event that the Company fails to obtain the requisite Shareholder approval,
the Company will either re-solicit Shareholder approval or abandon the
transaction. Abstentions and broker non-votes are considered in determining the
number of votes required to attain a majority of the outstanding shares in
connection with the proposal to approve the issuance of the Warrants. Because
abstentions and broker non-votes are not affirmative votes for the matter, they
will have the same effect as votes against the matter.
Election of Directors. Under New York law, the affirmative vote of the
holders of a plurality of the Common Shares voted at the Meeting is required to
elect each director. Consequently, only shares that are voted in favor of a
particular nominee will be counted toward such nominee's achievement of a
plurality. Shares present at the Meeting that are not voted for a particular
nominee or shares present by proxy where the Shareholder properly withheld
authority to vote for such nominee (including broker non-votes) will not be
counted toward such nominee's achievement of a plurality.
15
<PAGE>
Warrants. Under New York law, the affirmative vote of the holders of a
majority of all outstanding Common Shares entitled to vote thereon is required
to approve the issuance of the Warrants. Abstentions and broker non-votes are
considered in determining the number of votes required to attain a majority of
the outstanding shares in connection with the proposal to approve the issuance
of the Warrants. Because abstentions and broker non-votes are not affirmative
votes for the matter, they will have the same effect as votes against the
matter.
Other Matters. The ratification of the selection of Coopers & Lybrand
L.L.P. as independent auditors is being submitted to Shareholders because the
Board of Directors believes that such action follows sound corporate practice
and is in the best interests of the Shareholders. If the Shareholders do not
ratify the selection by the affirmative vote of the holders of a majority of the
Common Shares voted at the Meeting, the selection of independent auditors will
be reconsidered by the Board. If the Shareholders ratify the selection, the
Board, in its discretion, may still direct the appointment of new independent
auditors at any time during the year if the Board believes that such a change
would be in the best interests of the Company and its Shareholders. Abstentions
and broker non-votes are not counted in determining the votes cast in connection
with the ratification of auditors, but do have the effect of reducing the number
of affirmative votes required to achieve a majority for such matter by reducing
the total number of shares from which the majority is calculated.
Ian M. Cumming, Chairman of the Board of Directors, beneficially owns
9,884,002 or approximately 15.9% of the Common Shares outstanding at the Record
Date, Joseph S. Steinberg, a Director and President, beneficially owns 9,112,340
or approximately 14.7% of the Common Shares outstanding at the Record Date and
the Steinberg Children Trusts beneficially own 1,127,400 or approximately 1.8%
of the Common Shares outstanding at the Record Date. Mr. Steinberg disclaims
beneficial ownership of the Common Shares held by the Steinberg Children Trusts.
The Cumming Foundation and the Joseph S. and Diane H. Steinberg 1992 Charitable
Trust, private charitable foundations independently established by Messrs.
Cumming and Steinberg, respectively, beneficially own 788,059 or approximately
1.3% and 542,408 or approximately .9% of the Common Shares outstanding at the
Record Date, respectively. Mr. Cumming and Mr. Steinberg each disclaims
beneficial ownership of the Common Shares held by their respective private
charitable foundations. Pursuant to the Voting Agreement, Messrs. Cumming and
Steinberg have agreed to cause all Common Shares that they beneficially own and
all Common Shares beneficially owned by their charitable foundations to be voted
in favor of approval and adoption of the Purchase Agreement and Messrs. Cumming
and Steinberg have advised the Company that they intend to do so. Messrs.
Cumming and Steinberg have further advised the Company that they intend to cause
all Common Shares that they beneficially own and all Common Shares beneficially
owned by their charitable foundations to be voted in favor of each nominee named
herein, in favor of approval of the issuance of the Warrants and in favor of
ratification of the selection of independent auditors. In addition to Messrs.
Cumming and Steinberg, all other directors and executive officers of the Company
beneficially own approximately .7% of the Common Shares outstanding at the
Record Date (excluding Common Shares which such directors and officers have the
right to acquire upon exercise of currently exercisable options). ACCORDINGLY,
ASSUMING MESSRS. CUMMING AND STEINBERG, THE TWO PRIVATE CHARITABLE FOUNDATIONS,
ALL OF SUCH DIRECTORS AND OFFICERS AND THE STEINBERG CHILDREN TRUSTS CAUSE ALL
COMMON SHARES BENEFICIALLY OWNED BY THEM (EXCLUDING COMMON SHARES ACQUIRABLE
UPON THE EXERCISE OF OPTIONS) TO BE VOTED IN FAVOR OF APPROVAL AND ADOPTION OF
THE PURCHASE AGREEMENT AND IN FAVOR OF APPROVAL OF THE ISSUANCE OF THE WARRANTS,
APPROVAL AND ADOPTION OF THE PURCHASE AGREEMENT WILL REQUIRE THE AFFIRMATIVE
VOTE OF AN ADDITIONAL APPROXIMATELY 31.4% OF THE OUTSTANDING COMMON SHARES AND
APPROVAL OF THE ISSUANCE OF THE WARRANTS WILL REQUIRE THE AFFIRMATIVE VOTE OF AN
ADDITIONAL APPROXIMATELY 14.8% OF THE OUTSTANDING COMMON SHARES. THE ADDITIONAL
31.4% OF THE OUTSTANDING COMMON SHARES WILL BE OBTAINED IF 48.5% OF THE COMMON
SHARES HELD BY THE PUBLIC ARE VOTED IN FAVOR OF APPROVAL AND ADOPTION OF THE
PURCHASE AGREEMENT AND THE ADDITIONAL 14.8% OF THE OUTSTANDING COMMON SHARES
WILL BE OBTAINED IF 22.9% OF THE COMMON SHARES HELD BY THE PUBLIC ARE VOTED IN
FAVOR OF THE ISSUANCE OF THE WARRANTS. FURTHER,
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ASSUMING ALL OF THE FOREGOING PERSONS CAUSE ALL COMMON SHARES BENEFICIALLY OWNED
BY THEM (EXCLUDING COMMON SHARES ACQUIRABLE UPON THE EXERCISE OF OPTIONS) TO BE
VOTED IN FAVOR OF EACH NOMINEE AND IN FAVOR OF THE RATIFICATION OF THE SELECTION
OF INDEPENDENT AUDITORS, ELECTION OF EACH NOMINEE AND RATIFICATION OF THE
SELECTION OF INDEPENDENT AUDITORS WILL BE ASSURED UNLESS MORE THAN 70.7% OF THE
OUTSTANDING COMMON SHARES ARE VOTED ON SUCH MATTERS.
VOTING AND REVOCATION OF PROXIES
Shareholders are requested to complete, date, sign and promptly return the
accompanying form of proxy in the enclosed envelope. Common Shares represented
by properly executed proxies received by the Company and not revoked will be
voted at the Meeting in accordance with the instructions contained therein. If
instructions are not given, proxies will be voted FOR approval and adoption of
the Purchase Agreement, FOR election of each nominee for director named herein,
FOR approval of the issuance of the Warrants and FOR ratification of the
selection of independent auditors.
Any proxy signed and returned by a Shareholder may be revoked at any time
before it is voted by filing with the Secretary of the Company, at the address
of the Company set forth herein, written notice of such revocation or a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person. Attendance at the Meeting will not in and of itself constitute
revocation of a proxy.
PROXY SOLICITATION
The Company will bear the costs of solicitation of proxies for the
Meeting. In addition to solicitation by mail, directors, officers and regular
employees of the Company may solicit proxies from Shareholders by telephone,
telegram, personal interview or otherwise. Such directors, officers and
employees will not receive additional compensation, but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Brokers, nominees,
fiduciaries and other custodians have been requested to forward soliciting
material to the beneficial owners of Common Shares held of record by them, and
such custodians will be reimbursed for their reasonable expenses.
INDEPENDENT AUDITORS
The Company has been advised that representatives of Coopers & Lybrand
L.L.P., the Company's independent auditors for 1996, will attend the Meeting,
will have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE PROPOSED SALE
GENERAL
The Purchase Agreement provides, among other things, for the sale by CP
Holdings to the Purchaser of the Colonial Penn P&C Group for $950 million, plus
an aggregate of $156,164 per day from and including January 1, 1997 through and
including the Closing Date. In addition, the Sellers are entitled to receive up
to $23 million in cash dividends ($3 million of which is to be funded by
proceeds from the Conseco Transaction) from the Colonial Penn P&C Group at the
Closing. See "The Purchase Agreement-Closing Date Cash Dividends." The Proposed
Sale does not include Intramerica, the GAAP book value of which, at March 31,
1997, was $32 million ($25 million after giving effect to the consummation of
the Conseco Transaction). The
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Purchaser, General Electric Capital Corporation, is engaged in the financial
services business. General Electric Capital Corporation is a wholly owned
subsidiary of General Electric Company.
DESCRIPTION OF THE COLONIAL PENN P&C GROUP BUSINESS
The Colonial Penn P&C Group consists of CPI, CP General Agency, Inc.,
Colonial Penn Madison Insurance Company, CPF, Bayside Casualty Insurance Company
and Bay Colony Insurance Company. 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 Colonial Penn P&C Group's
policies are written for a one-year period. However, in many states CPI and CPF
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.
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. For the years ended December 31, 1996, 1995 and 1994, net earned premiums
for the Colonial Penn P&C Group were $497 million, $490 million and $447
million, respectively.
In recent years, the Colonial Penn P&C Group has acquired blocks of
assigned risk business from other insurance companies relating to private
passenger automobile insurance. In addition to the premiums paid by
policyholders, the Colonial Penn P&C Group also receives fee income from the
insurance company from which the business was acquired. The Colonial Penn P&C
Group's low expense ratio enables it to bid competitively. As of December 31,
1996, the Colonial Penn P&C Group had contracts in force covering approximately
$80 million of annualized written premium.
BACKGROUND OF THE PROPOSED SALE
The Company acquired the Colonial Penn P&C Group, along with the Colonial
Penn Life Group (collectively, the "Colonial Penn Group"), in August 1991 for an
aggregate cash purchase price of approximately $128 million, including costs.
Following its acquisition, the Company restructured the Colonial Penn Group,
increasing its profitability without impairing service to existing
policyholders.
Over the course of the past several years, certain parties have contacted
the Company and indicated an interest in acquiring the Colonial Penn P&C Group
and/or the Colonial Penn Life Group. In May 1996, the Company and the Purchaser
entered into a confidentiality agreement concerning a possible transaction
involving the Colonial Penn Group. Discussions with the Purchaser followed,
resulting only in certain joint venture marketing arrangements with the
Purchaser. In late February and early March 1997, discussions concerning a
possible transaction for all or certain of the Colonial Penn Group resumed with
the Purchaser. Also at approximately that time, discussions commenced with
Conseco regarding the sale of the Colonial Penn Life Group. The Conseco
discussions were subsequently deferred while the Company continued discussions
with the Purchaser regarding the sale of the entire Colonial Penn Group by means
of a "Morris Trust" reorganization structure. Following the introduction of
certain Congressional legislation which, if enacted into law, would eliminate
certain tax benefits available under the Morris Trust structure, the Company
recommenced discussions with Conseco for the sale of the Colonial Penn Life
Group, and on April 30, 1997, the Company entered into the Conseco Agreement
with Conseco. Over the next several months, discussions and negotiations again
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resumed between the Company and the Purchaser regarding the sale of the Colonial
Penn P&C Group, and on June 30, 1997, the Company entered into the Purchase
Agreement with the Purchaser.
As previously stated, the Company acquired the entire Colonial Penn Group
in August 1991 for aggregate consideration of approximately $128 million. Since
acquisition, the Company has received $307 million in cash from the Colonial
Penn Group in respect of tax sharing payments, management and service fees,
interest and dividends. If both the Proposed Sale of the Colonial Penn P&C Group
to the Purchaser and the pending sale of the Colonial Penn Life Group to Conseco
are consummated, the Company will have sold the Colonial Penn Group (exclusive
of Intramerica's variable annuity business) for aggregate consideration of
approximately $1.47 billion in cash and notes secured by non-cancelable letters
of credit, including the $20 million dividend from CPI. Furthermore, after
giving effect to the two transactions, the Company will retain Intramerica, the
continuing operations of which had a GAAP book value at March 31, 1997 of
approximately $25 million.
FAIRNESS OPINION
On June 27, 1997, Jefferies rendered its written opinion, dated June 27,
1997 (the "Opinion"), to the Board of Directors of the Company that based upon
and subject to the various considerations set forth in the Opinion, as of June
27, 1997, the consideration to be received by the Company in connection with the
Proposed Sale (the "Consideration") was fair from a financial point of view to
the Company. No limitations were imposed by the Company's Board of Directors
upon Jefferies with respect to the investigations made or procedures followed by
it in rendering the Opinion.
The full text of the Opinion, which sets forth assumptions made, matters
considered and limitations on the review undertaken is attached as Annex B to
this Proxy Statement. Shareholders are urged to read the Opinion carefully and
in its entirety.
In arriving at the Opinion, Jefferies did not ascribe a specific range of
fair value to the Consideration, but made its determination on the basis of
financial and comparative analyses, including (without limitation) those
described below. The Opinion is based on economic and market conditions
prevailing and other circumstances and conditions existing, on the date thereof,
and Jefferies did not express any opinion as to the market value of Common
Shares of the Company, or the price or trading range at which Common Shares of
the Company will trade following consummation of the Proposed Sale.
Jefferies' opinion is directed only to the Company's Board of Directors
and does not constitute a recommendation to any Shareholder as to how such
Shareholder should vote at the Meeting. The summary of the Opinion set forth in
this Proxy Statement is qualified in its entirety by reference to the full text
of the Opinion. In addition, Jefferies was not requested to opine as to, and the
Opinion did not address, the underlying business decision of the Board of
Directors of the Company to proceed with or to effect the Proposed Sale.
In rendering the Opinion, Jefferies reviewed, among other things, the
draft of the Purchase Agreement dated June 20, 1997 and certain financial and
other information about each of the Company and the Colonial Penn P&C Group that
was in each case publicly available or furnished to Jefferies by the Company or
the Colonial Penn P&C Group, as the case may be, including certain internal
analyses, financial forecasts, an actuarial report on the loss and loss
adjustment reserves of CPI, reports and other information prepared by management
of the Company and the Colonial Penn P&C Group. Jefferies also held discussions
with members of senior management of both the Company and the Colonial Penn P&C
Group concerning the Colonial Penn P&C Group's historical and current
operations, financial condition and prospects. In addition, Jefferies
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conducted such financial studies, analyses and investigations and reviewed such
other factors as were deemed appropriate for purposes of the Opinion. Jefferies
assumed and relied upon without independent investigation or verification, the
accuracy, completeness and fairness of all financial and other information
reviewed by Jefferies for purposes of rendering the Opinion, and the Opinion is
expressly conditioned upon all such information (whether written or oral) being
accurate, complete and fair in all respects.
With regard to the financial projections examined by Jefferies (the
"Projections"), which were provided by the Company and the Colonial Penn P&C
Group, Jefferies assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
respective management of the Company and the Colonial Penn P&C Group as to the
future performance of the Colonial Penn P&C Group and, although Jefferies
performed sensitivity analysis thereon, in rendering the Opinion, Jefferies
assumed that the Company will perform in accordance with the Projections for all
periods specified therein. Jefferies has disclaimed any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Opinion of which it becomes aware after the date of the Opinion. Jefferies
was not requested to, and did not, participate in the structuring or negotiation
of the Proposed Sale, solicit third party indications of acquiring all or any
part of the Colonial Penn P&C Group, or make any independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of the Company
or the Colonial Penn P&C Group, nor was it furnished with any such evaluation or
appraisals, other than the actuarial report previously described
The following is a brief summary of the report presented by Jefferies to
the Board of Directors of the Company on June 27, 1997. The following does not
purport to be a complete description of the analyses performed, or the matters
considered, by Jefferies in arriving at the Opinion.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at the Opinion, Jefferies did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
Jefferies' analyses must be considered as a whole. Considering any portion of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the Opinion. In its analyses, Jefferies made many assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company and the
Colonial Penn P&C Group. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold. Because such estimates are inherently subject to uncertainty, none
of the Company, Jefferies or any other person assumes responsibility for the
accuracy thereof.
Analysis of Comparable Publicly Traded Companies
As part of its analysis, Jefferies compared the financial information of
the Colonial Penn P&C Group with the following publicly traded insurance
companies: Allstate Corporation; Commerce Group, Inc.; Mercury General
Corporation; The Progressive Corporation; 20th Century Industries; Horace Mann
Educators Corporation; Integon Corporation; SAFECO Corporation; The St. Paul
Companies, Inc.; USF&G Corporation; and W.R. Berkley Corporation. Among other
things, Jefferies studied acquisition value divided by latest twelve month
("LTM") total revenues, acquisition value divided by LTM operating income,
acquisition value divided by LTM pre-tax income, estimated 1997 and 1998 price
to earnings ratios ("P/E"s), market capitalization
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divided by last fiscal year statutory net income, price to GAAP and statutory
book values and price to GAAP tangible book values. The multiples and market
capitalizations for the Colonial Penn P&C Group were calculated using an
estimated acquisition value of the Colonial Penn P&C Group of $989.8 million.
The range of comparables for the acquisition value divided by LTM total
revenue showed a low of 0.8x, a high of 2.4x, with an average of 1.5x, compared
to a ratio for the Colonial Penn P&C Group of 1.7x. With respect to acquisition
value divided by LTM operating income, the low was 9.2x, the high was 13.9x, and
the average was 12.2x, compared to 14.4x for the Colonial Penn P&C Group. The
range of comparables for acquisition value to LTM pre-tax income was a low of
8.6x, a high of 13.7x and an average of 10.5x, compared to 13.6x for the
Colonial Penn P&C Group. The range of comparables for the latest twelve months
P/E ratios showed a low of 11.1x, a high of 24.9x, with an average of 14.5x,
compared to a P/E ratio for the Colonial Penn P&C Group of 20.9x. With respect
to estimated 1997 P/E ratios, the low was 11.4x, the high was 19.0x, and the
average was 15.1x, compared to 22.1x for the Colonial Penn P&C Group. The range
of comparables for estimated 1998 P/E ratios was a low of 10.3x, a high of 27.2x
and an average of 13.9x, compared to 21.3x for the Colonial Penn P&C Group. The
range of comparables for the ratio of market capitalization to last fiscal year
statutory net income showed a low of 11.3x, a high of 57.2x, and an average of
16.5x, compared to 19.9x for the Colonial Penn P&C Group. The price to GAAP book
value for the comparables ranged from a low of 1.3x to a high of 4.6x, with an
average of 2.3x, compared to 2.6x for the Colonial Penn P&C Group. The price to
GAAP tangible book value ranged from a low of 1.7x to a high of 20.3x, with an
average of 2.9x, compared to 3.3x for the Colonial Penn P&C Group. The ratio of
price to statutory book value ranged from a low of 1.3x to a high of 4.8x, with
an average of 2.4x, compared to 3.2x for the Colonial Penn P&C Group. In
addition, Jefferies analyzed a subset of the comparable companies which are
engaged primarily in the auto property and casualty business.
None of the companies used in the above analysis is identical to the
Colonial Penn P&C Group or to the surviving corporation. Consequently, an
appropriate use of a comparable company analysis in this instance necessarily
involves qualitative judgments concerning, among other things, differences
between the financial and operating characteristics of the Colonial Penn P&C
Group and the selected comparable companies.
Pro Forma Earnings Per Share Analysis
Jefferies analyzed certain pro forma effects of the Proposed Sale on the
earnings of the Company. These analyses were based on the Projections provided
by senior management of the Company and the Colonial Penn P&C Group regarding
the financial performance of the Colonial Penn P&C Group. Based on such
analysis, Jefferies observed that, if the proceeds of the Proposed Sale (before
tax effects) are able to be invested at a return on assets greater than 7.0% in
1997, the Proposed Sale would be accretive to the Company's earnings per share.
Merger and Acquisition Transactions
Jefferies examined ten mergers and acquisitions of property and casualty
insurance companies that have occurred since January 1992 where the enterprise
value was greater than $200 million, the percentage of shares acquired was
greater than 50% and offering ratios were available. For each transaction,
Jefferies studied the ratios of offer price to LTM total revenue, offering price
to LTM operating income, offer price to LTM earnings and offer price to GAAP
book value. Excluding the highest and lowest values, the LTM total revenue ratio
of the comparables ranged from a low of 0.5x to a high of 6.7x, with an average
of 1.2x, compared to 1.7x for the Colonial Penn P&C Group. The LTM operating
income ratio of the comparables ranged from a low of 6.7x to a high of 20.7x,
with an average of 10.2x, compared to 14.4x for the Colonial Penn P&C Group. The
offer price to LTM earnings ratio of the comparables ranged from a low of 9.0x
to a high of
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31.9x, with an average of 15.2x, compared to 20.9x for the Colonial Penn P&C
Group. The ratio of price to GAAP book value ranged from a low of 0.9x to a high
of 3.0x, with an average of 1.5x, compared to 2.6x for the Colonial Penn P&C
Group. As part of the analysis, Jefferies analyzed the acquisition multiples of
GEICO Corp. by Berkshire Hathaway, Inc. Jefferies noted that bid premiums for
control positions in publicly traded companies are approximately 25%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of the Colonial Penn P&C Group and the companies engaged
in the selected transaction, an appropriate use of a comparable transaction
analysis in this instance necessarily involves qualitative judgments concerning,
among other things, differences between the characteristics of these
transactions and the Proposed Sale that would affect the acquisition value of
the transaction comparables and the Colonial Penn P&C Group.
Discounted Cash Flow Analysis
In performing its evaluation of the Proposed Sale, Jefferies also relied
on a discounted cash flow analysis. Using the Projections and other financial
information supplied by the Company and the Colonial Penn P&C Group, Jefferies
analyzed the sum of (i) the present value of tax-effected operating cash flow
for the years 1997 to 2001, using discount rates of 10.3% to 14.3%, plus (ii)
the estimated "terminal value" of the appropriate entity based upon a range of
multiples of 11.0x to 13.0x projected 2001 operating income, discounted to the
present. The discounted cash flow analysis implies a value of the Colonial Penn
P&C Group of $578.4 million to $1,187.9 million depending upon the sensitivity
scenario, compared to an acquisition valuation of the Colonial Penn P&C Group of
$989.9 million.
Other Matters
The summary set forth above does not purport to be a complete description
of the presentation by Jefferies to the Board of Directors of the Company.
Jefferies believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or the above summary, without considering all factors
and analyses could create an incomplete view of the process underlying the
analyses and the Opinion.
In the past, Jefferies has provided advisory and underwriting services to
the Company for which it has received customary fees. The Company retained
Jefferies on the basis of the Company's past relationship with Jefferies and
Jefferies' knowledge with respect to the Company and its subsidiaries and
Jefferies' expertise and experience in similar advisory capacities.
Pursuant to an engagement letter dated June 16, 1997 between the Company
and Jefferies, the Company has paid Jefferies a fee of $150,000 for delivering
the Opinion and shall reimburse Jefferies for out-of-pocket expenses incurred in
connection with rendering its services. The Company has also agreed to indemnify
Jefferies against certain liabilities, including liabilities under the federal
securities laws. In the ordinary course of its business, Jefferies may actively
trade securities of the Company and General Electric Company for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
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RECOMMENDATION OF THE BOARD OF DIRECTORS;
REASONS FOR THE PROPOSED SALE
At a meeting of the Board of Directors held on June 27, 1997, after
consultation with Jefferies and the Company's legal counsel and receipt of
Jefferies' opinion that the consideration to be received by the Company pursuant
to the Purchase Agreement is fair from a financial point of view to the Company,
the Board of Directors approved the Purchase Agreement and the transactions
contemplated thereby, authorized the execution, delivery and performance of the
Purchase Agreement and resolved to recommend that the Shareholders approve and
adopt the Purchase Agreement and the transactions contemplated thereby.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE AND ADOPT THE PURCHASE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
The Board of Directors believes that the terms of the Purchase Agreement
are in the best interests of the Company. Accordingly, the Board of Directors
approved the Purchase Agreement and the transactions contemplated thereby and
has recommended that the Shareholders approve and adopt the Purchase Agreement
and the transactions contemplated thereby. In reaching its conclusions, the
Board of Directors considered the following principal factors:
(a) Jefferies' presentation to the Board of Directors on June 27,
1997 and Jefferies' written opinion dated June 27, 1997 that the consideration
to be received in connection with the Proposed Sale is fair from a financial
point of view to the Company;
(b) the terms and conditions of the Purchase Agreement, including
(i) the amount and form of consideration, which is significantly in excess of
the book value of the Colonial Penn P&C Group, (ii) the closing date cash
distributions from the Colonial Penn P&C Group to the Company and (iii)
indemnification provisions which could result in certain payments being made in
the future by the Sellers;
(c) the fact that the Closing of the Proposed Sale is conditioned
upon obtaining Shareholder approval of the Purchase Agreement, but not
conditioned upon the closing of the Conseco Transaction;
(d) the non-competition agreement of the Company contained in the
Purchase Agreement, pursuant to which the Company agreed that, among other
things, for a period of three years following the Proposed Sale, (i) it will not
and will not permit any of its affiliates to start (de novo) a personal lines
automobile insurance business in the United States, (ii) the Empire Group (as
defined under "The Purchase Agreement-Non-Competition Agreement") will not
geographically expand its business, (iii) the voluntary personal lines
automobile insurance business of the Empire Group will not have more than $250
million of gross written premium in any one statutory year, (iv) if, during such
three year period, the Company or any of its affiliates acquires any insurance
company with gross written personal lines automobile insurance premium in excess
of $300 million in the last completed statutory year of such acquired company,
the Company or such affiliate must, under certain circumstances, divest itself
of the personal lines automobile insurance operations of such insurance company
within nine months after acquisition;
(e) the fact that the Company had engaged in preliminary discussions
with certain other parties which had expressed interest in acquiring the
Colonial Penn P&C Group and that none of such parties were willing to pursue a
transaction for the amount of consideration proposed by the Purchaser;
(f) the fact that, although the Company may not solicit Acquisition
Proposals, the Company may, in accordance with the Purchase Agreement, at any
time prior to Shareholder approval of the Purchase Agreement and the
transactions contemplated thereby, furnish information to, and discuss and
negotiate with,
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parties other than the Purchaser who, without any solicitation by the Company or
its representatives, submit an Acquisition Proposal, and that the Company may
terminate the Purchase Agreement and enter into an agreement with respect to an
Acquisition Proposal if the Board of Directors determines in good faith that it
is necessary to do so to comply with its fiduciary duties, subject to the
payment of certain fees to the Purchaser (see "The Purchase Agreement-No
Solicitation," "The Purchase Agreement-Termination" and "The Purchase
Agreement-Termination Fees");
(g) current industry conditions relating to the business of the
Colonial Penn P&C Group, primarily increased competition resulting from large
amounts of capital flowing into the direct automobile insurance business and the
belief of the Board of Directors that in order to remain competitive, the
Company would be required to significantly increase its marketing expenditures;
and
(h) the financial condition, assets, liabilities, businesses and
operations of the Colonial Penn P&C Group, both on a historical and prospective
basis, and in particular the belief of the Board of Directors that, without
additional investments, the business of the Colonial Penn P&C Group is mature
and that historical rates of return on the Company's original investment from
the Colonial Penn P&C Group are unlikely to continue as the majority of the
benefits from the Company's restructuring of the Colonial Penn Group since
acquisition have been realized and the possibility that the Purchaser may enter
into the business of the Colonial Penn P&C Group with a lower cost of capital
than the Company, whether or not the Proposed Sale was consummated.
In light of the number and variety of factors considered by the Board of
Directors in connection with its evaluation of the Proposed Sale, the Board of
Directors did not find it practicable to assign relative weights to the
foregoing factors, and they did not do so.
USE OF PROCEEDS; PROPOSED BUSINESS OF THE COMPANY
SUBSEQUENT TO THE PROPOSED SALE AND THE CONSECO TRANSACTION
Use of Proceeds
The Company has made no determination as to the use of the proceeds of the
Proposed Sale (which is expected to be approximately $1 billion). The Company
may use such proceeds for working capital, acquisitions or investment
opportunities, although the Investment Company Act considerations discussed
below will be taken into account in determining the use of such proceeds. The
Company has no material arrangement, commitment or understanding with respect to
any acquisition or investment opportunity. Pending such uses, the proceeds will
be primarily invested in short/intermediate-term investment grade obligations.
Investment Company Act Considerations
The Company does not intend to conduct its affairs in a manner which would
require registration as an investment company under the Investment Company Act
of 1940.
The Investment Company Act places restrictions on the capital structure,
business activities and corporate transactions of companies registered
thereunder. Generally, an issuer is deemed to be an investment company subject
to registration if its holdings of "investment securities" (generally,
securities other than securities issued by majority controlled, non-investment
company subsidiaries and government securities) exceed 40% of the value of its
total assets exclusive of government securities and cash items on an
unconsolidated basis. Pursuant to a rule of the Commission under the Investment
Company Act, a company that otherwise would be deemed to be an investment
company may be excluded from such status for a one-year period
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provided that such company has a bona fide intent to be engaged primarily, as
soon as reasonably possible (and in any event within that one-year period), in a
business other than that of investing, reinvesting, owning, holding or trading
in securities. If the Company would otherwise be deemed to be an investment
company under the Investment Company Act, the Company intends to rely on such
exemption while it considers the acquisition of controlling interests in other
businesses with the proceeds of the Proposed Sale, and will not register as an
investment company under the Investment Company Act during the one-year period
commencing with the closing of the later of the Proposed Sale and the Conseco
Transaction.
Registration by the Company under the Investment Company Act would require
the Company to comply with various reporting and other requirements under the
Investment Company Act, would subject the Company to certain additional expense
and could limit the Company's options for future operations.
If the Company has not acquired sufficient operating businesses within the
one-year period referred to above, the Company may be required to invest certain
of its assets in government securities and/or cash equivalents that are not
considered "investment securities" under the Investment Company Act. Such
investments could yield a significantly lower rate of return than alternative
investments which the Company could make if it chose to register as an
investment company.
THE CONSECO TRANSACTION
On April 30, 1997, the Company signed an agreement to sell its
subsidiaries, CPL and PLC, and certain related assets to Conseco for $460
million, including $400 million in notes secured by non-cancelable letters of
credit and $60 million in cash. The operations to be acquired by Conseco include
all of the Company's "Graded Benefit Life" insurance operations and its health
insurance operations. The sale is subject to customary terms and conditions,
including the receipt of regulatory approvals, and is expected to close in the
third quarter of 1997. The Conseco Transaction is not conditioned on the
consummation of the Proposed Sale and the Proposed Sale is not conditioned on
the consummation of the Conseco Transaction. The Company expects to report a
pre-tax gain of approximately $300 million upon consummation of the Conseco
Transaction. The Colonial Penn Life Group has been classified as discontinued
operations.
The Colonial Penn Life Group engages in the sale of Graded Benefit Life
insurance policies through direct marketing and agent-sold Medicare supplement
insurance.
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.
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 PLC, which markets agent-sold standardized Medicare
supplement products in communities where health maintenance organizations are
less prevalent. The absence of health maintenance organizations allows PLC to
charge premium rates that provide for an adequate return on investments.
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Pursuant to the Conseco Agreement, an affiliate of the Company and Conseco
shall enter into a licensing agreement (the "Conseco License Agreement")
pursuant to which the affiliate, as licensor, will grant to Conseco, as
licensee, a personal, non-transferable, non-exclusive license (the "License"),
without the right to sublicense except as provided therein, to use certain
trademarks, service-marks and/or trade-names (the "Life Marks") in connection
with certain products and services within the United States during a period from
the closing date of the Conseco Transaction to but not including the 18th month
anniversary of such date (the "License Term"). The Conseco License Agreement
shall provide that following the License Term CPL may continue with its current
name and use the License in connection with premium collections and maintenance
of polices of CPL existing at the end of the License Term; provided, however,
that CPL may not use the words "Colonial," "Penn" or "Colonial Penn" after the
License Term in connection with the marketing of any products, including,
without limitation, add-ons or upgrades of existing policies of CPL.
Pursuant to the Conseco License Agreement, neither Conseco nor the
Colonial Penn Life Group shall have the right to limit or restrict the Company
(or any affiliate or any assignee or transferee of the Company) from using the
Life Marks or the words "Colonial," "Penn" or "Colonial Penn" except that the
Company agreed that following the closing date of the Conseco Transaction, any
life insurance products marketed or sold by the Company or any affiliate shall
be issued by an entity that does not have the words "Colonial," "Penn" or
"Colonial Penn" in its corporate name and does not use such words in any life
insurance product name and that following the date hereof it will not sell,
assign or transfer any rights to use the words "Colonial," "Penn" or "Colonial
Penn" in connection with the insurance business without obtaining from the
purchaser, assignee or transferee of such rights an agreement to be bound by the
foregoing restriction.
ABSENCE OF APPRAISAL RIGHTS
The Company does not believe that rights of dissent are available under
New York law in connection with the Purchase Agreement, since the sale of the
Colonial Penn P&C Group by CP Holdings does not constitute a sale by the Company
of "all or substantially all" of the assets of the Company within the meaning of
Section 909 of the NYBCL.
If, however, Section 909 of the NYBCL were applicable to the Proposed
Sale, Shareholders entitled to vote would be able, pursuant to Sections 910 and
623 of the NYBCL, a copy of each of which is attached hereto as Annex C, to
dissent from the proposed transaction and demand payment of the fair value of
their Common Shares in the event the Proposed Sale is consummated. To exercise
such right, a Shareholder opposing the sale would first be required to file with
the Company a written objection to the sale prior to the taking of the vote
thereon, would not be able to vote any of his Common Shares in favor of the
proposed transaction and would otherwise be required to follow the procedures
specified in Section 623. Such objection would also be required to include a
statement that the Shareholder intends to demand payment for his Common Shares
if the Proposed Sale is consummated. A vote against, or a direction in a proxy
to vote against, the Proposed Sale would not of itself constitute such written
objection. Assuming such written objection were timely made, if, within 20 days
after the date upon which the Shareholder were to receive formal notice from the
Company of the authorization of the Proposed Sale, the Shareholder were to file
with the Company a written notice of election to dissent, including a demand for
payment of the fair value of all of his or her Common Shares, such dissenting
Shareholder's right to the payment of the fair value of his or her Common Shares
would be determined in accordance with the applicable provisions of Section 623.
AS STATED ABOVE, THE COMPANY DOES NOT BELIEVE THAT SECTION 909 IS
APPLICABLE AND INTENDS TO DISPUTE THE RIGHT OF A SHAREHOLDER TO DISSENT FROM THE
PROPOSED TRANSACTION.
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THE PURCHASE AGREEMENT
Although the Company believes that the following summary of the Purchase
Agreement describes the material terms and conditions of the Purchase Agreement,
such summary is qualified in its entirety by reference to the Purchase
Agreement, a copy of which is attached hereto as Annex A and is incorporated
herein by reference. Terms which are not otherwise defined in this summary have
the meaning set forth in the Purchase Agreement.
PURCHASE PRICE
The Purchase Agreement provides for the sale by CP Holdings to the
Purchaser of the Colonial Penn P&C Group for an amount equal to $950 million,
plus an aggregate of $156,164 per day from and including January 1, 1997 through
and including the Closing Date. The Purchase Price shall be payable on the
Closing Date in cash. In addition, the Purchase Agreement provides that CPI pay
a $20 million dividend on the Closing Date to CP Holdings. See "-Closing Date
Cash Dividends."
THE CLOSING
If the Purchase Agreement is approved by the requisite vote of the
Shareholders at the Meeting, the closing of the Proposed Sale (the "Closing")
will take place on the second business day after satisfaction or waiver of
certain conditions specified in the Purchase Agreement, unless another date is
agreed to in writing by the Purchaser and the Company; provided, that if the
Closing would but for this provision occur during the two weeks immediately
preceding the end of a calendar quarter, the Closing will take place on the
first business day following the end of such calendar quarter. See
"-Conditions."
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains various customary representations and
warranties of the Sellers and the Purchaser. These include representations and
warranties by the Sellers relating to, among other things: (a) each of the
Seller's organization and similar corporate matters; (b) each of the Colonial
Penn P&C Group member's capital structure; (c) authorization, execution,
delivery, performance and enforceability of the Purchase Agreement and related
matters; (d) accuracy of financial statements filed with various insurance
regulators and unaudited combining financial statements; (e) absence of
undisclosed liabilities; (f) absence of certain changes or events; (g) taxes;
(h) benefit plans; (i) compliance with laws; (j) litigation; (k) title to assets
and properties of the Colonial Penn P&C Group; (l) certain contracts; (m)
insurance; (n) brokers and advisors; (o) intellectual property; (p) insurance
and reinsurance issued by the Colonial Penn P&C Group and related matters; (q)
labor matters; (r) accuracy of information; (s) environmental matters; (t)
financial matters relating to CPI; and (u) absence of regulatory disqualifiers.
The Purchaser's representations and warranties include those relating to, among
other things: (a) Purchaser's organization and similar corporate matters; (b)
authorization, execution, delivery, performance and enforceability of the
Purchase Agreement and related matters; (c) litigation; (d) brokers; (e)
investment intent; (f) absence of regulatory disqualifiers; (g) accuracy of
information; and (h) sufficiency of available funds.
