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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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14-a6(e)(2))
[x] 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\PXY1088P.260
<PAGE>
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 19, 1998
--------------------
April 24, 1998
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
May 19, 1998, at 10:00 a.m., at Credit Suisse First Boston, 11 Madison Avenue,
Level 2B Auditorium, New York, New York:
1. To elect six directors.
2. 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, 1998.
3. To transact such other business as may properly come before the Meeting
or any adjournments of the Meeting.
Only holders of record of the Company's common shares, par value $1.00 per
share, at the close of business on April 9, 1998 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.
LAURA E. ULBRANDT
Secretary
NYFS04...:\30\76830\0146\1980\PXY1088P.33E
<PAGE>
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
--------------------
PROXY STATEMENT
--------------------
Annual Meeting of Shareholders
--------------------
April 24, 1998
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 May 19, 1998 and at any adjournments thereof.
At the Meeting, Shareholders will be asked:
1. To elect six directors.
2. 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, 1998.
3. 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 April 9, 1998 as
the record date (the "Record Date") for the determination of the holders of the
Company's common shares, par value $1.00 per share (the "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 April 9, 1998, there were 63,938,187 Common Shares entitled
to vote.
This Proxy Statement and the accompanying form of proxy are first being
sent to holders of the Common Shares on or about April 24, 1998.
1
<PAGE>
THE MEETING
DATE, TIME AND PLACE
The Meeting will be held on May 19, 1998, at 10:00 a.m., local time, at
Credit Suisse First Boston, 11 Madison Avenue, Level 2B Auditorium, New York,
New York.
MATTERS TO BE CONSIDERED
At the Meeting, Shareholders will be asked to consider and vote to elect
six directors and to ratify the selection of independent auditors. See "ELECTION
OF DIRECTORS" 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 April
9, 1998) are entitled to notice of and to vote at the Meeting. As of the Record
Date, there were 63,938,187 Common Shares outstanding and entitled to vote, with
each share entitled to one vote.
REQUIRED VOTES
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.
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 15.5% of the Common Shares outstanding at the Record
Date, Joseph S. Steinberg, a Director and President, beneficially owns 9,093,735
or approximately 14.2% 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 92,509 or
2
<PAGE>
approximately .1% and 10,058 (less than .1%) 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. Messrs. Cumming and Steinberg have 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 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 .4% 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).
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 election of each nominee
for director named herein 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 1997, 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.
3
<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 April 9, 1998.
Age, period served as director, other business
Name and present position, experience during the last five years and
if any, with the Company family relationships, if any
- ------------------------ ----------------------------------------------
Ian M. Cumming,
Chairman of the Board.... Mr. Cumming, 57, 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, 60, 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, 72, 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 industrial 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, 54, has served as a director of the
Company since February 1981. Mr. Jordan is a
private investor. From October 1986 to June 1997,
he was President of The William Penn Corporation
("William Penn"), a holding company for an
investment advisor to the William Penn family of
mutual funds. During such period, approximately
19.7% of the common stock of William Penn was
beneficially owned by the Company. Mr. Jordan is a
director of MCIT Plc, a British investment trust
company.
4
<PAGE>
Jesse Clyde Nichols, III.... Mr. Nichols, 58, 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
manu- facturing.
Joseph S. Steinberg,
President................. Mr. Steinberg, 54, 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
10% 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.
5
<PAGE>
INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
MEETINGS AND COMMITTEES
During 1997, the Board of Directors held seven meetings and took action on
numerous other occasions.
The Board of Directors has a standing Audit Committee, Executive
Committee, Employee Benefits Committee, Option 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 1997 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 took action on six occasions during 1997, 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 once and took action on two other occasions during 1997, 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 took action on
three occasions during 1997 and 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 took action on one occasion during 1997 and consists of
Messrs. Jordan (Chairman), Dougan and Nichols.
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.
6
<PAGE>
CERTAIN LITIGATION
On May 11, 1994, a shareholder of the Company filed a purported derivative
action entitled Pinnacle Consultants, Ltd. v. Leucadia National Corporation, et
al. (C.A. No. 94 Civ. 3496) against the Company's current Board of Directors and
two former directors, John W. Jordan II and Melvin Hirsch. The action, which was
filed in the United States District Court for the Southern District of New York,
alleged certain Racketeer Influence and Corrupt Organizations Act, securities
law, conversion and fraud claims. On December 10, 1996, the Second Circuit Court
of Appeals affirmed the order of the District Court dismissing plaintiff's
complaint.
