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:
================================================================================
NYFS04...:\30\76830\0146\347\PXY2089R.520
<PAGE>
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 5, 1999
April 9, 1999
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 5, 1999, 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 consider and vote upon a proposal to approve the Company's 1999
Stock Option Plan.
3. To consider and vote upon a proposal to approve the Company's Senior
Executive Warrant Plan.
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors to audit the Consolidated Financial Statements of the Company and its
subsidiaries for the year ended December 31, 1999.
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 Company's Common Shares at the close of
business on March 29, 1999 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\347\PXY2089J.39I
<PAGE>
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
PROXY STATEMENT
Annual Meeting of Shareholders
April 9, 1999
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 5, 1999 and at any adjournments thereof.
At the Meeting, Shareholders will be asked:
1. To elect six directors.
2. To consider and vote upon a proposal to approve the Company's 1999
Stock Option Plan.
3. To consider and vote upon a proposal to approve the Company's Senior
Executive Warrant Plan (the "Warrant Plan").
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors to audit the Consolidated Financial Statements of the Company and its
subsidiaries for the year ended December 31, 1999.
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 March 29, 1999
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 March 29, 1999, there were 60,246,116 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 9, 1999.
1
<PAGE>
THE MEETING
DATE, TIME AND PLACE
The Meeting will be held on May 5, 1999, 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, to approve the 1999 Stock Option Plan, to approve the Warrant
Plan and to ratify the selection of independent auditors. See "ELECTION OF
DIRECTORS," "PROPOSED 1999 STOCK OPTION PLAN," "PROPOSED SENIOR EXECUTIVE
WARRANT PLAN" 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 March
29, 1999) are entitled to notice of and to vote at the Meeting. As of the Record
Date, there were 60,246,116 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.
1999 Stock Option Plan and Senior Executive Warrant Plan. Under New York
law, the affirmative vote of the holders of a majority of the Common Shares
voted at the Meeting is required to approve each of the 1999 Stock Option Plan
and the Warrant Plan. Abstentions and broker non-votes are not counted in
determining the votes cast in connection with the approval of the 1999 Stock
Option Plan or the Warrant Plan, 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.
Other Matters. The ratification of the selection of PricewaterhouseCoopers
LLP 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.
2
<PAGE>
Ian M. Cumming, Chairman of the Board of Directors, beneficially owns
9,892,002 or approximately 16.4% of the Common Shares outstanding at the Record
Date, Joseph S. Steinberg, a Director and President, beneficially owns 9,093,489
or approximately 15.1% 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 1,107,646 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 approximately
.2% and 30,058 (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, in favor of approval of the 1999 Stock Option
Plan, in favor of approval of the Warrant Plan 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.
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, FOR approval of the 1999 Stock Option Plan, FOR
approval of the Warrant Plan 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
PricewaterhouseCoopers LLP, the Company's independent auditors for 1998, 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 2, 1999.
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, 58, 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, 61, 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, 73, 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, 55, 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 JZ Equity Partners Plc., a British
investment trust company.
4
<PAGE>
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
- - ---------------------------- --------------------------------------------------
Jesse Clyde Nichols, III.... Mr. Nichols, 59, 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, 55, 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, 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, and HomeFed Corporation, a publicly
held real estate development company.
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 1998, 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 1998 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 two occasions during 1998, 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, including the Senior Executive Annual Incentive Bonus Plan
and, if it is approved at the Meeting, the Warrant Plan, and to present
recommendations thereon to the Board. The Employee Benefits Committee met once
during 1998, and consists of Messrs. Nichols (Chairman), Dougan and Jordan.
The function of the Option Committee was to administer the terms of the
Company's 1992 Stock Option Plan until the plan's termination on April 1, 1999,
and, provided it is approved at the Meeting, the Option Committee will
administer the Company's 1999 Stock Option Plan. The Option Committee took
action on five occasions during 1998 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 1998 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 120 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.
6
<PAGE>
All directors attended at least 75% of the meetings of the Board and
committees of the Board on which they served.
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 these claims.
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 was granted in part and
denied in part. This decision is being appealed to the Appellate Division, First
Department, by Pinnacle and the defendants. The appeal remains sub judice.
7
<PAGE>
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES
Set forth below is certain information as of April 2, 1999 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. Unless otherwise stated, the business address of each person
listed is c/o Leucadia National Corporation, 315 Park Avenue South, New York,
New York 10010.
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)...................... 3,145,284 5.2%
Paul J. Borden........................... 7,300 *
Ian M. Cumming........................... 9,892,002 (c)(d) 16.4%
Paul M. Dougan........................... 100 (e) *
Lawrence D. Glaubinger................... 77,500 .1%
James E. Jordan.......................... 25,000 *
Thomas E. Mara........................... 10,130 *
Jesse Clyde Nichols, III................. 58,939 *
Joseph A. Orlando........................ 2,356 *
Joseph S. Steinberg...................... 9,093,489 (d)(f) 15.1%
The Steinberg Children Trusts............ 1,107,646 (g) 1.8%
Cumming Foundation ...................... 92,509 (h) .2%
The Joseph S. and Diane H. Steinberg
1992 Charitable Trust.................. 30,058 (i) *
All directors and executive officers
as a group (11 persons)................ 19,239,516 31.9%
- - -------------------
* 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.
(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
8
<PAGE>
Foundation, Marjorie M. Boas, Mark Claster and Andrew Boas and information
provided by CMCO, Inc.
(c) 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) as to which Mr. Cumming may be
deemed to be the beneficial owner.
(d) 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.
(e) Consists of 100 (less than .1%) Common Shares owned by Mr. Dougan's wife as
to which Mr. Dougan disclaims beneficial ownership.
(f) 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.
(g) Mr. Steinberg disclaims beneficial ownership of the Common Shares held by
the Steinberg Children Trusts.
(h) Mr. Cumming is a trustee and President of the foundation and disclaims
beneficial ownership of the Common Shares held by the foundation.
(i) Mr. Steinberg and his wife are the trustees of the foundation. Mr.
Steinberg disclaims beneficial ownership of the Common Shares held by the
foundation.