CERTAIN COVENANTS
Pursuant to the Purchase Agreement, each of the Sellers and the Purchaser
has made various customary covenants for transactions of this type, including,
among others, that from the date of the Purchase Agreement through the Closing
Date, except (a) as permitted by or contemplated in the Purchase Agreement or
(b) as otherwise consented to in writing by the Purchaser, the Sellers shall
cause the members of the Colonial Penn
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P&C Group to conduct their respective businesses in the ordinary course
consistent with past practice and, to the extent consistent therewith, use
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current key officers and employees and preserve
the goodwill of those engaged in material business relationships with them. In
addition, subject to the same qualifiers as in the preceding sentence, the
Sellers have agreed to cause the Colonial Penn P&C Group not to, among other
things, (i) declare or pay any dividends or make other distributions in respect
of any of their capital stock, and will not effect certain other changes in
their capitalization; (ii) issue capital stock, rights, warrants, options or
similar securities; (iii) amend their articles or certificate of organization,
bylaws or other comparable charter or organizational documents; (iv) acquire or
commence the operations of any business or acquire any assets having a purchase
price in excess of $250,000, except purchases of investments in accordance with
specified guidelines; (v) incur indebtedness for borrowed money or guarantee or
otherwise become responsible for any such indebtedness or make any loans or
advances or capital contributions to any other person other than any of the
members of the Colonial Penn P&C Group; (vi) discharge, settle or satisfy any
claims, liabilities or obligations, other than in the ordinary course of
business consistent with past practice; (vii) invest cash unless in accordance
with specified guidelines; (viii) make any change in accounting practices; (ix)
except for ordinary salary and wage increases in the ordinary course of business
and consistent with past practices, amend the contracts, salaries, wages or
other compensation of any employee, agent or consultant of the Colonial Penn P&C
Group, other than amendments that are required under existing contracts as
disclosed, enter into any employment, severance or termination agreement (other
than pursuant to existing policies) with any officer or employee, which grants
any such person an increase in severance or termination pay, or adopt, enter
into, amend, alter or terminate, any Benefit Plan; (x) except in the ordinary
course of business consistent with past practices, modify, amend or terminate
any material agreement to which a member of the Colonial Penn P&C Group is a
party, or waive any material rights or claims thereunder; (xi) sell, lease,
mortgage or otherwise encumber or transfer or dispose of assets having an
aggregate book value in excess of $200,000 other than in the ordinary course;
(xii) enter into any material contract; (xiii) make capital expenditures in
excess of $250,000 in the aggregate; (xiv) settle or compromise specified
litigation or other litigation involving payments in excess of $250,000; (xv)
move the operations of any business; or (xvi) authorize any of, or commit to
agree to take any of, the foregoing actions.
NO SOLICITATION
The Purchase Agreement provides that the Company shall not, nor shall it
knowingly permit any of its subsidiaries or any of their respective officers,
directors, employees, agents, investment bankers, attorneys, financial advisors
or other representatives (collectively, "Representatives") to (a) solicit,
initiate or knowingly encourage the submission of, any Acquisition Proposal, (b)
enter into any agreement with respect to any Acquisition Proposal, or (c)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal that
constitutes or would reasonably be expected to lead to, an Acquisition Proposal;
provided, however, that, notwithstanding anything to the contrary in the
Purchase Agreement, (x) the Company may advise any third party of the existence
of this restriction, (y) at any time prior to Shareholder approval of the
Purchase Agreement and the transactions contemplated thereby, the Company may
participate in discussions or negotiations with, and may furnish information
(pursuant to a confidentiality agreement in customary form) concerning the
Sellers and/or the Colonial Penn P&C Group and their business, properties and
assets to, a third party who, without any solicitation by the Company or any
Representatives after the date of the Purchase Agreement, submits an Acquisition
Proposal, if the Board of Directors of the Company in good faith determines,
based on advice of outside counsel, that it is necessary to do so to comply with
its fiduciary duties to Shareholders under applicable law and (z) the Board of
Directors of the Company may take and disclose to the Shareholders a position
with regard to a tender offer or exchange offer contemplated by Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act and may make such disclosure to the
Shareholders as may be
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required under applicable law; provided, that the Board of Directors of the
Company shall not recommend that the Shareholders tender their Common Shares
unless such recommendation is a Permitted Action. "Acquisition Proposal" means a
proposal or offer for a tender or exchange offer, merger, consolidation or other
business combination (i) involving all or substantially all of the Company and
its subsidiaries, taken as a whole, or any member of the Colonial Penn P&C Group
or (ii) to acquire or cause to be acquired in any manner, directly or
indirectly, including without limitation through any reinsurance transaction not
in the ordinary course of business, all or substantially all of the business or
assets of the Company and its subsidiaries, taken as a whole, or of any member
of the Colonial Penn P&C Group, or all or a substantial percentage of the
capital stock or other ownership interests in the Company or any member of the
Colonial Penn P&C Group, or any similar transaction.
Notwithstanding anything to the contrary in the Purchase Agreement, the
Board of Directors of the Company shall be permitted from time to time to take
the following actions in the circumstances described below: (a) to withdraw or
modify its approval or recommendation of the Purchase Agreement and the
transactions contemplated thereby; or (b) to approve, recommend or enter into an
agreement with respect to an Acquisition Proposal; if, in each such case, prior
to Shareholder approval (i) an unsolicited Acquisition Proposal is communicated
to the Sellers, publicly proposed or publicly disclosed and (ii) the Board of
Directors of the Company determines in good faith, based on advice of outside
counsel, that it is necessary to do so to comply with its fiduciary duties under
applicable law. No action by the Board of Directors of the Company permitted by
the preceding sentence (each a "Permitted Action") shall constitute a breach of
the Purchase Agreement by the Company; provided, however, that the Sellers shall
be obligated to pay fees as described under "Termination Fees."
EMPLOYMENT AND EMPLOYEE BENEFIT PLANS
Pursuant to the Purchase Agreement, except for persons noticed for
termination or pursuant to a generally advertised solicitation, for a four-year
period following the Closing Date, the Sellers and their affiliates shall not
directly or indirectly solicit for employment or, to the knowledge of the
Sellers, hire any employees of the Colonial Penn P&C Group. In addition, the
Sellers have agreed to retain certain employee benefit obligations of the
Colonial Penn P&C Group, for which the Purchaser will pay additional cash
consideration to the Sellers.
OTHER AGREEMENTS
Intercompany Agreements
Except for certain specified agreements, which have been extended, all
intercompany agreements between either the Sellers or any of their affiliates
(other than the Colonial Penn P&C Group), on the one hand, and any of the
members of the Colonial Penn P&C Group, on the other hand, including without
limitation, any allocation, indemnification or similar agreement or arrangement
by any Seller for the benefit of any of the members of the Colonial Penn P&C
Group, will terminate on or prior to the Closing Date.
Intramerica Distribution
Pursuant to the Purchase Agreement, the Sellers shall cause CPI to
distribute or otherwise transfer its 98% interest in the common stock of
Intramerica to CP Holdings (the "Intramerica Distribution").
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Trademark Assignment or Limited License
Pursuant to the Purchase Agreement, effective upon the Closing Date, and
provided that the Conseco Transaction shall have been consummated prior thereto,
CPG shall assign to the Purchaser all of its right, title and interest,
including all goodwill associated therewith, in and to the trademarks, service
marks and/or tradenames of the Colonial Penn P&C Group set forth in the Purchase
Agreement (collectively, the "P&C Marks"), free and clear of all Liens other
than the Conseco License Agreement and the Purchaser covenants that it agrees to
be bound by the terms of the Conseco License Agreement.
If the Conseco Transaction shall not have been consummated prior to the
Closing Date, at the Closing: (a) CPG shall assign to the Purchaser all of its
right, title and interest, including all goodwill associated therewith, in and
to the P&C Marks and the Life Marks, free and clear of all Liens other than the
CPL License Agreement (as defined herein) and the Conseco License Agreement; (b)
the Purchaser and CPL shall enter into a license agreement (the "CPL License
Agreement") pursuant to which the Purchaser, as licensor, will grant to CPL, as
licensee, a personal, non-exclusive license that can be sublicensed only to an
affiliate of CPL (which sublicensee shall be bound by the terms of the CPL
License Agreement) and that will not terminate or otherwise be affected as a
result of a sale or transfer of the stock of (i) CPL or (ii) any person owning
the stock, directly or indirectly, of CPL to use the Life Marks solely in the
life and health insurance business for the period of time from the Closing Date
to the effective date of the Conseco License Agreement; provided, that if the
Conseco Transaction shall not have been consummated within six (6) months from
the Closing Date, the term of the CPL License Agreement shall be extended for an
initial term of ten (10) years, to automatically renew for successive 10 year
terms unless the licensee provides licensor with a notice of non-renewal within
one month of the then scheduled expiration date of such term. Under the CPL
License Agreement, the Sellers will agree to take certain actions within 18
months of the Closing Date, in an effort to minimize brand confusion; and (c)
unless the Conseco Agreement shall have been terminated, the Purchaser agrees
that it will enter into and deliver the Conseco License Agreement at the closing
of the Conseco Agreement, if such closing of the Conseco Agreement occurs within
six (6) months of the Closing Date.
The Sellers acknowledge that, except as provided in the CPL License
Agreement, none of the Sellers has the right to use the P&C Marks or the Life
Marks and except as contemplated by the Purchase Agreement, none of the Sellers
has the right to limit or restrict the Purchaser (or any affiliate or any
assignee or transferee of any of them) from using the same or the words
"Colonial," "Penn" or "Colonial Penn".
Prior to the Closing Date, the Colonial Penn P&C Group will waive any
ownership interest in certain computer software and the Sellers and Sellers'
affiliates, including the Colonial Penn P&C Group, will enter into a license
agreement licensing the Colonial Penn P&C Group's ability to use such computer
software for an indefinite term, without any software maintenance responsibility
by the Sellers.
CLOSING DATE CASH DISTRIBUTIONS
Pursuant to the Purchase Agreement, the Colonial Penn P&C Group will
declare and to the extent permitted by applicable law pay the following cash
dividends: (a) a $3 million cash dividend from CPF (the "CPF Dividend") that is
to be funded by the proceeds of the Conseco Transaction; and (b) a cash dividend
from CPI, which shall consist of the CPF Dividend, together with a $20 million
cash dividend from CPI, the sources of which may include dividends from CPI's
subsidiaries (the "CPI Dividend").
The dividends shall be paid on the Closing Date. To the extent that any
dividend shall not have been paid in full on the Closing Date, such unpaid
dividend shall remain an obligation of the CPI subsidiary declaring such unpaid
dividend until paid in full. If CPI does not pay the CPI Dividend to CP Holdings
on the Closing
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Date, the Purchaser shall purchase from CP Holdings the right to receive the CPI
Dividend for $20 million plus the amount of the CPF Dividend (the "Dividend
Amount") in cash. If for any reason CPI is unable to declare and pay to CP
Holdings the full amount of the CPI Dividend on the Closing Date, then the
Purchaser shall pay to CP Holdings at the Closing the difference between the
amount of the CPI Dividend paid to CP Holdings and the Dividend Amount.
NON-COMPETITION AGREEMENT
Pursuant to the Purchase Agreement, the Company has agreed, that for a
period of three years following the Closing Date (the "Restricted Period"),
without the prior written consent of the Purchaser, (a) the Company will not and
will not permit any of its affiliates to start (de novo) a personal lines
automobile insurance business in the United States; (b) the personal lines
automobile business of Empire Insurance Company ("Empire") and its subsidiaries
(collectively, the "Empire Group"), will not expand beyond the states in which
any member of the Empire Group is licensed as of the date of the Purchase
Agreement; (c) the voluntary personal lines automobile insurance business of the
Empire Group will not have more than $250 million of gross written premium in
any one statutory year; (d) if, during the Restricted Period, the Company or any
of its affiliates acquires any insurance company with gross written personal
lines automobile insurance premium in excess of $300 million in the last
completed statutory year of such acquired insurance company immediately
preceding the date of such acquisition by the Company (the "Acquired Company"),
the Company or such affiliate shall promptly, but in no event later than nine
months after the date of such acquisition, divest itself of the personal lines
automobile insurance operations of such Acquired Company, subject to certain
exceptions. In no event shall gross written voluntary personal lines automobile
premium of the Company and its affiliates (including as a result of activities
and acquisitions permitted under clauses (b), (c) and (d) above) exceed $500
million in any 12 month period during the Restricted Period. In addition, for a
period of four years following the Closing Date, the Company will not directly
or indirectly acquire any company the primary business of which is the direct
marketing of personal lines automobile insurance.
CONDITIONS
The respective obligations of the parties to consummate the Proposed Sale
are subject to the following conditions, among others: (a) all filings required
to be made prior to the Closing Date with, and all consents, approvals, permits
and authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity, in connection with the execution and delivery of the
Purchase Agreement and the consummation of the Proposed Sale shall have been
made or obtained, including without limitation, from the Insurance Regulators in
all appropriate jurisdictions and such consents, approvals, permits and
authorizations shall be in full force and effect and shall be subject to no
conditions other than those customarily imposed by insurance regulatory
authorities in connection with similar acquisitions; (b) the applicable waiting
period applicable to the Proposed Sale under the HSR Act shall have been
terminated or shall have otherwise expired; (c) no temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation
of the Proposed Sale shall be in effect or threatened; (d) the Purchase
Agreement shall have been approved and adopted by the Shareholders; and (e) if
the Conseco Transaction shall not have been consummated, certain agreements set
forth in the Purchase Agreement shall be in full force and effect.
The Purchaser's obligation to consummate the Proposed Sale is subject to
additional conditions, including that (a) the representations and warranties of
the Sellers that are qualified as to materiality shall be true and correct and
the representations and warranties of the Sellers that are not so qualified
shall be true and correct in all respects that reasonably are material, in each
case as of the date of the Purchase Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as a result of any actions
contemplated or permitted by the Purchase Agreement and except to the extent any
such representation and
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warranty speaks as of an earlier date, in which event such representation and
warranty shall be true and correct, or true and correct in all respects that
reasonably are material, as applicable, as of such date; (b) the Sellers shall
have performed in all material respects all of the obligations required to be
performed by them under the Purchase Agreement; and (c) Purchaser shall have
received an opinion of the General Counsel of the Colonial Penn P&C Group and an
opinion of Weil, Gotshal & Manges LLP, counsel to the Sellers.
The Sellers' obligations to consummate the Proposed Sale are subject to
additional conditions, including that: (a) the representations and warranties of
the Sellers that are qualified as to materiality shall be true and correct and
the representations and warranties of the Purchaser that are not so qualified
shall be true and correct in all respects that reasonably are material, in each
case as of the date of the Purchase Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as a result of any actions
contemplated by the Purchase Agreement and except to the extent any such
representation and warranty speaks as of an earlier date, in which event such
representation and warranty shall be true and correct, or true and correct in
all respects that reasonably are material, as applicable, as of such date; (b)
the Purchaser shall have performed in all material respects all of the
obligations required to be performed by it under the Purchase Agreement; (c)
Sellers shall have received an opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., counsel to the Purchaser; (d) the CPI Dividend shall have been paid to
the Company and/or the Purchaser shall have purchased the right to receive the
CPI Dividend in accordance with the Purchase Agreement; and (e) the Intramerica
Distribution shall have been effected.
TERMINATION
The Purchase Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the Shareholders at the Meeting: (a)
by mutual written consent of the Purchaser and the Sellers; (b) by either the
Purchaser or the Sellers, if the Proposed Sale shall not have been consummated
on for before December 31, 1997; (c) by either the Purchaser or the Sellers,
upon any court order prohibiting the Proposed Sale becoming final; (d) by either
the Purchaser or the Sellers, if, upon a vote at the Meeting (or any adjournment
thereof), Shareholder approval of the Purchase Agreement shall not have been
obtained; (e) by the Purchaser, if the Board of Directors of the Company shall
have taken any Permitted Action; or (f) by the Sellers, if the Company enters
into a definitive agreement providing for the implementation of an Acquisition
Proposal.
In the event of termination of the Purchase Agreement by either the
Sellers or the Purchaser as provided above, the Purchase Agreement will become
void and there will be no liability or obligation on the part of the Purchaser
or the Sellers, other than under certain specified provisions of the Purchase
Agreement which include the payment of a fee to the Purchaser under certain
circumstances. See "-Termination Fees."
TERMINATION FEES
If (a) the Purchase Agreement is terminated by any party because
Shareholder approval shall not have been obtained and (b) at or prior to the
Meeting, there shall have been an Acquisition Proposal, whether or not such
Acquisition Proposal shall have been rejected or shall have been withdrawn prior
to the time of such termination or of the Meeting, the Sellers shall pay to the
Purchaser a termination fee of $10 million in cash within five business days of
the termination of the Purchase Agreement; if, within one year of any such
termination described in clause (a) above, a transaction implementing any
Acquisition Proposal shall have been consummated, the Sellers shall pay to the
Purchaser an additional termination fee of $20 million in cash within five
business days of the consummation of such transaction. Alternatively, if the
Purchase Agreement is terminated by the Purchaser pursuant to clause (e) under
"Termination" above, or by the Sellers pursuant to clause (f) under
"Termination" above, the Sellers shall pay to the Purchaser a termination fee
equal to $30
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million in cash within five business days of the termination of the Purchase
Agreement. In no event shall the Sellers be obligated to pay more than $30
million in termination fees to the Purchaser.
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The Purchase Agreement provides that the Sellers will indemnify and hold
harmless the Purchaser and the Colonial Penn P&C Group (the "Purchaser
Indemnitees") for any and all monetary damages, charges, losses, deficiencies,
liabilities, obligations, costs, fees, and expenses (including, without
limitation, reasonable fees and disbursements of counsel including but not
limited to those incident to the enforcement of indemnification rights under the
Purchase Agreement) ("Damages") resulting from or relating to any breach by the
Sellers of any representation, warranty, covenant or agreement made by the
Sellers in the Purchase Agreement.
The Purchase Agreement provides that the Purchaser will indemnify and hold
harmless each Seller for any and all Damages resulting from or relating to any
breach by the Purchaser of any representation, warranty, covenant or agreement
made by the Purchaser in the Purchase Agreement.
Generally, no claims may be made by the Purchaser Indemnitees or the
Sellers unless and until the Purchaser Indemnitees or the Sellers, as the case
may be, have incurred Damages in excess of $2.5 million, at which time, Damages
in excess of such amount may be claimed; provided, however, that with respect to
claims made by the Purchaser Indemnitees (i) arising out of or relating to
certain lawsuits, the applicable deductible shall be $3.5 million, (ii) relating
to certain environmental matters, the applicable deductible shall be $1.5
million and (iii) for taxes or ERISA matters, there shall be no applicable
deductible. The Company has agreed to provide the Purchaser with a
non-cancelable letter of credit in the amount of $100 million to secure certain
of the Sellers' indemnification obligations under the Purchase Agreement. In no
event shall either the Purchaser, on the one hand, or the Sellers, on the other
hand, be liable for indemnification in excess of $200 million; provided,
however, that such limitation shall not apply to Damages attributable to
breaches by the Sellers of certain representations, including ERISA and
environmental matters, and intentional breaches of any covenants or certain
agreements.
The representations and warranties of the parties in the Purchase
Agreement or in any certificate delivered pursuant thereto will survive the
Closing until March 31, 1999, except for the representations and warranties of
the Sellers relating to: (a) taxes and benefit plans, which shall survive until
30 days after the expiration of applicable statutes of limitation; and (b) the
Sellers' title to the issued and outstanding shares of capital stock of the
Colonial Penn P&C Group and environmental matters, which shall survive
indefinitely.
EXPENSES
The Purchase Agreement provides that regardless of whether or not the
Proposed Sale is consummated, each of the Sellers and the Purchaser will pay its
own costs and expenses incident to preparing for, entering into and carrying out
the Purchase Agreement and the consummation of the transactions contemplated
thereby, including, without limitation, this Proxy Statement.
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MARKET PRICES AND DIVIDEND POLICY
The Common Shares of the Company are traded on the NYSE 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 on the NYSE Composite
Tape. 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 Proxy Statement have been adjusted
to reflect the Stock Split.
COMMON SHARE
HIGH LOW
---- -----
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 $29.00 $25.75
Second Quarter 31.88 27.38
Third Quarter (through July 8, 1997) 32.00 31.00
On April 29, 1997, the last full trading day prior to the public
announcement of the Conseco Transaction, the closing price of the Common Shares
on the NYSE Composite Tape was $29.63 per share. On June 27, 1997, the last full
trading day prior to the public announcement of the Proposed Sale, the closing
price on the NYSE Composite Tape of the Common Shares was $30.00 per share.
Shareholders are urged to obtain a current market quotation for the Common
Shares.
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.
34
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, six directors are to be elected to serve until the next
Meeting or until their successors are elected and qualified. The persons named
in the enclosed form of proxy have advised that, unless contrary instructions
are received, they intend to vote FOR the six nominees named by the Board of
Directors and listed on the following table. The Board of Directors does not
expect that any of the nominees will be unavailable for election as a director.
However, if by reason of an unexpected occurrence one or more of the nominees is
not available for election, the persons named in the form of proxy have advised
that they will vote for such substitute nominees as the Board of Directors of
the Company may propose. The following information is as of , 1997.
Age, period served as director, other
Name and present position, business experience during the last five
if any, with the Company years and family relationships, if any
- ------------------------ --------------------------------------------
Ian M. Cumming,
Chairman of the Board.......... Mr. Cumming, 56, has served as a director
and Chairman of the Board of the Company
since June 1978. In addition, he is a
director of Allcity Insurance Company
("Allcity") and MK Gold Company ("MK Gold").
Allcity, a consolidated subsidiary of the
Company, is a property and casualty insurer.
MK Gold, approximately 46% of the common
stock of which is beneficially owned by the
Company, is an international gold mining
company. Mr. Cumming is also a director of
Skywest, Inc., a Utah-based regional air
carrier.
Paul M. Dougan.................... Mr. Dougan, 59, has served as a director of
the Company since May 1985. He has been a
director and President and Chief Executive
Officer of Equity Oil Company ("Equity
Oil"), a company engaged in oil and gas
exploration and production, since January
1994. Prior thereto, he served as corporate
secretary and manager of corporate
development of Equity Oil since May 1968.
Lawrence D. Glaubinger............ Mr. Glaubinger, 71, has served as a director
of the Company since May 1979. He has been
Chairman of the Board of Stern & Stern
Industries, Inc., a New York corporation,
primarily engaged in the manufacture and
sale of textiles, since November 1977. He
has also been President of Lawrence Economic
Consulting Inc., a management consulting
firm, since January 1977. Mr. Glaubinger is
a director of Marisa Christina Inc., an
importer of women's clothing.
James E. Jordan................... Mr. Jordan, 53, has served as a director of
the Company since February 1981. Mr. Jordan
is an investor for his own account. From
October 1986 to June 1997, he was President
of The William Penn Corporation ("William
35
<PAGE>
Penn"). William Penn, approximately 19.7% of
the common stock of which during such period
was beneficially owned by the Company, is a
holding company for an investment advisor to
The William Penn family of mutual funds. Mr.
Jordan is a director of Mezzanine Capital &
Income Trust 2001 PLC, a British investment
trust company.
Jesse Clyde Nichols, III.......... Mr. Nichols, 57, has served as a director of
the Company since June 1978. He has been
President, since May 1974, of Nichols
Industries, Inc., a holding company engaged,
through subsidiaries, in manufacturing.
Joseph S. Steinberg,
President...................... Mr. Steinberg, 53, has served as a director
of the Company since December 1978 and as
President of the Company since January 1979.
He is also a director of Allcity, MK Gold
and Jordan Industries, Inc., a public
company, approximately 11% of the common
stock of which is beneficially owned by
the Company, which owns and manages
manufacturing companies.
The Board of Directors recommends a vote FOR the above-named nominees.
36
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND BOARD COMMITTEES
MEETINGS AND COMMITTEES
During 1996, the Board of Directors held ten meetings.
The Board of Directors has a standing Audit Committee, Executive
Committee, Employee Benefits Committee and Nominating Committee.
The functions of the Audit Committee are to recommend to the Board
independent auditors for the Company, to analyze the reports and recommendations
of such auditors and to review internal audit procedures and controls. The Audit
Committee met once during 1996 and consists of Messrs. Dougan (Chairman),
Nichols and Glaubinger.
The function of the Executive Committee is to exercise the authority of
the Board of Directors in the management of the business of the Company at such
times as the full Board of Directors is unavailable. The Executive Committee,
which did not meet during 1996, consists of Messrs. Cumming (Chairman),
Steinberg, Jordan and Glaubinger.
The functions of the Employee Benefits Committee are to review
compensation of the Chairman of the Board and President, and employee benefit
and incentive plans and to present recommendations thereon to the Board. Until
April 2, 1997, the Employee Benefits Committee also functioned as the Option
Committee under the Company's 1992 Stock Option Plan. The Employee Benefits
Committee met three times during 1996 and consists of Messrs. Nichols
(Chairman), Dougan and Jordan. Effective April 2, 1997, the Board of Directors
formed the Option Committee to administer the terms of the Company's 1992 Stock
Option Plan. The Option Committee consists of Messrs. Jordan (Chairman),
Glaubinger and Nichols.
The function of the Nominating Committee is to consider and present to the
Board of Directors its nominations for officers and directors of the Company.
The Nominating Committee, consisting of Messrs. Jordan (Chairman), Dougan and
Nichols, was formed in December 1996 and, accordingly, did not meet during 1996.
A Shareholder entitled to vote in the election of directors may nominate
one or more persons for election as directors at a meeting if written notice of
such Shareholder's intent to make such nomination has been given to the Company,
with respect to an election to be held at an annual meeting of Shareholders, not
less than 60 days prior to the first anniversary of the Company's proxy
statement in connection with the last Annual Meeting, and, with respect to an
election to be held at a special meeting of Shareholders, not later than the
tenth day following the date on which notice of such meeting is first given to
Shareholders. Such notice shall set forth the name and address of the
Shareholder and his or her nominees, a representation that the Shareholder is
entitled to vote at such meeting and intends to nominate such person, a
description of all arrangements or understandings between the Shareholder and
each such nominee, such other information as would be required to be included in
a proxy statement soliciting proxies for the election of such Shareholder's
nominees, and the consent of each nominee to serve as a director of the Company
if so elected. The Company may require any proposed nominee to furnish such
other information as may reasonably be required to determine the eligibility of
such proposed nominee to serve as a director of the Company. The Company did not
receive any nominations from Shareholders for election as directors at the
Meeting.
All directors attended at least 75% of the meetings of the Board and
committees of the Board on which they served.
37
<PAGE>
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES
Set forth below is certain information as of _______ __, 1997 with respect
to the beneficial ownership of Common Shares by (i) each person who, to the
knowledge of the Company, is the beneficial owner of more than 5% of the
outstanding Common Shares (the Company's only class of voting securities), (ii)
each director and nominee for director, (iii) each of the executive officers
named in the Summary Compensation Table under "Executive Compensation," (iv) the
Steinberg Children Trusts and private charitable foundations established by Mr.
Cumming and Mr. Steinberg and (v) all executive officers and directors of the
Company as a group.
Number of Shares
Name and Address and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
------------------- --------------------- --------
Group consisting of
CMCO, Inc., Robert
Davidoff, Edwin S.
Marks, Nancy A.
Marks, Boas GRAT
No. 1 Trust, Marks
Family Foundation,
Marjorie M. Boas,
Mark Claster and Andrew
Boas (a)(b).......... 3,224,784 5.2%
Paul J. Borden......... 8,700 (c) *
Ian M. Cumming......... 9,884,002 (d)(e) 15.9%
Paul M. Dougan......... 4,750 (f) *
Lawrence D. Glaubinger. 76,250 (g) .1%
James E. Jordan........ 22,750 (f) *
Thomas E. Mara......... 139,583 (h) .2%
Jesse Clyde Nichols, III 62,087 (f) .1%
Joseph A. Orlando...... 10,356 (i) *
Joseph S. Steinberg.... 9,112,340 (e)(j) 14.7%
The Steinberg Children
Trusts............... 1,127,400 (k) 1.8%
Cumming Foundation .... 788,059 (l) 1.3%
The Joseph S. and Diane
H. Steinberg 1992
Charitable Trust..... 542,408 (m) .9%
All directors and executive
officers as a group
(12 persons)........... 19,472,646 (n) 31.3%
- -------------------
* Less than .1%.
(a) The business address of this beneficial owner is c/o CMCO, Inc., 135
East 57th Street, New York, New York 10022.
38
<PAGE>
(b) Based upon Amendment No. 1 to a Statement on Schedule 13D dated
December 1, 1992 filed by CMCO, Inc., Robert Davidoff, Edwin S. Marks,
Nancy A. Marks, Boas GRAT No. 1 Trust, Marks Family Foundation,
Marjorie M. Boas, Mark Claster and Andrew Boas and information
provided by CMCO, Inc.
(c) Includes 5,100 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(d) Includes 266,712 (.4%) Common Shares beneficially owned by Mr.
Cumming's wife (directly and through trusts for the benefit of Mr.
Cumming's children of which Mr. Cumming's wife is trustee (the
"Trusts")) as to which Mr. Cumming may be deemed to be the beneficial
owner.
(e) Messrs. Cumming and Steinberg have an oral agreement pursuant to which
they will consult with each other as to the election of a mutually
acceptable Board of Directors of the Company.
(f) Includes 4,750 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(g) Includes 2,250 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(h) Includes (i) 27,000 Common Shares that may be acquired upon the
exercise of currently exercisable stock options and (ii) 49,200 (less
than .1%) Common Shares owned by Mr. Mara's wife and minor daughter as
to which Mr. Mara disclaims beneficial ownership.
(i) Includes 8,000 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(j) Includes 46,400 (less than .1%) Common Shares beneficially owned by
Mr. Steinberg's wife and minor daughter as to which Mr. Steinberg may
be deemed to be the beneficial owner.
(k) Mr. Steinberg disclaims beneficial ownership of the Common Shares held
by the Steinberg Children Trusts.
(l) Mr. Cumming is a trustee and President of the foundation and disclaims
beneficial ownership of the Common Shares held by the foundation.
(m) Mr. Steinberg and his wife are the trustees of the foundation. Mr.
Steinberg disclaims beneficial ownership of the Common Shares held by
the foundation.
(n) Includes 49,200 Common Shares owned of record by the wife and minor
daughter of Mr. Mara as to which he disclaims beneficial ownership. In
addition, because they may be acquired within 60 days, includes (i)
16,500 Common Shares that may be acquired by directors pursuant to the
exercise of currently exercisable stock options; and (ii) 46,700
Common Shares that may be acquired by certain officers pursuant to the
exercise of currently exercisable stock options.
39
<PAGE>
As of ______ __, 1997, Cede & Co. held of record 36,570,829 Common Shares
(approximately 58.9% of the total number of Common Shares outstanding). Cede &
Co. held such shares as a nominee for broker-dealer members of The Depository
Trust Company, which conducts clearing and settlement operations for securities
transactions involving its members.
40
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information in respect of the compensation
of the Chairman of the Board, the President, and each of the other three most
highly compensated current executive officers of the Company in 1996, for
services in all capacities to the Company and its subsidiaries in 1996, 1995 and
1994.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------------- ------------
Name and Principal Other Annual Options All Other
Position(s) Year Salary Bonus(1) Compensation (# of shares) Compensation
- ------------------------- -------- ------------ --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ian M. Cumming, 1996 $ 517,356 $ 15,759(2) $ 257,830(5) -- $ 91,885(6)
Chairman of the Board 1995 504,808 1,115,300(3) 174,759(5) -- 115,092
1994 491,497 965,000(4) 306,906(5) -- 93,875
Joseph S. Steinberg, 1996 $ 517,356 $ 15,759(2) $ 298,220(5) -- $ 98,452(6)
President 1995 505,960 1,115,300(3) 254,443(5) -- 118,728
1994 491,500 965,000(4) 270,722(5) -- 82,020
Thomas E. Mara, 1996 $ 250,000 $ 757,500 -- 25,000 $ 30,920(6)
Executive Vice 1995 210,000 856,300 -- -- 19,250
President and Treasurer 1994 205,006 506,150 -- -- 9,500
Paul J. Borden, 1996 $ 125,000 $ 303,750 -- 7,500 $ 3,750(7)
Vice President 1995 106,000 203,180 -- -- 3,750
1994 103,012 203,090 -- -- 2,652
Joseph A. Orlando, 1996 $ 160,000 $ 154,800 -- 20,000 $ 6,750(6)
Vice President and 1995 135,000 154,050 -- -- 6,750
Chief Financial 1994 130,768 128,900 -- -- 6,348
Officer
</TABLE>
- ----------------------
(1) Generally, performance bonuses for Messrs. Cumming and Steinberg for
services rendered during a year are considered at the organizational
meeting of the Board of Directors for the following year (which is
generally held during the second fiscal quarter). However, in response to
federal tax laws affecting the tax consequences associated with certain
executive compensation in excess of $1,000,000 per year, portions of the
performance bonuses for Messrs. Cumming and Steinberg for services rendered
in 1994 and 1995 were determined and paid in 1994 and 1995, respectively,
as described below.
(2) Represents annual year-end bonus (based on a percentage of salary) paid to
all employees.
(3) Includes $494,853 and $427,320 (net of withholding taxes already paid by
Messrs. Cumming and Steinberg) for each of Messrs. Cumming and Steinberg,
respectively, out of the $2,500,000 placed in escrow in 1992 for the
benefit of each of Messrs. Cumming and Steinberg (the "1992 Escrows") by
Leucadia, Inc., a wholly owned subsidiary of the Company ("LI"), pursuant
to agreements dated as of December 28, 1992 between LI and each of Messrs.
Cumming and Steinberg (the "1992 Escrow Agreements"). These amounts were
paid in May 1996 to fund a portion of the 1995 performance bonuses, net of
withholding taxes already paid by
41
<PAGE>
Messrs. Cumming and Steinberg. The funds in the 1992 Escrows vest at the
rate of 20% for each full calendar year after December 31, 1992 during
which Messrs. Cumming and Steinberg, respectively, continue to be employed
by the Company or any of its subsidiaries. Each of Messrs. Cumming and
Steinberg is entitled to be 100% vested upon (i) termination without cause,
death or disability, (ii) the merger of the Company with another
corporation which results in a change of control of the Company, the sale
of all or substantially all of the Company's assets or the acquisition by a
person or group of persons of more than 50% of the Common Shares, or (iii)
the Company becoming subject to bankruptcy, insolvency or similar
proceedings. The vesting and payment schedule is also subject to
acceleration at the sole discretion of the Board of Directors, excluding
Messrs. Cumming and Steinberg, upon recommendation of the Employee Benefits
Committee. Amounts vested are to be paid to Messrs. Cumming and Steinberg
on January 1, 1998, unless payment is accelerated by the Board. Any amount
unvested will be returned to the Company. The amounts in the escrow
accounts are invested at the direction of the Company, which is entitled to
receipt of the investment income. As of December 31, 1996, Messrs. Cumming
and Steinberg each have vested with respect to an aggregate of $2,000,000
of the 1992 Escrow. The funds paid out of the 1992 Escrow reflected in this
table were paid out of vested amounts. See "Report of the Compensation
Committee of the Board of Directors-Compensation of Messrs. Cumming and
Steinberg."
As required under the agreements, Messrs. Cumming and Steinberg timely
filed a tax election resulting in their 1992 recognition for tax purposes
of the full $2,500,000 placed in escrow. As a result, for tax purposes
Messrs. Cumming and Steinberg reported income equal to the amount of the
escrowed funds, and the Company deducted that amount for 1992. As permitted
under the agreements, Messrs. Cumming and Steinberg directed that the
Company's tax withholding obligation be paid with funds from the escrow
accounts, leaving a reduced amount available for actual distribution to
Messrs. Cumming and Steinberg from the escrow accounts as bonus
compensation. The application of the escrow funds toward satisfaction of
the Company's withholding obligation had no affect on the vesting schedule;
accordingly, in the event either Mr. Cumming or Mr. Steinberg does not
ultimately become fully vested in the respective amount placed in escrow,
to the extent the funds remaining in escrow are less than the unvested
portion for such person, Mr. Cumming and/or Mr. Steinberg, as the case may
be, will be obligated to repay such deficiency to the Company.
The funds placed in escrow will be reported in the table in the appropriate
columns for those years in which amounts are released from the escrow
accounts.
(4) Includes $373,990 and $348,008 (net of withholding taxes already paid by
Messrs. Cumming and Steinberg) for each of Messrs. Cumming and Steinberg,
respectively, out of the 1992 Escrows. These amounts were paid in May 1995
to fund a portion of the 1994 performance bonuses, net of withholding taxes
already paid by Messrs. Cumming and Steinberg.
(5) Consists of non-cash compensation valued in accordance with the disclosure
rules of the Securities and Exchange Commission, as follows: personal use
of corporate aircraft (Mr. Cumming: $251,754, $165,645 and $305,995 in
1996, 1995 and 1994, respectively, and Mr. Steinberg: $293,682, $248,971
and $264,338 in 1996, 1995 and 1994, respectively). The value of such other
compensation for federal tax purposes may differ.
(6) Included in this amount is the annual premium on a term life insurance
policy paid by the Company for the benefit of such person ($2,631 for Mr.
Cumming and $2,530 for Mr. Steinberg), directors' fees from affiliates of
the Company ($85,504 for Mr. Cumming, $92,172 for Mr. Steinberg, $27,170
for Mr. Mara and $3,000 for Mr. Orlando) and a contribution of $3,750 made
by the Company to a defined contribution 401(k) plan on behalf of the named
person.
(7) Consists of a contribution by the Company to a defined contribution 401(k)
plan.
42
<PAGE>
OPTION GRANTS IN 1996
The following table shows all grants of options to the named executive in
1996.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants For Option Term (2)
----------------------------------------------------------- ------------------------------
Securities
Underlying % of Total Exercise
Options Granted Options Granted to Price Expiration
Name (# of shares)(1) Employees in 1996 ($/Sh) Date 0%($) 5%($) 10%($)
- ---- ----------------- ------------------- --------- ----------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Mara 25,000 4.0% $26.625 03/05/02 $0 $183,900 $406,371
Paul J. Borden 7,500 1.2% 26.625 03/05/02 0 55,170 121,911
Joseph A. Orlando 20,000 3.2% 26.625 03/05/02 0 147,120 325,097
</TABLE>
- ----------------
(1) The options were granted pursuant to the Company's 1992 Stock Option Plan,
as amended, at an exercise price equal to the fair market value of the
Common Shares on the date of grant. The options become exercisable at the
rate of 20% per year commencing one year after date of grant. The grant
date of the options is March 5, 1996.