On May 13, 1997, Pinnacle filed a purported derivative complaint in New
York State Supreme Court. The action, entitled Pinnacle Consultants, Ltd. v.
Leucadia National Corp., et al. (No. 602470/97), is substantially similar to the
federal court complaint that was dismissed in 1996. Pinnacle has alleged claims
for fraud, waste, breach of fiduciary duty and conversion against the same
current and former Leucadia directors who were named as defendants in the
federal court action. Defendants' motion to dismiss the complaint remains sub
judice.
7
<PAGE>
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES
Set forth below is certain information as of April 9, 1998 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
- ------------------- -------------------- --------
Paul J. Borden........................... 7,800 (a) *
Ian M. Cumming........................... 9,884,002 (b)(c) 15.5%
Paul M. Dougan........................... 850 (d) *
Lawrence D. Glaubinger................... 77,000 (e) .1%
James E. Jordan.......................... 26,500 (f) *
Thomas E. Mara........................... 36,130 (g) .1%
Jesse Clyde Nichols, III................. 62,837 (f) .1%
Joseph A. Orlando........................ 16,356 (h) *
Joseph S. Steinberg...................... 9,093,735 (c)(i) 14.2%
The Steinberg Children Trusts............ 1,127,400 (j) 1.8%
Cumming Foundation ...................... 92,509 (k) .1%
The Joseph S. and Diane H. Steinberg
1992 Charitable Trust.................. 10,058 (l) *
All directors and executive officers
as a group (11 persons)................ 19,305,910 (m) 30.2%
- -------------------
* Less than .1%.
(a) Includes 500 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(b) 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.
(c) 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.
(d) Includes (i) 750 Common Shares that may be acquired upon the exercise of
currently exercisable stock options and (ii) 100 (less than .1%) Common
Shares owned by Mr. Dougan's wife as to which Mr.
Dougan disclaims beneficial ownership.
(e) Consists of 750 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
8
<PAGE>
(f) Includes 5,500 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(g) Includes 26,000 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(h) Includes 14,000 Common Shares that may be acquired upon the exercise of
currently exercisable stock options.
(i) 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.
(j) Mr. Steinberg disclaims beneficial ownership of the Common Shares held by
the Steinberg Children Trusts.
(k) Mr. Cumming is a trustee and President of the foundation and disclaims
beneficial ownership of the Common Shares held by the foundation.
(l) Mr. Steinberg and his wife are the trustees of the foundation. Mr.
Steinberg disclaims beneficial ownership of the Common Shares held by the
foundation.
(m) Includes (i) 12,500 Common Shares that may be acquired by directors
pursuant to the exercise of currently exercisable stock options and (ii)
48,700 Common Shares that may be acquired by certain officers pursuant to
the exercise of currently exercisable stock options.
As of April 9, 1998, Cede & Co. held of record 40,490,200 Common Shares
(approximately 63.3% 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.
9
<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 1997, for
services in all capacities to the Company and its subsidiaries in 1997, 1996 and
1995.
<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, 1997 $ 532,816 $ 248,282(2) $ 308,246(5) -- $ 61,366(6)
Chairman of the Board 1996 517,356 15,759(3) 257,830(5) -- 91,885
1995 504,808 1,115,300(4) 174,759(5) -- 115,092
Joseph S. Steinberg, 1997 $ 532,816 $ 304,739(2) $ 349,198(5) -- $ 56,608(6)
President 1996 517,356 15,759(3) 298,220(5) -- 98,452
1995 505,960 1,115,300(4) 254,443(5) -- 118,728
Thomas E. Mara, 1997 $ 255,000 $ 907,650 $ 53,910(5) -- $ 35,363(6)
Executive Vice 1996 250,000 757,500 -- 25,000 30,920
President and Treasurer 1995 210,000 856,300 -- -- 19,250
Joseph A. Orlando, 1997 $ 165,000 $ 704,950 -- -- $ 7,000(6)
Vice President and 1996 160,000 154,800 -- 20,000 6,750
Chief Financial 1995 135,000 154,050 -- -- 6,750
Officer
Paul J. Borden, 1997 $ 130,000 $ 453,900 -- -- $ 4,000(7)
Vice President 1996 125,000 303,750 -- 7,500 3,750
1995 106,000 203,180 -- -- 3,750
</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 1995 and 1997 were determined and paid in 1995 and 1997, respectively,
as described in footnote (2) below.