As of April 2, 1999, Cede & Co. held of record 36,802,026 Common Shares
(approximately 61.1% 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 1998, for
services in all capacities to the Company and its subsidiaries in 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------------------- ---------------- ------------
Name and Principal Other Annual Options All Other
Position(s) Year Salary Bonus Compensation (# of shares) Compensation
----------- ---- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ian M. Cumming, 1998 $ 546,178 $ 16,556(1) $ 198,154(4) -- $ 98,097(5)
Chairman of the Board 1997 532,816 6,566,231(2) 308,246(4) -- 61,366
1996 517,356 15,759(3) 257,830(4) -- 91,885
Joseph S. Steinberg, 1998 $ 546,178 $ 16,556(1) $ 324,542(4) -- $ 91,147(5)
President 1997 532,816 6,566,231(2) 344,819(4) -- 56,608
1996 517,356 15,759(3) 298,220(4) -- 98,452
Thomas E. Mara, 1998 $ 260,000 $ 767,800 $ -- -- $ 27,654(5)
Executive Vice 1997 255,000 907,650 52,275(4) -- 35,363
President and Treasurer 1996 250,000 757,500 -- 25,000 30,920
Joseph A. Orlando, 1998 $ 170,000 $ 675,100 -- -- $ 12,500(5)
Vice President and 1997 165,000 704,950 -- -- 7,000
Chief Financial 1996 160,000 154,800 -- 20,000 6,750
Officer
Paul J. Borden, 1998 $ 135,000 $ 454,050 -- -- $ 4,000(6)
Vice President 1997 130,000 453,900 -- -- 4,000
1996 125,000 303,750 -- 7,500 3,750
</TABLE>
- - ----------------------
(1) Represents annual year-end bonus (based on a percentage of salary) paid to
all employees. The Employee Benefits Committee of the Board of Directors
intends to consider the payment of an additional 1998 performance bonus to
each of Messrs. Cumming and Steinberg at the Board of Directors meeting to
be held following the 1999 Annual Meeting. See "Report of the Compensation
Committee of the Board of Directors--Compensation of Messrs. Cumming and
Steinberg."
(2) In 1992, $2,500,000 was placed in escrow 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"). In 1993, $4,000,000 was placed in escrow (the
"1993 Escrows") by the Company for the benefit of each of Messrs. Cumming
and Steinberg pursuant to agreements dated as of December 28, 1993 between
the Company and each of Messrs. Cumming and Steinberg (the "1993 Escrow
Agreements").
10
<PAGE>
Pursuant to the 1992 Escrow Agreements, 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 1992 Escrows
fully vested on December 31, 1997. The 1993 Escrow Agreements were
identical to the 1992 Escrow Agreements described above, except (i) such
funds vested at the rate of 20% for each full calendar year after December
31, 1997, during which Messrs. Cumming and Steinberg, respectively,
continued 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 were to be paid to
Messrs. Cumming and Steinberg on January 1, 2003, unless payment was
accelerated by the Board. 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.
As required under the agreements, Messrs. Cumming and Steinberg timely
filed tax elections resulting in their 1992 recognition for tax purposes of
the full $2,500,000 placed in escrow in 1992 and their 1993 recognition for
tax purposes of the full $4,000,000 placed in escrow in 1993. As a result,
for tax purposes Messrs. Cumming and Steinberg reported income in 1992 and
1993, respectively, equal to the respective amounts placed in escrow in
such years, and the Company deducted those respective amounts in such
years. 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.
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, net of
withholding taxes already paid by Messrs. Cumming and Steinberg, which
amounts constituted the remaining funds in the 1992 Escrows, and the 1992
Escrows were terminated. These amounts were credited against and treated as
a part of the 1997 performance bonuses on a pre-tax basis. Therefore, of
the amounts included in the table, Messrs. Cumming and Steinberg were
credited with having received $1,051,929 and $1,120,413, respectively, on a
pre-tax basis, from the 1992 Escrows.
As described under "Report of the Compensation Committee of the Board of
Directors--Compensation of Messrs. Cumming and Steinberg," on May 19, 1998,
based on the recommendation of the Employee Benefits Committee, the Board
accelerated the vesting of the 1993 Escrows and ordered the entire amounts
in the 1993 Escrows to be paid to Messrs. Cumming and Steinberg to fund a
portion of the 1997 performance bonuses. Accordingly, on May 20, 1998,
Messrs. Cumming and Steinberg were paid $2,088,000 and $1,902,600,
respectively out of the 1993 Escrows, which amounts constituted the
remaining funds in the 1993 Escrows, net of withholding taxes already paid
by Messrs. Cumming and Steinberg, and the 1993 Escrows were terminated.
Messrs. Cumming and Steinberg each were credited with receiving $4,000,000
on a pre-tax basis from their 1993 Escrows to pay a portion of their 1997
performance bonuses and this amount is included in the table.
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.
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<PAGE>
(4) 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: $198,154, $308,246 and $251,754 in
1998, 1997 and 1996, respectively, and Mr. Steinberg: $324,542, $343,473,
and $293,682 in 1998, 1997 and 1996, respectively) and an automobile
transferred by the Company to Mr. Mara for 1997 ($43,650). The value of
such non-cash compensation may differ for federal tax purposes.
(5) Included in this amount is the annual premium on a term life insurance
policy paid by the Company for the benefit of such person ($5,618 for Mr.
Cumming and $2,360 for Mr. Steinberg), directors' fees from affiliates of
the Company ($88,478 for Mr. Cumming, $84,787 for Mr. Steinberg, $23,654
for Mr. Mara and $8,500 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.
(6) Consists of a contribution by the Company to a defined contribution 401(k)
plan.
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<PAGE>
AGGREGATE OPTION EXERCISES IN 1998 AND
OPTION VALUES AT DECEMBER 31, 1998
The following table provides information as to options exercised by each
of the named executives in 1998 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, 1998 ($31.50, as reported on the New York Stock Exchange
("NYSE") Composite Tape).
<TABLE>
<CAPTION>
Number of
Unexercised Value of Unexercised
Options In-the-Money Options
at December 31, 1998 at December 31, 1998
-------------------- --------------------
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 -- -- 30,000/15,000 $270,000/$73,125
Joseph A. Orlando -- -- 16,000/12,000 $127,500/$58,500
Paul J. Borden 7,300 $129,163 1,700/4,500 $15,713/$21,938
</TABLE>
RETIREMENT PLAN
The Company and certain of its affiliated companies maintain a retirement
plan, as amended and restated effective 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. Benefit accruals
under the Retirement Plan were frozen effective December 31, 1998. Employees who
were not participants in the Retirement Plan on December 31, 1998 are no longer
eligible to participate in the Retirement Plan.
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.
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.
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<PAGE>
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.............$25,286*
Joseph S. Steinberg........ 30,439*
Thomas E. Mara............. 19,557*
Joseph A. Orlando.......... 28,698*
Paul J. Borden............. 27,151*
The Company and certain of its affiliated companies intend to adopt a new
defined contribution plan effective January 1, 1999 which will provide for
quarterly contributions for all eligible employees equal to a percentage of
eligible compensation determined on the basis of age and service.