(2) The potential realizable values represent future opportunity and have not
been reduced to reflect the time value of money. The amounts shown under
these columns are the result of calculations at 0% and at the 5% and 10%
rates required by the Securities and Exchange Commission, and are not
intended to forecast future appreciation of the Common Shares and are not
necessarily indicative of the values that may be realized by the named
executive officers.
43
<PAGE>
AGGREGATE OPTION EXERCISES IN 1996 AND
OPTION VALUES AT DECEMBER 31, 1996
The following table provides information as to options exercised by each
of the named executives in 1996 and the value of options held by such executives
at year end measured in terms of the last reported sale price for the Common
Shares on December 31, 1996 ($26.75, as reported on the New York Stock Exchange
Composite Tape).
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1996 at December 31, 1996
-------------------- --------------------
Number of Shares
Underlying Options Exercisable/ Exercisable/
Name Excercised Value Realized Unexercisable Unexercisable
- ---- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Ian M. Cumming -- -- 0/0 $0/0
Joseph S. Steinberg -- -- 0/0 $0/0
Thomas E. Mara 33,728 $720,652 22,000/33,000 $282,000/$53,625
Paul J. Borden 2,400 $ 43,500 3,600/9,900 $22,725/$16,088
Joseph A. Orlando -- -- 6,000/24,000 $37,875/$27,750
</TABLE>
RETIREMENT PLAN
The Company and certain of its affiliated companies maintain a retirement
plan, as amended December 31, 1995 (the "Retirement Plan"), for certain of its
employees and employees of these affiliated companies. The Retirement Plan is
intended to qualify under the provisions of Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"). Benefits under the Retirement Plan are
provided by an insurance company separate account which receives and invests
company contributions. Participants are not required to make any contributions
under the Retirement Plan.
An employee is eligible for participation in the Retirement Plan after he
is at least age 21 and has completed one year of service.
For a participant employed by the Company retiring at normal retirement
(age 65 with at least five years of service), the Retirement Plan provides a
retirement benefit payable for life, equal to 1.25% of his final average pay up
to the Covered Compensation level plus 1.75% of his final average pay in excess
of the Covered Compensation level (subject to the limitations of Section 415 of
the Code), times his years of credited service. The Covered Compensation level
is the average of the maximum Social Security taxable wage base in the 35 years
preceding retirement or termination. Final average pay is the average of the
five highest consecutive years of compensation in the last ten years before
retirement or termination. Years of credited service include all calendar years
during which an employee has at least 1,000 hours of service while employed by
the Company or an affiliate participating in the plan, but not before January 1,
1989.
The Retirement Plan contains provisions for optional forms of payment and
provides that the normal form of benefit in the case of a married participant is
a benefit actuarially equivalent to an annuity for the life of the participant
payable in the form of a 50% joint and survivor annuity for the participant and
his spouse.
44
<PAGE>
A participant employed by the Company becomes 100% vested in his accrued
benefit under the Retirement Plan after he has five years of service. If he
terminates employment with less than five years of service, he will forfeit any
benefits under the Retirement Plan.
A participant employed by the Company with 10 or more years of service,
who is age 55 or over, but less than age 65, and who has retired from the
Company or a participating affiliate, may elect to receive an early retirement
benefit. A participant with less than 10 years of service or who is under age
55, who has terminated employment with the Company or a participating affiliate,
may elect to receive an early deferred vested benefit. The amount of such
benefits are actuarially reduced to reflect payment before age 65.
The projected annual retirement benefits under the Retirement Plan of the
executive officers named in the Summary Compensation Table, expressed in the
form of a straight-life annuity with no reduction for early commencement, and
assuming continuous employment until age 65, are estimated as follows:
Ian M. Cumming.............$16,765*
Joseph S. Steinberg........ 21,746*
Thomas E. Mara............. 10,691*
Paul J. Borden............. 63,490*
Joseph A. Orlando.......... 79,869*
- --------------------
* The benefits shown take into account limitations contained in Section 415 of
the Code, and other limits on plan benefits that exist because of distributions
received from a prior plan terminated as of December 31, 1988.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Cumming and Steinberg
that provide for Mr. Cumming's employment as Chairman of the Board and Chief
Executive Officer of the Company and for Mr. Steinberg's employment as President
and Chief Operating Officer of the Company through June 30, 2003 at annual
salaries of $500,000 (subject to cost-of-living adjustments), plus such
additional compensation as may be voted by the Board of Directors of the
Company. Messrs. Cumming and Steinberg are entitled to participate in all
incentive plans of the Company and other subsidiary and affiliated companies,
and the Company has agreed to carry at its expense term life insurance policies
on their lives in the amount of $1,000,000 each, payable to such beneficiaries
as each of Messrs. Cumming and Steinberg shall designate. Under the agreements,
if there is a change in control of the Company and if either the employment of
Messrs. Cumming or Steinberg is terminated by the Company without cause or
Messrs. Cumming or Steinberg terminates his employment within one year of
certain occurrences (such as the appointment or election of another person to
his offices, the occurrence of the aggregate compensation and other benefits to
be received by him for any twelve full calendar months falling below 115% of
that received by him during the comparable preceding period, or a change in the
location of his principal place of employment), Messrs. Cumming or Steinberg
will be entitled to receive a severance allowance equal to the remainder of the
aggregate annual salary (as adjusted for increases in the cost of living) that
he would have received under his employment agreement. In addition, the Company
or its successors will continue to carry through the scheduled termination of
the employment agreements the life insurance payable to the beneficiaries of
Messrs. Cumming and Steinberg.
In addition, $4,000,000 was placed in escrow in 1993 (the "1993 Escrow")
by the Company for the benefit of each of Ian M. Cumming and Joseph S. Steinberg
pursuant to agreements dated as of December 28,
45
<PAGE>
1993 between the Company and each of Messrs. Cumming and Steinberg (the "1993
Escrow Agreements"). The 1993 Escrow Agreements are identical to those described
in footnote (3) to the Summary Compensation Table above, except (i) such funds
vest at the rate of 20% for each full calendar year after December 31, 1997,
during which Messrs. Cumming and Steinberg continue to be employed by the
Company or any of its subsidiaries, (ii) in the event of the death or disability
of Mr. Cumming or Mr. Steinberg, the funds would be 50% vested and (iii) amounts
vested are to be paid to Messrs. Cumming and Steinberg on January 1, 2003,
unless payment is accelerated by the Board. See "Report of the Compensation
Committee of the Board of Directors-Compensation of Messrs. Cumming and
Steinberg."
As required under the agreements, Messrs. Cumming and Steinberg timely
filed a tax election resulting in their 1993 recognition for tax purposes of the
full $4,000,000 placed in escrow. As a result, for tax purposes Messrs. Cumming
and Steinberg reported income equal to the amount of the escrowed funds, and the
Company deducted that amount for 1993. As permitted under the agreements,
Messrs. Cumming and Steinberg directed that the Company's tax withholding
obligation be paid with funds from the escrow accounts, leaving a reduced amount
available for actual distribution to Messrs. Cumming and Steinberg from the
escrow accounts as bonus compensation. The application of the escrow funds
toward satisfaction of the Company's withholding obligation had no effect on the
vesting schedule; accordingly, in the event either Mr. Cumming or Mr. Steinberg
does not ultimately become fully vested in the respective amount placed in
escrow, to the extent the funds remaining in escrow are less than the unvested
portion for such person, Mr. Cumming and/or Mr. Steinberg, as the case may be,
will be obligated to repay such deficiency to the Company.
The funds placed in escrow will be reported in the Summary Compensation
Table above in the appropriate columns for those years in which amounts are
released from the escrow accounts.
For information concerning certain other compensation awards placed in
escrow for the benefit of Messrs. Cumming and Steinberg, see footnote (3) to the
Summary Compensation Table above.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no remuneration
for services as a member of the Board or any committee of the Board. In 1996,
each director who was not an employee of the Company received a retainer of
$18,000 plus $500 for each meeting of the Board and $300 for each meeting of a
committee of the Board ($400 if a committee chairman) that he attended. In
addition, under the terms of the 1992 Stock Option Plan, each non-employee
director is automatically granted options to purchase 1,000 Common Shares on the
date on which the annual meeting of the Company's shareholders is held each
year. The purchase price of the Common Shares covered by such options is the
fair market value of such Common Shares on the date of grant. These options
become exercisable at the rate of 25% per year commencing one year after the
date of grant. As a result of this provision, options to purchase 1,000 Common
Shares at an exercise price of $24.75 per Common Share were awarded to each of
Messrs. Paul M. Dougan, Lawrence D. Glaubinger, James E. Jordan and Jesse Clyde
Nichols, III on May 14, 1996.
For additional information, see "Certain Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation"
below.
INDEMNIFICATION
Pursuant to a contract of insurance dated December 4, 1996 with National
Union Fire Insurance Company of Pittsburgh, Pennsylvania, 70 Pine Street, New
York, New York 10270, the Company maintains a
46
<PAGE>
$20 million indemnification insurance policy covering all directors and officers
of the Company and its named subsidiaries. The annual premium for such insurance
is $888,000. During 1996, no payments were received under the Company's
indemnification insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement dated as of August 1, 1988 among the Company, Ian
M. Cumming and Joseph S. Steinberg, upon the death of either Mr. Cumming or Mr.
Steinberg, the Company has agreed to purchase from the respective estate up to
55% of his direct and/or indirect interest in the Company, subject to reduction
in certain circumstances, not to exceed $50 million in value. The agreement
provides that Mr. Cumming's and Mr. Steinberg's interests in the Company will be
valued at the higher of the average closing price of the Common Shares on the
New York Stock Exchange for the 40 trading days preceding the date of death or
the net book value of the Common Shares at the end of the fiscal quarter
preceding the date of death. The Company has agreed to fund the purchase of
Common Shares pursuant to this Agreement by purchasing and maintaining insurance
on the life of each of Messrs. Cumming and Steinberg in the aggregate face
amount of $50 million per individual. This agreement will expire in December
1997 (subject to earlier termination in certain circumstances). The Company has
purchased the life insurance contemplated by this agreement, the premiums for
which aggregated approximately $337,000 in 1996. These amounts are not included
in the Summary Compensation Table appearing elsewhere in this Proxy Statement.
For information concerning certain compensation awards placed in escrow
for the benefit of Messrs. Cumming and Steinberg, see footnote (3) to the
Summary Compensation Table and "Employment Agreements" above.
For additional information, see "Compensation Committee Interlocks and
Insider Participation," below.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS*
Compensation Policies for Executive Officers (other than Ian M. Cumming
and Joseph S. Steinberg)
The Employee Benefits Committee of the Board of Directors (the
"Committee"), consisting of Mr. Nichols (Chairman), Mr. Dougan and Mr. Jordan,
each of whom is a non-employee director, awards stock options upon the
recommendation of Messrs. Cumming and Steinberg, Chairman of the Board and
President of the Company, respectively, and recommends to the Board of Directors
the compensation of Messrs. Cumming and Steinberg. Salary and bonus compensation
of executive officers of the Company are determined by Messrs. Cumming and
Steinberg under authority of the Board of Directors.
The Company's compensation package for executive officers consists of four
basic elements: (1) base salary; (2) annual bonus compensation; (3) long-term
incentives in the form of stock options granted pursuant to the Company's 1992
Stock Option Plan; and (4) retirement benefits pursuant to the Company's
Retirement Plan. Other elements of compensation include a defined contribution
401(k) plan and medical and life insurance benefits available to employees
generally.
- --------
* The disclosure contained in this section of this Proxy Statement is not
incorporated by reference into any filings by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934 that incorporate filings or
portions thereof (including this Proxy Statement or the "Executive Compensation"
section of this Proxy Statement) without specific reference to the incorporation
of this section of this Proxy Statement.
47
<PAGE>
Each element of compensation has a different purpose. Salary and bonus
payments are designed mainly to reward current and past performance. Stock
options are primarily designed to provide strong incentive for superior
long-term future performance and are directly linked to shareholders' interests
because the value of the awards will increase or decrease based upon the future
price of the Common Shares. Retirement benefits generally are designed to reward
prior service.
Base compensation of executive officers is determined by Messrs. Cumming
and Steinberg consistent with the executive's office and level of
responsibility, with annual salary increases, which generally amount to a small
percentage of the executive's prior base salary, primarily reflecting cost of
living increases. However, where appropriate to reflect an executive's increase
in office and/or responsibility, annual salary increases may be significant.
The Company's executive compensation policy emphasizes performance based
compensation. Accordingly, a large percentage of annual compensation consists of
bonus compensation. This ensures that compensation paid to an executive reflects
the individual's specific contributions to the success of the Company, as well
as the level and degree of complexity involved in his contributions to the
Company (which historically often have involved restructuring newly acquired
enterprises, the success of which may not be evident for several years). Bonus
compensation is determined on the basis of Messrs. Cumming's and Steinberg's
subjective assessment of an executive's performance, the Company's performance
and each individual's contribution thereto. Bonus compensation is not based on
any specific formula.
The Company, by means of the 1992 Stock Option Plan, seeks to retain the
services of persons now holding key positions and to secure the services of
persons capable of filling such positions. From time to time, stock options may
be awarded which, under the terms of the 1992 Stock Option Plan, permit the
executive officer or other employee to purchase Common Shares at not less than
the fair market value of the Common Shares on the date of grant. The extent to
which the employee realizes any gain is, therefore, directly related to
increases in the price of the Common Shares and hence, shareholder value, during
the period of the option. Options granted to executive officers generally become
exercisable at the rate of 20% per year, commencing one year after the date of
grant. As with base salary and bonuses, the amount of stock options awarded to
an executive officer is not based on any specific formula, but rather on a
subjective assessment of the executive's performance and the Company's
performance.
Under the provisions of Section 162(m) of the Code, the Company would not
be able to deduct compensation to its executive officers whose compensation is
required to be disclosed in the Company's proxy statement for such year in
excess of $1 million per year unless such compensation was within the definition
of "performance-based compensation" or meets certain other criteria. To qualify
as "performance-based compensation," compensation generally must be paid
pursuant to a pre-established objective performance criterion or standard that
precludes the exercise of discretion. The Committee believes that the lack of
flexibility in determining executive compensation under these requirements would
not be in the best interest of the Company and accordingly, other than the 1992
Stock Option Plan and the Warrants described herein, the Company has determined
to retain its flexibility with respect to employee compensation.
The Company believes that the executive compensation program has enabled
it to attract, motivate and retain senior management by providing a competitive
total compensation opportunity based on performance. Base salaries, combined
with annual variable performance based bonus awards that reflect the
individual's level of responsibility, performance and contribution to the
Company are important elements of the Company's cash compensation philosophy.
Together with the Company's executive stock ownership, the Company's total
executive compensation program not only aligns the interest of executive
officers and shareholders, but also permits
48
<PAGE>
the Company to attract talented senior management. Messrs. Cumming and
Steinberg and the Board believe the program strikes an appropriate balance
between short- and long-term performance objectives.
Compensation of Messrs. Cumming and Steinberg
The base compensation of Messrs. Ian M. Cumming and Joseph S. Steinberg,
Chairman of the Board and President of the Company, respectively, is set
pursuant to employment agreements between the Company and each of Messrs.
Cumming and Steinberg entered into as of December 28, 1993, that cover the
period from July 1, 1994 through June 30, 2003. See "Employment Agreements." The
base salaries of Messrs. Cumming and Steinberg provided for in the current
employment agreements were determined by the Committee, which presented its
recommendation to the entire Board of Directors (with Messrs. Cumming and
Steinberg abstaining) and represents an increase over their prior base salaries,
primarily reflecting cost-of-living increases. The Committee reviews other
compensation for each of Messrs. Cumming and Steinberg and presents its
recommendations thereon to the entire Board of Directors.
The Committee met once in May 1996 to consider the 1995 performance
bonuses for Messrs. Cumming and Steinberg. As disclosed in the 1996 proxy
statement, a portion of the 1995 performance bonuses ($290,545 for Mr. Cumming
and $354,944 for Mr. Steinberg) was determined and paid in 1995. This had been
done to permit the Company to take advantage of the maximum 1995 federal
deduction available to the Company resulting from the application of Section
162(m) of the Code, which limits to $1 million per employee per year the
deductibility of non-performance based compensation payable to each of the
Company's five most highly compensated employees.
The Committee's ultimate determination of 1995 performance bonuses for
Messrs. Cumming and Steinberg was based upon their subjective assessment of the
performance of Messrs. Cumming and Steinberg and the performance of the Company.
In making this assessment, the Committee reviewed certain financial information,
including information concerning the historical relationship between the
Company's audited pre-tax income and annual bonuses paid to Messrs. Cumming and
Steinberg. The Committee determined that a performance bonus of $1,100,000
(representing approximately .83% of 1995 audited pre-tax income for each of
Messrs. Cumming and Steinberg, which was not inconsistent with the relationship
between prior years' performance bonuses awarded to Messrs. Cumming and
Steinberg and the audited pre-tax income for such years) was appropriate for
1995. Thereafter, the Committee unanimously recommended to the Board of
Directors that such annual bonuses be awarded to Messrs. Cumming and Steinberg.
The Committee then considered whether to use the funds in the 1992 Escrow
to pay the unpaid portion of the recommended 1995 performance bonuses (after
giving effect to the 1995 bonus payments made in 1995). The Committee noted that
the 1992 Escrows and the 1993 Escrow were established to provide the Company
with a fund for which the Company had already received a tax deduction (and on
which Messrs. Cumming and Steinberg had already paid their respective
withholding taxes) from which compensation in excess of the Section 162(m)
deduction limitation could be paid. The Committee also noted that any payments
from the Escrows would not be applied toward the Section 162(m) deduction
limitation threshold. The Committee was advised that funds had vested under the
1992 Escrow to each of Messrs. Cumming and Steinberg and that no funds had
vested under the 1993 Escrow. After considering the acceleration and vesting
provisions of the 1992 Escrow and various payment alternatives, the Committee
determined to pay the balance of the recommended 1995 performance bonuses out of
the 1992 Escrow and recommended the acceleration of payment of such bonuses out
of previously vested funds from the 1992 Escrow (after giving effect to
withholding taxes previously paid by each of Messrs. Cumming and Steinberg).
49
<PAGE>
Thereafter, based upon the Committee's recommendation and the factors
considered by the Committee, the Board of Directors approved (with Messrs.
Cumming and Steinberg abstaining) the recommended 1995 performance bonuses and
the acceleration of payment from the 1992 Escrow of so much of the previously
vested amount necessary to pay such bonuses to Messrs. Cumming and Steinberg.
The Committee and the Board of Directors intend to consider the 1996
performance bonus for each of Messrs. Cumming and Steinberg at the 1997
organizational meeting of the Board following the Meeting. In so doing, the
Committee intends to consider amounts held in the 1992 Escrow and the 1993
Escrow for each of Messrs. Cumming and Steinberg, together with the Warrants if
authorized by the Shareholders at the Meeting. Accelerated payments from these
escrows are intended to be included as part of bonus compensation that is paid
to Messrs. Cumming and Steinberg and is not intended as compensation in addition
to salaries and bonuses. As provided in the Escrow Agreements, given the
underlying objective of the arrangements, in deciding upon early vesting and
payment, the Board and the Committee can consider tax law changes, if any,
actually enacted and the costs and benefits to the Company of initiating and
maintaining the arrangements and of accelerating payments and vesting
thereunder.
The Committee consists of Jesse Clyde Nichols, III, Chairman, Paul M.
Dougan and James E. Jordan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Committee consists of Jesse Clyde Nichols, III, Chairman, Paul M.
Dougan and James E. Jordan.
In January 1994, the Company acquired 50% of Symskaya Exploration, Inc.
("SEI"), a company engaged in the exploration and development of oil and gas in
the Krasnoyarsk region of eastern Siberia. Equity Oil (of which Paul Dougan, a
director of the Company, is President and Chief Executive Officer) owns the
remaining 50% of SEI. In connection with such acquisition, the Company entered
into a shareholders' agreement with Equity Oil, pursuant to which the Company
has agreed to make certain contributions to SEI for SEI's projects. In 1996, the
Company wrote-off $7,041,000 representing its investment in an unsuccessful well
drilled by SEI.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission, the New York Stock Exchange and the Pacific Stock Exchange.
Based solely upon a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers, directors and
greater than 10% beneficial shareholders, the Company believes that during the
year ended December 31, 1996, all persons subject to the reporting requirements
of Section 16(a) filed the required reports on a timely basis.
50
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH**
Set forth below is a graph comparing the cumulative total shareholder
return on Common Shares against cumulative total return of the Standard & Poor's
500 Stock Index (the "S&P 500 Index") and the Standard & Poor's Financial
(Multi-Line Insurance Companies) Index (the "S&P Insurance Index") for the
five-year period commencing December 31, 1991 (as required by the Securities and
Exchange Commission). The data was furnished by Standard & Poor's Compustat
Services, Inc.
Comparison of Five-Year Cumulative Total Return of the Company, S&P 500
Index and S&P Insurance Index
The following graph assumes that $100 was invested on December 31, 1991 in
each of the Common Shares, the S&P 500 Index and the S&P Insurance Index and
that all dividends were reinvested.
<TABLE>
<CAPTION>
Value at Year End
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company $100 $215.32 $224.91 $245.48 $278.58 $300.86
S&P 500 Index 100 107.62 118.46 120.03 165.13 203.05
S&P Insurance Index 100 117.97 124.76 124.90 177.81 220.38
</TABLE>
- --------
** The disclosure contained in this section of the Proxy Statement is not
incorporated by reference into any prior filings by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that incorporated
future filings or portions thereof (including this Proxy Statement or the
"Executive Compensation" section of this Proxy Statement).
51
<PAGE>
PROPOSED ISSUANCE OF WARRANTS
The Board of Directors of the Company, upon the unanimous recommendation
of the Employee Benefits Committee, resolved on April 2, 1997, subject to
shareholder approval, to issue Warrants to purchase Common Shares to each of Ian
M. Cumming, Chairman of the Board and a director of the Company, and Joseph S.
Steinberg, President and a director of the Company as an incentive to future
services. In reaching this determination, the Board considered the unanimous
recommendation of the Employee Benefits Committee and the factors considered by
the Committee, including the fact that Mr. Cumming and Mr. Steinberg each are
party to an employment agreement with the Company that extends through June 30,
2003 and that, as described under "Employment Agreements" below, the employment
agreements fix the cash compensation to be received by Mr. Cumming and Mr.
Steinberg, while providing that the Board may grant additional compensation. The
Committee also had considered the prior history of warrant grants to Messrs.
Cumming and Steinberg, as well as tax and accounting considerations, the
existence of the 1992 Escrow and the 1993 Escrow, the fact that the funds in the
1992 Escrow will fully vest on December 31, 1997 and will be payable to Messrs.
Cumming and Steinberg as of January 1, 1998 and business developments concerning
the Company.
It is proposed that Warrants in the form annexed hereto as Annex D, be
issued to each of Messrs. Cumming and Steinberg for the purchase of an aggregate
of 400,000 Common Shares each, at a price equal to 105% of the closing price of
the Common Shares as reported on the NYSE Composite Tape on the date Shareholder
authorization is received. The last reported price of Common Shares on the NYSE
Composite Tape on April 1, 1997 (the last day prior to the date of the Board's
resolution), was $27.75 per Common Share, and on _____ __, 1997 was $______ per
Common Share. The Warrants would not be exercisable for the first year after
grant and thereafter would be exercisable during the periods and in the amounts
described in the following table (assuming Shareholder approval is received on
______ __, 1997):
Exercise Period
Commences Terminates Number of Common Shares
--------- ---------- -----------------------
, 1998 - , 2002 200,000
, 1999 - , 2002 200,000
In the event that the Board of Directors or the Option Committee of the Board
accelerates vesting of all outstanding options issued under the 1992 Stock
Option Plan in connection with the occurrence of a merger, spin-off or similar
transaction, the Warrants shall also become immediately exercisable. The
Warrants will be transferable. For additional information with respect to
compensation paid and payable to Messrs. Cumming and Steinberg, see "Executive
Compensation."
The number of Common Shares to be purchased pursuant to the foregoing
Warrants would be subject to adjustments made to reflect stock splits,
combinations of shares, recapitalizations, stock dividends, and subscription
and/or purchase rights in respect of Common Shares. Each of the holders of
Warrants would be entitled to demand registration and incidental registration
rights, the costs of which would be borne by the Company. The foregoing
description of the Warrants is qualified in its entirety by reference to the
form of Warrant which is annexed hereto as Annex D.
Notwithstanding the foregoing, in the event that Mr. Cumming or Mr.
Steinberg involuntarily terminates his employment with the Company or such
employment is terminated by the Company for reasons which would constitute
"cause" under such person's employment contract with the Company, such holder
(or
52
<PAGE>
his permitted transferees) would not be entitled to exercise any Warrants which
were not immediately exercisable at the time of termination of employment.
Under the provisions of the New York Business Corporation Law, approval of
the issuance of the Warrants requires the vote of a majority of the outstanding
Common Shares entitled to vote at the meeting. The persons named in the enclosed
form of proxy have advised that, unless contrary instructions are received, they
intend to vote FOR approval of the issuance of the Warrants. Messrs. Cumming and
Steinberg have advised the Company that they intend to cause all Common Shares
beneficially owned to be voted in favor of approval of the issuance of the
Warrants. Assuming all directors and officers of the Company, other than Messrs.
Cumming and Steinberg, the previously described Steinberg Children Trusts and
the two private charitable foundations, cause all Common Shares beneficially
owned by them to be voted in favor of approval of the issuance of the Warrants,
approval of the issuance of the Warrants will require the affirmative vote of an
additional approximately 14.8% of the outstanding Common Shares. The additional
14.8% of the outstanding Common Shares will be obtained if 22.9% of the Common
Shares held by the public are voted in favor of the issuance of the Warrants.
As noted earlier in this Proxy Statement, as of ______ __, 1997, Mr.
Cumming, Mr. Steinberg, the Steinberg Children Trusts, The Cumming Foundation,
The Joseph S. and Diane H. Steinberg 1992 Charitable Trust, and all officers and
directors as a group (excluding Common Shares acquirable upon exercise of
options), beneficially owned 15.9%, 14.7%, 1.8%, 1.3%, .9% and .7%,
respectively, of the outstanding Common Shares. Assuming the issuance of 400,000
Common Shares to each of Messrs. Cumming and Steinberg upon exercise of the
Warrants, and further assuming no other changes in the number or ownership of
the outstanding Common Shares, Messrs. Cumming and Steinberg, as a group, and
all officers and directors of the Company as a group together with the Steinberg
Children Trusts and the two charitable foundations referred to above, would
beneficially own 31.5% and 36.0%, respectively, of the outstanding Common
Shares. Consequently, in such event only an additional 18.6% of the outstanding
Common Shares (of which 4.5% are beneficially owned by all officers and
directors, other than Messrs. Cumming and Steinberg, and the Steinberg Children
Trusts and the two charitable foundations) would be necessary to assure election
of Messrs. Cumming's and Steinberg's nominees for directors and shareholder
approval of all transactions requiring majority shareholder approval and only an
additional 30.7% of the outstanding Common Shares would be necessary to assure
shareholder approval of extraordinary transactions requiring 66.7% shareholder
approval.
The Board of Directors recommends a vote FOR this proposal.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors recommends that the Shareholders ratify the
selection of Coopers & Lybrand L.L.P. certified public accountants, as
independent auditors to audit the accounts of the Company and its subsidiaries
for 1997. The selection of Coopers & Lybrand L.L.P. was recommended to the Board
of Directors by its Audit Committee. Coopers & Lybrand L.L.P. are currently
independent auditors for the Company.
The Board of Directors recommends a vote FOR this proposal.
53
<PAGE>
ANNUAL REPORT
A copy of the Company's 1996 Annual Report to Shareholders is being
furnished to Shareholders concurrently herewith.
PROPOSALS BY SHAREHOLDERS
Proposals that Shareholders wish to include in the Company's Proxy
Statement and form of proxy for presentation at the Company's 1998 Annual
Meeting of Shareholders must be received by the Company at 315 Park Avenue
South, New York, New York 10010, Attention of Ruth Klindtworth, Secretary, no
later than _______ __, 1998.
By Order of the Board of Directors
Ruth Klindtworth
Secretary
54
<PAGE>
ANNEX A
================================================================================
PURCHASE AGREEMENT
DATED AS OF JUNE 30, 1997
Among
GENERAL ELECTRIC CAPITAL CORPORATION,
LEUCADIA NATIONAL CORPORATION,
CHARTER NATIONAL LIFE INSURANCE COMPANY,
COLONIAL PENN GROUP, INC.
and
COLONIAL PENN HOLDINGS INC.
with respect to all of the
outstanding capital stock of
COLONIAL PENN INSURANCE COMPANY, AND
CP GENERAL AGENCY, INC.
================================================================================
NYFS04...:\30\76830\0227\1980\AGR5087R.42N
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
SALE OF SHARES AND CLOSING ................................................ 2
1.1 Purchase and Sale of Shares.................................... 2
1.2 Purchase Price................................................. 2
1.3 Closing........................................................ 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS.............................. 3
2.1 Organization, Standing and Corporate Power..................... 3
2.2 Capital Structure.............................................. 4
2.3 Authority; Noncontravention.................................... 5
2.4 Financial Statements........................................... 6
2.5 No Undisclosed Liabilities..................................... 7
2.6 Absence of Certain Changes or Events........................... 7
2.7 Taxes.......................................................... 10
2.8 Absence of Changes in Benefit Plans............................ 13
2.9 Benefit Plans.................................................. 13
2.10 Compliance with Applicable Laws................................ 16
2.11 Litigation..................................................... 18
2.12 Assets and Properties.......................................... 19
2.13 Contracts...................................................... 20
2.14 Insurance...................................................... 21
2.15 Brokers and Advisors........................................... 22
2.16 Intellectual Property.......................................... 22
2.17 Insurance and Reinsurance...................................... 23
2.18 Actuarial Studies.............................................. 24
2.19 Threats of Cancellation........................................ 25
2.20 Labor Matters.................................................. 25
2.21 Person Authorized to Act....................................... 25
2.22 Accuracy of Information........................................ 26
2.23 Environmental Matters.......................................... 26
2.24 Net Worth; Statutory Surplus; No Dividends..................... 28
2.25 No Regulatory Disqualifiers.................................... 28
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................ 28
3.1 Organization, Good Standing and Corporate Power................ 28
3.2 Authority; Noncontravention.................................... 29
3.3 Litigation..................................................... 30
3.4 Brokers........................................................ 30
3.5 Purchase for Investment........................................ 30
(i)
<PAGE>
3.6 No Regulatory Disqualifiers.................................... 30
3.7 Accuracy of Information........................................ 31
3.8 Funding........................................................ 31
ARTICLE IV
ADDITIONAL AGREEMENTS...................................................... 31
4.1 Access to Information; Confidentiality......................... 31
4.2 Commercially Reasonable Efforts; Structuring
Cooperation.................................................... 33
4.3 Public Announcements........................................... 33
4.4 Consents, Approvals and Filings................................ 33
4.5 Tax Matters.................................................... 34
4.6 Employee Benefit Matters....................................... 43
4.7 Intercompany Agreements........................................ 46
4.8 Closing Date Cash Distributions................................ 46
4.9 Hiring of Employees............................................ 47
4.10 Leucadia Stock Options......................................... 47
4.11 Resignations of Directors...................................... 47
4.12 Non-Competition Agreement...................................... 47
4.13 Conseco Contract............................................... 49
4.14 Intramerica.................................................... 50
4.15 Trademark Assignment or Limited License........................ 50
4.16 Closing Prior to Conseco Transaction........................... 51
4.17 Monroe Property................................................ 51
4.18 Commercial Lines Reinsurance................................... 52
4.19 Closing Date Audit............................................. 52
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO CLOSING................. 52
5.1 Conduct of Business by the Companies........................... 52
5.2 Leucadia Shareholder Meeting................................... 55
5.3 Other Actions.................................................. 56
5.4 No Solicitation................................................ 56
ARTICLE VI
CONDITIONS PRECEDENT....................................................... 58
6.1 Conditions to Each Party's Obligation To
Consummate Transactions........................................ 58
6.2 Conditions to Obligations of the Purchaser..................... 59
6.3 Conditions to Obligations of the Sellers....................... 60
(ii)
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.......................................... 61
7.1 Termination.................................................... 61
7.2 Effect of Termination.......................................... 61
ARTICLE VIII
SURVIVAL OF PROVISIONS..................................................... 62
8.1 Survival....................................................... 62
ARTICLE IX
INDEMNIFICATION............................................................ 63
9.1 Indemnification by Sellers..................................... 63
9.2 Indemnification by the Purchaser............................... 63
9.3 Special Indemnification by Sellers............................. 63
9.4 Limitations on Indemnification................................. 64
9.5 Notice of Defense of Claims.................................... 66
9.6 FPL Agreement.................................................. 67
9.7 Purchase Price Adjustment...................................... 68
ARTICLE X
NOTICES.................................................................... 68
10.1 Notices........................................................ 68
ARTICLE XI
MISCELLANEOUS.............................................................. 70
11.1 Entire Agreement............................................... 70
11.2 Expenses....................................................... 70
11.3 Counterparts................................................... 70
11.4 No Third Party Beneficiary..................................... 70
11.5 Governing Law.................................................. 70
11.6 Amendments and Supplements..................................... 71
11.7 Assignment; Binding Effect..................................... 71
11.8 Enforcement.................................................... 71
11.9 Headings, Gender, etc.......................................... 71
11.10 Invalid Provisions............................................ 72
(iii)
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into this
30th day of June, 1997 by and among General Electric Capital Corporation, a New
York corporation (the "Purchaser"), Leucadia National Corporation, a New York
corporation ("Leucadia"), Charter National Life Insurance Company, a Missouri
corporation and wholly-owned subsidiary of Leucadia ("Charter"), Colonial Penn
Group, Inc., a Delaware corporation and wholly-owned subsidiary of Charter
("CPG") and Colonial Penn Holdings Inc., a Delaware corporation and wholly-owned
subsidiary of CPG ("CP Holdings", and together with Leucadia, Charter and CPG,
the "Sellers").
WHEREAS, Leucadia, through wholly-owned subsidiaries, owns all of the
issued and outstanding shares of the common stock, par value $1.00 per share of
CP Holdings and CP Holdings owns all of the issued and outstanding shares of
common stock, par value $25.00 per share ("CPI Common Stock") of Colonial Penn
Insurance Company, a Pennsylvania corporation ("CPI");
WHEREAS, CP Holdings owns all of the issued and outstanding shares of the
common stock, par value $1.00 per share ("CPGA Common Stock") of CP General
Agency, Inc. ("CPGA");
WHEREAS, Leucadia and CP Holdings desire to sell all of the issued and
outstanding shares of CPI Common Stock and CPGA Common Stock (collectively, the
"Shares") to the Purchaser, and the Purchaser desires to purchase all of the
issued and outstanding Shares from CP Holdings on the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, Leucadia indirectly owns all of the outstanding capital stock of
Empire Insurance Company, a New York corporation ("Empire") that is a property
and casualty insurance company and Purchaser wishes to assure that Leucadia and
Empire will not compete with CPI's personal lines automobile insurance
operations in the manner and to the extent contemplated in this Agreement; and
WHEREAS, pursuant to a Purchase Agreement dated as of April 30, 1997 among
Conseco, Inc. ("Conseco"), Leucadia, and Leucadia's subsidiaries, Charter , CPG,
CP Holdings, Leucadia Financial Corporation, Intramerica Life Insurance Company
("Intramerica"), Colonial Penn Franklin Insurance Company ("CPF")
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and CPI with respect to all of the outstanding capital stock of Colonial Penn
Life Insurance Company ("CPL"), Providential Life Insurance Company and certain
other assets (as such agreement may be amended from time to time, the "Conseco
Contract"), Leucadia and certain of its subsidiaries have agreed to sell (or
reinsure) to Conseco the non-variable life insurance business conducted by CPL
and Intramerica and certain accident and health insurance business conducted by
CPF and CPI (the "Conseco Transaction");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.1 Purchase and Sale of Shares. Subject to the terms and conditions, and
in reliance upon the representations and warranties, set forth in this
Agreement, CP Holdings agrees to sell all of the issued and outstanding Shares
to the Purchaser, and the Purchaser agrees to purchase all of the issued and
outstanding Shares from CP Holdings.
1.2 Purchase Price. The consideration for the Shares will equal (a)
$950,000,000, plus an aggregate of $156,164 per calendar day from and including
January 1, 1997 through and including the Closing Date (as defined herein), and
(b) such additional consideration as may be required to be paid by the Purchaser
hereunder pursuant to Section 4.8 hereof (collectively, the "Purchase Price").
1.3 Closing.
(a) Unless this Agreement shall have been terminated and the transactions
contemplated hereby shall have been abandoned pursuant to Section 7.1, and
subject to the satisfaction or waiver of the conditions set forth in Article VI,
the closing of the transactions contemplated hereby (the "Closing") shall take
place at 10:00 a.m., New York time, on the second business day after
satisfaction or waiver of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153, unless another date, time or place is agreed to in writing
by the Purchaser and the Sellers; provided, that if the Closing would but for
this provision occur during the two weeks immediately preceding the end of a
calendar quarter, the Closing instead
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shall take place on the first business day following the end of such calendar
quarter.
(b) At the Closing, the Purchaser shall pay the Purchase Price to CP
Holdings by wire transfer of immediately available funds to such account(s) as
CP Holdings specifies to the Purchaser and shall deliver to the Sellers such
documents and instruments required to be executed and delivered by the Purchaser
under the terms of this Agreement.