(2) To permit the Company to fully utilize the maximum deduction available for
compensation paid to Messrs. Cumming and Steinberg in 1997, the Board of
Directors accelerated into 1997 the payment of a portion of the 1997
performance bonus for each of Messrs. Cumming and Steinberg necessary to
bring up to $1,000,000 the total compensation paid (for tax purposes) to
each of them in 1997. The Employee Benefits Committee of the Board of
Directors intends to consider the payment of an additional 1997 performance
bonus to each of Messrs. Cumming and Steinberg at the Board of Directors
meeting to be held following the 1998 Annual Meeting. See "Report of the
Compensation Committee of the Board of
10
<PAGE>
Directors--Compensation of Messrs. Cumming and Steinberg." Also includes
annual year-end bonus (based on a percentage of salary) paid to all
employees.
(3) Represents annual year-end bonus (based on a percentage of salary) paid to
all employees. The Board of Directors determined not to award any
additional bonus for services rendered in 1996.
(4) 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 Messrs. Cumming and Steinberg.
The funds in the 1992 Escrows vested at the rate of 20% for each full
calendar year after December 31, 1992 during which Messrs. Cumming and
Steinberg, respectively, continued to be employed by the Company or any of
its subsidiaries. The vesting and payment schedule was 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. The amounts in the escrow accounts were invested at the
direction of the Company, which was entitled to receipt of the investment
income. The funds paid out of the 1992 Escrows reflected in this table were
paid out of vested amounts.
As of December 31, 1997, Messrs. Cumming and Steinberg each had fully
vested with respect to the 1992 Escrows. Pursuant to the terms of the 1992
Escrow Agreements, on January 2, 1998, Messrs. Cumming and Steinberg were
paid $631,157 and $629,672, respectively, out of the 1992 Escrows, which
amounts constituted the remaining funds in the Escrows, and the 1992
Escrows were terminated.
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 funds placed in escrow will be reported in the table in the appropriate
columns either for those years in which amounts were released from the
escrow accounts, or, if used to fund a bonus payment, for the year for
which a bonus is earned, regardless of the year in which the bonus is paid.
(5) Includes 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: $308,246, $251,754 and $165,645 in
1997, 1996 and 1995, respectively, and Mr. Steinberg: $343,473, $293,682
and $248,971 in 1997, 1996 and 1995, respectively) and an automobile
transferred by the Company to Mr. Mara ($43,650). 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 ($4,510 for Mr.
Cumming and $2,459 for Mr. Steinberg), directors' fees from affiliates of
the Company ($52,856 for Mr. Cumming, $50,149 for Mr. Steinberg, $31,363
for Mr. Mara and $3,000 for Mr. Orlando) and a contribution of $4,000 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.
11
<PAGE>
AGGREGATE OPTION EXERCISES IN 1997 AND
OPTION VALUES AT DECEMBER 31, 1997
The following table provides information as to options exercised by each
of the named executives in 1997 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, 1997 ($34.50, as reported on the New York Stock Exchange
Composite Tape).
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money Options
Options at December 31, 1997
at December 31, 1997 --------------------
--------------------
Number of Shares
Underlying Options Exercisable/ Exercisable/
Name Exercised 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 10,000 $266,250 21,000/24,000 $264,375/$213,750
Joseph A. Orlando 2,000 $11,875 10,000/18,000 $115,875/$154,125
Paul J. Borden -- -- 6,300/7,200 $79,312/$64,125
</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.
12
<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.............$20,186*
Joseph S. Steinberg........ 24,963*
Thomas E. Mara............. 13,943*
Joseph A. Orlando.......... 79,497*
Paul J. Borden............. 63,296*
- --------------------
* 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 Escrows")
by the Company for the benefit of each of Ian M. Cumming and Joseph S. Steinberg
pursuant to agreements dated as of December 28, 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 (4) to the
Summary Compensation
13
<PAGE>
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. Each of Messrs. Cumming and Steinberg is entitled to be 100% vested upon
(i) termination without cause, (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. Each of
Messrs. Cumming and Steinberg is entitled to be 50% vested upon death or
disability. 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. Pursuant to
the terms of the 1993 Escrow Agreements, amounts vested are to be paid to
Messrs. Cumming and Steinberg on January 1, 2003, 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 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 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 Summary Compensation
Table above in the appropriate columns either for those years in which amounts
are released from the escrow accounts, or, if used to fund a bonus payment, for
the year for which the bonus is earned, regardless of the year in which the
bonus is paid.