- - --------------------
* 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 office, 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 consideration of the proposed Warrant Plan
providing for the contemplated issuance of warrants to Messrs. Cumming and
Steinberg, Messrs. Cumming and Steinberg have agreed to the extension of their
respective employment agreements through June 30, 2005. See "PROPOSED SENIOR
EXECUTIVE WARRANT PLAN."
In December 1998, pursuant to Board approval, the Company and Mr.
Steinberg entered into a Deferred Compensation Agreement pursuant to which all
compensation payable by the Company to Mr. Steinberg for the 1999 calendar year
is to be deferred and will accrue simple interest at a rate equal to the
one-year treasury bill rate in effect, resettable quarterly.
For information concerning certain other compensation placed in escrow for
the benefit of Messrs. Cumming and Steinberg, see footnote (2) to the Summary
Compensation Table above.
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<PAGE>
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 1998,
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 $35.375 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 19, 1998.
For additional information, see "Certain Relationship and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation"
below.
INDEMNIFICATION
Pursuant to contracts of insurance dated October 2, 1998 with National
Union Fire Insurance Company of Pittsburgh, Pennsylvania, 175 Water Street, New
York, New York 10038, 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 $664,000. During
1998, 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 Messrs. Cumming's and
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 $339,000 in 1998. 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 (2) to the Summary
Compensation Table and "Employment Agreements" above.
On April 1, 1999, the Company declared a cash dividend on the Common
Shares in the amount of $12.00 per share (the "Dividend"). In connection with
the Dividend, and in order to comply with the terms of
15
<PAGE>
a ruling from the Internal Revenue Service related to the Dividend, the Company
offered to pay to each holder of outstanding options in cancellation of all
options held an amount equal to the spread between the exercise price of such
holder's options and the higher of (1) $32.875 and (2) the average closing price
of a Common Share on the New York Stock Exchange for the five trading days
following the public announcement of the Dividend, multiplied by the number of
Common Shares subject to options held by such holder. Additional amounts will be
paid to option holders (other than non-employee directors) to reimburse them for
additional tax costs attributable to the option cancellation. Holders of all
outstanding options accepted the Company's offer. Upon declaration of the
Dividend, all options were cancelled. Payments in respect of the cancellation of
the options will be made within ten days of the declaration of the Dividend.
Directors and executive officers held options to purchase an aggregate of
113,750 Common Shares as follows:
Number of Shares
Name Underlying Options
---- ------------------
Paul J. Borden 6,200
Paul M. Dougan 4,250
Lawrence D. Glaubinger 3,000
Mark Hornstein 5,800
Barbara L. Lowenthal 7,500
James E. Jordan 7,000
Thomas E. Mara 45,000
Jesse Clyde Nichols, III 7,000
Joseph A. Orlando 28,000
For additional information, see "Compensation Committee Interlocks and
Insider Participation," below.
16
<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. The Option Committee of the Board of
Directors 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, if approved by the Shareholders, the 1999 Stock Option
Plan (the "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 its 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 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
- - --------------------------------
* 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.
17
<PAGE>
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 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
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.
The Committee met once in May 1998 to consider the 1997 performance bonuses
for Messrs. Cumming and Steinberg and once in 1999 to consider the adoption of
the Warrant Plan, which provides for the issuance of warrants to Messrs. Cumming
and Steinberg upon authorization of the Committee, subject to the terms of the
Warrant Plan.
1997 Performance Bonus. As disclosed in the 1998 proxy statement, a portion
of the 1997 performance bonuses ($232,051 for Mr. Cumming and $288,508 for Mr.
Steinberg) was determined and paid in 1997. This was done to permit the Company
to take advantage of the maximum 1997 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
executive officers.
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<PAGE>
The Committee's ultimate determination of 1997 performance bonuses for
Messrs. Cumming and Steinberg was made in May 1998 following the 1998 Annual
Meeting of Shareholders and was based upon their subjective assessment of the
performance of Messrs. Cumming and Steinberg and the performance of the Company,
particularly in light of the sale of the Company's Colonial Penn life insurance
group to Conseco, Inc. in September 1997 and the sale of the Company's Colonial
Penn property and casualty group to General Electric Capital Corporation in
November 1997. 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, and considered that payment of a
significant bonus was likely to exceed amounts deductible under Section 162(m)
of the Code. Thereafter, the Committee determined that a performance bonus of
$6,550,000 was appropriate for 1997. 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 treat 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 part of the 1997
performance bonuses. Payments from these escrows were intended to be included as
part of bonus compensation paid to Messrs. Cumming and Steinberg and were not
intended as compensation in addition to salaries and bonuses. After
consideration, the Committee determined that amounts paid to Messrs. Cumming and
Steinberg on January 2, 1998 from the 1992 Escrows should be credited against
and treated as part of the 1997 performance bonuses on a pre-tax basis. As a
result, Messrs. Cumming and Steinberg were credited with having received
$1,051,929 and $1,120,413, respectively, from their 1992 Escrows towards the
payment of their 1997 performance bonuses.
The Committee then considered whether to use the funds in the 1993 Escrows
to pay part of the unpaid portion of the recommended 1997 performance bonuses
(after giving effect to the 1998 payments from the 1992 Escrows and 1997 bonus
payments made in 1997). The Committee noted that the 1993 Escrows were
established to provide the Company with a fund for which the Company had already
received a tax deduction (and in respect of which applicable withholding taxes
had already been paid) from which compensation in excess of the Section 162(m)
deduction limitation could be paid. The Committee also noted that any payments
from the 1993 Escrows would not be applied toward the Section 162(m) deduction
limitation threshold. The Committee was advised that no funds had vested under
the 1993 Escrows. After considering the acceleration and vesting provisions of
the 1993 Escrows and various payment alternatives, the Committee determined to
accelerate the entire amount of the 1993 Escrows and to pay such amounts to
Messrs. Cumming and Steinberg as part of the recommended 1997 performance
bonuses. As a result, Messrs. Cumming and Steinberg would be credited with
receiving $4,000,000 each, on a pre-tax basis, from their 1993 Escrows towards
the payment of their 1997 performance bonuses. The Committee further determined
to pay the balance of the recommended 1997 performance bonuses out of general
corporate funds.
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 1997 performance bonuses, the
treatment of amounts paid in 1998 from the 1992 Escrows as part of the
recommended 1997 performance bonuses, the acceleration of payment of all amounts
under the 1993 Escrows to be used to fund a portion of the recommended 1997
performance bonuses and the payment of the balance of the recommended 1997
performance bonuses out of general corporate funds.