(c) At the Closing, CP Holdings shall execute and deliver to the Purchaser
(i) certificates representing all the issued and outstanding Shares, accompanied
by duly executed stock powers, and (ii) such documents and instruments required
to be delivered by the Sellers under the terms of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers hereby represents and warrants to the Purchaser as
follows:
2.1 Organization, Standing and Corporate Power. (a) Each of the Sellers,
CPI, the subsidiaries of CPI listed in Section 2.1 of the Seller Disclosure
Schedule (the "Subsidiaries"), and CPGA (the Subsidiaries, together with CPI and
CPGA are referred to herein as the "Companies") is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction set
forth opposite such entity's name in Section 2.1 of the Seller Disclosure
Schedule and has the requisite corporate power and authority to own, lease or
otherwise hold its properties and assets and to carry on its business as now
being conducted. Each of the Sellers and the Companies is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its assets makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing does not have and could not
reasonably be expected to have a material adverse effect on (i) the business,
financial condition or results of operations of the Companies, taken as a whole,
(ii) the ability of the Sellers to consummate the transactions contemplated by
this Agreement or (iii) the validity or enforceability of this Agreement (each,
a "Company Material Adverse Effect"). The Sellers have delivered or made
available to the Purchaser complete and correct copies of the articles or
certificate of incorporation and bylaws of each of the Sellers and each of the
Companies, in each case as amended
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through the date hereof. The minute books of the Companies accurately reflect in
all material respects all formal actions taken at all meetings and all consents
in lieu of meetings of the stockholders of the Companies since August 1991 (or
the date of such Company's incorporation, if later) and all formal actions taken
at all meetings and all consents in lieu of meetings of the boards of directors
of the Companies and all committees thereof since August 1991 (or the date of
such Company's incorporation, if later). True and complete copies of such minute
books have previously been made available for inspection by the Purchaser. The
"Seller Disclosure Schedule" is the disclosure schedule dated the date hereof
and delivered concurrently herewith by the Sellers to the Purchaser.
(b) Except as set forth in Section 2.1 of the Seller Disclosure Schedule,
none of the Companies owns, directly or indirectly, 5% or more of the
outstanding voting securities of or otherwise possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of any
person.
2.2 Capital Structure.
(a) Section 2.2 of the Seller Disclosure Schedule contains a true and
complete list of the authorized, issued, and outstanding capital stock of each
of the Companies.
(b) All issued and outstanding shares of capital stock of CPI and CPGA are
duly authorized, validly issued, fully paid, nonassessable and not subject to
preemptive rights, and are owned beneficially and of record by CP Holdings, free
and clear of any lien, security interest, mortgage, charge, pledge, claim,
encumbrance or restriction of any kind or nature whatsoever (a "Lien"), other
than those Liens disclosed in Section 2.2 of the Seller Disclosure Schedule. The
delivery to the Purchaser of the Shares (upon payment therefor by the Purchaser)
pursuant to this Agreement will transfer to the Purchaser good and marketable
title thereto, free and clear of all Liens. Except as disclosed in Section 2.2
of the Seller Disclosure Schedule, all issued and outstanding shares of capital
stock of, or other ownership interests in, each of the Subsidiaries are duly
authorized, validly issued, fully paid, non-assessable and are not subject to
preemptive rights, and are owned directly or indirectly by CPI, free and clear
of all Liens.
(c) No bonds, debentures, notes or other indebtedness of any of the
Companies having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the stockholders of
such Company may
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vote, and no other ownership interest in any such Company, are issued or
outstanding. Other than this Agreement, none of the Sellers or the Companies has
any outstanding option, warrant, subscription or other right, agreement or
commitment which either (i) obligates any person to issue, sell, deliver or
transfer, repurchase, redeem or otherwise acquire or vote any shares of the
capital stock or other security of or any other ownership interest in any
Company or (ii) restricts the transfer of the Shares.
2.3 Authority; Noncontravention. Each of the Sellers has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by each Seller and the consummation by each Seller of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of such Seller. This Agreement has been duly
executed and delivered by each Seller and, assuming that this Agreement
constitutes a valid and binding agreement of the Purchaser, constitutes a valid
and binding obligation of each Seller, enforceable against each Seller in
accordance with its terms, except to the extent that the enforcement hereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
Except as disclosed in Section 2.3 of the Seller Disclosure
Schedule, the execution and delivery of this Agreement by the Sellers does not,
and the consummation by the Sellers of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not, (i)
conflict with any of the provisions of the articles or certificate of
incorporation or by-laws of any Seller or any of the Companies, (ii) subject to
the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or a default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, or result in the imposition
of any Lien on any of the properties or assets of any Company under, any
indenture, or other material agreement, permit, concession, franchise, license
or other instrument or undertaking to which any Seller or any Company is a party
or by which any of them or any of their respective properties or assets may be
bound or affected, or (iii) subject to the governmental filings and other
matters
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referred to in the following sentence, contravene any law, statute, ordinance,
rule, regulation, code, or any order, writ, judgment, injunction, decree,
determination or award (collectively, "Law"). No consent, approval or
authorization of, or declaration or filing with, or notice to, any court,
governmental agency, department, commission, board, bureau, regulatory authority
or instrumentality ("Governmental Entity") is required by or with respect to any
Seller or any Company in connection with the execution and delivery of this
Agreement by the Sellers or the consummation by the Sellers of any of the
transactions contemplated by this Agreement, except for (i) the filing of
premerger notification and report forms under the Hart- Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (ii) the consents, filings and/or notices required
under the insurance laws of the jurisdictions set forth in Section 2.3 of the
Seller Disclosure Schedule, and (iii) such other consents, approvals,
authorizations, filings or notices of which the failure to obtain would not,
individually or in the aggregate, have a Company Material Adverse Effect.
2.4 Financial Statements. (a) The Sellers have previously delivered to the
Purchaser true and complete copies of the Annual Statements for the years ended
December 31, 1996 and 1995, together with all exhibits and schedules thereto,
and any actuarial opinion, affirmation or certification filed in connection
therewith (each a "Company Annual Statement"), and the Quarterly Statements for
the periods ended after January 1, 1997, together with all exhibits and
schedules thereto (each a "Company Quarterly Statement"), of each of the
Companies which operates as an insurance company in any jurisdiction, other than
Colonial Penn de Mexico, as filed with the insurance regulatory authority in the
state in which such Company is domiciled (an "Insurance Regulator"). Each such
Company Annual Statement and Company Quarterly Statement was prepared in
conformity with statutory accounting practices prescribed or permitted by such
Insurance Regulator, applied on a consistent basis ("SAP"), and presents fairly,
in all material respects, to the extent required by and in conformity with SAP,
the statutory assets, and statutory liabilities, surplus and other funds, of
such Company at the date thereof and the summary of operations, changes in
capital and surplus and cash flow of such Company for the period then ended, and
was correct in all material respects when filed and there were no material
omissions therefrom when filed. No deficiencies or required adjustments with
respect to such Company Annual Statements or Company Quarterly Statements have
been asserted in writing by any insurance regulatory authority which have not
been cured or otherwise resolved to the satisfaction of such insurance
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regulatory authority and which have not been disclosed in writing to Purchaser
prior to the date of this Agreement.
(b) Section 2.4(b) of the Seller Disclosure Schedule contains a true and
correct copy of the unaudited combining financial statements of the Companies
for the years ended December 31, 1996 and 1995, together with the notes thereon,
and the unaudited combined quarterly financial statements of the Companies for
the periods ended after January 1, 1997, with the notes thereon. Such financial
statements, taken together with the notes thereto, are based on the books and
records of the Companies, and fairly present, in all material respects, the
financial condition and results of operations of the Companies as of the dates
and for the periods indicated therein and, except with respect to the
adjustments described in the notes thereto, have been prepared in accordance
with generally accepted accounting principles consistently applied ("GAAP").
2.5 No Undisclosed Liabilities. Except as disclosed in Section 2.5 of the
Seller Disclosure Schedule, there is no liability against, relating to, or
affecting any of the Companies that is of the type required to be disclosed on a
balance sheet prepared in accordance with SAP or in the notes thereto, except
(i) liabilities disclosed in the balance sheet or notes thereto included in such
Company's 1996 Company Annual Statement or such Company's Quarterly Statements,
(ii) policyholder benefits payable, or other liabilities incurred since December
31, 1996, in the ordinary course of business and consistent with past practice
that could not, individually or in the aggregate, have a Company Material
Adverse Effect and (iii) obligations under the Conseco Contract and the
agreements required to be entered into pursuant to the Conseco Contract and
listed in Section 4.16 of the Seller Disclosure Schedule (each a "Conseco
Agreement").
2.6 Absence of Certain Changes or Events. Except (a) as disclosed in
Section 2.6 of the Seller Disclosure Schedule, (b) as contemplated or otherwise
permitted by this Agreement, (c) as required or contemplated under the Conseco
Contract and/or the Conseco Agreements or (d) for changes resulting from general
economic conditions, interest rates or the adoption, amendment or interpretation
of laws or regulations generally applicable to insurance companies, since
December 31, 1996, each of the Companies has conducted its business only in the
ordinary course consistent with past practices and there has not been (i) any
event, condition, occurrence or change that has had or could reasonably be
expected to have a Company Material Adverse Effect; (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the Shares or the capital stock of any of the
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Subsidiaries; (iii) any split, combination or reclassification of any of the
Shares or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for the Shares or any
direct or indirect redemption, purchase or other acquisition by the Companies of
any such stock or of any interest in or right to acquire any such stock; (iv)
(A) any granting by any of the Companies to any officer or employee of such
Company of any increase in compensation, except, in the case of employees, for
ordinary salary and wage increases in the ordinary course of business and
consistent with past practices, (B) any granting by any of the Companies to any
such officer or employee of any increase in severance or termination pay (other
than pursuant to existing policies of any of the Companies consistent with past
practices, which practices shall not include the agreements contemplated in
Section 4.9 of the Seller Disclosure Schedule) or (C) any entry by any of the
Companies into any employment, severance or termination agreement (other than
pursuant to existing policies of any of the Companies consistent with past
practices, which practices shall not include the agreements contemplated in
Section 4.9 of the Seller Disclosure Schedule) with any such officer or
employee; (v) any change in accounting or reserving methods, principles or
practices by any of the Companies except insofar as such changes were required
by SAP; (vi) any Lien created on or in any of the assets and properties of any
Company, or assumed by any Company with respect to any of such assets and
properties, which Lien relates to liabilities individually or in the aggregate
exceeding $250,000 for all such Companies; (vii) any prepayment of any
liabilities individually or in the aggregate exceeding $250,000; (viii) any
liability involving the borrowing of money by any of the Companies in an amount
in excess of $250,000 in the aggregate for all such borrowing; (ix) any
liability incurred by any of the Companies in any transaction not involving the
borrowing of money, in an amount in excess of $250,000 except in the ordinary
course of business and consistent with past practices for such Companies; (x)
any damage, destruction, or other casualty (whether or not covered by insurance)
affecting any of the assets and properties of any of the Companies which damage,
destruction, or loss individually or in the aggregate exceeds $250,000 or the
result of which individually or in the aggregate exceeds $250,000; (xi) any work
stoppage, strike, labor difficulty, or (to the best knowledge of Sellers) union
organizational campaign (in process or threatened) at or affecting any of the
Companies; (xii) any material payment, discharge, or satisfaction by any of the
Companies of any Lien or liability other than Liens or liabilities that (X) were
paid, discharged, or satisfied since December 31, 1996 in the ordinary course of
business and consistent with past practice, or (Y) were paid, discharged or
satisfied as required under this Agreement; (xiii) any
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cancellation of any liability in excess of an aggregate of $250,000 owed to any
of the Companies by any other Person; (xiv) any write-off or write-down of, or
any determination to write off or down any of, the assets and properties of any
of the Companies or any portion thereof, except for write-offs or write-downs
that do not exceed $250,000 in the aggregate for all such Companies (other than
the write-off of premiums in the ordinary course of business consistent with
past practices); (xv) any sale, transfer, or conveyance of any assets and
properties of any of the Companies with an individual book value or with an
aggregate book value in excess of $250,000, except for securities held for
investment in the ordinary course of business and consistent with past practice
for each such Company; (xvi) any amendment, termination, waiver, disposal, or
lapse of, or other failure to preserve, any license or other form of
authorization of any of the Companies (except as indicated on Section 2.6 of the
Seller Disclosure Schedule), which is material to the conduct of the business of
the Companies, taken as a whole; (xvii) any loan or advance to any Seller, any
affiliate of the Companies or Sellers or any of the directors, officers,
employees, consultants, agents or other representatives of any Seller or any
Company; (xviii) any material amendment of, or any failure to perform all of its
material obligations under, or any material default under, or any waiver of any
material right under, or any termination (other than on the stated expiration
date) of any contract that involves or reasonably could be expected to involve
the annual expenditure or receipt by any of the Companies of more than $250,000;
(xix) any amendment to the articles or certificate of incorporation or by-laws
of any of the Companies; (xx) any termination (other than on the stated
expiration date), amendment, or execution by any of the Companies of any
material reinsurance, material coinsurance, or other similar material contract,
as ceding insurer or assuming reinsurer; (xxi) any expenditure or commitment for
additions to property, plant, equipment or other tangible or intangible capital
assets of any of the Companies, except for any expenditure or commitment that
does not exceed $250,000 in the aggregate; (xxii) any material modification in
any material compensation contract entered into with insurance agents; (xxiii)
any material increase in the promotional expenses undertaken with respect to
direct response lines of insurance offered by any of the Companies; or (xxiv)
any action by any Company's board of directors authorizing any Company, or any
contract, to take any of the actions described in this Section 2.6, other than
actions expressly permitted under this Section 2.6.
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2.7 Taxes.
(a) Except as disclosed in Section 2.7 of the Seller Disclosure Schedule,
each of the Companies has filed all material Tax Returns (as hereinafter
defined), including those required under applicable withholding laws and
regulations required to be filed by it on or prior to the date hereof or
requests for extensions to file such Tax Returns have been timely filed, granted
(if required) and have not expired. All material Tax Returns filed by any of the
Companies are complete and accurate except to the extent that such failure to be
complete and accurate, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Companies considered in the
aggregate. Each of the Companies has paid (or has had paid on its behalf), or
has established adequate reserves for the payment of, all Taxes (as hereinafter
defined) shown due on such Tax Returns, and liabilities and reserves for Taxes
reflected on the Company Annual Statement for the year ended December 31, 1996
are adequate in all material respects for Taxes payable by the Companies for all
taxable periods and portions thereof through December 31, 1996.
(b) Except as set forth on Section 2.7 of the Seller Disclosure Schedule,
no deficiencies for any Taxes have been proposed, asserted or assessed in
writing against any of the Companies that are not adequately reserved for in
accordance with SAP, except for deficiencies that, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect on
the Companies considered in the aggregate, and no written requests for waivers
of the time to assess any such Taxes have been granted or are pending. Except as
disclosed in Section 2.7 of the Seller Disclosure Schedule, the material Tax
Returns of the Companies for all years prior to 1993 have been examined by and
settled with the applicable Governmental Entity, or the statute of limitations
on assessment or collection of any Taxes due in respect of such Tax Returns from
the Companies has expired.
(c) As used in this Agreement, "Taxes" shall include all United States
federal, state, local and foreign income, property, premium, sales, excise,
employment, payroll, withholding and other taxes, tariffs or governmental
charges of any nature whatsoever (excluding any guarantee fund assessment or
escheat) and any interest, penalties and additions to taxes relating thereto. As
used in this Agreement, "Tax Returns" shall include any return, report,
information return, or other document (including any related or supporting
information) filed or required to be filed with any Governmental Entity in
connection
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with the determination, assessment, collection, or administration of any Taxes.
(d) Except as set forth in Section 2.7 of the Seller Disclosure Schedule,
none of the Companies has any plan or arrangement that will, as a result of the
transactions effected pursuant to this Agreement, give rise to "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code").
(e) None of the Sellers is a "foreign person" within the meaning of
Section 1445(b)(2) of the Code. At or prior to Closing, Seller will provide to
Purchaser a certification of nonforeign status to the extent and in the form
required under Treas. Reg. Section 1.1445-2(b).
(f) Except as set forth in Section 2.7 of the Seller Disclosure Schedule,
(i) none of the Companies has agreed, been requested to, has an application
pending or is required to make any adjustment under Section 446(e) or Section
481(a) of the Code, (ii) none of the Companies has any accounting method changes
pending, either initiated by the IRS or by any such Company and (iii) there are
no elections in effect under Sections 108, 168, 441, 472, 1017, 1033, 4977 or
341(f)(2) of the Code that would result, in conjunction with the Section 338
Elections (as defined below), in recognition of income for federal income tax
purposes on the Closing Date.
(g) Each of the Companies has paid or has established adequate reserves in
the Company Annual Statement or Company Quarterly Statement (as the case may be)
(each a "Financial Statement") for the payment of all guarantee fund assessments
in respect of any period through December 31, 1996. Such assessments have been
recorded in the Company Annual Statement or any Company Quarterly Statement only
if such assessment was received prior to the date of such Financial Statement.
(h) Except for CP Mexico (defined below), each of the corporations listed
in Section 2.7(h) of the Seller Disclosure Schedule (the "Section 338 Targets")
is a member of the group of corporations filing a consolidated federal income
tax return having Leucadia as its common parent, and each of such Section 338
Targets and Leucadia is a domestic corporation. Other than pursuant to this
Agreement, none of the Section 338 Targets, including Colonial Penn de Mexico de
Seguros S.A. de C.V. ("CP Mexico") has issued, granted or transferred any
outstanding call options, warrants, convertible obligations, put options,
redemption agreements (including any rights to cause the redemption of stock),
cash settlement options, phantom stock,
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stock appreciation rights, or any similar interests (except for stock), or any
other instruments that provide for the right to issue, redeem, or to transfer
the stock (including any option on an option), with respect to any such Section
338 Target, including CP Mexico.
(i) To the best knowledge of Sellers, (i) for any taxable year in respect
of which the applicable statute of limitations on assessment or collection of
Taxes has not yet expired, the Companies (or their predecessors) have not been
members of any group of corporations filing a consolidated federal income tax
return and having as a common parent any corporation other than Leucadia,
PHLCORP, Inc. or FPL Group Inc., and (ii) for any year after 1990, Sellers have
disclosed to Purchaser (or its representatives) each member of the group of
corporations filing a consolidated federal income tax return and having Leucadia
as the common parent of such group.
(j) The only tax year subject to indemnification by FPL under the FPL
Agreement (defined below) and in respect of which the applicable statute of
limitations on assessment or collection of any Taxes due has not expired is 1988
and, to the best knowledge of Sellers, no such indemnification relates to Taxes
for which any of the Companies would be liable.
(k) Sellers have properly prepared and filed information statements
required pursuant to Section 1.382-2T(a)(2)(ii) of the Treasury Regulations
promulgated under Section 382 of the Code.
(l) For all taxable years in respect of which the applicable statute of
limitations on assessment or collection of Taxes has not yet expired, each of
CPI, CPF, Colonial Penn Madison Insurance Company, Bay Colony Insurance Company
and Bayside Casualty Insurance Company has been subject to tax under Section 831
of the Code, and has calculated discounted unpaid losses in a manner consistent
with Section 846 of the Code.
(m) Sellers have provided to Purchaser (or its representatives) complete
and accurate copies, or reasonable access to review complete and accurate
copies, of each document listed in Section 2.7(m) of the Seller Disclosure
Schedule, to the extent any such document exists and is reasonably available.
Insofar as the inquiries made prior to the date hereof by Purchaser and its
representatives regarding the history, operations and transactions of Sellers
and their affiliates relate to material tax items concerning the Companies, to
Seller's knowledge Sellers and its representatives have to the extent of their
ability fully and accurately responded, whether orally or in writing, and in
each case taking into account the
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totality of Seller's and its representatives' response(s), to such inquiries.
2.8 Absence of Changes in Benefit Plans. Except as disclosed in Section
2.8 of the Seller Disclosure Schedule, since December 31, 1996 there has not
been any adoption or amendment by any of the Companies of any collective
bargaining agreement or any Benefit Plan (as defined in Section 2.9). Except as
disclosed in Section 2.8 of the Seller Disclosure Schedule, there exist no
written employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between any of the Companies and any
current or former employee, officer or director of any such Company ("Individual
Agreements") in which the amount remaining to be paid pursuant thereto on the
date of this Agreement would exceed $100,000.
2.9 Benefit Plans.
(a) None of the Companies (i) currently maintains, administers or
contributes to or (ii) during the six year period preceding the Closing Date
maintained, administered or contributed to: (1) any employee benefit plan (as
defined in Section 3 (3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") ("Plan"), including, without limitation, any multiemployer
plan as defined in Section 3 (37) of ERISA ("Multiemployer Plan") or (2) any
bonus, deferred compensation, performance compensation, stock purchase, stock
option, stock appreciation, severance, salary continuation, vacation, sick
leave, holiday pay, fringe benefit, personnel policy, reimbursement program,
incentive, insurance, welfare or similar plan, program, policy or arrangement
("Benefit Plan"), other than those Plans and Benefit Plans described in Section
2.9 of the Seller Disclosure Schedule. All Plans and Benefit Plans and all
related trust agreements or annuity contracts (or related trust instruments)
comply in all material respects with and are, and during the six year period
preceding the Closing Date have been, operated in all material respects in
accordance with the terms of the Plans and Benefit Plans, ERISA, the Code, other
federal statutes, state law and the regulations and rules promulgated pursuant
thereto or in connection therewith. Except as described in Section 2.9 of the
Seller Disclosure Schedule, no withdrawals have occurred so as to cause any Plan
to become subject to the provisions of Section 4063 of ERISA, nor during the six
(6) year period prior to the date hereof have any of the Companies ceased making
contributions to any Plan subject to Section 4064(a) of ERISA to which any of
the Companies made contributions or ceased operations at a facility so as to
become subject to Section 4062(e) of ERISA. True and complete copies of each
Plan, Benefit Plan, related trust agreements, annuity
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contracts, determination letters, summary plan descriptions, annual reports on
Form 5500 and Form 990, if any, have been made available to Purchaser. None of
the Companies or any entity required to be aggregated with any of the Companies
pursuant to Code Section 414 or ERISA Section 4001(b) ("ERISA Affiliate") have
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC"),
including as a result of the voluntary or involuntary termination of any Plan
which is subject to Title IV of ERISA. There is currently no active filing by
any of the Companies with the PBGC (and no proceeding has been commenced by the
PBGC and no condition exists and no event has occurred that could constitute
grounds for the termination of any Plan by the PBGC) to terminate any Plan which
is subject to Title IV of ERISA and which has been maintained or funded, in
whole or in part, by any of the Companies. None of the Companies or any ERISA
Affiliate have contributed to or been obligated to contribute to a Multiemployer
Plan.
(b) Except as disclosed in Section 2.9 of the Seller Disclosure Schedule,
there has been no reportable event, as defined in Section 4043(c) of ERISA, nor
has there been any event which would require a report to the PBGC, Department of
Labor or Internal Revenue Service under ERISA or the Code (other than summary
plan descriptions and annual reports filed in the normal course), with respect
to any Plan or any Benefit Plan for which notice has not been waived by rule or
regulation. Except as disclosed in Section 2.9 of the Seller Disclosure
Schedule, none of the Companies or any ERISA Affiliate have any liability to the
PBGC (other than any liability for insurance premiums not yet due to the PBGC),
to any present or former participant in or beneficiary of any Plan or Benefit
Plan, or any beneficiary of any such participant or beneficiary, (except with
respect to normal benefits due under any Plan or Benefit Plan) or to any Plan or
Benefit Plan (except with respect to normal funding obligations). Except as
disclosed in Section 2.9 of the Seller Disclosure Schedule, no event, fact or
circumstance has arisen or occurred that has, subject only to the exceptions in
the preceding sentence, resulted in or may reasonably be expected to result in
any such liability or a claim against any of the Companies or any ERISA
Affiliate by the PBGC, by any present or former participant in or any
beneficiary of any Plan or Benefit Plan (or any beneficiary of any such
participant or beneficiary), or any such Plan or Benefit Plan. Except as
disclosed in Section 2.9 of the Seller Disclosure Schedule, (1) no filing has
been or will be made by any of the Companies in connection with the complete or
partial termination of any Benefit Plan, (2) no complete or partial termination
of any Plan has occurred or, as a result of the execution or delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement,
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will occur, except as otherwise disclosed in Section 2.9 of the Seller
Disclosure Schedule, and (3) none of the Companies has engaged in any
transaction, within the meaning of Section 4069 of ERISA.
(c) The actuarial assumptions utilized, where appropriate, in connection
with determining the funding of each Plan which is a defined benefit pension
plan (as set forth in the actuarial report for such Plan) are reasonable. A copy
of the latest such actuarial report has been previously furnished to the
Purchaser. Based on such actuarial assumptions, as of December 31, 1996, the
actuarially determined present value of all accrued benefits of all such Benefit
Plans (whether or not vested) determined on a termination basis did not exceed
the fair market value of the assets and property held under such Plans by an
amount in excess of $12,000,000.
(d) Except as disclosed in Section 2.9 of the Seller Disclosure Schedule,
there are no pending or, to the knowledge of the Sellers, threatened actions,
suits, investigations or other proceedings by any present or former participant
or beneficiary under any Plan or Benefit Plan (or any beneficiary of any such
participant or beneficiary) involving any Plan or Benefit Plan or any rights or
benefits under any Plan or Benefit Plan other than ordinary and usual claims for
benefits by participants or beneficiaries thereunder. There is no writ,
judgment, decree, injunction or similar order of any court, governmental or
regulatory authority, or other similar person outstanding or in favor of any
Plan or Benefit Plan or any fiduciary thereof.
(e) Except as disclosed in Section 2.9 of the Seller Disclosure Schedule,
none of the Companies maintains or contributes to any Benefit Plan which
provides, or has any liability or obligation to provide, life insurance, medical
or other employee welfare benefits to any employee (or his beneficiary) upon
and/or after such employee's retirement or termination of employment, except as
may be required by federal, state or local laws, rules or regulations, and none
of the Companies has ever represented, promised or contracted to or with any
employee (or former employee) that such employee (or former employee) would be
provided life insurance, medical or other employee welfare benefit upon their
retirement or termination of employment except to the extent required by
federal, state or local laws, rules or regulations.
(f) Except as disclosed in Section 2.9 of the Seller Disclosure Schedule,
none of the Plans, Benefit Plans, or Individual Agreements contain any provision
which would result in any additional benefits, accelerated vesting and/or
accelerated
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payments solely as a result of the consummation of the transactions contemplated
by this Agreement.
(g) Except as set forth in Section 2.9 of the Seller Disclosure Schedule,
none of the payments contemplated by any of the Plans, Benefit Plans, and/or
Individual Agreements would, in the aggregate as to any one individual,
constitute an "excess parachute payment" under Code Section 280G.
(h) The employee benefit plans of Colonial Penn de Mexico Compania de
Seguros S.A. de C.V. ("Mexican Plans") are set forth in Section 2.9(h) of the
Seller Disclosure Schedule. The provisions of subsections (a) - (g) of this
Section 2.9 shall not apply to the Mexican Plans. All of the Mexican Plans
comply in all material respects with and are, and since inception have been,
operated in all material respects in accordance with their terms and the laws of
Mexico.
(i) All obligations under the Supplemental Retirement Account Agreement
between Colonial Penn Insurance Company and Henry H. Wulsin and all obligations
under the Colonial Penn Insurance Company Long Term Incentive Plan are fully
funded under the Colonial Penn Insurance Company Executive Benefits Trust except
for a contribution due on or about January 1, 1998, not in excess of $200,000,
that has been accrued on the books of CPI as of the date of the Purchase
Agreement. Attached hereto as Section 2.9(i) of the Seller Disclosure Schedule
is a list dated June 19, 1997 of the name of each individual who is entitled to
a benefit under the Colonial Penn Insurance Company Long Term Incentive Plan,
the number of units for each such individual and the fixed value of each such
individual's units determined without regard to the investment of Colonial Penn
Insurance Company Executive Benefits Trust occurring after the date each such
unit was fixed.
2.10 Compliance with Applicable Laws.
(a) Each of the Companies has in effect all federal, state, local and
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for it
to own, lease or operate its assets and to carry on its business as now
conducted, and, to the knowledge of the Sellers, there has occurred no default
under any such Permit, except where the failure to have such Permits in effect
or the default under such Permits would not, individually or in the aggregate,
have a Company Material Adverse Effect. Except as disclosed in Section 2.10(a)
of the Seller Disclosure Schedule, each of the Companies is in compliance with
all applicable Laws, except where non-compliance with such Laws would
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not, individually or in the aggregate, have a Company Material Adverse Effect.
Except as disclosed in Section 2.10(a) of the Seller Disclosure Schedule and
except for routine examinations by Insurance Regulators, no investigation by any
Governmental Entity with respect to any of the Companies is pending or, to the
knowledge of the Sellers, threatened.
(b) Except as disclosed in Section 2.10(b) of the Seller Disclosure
Schedule or as otherwise disclosed to the Purchaser on June 21, 1997, (i) all
forms of insurance policies and riders thereto currently issued by any Company
are, to the extent required under applicable Laws, on forms approved by
applicable insurance regulatory authorities of the jurisdictions in which issued
or have been filed with and not objected to by such insurance regulatory
authorities within the period provided for such objection and any premium rates
with respect to such policies or riders required to be filed with or approved by
such applicable insurance regulatory authorities have been so filed or approved
and premiums charged conform thereto, (ii) each of the Companies (exclusive of
its independent agents) and, to the knowledge of the Sellers, its independent
agents have marketed, sold and issued products of such Company in compliance
with all Laws applicable to the business of such Company in the respective
jurisdictions in which such products have been sold, except where the failure to
do so, individually or in the aggregate, has not had or could not reasonably be
expected to have, a Company Material Adverse Effect, (iii) there are (A) to the
knowledge of the Sellers, no claims asserted, (B) no actions, suits,
investigations or proceedings by or before any court or other Governmental
Entity or (C) no investigations by or on behalf of any Company ((A), (B) and (C)
being collectively referred to as "Actions") pending or, to the knowledge of the
Sellers, threatened, against or involving any of the Companies, or, to the
knowledge of the Sellers, any of its independent agents that include allegations
that any of the Companies or any of its independent agents were in violation of
or failed to comply with such Laws, and, to the knowledge of the Sellers, no
facts exist which would reasonably be expected to result in the filing or
commencement of any such Action, which Actions, individually or in the
aggregate, could, if adversely decided reasonably be expected to have a Company
Material Adverse Effect, and (iv) each of the Companies is in compliance, in all
material respects, with and has performed, in all material respects, all
obligations required to be performed by such Company under any cease-and- desist
or other order issued by any Insurance Regulator or other Governmental Entity to
such Company or under any written agreement, consent agreement, memorandum of
understanding or commitment letter or similar undertaking entered into between
any Insurance Regulator or other Governmental Entity and such Company
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(a "Company Regulatory Agreement"), which Company Regulatory Agreement remains
in effect on the date hereof. Section 2.10(b) of the Seller Disclosure Schedule
lists all Company Regulatory Agreements, copies of which have previously been
provided to Purchaser.
(c) Section 2.10(c) of the Seller Disclosure Schedule lists the
jurisdictions in which each of the Companies hold licenses (including, without
limitation, licenses or certificates of authority from applicable insurance
departments), permits, or authorizations to transact insurance or reinsurance
business (collectively, the "Insurance Licenses"). Except as set forth in
Section 2.10(c) of the Seller Disclosure Schedule, all such Insurance Licenses
are valid, binding and in full force and effect. Except as set forth in Section
2.10(c) of the Seller Disclosure Schedule, each of the Companies is duly
licensed in each jurisdiction to write the lines of insurance offered by it in
such jurisdiction. Except as set forth in Section 2.10(c) of the Seller
Disclosure Schedule, no Insurance License is the subject of a proceeding for
suspension or revocation or any similar proceedings and, to the knowledge of the
Sellers, there is no pending threat of such suspension or revocation by any
licensing authority or any sustainable basis therefor.
(d) The Sellers have previously made available to the Purchaser, true and
complete copies of the reports (or the most recent draft thereof, to the extent
any final report is not available) reflecting the results of the most recent
financial examinations and market conduct examinations of any of the Companies
issued by any Insurance Regulator.
2.11 Litigation. Except as disclosed in Section 2.11 of the Seller
Disclosure Schedule, (i) there is no action, suit, investigation or proceeding
pending, or, to the knowledge of the Sellers, threatened, against any Seller or
any Company or affecting any of their assets or properties, at law or in equity,
in, before, or by any person that has had or could be reasonably expected to
have a Company Material Adverse Effect and (ii) there are no judgments, orders
or decrees of any Governmental Entity binding on any Seller or Company or any of
its properties and assets, which (x) have been issued by any insurance
regulatory authority, (y) would restrict the ability of any of the Companies to
conduct its business in the ordinary course of business consistent with past
practices or (z) that has had or could reasonably be expected to have a Company
Material Adverse Effect.
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2.12 Assets and Properties.
(a) Each of the Companies has good and marketable title to all debentures,
notes, stocks, securities, and other assets that are of a type required to be
disclosed in Schedules B through DB of an insurance company Annual Statement
that it purports to own, free and clear of all Liens, except (i) for Permitted
Liens, (ii) securities listed on the State Deposit Schedule of its Company
Annual Statement and (iii) as disclosed in Section 2.12(a) of the Seller
Disclosure Schedule. For purposes hereof, "Permitted Lien" shall mean any (i)
mechanic's, carrier's, workmen's, repairmen's, or other similar Lien arising or
incurred in the ordinary course of business, (ii) Lien for taxes, assessments,
and other governmental charges that are not due and payable or that may
hereafter be paid without penalty or that are being contested in good faith,
(iii) Lien on assets in a Company's investment portfolio that arise or have been
incurred in the ordinary course of such Company's investing activities
consistent with past practices, and (iv) other Liens that, on the Closing Date,
will not, individually or in the aggregate, materially detract from the values
of such properties or assets or materially interfere with the present uses
thereof.
(b) Section 2.12(b) of the Seller Disclosure Schedule contains a true and
complete list and description of all real property that any of the Companies
purports to own that are of the type that would be included on Schedule A of an
insurance company Annual Statement. The applicable Company has good and
marketable fee title to such real property, free and clear of all Liens, except
(i) for Permitted Liens and/or (ii) as disclosed in Section 2.12(b) of the
Seller Disclosure Schedule.
(c) Section 2.12(c) of the Seller Disclosure Schedule contains a true and
complete list and description of all real property leased by any of the
Companies. The Sellers shall have made available to the Purchaser true and
complete copies of each lease or sublease as amended to the date of this
Agreement. Each such lease or sublease is in full force and effect and none of
the Companies is in default thereunder or has received any notice of any default
thereunder of any other party thereto, except in each case where any such
unenforceability, ineffectiveness or default would not have a Company Material
Adverse Effect.
(d) Except as disclosed in Section 2.12(d) of the Seller Disclosure
Schedule, the applicable Company has good and marketable title to, or has a
valid leasehold interest in or a valid right to use, all tangible personal
property that is material to the conduct of the business, operations or affairs
of the Companies, taken as a whole.
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2.13 Contracts.
(a) Section 2.13(a) of the Seller Disclosure Schedule contains a true and
complete list of each contract, agreement, instrument or other arrangement,
written or oral that (i) is between any of the Companies and any of the Sellers
or any of their respective affiliates (excluding structured settlement annuity
contracts listed in any Company Annual Statement), (ii) is necessary or material
to the business, operation or affairs of the Companies, taken as a whole or
(iii) (excluding insurance/annuity contracts) involves payments in excess of
$250,000 in any one fiscal year or $500,000 in the aggregate in any five year
period (unless such contract is terminable on not more than one year's notice
without cause and payment of penalty) (a "Material Contract"), true and complete
copies of which have been made available to the Purchaser.
(b) Except as listed in Section 2.13(b) of the Seller Disclosure Schedule,
or as provided for in this Agreement or except for the Conseco Contract and the
Conseco Agreements, none of the Companies is a party to or owner of any:
(i) agreement for the sale or lease of any of the
assets and properties of the Companies other than
in the ordinary course of business consistent with
past practices;
(ii) material mortgage, pledge, conditional sales contract,
security agreement, factoring agreement, or other
similar material agreement with respect to any real or
personal property of any Company;
(iii) agreement with a labor union or labor association;
(iv) loan agreement, promissory note issued by it,
guarantee, subordination or similar type of
agreement;
(v) securities issued by any affiliate of any of the
Companies (other than capital stock listed on
Section 2.2 of the Seller Disclosure Schedule);
(vi) noncompetition or non-solicitation agreement;
(vii) support agreement, guarantee or other agreement
for the benefit of any affiliate of any of the
Companies (including any of the Sellers); or
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(viii) power of attorney or agreement with a managing
general agent or third party administrator.
(c) With respect to each Material Contract and each contract listed in
Section 2.13(b) of the Seller Disclosure Schedule (a "Section 2.13(b)
Contract"), (i) to the knowledge of Sellers, assuming the due authorization,
execution and delivery thereof by the other party or parties thereto, such
Material Contract or Section 2.13(b) Contract is valid and binding in all
material respects in accordance with its terms and is in full force and effect,
(ii) none of the Companies party thereto is, and to the knowledge of the
Sellers, no other party thereto is, in default in the performance, observance or
fulfillment of any obligation, covenant or condition contained therein except
where such defaults, individually or in the aggregate, have not had and could
not reasonably be expected to have a Company Material Adverse Effect and (iii)
to the knowledge of Sellers, no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute a default
thereunder except where such defaults could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Except as disclosed in Section 2.13 of the Seller Disclosure Schedule, no
Material Contract or Section 2.13(b) Contract requires the consent of any party
in connection with the transactions contemplated hereby.