For information concerning certain other compensation placed in escrow for
the benefit of Messrs. Cumming and Steinberg, see footnote (4) 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 1997,
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 $35.625 per Common Share were awarded to each of
Messrs. Paul M. Dougan, Lawrence D. Glaubinger, James E. Jordan and Jesse Clyde
Nichols, III on November 3, 1997.
14
<PAGE>
For additional information, see "Certain Relationship and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation"
below.
INDEMNIFICATION
Pursuant to contracts of insurance dated December 4, 1997 with National
Union Fire Insurance Company of Pittsburgh, Pennsylvania, 70 Pine Street, New
York, New York 10270, and Reliance Insurance Company, 77 Water Street, New York,
New York 10005, the Company maintains a combined $20,000,000 indemnification
insurance policy covering all directors and officers of the Company and its
named subsidiaries. The annual premium for such insurance is $729,000. During
1997, 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 and restated as of
December 16, 1997, 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 $50,000,000 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 $50,000,000 per individual. This
agreement, originally scheduled to expire in December 1997, was extended to June
2003 (subject to earlier termination in certain circumstances). The Company has
purchased the life insurance contemplated by this agreement, the premiums for
which aggregated approximately $336,000 in 1997. These amounts are not included
in the Summary Compensation Table appearing elsewhere in this Proxy Statement.
For information concerning certain compensation placed in escrow for the
benefit of Messrs. Cumming and Steinberg, see footnote (4) to the Summary
Compensation Table and "Employment Agreements" above.
For additional information, see "Compensation Committee Interlocks and
Insider Participation," below.
15
<PAGE>
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, recommends to the Board of Directors
the compensation of Messrs. Cumming and Steinberg, Chairman of the Board and
President of the Company, respectively. Prior to April 1997, the Committee also
awarded stock options to Company employees upon the recommendation of Messrs.
Cumming and Steinberg. Effective upon its formation in April 1997, the Option
Committee of the Board of Directors now awards stock options upon the
recommendation 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.
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
- --------
* 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.
16
<PAGE>
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," in addition to certain other requirements,
compensation generally must be based on achieving certain pre-established
objective performance criteria. The Committee believes that ordinarily it is in
the best interest of the Company to retain maximum flexibility in its
compensation programs to enable it to appropriately reward, retain and attract
the executive talent necessary to the Company's success. To the extent such
goals can be met with compensation that is designed to be deductible under
Section 162(m), such as the 1992 Stock Option Plan and the Senior Executive
Annual Incentive Bonus Plan (described below), such compensation plans will be
used. However, the Committee recognizes that, in appropriate circumstances,
compensation that is not deductible under Section 162(m) may be paid in the
future in the Committee's discretion.
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 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.
During 1997, the Committee acted with respect to shareholder approved
Senior Executive Incentive Annual Bonus Plan and acceleration of a portion of
the 1997 performance bonus to Messrs. Cumming and Steinberg.
Senior Executive Incentive Bonus Plan. In August 1997, the Committee met
to consider the adoption of the Senior Executive Annual Incentive Bonus Plan
(the "Incentive Bonus Plan"). The Committee noted that substantial performance
bonuses are likely to be awarded to Messrs. Cumming and Steinberg for calendar
year 1997 if the sales of the Company's Colonial Penn insurance operations were
to be consummated. The Committee recognized that in such event it would be
likely to recommend the use of funds from the 1992 Escrows and the 1993 Escrows
to pay such bonuses, thereby significantly depleting or eliminating such
Escrows. As a result, the Company would no longer have available to it funds to
pay bonuses to Messrs.