Warrant Plan. On March 26, 1999, the Committee met to consider the Warrant
Plan, which provides for the issuance of warrants as an incentive for future
services to the Company from Messrs. Cumming and Steinberg, subject to
Shareholder approval. In determining whether to recommend approval of the
Warrant Plan to the Board of Directors, the Committee considered the specific
terms of the Warrant Plan, together with a variety of factors, including the
fact that (i) each of Messrs. Cumming and Steinberg is party to an employment
19
<PAGE>
agreement with the Company, which provides for certain base salary and such
other compensation as may be granted by the Board of Directors; (ii) warrants
have been a part of the total compensation to Messrs. Cumming and Steinberg in
the past, first having been granted in 1979, together with the specific
characteristics of the prior warrants; (iii) warrants granted pursuant to the
Warrant Plan would have an exercise price above the market price of the
underlying Common Shares on the date of issuance of the warrants, thereby
linking any appreciation in the value of the warrants to an increase in the
market price of the underlying Common Shares and would contain such restrictions
on vesting as determined by the Committee; and (iv) certain tax considerations,
including that warrants granted pursuant to the Warrant Plan would be designed
to conform with the provisions of Section 162(m) to qualify as deductible
compensation. The Committee noted that the existing employment agreements of
Messrs. Cumming and Steinberg would expire on June 30, 2003, almost one year
before the earliest expiration date for the warrants issuable under the Warrant
Plan. The Committee also noted that Messrs. Cumming and Steinberg would agree to
extend the term of their respective employment agreements through June 30, 2005
in consideration for the Board's consideration of the Warrant Plan. The
Committee believed that warrants issuable under the Warrant Plan would be
structured to be an incentive to future services to the Company while providing
Messrs. Cumming and Steinberg with the opportunity to share in any future
increases in the market value of the Company. In order to comply with the
provisions of the IRS ruling received in connection with the Dividend, the
Warrant Plan does not permit the grant of any warrants prior to the payment date
of the Dividend. Based upon the foregoing, the Committee unanimously recommended
to the Board of Directors that the Warrant Plan be approved, subject to
Shareholder approval.
Thereafter, on April 1, 1999, 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 Warrant Plan, subject to
Shareholder approval.
1998 Performance Bonus. The Committee and the Board of Directors intend to
consider the 1998 performance bonus for each of Messrs. Cumming and Steinberg at
the 1999 organizational meeting of the Board following the Meeting. In so doing,
the Committee intends to make any such awards under the Senior Executive Annual
Incentive Bonus Plan (the "Incentive Bonus Plan"), adopted by the Committee and
the Board of Directors in August 1997 and approved by the Shareholders at the
1997 Annual Meeting.
The Incentive Bonus Plan provides for annual incentive cash bonuses to be
paid to Messrs. Cumming and Steinberg, provided certain performance goals are
attained. The Incentive Bonus Plan directly links the annual incentive bonus of
Messrs. Cumming and Steinberg with the performance of the Company, while
providing the Committee the flexibility to reduce the amounts to be paid
thereunder.
The Incentive Bonus Plan is designed so that the cash bonuses awarded
thereunder will qualify as "performance-based compensation" under 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 executive officers. 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 to increase the amount of compensation payable upon the attainment of
the performance goal. The Incentive Bonus Plan is designed to comply with such
standard.
The Incentive Bonus Plan 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. The amount of the annual
incentive bonus awarded to each participant in any given year is subject to
reduction by the Committee, in its sole discretion. Payments under the Incentive
Bonus Plan will be made in cash following written certification by the Committee
as to the amount of the annual incentive bonus for any given year.
20
<PAGE>
The Committee has discretion, where appropriate, to pay additional bonuses
to Messrs. Cumming and Steinberg outside the Incentive Bonus Plan. In such
event, the Committee will consider amounts paid to Messrs. Cumming and Steinberg
under the Incentive Bonus Plan. To the extent that the Committee determines to
award performance bonuses for a given year outside the Incentive Bonus Plan,
such compensation may not be deemed to be performance-based compensation.
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 1998, the Company contributed
$304,000 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, 1998, 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 Ian M. Cumming, James E. Jordan and Jesse
Clyde Nichols. Messrs. Cumming, Jordan and Nichols subsequently filed Form 4's
to report the transactions.
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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, 1993 (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, 1993 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>
INDEXED RETURNS
---------------
Base Years Ending
Period
Company / Index Dec 93 Dec 94 Dec 95 Dec 96 Dec 97 Dec 98
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leucadia National Corp 100 109.15 123.86 133.77 173.78 158.67
S&P 500 Index 100 101.32 139.40 171.40 228.59 293.91
Insurance (Multi-Line)-500 100 105.19 154.62 196.06 299.05 329.45
</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).
22
<PAGE>
PROPOSED 1999 STOCK OPTION PLAN
The Board of Directors has recommended that Shareholders approve the 1999
Stock Option Plan that was adopted by the Board of Directors on April 1, 1999.
The 1999 Stock Option Plan is intended to replace the 1992 Stock Option Plan
that was terminated by the Board of Directors effective April 1, 1999. As
described under "Executive Compensation - Certain Relationships and Related
Transactions," on April 1, 1999 all outstanding options were cancelled.
The 1999 Stock Option Plan is intended to afford non-employee
directors and certain key employees of the Company or any subsidiary or parent
corporation thereof who are responsible for the continued growth of the Company,
an opportunity to acquire a proprietary interest in the Company, thereby
creating in such persons an increased interest in and a greater concern for the
welfare of the Company. The Company, by means of the 1999 Stock Option Plan,
seeks to retain the services of persons now holding non-employee directorships
and other key positions and to secure the services of persons capable of filling
such positions. Two types of options ("Options") may be granted pursuant to the
1999 Stock Option Plan: those intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Code ("Incentive Options") and those
not intended to satisfy the requirements for Incentive Options ("Non-Qualified
Options"). In addition, stock appreciation rights ("Rights") may be granted
alone or in conjunction with or in the alternative to Options. See "--Federal
Income Tax Consequences" below.
The following summary of the 1999 Stock Option Plan is not intended to be
complete and is qualified in its entirety by reference to the 1999 Stock Option
Plan, a copy of which is attached as Annex A to this Proxy Statement.
The 1999 Stock Option Plan provides for the granting of Options or Rights
to purchase or acquire in the aggregate, up to 1,200,000 Common Shares (which
number is subject to adjustment in the event of stock dividends, stock splits
and other contingencies) (the "Shares") from time to time beginning on April 1,
1999. However, to comply with the provisions of the ruling received from the IRS
in connection with the Dividend, no options will be granted until after the
distribution date of the Dividend. The 1999 Stock Option Plan will continue
indefinitely until terminated by the Board of Directors or the Option Committee
or unless shareholder approval is not received by April 1, 2000 (in which case
all Options and/or Rights granted thereunder will be retroactively revoked). The
Shares with respect to which Options or Rights may be granted may be made
available from either authorized and unissued shares or treasury shares. The
1999 Stock Option Plan will become effective only upon the affirmative vote of
the holders of a majority of the Common Shares voted at the Meeting. Messrs.