2.14 Insurance. Section 2.14 of the Seller Disclosure Schedule contains a
true and complete list of all material liability, property, workers
compensation, directors and officers liability, and other similar insurance
policies that insure the business, operations, or affairs of each of the
Companies or affect or relate to the ownership, use, or operations of any of its
assets. Excluding insurance policies that have expired and been replaced in the
ordinary course of business, no insurance policy has been cancelled within the
last year except as disclosed in Section 2.14 of the Seller Disclosure Schedule
and, to the knowledge of the Sellers, no threat has been made to cancel any
insurance policy of any Company during such period. Except as disclosed in
Section 2.14 of the Seller Disclosure Schedule, all such insurance will remain
in full force and effect with respect to periods before the Closing without the
payment of additional premiums other than under the terms of such policy or in
the ordinary course of business consistent with past practice. No event has
occurred, including, without limitation, the failure by any of the Companies to
give any notice or information or any of the Companies giving any inaccurate or
erroneous notice or information, which limits or impairs the rights of such
Company under any such insurance policies.
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2.15 Brokers and Advisors. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Sellers
directly with the Purchaser, without the intervention of anyone on behalf of the
Sellers in such manner as to give rise to any valid claim by any person against
the Purchaser or any of its subsidiaries for a finder's fee, brokerage
commission, transaction fee, investment banking fee, or similar payment, except
for Impala Partners LLC, whose fee will be paid by the Sellers and not the
Companies. The Sellers have retained Weil, Gotshal & Manges LLP as their legal
advisor whose fee will be paid by the Sellers and not the Companies.
2.16 Intellectual Property. Section 2.16 of the Seller Disclosure Schedule
contains a true and complete list and description of all intellectual property
in which any Company holds ownership, license, use or other proprietary
interest, including but not limited to names, tradenames, trademarks, service
marks currently in use or used within the past five years and all registrations
and applications for registration with respect thereto and all applications for
registration of any trademarks, service marks and tradenames based on an
intention to use, patents, patent applications, patent rights, assumed names,
logos, trade secrets, copyrights, all agreements with respect to the
intellectual property of third parties, identification of all continuation,
renewal, use, amendment and extension filings made or in the process of being
made with respect to any proprietary interest, identification of any recent
inventions of any Company and whether each such invention is, to the knowledge
of the Seller, susceptible of patent, copyright or trade secret protection
(collectively, the "Intellectual Property") that are material to the conduct of
the business, operations, or affairs of the Companies. Except as set forth in
Section 2.16 of the Seller Disclosure Schedule or as required pursuant to the
Conseco Contract or the license agreement to be entered into thereunder (the
"Conseco License Agreement"), the other Conseco Agreements, the Section 4.16
Agreements (as defined herein) or the CPL License Agreement (as defined herein),
the Companies have, and after the Closing will have, the right to use, free and
clear of any Liens or other encumbrances, such Intellectual Property and all
computer software object code, computer software databases, computer software
applications, programs, and similar systems (collectively "Computer Software")
used by, owned by or licensed to the Companies and material to the conduct of
the business, operations, or affairs of the Companies. To the actual knowledge
of the Sellers, without (solely for the purposes of this sentence) any inquiry,
following the Closing the Companies will have sole and exclusive ownership of
the Section 4.15(a) Marks (as defined herein) in accordance with the description
of services for the Section 4.15(a) Marks as set forth in Section
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2.16 of the Seller Disclosure Schedule, subject only to the CPL License
Agreement and the Conseco License Agreement. Except as set forth in Section 2.16
of the Seller Disclosure Schedule, to the knowledge of the Sellers, none of the
Companies is or, as a result of the transactions contemplated hereby will be, in
conflict with or in violation or infringement of, nor have the Sellers or the
Companies received any notice alleging any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any other
person with respect to any such Intellectual Property or Computer Software.
Sellers have no knowledge that any such right which might so be violated or
infringed has been applied for by another or that any of the Intellectual
Property has been legally declared invalid or is the subject of a pending or
threatened action for opposition, cancellation or a declaration of invalidity or
is infringed by the activities of another. Other than the Conseco License
Agreement or the CPL License Agreement, except as set forth in Section 2.16 of
the Seller Disclosure Schedule, none of the Companies is bound by, or a party
to, any licenses or contracts of any kind with respect to any patents,
copyrights, trademarks, service marks, tradenames, trade secrets, licenses,
computer software, computer software databases and other proprietary rights of
any other person material to the conduct of the business, operations or affairs
of the Companies. Set forth in Section 2.16 of the Seller Disclosure Schedule is
the Companies' program for modification of all main frame computer software
programs reasonably necessary for the Companies' business, operations or affairs
as currently operated to permit them to operate properly using date data fields
for dates on and after January 1, 2000 as well as dates on and after January 1,
1900 through December 31, 1999.
2.17 Insurance and Reinsurance. Section 2.17(a) of the Seller Disclosure
Schedule is a true and complete description of insurance and reinsurance
coverages written by any of the Companies, other than personal lines coverages
(the "Commercial Lines Programs"). Section 2.17(b) of the Seller Disclosure
Schedule is a true and complete list of (i) all reinsurers reinsuring the
Commercial Lines Programs from which any balances are unpaid or for which any
reserves, "case" or "incurred but not reported," are held as of December 31,
1996 (the "Commercial Lines Reinsurers"), together with the amount of such
balances, (ii) all reinsurance agreements to which any of the Companies is a
party covering the Companies' personal lines insurance policies, which are
currently in effect or have been effect since January 1, 1992, copies of which
have been delivered or made available to Purchaser, and (iii) those reinsurance
agreements pursuant to which each of CPF and CPI will cede to CPL certain
insurance (the "A&H Reinsurance Agreements"). The Sellers
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previously have made available to the Purchaser all reinsurance agreements
covering Commercial Lines Programs with reinsurers from which no balances are
due as of January 1, 1997. Except for (a) the Commercial Lines Programs, (b)
agreements with the Commercial Lines Reinsurers, (c) reinsurance agreements
covering Commercial Lines Programs with reinsurers from which no balances are
due as of January 1, 1997, or (d) as otherwise disclosed in Section 2.17 of the
Seller Disclosure Schedule, none of the Companies is a party to any contract
providing for reinsurance (except for reinsurance agreements covering the
Companies' personal lines policies for periods prior to January 1, 1992),
coinsurance, excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities.
Except as required by Law or except as disclosed in Section 2.17 of
the Seller Disclosure Schedule:
(a) To the knowledge of Sellers, all amounts payable under any insurance,
reinsurance or annuity contract by the Companies and (to the knowledge of
Sellers) by any other person that is a party to or bound by any reinsurance,
coinsurance, or other similar contract with any of the Companies (each a
"Reinsurance Agreement") have been paid in accordance with the terms of the
contracts under which they arose, except for such amounts for which any of the
Companies reasonably believes there is a reasonable basis to contest payment or
where the failure to pay would not have a Company Material Adverse Effect.
Except as disclosed in Section 2.17 of the Seller Disclosure Schedule, to the
knowledge of the Sellers, no reinsurer that is a party to any of the Reinsurance
Agreements to which any Company is a party has a valid defense to payment of its
material obligations under such Reinsurance Agreements. The Companies have not
entered into any material transactions that are required to be recorded as
financial reinsurance pursuant to either GAAP or SAP.
(b) No outstanding insurance or annuity contract issued, reinsured, or
underwritten by any of the Companies entitles the holder thereof or any other
person to receive any dividends, distributions or other benefits based on the
revenues or earnings of any of the Companies or any other person.
(c) To the best of Sellers' knowledge, the Companies maintain policyholder
records and values that are true and correct in all material respects.
2.18 Actuarial Studies. Sellers have previously delivered to Purchaser
true and complete copies of all reports rendered by any consulting actuary (or
any other person advising Sellers as to the adequacy of the claims reserves),
undertaken by Sellers,
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or any of the Companies with respect to the insurance business conducted by any
of such companies during the past two years for the purpose of evaluating claims
reserves.
2.19 Threats of Cancellation. Except as disclosed in Section 2.19 of the
Seller Disclosure Schedule, since December 31, 1995, no policyholder, group of
policyholder affiliates, or persons writing, selling, or producing insurance
business, that individually or in the aggregate accounted for 5% or more of the
premium or annuity income of the Companies with which such policyholder or group
was insured, or for which such Persons wrote, sold or produced insurance
business, for the year ended December 31, 1996, has terminated or (to the best
knowledge of Seller) threatened to terminate its relationship with the
Companies, as the case may be.
2.20 Labor Matters. Except as set forth in Section 2.20 of the Seller
Disclosure Schedule the operation of the business of the Companies has not been
materially and adversely affected by labor problems. Sellers have no knowledge
of any facts which lead any of them to believe that such problems may in the
future have a Company Material Adverse Effect. To the best of Sellers'
knowledge, except as set forth in Section 2.20 of the Seller Disclosure
Schedule, the activities of the Companies have been in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours. Section 2.20
of the Seller Disclosure Schedule also sets forth, to the best of Sellers'
knowledge, a description of all disputes or claims applicable to any Company,
pending or threatened, alleging employment discrimination, sexual harassment, or
any unfair employment practice.
2.21 Person Authorized to Act. Prior to Closing, Sellers shall deliver (a)
a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which each of
the Companies have an account or safe deposit box or maintains a banking,
custodial, trading, or other similar relationship, (b) a true and complete list
and description of each such account, box, and relationship, indicating in each
case the account number and the names of the respective officers, employees,
agents, or other similar representatives of the Companies transacting business
with respect thereto, (c) a true and complete list of each person authorized to
draw on each such account, entitled to have access thereto or authorized to
borrow money (or furnish security for the same) therefrom, and (d) a true and
complete list of each power of attorney granted to any person or persons for any
purpose.
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2.22 Accuracy of Information. No representation or warranty by Sellers
contained in this Agreement (including the Seller Disclosure Schedule) contains
any untrue statement of a material fact, or omits to state a material fact
necessary to make the statements contained herein not misleading.
2.23 Environmental Matters.
(a) Except as set forth in Section 2.23 of the Seller Disclosure Schedule,
none of the Companies has received any notice from any governmental agency or
authority of any violation of, or any failure to comply with, any Environmental
Law, and, to the knowledge of the Sellers and the Companies, the Companies are
in compliance with and, until the Closing Date shall remain in compliance in all
material respects with all Environmental Laws, where such failure to comply
would have, individually or in the aggregate, a Company Material Adverse Effect.
(b) Each of the Companies has, to the knowledge of the Sellers, obtained
and will maintain through the Closing Date, all governmental approvals that are
required with respect to its operations under any Environmental Law where the
failure to obtain or maintain such governmental approvals would have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) Except as set forth in Section 2.23 of the Seller Disclosure Schedule,
none of the Companies (A) has any liability for response costs or corrective
action pursuant to any Environmental Law with respect to any real property or
facility currently or previously owned or leased by any of the Companies or any
other real property or facility where such liability arises from or relates to
the offsite transport, treatment, storage or disposal of Hazardous Material by
or on behalf of any of the Companies or the offsite migration of any Hazardous
Material from any of the foregoing types of properties, (B) has received any
notice of any Environmental Claim involving any of the Companies or any real
property or facility owned or leased by any of the Companies, (C) has any
knowledge of any Environmental Claim at any real property or facility owned or
leased by any of the Companies, or (D) has received any written request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation and Liability Act or any comparable state law.
(d) Notwithstanding the foregoing, this Section does not include any
representation or warranty with respect to any liability of any of the Companies
arising in its respective capacity as the issuer of insurance products.
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(e) Sellers have provided or otherwise made available to the Purchaser any
and all reports of investigations of the environmental conditions of real
property now or previously owned or leased by the Companies, which reports are,
to the knowledge of the Sellers, in the possession or control of the Sellers or
any affiliate.
For the purposes of this Agreement, "Environmental Claim" means any
investigation, notice, demand, allegation, action, suit, injunction, judgment,
order, consent decree, penalty, fine, Lien, proceeding or claim, whether
administrative, judicial or private in nature, arising: (A) pursuant to, or in
connection with, any actual or alleged violation of any Environmental Law; (B)
in connection with any Hazardous Material or actual or alleged activity
associated with any Hazardous Material; (C) from any abatement, removal,
cleanup, corrective or other response action in connection with any Hazardous
Material, Environmental Law or other order or directive of any federal, state or
local governmental authority; or (D) from any actual or alleged damage, loss,
injury, threat or harm to the environment; "Environmental Law" means, without
limitation, any existing local, state or federal statute, rule, regulation,
order or ordinance pertaining to: (A) the protection of the indoor or outdoor
environment; (B) the protection of surface water and ground water; (C) the
management, manufacture, possession, presence, use, generation, transportation,
treatment, storage, disposal, release, abatement, removal, remediation, handling
of, or exposure to, any Hazardous Material; and includes without limitation, the
following federal statutes (and their implementing regulations and the analogous
state statutes and regulations): the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986; the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and
Solid Waste Amendments of 1984; the Federal Water Pollution Control Act of 1972,
as amended by the Clean Water Act of 1977; the Toxic Substances Control Act of
1976; the Emergency Planning and Community Right-to-Know Act of 1986; the Clean
Air Act of 1966, as amended by the Clean Air Act Amendments of 1990; the
Occupational Safety and Health Act of 1970, as amended; and the Safe Drinking
Water Act of 1974, as amended; and shall not include the Americans With
Disabilities Act of 1990; and "Hazardous Material" means any substance,
chemical, compound, product, solid, gas, liquid, waste, by-product, pollutant,
contaminant or material which is regulated as hazardous or toxic under any
federal, state or local statute, regulation, rule, order, or ordinance, and
includes, without limitation, asbestos
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or any substance containing asbestos, polychlorinated biphenyls or petroleum
(including crude oil or any fraction thereof).
2.24 Net Worth; Statutory Surplus; No Dividends. The consolidated net
worth of CPI as of December 31, 1996 determined in accordance with GAAP as
described in Section 2.4(b) of the Seller Disclosure Schedule, and the statutory
surplus of CPI determined in accordance with SAP, adjusted to exclude (i) the
assets and liabilities of the accident and health insurance business of CPI and
CPF and (ii) Intramerica, was $388.3 million and $316.3 million, respectively.
From January 1, 1997 through the date of this Agreement CPI has not paid any
dividend or made any other distribution in respect of its capital stock to any
Seller or any affiliates of the Sellers.
2.25 No Regulatory Disqualifiers. To the knowledge of the Sellers, no
event has occurred or condition exists or, to the extent it is within the
control of the Sellers or the Companies, will occur or exist with respect to the
Sellers or the Companies, that in connection with the transactions contemplated
by this Agreement would cause the Sellers or the Companies to fail to satisfy
any applicable Law of any Insurance Regulator or other Governmental Entity which
prevents or would reasonably be likely to prevent the Sellers or the Companies
from obtaining necessary approvals from any Governmental Entity to consummate
the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as follows:
3.1 Organization, Good Standing and Corporate Power. The Purchaser is a
corporation duly organized, validly existing, and in good standing under the
Laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to own, lease or otherwise hold its properties and
assets and to carry on its business as now being conducted. The Purchaser is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its assets makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed does not have and could not reasonably be
expected to have a material adverse effect on (i) the business, financial
condition or results of operations of Purchaser and its subsidiaries, taken as a
whole, (ii) the
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ability of the Purchaser to consummate the transactions contemplated by this
Agreement or (iii) the validity or enforceability of this Agreement (each a
"Purchaser Material Adverse Effect").
3.2 Authority; Noncontravention. The Purchaser has all requisite corporate
power and authority to enter into this Agreement and to consummate the other
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Purchaser and the performance by the Purchaser of its
obligations under this Agreement have been duly authorized by all necessary
corporate action on the part of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and assuming that this Agreement
constitutes a valid and binding agreement of the Sellers, constitutes a legal,
valid, and binding obligation of the Purchaser and is enforceable against the
Purchaser in accordance with its terms, except to the extent that the
enforcement hereof may be limited by (i) any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in effect relating
to or limiting creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, (i) conflict with any of the provisions
of the articles or certificate of incorporation or by-laws of the Purchaser,
(ii) subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, or resulting
in the imposition of any Lien on any of the properties or assets of the
Purchaser under any indenture, or other agreement, permit, concession,
franchise, license or other instrument or undertaking to which the Purchaser is
a party or by which the Purchaser or any of its assets is bound, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, contravene any Law or any order, writ, judgment, injunction,
decree, determination or award currently in effect which, individually or in the
aggregate, would have a Purchaser Material Adverse Effect. No consent, approval
or authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is required by or with
respect to the Purchaser in connection with the execution and delivery of this
Agreement by the Purchaser or the consummation
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by the Purchaser of any of the transactions contemplated by this Agreement,
except for (i) the filing of premerger notification and report forms under the
HSR Act, (ii) the filings and/or notices required under the insurance laws of
the jurisdictions set forth in Section 3.2 of the Purchaser Disclosure Schedule,
and (iii) such other consents, approvals, authorizations, filings or notices of
which the failure to obtain would not, individually or in the aggregate, have a
Purchaser Material Adverse Effect. The "Purchaser Disclosure Schedule" is the
disclosure schedule dated the date hereof and delivered concurrently herewith by
the Purchaser to the Sellers.
3.3 Litigation. Except as disclosed in Section 3.3 of the Purchaser
Disclosure Schedule, there is no action, suit, investigation or proceeding
pending, or, to the knowledge of the Purchaser, threatened, against the
Purchaser or any subsidiary of the Purchaser, or affecting any of their assets
or properties at law or in equity, in, before, or by any person or entity that
has had or could reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement or on the ability of the Purchaser
to perform its obligations under this Agreement.
3.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Purchaser directly
with the Sellers, without the intervention of any person on behalf of the
Purchaser in such manner as to give rise to any valid claim by any person
against the Sellers, the Companies or any of their respective subsidiaries for a
finder's fee, brokerage commission, transaction fee, investment banking fee, or
similar payment.
3.5 Purchase for Investment. The Shares will be acquired by the Purchaser
for its own account, for investment only and Purchaser has no present intention
of resale or other distribution thereof. The Purchaser will refrain from
transferring or otherwise disposing of any Shares, or any interest therein, in
such manner as to violate any registration provision of federal or state
securities Laws.
3.6 No Regulatory Disqualifiers. To the knowledge of the Purchaser, no
event has occurred or condition exists or, to the extent it is within the
control of the Purchaser, will occur or exist with respect to the Purchaser,
that in connection with the transactions contemplated by this Agreement would
cause the Purchaser to fail to satisfy any applicable Law of any Insurance
Regulator or other Governmental Entity which prevents or would reasonably be
likely to prevent the Purchaser from obtaining
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necessary approvals from any Governmental Entity to consummate the transactions
contemplated by this Agreement.
3.7 Accuracy of Information. No representation or warranty by the
Purchaser contained in this Agreement (including the Purchaser Disclosure
Schedule) contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein not misleading.
3.8 Funding. The Purchaser will have sufficient funds to consummate the
purchase of the Shares at the Closing as contemplated in this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Access to Information; Confidentiality. (a) Upon reasonable notice,
each of the Sellers shall afford to the Purchaser and to the officers,
employees, counsel, financial advisors and other representatives of the
Purchaser reasonable access during normal business hours during the period prior
to the Closing to all the properties, leased facilities, books, contracts,
commitments, personnel and records of the Companies and, during such period,
each of the Sellers and the Companies shall furnish as promptly as practicable
to the Purchaser such information concerning its business, properties, financial
condition, operations and personnel and such other information regarding
affiliates of the Sellers in connection with the Companies as the Purchaser may
from time to time reasonably request. Except as required by Law, the Purchaser
will hold, and will cause its respective directors, officers, partners,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information obtained from the Sellers in
confidence to the extent required by, and in accordance with, the provisions of
the letter dated May 16, 1996 , between General Electric Equity Group Capital,
Inc. and Leucadia (the "Confidentiality Agreement"). The Confidentiality
Agreement is hereby reaffirmed by the Purchaser and Leucadia, and shall be
deemed to cover the business and operations of Charter and its subsidiaries. The
Confidentiality Agreement between Charter and GE Capital Assurance dated
February 28, 1997 is hereby terminated.
In addition, Purchaser agrees for itself and its affiliates to keep
confidential all non-public confidential or proprietary information concerning
Sellers and Sellers' affiliates for so
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long as Sellers or Purchaser have any obligations under this Agreement.
Notwithstanding the foregoing, following the Closing, the Purchaser shall have
no obligation to keep confidential any information concerning the Companies,
other than non-public confidential information relating to environmental issues.
The information required to be kept confidential under the preceding two
sentences shall be kept confidential unless and only to the extent that, in the
written opinion of counsel to Purchaser, such disclosure is required by law
provided that Purchaser shall give Sellers as much prior notice of such
disclosure requirement to Leucadia as is reasonable under the circumstances.
At the Closing, Sellers and the Purchaser shall enter into a
confidentiality agreement pursuant to which Sellers shall agree to keep
confidential and not to utilize, on terms customary for such agreements, any
non-public information in the possession of Sellers or their affiliates
concerning the Companies. From the date hereof, the Sellers agree that lists of
names used by the Companies in the conduct of their business or in the
possession or under the control of the Companies prior to the Closing Date shall
(subject to the requirements of Section 4.13 of the Conseco Contract) (i) be
kept confidential and (ii) not be provided to or used by Sellers or Sellers'
affiliates (other than the Companies); provided, however, that this restriction
shall not apply to customer lists that are or become public (other than as a
result of disclosure by Sellers or Sellers' affiliates) or that are for
involuntary automobile insurance, excluding involuntary automobile insurance
policyholder lists, which shall be covered by the confidentiality provisions of
this paragraph.
(b) Without limiting clause (a) above, during the period prior to Closing,
Purchaser, at its own expense, shall have the right to conduct an environmental
due diligence investigation pursuant to the terms of the letter agreement, dated
June 11, 1997 between the Purchaser and Leucadia (the "Environmental Letter
Agreement"), which shall be modified to permit Purchaser to perform such
environmental due diligence investigation on any real property or facility owned
or leased by any of the Companies and certain additional testing as set forth
therein.
(c) At the Closing, Sellers shall assign to Purchaser the non-exclusive
right to enforce the rights of any Seller and its affiliates under any
confidentiality agreements between any Seller and prospective acquirors of the
Companies entered into on or after January 1, 1996 copies of which will be
provided to Purchaser at Closing (with any redacting required to preserve
confidentiality).
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4.2 Commercially Reasonable Efforts; Structuring Cooperation. Upon the
terms and subject to the conditions and other agreements set forth in this
Agreement, each of the Sellers and the Purchaser agree to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties hereto in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement. Each of the Sellers and the Purchaser will
cooperate with the other in making any appropriate adjustments to the
structuring of the transactions effected pursuant to this Agreement in a fashion
that will maximize the benefits to the parties but will not adversely affect
either party.
4.3 Public Announcements. The Sellers and the Purchaser will consult and
make a good faith effort to agree with each other before issuing, and provide
each other the opportunity to review, comment upon and approve, any press
release or other public statements with respect to this Agreement or the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement without the prior approval thereof by
the Sellers and the Purchaser (such approval not to be unreasonably withheld),
except as may be required by applicable Law, judicial or administrative process
or by obligations pursuant to any listing agreement with any national securities
exchange or the Nasdaq Stock Market.
4.4 Consents, Approvals and Filings. (a) The Sellers and the Purchaser
will make and the Purchaser and the Sellers will cause their respective
subsidiaries to make all necessary filings, as soon as practicable, but in no
event later than 20 business days after the date of this Agreement, including,
without limitation, those required under the HSR Act, and applicable state
insurance laws in order to facilitate prompt consummation of the transactions
contemplated by this Agreement. In addition, the Sellers and the Purchaser will
each use commercially reasonable efforts, and will cooperate fully with each
other to obtain as promptly as practicable all necessary Permits of Governmental
Entities and consents of all third parties necessary for the consummation of the
transactions contemplated in this Agreement. Each of the Sellers and the
Purchaser shall use its commercially reasonable efforts to promptly provide such
information and communications to Governmental Entities as such Governmental
Entities may request.
(b) Without limiting the generality of Section 4.4(a), Leucadia and
Purchaser will, as promptly as practicable, cooperate to prepare and file with
the Securities and Exchange
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Commission (the "SEC") a proxy statement in connection with the vote of
Leucadia's shareholders with respect to this Agreement and the transactions
contemplated hereby (such proxy statement, together with any amendments thereof
or supplements thereto, in each case in the form or forms mailed to Leucadia's
shareholders, is herein called the "Proxy Statement"). Leucadia will notify
Purchaser promptly of the receipt of any comments from the SEC or its staff and
of any request by the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information, will use its best efforts, in
consultation with Purchaser insofar as such comments specifically relate to the
Purchaser, to respond to any comments of the SEC or its staff and will supply
Purchaser with copies of all correspondence between Leucadia or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement. Leucadia and Purchaser will use
commercially reasonable efforts to have or cause the Proxy Statement to become
definitive as promptly as practicable following the clearance of the Proxy
Statement by the SEC. Leucadia and Purchaser also will take any other related
action required to be taken under federal or state securities laws, and Leucadia
will use commercially reasonable efforts to cause the Proxy Statement to be
mailed to shareholders of Leucadia at the earliest practicable date.
4.5 Tax Matters.
(a) Subject to Sections 9.4(e) and the provisions of this Section 4.5
hereof, the Sellers will be responsible for, will pay or cause to be paid, and
will indemnify and hold harmless the Purchaser from and against, any and all
monetary damages, liabilities, loss suffered as a result of the imposition by
any taxing authority of an offset right against an amount otherwise recoverable
by the indemnitee, fines, fees, penalties, interest and expenses (including,
without limitation, reasonable fees and disbursements of counsel incident to the
enforcement of rights to indemnification under this Section 4.5, but excluding
any such expenses attributable to the Purchaser's pursuing (whether itself or
through its representatives) its rights to consult, defend, consent or otherwise
participate in any Tax Claim (defined below) under this Section 4.5)
("Indemnifiable Losses") for or in respect of each of the following:
(i) any Taxes imposed on or attributable to the income, assets or
operations of any of the Companies to the extent such Tax is imposed with
respect to any taxable period of any such Company ending on or prior to
December 31, 1996 (ignoring, for purposes of determining Taxes described
in this Section 4.5(a)(i), treatment of the
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Companies as "new corporations" as a result of the Section 338 Elections
(defined below)); provided, however, that any such Taxes shall be treated
as Indemnifiable Losses only to the extent the aggregate amount of any
such Taxes exceeds $15,366,042 ("Pre-1997 Taxes"); provided, however, that
no claim by the Purchaser under this Section 4.5(a)(i) for indemnification
may be made in respect of any such Pre-1997 Taxes by virtue of the fact
that such Taxes were paid by, or in respect of which a payment was made
by, any of the Companies prior to January 1, 1997;
(ii) any Taxes not described in clause (i) of this Section 4.5(a)
and imposed on any of the Companies and attributable to the income, assets
or operations of any member of a consolidated or combined group of which
any of the Companies is or was a member on or prior to the Closing Date
and so imposed pursuant to Treasury Regulation Section 1.1502-6(a) or any
analogous or similar state, local or foreign Law ("Pre-Closing Taxes");
and
(iii) any Taxes attributable to: (x) the deemed sale of assets
pursuant to the Section 338 Elections ("Section 338 Taxes"); (y)
effectuation of the A&H Reinsurance Agreements (as defined in Section 2.17
hereof); (z) the income or gain, if any, recognized by any of the
Companies, upon the transfer, distribution or other disposition of assets
by any of the Companies on or prior to the Closing Date if such transfer,
distribution or disposition is required or expressly permitted under this
Agreement, excluding any transfer taxes (or similar taxes) imposed in
respect of the transfer or distribution of the Monroe Property pursuant to
Section 4.17 hereof (collectively, the Taxes described in this Section
4.5(a)(iii) are referred to herein as the "Indemnifiable 1997 Taxes"). In
determining the amount of Indemnifiable 1997 Taxes, proper account shall
be made for losses, deductions, credits and any other tax benefits ("Tax
Items") to the extent that any such Tax Item (i) offsets or reduces the
income or gain, or the Taxes, attributable to the Section 338 Elections or
the transactions described in this Section 4.5(a)(iii) (the "1997
Elections/Transactions") and (ii) except with respect to any such Tax Item
arising from the 1997 Elections/Transactions, would not be treated as
offsetting or reducing any other income, gain or Tax in Sellers
Consolidated Returns (defined below) in the absence of the 1997
Elections/Transactions. Indemnifiable 1997 Taxes shall not include any
Taxes attributable to or resulting from any change in the bases of the
assets of any of the Companies as compared with their bases prior to and
as a result of the Section 338 Elections.
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Notwithstanding the foregoing, other than Taxes described in the preceding
clauses (i), (ii) or (iii) of this Section 4.5(a), neither Sellers nor any of
their affiliates will be responsible for any Taxes.
(b) The Purchaser will promptly notify the Sellers of the commencement of
any claim, audit, examination, or other proposed change or adjustment by any
taxing authority, as well as any notice of assessment and any notice and demand
for payment issued under Section 6303 of the Code (or similar provision),
concerning any Taxes or other Indemnifiable Losses covered by Section 4.5(a)
("Tax Claim"). The Sellers shall control the strategy, defense and settlement of
any Tax audit or administrative or court proceeding relating to Taxes, including
but not limited to extension of the applicable statute(s) of limitations, of
Sellers or any of the Companies that may be subject to indemnification under
Section 4.5(a), and the Purchaser agrees to fully cooperate with the Sellers and
to cause the Companies to fully cooperate with the Sellers, including, but not
limited to, providing powers of attorney authorizing the Sellers (or their
designees) to control and take action in connection with any such Taxes;
provided, however, that Sellers may not, without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld, execute final
settlement agreements concerning any such Taxes if such settlement would have a
material adverse effect on the Companies taken as a whole or would result in
material Taxes for which Purchaser is responsible under Section 4.5(c) hereof.
The Sellers shall promptly notify the Purchaser if the Sellers decide not to
participate in the defense of any such Tax audit or administrative or court
proceeding and the Purchaser thereupon shall be permitted (at its own expense)
to defend such Tax audit or proceeding, in which event Sellers agree to fully
cooperate with Purchaser,including, but not limited to, providing any necessary
powers of attorney authorizing Purchaser (or its designee) to control and take
action in connection with such defense; provided, however, that no settlement
shall be made without the prior written consent of the Sellers, which consent
shall not be unreasonably withheld. In the event of a failure of the Purchaser
to provide notice to Sellers or to provide cooperation as required under this
Section 4.5(b), Sellers' obligation to indemnify Purchaser under this Section
4.5 shall be reduced to the extent of the Indemnifiable Losses with respect to
which Sellers' ability to defend against the claim underlying such indemnity
obligation has been prejudiced by such failure.
(c) The Purchaser and the Companies will be responsible for, will pay or
cause to be paid pursuant to clause (e) below or otherwise, and will indemnify
and hold harmless the Sellers from
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and against, any and all Indemnifiable Losses for or in respect of any Taxes
(excluding any Taxes described in clause (ii) or (iii) of Section 4.5(a) hereof)
with respect to any taxable period of any of the Companies beginning after
December 31, 1996. The Sellers agree to fully cooperate with the Purchaser in
preparing to defend against the imposition of such Taxes by any taxing
authority. In the event of a failure of Sellers to provide cooperation as
required under this Section 4.5(c), Purchaser's obligation to indemnify Sellers
under this Section 4.5 shall be reduced to the extent of the Indemnifiable
Losses with respect to which Purchaser's ability to defend against the claim
underlying such indemnity obligation has been prejudiced by such failure.
(d) Any claim for indemnity under this Section 4.5 may be made at any time
prior to the expiration of the applicable Tax statute of limitations with
respect to the relevant taxable period (including all periods of extension,
whether automatic or permissive). Any such claim shall be made by the indemnitee
by providing to the indemnifying party written notice thereof, provided,
however, that such provision of notice shall not be a condition to
indemnification under this Section 4.5 except to the extent of actual and
material prejudice to the indemnifying party.
(e) Except as provided in the succeeding sentences, as of the Closing Date
none of the Companies shall be a party to or have any further obligations or
rights under any tax sharing or tax allocation agreement with the Sellers and
its affiliates. The Companies currently are parties to a tax sharing agreement
with Leucadia, a copy of which has been made available to Purchaser (the "Tax
Sharing Agreement"). Within ninety days after the Closing Date, the Sellers
shall provide the Purchaser with a schedule setting forth the liability of the
Companies for Taxes for the Sellers' 1997 taxable year computed in accordance
with the Tax Sharing Agreement ("1997 Tax Sharing Payment"). The 1997 Tax
Sharing Payment shall be calculated using principles consistent with prior
practice; provided, however, that in calculating and determining the amount of
the 1997 Tax Sharing Payment, the tax consequences of the 1997
Elections/Transactions shall be disregarded so that the responsibility for Taxes
properly allocable to such 1997 Elections/Transactions shall be as provided in
Section 4.5(a)(iii) hereof. If the Purchaser disputes the 1997 Tax Sharing
Payment, the Purchaser shall advise the Sellers of its objections to the 1997
Tax Sharing Payment, and the reasons for such objections, in writing within 30
days of the receipt thereof. The Sellers and the Purchaser shall negotiate in
good faith to resolve any such written objections to the Sellers' computation of
the 1997 Tax Sharing Payment. If
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such disputes are not resolved within 30 days, any remaining disputes shall be
referred to a big six accounting firm (the "Auditor") which is mutually
acceptable to the Sellers and the Purchaser for resolution. The Auditor shall
issue a written report which sets forth the 1997 Tax Sharing Payment as finally
determined. Within five days of the 1997 Tax Sharing Payment being finally
determined (whether pursuant to agreement or through the Auditor's
determination), the Companies shall pay their respective allocable share of the
1997 Tax Sharing Payment to the Sellers. Fees and expenses of the Auditor shall
be shared equally by Sellers, on the one hand, and Purchaser. Notwithstanding
anything contained herein to the contrary, the rights and obligations of each
Company under the Tax Sharing Agreement in respect of all periods, including
portions thereof, through the Closing shall continue notwithstanding the
termination of such Tax Sharing Agreement.
(f) The Sellers shall prepare and file or cause to be prepared and filed
(i) all Tax Returns required to reflect the income, assets or operations of the
Companies and required to be filed (taking into account any extensions) on or
prior to the Closing Date and any Tax Returns required to be filed thereafter in
respect of any Taxes for which Sellers are responsible pursuant to Section
4.5(a), and (ii) all Seller Consolidated Returns (together with the Tax Returns
referred to in clause (i) above, the "Seller Returns"). In the Seller
Consolidated Returns for each of the taxable periods ended December 31, 1996 and
ending December 31, 1997, Sellers (i) shall make any statements necessary, in
Sellers' reasonable judgement, to avoid the imposition of penalties under
Section 6662 of the Code, and (ii) shall not make any election under Section
453(d) of the Code with respect to any disposition occurring in either of such
taxable periods, without the written consent of Purchaser, which may not be
unreasonably withheld. On or prior to August 1, 1998, Sellers shall provide to
Purchaser copies of the pro forma portions of Sellers' consolidated federal
income tax return for the period ending December 31, 1997 relating to the
Companies, and Sellers and Purchaser shall use all best efforts and cooperate in
good faith toward resolving any material disputes concerning such information
and tax return positions; provided, however, that said return shall in all
events be filed no later than September 15, 1998 notwithstanding any unresolved
dispute between Sellers and Purchaser.
The Purchaser shall be responsible for preparing or filing, or
causing the Companies to prepare and file, all other Tax Returns required to be
filed by any of the Companies after the Closing Date ("Other Returns"). Except
with respect to any Other Return filed with respect to a Company in a
jurisdiction
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giving effect to the Section 338 Elections and the preparation of which Other
Return is affected by the treatment in such jurisdiction of such Company as a
new taxpayer as a result of the Section 338 Elections, (i) Purchaser may not
take any position on an Other Return that Purchaser knows or should know
(without a duty to review Company Tax Returns for tax periods beginning prior to
Closing) is inconsistent with a position taken on a Tax Return prepared and
filed by the Sellers for any period prior to Closing, except with the consent of
Seller, which may not be unreasonably withheld, and (ii) Purchaser shall provide
the Sellers with the opportunity to review and comment upon all or a portion of
the Other Returns, as the context may require, to the extent Purchaser knows or
should know (without a duty to review Company Tax Returns for tax periods
beginning prior to Closing) that all or a portion of such Other Returns may give
rise to a material claim for indemnification against the Sellers hereunder or
could affect Pre-1997 Taxes, Pre-Closing Taxes, or Indemnifiable 1997 Taxes, or
Tax Returns relating thereto) at least 30 days prior to the filing thereof.
"Seller Consolidated Returns" shall mean all consolidated or combined Tax
Returns which include the taxable income or loss of any of the Companies and any
of the Sellers.
(g) Neither the Purchaser nor any of the Companies shall file any amended
Tax Return which may give rise to a claim for indemnification hereunder without
the prior written consent of the Sellers, which may not be unreasonably
withheld. The Sellers shall have exclusive authority to make all decisions with
respect to matters relating to any Seller Return, including, but not limited to,
decisions to amend a Seller Return, to extend the statutes of limitations with
respect to any periods covered by a Seller Return, and to concede, settle,
compromise or contest any adjustment asserted by a taxing authority with respect
to a Seller Return; provided, however, that Seller may not voluntarily file any
amended Tax Return, (except in connection with the resolution of any Tax Claim
described in Section 4.5(b), provided that any such resolution is reached in a
manner consistent with Section 4.5(b)), that would materially increase any
Indemnifiable Loss described in Section 4.5(a), except with the prior written
consent of Purchaser, which may not be unreasonably withheld.
(h) The Sellers and the Purchaser will cooperate with one another in
connection with the preparation and filing of Seller Returns and Other Returns
and will provide to each other access, at any reasonable time and from time to
time, at the business location at which the books and records are maintained,
after the Closing Date, to such Tax data relating to the Companies as Sellers or
Purchaser, as the case may be, may from time to time reasonably request
(including the relevant portions of Seller
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Consolidated Returns). Sellers agree that, on or prior to Closing, the Companies
shall have in their possession those documents listed in Section 4.5(h) of the
Seller Disclosure Schedule.