17
<PAGE>
Cumming and Steinberg that were not included in determining the Section 162(m)
compensation limitation, thereby significantly reducing or eliminating the
Company's ability to pay deductible bonuses in the future to Messrs. Cumming and
Steinberg. To address this issue, and recognizing the likelihood that future
annual compensation to each of Messrs. Cumming and Steinberg would exceed
$1,000,000, the Committee determined that to the extent possible future
performance bonuses for Messrs. Cumming and Steinberg should be paid under a
plan designed to meet the requirements of Section 162(m). The Committee
considered the terms of the Incentive Bonus Plan, which provides for annual
incentive bonuses to be paid to each of Messrs. Cumming and Steinberg in an
amount equal to 1.00% of the audited pre-tax earnings of the Company and its
consolidated subsidiaries for each of the five fiscal years commencing 1998,
subject to unlimited downward adjustments as determined by the Committee. In
determining the formula for the maximum bonuses under the Incentive Bonus Plan,
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 since 1985. Such
bonuses ranged from .81% to 1.32% of audited pre-tax income for such years. The
Committee determined that the bonuses to each of Messrs. Cumming and Steinberg
under the Incentive Bonus Plan of 1.00% of audited pre-tax income 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. The Committee also noted the Incentive Bonus Plan was consistent with the
Company's philosophy of maintaining flexibility in its compensation programs
because the Incentive Bonus Plan permits the Committee to reduce the Incentive
Bonus Plan bonus amounts, and leaves the Committee with discretion, where
appropriate, to recommend bonuses outside the Incentive Bonus Plan. Based on the
foregoing, and the Committee's belief that it is in the best interests of the
Company to have a program that will permit it to deduct bonus compensation paid
to executives of the Company, the Committee unanimously recommended to the Board
of Directors that the Incentive Bonus Plan be adopted, subject to Shareholder
approval. Thereafter, on August 8, 1997, based on the Committee's recommendation
and the factors considered by the Committee, the Board of Directors adopted
(with Messrs. Cumming and Steinberg not present) the Incentive Bonus Plan,
subject to Shareholder approval. The Incentive Bonus Plan was approved by the
Shareholders at the 1997 Annual Meeting. No awards will be made under the
Incentive Bonus Plan until 1999 (reflecting the Company's performance in 1998).
1997 Performance Bonus. Generally, performance bonuses for Messrs. Cumming
and Steinberg for service rendered during a year are considered at the
organizational meeting of the Board of Directors for the following year.
However, to permit the Company to take full advantage of the maximum 1997
federal tax deduction available to the Company in respect of compensation to
Messrs. Cumming and Steinberg, the Committee met in December 1997 to consider
the acceleration and payment of a portion of the expected 1997 performance bonus
for each of Messrs. Cumming and Steinberg.
At its December 1997 meeting, the Committee was advised that without
acceleration of any bonus payments into 1997, total compensation (including the
tax value of perquisites) to be paid in 1997 to each of Messrs. Cumming and
Steinberg would be approximately $767,000 and $712,000, respectively, thereby
falling short of the $1,000,000 maximum amount deductible by the Company. The
Committee determined that the performance bonus ultimately to be paid to each of
Messrs. Cumming and Steinberg for 1997 would be at least $288,000 and that total
1997 compensatory payments (including bonuses) to each of Messrs. Cumming and
Steinberg would likely be at least equal to $1,000,000. In view of the
foregoing, the Committee determined that it would be prudent for the Company to
accelerate into 1997 the payment and deductibility of up to approximately
$288,000 of the 1997 bonus amounts for each of Messrs. Cumming and Steinberg. By
doing so, the Company would be able to take full advantage of the maximum
$1,000,000 per employee annual allowable deduction. If such amounts had not been
accelerated, assuming amounts paid to Messrs. Cumming and Steinberg in 1998 and
any subsequent year will exceed $1,000,000, the Company would have forfeited an
opportunity to avail itself of the full $1,000,000 allowable deduction for 1997.
The Committee determined not to recommend early vesting and payment of any funds
in the 1992 Escrows or the 1993 Escrows, which were established to fund
compensatory payments to Messrs. Cumming and Steinberg in excess of deductible
amounts,
18
<PAGE>
because use of such funds would not provide the Company with any tax deductions
(all of which were taken by the Company in the year in which such escrows were
created). For additional information with respect to the 1992 Escrows and the
1993 Escrows referred to above, see footnote (4) to the Summary Compensation
Table and "Employment Agreements" above.