Cumming and Steinberg have advised the Company that they intend to cause all
Common Shares that they beneficially own to be voted in favor of approval of the
1999 Stock Option Plan.
ADMINISTRATION
The 1999 Stock Option Plan is administered by the Option Committee, which
has the authority, in its discretion and subject to the express provisions of
the 1999 Stock Option Plan (including the provisions regarding automatic grants
of Options to non-employee directors of the Company), to determine, among other
things, the persons to receive Options or Rights, the date of grant of such
Options or Rights, the number of Shares to be subject to each Option or Right,
the purchase price of each Share subject to such Options or Rights and the terms
and provisions of the respective Options or Rights (which need not be
identical). In determining the persons to whom Options or Rights are to be
granted under the 1999 Stock Option Plan, the Option Committee will consider the
employee's length of service, the amount of such employee's earnings and such
employee's responsibilities and duties. The Company will receive no monetary
consideration for the granting of Options or Rights under the 1999 Stock Option
Plan.
23
<PAGE>
Incentive Options and Rights may be granted only to salaried key employees
of the Company or any subsidiary or parent corporation thereof now existing or
hereafter formed or acquired. Non-Qualified Options and Rights may be granted to
salaried key employees of the Company or any subsidiary or parent corporation
thereof now existing or hereafter formed or acquired. Non-Qualified Options will
be granted to non-employee directors of the Company as discussed below. The
aggregate number of Shares with respect to which Options and/or Rights may be
granted under the 1999 Stock Option Plan to any employee in any one taxable year
is 300,000.
The purchase price of Shares issuable upon exercise of each Option granted
pursuant to the 1999 Stock Option Plan will be not less than 100% of the fair
market value of such Shares on the date the Option is granted, as determined in
accordance with the 1999 Stock Option Plan. Any Option granted under the 1999
Stock Option Plan may be exercised upon such terms and conditions as may be
determined by the Option Committee, except that no Incentive Option may be
exercisable more than ten years after the date on which it is granted and no
Incentive Option may be granted after April 1, 2009. The Option Committee has
the right to accelerate, in whole or in part, rights to exercise any Option
granted under the 1999 Stock Option Plan. In the discretion of the Option
Committee, a Right may be granted (i) alone, (ii) simultaneously with the grant
of an Option (either Incentive or Non-Qualified) and in conjunction therewith or
(iii) subsequent to the grant of a Non-Qualified Option and in conjunction
therewith or in the alternative thereto. The Option Committee may prescribe
additional terms and conditions to Options and/or Rights, subject to the
limitations contained in the 1999 Stock Option Plan.
The 1999 Stock Option Plan provides for the automatic grant of
Non-Qualified Options to purchase 1,000 Shares to each non-employee director of
the Company (a "Director Participant") on the date on which the annual meeting
of the Company's Shareholders (including any adjournments thereof) is held in
each year. Although this automatic grant of Options to Director Participants
generally would commence with the Meeting, to comply with the IRS ruling with
respect to the Dividend, the automatic grant of Non-Qualified Options instead
will commence following the Annual Meeting of Shareholders of the Company to be
held in 2000. However, during the first year of the 1999 Stock Option Plan and
after payment of the Dividend, the Board of Directors may make a discretionary
grant of Non-Qualified Options to the Director Participants. The purchase price
of the Shares covered by the Non-Qualified Options will be the fair market value
of the Shares at the date of the grant. Non-Qualified Options granted to
Director Participants may not be exercised for the twelve-month period
immediately following the grant of such Non-Qualified Option. Thereafter, such
Non-Qualified Option will be exercisable for the period ending five years from
the date of grant of such Non-Qualified Option, subject to limitations or
restrictions pursuant to the terms of the 1999 Stock Option Plan.
The 1999 Stock Option Plan permits, in certain circumstances, the exercise
of Options and Rights for a limited period following termination of employment
due to death, retirement, disability or dismissal other than for cause.
The 1999 Stock Option Plan may be amended from time to time by the Board
of Directors, provided that no amendment will be made, without the approval of
the Shareholders, that will increase the total number of Shares reserved for
Options and Rights under the 1999 Stock Option Plan or the maximum number of
Shares with respect to which Options and/or Rights may be granted under the 1999
Stock Option Plan to any one employee in any one taxable year (other than an
increase resulting from an adjustment for changes in capitalization such as a
stock dividend or stock split) or alter the class of eligible participants.
It is intended that the cash proceeds to be received by the Company from
the sale of Shares pursuant to the 1999 Stock Option Plan will be used by the
Company for general corporate purposes.
The Board of Directors may at any time suspend or terminate the 1999 Stock
Option Plan, provided that rights and obligations under any Option or Right
granted while the 1999 Stock Option Plan is in effect may
24
<PAGE>
not be altered or impaired by suspension or termination of the 1999 Stock Option
Plan, except upon the consent of the person to whom the Option or Right was
granted.
In the event of any change in the outstanding Common Shares through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, split-up, spinoff, combination of shares, exchange
of shares, dividend in kind or other like change in capital structure or
distribution to shareholders of the Company (other than normal cash dividends),
in order to prevent dilution or enlargement of participants' rights under the
1999 Stock Option Plan, the Option Committee shall adjust, in an equitable
manner, the number and kind of shares that may be issued under the 1999 Stock
Option Plan, the number and kind of shares subject to outstanding Options and
Rights, the consideration to be received upon exercise of Options or in respect
of Rights, the exercise price applicable to outstanding Options and Rights,
and/or the fair market value of the Common Shares and other value determinations
applicable to outstanding Options and Rights.
In the event of an "Extraordinary Event" with respect to the Company
(including a change in control of the Company, a sale of all or substantially
all of the assets of the Company, and certain mergers or like business
combinations, a partial liquidation under Section 302(b)(4) of the Code, and any
other extraordinary transaction that is determined by the Board of Directors to
be appropriate and in the best interests of the Company and which by its terms
precludes the existence of securities convertible into Common Shares), as
described in the 1999 Stock Option Plan, all then outstanding Options and Rights
that have not vested or become exercisable at the time of the Extraordinary
Event will immediately become exercisable. The Option Committee, in its sole
discretion, may determine that, upon the occurrence of an Extraordinary Event,
each Option or Right then outstanding will terminate within a specified number
of days after notice to the holder, and such holder will receive, with respect
to each Share subject to such Option or Right, cash in an amount not less than
the excess of the fair market value of such Share (as determined in accordance
with the 1999 Stock Option Plan) over the exercise price per Share of such
Option or Right. The provisions contained in the preceding sentence will be
inapplicable to an Option or Right granted within six (6) months before the
occurrence of an Extraordinary Event if the holder of such Option or Right is
subject to the reporting requirements of Section 16(a) of the Exchange Act and
no exception from liability under Section 16(b) of the Exchange Act is otherwise
available to such holder. Notwithstanding the foregoing, any of the events
described above that the Board of Directors determines not to be an
Extraordinary Event with respect to the Company shall not constitute an
Extraordinary Event with respect to the Company.