(i) Sellers shall be entitled to receive and to retain any and all refunds
of Taxes (i) relating to Seller Returns (including any refunds of Taxes arising
from a carryback of losses by any of the Companies) or (ii) in respect of any of
the Companies for any taxable period ending on or prior to December 31, 1996.
Purchaser shall be entitled to retain all other refunds relating to Taxes of the
Companies. In the event the Purchaser (Sellers) or any of the Companies receives
any refund (whether through payment, credit or reduction in Taxes) to which the
Sellers (Purchaser) are entitled hereunder, the Purchaser (Sellers) shall
promptly pay, or cause the payment of, such refund to the Sellers (Purchaser).
(j) Notwithstanding anything to the contrary contained herein, in
calculating the amount of any claim for indemnification pursuant to this
Agreement (including pursuant to this Section 4.5 and Article IX hereof),
Indemnifiable Losses and Damages (as defined in Section 9.1 hereof) shall be
reduced (but not below zero) by any Tax Benefit attributable to, realized (or to
be realized) in connection with or relating to such indemnifiable claim. The
term "Tax Benefit" means the amount by which any Taxes of the indemnified party
(the Purchaser or any of the Companies on the one hand, or the Sellers on the
other hand) or any affiliate thereof (the "Benefitted Party") are or would be
reduced by any loss, deduction, refund, credit or other Tax benefit and
includes, without limitation, the amount of any Tax Benefit realized or to be
realized by the Benefitted Party in a subsequent taxable period (including,
without limitation, a taxable period ending after the Closing Date) attributable
to, realized (or to be realized) in connection with or relating to an adjustment
with respect to Taxes in a prior taxable period. For purposes of the
determination of the amount of any Tax Benefit which is not currently realized,
(i) the Benefitted Party shall be assumed to have sufficient taxable income to
use any Tax Benefit in the taxable period or periods in which such Tax Benefit
will first arise; (ii) the Effective Tax Rate (as hereinafter defined) in the
most recent applicable taxable period shall be treated as applying to such Tax
Benefit to be realized in such future taxable period; (iii) the amount of Tax
Benefits shall be discounted to the present value of such Tax Benefits,
determined using a discount rate equal to the applicable federal rate under
Section 1274(d) of the Code for the period over which such Tax Benefits will be
realized under clause (i) above; (iv) appropriate adjustments shall be made
taking account of any
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income recognition (or other costs) resulting from such Tax Benefit for any of
the Companies in any period covered by the Other Returns, using the assumptions
and discounting convention provided in this Section 4.5(j); (v) no Tax Benefit
shall be ascribed to additional tax basis in an asset or other tax attribute of
a Benefitted Party if (X) the additional tax basis or other tax attribute is
neither depreciable nor amortizable (or otherwise recoverable by its nature over
a period of time), and (Y) the Benefitted Party is not otherwise likely to
realize any Tax Benefit from such additional tax basis or other tax attribute,
provided, however, that in the case of any such additional tax basis or other
tax attribute described in this clause (v), the amount of any Tax Benefit (to
the extent not in excess of the amount previously received by the Benefitted
Party in satisfaction of the underlying indemnity obligation) actually realized
by the Benefitted Party at a subsequent time shall be paid to the other
(indemnifying) party; and (vi) any dispute concerning the amount of a Tax
Benefit for purposes of this Section 4.5(j) shall be resolved in a manner
consistent with the dispute resolution mechanism set forth in Section 4.5(e)
hereof. For purposes of this Section 4.5(j), Tax Benefits shall not include the
amount of any benefit realized by a Benefitted Party attributable to the tax
basis of assets resulting from the Section 338 Elections except in the case of
an indemnification pursuant to this Agreement arising from an allocation of tax
basis inconsistent with the Section 338 Allocation Principles (defined below).
The term "Effective Tax Rate" means the sum of (i) the maximum federal income
tax rate imposed on corporations for the period in question plus (ii) the
product of (A) the state and local income tax rates imposed on the applicable
corporation for the immediately preceding taxable year times (B) one minus the
maximum federal income tax rate referred to in clause (i). For this purpose, the
state and local income tax rates shall equal the sum of the total amount of
income tax imposed in each jurisdiction divided by the sum of the total amount
of taxable income in each such jurisdiction.
(k) Section 338(h)(10) Election.
(i) Election. Purchaser and Sellers shall join in an election
pursuant to Section 338(h)(10) of the Code with respect to the purchase and sale
or the deemed purchase and sale of the Shares and the stock of each Section 338
Target, and in all comparable elections under state and local Tax law with
respect to the purchase and sale of any such shares (together with the election
under Section 338(h)(10) of the Code, the "Section 338 Elections"). Consistent
with the following provisions of this Section 4.5(k), each of Purchaser and
Sellers shall take all steps required to properly and timely effect the Section
338
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Elections. Allocation of the Purchase Price among the Companies and among the
assets of the Companies made in connection with the Section 338 Elections shall
be made pursuant to the principles (the "Section 338 Allocation Principles") set
forth in Section 4.5(k) of the Seller Disclosure Schedule.
(ii) Forms.
(x) Subject to clauses (y) and (z) below, Purchaser shall prepare
drafts and execution copies of all forms and schedules required to be filed to
effect (and otherwise in connection with) the Section 338 Elections ("Section
338 Forms"), including without limitation IRS Form 8023-A and all attachments
required to be filed therewith pursuant to applicable treasury regulations and
the instructions to such form, including without limitation the allocation of
deemed purchase price among the assets of the Companies, which allocation shall
be made pursuant to the Section 338 Allocation Principles ("Form 8023"). Sellers
shall provide Purchaser with such information and records, and shall make its
employees available for consultation under regular business hours, as Purchaser
reasonably requires to prepare such Section 338 Forms. Purchaser shall timely
execute and file the Section 338 Forms with the proper taxing authorities.
(y) [INTENTIONALLY LEFT BLANK]
(z) On or before the beginning of the sixth month after the month in
which the Closing occurs, Purchaser shall deliver to Sellers a revised Final
Form 8023 which reflects proposed modifications or attachments to the form and
content of the executed Final Form 8023, and any state or local reports or forms
that are necessary or appropriate for purposes of complying with the
requirements for making the Section 338 Elections (each an "Additional Section
338 Form"). Such proposed modifications or attachments shall take into account
appropriate adjustments to reflect information available at such time. Any
adjustments to the Additional Section 338 Form, prepared pursuant to the Section
338 Allocation Principles requested by Sellers within 20 days thereafter shall
be made by Purchaser, unless Purchaser objects to such request, in which case
any such dispute shall be resolved by an Auditor who shall resolve such dispute
applying the Section 338 Allocation Principles (such Additional Section 338
Form, as so adjusted, being referred to herein as the "Final Additional Section
338 Form"). Purchaser shall prepare three copies of the Final Form 8023 and
three copies of the Final Additional Section 338 Form, if any, as determined
according to such procedures, and Sellers and/or Purchaser, as the case may be,
shall promptly execute, or cause the proper party to execute, such forms.
Purchaser shall execute and timely file such forms.
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(iii) Modification; Revocation. Except as provided in this Section,
Purchaser and Sellers shall not take, and shall not permit any of their
affiliates to take, any action to modify the Final Form 8023, the Final
Additional Section 338 Forms, if any, or any other Section 338 Forms, following
the execution thereof by Seller, or to modify or revoke the Section 338
Elections following the filing of such Forms, without the written consent of
Sellers and Purchaser.
(iv) Consistent Treatment; Reporting. Purchaser and Sellers shall
file, and shall cause their respective affiliates to file, all Tax Returns in a
manner consistent with the information contained in the Section 338 Forms.
Purchaser and Sellers shall not take, and shall not permit any of their
affiliates to take, any position contrary to the allocations reflected in such
Section 338 Forms with any government agency or taxing authority without the
express written consent of the other party. For purposes of this Section
4.5(k)(iv), any GAAP reports or filings prepared and filed in a manner
consistent with GAAP, as determined by the party preparing and filing such
report or filing, shall be treated as consistent with the information contained
in the Section 338 Forms.
(v) Purchaser Representation. Purchaser represents that it is a
domestic corporation, and, other than pursuant to this Agreement, owns no stock
or rights to acquire stock, either directly or indirectly, in any of Sellers.
(vi) Sellers Representation. The Sellers will convey, directly or
indirectly, to the Purchaser all of the shares of the outstanding stock of each
of the Section 338 Targets, including CP Mexico, which shares possess 100
percent of the total voting power of all the shares of stock in each such
Section 338 Target and have a value equal to 100 percent of the total value of
all the shares of stock in each such Section 338 Target.
4.6 Employee Benefit Matters.
(a) Prior to the Closing Date, the Sellers shall take all necessary or
desirable actions to cause CPI to assume liability for the retiree life
insurance benefits and retiree medical benefits grandfathered under CPI's
medical plan solely for five active employees of CPI and disability death
benefits, all as set forth and described in Section 4.6(a) of the Seller
Disclosure Schedule.
(b) Prior to the Closing Date, the Sellers shall take all necessary or
desirable actions to cause CPG to assume liability for the retiree life
insurance benefits and retiree medical
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benefits all as set forth in Section 4.6(b) of the Seller Disclosure Schedule.
(c) Prior to the Closing Date, the Sellers shall take all necessary or
desirable actions to cause CPG to assume liability for, and become plan sponsor
of, the Colonial Penn Insurance Company Salary Cap Restoration Plan.
(d) Prior to the Closing Date, the Sellers shall cause CPI to assume the
obligations of CPG under those certain executive severance pay agreements set
forth in Section 4.6(d) of the Seller Disclosure Schedule.
(e) Prior to the Closing Date, the Sellers shall take all necessary or
desirable actions to cause CPG to become plan sponsor of the Colonial Penn
Insurance Company Long Term Disability Plan and the Colonial Penn Insurance
Company Employee Life Insurance Plan, with CPI becoming a participating employer
therein. Effective on the Closing Date, CPI shall terminate its participation in
the above plans, so that CPG will be responsible for claims incurred prior to
the Closing Date.
(f) Prior to the Closing Date, the Sellers shall take all necessary or
desirable actions to cause CPG to become plan sponsor of the Colonial Penn
Insurance Company Employee Health and Dental Plan, with CPI becoming a
participating employer therein. Effective on the Closing Date, CPI shall
terminate its participation in the above plan and CPG shall assume
responsibility for health and dental claims incurred on or before the Closing
Date by: (i) all active CPI employees and their beneficiaries, (ii) all former
CPI employees and their beneficiaries who are entitled to and/or are receiving
health care continuation coverage under applicable provisions of Part 6 of
Subtitle B of Title I of ERISA, and (iii) all disabled employees or former
employees and their beneficiaries who are entitled to health and dental benefits
under the terms of the Colonial Penn Insurance Company Long Term Disability Plan
and short term disability policy (collectively referred to as "CPI Employees").
Following the Closing Date, health and dental benefits, and life insurance
benefits, of CPI Employees shall be the responsibility of CPI, and the CPI
Employees shall commence participation, effective immediately following the
Closing Date, in life insurance, health and dental plans in which CPI is then
participating. Such plans will (i) waive all limitations as to pre-existing
condition exclusions and waiting periods with respect to participation and
coverage requirements applicable to the CPI Employees, other than limitations or
waiting periods that were in effect with respect to the CPI Employees under the
Colonial Penn Insurance Company Employee Life Insurance Plan, and
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the Colonial Penn Insurance Company Employee Health and Dental Plan,
respectively, that were not satisfied as of the close of business on the Closing
Date and, (ii) provide each CPI Employee with credit for any premiums,
co-payments and deductibles paid prior to the close of business on the Closing
Date in satisfying any deductible and out-of-pocket requirements under such
plans.
(g) Purchaser shall cause its employees to provide all reasonable
assistance to Sellers and will provide Sellers with access to such information,
in their possession or in the possession of CPI, as is reasonably necessary or
desirable to enable Sellers to prepare annual reports for each Plan and Benefit
Plan of which Leucadia, CPG or a Leucadia Subsidiary is plan sponsor for the
plan year of each such Plan and Benefit Plan during which the Closing Date
occurs. Sellers shall provide Purchaser with reasonable access to the CPI
Employees for purposes of CPI Employees making benefit plan elections and for
related administrative matters.
(h) Purchaser shall pay to Sellers on the Closing Date the Amount of
$15,307,121 in consideration of Sellers' retention of certain Plan and Benefit
Plan liabilities to CPI Employees, as detailed on Schedule 4.6 to the Seller
Disclosure Schedule.
(i) Effective as of the Closing Date, CPI shall cease to be a
participating employer in the Colonial Penn Group, Inc. Retirement Plan
("Retirement Plan") and the Colonial Penn Group Savings Plan ("Savings Plan"),
and CPG shall cause the Retirement Plan and the Savings Plan to be amended to
provide that notwithstanding such Plan's regular vesting rules, the accrued
benefits under the Retirement Plan and the account balances in the Savings Plan
of all participants therein who were actively employed by CPI immediately prior
to the Closing Date shall become fully vested as of the Closing Date. Purchaser
shall reimburse Sellers for any amounts paid by Sellers to the issuers of any
group annuity contracts held as investments under the Savings Plan to ensure
that such issuers do not impose a market value adjustment on the accounts of the
Savings Plan under such group annuity contracts due to the termination of
participation of CPI and its employees in the Savings Plan and/or the
distribution of Savings Plan account balances to CPI employees following the
Closing Date. In the event a market value adjustment is imposed on any group
annuity contract due to the termination of participation of CPI and its
employees in the Savings Plan and/or the distribution of Savings Plan account
balances to CPI employees following the Closing Date, Purchaser shall reimburse
Sellers for an amount equal to any amounts either contributed by Sellers to the
Savings Plan or distributed by
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Sellers to Savings Plan participants to reimburse Savings Plan participants for
any such market value adjustment.
4.7 Intercompany Agreements. Except for the agreements listed in Section
4.7 of the Seller Disclosure Schedule and agreements pursuant to Section 4.16
hereof, and except as expressly otherwise provided in Section 4.5(e) hereof, all
intercompany agreements between either Seller or any of their affiliates (other
than the Companies), on the one hand, and any of the Companies, on the other
hand, including without limitation, any allocation, indemnification or similar
agreement or arrangement by Seller for the benefit of any of the Companies (the
"Intercompany Agreements"), all of which are listed in Schedule 2.13(a), will
terminate on or prior to the Closing Date. All balances owed to or due from
Sellers or any of their affiliates (other than the Companies) from or to any of
the Companies pursuant to any intercompany agreement to be so terminated shall
be settled as of the Closing Date and paid within 30 days thereafter; provided,
that with respect to Intercompany Agreements for management services or
investment advisory services, fees therefor shall cease to accrue at the end of
the fiscal quarter immediately preceding the fiscal quarter in which this
Agreement is entered into. All sums that would otherwise be payable under the
Intercompany Agreement(s) noted with an asterisk in Section 2.13(a)(i) of the
Seller Disclosure Schedule have been waived. Sellers agree that from the date
hereof to the Closing Date such waiver will remain in effect and will not be
modified or terminated. Notwithstanding the foregoing, termination of the Tax
Sharing Agreement and payment of balances owing thereunder shall be governed by
Section 4.5 hereof.
4.8 Closing Date Cash Distributions.
(a) The Companies shall declare and to the extent permitted by applicable
law pay the following cash dividends (individually, an "Authorized Dividend" and
collectively, the "Authorized Dividends"):
(i) a $3,000,000 cash dividend from CPF (representing consideration
received in respect of the A&H Reinsurance Agreements (as defined herein))
(the "CPF Dividend"); and
(ii) a cash dividend from CPI, which shall consist of the CPF
Dividend, together with a $20,000,000 cash dividend from CPI the sources
of which may include dividends from the Subsidiaries (the "CPI Dividend").
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The Authorized Dividend shall be paid on the Closing Date. To the extent that
any Authorized Dividend shall not have been paid in full on the Closing Date (an
"Unpaid Dividend"), such Unpaid Dividend shall remain an obligation of the
Subsidiary declaring such Unpaid Dividend until paid in full. If CPI does not
pay the CPI Dividend to CP Holdings on the Closing, Purchaser shall purchase
from CP Holdings the right to receive the CPI Dividend for $20,000,000 plus the
amount of the CPF Dividend (the "Dividend Amount") in cash. If for any reason
CPI is unable to declare and pay to CP Holdings the full amount of the CPI
Dividend on the Closing Date, then Purchaser shall pay to CP Holdings at the
Closing the difference between the amount of the CPI Dividend paid to CP
Holdings and the Dividend Amount.
(b) The Sellers and the Purchaser shall cooperate and use commercially
reasonable efforts to obtain all regulatory approvals necessary to implement the
CPI Dividend and the CPF Dividend.
4.9 Hiring of Employees. Except for persons noticed for termination or
pursuant to a generally advertised solicitation, for a four-year period
following the Closing Date, the Sellers and their affiliates shall not directly
or indirectly solicit for employment or, to the knowledge of Sellers, hire any
employees of the Companies. Sellers shall be responsible for all obligations to
the employees named in Section 4.9 (a) of the Seller Disclosure Schedule under
the letters from CPI to such employees dated May 5, 1997. Purchaser shall be
responsible for all obligations to the employees named in Section 4.9(b) of the
Seller Disclosure Schedule under the letters from CPI to such employees dated
May 5, 1997.
4.10 Leucadia Stock Options. The treatment at the Closing Date of options
to purchase capital stock of Leucadia held by employees of the Companies shall
be determined by Leucadia prior to the Closing Date. All obligations with
respect to such options shall be the responsibility of Leucadia.
4.11 Resignations of Directors. Sellers will cause such members of the
Board of Directors of the Companies as are designated by Purchaser to tender,
effective at the Closing Date, their resignations from such Boards of Directors
and, if requested by Purchaser, will cause the election of Purchaser's nominees
to such Boards of Directors.
4.12 Non-Competition Agreement. For a period of three years following the
Closing Date (the "Restricted Period"), without the prior written consent of the
Purchaser, (a) Leucadia will not and will not permit any of its affiliates to
start (de novo) a
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personal lines automobile insurance business in the United States; (b) the
personal lines automobile business of Empire and its subsidiaries (collectively,
the "Empire Group"), will not expand beyond the states in which any member of
the Empire Group is licensed as of the date of this Agreement; (c) the voluntary
personal lines automobile insurance business of the Empire Group will not have
more than $250 million of gross written premium in any one statutory year; (d)
if, during the Restricted Period, Leucadia or any of its affiliates acquires any
insurance company with gross written personal lines automobile insurance premium
in excess of $300 million in the last completed statutory year of such acquired
insurance company immediately preceding the date of such acquisition by Leucadia
(the "Acquired Company"), Leucadia or such affiliate shall promptly, but in no
event later than nine months after the date of such acquisition, divest itself
of the personal lines automobile insurance operations of such Acquired Company;
provided, that, if the Acquired Company has gross written personal lines
automobile insurance premium in excess of $300 million, but less than $315
million in such Acquired Company's last completed statutory year immediately
preceding the date of such acquisition by Leucadia, Leucadia or such affiliate
shall not be required to divest itself of such personal lines automobile
insurance operations if at the end of the fiscal quarter immediately preceding
the date that is nine months after the date of acquisition of the Acquired
Company, Leucadia is able to reduce the gross written personal lines automobile
insurance premium for such three month period to $75 million or below. If such
gross written premiums are not so reduced within such time, Leucadia or such
affiliate shall promptly divest itself of such personal lines automobile
insurance operations. In no event shall gross written personal lines automobile
premium of Leucadia and its affiliates (including as a result of activities and
acquisitions permitted under clauses (b), (c) and (d) above) exceed $500 million
in any 12 month period during the Restricted Period. In addition, for a period
of four years following the Closing Date, Leucadia will not directly or
indirectly acquire any company the primary business of which is the direct
marketing of personal lines automobile insurance.
Leucadia acknowledges and agrees that this Section 4.12 is reasonable in
duration and scope and geographic area and is reasonably necessary for the
protection of Purchaser's interests under this Agreement. The parties agree and
intend that the foregoing agreements within this Section 4.12 shall be deemed to
be a series of separate covenants and agreements. In the event that in any
judicial proceeding any court determines that the duration or scope or
geographic area of any of the foregoing agreements are unreasonable and to that
extent unenforceable, the parties intend and agree that the foregoing agreements
shall
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remain in full force and effect for the greatest time period, the greatest scope
and the greatest geographic area that would not render them unenforceable.
4.13 Conseco Contract. The Purchaser acknowledges that it has read the
Conseco Contract and agrees, if the Conseco Transaction is consummated, to cause
each Company that is a party to the Conseco Contract and/or is (or is to be) a
party to any Conseco Agreement to honor and abide by all of the terms and
conditions of the Conseco Contract and the Conseco Agreements to which it is (or
is to be) a party. Without in any way limiting the foregoing, the Purchaser
expressly agrees, if the Conseco Transaction is consummated, to be bound (a) by
the restrictions set forth in Section 4.10 of the Conseco Contract and in the
Conseco License Agreement under which the Purchaser agrees that (i) following
the Closing Date, any life insurance products marketed or sold by the Purchaser
or any affiliate of the Purchaser shall be issued by an entity that does not
have the words "Colonial," "Penn" or "Colonial Penn" in its corporate name and
does not use such words in any life insurance product name and (ii) from the
Closing Date, Purchaser will not sell, assign or transfer any rights to use the
words "Colonial," "Penn" or "Colonial Penn" in connection with the insurance
business without obtaining from the purchaser, assignee or transferee of such
rights an agreement to be bound by the provisions of clause (i) above. Sellers
have previously made available to the Purchaser copies of the Conseco License
Agreement and the A&H Reinsurance Agreements in the form agreed to on the date
of this Agreement. Sellers agree to provide to Purchaser copies of all other
Conseco Agreements (the "Other Agreements") and to consult with the Purchaser as
to the terms of such Conseco Agreements as they affect any of the Companies. The
Sellers agree that neither they nor any of the Companies shall amend the Conseco
License Agreement or the A&H Reinsurance Agreements or approve or enter into or
amend any of the Other Agreements that affect any of the Companies without the
consent of the Purchaser, which consent shall not be unreasonably withheld. The
Sellers agree that they shall not take any action to terminate prior to the
Closing Date, any Conseco Agreements to which any of the Companies is a party
that has become effective prior to the Closing Date.
Sellers expressly agree that, prior to January 1, 1998 Sellers shall not
sell, convey, transfer, distribute or otherwise dispose of, permit the
satisfaction of, in whole or in part, or pledge or otherwise use (directly or
indirectly) as security for the payment of principal or interest on any
indebtedness the Conseco Notes. Sellers further agree that upon receipt of the
Conseco Notes from Conseco they shall deliver the Conseco Notes to Weil, Gotshal
& Manges as Escrow Agent pursuant to the Escrow
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Agreement between Purchaser and Weil, Gotshal & Manges, as escrow agent,
attached hereto as Exhibit A.
4.14 Intramerica. Purchaser agrees that prior to the Closing, Sellers
shall have the right to cause CPI to distribute or otherwise transfer its 98%
interest in the common stock of Intramerica to CP Holdings (the "Intramerica
Distribution") and, notwithstanding anything else to the contrary set forth in
this Agreement, to take all steps necessary or convenient in connection
therewith. The Sellers and the Purchaser shall cooperate and use commercially
reasonable efforts to consummate the Intramerica Distribution, including
obtaining regulatory approvals necessary to implement the Intramerica
Distribution.
4.15 Trademark Assignment or Limited License.
(a) Effective upon the Closing Date, and provided that the Conseco
Transaction shall have been consummated prior thereto, CPG shall assign to
Purchaser all of its right, title and interest, including all goodwill
associated therewith, in and to the trademarks, service marks and/or tradenames
(collectively, "Trademarks") listed in Section 4.15(a) of the Seller Disclosure
Schedule (the "Section 4.15(a) Marks"), free and clear of all Liens other than
the Conseco License Agreement and Purchaser covenants that it agrees to be bound
by the terms of the Conseco License Agreement.
(b) If the Conseco Transaction shall not have been
consummated prior to the Closing Date, at the Closing,
(i) CPG shall assign to Purchaser all of its right, title and
interest, including all goodwill associated therewith, in and to the
Section 4.15(a) Marks, free and clear of all Liens other than the CPL
License Agreement (as defined herein) and the Conseco License Agreement;
(ii) the Purchaser and Colonial Penn Life Insurance Company ("CPL")
shall enter into a license agreement in the form attached hereto as
Exhibit B (the "CPL License Agreement"); and
(iii) unless the Conseco Agreement shall have been terminated,
Purchaser agrees that it will enter into and deliver the Conseco License
Agreement at the closing of the Conseco Agreement, if such Closing of the
Conseco Agreement occurs within six (6) months of the Closing hereunder.
This provision shall be for the benefit of the parties to the Conseco
License Agreement.
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(c) The Sellers acknowledge that, except as provided in the CPL License
Agreement, none of the Sellers has the right to use the Section 4.15(a) Marks or
the Section 4.15(b) Marks and except as provided in clause (b)(i) above none of
the Sellers has the right to limit or restrict the Purchaser (or any affiliate
or any assignee or transferee of any of them) from using the same or the words
"Colonial" or "Penn" or "Colonial Penn".
(d) Within 30 days from the Closing Date, CPG and CP Holdings (and any
other affiliate of the Sellers having the words "Colonial Penn" in their
corporate names, other than Colonial Penn Life Insurance Company) shall amend
their respective certificates of incorporation to change their corporate names
to delete therefrom the words "Colonial Penn".
(e) Prior to the Closing Date, the Companies will waive any ownership
interest in the computer software indicated with an asterisk in Section 2.16(ii)
of the Seller Disclosure Schedule and the Sellers and Sellers' affiliates
including the Companies will enter into a license agreement licensing the
Companies' ability to use such computer software for an indefinite term, without
any software maintenance responsibility by Licensor.
4.16 Closing Prior to Conseco Transaction. If the Closing Date occurs
prior to the consummation of the Conseco Transaction, the agreements set forth
in Section 4.16 of the Seller Disclosure Schedule (the "Section 4.16
Agreements"), shall be entered into (including the A&H Reinsurance Agreements
for consideration of $3,000,000 paid by or on behalf of CPL to CPF in cash on or
prior to the Closing Date), after consultation with and consent of the Purchaser
(which consent shall not be unreasonably withheld) as to the terms of any such
agreements (other than the A&H Reinsurance Agreements) as they affect any of the
Companies and each such agreement shall be in full force and effect, on the
Closing Date (with all regulatory approvals therefor as shall be necessary
having been obtained). The Purchaser agrees that it shall cause each Company
that is a party to a Section 4.16 Agreement to honor and abide by all of the
terms and conditions of each of the Section 4.16 Agreements to which such
Company is a party.
4.17 Monroe Property. Purchaser and Sellers agree that prior to the
Closing, title to the real estate and building located at 2750 Monroe Boulevard,
Valley Forge, Pennsylvania (the "Monroe Property") will be transferred to an
affiliate of CPG (the "Monroe Affiliate") at a cash price equal to $5,882,484,
which is the statutory book value of the Monroe Property at December 31, 1996.
Purchaser shall be responsible for the payment of all transfer Taxes payable in
connection with such
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transfer. At the Closing, an affiliate of the Purchaser to be designated by
Purchaser and reasonably acceptable to Leucadia (the "Purchaser Affiliate") and
the Monroe Affiliate shall enter into a rental agreement (the "Monroe Rental
Agreement") in the form of Exhibit C hereto, pursuant to which the Monroe
Property will be rented to the Purchaser Affiliate for a rental term of 2 years.
Purchaser shall guarantee the obligations of the Purchaser Affiliate under the
Monroe Rental Agreement.
4.18 Commercial Lines Reinsurance. Sellers agree that prior to the Closing
Date they shall consult with Purchaser regarding the reinsurance of the
Companies' Commercial Lines Programs. If Purchaser requests, Sellers shall cause
the Companies (as appropriate) to enter into reinsurance agreements requested by
Purchaser, the effectiveness of each being subject to consummation of the
Closing hereunder.
4.19 Closing Date Audit. Leucadia will cooperate with the Purchaser in
engaging Coopers & Lybrand L.L.P., or another firm selected by Purchaser and
reasonably acceptable to Sellers, to conduct an audit of the Companies in
accordance with GAAP as of the Closing Date, which audit will be at the complete
expense of the Purchaser.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO CLOSING
5.1 Conduct of Business by the Companies. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Seller Disclosure Schedule
(which specifies, among other things, any exceptions required to comply with the
terms of the Conseco Contract or any Conseco Agreement), during the period from
the date of this Agreement to the Closing, the Sellers shall cause the Companies
to act and carry on their respective businesses in the ordinary course
consistent with past practice and, to the extent consistent therewith, use
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current key officers and employees and preserve
the goodwill of those engaged in material business relationships with them.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Closing Date, except (i) as set forth in Section
5.1 of the Seller Disclosure Schedule or (ii) as otherwise contemplated under
this Agreement, the Sellers shall not permit the Companies to, without the prior
consent of the Purchaser:
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(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of such
Company's outstanding capital stock, (ii) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, or (iii) purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants or options to
acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(c) amend its articles or certificate of organization, by-
laws or other comparable charter or organizational documents;
(d) (i) acquire, form or commence the operations of any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof or (ii) acquire any assets having an aggregate
purchase price in excess of $250,000, except purchases of investments in
accordance with Section 5.1(g) hereof;
(e) (i) incur any indebtedness for borrowed money or guarantee or
otherwise become responsible for any such indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to any other
Company; or (ii) make any loans or advances or capital contributions to any
other person, other than to any of the Companies;
(f) except with respect to Taxes, which shall be governed under Article IV
hereof, discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent Company
Annual Statements (or the notes thereto) of such Company or incurred since the
date of such Company Annual Statements in the ordinary course of business
consistent with past practice;
(g) invest their future cash flow, any cash from matured and maturing
investments, any cash proceeds from the sale of their assets and properties, and
any cash funds currently held by them, unless in accordance with the terms of
the investment
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guidelines attached as Section 5.1 of the Purchaser Disclosure Schedule or
except as set forth in Section 5.1 of the Seller Disclosure Schedule;
(h) make any change in accounting methods, principles or practices,
including but not limited to any change with respect to establishment of
reserves for unearned premiums, losses and loss adjustment expenses, except
insofar as may be required by a change in SAP;
(i) except as may be required by Law or as otherwise
provided in this Agreement:
(i) make any representation or promise, oral or written, to any
director, officer or employee or former director, officer or employee of
such Company which is inconsistent with the terms of any Benefit Plan;
(ii) except for salary and wage increases in the ordinary course of
business and consistent with past practices, make any change to, or amend
in any way, the contracts, salaries, wages, or other compensation of any
director, officer or employee or any agent or consultant of such Company
other than changes or amendments that are required under existing
contracts as disclosed in the Seller Disclosure Schedule;
(iii) enter into any employment, severance or termination agreement
(other than pursuant to existing policies of any of the Companies
consistent with past practices, which practices shall not include the
agreements contemplated in Section 4.9 of the Seller Disclosure Schedule)
with any officer or employee, or grant any officer or employee any
increase in severance or termination pay (other than pursuant to existing
policies of any of the Companies consistent with past practices, which
practices shall not include the agreements contemplated in Section 4.9 of
the Seller Disclosure Schedule);
(iv) adopt, enter into, amend, alter or terminate, partially or
completely, any Benefit Plan or any election made pursuant to the
provisions of any Benefit Plan to accelerate any payments, obligations or
vesting schedules under any Benefit Plan; or
(v) approve any general or company-wide pay increases for employees;
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(j) except in the ordinary course of business consistent with past
practices, modify, amend or terminate any material agreement (including any
confidentiality agreement), Permit, concession, franchise, license or similar
instrument to which such Company is a party or waive, release or assign any
material rights or claims thereunder;
(k) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or transfer or dispose of assets having an aggregate book value in excess
of $200,000 other than (i) in the ordinary course of business or (ii) as set
forth in Section 5.1 of the Seller Disclosure Schedule or (iii) as otherwise
permitted hereunder;
(l) enter into any contract that would be required to be disclosed in
Section 2.13(a) or Section 2.13(b) of the Seller Disclosure Schedule;
(m) make any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible asset of the Companies, except any
expenditure or commitment that does not exceed $250,000 in the aggregate;
(n) settle or compromise (i) the Lawsuits (as defined in Section 9.3),
(ii) any litigation or claim arising out of the transactions contemplated
hereby, or (iii) any other litigation or claim if the settlement thereof
involves payment of in excess of $250,000 (other than claims for contractual
benefits under any insurance or reinsurance contract under which any Company is
the insurer or reinsurer in the ordinary course of business and consistent with
past practices); provided, that Purchaser will not unreasonably withhold its
consent to any such settlement or compromise;
(o) move the operations of any business or division to any
location other than where it is located on the date hereof; or
(p) authorize any of, or commit or agree to take any of,
the foregoing actions.
5.2 Leucadia Shareholder Meeting. As soon as practicable following the
date of this Agreement, Leucadia will duly call, give notice of, convene and
hold a meeting of its shareholders (the "Leucadia Shareholders Meeting") for the
purpose, among other things, of obtaining approval of and adoption of this
Agreement and the transactions contemplated hereby by not less than two-thirds
of the outstanding shares entitled to vote thereon "Leucadia Shareholder
Approval"). Leucadia will, through its Board of Directors, recommend to its
shareholders the
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approval and adoption of this Agreement and the transactions contemplated hereby
and, subject to Section 5.4(d) hereof, Leucadia (i) shall not modify or revoke
such recommendation and (ii) shall take all lawful action to solicit, and use
all commercially reasonable efforts to obtain, such approval.
5.3 Other Actions.
(a) The Sellers and the Purchaser shall not, and shall not permit any of
their respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue or that are not so qualified becoming untrue in any
material respect except as permitted by Section 5.1 above or (ii) any of the
conditions to the transactions contemplated hereby set forth in Article VI not
being satisfied.
(b) The Sellers shall not, to the extent practicable, permit any of the
Companies to, without the prior consent of Purchaser, hold any meeting of the
board of directors of the Companies or any subsidiary or any committee of any
such board, or take any action by written consent of any such board or
committee, without providing (i) notice of any such meeting no later than the
date notice is given to the board of directors or in advance of the date of any
proposed action by written consent and (ii) with such notice, an agenda of the
specific matters intended to be considered at such meeting or a copy of the
proposed written consent, unless, in the reasonable good faith judgment of the
Sellers, providing prior notice of any agenda item or any item of such written
consent will prejudice the ability of the board of directors or any committee of
the board of directors to discharge its duties, in which case such item may be
omitted from the agenda or written consent provided to the Purchaser; provided,
that such item does not relate to a matter that is or would be a violation of
this Agreement.
5.4 No Solicitation. (a) Leucadia shall not, nor shall it knowingly permit
any of its subsidiaries or any of their respective officers, directors,
employees, agents, investment bankers, attorneys, financial advisors or other
representatives (collectively, "Leucadia Representatives") to (i) solicit,
initiate or knowingly encourage the submission of, any Acquisition Proposal (as
defined below), (ii) enter into any agreement with respect to any Acquisition
Proposal, or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action to knowingly facilitate any inquiries or the making of any proposal
that constitutes or would reasonably
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be expected to lead to, an Acquisition Proposal; provided, however, that,
notwithstanding anything to the contrary in this Agreement, (x) Leucadia may
advise any third party of the existence of this restriction contained in this
Section 5.4, (y) at any time prior to shareholder approval of this Agreement and
the transactions contemplated hereby, Leucadia may participate in discussions or
negotiations with, and may furnish information (pursuant to a confidentiality
agreement in customary form) concerning the Sellers and/or the Companies and
their business, properties and assets to, a third party who, without any
solicitation by Leucadia or any Leucadia Representatives after the date of this
Agreement, submits an Acquisition Proposal, if the Board of Directors of
Leucadia in good faith determines, based on advice of outside counsel, that it
is necessary to do so to comply with its fiduciary duties to shareholders under
applicable law and (z) the Board of Directors of Leucadia may take and disclose
to the Leucadia stockholders a position with regard to a tender offer or
exchange offer contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act and may make such disclosure to the stockholders of Leucadia as may
be required under applicable law; provided, that the Board of Directors of
Leucadia shall not recommend that the stockholders of Leucadia tender their
shares of Leucadia common stock unless such recommendation is permitted by
Section 5.4(d).
(b) Leucadia shall promptly notify the Purchaser of any Acquisition
Proposal, the person making such Acquisition Proposal, and all material terms
and conditions of such Acquisition Proposal and thereafter shall keep Purchaser
informed of the material terms and status of such Acquisition Proposal.
(c) For purposes of this Agreement, "Acquisition Proposal" means a
proposal or offer for a tender or exchange offer, merger, consolidation or other
business combination (i) involving all or substantially all of Leucadia and its
subsidiaries, taken as a whole, or any Company or (ii) to acquire or cause to be
acquired in any manner, directly or indirectly, including without limitation
through any reinsurance transaction not in the ordinary course of business, all
or substantially all of the business or assets of Leucadia and its subsidiaries,
taken as a whole, or of any Company, or all or a substantial percentage of the
capital stock or other ownership interests in Leucadia or any Company, or any
similar transaction.