The Committee unanimously approved the payment to each of Messrs. Cumming
and Steinberg of so much of the performance bonus to be paid for services
rendered to the Company for 1997 as is necessary to bring up to $1,000,000 the
total compensation (for tax purposes) paid to each of Messrs. Cumming and
Steinberg in 1997 ($232,050 for Mr. Cumming and $288,510 for Mr. Steinberg) and
recommended that the Board of Directors approve such action.
Thereafter, based on the Committee's recommendation and the factors
considered by the Committee, the Board of Directors unanimously, with Messrs.
Cumming and Steinberg not voting, approved the recommended award of a portion of
the 1997 performance bonuses to each of Messrs. Cumming and Steinberg.
The Committee and the Board of Directors intend to consider the full 1997
performance bonus for each of Messrs. Cumming and Steinberg at the 1998
organizational meeting of the Board following the Meeting. In so doing, the
Committee intends to consider amounts paid to Messrs. Cumming and Steinberg on
January 2, 1998 from the 1992 Escrows upon termination of such Escrows ($631,157
for Mr. Cumming and $629,672 for Mr. Steinberg, in each case, net of withholding
taxes already paid), as well as amounts held in the 1993 Escrow for each of
Messrs. Cumming and Steinberg. Payments from these escrows are intended to be
included as part of bonus compensation that is paid to Messrs. Cumming and
Steinberg and are 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 has
agreed to match Equity Oil's contributions to SEI for SEI's projects through the
initial five-year term of the agreement. In 1997, the Company contributed
$447,000 to this investment.
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, 1997, all persons subject to the reporting requirements
of Section 16(a) filed the required reports on a timely basis, except that a
Form 4 was not timely filed by each of Paul M. Dougan and Lawrence D.
Glaubinger. Messrs. Dougan and Glaubinger subsequently filed Form 4's to report
the transactions.
19
<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, 1992 (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, 1992 in
each of the Common Shares, the S&P 500 Index and the S&P Insurance Index and
that all dividends were reinvested.
INDEXED RETURNS
---------------
Base Years Ending
Period
Company / Index Dec 92 Dec 93 Dec 94 Dec 95 Dec 96 Dec 97
- --------------- ------ ------ ------ ------ ------ ------
The Company 100 104.45 114.01 129.38 139.73 181.52
S&P Insurance Index 100 111.84 117.64 172.92 219.27 334.45
S&P 500 Index 100 110.08 111.53 153.45 188.68 251.63
- --------
** 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).
20
<PAGE>
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 1998. 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.
ANNUAL REPORT
A copy of the Company's 1997 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 1999 Annual
Meeting of Shareholders must be received by the Company at 315 Park Avenue
South, New York, New York 10010, Attention of Laura E. Ulbrandt, Secretary, no
later than December 24, 1998.
By Order of the Board of Directors
Laura E. Ulbrandt
Secretary
21
<PAGE>
PROXY
LEUCADIA NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF SHAREHOLDERS, MAY 19, 1998 AT 10:00 A.M.
The undersigned shareholder of Leucadia National Corporation (the
"Company") hereby appoints Ian M. Cumming, Joseph S. Steinberg and Laura E.
Ulbrandt 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 Credit Suisse
First Boston, 11 Madison Avenue, Level 2B Auditorium, New York, New York on May
19, 1998 at 10:00 a.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 April
24, 1998, the Proxy Statement furnished herewith, and a copy of the Annual
Report to Shareholders for the year ended December 31, 1997 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 AND 2 AND PURSUANT TO ITEM 3.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
NYFS04...:\30\76830\0146\1980\PXY3168K.560
<PAGE>
ITEM 1. Election of Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEES LISTED BELOW.
FOR all nominees WITHHOLD AUTHORITY NOMINEES: IAN M. CUMMING, PAUL M.
listed on the to vote for all DOUGAN, LAWRENCE D. GLAUBINGER,
right (except as nominees listed to JAMES E. JORDAN, JESSE CLYDE
marked to the the right. NICHOLS, III AND JOSEPH S.
contrary hereon). STEINBERG. (Instructions: To
withhold authority to vote for any
individual nominee write that
[ ] [ ] nominee's name in the space
provided below.)
----------------------------------
ITEM 2. Ratification of the selection of Coopers & Lybrand L.L.P. as
independent auditors of Leucadia for 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH RATIFICATION.
ITEM 3. 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
R DATED: _____________, 1998
O
(SIGNATURE)
X
Y (SIGNATURE IF HELD JOINTLY)
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.
2