Options or Rights granted under the 1999 Stock Option Plan are
non-transferable, except by will or the laws of descent and distribution.
Notwithstanding the foregoing, at the discretion of the Option Committee, an
award of an Option (other than an Incentive Option) and/or a Right may permit
the transferability of such Option and/or Right by a participant solely to the
participant's spouse, siblings, parents, children and grandchildren or trusts
for the benefit of such persons or partnerships, corporations, limited liability
companies or other entities owned solely by such persons, including trusts for
such persons, subject to any restriction included in the award of the Option
and/or Right.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Options. Incentive Options under the 1999 Stock Option Plan are
intended to meet the definitional requirements of Section 422(b) of the Code for
"incentive stock options."
Under the Code, the grantee of an Incentive Option generally is not
subject to regular income tax upon the receipt or exercise of the Incentive
Option. Special rules apply to an employee who exercises an Incentive Option by
delivering Shares previously acquired pursuant to the exercise of an Incentive
Option.
25
<PAGE>
For purposes of computing any alternative minimum tax ("AMT") liability,
an employee who exercises an Incentive Option generally would be required to
increase his or her "alternative minimum taxable income" by an amount equal to
the excess of the fair market value of a Share at the time the Option is
exercised over the exercise price and, for AMT purposes, must compute his or her
tax basis in the acquired Share as if such Share had been acquired through the
exercise of a Non-Qualified Option (as described below). The amount of any AMT
liability attributable to the exercise of an Incentive Option generally will be
allowed as a credit offsetting regular tax liability in subsequent years.
If, subsequent to the exercise of an Incentive Option (whether paid for in
cash or in shares), the optionee holds the Shares received upon exercise for a
period extending to the later of two years from the date of grant or one year
from the date of transfer pursuant to the exercise of such Option (the
"applicable holding period"), the difference (if any) between the amount
realized from the sale of such Shares and their tax basis to the holder will be
taxed as long-term capital gain or loss (provided that such shares were held by
the optionee as a capital asset at the time). If the holder is subject to the
AMT in the year of disposition, his or her tax basis in the Shares will be
determined, for AMT purposes, as described in the preceding paragraph. If,
however, an optionee does not hold the Shares so acquired for the applicable
holding period, thereby making a "disqualifying disposition," the optionee would
realize ordinary income in the year of the disqualifying disposition equal to
the lesser of (i) the excess of the fair market value of the Shares at the date
the Incentive Option was exercised over the exercise price or (ii) the excess of
the amount realized upon such disposition over the exercise price paid for such
Shares, and the balance, if any, of income would be long-term capital gain
(provided the holding period for the Shares exceeded one year and the optionee
held the Shares as a capital asset at such time).
A deduction will not be allowed to the employer corporation for federal
income tax purposes with respect to the grant or exercise of an Incentive Option
or the disposition, after the applicable holding period, of Shares acquired upon
exercise of an Incentive Option. In the event of a disqualifying disposition, a
federal income tax deduction will be allowed to the employer corporation in an
amount equal to the ordinary income included by the optionee, provided that such
amount constitutes an ordinary and necessary business expense to the employer
corporation and is reasonable and that no other limitations under the Code
apply.
Non-Qualified Options and Stock Appreciation Rights. A Non-Qualified
Option is one that is not intended to qualify as an incentive stock option under
Section 422(b) of the Code. An individual who receives a Non-Qualified Option
will not recognize any taxable income upon the grant of such Non-Qualified
Option. In general, upon exercise of a Non-Qualified Option an individual will
recognize ordinary income in an amount equal to the excess of the fair market
value of the Shares at the time of exercise over the exercise price.
An individual who receives a Right will not recognize any taxable income
upon the grant of such Right. Generally, upon the receipt of cash or the
transfer of Shares pursuant to the exercise of a Right, an individual will
recognize ordinary income in an amount equal to the sum of the cash and the fair
market value of the Shares received. In certain cases, a Right may be deemed for
federal income tax purposes to have been exercised prior to actual exercise.
In view of Section 16(b) of the Exchange Act, the timing of income
recognition may be deferred (i.e., the "Deferral Period") for any optionee who
is an officer or director of the Company or a beneficial owner of more than ten
percent (10%) of any class of equity securities of the Company following the
exercise of a NonQualified Option or Right. Absent a written election (pursuant
to Section 83(b) of the Code) filed with the Internal Revenue Service within 30
days after the date of transfer of the Shares pursuant to the exercise of the
Option or Right to include in income, as of the transfer date, the excess (on
such date) of the fair market value of such Shares over their exercise price,
recognition of income by the individual will be deferred until the expiration of
the Deferral Period, if any.
26
<PAGE>
The ordinary income recognized with respect to the transfer of Shares or
receipt of cash upon exercise of a Non-Qualified Option or a Right under the
1999 Stock Option Plan will be subject to both wage withholding and employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of a Right for Shares or upon the
exercise of a Non-Qualified Option, an individual may satisfy the liability in
whole or in part by directing its employer corporation to withhold Shares from
those that would otherwise be issuable to the individual or by tendering other
Common Shares owned by the individual, valued at their fair market value as of
the date that the tax withholding obligation arises. A deduction for federal
income tax purposes will be allowed to the employer corporation in an amount
equal to the ordinary income included by the individual, provided that such
amount constitutes an ordinary and necessary business expense and is reasonable
and that no other limitations under the Code apply.
Change in Control. As described above, upon an "Extraordinary Event" of
the Company (as defined in the 1999 Stock Option Plan), all the then outstanding
Options and Rights shall immediately become exercisable. In general, if the
total amount of payments to certain individuals in the nature of compensation
that are contingent upon a "change in control" of the Company (as defined in
Section 280G of the Code) equals or exceeds three times the recipient's "base
amount" (generally, such recipient's average annual compensation for the five
years preceding the change in control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the Code, in which case a
portion of such payments would be nondeductible to the employer corporation and
the recipient would be subject to a 20% excise tax on such portion of the
payments.