(d) Notwithstanding anything to the contrary in this Agreement, the
Board of Directors of Leucadia shall be permitted from time to time to take the
following actions in the circumstances described below: (i) to withdraw or
modify its approval or recommendation of this Agreement and the transactions
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contemplated hereby; or (ii) to approve, recommend or enter into an agreement
with respect to an Acquisition Proposal; if, in each such case, prior to
shareholder approval (A) an unsolicited Acquisition Proposal is communicated to
the Sellers, publicly proposed or publicly disclosed and (B) the Board of
Directors of Leucadia determines in good faith, based on advice of outside
counsel, that it is necessary to do so to comply with its fiduciary duties under
applicable law. No action by the Board of Directors of Leucadia permitted by the
preceding sentence (each a "Permitted Action") shall constitute a breach of this
Agreement by Leucadia; provided, however, that Sellers shall be obligated to pay
fees as required by Section 7.3.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Consummate Transactions. The
respective obligation of each party to this Agreement to consummate the
transactions contemplated by this Agreement is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Governmental and Regulatory Consents. All filings required to be made
prior to the Closing Date with, and all consents, approvals, permits and
authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity, in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, shall
have been made or obtained, including without limitation, from the Insurance
Regulators in the jurisdictions set forth in Section 6.1 of the Seller
Disclosure Schedule hereto, and such consents, approvals, permits and
authorizations shall be in full force and effect and shall be subject to no
conditions other than conditions customarily imposed by insurance regulatory
authorities in connection with similar acquisitions.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the transactions contemplated hereby under the HSR Act shall have been
terminated or shall have otherwise expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect or
threatened; provided,
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however, that any party invoking this condition shall use commercially
reasonable efforts to have any such order or injunction vacated.
(d) Monroe Rental Agreement. The Monroe Rental Agreement and the
Purchaser's guarantee thereof each shall have been fully executed by all
necessary parties and shall be in full force and effect.
(e) Leucadia Shareholder Approval. The Leucadia Shareholder Approval shall
have been obtained.
(f) Conseco Transaction. If the Conseco Transaction shall not have been
consummated, the agreements set forth in Section 4.16 of the Seller Disclosure
Schedule shall be in full force and effect in accordance with such schedule.
6.2 Conditions to Obligations of the Purchaser. The obligation of the
Purchaser to consummate the transactions contemplated hereby is further subject
to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Sellers contained in this Agreement that are qualified as to materiality
shall be true and correct and the representations and warranties of the Sellers
contained in this Agreement that are not so qualified shall be true and correct
in all respects that reasonably are material, in each case as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as a result of any actions contemplated or permitted by
this Agreement and except to the extent any such representation and warranty
speaks as of an earlier date, in which event such representation and warranty
shall be true and correct, or true and correct in all respects that reasonably
are material, as applicable, as of such date. The Sellers shall have delivered
to the Purchaser a certificate, dated the Closing Date and signed on behalf of
each Seller by an authorized officer of such Seller to the foregoing effect with
respect to the representations and warranties of the Sellers.
(b) Performance of Obligations of the Sellers. The Sellers shall have
performed in all material respects all obligations required to be performed by
them under this Agreement on or prior to the Closing Date and the Purchaser
shall have received a certificate dated as of the Closing Date signed on behalf
of each Seller by an authorized officer of such Seller to such effect.
(c) Opinion of General Counsel and Counsel of the Sellers. Purchaser shall
have received an opinion of the Vice President
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and General Counsel of the Companies, and an opinion of Weil, Gotshal & Manges
LLP, counsel to the Sellers, dated the Closing Date in the forms attached hereto
as Exhibits D and E.
6.3 Conditions to Obligations of the Sellers. The obligations of the
Sellers to consummate the transactions contemplated hereby is further subject to
the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Purchaser contained in this Agreement that are qualified as to materiality
shall be true and correct and the representations and warranties of the
Purchaser contained in this Agreement that are not so qualified shall be true
and correct in all respects that reasonably are material, in each case as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except as a result of any actions contemplated by this
Agreement and except to the extent any such representation and warranty speaks
as of an earlier date, in which event such representation and warranty shall be
true and correct, or true and correct in all respects that reasonably are
material, as applicable, as of such date. The Purchaser shall have delivered to
the Sellers a certificate, dated the Closing Date and signed on behalf of the
Purchaser by an authorized officer of the Purchaser to the foregoing effect with
respect to the representations and warranties of the Purchaser.
(b) Performance of Obligations of the Purchaser. The Purchaser shall have
performed in all material respects all obligations required to be performed by
it under this Agreement on or prior to the Closing Date and the Company shall
have received a certificate dated as of the Closing Date signed on behalf of the
Purchaser by an authorized officer of the Purchaser.
(c) Opinion of Counsel of the Purchaser. Seller shall have received an
opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel to the
Purchaser, dated the Closing Date in the form attached hereto as Exhibit F.
(d) CPI Dividend. The CPI Dividend shall have been paid to Leucadia and/or
the Purchaser shall have purchased the right to receive the CPI Dividend (or any
unpaid part thereof) in accordance with Section 4.8 of this Agreement.
(e) Intramerica Distribution. The Intramerica Distribution shall have
been effected.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Closing Date, whether before or after Leucadia Shareholder
Approval:
(a) by mutual written consent of the Purchaser and the
Sellers; or
(b) by either the Purchaser or the Sellers:
(i) at any time after December 31, 1997, if the transactions
contemplated hereby shall not have been consummated by such date, unless
the failure to consummate such transactions is the result of a willful and
material breach of this Agreement by the party seeking to terminate this
Agreement; or
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable; or
(iii) if, upon a vote at a duly held Leucadia Shareholders Meeting
or any adjournment thereof at which the Leucadia Shareholder Approval
shall have been voted upon, the Leucadia Shareholder Approval shall not
have been obtained.
(c) by the Purchaser, if the Board of Directors of Leucadia shall have
taken any Permitted Action in accordance with the provisions of Section 5.4(d);
or
(d) by the Sellers, if Leucadia enters into a definitive agreement
providing for the implementation of a Acquisition Proposal in accordance with
the provisions of Section 5.4(d).
7.2 Effect of Termination. In the event of termination of this Agreement
by either the Sellers or the Purchaser as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Purchaser or the Sellers, other than with
respect to the last sentence of Section 4.1 and Sections 2.15, 3.6 and 7.2 and
7.3 of this Agreement. Nothing contained in this Section shall relieve any
party from any liability resulting from any material
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breach of the representations, warranties, covenants or agreements set forth in
this Agreement.
7.3 Termination Fee. If (i) this Agreement is terminated by any party
pursuant to Section 7.1(b)(iii) hereof, and (ii) at or prior to the Leucadia
Shareholders' Meeting there shall have been an Acquisition Proposal, whether or
not such Acquisition Proposal shall have been rejected or shall have been
withdrawn prior to the time of such termination or of the meeting, Sellers shall
pay the Purchaser a termination fee of $10 million in cash within five business
days of the termination of this Agreement; if, within one (1) year of any such
termination described in clause (i) above, a transaction implementing any
Acquisition Proposal shall have been consummated, Sellers shall pay to Purchaser
an additional termination fee equal to $20 million in cash within five business
days of the consummation of such transaction. Alternatively, if this Agreement
is terminated by the Purchaser pursuant to Section 7.1(c) or the Sellers
pursuant to Section 7.1(d), Sellers shall pay to Purchaser a termination fee
equal to $30 million in cash within five business days of the termination of
this Agreement. In no event shall Sellers be obligated to pay more than $30
million to Purchaser under this paragraph.
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties required to be made by
the Sellers and the Purchaser in this Agreement or in any certificate delivered
pursuant hereto will survive the Closing:
(a) in the case of the representations and warranties of Sellers set forth
in Section 2.7 and Section 2.9 hereof, until 30 days after the expiration of
statutes of limitation applicable in each such section;
(b) in the case of representations and warranties referred to in Sections
2.2 and 2.23 hereof, indefinitely; and
(c) in the case of all other representations and warranties, until March
31, 1999.
Notwithstanding the foregoing, any representation or warranty shall
survive the time it would otherwise terminate pursuant to this Section 8.1 to
the extent that notice of a
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breach thereof giving rise to a right of indemnification shall have been given
by a party hereto prior to the expiration of the relevant period in accordance
with Article IX or Section 4.5 of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Sellers. Subject to the provisions of Sections 8.1,
9.4, 9.5 and 9.6 hereof, the Sellers will indemnify and hold harmless the
Purchaser and the Companies (collectively, the "Purchaser Indemnitees") for any
and all monetary damages, charges, losses, deficiencies, liabilities,
obligations, costs, fees, and expenses (including, without limitation,
reasonable fees and disbursements of counsel including but not limited to those
incident to the enforcement of rights under Article IX hereof) (collectively,
"Damages") resulting from or relating to any breach by the Sellers of any
representation, warranty, covenant, or agreement made by the Sellers in this
Agreement. Notwithstanding the foregoing, indemnification for Taxes shall be
governed by Section 4.5 hereof and not by Article IX and indemnification for
Certain Damages (as defined in Section 9.3 hereof) shall be governed by Section
9.3 hereof.
9.2 Indemnification by the Purchaser. Subject to the provisions of
Sections 8.1, 9.4, and 9.5 hereof, the Purchaser will indemnify and hold
harmless each Seller in respect of any and all Damages resulting from or
relating to any breach by the Purchaser of any representation, warranty,
covenant, or agreement made by the Purchaser in this Agreement. Notwithstanding
the foregoing, indemnification for Taxes shall be governed by Section 4.5 hereof
and not by Article IX.
9.3 Special Indemnification by Sellers. Subject to the provisions of
Section 8.1 (to the extent applicable), Section 9.4 (but not Section 9.4(d)),
Section 9.5 and Section 9.6 hereof, the Sellers shall indemnify and hold
harmless the Purchaser Indemnitees for any and all Damages hereunder (i) arising
under ERISA and the Colonial Penn Insurance Company Long Term Incentive Plan for
periods ending on or before the Closing Date; (ii) arising out of or relating to
the lawsuits set forth in Section 9.3 of the Seller Disclosure Schedule (the
"Lawsuits") (provided, that Sellers shall not indemnify the Purchaser
Indemnitees for costs, fees and expenses incurred prior to the execution date of
this Agreement); (iii) (x) arising from a breach of the
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representations and warranties contained in Section 2.23 or (y) arising out of
or relating to any Environmental Claim which arises out of or relates to the
conduct of the business of the Companies or the ownership or lease of real
property or facilities prior to the Closing Date or any Environmental Claim
which arises out of or relates to the Monroe Property (including but not limited
to, Purchaser Affiliate's tenancy at the Monroe Property) before and after the
Closing Date; provided, however, that Sellers shall not have any indemnification
obligation under this clause (y) with respect to Damages attributable to actions
of Purchaser or Purchaser's affiliates (excluding the Companies for periods
prior to the Closing Date) or actions of third parties caused by Purchaser or
Purchaser's affiliates (excluding the Companies for periods prior to the Closing
Date) or (iv) arising from a breach by any Company of any representation or
warranty made by it in the Conseco Agreements or the Section 4.16 Agreements or
otherwise arising under or in connection with the Conseco Agreements or the
Section 4.16 Agreements to the extent related to periods, or to circumstances
existing, on or prior to the Closing Date. Sellers' liability under this Section
9.3 shall survive the Closing indefinitely. Damages that are indemnifiable under
this Section 9.3 are sometimes referred to herein as "Certain Damages."
9.4 Limitations on Indemnification.
(a) No claim by any person for indemnification under this Article IX (an
"Indemnitee") against any person (an "Indemnifying Party"), which claim relates
to a breach of a representation or warranty made in this Agreement may be made
unless notice of such breach is given in accordance with this Article IX prior
to the expiration of the 30th day after the end of the survival period for such
representation or warranty.
(b) No claim by the Purchaser Indemnitees under Section 9.1 hereof or by
the Sellers under Section 9.2 hereof for indemnification may be made unless and
until the Purchaser Indemnitees or the Sellers, as the case may be, have
incurred Damages which would otherwise be indemnifiable under such Section in
excess of $2,500,000 in the aggregate for the Purchaser Indemnitees or the
Sellers, respectively, at which time, all Damages incurred by the Purchaser
Indemnitees or the Sellers, as the case may be, in excess of $2,500,000 may be
claimed and recovered by the Purchaser Indemnitees or the Sellers as provided in
this Agreement; provided, however, that the foregoing limitation shall not apply
to (i) any breach of Sections 2.2 or 2.23 and (ii) intentional breaches of any
covenant or agreement set forth in Article IV (other than Section 4.5, as to
which this Section 9.4(b) does not apply) and Article V. In determining
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whether a representation or warranty made under Article II or Article III hereof
has been breached and Damages suffered as a result, for purposes of this Article
IX, such representation or warranty shall be deemed to exclude any materiality
qualification or exception and any exception thereto which refers to Company
Material Adverse Effect (with respect to Article II) and Purchaser Material
Adverse Effect (with respect to Article III).
(c) No claim by the Purchaser Indemnitees under Section 9.3(ii) hereof for
indemnification may be made unless and until the Purchaser Indemnitees have
incurred Damages which would otherwise be indemnifiable under such Section in
excess of $3,500,000 in the aggregate, at which time all Damages (other than
expenses, cost and fees incurred prior to the date of execution of this
Agreement, which shall not be indemnifiable by the Sellers) in excess of
$3,500,000 may be claimed and recovered as provided in this Agreement. No claim
by the Purchaser Indemnitees under Section 9.3(iii) hereof for indemnification
may be made unless and until the Purchaser Indemnitees have incurred Damages
which would otherwise be indemnifiable under such Section in excess of
$1,500,000 in the aggregate, at which time, all Damages under Section 9.3(iii)
in excess of $1,500,000 may be claimed and recovered as provided in this
Agreement. No deductible shall apply to claims by Purchaser Indemnitees under
Section 9.3(i) or (iv) hereof. In determining whether a representation or
warranty covered under Section 9.3 hereof has been breached and Certain Damages
suffered as a result, for purposes of this Section 9.4, such representation or
warranty shall be deemed to exclude any materiality qualification or exception
and any exception thereto which refers to Company Material Adverse Effect).
(d) Notwithstanding anything to the contrary contained in this Agreement,
neither the Purchaser, on the one hand, nor the Sellers, on the other hand, will
be liable under any circumstances for indemnification under Section 9.1 or
Section 9.2 hereof, respectively, in an aggregate amount in excess of
$200,000,000; provided, however, that the foregoing limitation shall not apply
to (i) Damages attributable to a breach by any Seller of any representation or
warranty in Sections 2.2 or 2.23 or (ii) intentional breaches of any covenant or
agreement set forth in Article IV (other than Section 4.5, as to which this
Section 9.4(d) does not apply) and Article V.
(e) If an Indemnitee recovers from any third party (including insurers)
all or any part of any amount paid to it by an Indemnifying Party pursuant to
Sections 9.1, 9.2, 9.3 or Section 4.5 hereof, such Indemnitee will promptly pay
over to the Indemnifying Party the amount so recovered (after deducting
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therefrom the full amount of the expenses incurred by it in procuring such
recovery, including any Taxes and net of any Tax Benefit resulting from such
recovery and payment), but not in excess of any amount previously so paid by the
Indemnifying Party. In the event an Indemnitee makes such a payment and the
recovery from which such payment is made is subsequently invalidated, set aside
or required to be repaid for any reason, then the Indemnifying Party will return
such amount to the Indemnitee, without offset for any amount previously paid or
otherwise. If an Indemnitee recovers from any third party (including insurers)
any amount as to which indemnification may be claimed pursuant to Sections 9.1,
9.2, 9.3 or Section 4.5 hereof, such Indemnitee will have no right to claim
indemnification for such amount from the Indemnifying Party.
(f) If an Indemnitee has any claims or rights (collectively "Rights")
against any person (other than the Sellers) for acts or omissions which give
rise to a loss against which an Indemnifying Party has indemnified in accordance
with the terms of this Agreement, the Indemnifying Party shall be subrogated to
such Rights to the extent of such indemnification payments.
9.5 Notice of Defense of Claims. Promptly after receipt of notice of any
claim or Damages for which an Indemnitee may seek indemnification under this
Article IX, such Indemnitee shall give written notice thereof to the
Indemnifying Party, but such notification (i) shall not be required with respect
to the Lawsuits and (ii) shall not be a condition to indemnification hereunder
except to the extent of actual and material prejudice to the Indemnifying Party.
The notice shall state the information then available regarding the amount and
nature of such claim or Damages and shall specify the provision or provisions of
this Agreement under which the right to indemnification is asserted. If within
30 days after receiving such notice the Indemnifying Party gives written notice
to the Indemnitee stating that it intends to defend against such claim or
Damages at its own cost and expense, then defense (including the right to settle
or compromise such action) of such matter, including selection of counsel
(subject to the consent of the Indemnitee which consent shall not be
unreasonably withheld) and the sole power to direct and control such defense,
shall be by the Indemnifying Party and the Indemnitee shall make no payment in
respect of such claim or Damages to any third party as long as the Indemnifying
Party is conducting a good faith and diligent defense. If the liability of the
Indemnifying Party with respect to such claim or Damages is subject to a
deductible pursuant to Sections 9.4(b)or 9.4(c) hereof that has not yet been
fully satisfied, the Indemnified Party shall reimburse the Indemnifying
Party for any amount actually incurred by the Indemnifying Party
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up to the amount of the remaining applicable deductible. Notwithstanding the
foregoing, the Indemnitee shall at all times have the right to fully participate
in such defense at its own cost and expense directly or through counsel;
provided, however, if the named parties to the action or proceeding include both
the Indemnifying Party and the Indemnitee and representation of both parties by
the same counsel would be inappropriate under applicable standards of
professional conduct, the expenses of one separate counsel for the Indemnitee
shall be paid by the Indemnifying Party. If no such notice of intent to dispute
and defend is given by the Indemnifying Party, or if such diligent good faith
defense is not being or ceases to be conducted, the Indemnitee shall, at the
expense of the Indemnifying Party, undertake the defense of such claim or
Damages with counsel selected by the Indemnitee, and shall have the right to
compromise or settle the same exercising reasonable business judgment with the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. The Indemnitee shall make available all information and assistance
that the Indemnifying Party may reasonably request and shall cooperate with the
Indemnifying Party in such defense. Notwithstanding anything herein to the
contrary, the Indemnifying Party shall have the right to settle all claims of
third parties for which indemnification is payable hereunder without the consent
of the Indemnitee so long as such settlement releases the Indemnitee from all
liability for or in connection with such action and does not materially and
adversely impair the ability of the Indemnitee to carry on its business and does
not contain any admission of wrong doing on the part of the Indemnitee.
Notwithstanding the preceding paragraph, the Purchaser shall have the
right, at any time after the Closing, to assume and control the defense of any
Lawsuit. If the Purchaser exercises such right, then all Damages in connection
therewith shall be paid by Sellers in accordance with the provisions of this
Article IX; provided, that the Purchaser shall not settle any Lawsuit without
the consent of the Sellers, which consent shall not be unreasonably withheld.
The Indemnifying Party shall be permitted to have full access to information
relevant to the defense of any such Lawsuit and to employ counsel in such
connection.
9.6 FPL Agreement. The Purchaser expressly acknowledges that Leucadia
(and/or its affiliate(s)) are party to, and have certain rights and obligations
under that certain Stock Purchase and Sale Agreement by and between FPL Group
Capital Inc. (as seller) and Leucadia (as buyer) dated as of April 5, 1991 (the
"FPL Agreement"), and that, pursuant to the FPL Agreement, Leucadia (and/or its
affiliate(s)) have the right to be indemnified against certain losses. If the
Purchaser Indemnitees
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suffer Damages that may be indemnifiable pursuant to the FPL Agreement, the
Purchaser agrees that it will take, and that it will cause each of the Companies
to take, any and all commercially reasonable steps in connection with pursuing
such indemnification under the FPL Agreement and that it/they will cooperate
fully to assure that the Companies, under the control and direction of Leucadia,
and at the expense of Leucadia, fully comply with its/their obligations (if
commercially reasonable) in order to fully secure its/their rights to
indemnification under the FPL Agreement. Notwithstanding anything to the
contrary contained herein, any and all steps taken in connection with pursuing
such indemnity or otherwise securing rights and satisfying obligations under the
FPL Agreement shall be under the control and discretion of, and at the expense
of Leucadia. If the Purchaser and/or any (or all) of the Companies fail to take
commercially reasonable steps or to fully cooperate with the Sellers in
accordance with this Section 9.6, then the Sellers shall not be obligated to
indemnify the Purchaser under Sections 9.1 or 9.3 hereof for any Damages
attributable to such failure. Subject to the foregoing, Damages for which
Sellers are required to indemnify the Purchaser Indemnitees pursuant to Sections
9.1 or 9.3 shall be so indemnified and paid when due under this Agreement
without regard to whether the underlying amount is recovered by the Sellers
under the FPL Agreement.
9.7 Purchase Price Adjustment. Except for any portion properly treated as
interest under Section 1274 of the Code (or otherwise), any payment by any
Indemnifying Party in indemnification hereunder shall be treated as an
adjustment to the Purchase Price.
ARTICLE X
NOTICES
10.1 Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
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If to the Sellers, to:
c/o Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attention: Joseph S. Steinberg, President
Telephone: (212) 460-1900
Facsimile: (212) 598-3245
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen E. Jacobs, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
If to the Purchaser, to:
General Electric Capital Corporation/
Consumer Savings Insurance Group
6610 West Broad Street
Richmond, Virginia 23230
Attention: General Counsel
Telephone: (804) 281-6000
Facsimile: (804) 281-6165
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Alexander M. Dye, Esq.
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article X will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
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ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. Except for documents executed by the Seller and the
Purchaser pursuant hereto and the Confidentiality Agreement, this Agreement
supersedes all prior discussions and agreements between the parties with respect
to the subject matter of this Agreement, and this Agreement (including the
exhibits hereto, the Seller Disclosure Schedule, the Purchaser Disclosure
Schedule and other documents delivered in connection herewith) and the
Confidentiality Agreement contain the sole and entire agreement between the
parties hereto with respect to the subject matter hereof. The parties agree that
any item disclosed in any section of the Seller Disclosure Schedule or the
Purchaser Disclosure Schedule, as the case may be, shall be deemed to be
disclosed for all purposes of this Agreement, notwithstanding the fact that such
item was not disclosed in any other section of the Seller Disclosure Schedule or
the Purchaser Disclosure Schedule, as the case may be.
11.2 Expenses. Except as otherwise provided herein, regardless of whether
or not the transactions contemplated hereby are consummated, each of the Sellers
and the Purchaser will pay its own costs and expenses incident to preparing for,
entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties.
11.4 No Third Party Beneficiary. Except as otherwise provided herein, the
terms and provisions of this Agreement are intended solely for the benefit of
the parties hereto, and their respective successors or assigns, and it is not
the intention of the parties to confer third-party beneficiary rights upon any
other person.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
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11.6 Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements signed by the parties
hereto.
11.7 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of Law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void, except that before or after the Closing
the Purchaser shall have the right, without such consent, to assign to a
wholly-owned subsidiary of the Purchaser its rights and obligations hereunder,
provided that no such assignment shall relieve Purchaser of its obligations
hereunder if such assignee does not perform such obligations. In the event of
such assignment, the Purchaser shall guarantee the performance by such
subsidiary of such obligations hereunder, which guarantee shall at all times
remain in full force and effect. This Agreement will be binding upon, inure to
the benefit of and be enforceable by, the parties and their respective
successors and assigns.
11.8 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.9 Headings, Gender, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "ARTICLE" or "Section" refer to the specified ARTICLE
or Section of this Agreement; (e) the term "party" means, on the one hand, the
Purchaser, and on the other hand, the Sellers; (f) the phrase "in the ordinary
course of business and consistent with past practice" refers to the business,
operations, affairs, and practice of the Companies or the Subsidiaries, as the
case may be, in each case consistent with past practices of such business,
operations, and affairs; (g) the phrase "to the knowledge of the
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Sellers" and similar phrases mean the actual knowledge, after due inquiry, of
the Directors of Leucadia, the Chairman, the President, any Executive Vice
President, the Treasurer or any Vice President of Leucadia, or the Chairman, the
President, any Executive or Senior Vice President, any Vice President, the
General Counsel, the Treasurer, or any legal compliance officer of any Company;
(h) the phrase "to the knowledge of Purchaser" and similar phrases mean the
actual knowledge, after due inquiry, of the executive officers of the Purchaser,
(i) the term "person" shall include any natural person, corporation, limited
liability company, general partnership, limited partnership, or other entity,
enterprise, authority or business organization; and (j) all references to
"dollars" or "$" refer to currency of the United States of America.
11.10 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of the Company or the Purchaser under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the Purchaser and the Sellers, effective as of
the date first written above.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Michael D. Frazier
------------------------------------------
Name: Michael D. Frazier
Title: Senior Vice President
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph S. Steinberg
------------------------------------------
Name: Joseph S. Steinberg
Title: President
CHARTER NATIONAL LIFE INSURANCE COMPANY
By: /s/ Gregory R. Barstead
------------------------------------------
Name: Gregory R. Barstead
Title: President
COLONIAL PENN GROUP, INC.
By: /s/ Linda M. Delaney
------------------------------------------
Name: Linda M. Delaney
Title: President
COLONIAL PENN HOLDINGS INC.
By: /s/ Linda M. Delaney
------------------------------------------
Name: Linda M. Delaney
Title: President
S-1
<PAGE>
ANNEX B
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Jeffries & Company, Inc.
Corporate Finance
1100 Santa Monica Boulevard, 10th Floor
Los Angeles, California 90025
Telephone: (310) 575-5200 (800) 933-6656
Fax: (310) 375-5165
June 27, 1997
The Board of Directors
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
20th Floor
New York, New York 10010
RE: THE PROPOSED ACQUISITION (THE "ACQUISITION") OF COLONIAL PENN INSURANCE
COMPANY, AND CP GENERAL AGENCY, INC. AND THEIR SUBSIDIARIES (OTHER THAN
INTRAMERICA LIFE INSURANCE COMPANY) (COLLECTIVELY, "COLONIAL PENN"),
INDIRECT WHOLLY-OWNED SUBSIDIARIES OF LEUCADIA NATIONAL CORPORATION
(THE "COMPANY") BY GENERAL ELECTRIC CAPITAL CORPORATION ("GECC").
TO THE BOARD OF DIRECTORS:
YOU HAVE ASKED US TO ADVISE YOU ON THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, TO THE COMPANY OF THE CONSIDERATION TO BE RECEIVED BY THE COMPANY IN
CONNECTION WITH THE ACQUISITION. THE TERMS OF THE ACQUISITION ARE PRESENTLY SET
FORTH IN A DRAFT, DATED AS OF JUNE 20, 1997, OF A PURCHASE AGREEMENT BY AND
AMONG THE COMPANY, CERTAIN SUBSIDIARIES OF THE COMPANY AND GECC (THE
"ACQUISITION AGREEMENT").
YOU HAVE INFORMED US THAT PURSUANT TO THE ACQUISITION AGREEMENT,
LEUCADIA WILL RECEIVE (I) $950 MILLION PLUS (II) A PAYMENT OF $156,164 PER DAY
FROM JANUARY 1, 1997 UP TO AND INCLUDING THE CLOSING DATE OF THE TRANSACTION
PLUS (III) OTHER ADJUSTMENTS AS DESCRIBED IN ARTICLE IV OF THE ACQUISITION
AGREEMENT PLUS (IV) A DIVIDEND OF $20.0 MILLION FROM COLONIAL PENN TO LEUCADIA
PRIOR TO THE CLOSING DATE OF THE TRANSACTION (IN AGGREGATE, THE "CONSIDERATION")
IN EXCHANGE FOR ALL OF THE CAPITAL STOCK OF COLONIAL PENN INSURANCE COMPANY AND
CP GENERAL AGENCY, INC. THE TERMS AND CONDITIONS OF THE ACQUISITION AGREEMENT,
INCLUDING THE ADJUSTMENTS, ARE MORE FULLY SET FORTH IN THE ACQUISITION
AGREEMENT. WE NOTE THAT THE ACQUISITION HAS NOT YET BEEN CONSUMMATED. ANY CHANGE
IN THE CONSIDERATION OR IN THE FINAL FORM OF THE ACQUISITION AGREEMENT COULD
CHANGE THE CONCLUSIONS EXPRESSED HEREIN.
JEFFERIES & COMPANY, INC. ("JEFFERIES"), AS PART OF ITS INVESTMENT
BANKING ACTIVITIES, IS REGULARLY ENGAGED IN THE EVALUATION OF CAPITAL
STRUCTURES. IN ADDITION, JEFFERIES PERFORMS VALUATIONS OF BUSINESSES AND THEIR
SECURITIES IN CONNECTION WITH MERGERS AND ACQUISITIONS, NEGOTIATED
UNDERWRITINGS, SECONDARY DISTRIBUTIONS OF LISTED AND UNLISTED SECURITIES,
PRIVATE PLACEMENTS, AND OTHER FINANCIAL SERVICES. AS YOU ARE AWARE, JEFFERIES
HAS BEEN ENGAGED BY THE COMPANY TO RENDER, AND HAS RECEIVED A FEE FOR RENDERING,
THIS OPINION.
<PAGE>
IN CONNECTION WITH OUR OPINION, WE HAVE, REVIEWED, AMONG OTHER THINGS,
THE DRAFT OF THE ACQUISITION AGREEMENT AND CERTAIN FINANCIAL AND OTHER
INFORMATION ABOUT COLONIAL PENN AND THE COMPANY, THAT WAS, IN EACH CASE,
PUBLICLY AVAILABLE OR FURNISHED TO US BY COLONIAL PENN OR THE COMPANY, AS THE
CASE MAY BE, INCLUDING CERTAIN INTERNAL FINANCIAL ANALYSES, FINANCIAL FORECASTS,
REPORTS AND OTHER INFORMATION PREPARED BY COMPANY AND COLONIAL PENN MANAGEMENT.
WE HAVE HELD DISCUSSIONS WITH MEMBERS OF SENIOR MANAGEMENT OF THE COMPANY AND
COLONIAL PENN CONCERNING COLONIAL PENN'S HISTORICAL AND CURRENT OPERATIONS, AND
FINANCIAL CONDITION AND PROSPECTS. IN ADDITION, WE HAVE REVIEWED THE FINANCIAL
TERMS OF CERTAIN RECENT TRANSACTIONS, INCLUDING BUSINESS COMBINATIONS, IN THE
INSURANCE INDUSTRY SPECIFICALLY AND IN OTHER INDUSTRIES GENERALLY AND PERFORMED
SUCH OTHER FINANCIAL STUDIES, ANALYSES AND INVESTIGATIONS AS WE DEEMED
APPROPRIATE FOR PURPOSES OF THIS OPINION.
IN RENDERING THIS OPINION, WE HAVE RELIED, WITHOUT INDEPENDENT
INVESTIGATION OR VERIFICATION, ON THE ACCURACY, COMPLETENESS AND FAIRNESS OF ALL
FINANCIAL AND OTHER INFORMATION REVIEWED BY US AND THIS OPINION IS CONDITIONED
UPON SUCH INFORMATION (WHETHER WRITTEN OR ORAL), INCLUDING, WITHOUT LIMITATION,
THE INFORMATION REFERRED TO IN THE PRECEDING PARAGRAPH, BEING ACCURATE, COMPLETE
AND FAIR IN ALL RESPECTS. YOU HAVE INFORMED US, AND WE HAVE ASSUMED, WITH YOUR
PERMISSION, THAT ALL PROJECTIONS EXAMINED BY US WERE REASONABLY PREPARED ON
BASES REFLECTING THE BEST CURRENTLY AVAILABLE ESTIMATES AND GOOD FAITH JUDGMENTS
OF THE RESPECTIVE MANAGEMENT OF THE COMPANY AND COLONIAL PENN AS TO THE FUTURE
PERFORMANCE OF COLONIAL PENN. ALTHOUGH SUCH PROJECTIONS DID NOT FORM THE
PRINCIPAL BASIS FOR OUR OPINION, BUT RATHER WAS ONE AMONG MANY ITEMS EMPLOYED,
CHANGES THERETO COULD AFFECT THE OPINION RENDERED HEREIN.
WE HAVE NOT BEEN REQUESTED TO, AND DID NOT: (A) PARTICIPATE IN THE
STRUCTURING OR NEGOTIATING OF THE ACQUISITION AND THE ACQUISITION AGREEMENT; (B)
SOLICIT THIRD PARTY INDICATIONS OF INTEREST IN ACQUIRING ALL OR ANY PART OF
COLONIAL PENN; OR (C) MAKE ANY INDEPENDENT EVALUATION OR APPRAISAL OF THE ASSETS
OR LIABILITIES, CONTINGENT OR OTHERWISE, OF COLONIAL PENN, NOR HAVE WE BEEN
FURNISHED WITH ANY SUCH EVALUATIONS OR APPRAISALS.
WE HAVE ASSUMED, WITH YOUR PERMISSION, THAT ALL CONSENTS AND
AUTHORIZATIONS NECESSARY TO CONSUMMATE THE ACQUISITION HAVE BEEN, OR WILL BE
OBTAINED, WITHOUT MATERIAL EXPENSE. OUR OPINION IS ADDRESSED SOLELY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE COMPANY OF THE CONSIDERATION ON
THE ASSUMPTION THAT THE COMPANY AND ITS BOARD OF DIRECTORS HAVE DETERMINED THAT,
FROM THE STANDPOINT OF ITS BUSINESS AND PROSPECTS, IT IS APPROPRIATE AND
DESIRABLE TO CONSUMMATE THE ACQUISITION. OUR OPINION IS BASED ON ECONOMIC AND
MARKET CONDITIONS PREVAILING, AND STOCK PRICES AND OTHER CIRCUMSTANCES AND
CONDITIONS EXISTING, ON THE DATE OF THIS LETTER, AND WE DO NOT EXPRESS ANY
OPINION AS TO THE MARKET VALUE OF THE COMPANY'S COMMON SHARES, $1 PAR VALUE PER
SHARE (THE "COMMON STOCK"), OR THE PRICE OR TRADING RANGE AT WHICH SHARES OF THE
COMPANY'S COMMON STOCK WILL TRADE FOLLOWING CONSUMMATION OF THE ACQUISITION.
WITHOUT LIMITING THE FOREGOING, WE EXPRESSLY DISCLAIM ANY UNDERTAKING OR
OBLIGATION TO ADVISE ANY PERSON OF ANY CHANGE IN ANY FACT OR MATTER AFFECTING
OUR OPINION OF WHICH WE BECOME AWARE AFTER THE DATE HEREOF.
IN THE ORDINARY COURSE OF JEFFERIES' BUSINESS, WE MAY ACTIVELY TRADE
SECURITIES OF THE COMPANY AND GECC FOR OUR OWN ACCOUNT AND FOR THE ACCOUNTS OF
OUR CUSTOMERS AND, ACCORDINGLY, MAY AT ANY TIME HOLD A LONG OR SHORT POSITION IN
SUCH SECURITIES.
IT IS UNDERSTOOD THAT THIS LETTER IS FOR THE USE OF THE BOARD OF
DIRECTORS OF THE COMPANY ONLY AND MAY NOT BE USED FOR ANY OTHER PURPOSE WITHOUT
JEFFERIES' PRIOR WRITTEN CONSENT, EXCEPT THAT THE COMPANY MAY INCLUDE THIS
LETTER, AND A DESCRIPTION THEREOF, IN ANY PROXY STATEMENT DISTRIBUTED TO THE
SHAREHOLDERS OF THE COMPANY IN CONNECTION WITH THE ACQUISITION. WITHOUT LIMITING
THE FOREGOING, THIS LETTER DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF THE COMPANY AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT
TO THE ACQUISITION, IF ANY SUCH VOTE IS REQUIRED.
2
<PAGE>
BASED UPON AND SUBJECT TO THE FOREGOING, INCLUDING THE VARIOUS
ASSUMPTIONS AND LIMITATIONS SET FORTH HEREIN, IT IS OUR OPINION THAT THE
CONSIDERATION IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE COMPANY.
VERY TRULY YOURS,
JEFFERIES & COMPANY, INC.
3
NYFS04...:\30\76830\0227\1980\EXH6287Z.480
<PAGE>
ANNEX C
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NEW YORK BUSINESS CORPORATION LAW
SS. 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT
FOR SHARES.-(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of Section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenters' rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive
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<PAGE>
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such
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<PAGE>
offer, the corporation making the offer and any shareholder agree upon the price
to be paid for his shares, payment therefor shall be made within sixty days
after the making of such offer or the consummation of the proposed corporate
action, whichever is later, upon the surrender of the certificates for any such
shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court in the
judicial district in which the office of the corporation is located to
determine the rights of dissenting shareholders and to fix the fair
value of their shares. If, in the case of merger or consolidation, the
surviving or new corporation is a foreign corporation without an office
in this state, such proceeding shall be brought in the county where the
office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may
institute such proceeding for the same purpose not later than thirty
days after the expiration of such twenty day period. If such proceeding
is not instituted within such thirty day period, all dissenter's rights
shall be lost unless the supreme court, for good cause shown, shall
otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the
price to be paid for their shares, shall be made parties to such
proceeding, which shall have the effect of an action quasi in rem
against their shares. The corporation shall serve a copy of the
petition in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by
registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the
corporation does not request any such determination or if the court
finds that any dissenting shareholder is so entitled, it shall proceed
to fix the value of the shares, which, for the purposes of this
section, shall be the fair value as of the close of business on the day
prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction
giving rise to the shareholder's right to receive payment for shares
and its effects on the corporation and its shareholders, the concepts
and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging
in a similar transaction under comparable circumstances and all other
relevant factors. The court shall determine the fair value of the
shares without a jury and without referral to an appraiser or referee.
Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit
pretrial disclosure, including, but not limited to, disclosure of any
expert's reports relating to the fair value of the shares whether or
not intended for use at the trial in the proceeding and notwithstanding
subdivision (d) of section 3101 of the civil practice laws and rules.