REGULATION
The 1999 Stock Option Plan is neither qualified under the provisions of
Section 401(a) of the Code, nor subject to any of the provisions of ERISA.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
27
<PAGE>
PROPOSED SENIOR EXECUTIVE WARRANT PLAN
The Board of Directors of the Company (with Messrs. Cumming and Steinberg
abstaining), upon the unanimous recommendation of the Employee Benefits
Committee, resolved on April 1, 1999, subject to Shareholder approval, to
approve the Warrant Plan, which permits the Company to grant warrants
("Warrants") to purchase up to an aggregate of 800,000 Common Shares to 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 described in the "Report of the Compensation Committee" contained
herein, including the fact that Messrs. Cumming and Steinberg each are party to
an employment agreement with the Company that extends through June 30, 2003. In
consideration of the proposed Warrant Plan, Messrs. Cumming and Steinberg, at
the request of the Employee Benefits Committee, agreed to extend the term of
their respective employment agreements through June 30, 2005. The Committee also
considered the fact that the employment agreements fix the cash compensation to
be received by Messrs. Cumming and Steinberg, while providing that the Board may
grant additional compensation, as well as the prior history of warrant grants to
Messrs. Cumming and Steinberg and tax considerations.
The Warrant Plan, in the form annexed hereto as Annex B, provides for the
granting to each of Messrs. Cumming and Steinberg of Warrants to purchase up to
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 New York Stock Exchange
Composite Tape on the date the Warrants are granted. The last reported price of
Common Shares on the New York Stock Exchange Composite Tape on March 31, 1999
(the last day prior to the date of the Board's resolution), was $30.25 per
Common Share. Pursuant to the Warrant Plan, Warrants may not be granted prior to
payment of the Dividend (as described under "Executive Compensation-Certain
Relationships and Related Transactions") or prior to Shareholder approval of the
Warrant Plan. A Warrant may not be exercised after the expiration of five years
from the date the Warrant is granted.
The Board of Directors has designated the Employee Benefits Committee to
administer the Warrant Plan. The Committee has the authority, in its discretion
and subject to the express provisions of the Warrant Plan, to grant Warrants to
Messrs. Cumming and Steinberg, to determine the date of grant of Warrants to
Messrs. Cumming and Steinberg, the number of Common Shares to be subject to each
Warrant and the vesting provisions thereof. In the event that the Board of
Directors or the Option Committee of the Board accelerates vesting of all
outstanding stock options issued under any stock option plan of the Company
pursuant to the terms thereof, all outstanding Warrants will also become
immediately exercisable. Subject to the limitations on transferability of the
Common Shares (and rights to acquire Common Shares) set forth in the Certificate
of Incorporation and described below, 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 Warrants granted
under the Warrant Plan would be subject to adjustments made to reflect stock
splits, combinations of shares, recapitalizations, stock dividends and other
like changes in capital structure, 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 to the
Warrant Plan, attached hereto as Annex B.
28
<PAGE>
In order to protect the Company's tax loss carryforwards, the Common
Shares issuable upon exercise of Warrants will be subject to certain transfer
restrictions contained in the Company's Certificate of Incorporation designed to
regulate transfers to a person or group of persons who own, or who would own as
a result of such transfer, 5% or more of the Common Shares or any other security
that would be treated as "stock" of the Company under the then applicable tax
regulations (a "Five Percent Shareholder"). Such transfer restrictions may be
waived by the Board of Directors.
Under the provisions of the Company's Certificate of Incorporation,
acquisitions of the Company's "stock" (including Warrants) directly from the
Company, whether by way of acquisition in a public or private offering, the
exercise of a Warrant or conversion privilege, or otherwise, are not subject to
such restrictions. As a result, such provisions will not restrict the issuance
of Warrants to Messrs. Cumming and Steinberg (each of whom is a Five Percent
Shareholder), or the issuance of Common Shares to Messrs. Cumming and Steinberg
upon exercise of Warrants. However, subsequent transfers of Warrants or Common
Shares issuable thereunder would be subject to the transfer restrictions, and
would be proscribed, in the absence of Board approval, if the intended
transferee is or would become a Five Percent Shareholder. In addition, future
acquisitions of Common Shares or other securities of the Company (including
Warrants) (other than directly from the Company) would be subject to such
restrictions and may be restricted if the proposed transferee (or transferor)
is, or would become as a result of such transfer, a Five Percent Shareholder.
Warrants and any Common Shares issuable upon exercise of Warrants shall bear a
conspicuous legend to such effect.
Under the provisions of the New York Business Corporation Law, approval of
the Warrant Plan requires the vote of a majority of the Common Shares voted 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 Warrant Plan. Messrs. Cumming and Steinberg have advised the Company that
they intend to cause all Common Shares that they beneficially own to be voted in
favor of approval of the Warrant Plan.
As noted earlier in this Proxy Statement, as of April 2, 1999, 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 beneficially owned 16.4%, 15.1%, 1.8%, .2%, less than .1%
and .4%, respectively, of the outstanding Common Shares. Assuming the issuance
of 400,000 Common Shares to each of Messrs. Cumming and Steinberg upon exercise
of 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 32.4% and 34.9%, respectively, of the outstanding Common
Shares.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to a holder of a Warrant granted under
the Warrant Plan generally are similar to those of a holder of a Non-Qualified
Option granted under the 1999 Stock Option Plan described earlier.
The grant of a Warrant will not result in income for the recipient. The
exercise of a Warrant will result in ordinary compensation income for the
Warrant holder at the time of such exercise, assuming the Common Shares received
at such time are transferable or are not subject to a substantial risk of
forfeiture (within the meaning of Section 83 of the Code). Income recognized at
that time would equal the excess of the fair market value of the Common Shares
at that time over the consideration paid therefor by the Warrant holder. A
deduction for federal income tax purposes will be allowed to the Company in an
amount equal to the ordinary income included by a holder of a Warrant in
connection with the exercise of such Warrant, provided that such amount
constitutes an ordinary and necessary business expense and is reasonable and
that no other limitations under the Code, including, without limitation, Section
162(m), apply. If the Common Shares received upon
29
<PAGE>
exercise by a Warrant holder are not transferable and are subject to a
substantial risk of forfeiture (within the meaning of Section 83 of the Code),
then, in the absence of a timely election under Section 83(b), the time and
amount of the compensation income and deduction would be determined when the
Common Shares become either transferable or not subject to a substantial risk of
forfeiture.
With certain exceptions, Section 162(m) of the Code denies a deduction to
a publicly held corporation for compensation paid to certain executive officers
in excess of $1 million per executive per taxable year. One such exception
applies to certain performance-based compensation, provided that such
compensation has been approved by shareholders in a separate vote and certain
other requirements are met. In general, the Company intends for any Warrants
granted under the Warrant Plan (and the associated compensation) to qualify for
the performance-based compensation exception to Section 162(m) of the Code.