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<PAGE>
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party
to the proceeding and is entitled thereto for the value of his shares
so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the
corporate action was consummated to the date of payment. In determining
the rate of interest, the court shall consider all relevant factors,
including the rate of interest which the corporation would have had to
pay to borrow money during the pendency of the proceeding. If the court
finds that the refusal of any shareholder to accept the corporate offer
of payment for his shares was arbitrary, vexatious or otherwise not in
good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any
experts employed by it. Notwithstanding the foregoing, the court may,
in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by the corporation against any or all of the
dissenting shareholders who are parties to the proceeding, including
any who have withdrawn their notices of election as provided in
paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or
any part of the costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair
value of the shares as determined materially exceeds the amount which
the corporation offered to pay; (B) that no offer or required advance
payment was made by the corporation; (C) that the corporation failed to
institute the special proceeding within the period specified therefor;
or (D) that the action of the corporation in complying with its
obligations as provided in this section was arbitrary, vexatious or
otherwise not in good faith. In making any determination as provided in
clause (A), the court may consider the dollar amount or the percentage,
or both, by which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder
the amount found to be due him, upon surrender of the certificates for
any such shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired Shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event
be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of creditors of
the corporation, but have rights superior to the non-dissenting
shareholders, and if it is not liquidated, retain his right to be paid
for his shares, which right the corporation shall be obliged to satisfy
when the restrictions of this paragraph do not apply.
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<PAGE>
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the
corporation within thirty days after the corporation has given him
written notice that payment for his shares cannot be made because of
the restrictions of this paragraph. If the dissenting shareholder fails
to exercise such option as provided, the corporation shall exercise the
option by written notice given to him within twenty days after the
expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be given
in the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Amended by L. 1962, Ch. 834, ss. 40; L.
1963, Ch. 746, ss. 15; L. 1965, Ch. 803, ss.ss. 20-22; L. 1982, Ch. 202, ss.ss.
3-9; L. 1982, Ch. 928, ss.ss. 38-40; L. 1986, Ch. 117, ss.3.)
SS. 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER
OR CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR
SHARE EXCHANGE.-(a) A shareholder of a domestic corporation shall, subject to
and by complying with section 623 (Procedure to enforce shareholder's right to
receive payment for shares), have the right to receive payment of the fair value
of his shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to
the taking of an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment of the
fair value of his shares shall not be available:
(i) To a shareholder of the parent corporation in a
merger authorized by section 905 (Merger of parent and
subsidiary corporations), or paragraph (c) of section 907
(Merger or consolidation of domestic and foreign
corporations); and
(ii) To a shareholder of the surviving corporation in
a merger authorized by this article, other than a merger
specified in subparagraph (i), unless such merger effects one
or more of the changes specified in subparagraph (b)(6) of
section 806 (Provisions as to certain proceedings) in the
rights of the shares held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where
the shareholders' approval thereof is conditioned upon the dissolution
of the corporation and the distribution of substantially all of its net
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<PAGE>
assets to the shareholders in accordance with their respective
interests within one year after the date of such transaction.
(C) Any share exchange authorized by section 913 in which the
corporation is participating as a subject corporation; except that the
right to receive payment of the fair value of his shares shall not be
available to a shareholder whose shares have not been acquired in the
exchange.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a
share exchange authorized by paragraph (g) of section 913, who files
with the corporation a written notice of election to dissent as
provided in paragraph (c) of section 623. (Amended by L. 1962, Ch. 834,
ss. 69; L. 1963, Ch. 689, ss. 18; L. 1965, Ch. 803, ss. 47; L. 1986,
Ch. 117, ss.4; L. 1991. Ch. 390 ss. 3.)
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NYFS04...:\30\76830\0146\1980\ANN6257K.030
<PAGE>
ANNEX D
-------
THE TRANSFER OF THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE HEREOF IS SUBJECT TO CERTAIN
RESTRICTIONS CONTAINED IN PARAGRAPH 10 HEREOF, AND THE
HOLDER OF THIS WARRANT BY ACCEPTANCE HEREOF AGREES TO
BE BOUND BY SUCH RESTRICTIONS.
COMMON SHARE PURCHASE WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON SHARES OF
LEUCADIA NATIONAL CORPORATION
WARRANT TO PURCHASE 400,000 SHARES
THIS CERTIFIES that, for value received,
[IAN M. CUMMING OR JOSEPH S. STEINBERG]
is entitled to subscribe for and purchase from LEUCADIA NATIONAL CORPORATION,
incorporated under the laws of the State of New York (hereinafter called the
"Company"), at the price of $[_____](1) per share (the "initial warrant purchase
price"), (a) at any time from ______ __, 1998, to and including ______ __, 2002,
two hundred thousand (200,000) fully paid and nonassessable Common Shares, $1
par value, of the Company ("Common Shares"), and (b) at any time from ______ __,
1999, to and including ______ __, 2002, two hundred thousand (200,000) fully
paid and nonassessable Common Shares, subject, in each case, however, to the
provisions and upon the terms and conditions hereinafter set forth. The initial
warrant purchase price and the number and character of the shares with respect
to which this Warrant is exercisable are subject to adjustment as hereinafter
provided.
1. Exercise; Issuance of Certificates; Payment for Shares.
(a) Unless a Termination (defined below) shall have occurred
on or prior to ____________, the rights represented by this Warrant may
be exercised by the holder hereof, in whole or in part (but not as to a
fractional Common Share), at any time or from time to time on or after
(i) ______ __, 1998 with respect to two hundred thousand (200,000)
Common Shares and (ii) ______ __, 1999 with respect to the remaining
two hundred thousand (200,000) Common Shares, in each case, until 5:00
p.m. New York City time on ______ __, 2002.
(b) "Termination" for purposes hereof shall mean either (1)
the voluntary termination by [Ian M. Cumming or Joseph S. Steinberg] of
his employment with the Company, or (2) the discharge of [Ian M.
Cumming or Joseph S. Steinberg] from such employment for "cause."
"Cause" is defined as the commission by [Ian M. Cumming or Joseph S.
Steinberg] of any act of gross negligence in the performance of his
duties or obligations to the Company or any of its subsidiary or
affiliated companies, or the commission by [Ian M. Cumming or Joseph S.
Steinberg] of any material act of disloyalty, dishonesty or breach of
trust against the Company or any of its subsidiary or affiliated
companies.
- -----------------------------
(1) 105% of closing price of a Common Share on the date the Warrants are
authorized by the Shareholders of the Company.
D-1
<PAGE>
(c) The rights may be so exercised by such holder hereof by
the surrender of this Warrant (with the Subscription Agreement annexed
hereto appropriately completed) to the Company at its offices at 315
Park Avenue South, New York, New York (or such other office or agency
of the Company in New York, New York, as it may designate by notice in
writing to the holder hereof at the address of such holder appearing on
the books of the Company at any time within the period above named) and
upon payment to it, for the account of the Company, of the purchase
price for such shares.
(d) The Company agrees that the shares so purchased shall be
deemed to have been issued to the holder hereof as the record owner of
such shares immediately after the close of business on the date on
which this Warrant shall have been surrendered and delivery of payment
for such shares shall have been made as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the
shares so purchased shall be delivered to the holder hereof promptly
after such surrender and delivery, and, unless this Warrant shall have
expired, a new Warrant representing the number of shares, if any, with
respect to which this Warrant shall not then have been exercised shall
also be delivered to the holder hereof.
2. Agreement of Holder. The holder of this Warrant, by his acceptance
hereof, represents that he is acquiring this Warrant, and will acquire the
Common Shares issuable upon any exercise of this Warrant by such holder, for his
own account for investment and not with a view to the distribution thereof or
with any present intention of selling any thereof, except for a sale of such
Common Shares in compliance with the provisions of the Securities Act of 1933,
as amended, and the rules and the regulations thereunder.
3. Shares to be Fully Paid. Reservation of Shares. All shares issued
upon the exercise of the rights represented by this Warrant shall be validly
issued, fully paid and nonassessable (except as otherwise provided in Section
630 of the New York Business Corporation Law) and free from all taxes, liens and
charges with respect to the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue). The Company shall from
time to time take all such action as may be requisite to assure that the par
value per Common Share is at all times equal to or less than the warrant
purchase price per share then in effect. During the period within which the
rights represented by this Warrant may be exercised, the Company shall at all
time have authorized, and reserved for the purpose of issuance or transfer upon
exercise of the rights evidenced by this Warrant, a sufficient number of Common
Shares to provide for the exercise of the rights represented by this Warrant.
The Company shall take all such action as may be necessary to assure that such
Common Shares may be so issued without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Common Shares of the Company may be listed. The Company shall not take
any action which would result in any adjustment of the warrant purchase price if
the total number of Common Shares issuable after such action upon exercise of
all Warrants then outstanding would exceed the total number of then authorized
but unissued Common Shares.
4. Adjustments. The above provisions are, however, subject to
the following:
4A. Warrant Purchase Price Defined. The initial warrant
purchase price set forth in the initial paragraph of this Warrant shall
be subject to adjustment from time to time as hereinafter provided. The
term "warrant purchase price" shall mean, unless and until any such
adjustment shall occur, the initial warrant purchase price and, after
any such adjustment, the warrant purchase price resulting from such
adjustment.
4B. Adjustment of Number of Shares. Upon each adjustment of
the warrant purchase price, the holder of this Warrant shall thereafter
be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of Common Shares obtained by multiplying
the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto
D-2
<PAGE>
immediately prior to such adjustment and dividing the product thereof
by the warrant purchase price resulting from such adjustment.
4C. Adjustment of Warrant Purchase Price Upon Issuance of
Common Shares. If and whenever after the date hereof the Company shall
issue or sell any Common Shares without consideration or for a
consideration per share less than the warrant purchase price in effect
immediately prior to the time of such issue or sale, then, and in each
such case, forthwith upon such issue or sale, the warrant purchase
price shall be reduced to a price (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of (X) the number
of Common Shares outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, plus (Y) the
consideration, if any, received by the Company upon such issue or sale,
by (ii) the total number of Common Shares outstanding immediately after
such issue or sale. No adjustment shall be made in an amount less than
$.05 per share, but any such lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall
amount to $.05 per share or more. For the purposes of this paragraph
4(C), the following provisions (1) to (6), inclusive, shall also be
applicable:
(1) Issuance of Rights or Options. In case at any time the
Company shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any rights to subscribe for or to purchase, or
any options for the purchase of, Common Shares, whether or not such
rights or options are immediately exercisable, and the price per share
for which Common Shares are issuable upon the exercise of such rights
or options (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting
of such rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
such rights or options by (ii) the total maximum number of Common
Shares issuable upon the exercise of such rights or options) shall be
less than the warrant purchase price in effect immediately prior to the
time of the granting of such rights or options, then the total maximum
number of Common Shares issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or options) be
deemed to be outstanding and to have been issued for such price per
share. No further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Shares, except as otherwise
provided in paragraph 4C(2).
(2) Changes in Rights or Options. If the purchase price
provided for in any rights or options referred to in paragraph 4C(1)
shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the warrant purchase price in
effect at the time of such event shall forthwith be readjusted to the
warrant purchase price which would have been in effect at such time had
such rights or options still outstanding provided for such changed
purchase price at the time initially granted, issued or sold. Upon the
expiration of any such option or right, the warrant purchase price then
in effect hereunder shall forthwith be increased to the warrant
purchase price which would have been in effect at the time of such
expiration had such right or option to the extent outstanding
immediately prior to such expiration never been issued and the Common
Shares issuable thereunder shall no longer be deemed to be outstanding;
provided, however, that no such increase in the warrant purchase price
shall be made in an amount in excess of the amount of the adjustment
thereof initially made in respect of the granting of such rights or
options. If the purchase price provided for in any such right or option
referred to in paragraph 4C(1) shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Shares upon the
exercise of any such right or option the warrant purchase price then in
effect hereunder shall forthwith be adjusted to such respective amount
as would have been obtained had such right or option never been issued
as to such
D-3
<PAGE>
Common Shares and had adjustments been made upon the issuance of the
Common Shares delivered as aforesaid, but only if as a result of such
adjustment the warrant purchase price then in effect hereunder is
thereby reduced.
(3) Stock Dividends. In case the Company shall declare a
dividend or make any other distribution upon any shares of the Company
payable in Common Shares, any Common Shares issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
(4) Consideration for Shares. In case any Common Shares or any
rights or options to purchase Common Shares shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor, after deduction therefrom of
any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any
Common Shares or any rights or options to purchase Common Shares shall
be issued or sold for a consideration other than cash, or partly for
cash and for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed
to be the lesser of (i) the fair market value on the issue date of the
securities so issued by the Company, after deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith, or (ii) the fair value of such
consideration as determined in good faith by the Board of Directors of
the Company after deduction of any such expenses. In case any Common
Shares or any rights or options to purchase Common Shares shall be
issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be
the fair value as determined in good faith by the Board of Directors of
the Company of such portion of the assets and business of the
non-surviving corporation as such Board in good faith shall determine
to be attributable to such Common Shares, or rights or options, as the
case may be. In the event of any consolidation or merger of the Company
in which the Company is not the surviving corporation or in the event
of any sale of all or substantially all of the assets of the Company
for shares or other securities of any corporation, the Company shall be
deemed to have issued a number of Common Shares for shares or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and the
consideration received from such issuance shall be equal to the fair
market value on the date of such transaction of such shares or
securities of the other corporation, and if any such calculation
results in adjustment of the warrant purchase price, the determination
of the number of Common Shares receivable upon exercise of this Warrant
immediately prior to such merger, conversion or sale, for purposes of
paragraph 4F shall be made after giving effect to such adjustment of
the warrant purchase price.
(5) Record Date. In case the Company shall take a record of
the holders of its Common Shares for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Shares,
or (ii) to subscribe for or purchase Common Shares, then such record
date shall be deemed to be the date of the issue or sale of the Common
Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(6) Treasury Shares. The number of Common Shares outstanding
at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Shares for the purposes of this
paragraph 4(C).
4D. Dividends and Distributions. If the Company shall at any
time declare a dividend or make a distribution in respect of its Common
Shares, other than a cash dividend payable out of earnings or
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<PAGE>
earned surplus and otherwise than in securities of the Company, the
warrant purchase price in effect immediately prior to the declaration
of such dividend or the making of such distribution shall be reduced by
an amount equal, in the case of a dividend or distribution in cash, to
the amount thereof payable per Common Share or, in the case of any
other dividend distribution, to the fair value thereof per Common Share
as determined in good faith by the Board of Directors of the Company.
If the Company shall at any time declare a dividend or make a
distribution in respect of its Common Shares in securities of the
Company other than Common Shares, the holder of this Warrant shall be
entitled to receive upon exercise of this Warrant such securities as
such holder would have been entitled to receive had this Warrant been
exercised immediately prior to such dividend or distribution. For the
purposes of the foregoing, a dividend in cash shall be considered
payable out of earnings or earned surplus only to the extent that such
earnings or earned surplus are charged an amount equal to such dividend
as determined by the Board of Directors of the Company. Such reductions
shall take effect as of the date on which a record is taken for the
purpose of such dividend or distribution, or, if a record is not taken,
the date as of which the holders of Common Shares of record entitled to
such dividend or distribution are to be determined.
4E. Subdivision or Combination of Shares. In case the Company
shall at any time subdivide its outstanding Common Shares into a
greater number of shares or pay a dividend or other distribution upon
any shares of the Company payable in Common Shares, the warrant
purchase price in effect immediately prior to such subdivision or
payment date shall be proportionately reduced. In case the outstanding
Common Shares of the Company shall be combined into a smaller number of
shares, the warrant purchase price in effect immediately prior to such
combination shall be proportionately increased.
4F. Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital
shares of the Company, any consolidation or merger of the Company with
another corporation, or any sale of all or substantially all of the
assets of the Company to another corporation shall be effected in such
a way that holders of Common Shares shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Shares,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be
made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Common Shares of the
Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Common Shares equal to the number
of shares immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provision shall be made with respect to the
rights and interest of the holder of this Warrant to the end that the
provisions hereof (including without limitation provisions for
adjustments of the warrant purchase price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation,
merger or sale unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument, executed and mailed or delivered to, and
in form and substance satisfactory to, the registered holder hereof
(who shall not unreasonably withhold his approval) at the last address
of such holder appearing on the books of the Company, (i) the
obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to purchase, and (ii) all other obligations of the
Company under this Warrant.
4G. Notice of Adjustments. Upon each adjustment or
readjustment of the warrant purchase
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price or in the nature of the Common Shares, securities or other
property receivable upon the exercise of this Warrant, the Company at
its expense will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Company
shall forthwith mail a copy of each such certificate addressed to the
holder of this Warrant at the address of such holder as shown on the
books of the Company.
4H. Other Notices. In case at any time:
(1) the Company shall declare any dividend upon its
Common Shares payable in shares or authorize any other
distribution (other than regular cash dividends) to the
holders of its Common Shares;
(2) the Company shall offer for subscription pro rata
to the holders of its Common Shares any additional shares of
any class or other rights;
(3) there shall be any capital reorganization, or
reclassification of the capital shares of the Company (other
than a transaction covered by paragraph 4F), or consolidation
or merger of the Company with, or sale of all or substantially
all of its assets to, another corporation; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (a) at least 20 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution of subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (b) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the forgoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
4.I. Certain Events. If any event occurs, as to which, in the opinion
of the Board of Directors of the Company, the other provisions of this paragraph
4 are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the warrant purchase price as otherwise determined pursuant to this
Paragraph 4 except in the event of a combination of shares of the type
contemplated in paragraph 4E and then in no event to an amount larger than the
warrant purchase price as adjusted pursuant to paragraph 4E.
5. Issue Tax. The issuance of certificates for Common Shares upon the
exercise of this Warrant shall be made without charge to the holders hereof for
any issuance tax in respect thereof, and all such issuance taxes shall be paid
or provided for by the Company prior to the issuance of such certificates.
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6. No Voting Rights. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company.
7. Listing of Shares. The Company agrees to use its best efforts to
secure, as soon as practicable after the date hereof, the listing of the Common
Shares issuable upon the exercise of this Warrant, subject to official notice of
issuance, on the New York Stock Exchange, Inc.
8. Warrant Transferable; Registration Books. This Warrant is not
transferable (other than by gift or pursuant to the laws of descent and
distribution) prior to ______ __, 1998 with respect to two hundred thousand
(200,000) Common Shares and ______ __, 1999 with respect to the remaining two
hundred thousand (200,000) Common Shares. Subject to such limitation and the
provisions of paragraph 10, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office of the Company referred to in
paragraph 1 by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
The Company shall keep or cause to be kept, at its offices (or the
office of its agents) in New York, New York, proper books in which the names and
addresses of the initial holder of this Warrant and all subsequent transferees
shall be registered.
9. Warrant Exchangeable; Loss, Theft, Destruction, Etc. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office of
the Company referred to in paragraph 1, for a new Warrant or new Warrants of
like tenor representing in the aggregate the right to subscribe for and purchase
the number of Common Shares which may be subscribed for and purchased hereunder,
each such new Warrant to represent the right to subscribe for and purchase such
number of Common Shares as shall be designated by such holder hereof at the time
of such surrender. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon delivery of a bond or indemnity
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender or cancellation of this Warrant, the Company will issue to the holder
hereof a new Warrant of like tenor, in lieu of this Warrant, representing the
right to subscribe for and purchase the number of Common Shares which may be
subscribed for and purchased hereunder.
10. Securities Act Compliance, Registration.
10A. Definitions. As used in this paragraph 10, the
following definitions shall be applicable:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the federal
securities laws.
"Maximum Includable Shares" shall mean the maximum number of
Common Shares (including, for this purpose, the number of Common Shares
issuable upon exercise of Restricted Securities for which registration
is requested pursuant to paragraph 10E(1) to be offered by selling
security holders in a firm commitment underwriting that the managing
underwriter or underwriters (the "Managing Underwriters") of the
proposed offering, in their good faith judgment, deem it practicable
and consistent with the best interests of the Company to offer and
sell, upon the effectiveness of the Registration Statement. In making
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such judgment, the Managing Underwriters shall take into account, among
other things, (i) any adverse effect on the price or terms upon which
the securities included in such Registration Statement for the account
of the Company may be sold, and (ii) any adverse effect on the price or
terms upon which all securities included in such Registration Statement
for the account of the Company and the selling security holders may be
sold.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Prospectus" shall mean any preliminary prospectus and final
prospectus (as such may be amended or supplemented) which constitutes
Part I of a Registration Statement filed with the Commission.
"Registration Statement" shall mean the form and documents
required to be filed by an issuer in connection with the registration
of securities of such issuer under the Securities Act.
"Restricted Securities" shall mean (i) this Warrant (and any
warrant or warrants issued in exchange therefor or in replacement
thereof) and (ii) the Common Shares issued or issuable upon exercise of
this Warrant or such other warrants; the certificates for all of which
bear the legend referred to in paragraph 10B.
"Restricted Shares" shall mean the Common Shares issued or
issuable upon exercise of Restricted Securities bearing the legend
referred to in paragraph 10B.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Seller" shall mean each holder of Restricted Securities or
Restricted Shares for whom securities are included or proposed to be
included in a Registration Statement filed or proposed to be filed by
the Company.
"Transfer" shall mean any sale, pledge, assignment,
encumbrance or disposition of any Restricted Securities or of any part
thereof or interest therein, including an offer to transfer, whether or
not such transfer would constitute a "sale" as that term is defined in
section 2(3) of the Securities Act.
10B. Legends.
(1) Unless and until removed as provided in the next
paragraph, this Warrant (and any Warrants issued in exchange
herefor or replacement hereof) and each certificate evidencing
Common Shares issued upon exercise of this Warrant shall bear
a legend in substantially the following form:
In the case of this Warrant: "The transfer
of this Warrant and the Common Shares issuable upon
exercise hereof is subject to certain restrictions
contained in paragraph 10 hereof, and the holder of
this Warrant by acceptance hereof agrees to be bound
by such restrictions."
In the case of Common Shares: "The transfer
of this certificate and the shares evidenced hereby
is subject to certain restrictions contained in
paragraph 10 of a Common Share Purchase Warrant dated
______ __, 1997, and the holder of this certificate
by acceptance hereof agrees to be bound by such
restrictions. A copy of such Warrant is on file with
the Secretary of the Company."
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The Company may issue such "stop transfer"
instructions to its transfer agent with respect to
all or any of the Restricted Securities as it deems
appropriate to prevent any violation of the
provisions of this paragraph 10 or of the Securities
Act.
(2) The Company shall issue a new Warrant or
certificate which does not contain the legend set forth in
paragraph 10B(1) if (i) the shares represented thereby are
sold pursuant to a Registration Statement (including a current
Prospectus) which has become and is effective under the
Securities Act or (ii) the staff of the Commission shall have
issued a "no action" letter to the effect that, or counsel
acceptable to the Company shall have rendered its opinion
(which opinion shall be acceptable to the Company) that, such
securities may be sold without registration under the
Securities Act.
(3) At the time of any exercise of this Warrant, the
Company may require, as a condition of allowing such exercise,
that the holder of this Warrant furnish to the Company such
information as, in the opinion of the Company, is reasonably
necessary in order to establish that such exercise is made in
compliance with the registration requirements of the
Securities Act or may be made without registration under the
Securities Act, including without limitation a written
statement that such holder is acquiring the security
receivable upon such exercise for its own account for
investment and not with a view to the distribution thereof or
with any present intention of selling any thereof; provided,
however, that nothing contained in this paragraph 10B(3) shall
impair the registration obligations of the Company specified
in the succeeding provisions of this paragraph 10.
10C. Notice of Transfer; Opinion of Counsel. If a holder of
Restricted Securities proposes to transfer all or a portion of such
securities, such holder shall give the Company written notice
specifying the securities involved and describing the manner in which
the proposed transfer is to be made, together with either (i) an
opinion satisfactory to the Company or counsel satisfactory to the
Company stating in substance that registration under the Securities Act
is not required with respect to such transfer or (ii) a "no action"
letter from the staff of the Commission with respect to such transfer.
Following delivery of a notice accompanied by an opinion of counsel to
the effect set forth above or by such a "no action" letter, such holder
shall have the right to transfer, in a manner consistent with its
notice to the Company, the Restricted Securities proposed to be
transferred, unless the Company determines within 20 days following
such delivery that registration under the Securities Act is required
with respect to such proposed transfer. Such holder shall cooperate
with the Company for the purpose of permitting such determination to be
made, including, to the extent deemed necessary by the Company,
procuring and delivering to the Company an investment letter signed by
the proposed transferee.
10D. Demand Registration.
(1) Upon a written demand by a holder or holders of
at least 200,000 Restricted Shares (or such other equivalent
number of shares as may result from a reclassification,
subdivision or combination of Common Shares into a greater or
smaller number of shares) that not less than 200,000 of such
Restricted Shares be registered (which demand shall specify
its intended method of disposition), the Company shall
promptly give written notice of such demand to all other
holders of Restricted Securities and shall use its best
efforts to effect the registration under the Securities Act
of:
(a) the Restricted Shares which the Company
has been demanded to register pursuant to this
paragraph 10D for a disposition in accordance with
the proposed method
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of disposition described in said demand; and
(b) all other Restricted Shares the holders
of which shall have made written request (stating the
proposed method of disposition of such securities by
the prospective Seller) to the Company for the
registration thereof within 20 days after giving of
such written notice by the Company, all to the extent
requisite to permit the disposition (in accordance
with the proposed methods thereof, as aforesaid, as
long as such proposed methods are consistent with the
original demand) by the prospective Seller or Sellers
of such securities.
(2) The Company's obligation to effect a
registration under this paragraph is subject to the
conditions that:
(a) Joseph S. Steinberg and his transferees
shall not be entitled to more than a total of (i) one
registration statement on Form S-1 (or some other
comparable form of registration statement) and (ii)
two separate registration statements on Form S-2, S-3
or other comparable short form of registration
statement; provided, however, that no such Form S-1
or Form S-2, S-3 or comparable short form need be
filed until the earlier of the 90th day after the end
of any fiscal year of the Company or the date on
which the Company's audited financial statements for
such fiscal year are available, nor shall more than
one such form be required to be filed in any 12-month
period.
(b) The Company shall not be required to
have a special audit of its financial statements for
inclusion in such Registration Statement: but if the
rules and regulations of the Commission otherwise
require such a special audit, the Company may delay
the filing or effectiveness of the Registration
Statement until such time as the Company receives its
audited financial statements for its then current
fiscal year.
(c) The Company shall not be required to
effect any registration in accordance with paragraph
10D(1) hereof if (i) in the written opinion of
counsel to the Company such registration may not be
appropriately effected in light of any material
pending transaction of the Company or its
subsidiaries, or (ii) any registration of any
underwritten public offering of securities made on
behalf of the Company has become effective within
ninety (90) days prior to the anticipated effective
date of any registration requested pursuant to
paragraph 10D(1) hereof.
10E. Incidental Registration.
(1) Whenever the Company proposes to file on its
behalf and/or on behalf of any of its security holders a
Registration Statement under the Securities Act on Forms S-1,
S-2 or S-3 (other than in connection with a registration of
securities on Form S-8) (or on any other form for the general
registration of securities to be sold for cash) with respect
to its Common Shares (as defined in Section 3(a)(11) of the
Securities Exchange Act of 1934), the Company shall give
written notice to each holder of Restricted Securities at
least 30 days before the filing with the Commission of such
Registration Statement, which notice shall set forth the
intended method of disposition of the securities proposed to
be registered. The notice shall offer to include in such
filing such number of Restricted Shares as such holders may
request subject to the limitation in paragraph 10E(2). Each
holder desiring to have Restricted Shares registered under
this paragraph
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10E shall (i) advise the Company in writing within 20 days
after the date of receipt of such offer from the Company,
setting forth the number of Restricted Shares for which
registration is requested and the intended method of
disposition thereof, and (ii) deliver to the Company a letter
from counsel to such holder to the effect that registration
under the Securities Act is or may be required. The Company
shall thereupon include in such filing, subject to the
limitation in paragraph 10E(2), the Restricted Shares proposed
to be offered for sale by each Seller making such request in
accordance with its intended method of disposition as stated
in such request, and shall use its best efforts to effect
registration under the Securities Act of such securities.
(2) The Company shall, as soon as practicable after
the expiration of the 20-day period provided for in paragraph
10E(1), furnish each Seller with a written statement from its
managing or principal underwriter, if any, as to the Maximum
Includable Shares. If (x) the total number of Common Shares
which the Company proposes to include in such Registration
Statement plus (y) the total number of Restricted Shares for
which registration has been requested pursuant to paragraph
10E(1) is in excess of the Maximum Includable Shares, the
number of shares (including Restricted Shares) to be included
in such underwritten offering shall be determined as follows:
(a) No reduction shall be made in the number of
shares to be registered for the account of the Company.
(b) Each Seller of Restricted Shares may include in
the number of Common Shares comprising the balance of the
Maximum Includable Shares that number of Common Shares
determined by multiplying (i) the balance of such Maximum
Includable Shares by (ii) a fraction the numerator of which
shall be the number of Common Shares then owned by such Seller
(adjusted to give effect to exercise of all warrants and
conversion of all convertible securities then owned by such
Seller) and the denominator of which is the number of Common
Shares (as similarly adjusted as to all Sellers) owned by all
Sellers.
10F. General. If and whenever the Company is required by
the provisions of this paragraph 10 to use its best efforts to effect
the registration of any of its securities under the Securities Act, the
Company shall, as expeditiously as possible:
(1) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to
cause such Registration Statement to become and remain effective;
(2) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for the shorter of 30 days or the completion of the
distribution and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
Registration Statement in accordance with the intended method of
disposition by the Seller or Sellers thereof set forth in such
Registration Statement for such period;
(3) furnish to each Seller such number of copies of the
Prospectus contained in such Registration Statement (including each
preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as such Seller may reasonably
request in order to facilitate the disposition of the securities owned
by such Seller;
(4) use its best efforts to register or qualify the Restricted
Shares covered by such
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Registration Statement under the securities or blue sky laws of such
jurisdictions as the Sellers shall reasonably request, and do any and
all other acts and things which may be necessary or advisable to enable
the Sellers to consummate the disposition in such jurisdictions of such
Restricted Shares during the period provided in paragraph 10F(2); and
(5) (a) notify each Seller of any Restricted Shares covered by
such Registration Statement, at any time when a Prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Prospectus contained in
such Registration Statement, as then in effect, includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing,
and (b) at the request of any such Seller prepare and furnish to such
Seller a reasonable number of copies of any supplement to or amendment
of such Prospectus that may be necessary so that, as thereafter
delivered to the purchasers of such shares, such Prospectus shall not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
10G. Expenses. If and whenever the Company is required by the
provisions of this paragraph 10 to effect the registration of any
Restricted Shares under the Securities Act, the Company shall pay all
expenses arising out of or related to the preparation, filing,
amendment and supplementing of a Registration Statement, including,
without limitation, all legal and accounting fees, Commission filing
fees, NASD filing fees, printing costs, registration or qualification
fees and expenses to comply with "blue sky" or other state securities
laws, the fees of other experts and any reasonable expenses or other
compensation paid to the underwriters (other than those required by the
next succeeding sentence to be paid by the Sellers). Each Seller shall
be required to bear underwriting commissions and discounts and transfer
taxes, if any, payable in connection with the sale of Restricted
Shares.
10H. Indemnification. In the event of the registration of any
Restricted Shares under the Securities Act pursuant to the provisions
of this paragraph 10, the Company agrees to indemnify and hold harmless
the Seller of such Restricted Shares, each underwriter, if any, of such
Restricted Shares, and each person who controls such Seller or any such
underwriter within the meaning of section 15 of the Securities Act,
from and against any and all losses, claims, damages or liabilities,
joint or several, to which such Seller, underwriter or controlling
person may become subject under the Securities Act or the common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Restricted Shares were
registered under the Securities Act, or any Prospectus or preliminary
prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will
reimburse such Seller, each such underwriter, and each such controlling
person for any legal or any other expenses reasonably incurred by such
Seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration
Statement, such Prospectus or preliminary prospectus or such amendment
or supplement in reliance upon and in conformity with written
information furnished to the Company by such Seller, underwriter or
controlling person specifically for use in preparation thereof; and
provided further, however, that this indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any
such underwriter (or any person who so controls such underwriter) for
any such loss, claim, damage, liability or action asserted by a person
who purchased any Restricted Shares from such underwriter if a copy of
the
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final Prospectus was not delivered or given to such person by such
underwriter at or prior to the written confirmation of the sale to such
person.
In the event of the registration of any Restricted Shares
under the Securities Act pursuant to the provisions hereof, each Seller
of Restricted Shares agrees to indemnify and hold harmless and to use
its best efforts to cause each underwriter, if any, of such Restricted
Shares and each person who controls such Seller or any such underwriter
within the meaning of section 15 of the Securities Act, to indemnify
and hold harmless the Company, each person who controls the Company
within the meaning of section 15 of the Securities Act, each of its
officers who signs the Registration Statement, and each director of the
Company from and against any and all losses, claims, damages or
liabilities, joint or several, to which the Company, such controlling
person or any such officer or director may become subject under the
Securities Act or the common law or otherwise, insofar as such losses,
claims, damages or liabilities (or action in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement under
which such Restricted Shares were registered under the Securities Act,
any Prospectus or preliminary prospectus contained therein, or
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, which untrue statement or alleged untrue statement or
omission or alleged omission was made therein in reliance upon and in
conformity with, written information furnished to the Company by such
Seller, controlling person or underwriter, specifically for use in
connection with the preparation thereof; and will reimburse the
Company, such controlling person and each such officer and director for
any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability
or action.
Promptly after receipt by an indemnified party of notice of
the commencement of any action such indemnified party will, if a claim
in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
otherwise than pursuant to the provisions of this paragraph 10H. In
case any such action is brought against any indemnified party, and it
notifies any indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof, other than the reasonable cost of investigation.
10I. Transferees. In the event that this Warrant or any of the
Restricted Shares purchased upon exercise of this Warrant shall at any
time be transferred by the holder hereof or thereof other than pursuant
to an effective Registration Statement, the rights herein conferred
shall extend to the transferee of such securities.
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11. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. This Warrant is being delivered and is
intended to be performed in the State of New York and shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of such State.
IN WITNESS WHEREOF, LEUCADIA NATIONAL CORPORATION has caused this
Warrant to be signed by its duly authorized officers under its corporate seal,
and this Warrant to be dated ______ __, 1997.
LEUCADIA NATIONAL CORPORATION
By:
_________________________
ATTEST:_________________________
Secretary
D-14
<PAGE>
SUBSCRIPTION AGREEMENT
Date ,
TO: Leucadia National Corporation
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase Common Shares covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant.
Signature _______________________
Address _________________________
_________________________________
ASSIGNMENT
FOR VALUE RECEIVED hereby sells, assigns and transfers all of the
rights of the undersigned under the within Warrant, with respect to the number
of Common Shares covered thereby set forth hereinbelow unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
Dated: ,
Signature _______________________
Witness _________________________
D-15
NYFS04...:\30\76830\0146\1980\WAR6247X.050
<PAGE>
PRELIMINARY COPY
PROXY
LEUCADIA NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF SHAREHOLDERS, _________ __, 1997 AT [____] P.M..
The undersigned shareholder of Leucadia National Corporation (the
"Company") hereby appoints Ian M. Cumming, Joseph S. Steinberg and Ruth
Klindtworth and each of them, as attorneys and proxies, each with power of
substitution and revocation, to represent the undersigned at the Annual Meeting
of Shareholders of Leucadia National Corporation to be held at Chase Manhattan
Bank, 270 Park Avenue, 11th Floor, New York, New York on ______ __, 1997 at
[____] p.m., and at any adjournment or postponement thereof, with authority to
vote all shares held or owned by the undersigned in accordance with the
directions indicated herein.
Receipt of the Notice of Annual Meeting of Shareholders dated ______
__, 1997, the Proxy Statement furnished herewith, and a copy of the Annual
Report to Shareholders for the year ended December 31, 1996 is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2 AND 3 AND 4 AND PURSUANT TO ITEM 4.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
NYFS04...:\30\76830\0001\1980\PXY1106K.50C
<PAGE>
ITEM 1. Approval and adoption of the Purchase Agreement (as described in the
Proxy Statement) pursuant to which, among other things, the Company's
subsidiary, Colonial Penn Holdings Inc. has agreed to sell its subsidiary
Colonial Penn Insurance Company and certain other assets to General Electric
Capital Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
ITEM 2. Election of Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEES LISTED BELOW.
FOR all nominees listed WITHHOLD AUTHORITY to NOMINEES: IAN M. CUMMING,
on the right (except as vote for all nominees PAUL M. DOUGAN, LAWRENCE
marked to the contrary listed to the right. D. GLAUBINGER, JAMES E.
hereon). JORDAN, JESSE CLYDE
NICHOLS, III AND JOSEPH S.
[ ] [ ] STEINBERG.
(Instructions: To withhold
authority to vote for any
individual nominee write
that nominee's name in the
space provided below.)
---------------------------
ITEM 3. Approval of the issuance to each of Ian M. Cumming, Chairman of the
Board of the Company, and Joseph S. Steinberg, President of the Company, of
warrants to purchase 400,000 of the Company's common shares, par value $1.00 per
share, at a per share purchase price equal to 105% of the closing price of a
common share on the New York Stock Exchange Composite Tape on the date the
warrants are authorized by the shareholders of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
ITEM 4. Ratification of the selection of Coopers & Lybrand L.L.P. as
independent auditors of Leucadia for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH RATIFICATION.
ITEM 5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly be presented to the meeting or any adjournment thereof.
P DATED: _____________, 1997
R ---------------------------------
(SIGNATURE)
O
---------------------------------
X (SIGNATURE IF HELD JOINTLY)
Y THE SIGNATURE SHOULD AGREE WITH
THE NAME ON YOUR STOCK CERTIFICATE.
IF ACTING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN,
ETC., YOU SHOULD SO INDICATE WHEN
SIGNING. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY DULY AUTHORIZED
OFFICER. IF SHARES ARE HELD JOINTLY,
EACH SHAREHOLDER SHOULD SIGN.