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 PricewaterhouseCoopers LLP, certified public accountants, as
independent auditors to audit the accounts of the Company and its subsidiaries
for 1999. The selection of PricewaterhouseCoopers LLP was recommended to the
Board of Directors by its Audit Committee. PricewaterhouseCoopers LLP 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 1998 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 2000 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 13, 1999. Any such proposal must be in accordance with the
rules and regulations of the Securities and Exchange Commission. With respect to
proposals submitted by a Shareholder other than for inclusion in the Company's
2000 Proxy Statement and related form of proxy, timely notice of any such
proposal must be received by the Company in accordance with the By-Laws and the
rules and regulations of the Company no later than December 13, 1999. Any
proxies solicited by the Board of Directors for the 2000 Annual Meeting may
confer discretionary authority to vote on any proposals notice of which is not
timely received.
By Order of the Board of Directors
Laura E. Ulbrandt
Secretary
30
<PAGE>
ANNEX A
LEUCADIA NATIONAL CORPORATION
1999 STOCK OPTION PLAN
A-1
NYFS04...:\30\76830\0198\347\PLN3109M.25D
<PAGE>
LEUCADIA NATIONAL CORPORATION
1999 STOCK OPTION PLAN
I. Purposes........................................................A-3
II. Amount of Stock Subject to the Plan.............................A-3
III. Administration..................................................A-4
IV. Eligibility.....................................................A-5
V. Option Price and Payment........................................A-5
VI. Terms of Options and Limitations on the Right of Exercise.......A-6
VII. Stock Appreciation Rights.......................................A-7
VIII. Termination of Employment.......................................A-8
IX. Exercise of Options............................................A-10
X. Stock Option Grants to Director Participants...................A-10
XI. Director Participant's Exercise of Options.....................A-10
XII. Director Participant's Termination.............................A-10
XIII. Director Participant's Ineligibility for Other Grants..........A-11
XIV. Use of Proceeds................................................A-11
XV. Non-Transferability of Options and Stock Appreciation Rights...A-11
XVI. Adjustment Provisions; Effect of Certain Transactions..........A-12
XVII. Right to Terminate Employment..................................A-13
XVIII. Purchase for Investment........................................A-13
XIX. Issuance of Stock Certificates; Legends; Payment of Expenses...A-14
XX. Withholding Taxes..............................................A-14
XXI. Listing of Shares and Related Matters..........................A-15
XXII. Foreign Laws...................................................A-15
XXIII. Amendment of the Plan..........................................A-15
XXIV. Duration; Termination or Suspension of the Plan................A-16
XXV. Savings Provision..............................................A-16
XXVI. Governing Law..................................................A-16
XXVII. Partial Invalidity.............................................A-16
XXVIII. Effective Date.................................................A-16
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LEUCADIA NATIONAL CORPORATION
1999 STOCK OPTION PLAN
I. PURPOSES
Leucadia National Corporation (the "Company") desires to afford its
directors and certain of its key employees and certain key employees of any
subsidiary corporation or parent corporation of the Company now existing or
hereafter formed or acquired who are responsible for the continued growth of the
Company an opportunity to acquire a proprietary interest in the Company, and
thus to create in such directors and key employees an increased interest in and
a greater concern for the welfare of the Company and its subsidiaries.
The stock options ("Options") and stock appreciation rights ("Rights")
offered pursuant to this 1999 Stock Option Plan (the "Plan") are a matter of
separate inducement and are not in lieu of any salary or other compensation for
the services of any director or key employee.
The Company, by means of the Plan, seeks to retain the services of
persons now holding directorships and key positions and to secure and retain the
services of persons capable of filling such positions.
The Options granted under the Plan are intended to be either incentive
stock options ("Incentive Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options that do not
meet the requirements for Incentive Options ("Non-Qualified Options"), but the
Company makes no warranty as to the qualification of any Option as an Incentive
Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of Common Shares, par value $1.00 per share (the
"Shares"), of the Company which either may be purchased pursuant to the exercise
of Options granted under the Plan or acquired pursuant to the exercise of Rights
granted under the Plan shall not exceed, in the aggregate, One Million Two
Hundred Thousand (1,200,000), such number to be subject to adjustment in
accordance with Article XVI of the Plan. Shares that are the subject of Rights
and/or related Options shall be counted only once in determining whether the
maximum number of Shares that may be purchased or awarded under the Plan has
been exceeded.
Shares which may be acquired under the Plan may be either authorized but
unissued Shares, Shares of issued stock held in the Company's treasury, or both,
at the discretion of the Company. If and to the extent that Options and/or
Rights granted under the Plan expire or terminate without having been exercised,
the Shares covered by such expired or terminated Options or Rights may again be
subject to an Option or Right under the Plan.
Except as provided in Articles X through XIII, XXIV, and XXVIII hereof,
the Committee (as defined in Article III) may, from time to time beginning on
April 1, 1999 (the "Effective Date"), grant to certain key employees and
directors of the Company, or certain key employees of any subsidiary corporation
or parent corporation of the Company now existing or hereafter formed or
acquired, Incentive Options, Non-Qualified Options and/or Rights under the terms
hereinafter set forth.
Provisions of the Plan that pertain to Options or Rights granted to a
director or employee shall apply to Options, Rights or any combination thereof.
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As used in the Plan, the term "parent corporation" and "subsidiary
corporation" shall mean a corporation coming within the definition of such terms
contained in Sections 424(e) and 424(f) of the Code, respectively.
III. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company or
by a committee (the "Committee") appointed by the Board of Directors of the
Company from among its members (which may be the Option Committee) and shall be
comprised, unless otherwise determined by the Board of Directors, solely of not
less than two members who shall be (i) "Non-Employee Directors" within the
meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii)
"outside directors" within the meaning of Treasury Regulation Section
1.162-27(e)(3) under Section 162(m) of the Code. If the Board of Directors of
the Company administers the Plan rather than a committee of the Board of
Directors, then all references to "Committee" in the Plan shall be deemed to
mean a reference to the Board of Directors of the Company.
The Committee is authorized, subject to the provisions of the Plan, to
establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make such determinations and interpretations
and to take such action in connection with the Plan and any Benefits granted
hereunder as it deems necessary or advisable. Subject to the express provisions
of the Plan, including, without limitation, Articles X through XIII hereof, the
Committee also shall have authority to construe the Plan and the Options and
Rights granted thereunder, to amend the Plan and the Options and Rights granted
thereunder, to prescribe, amend and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of the Options (which need not
be identical) and Rights (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan. The Committee
also shall have the authority to require, in its discretion, as a condition of
the granting of any such Option or Right, that the employee agree (a) not to
sell or otherwise dispose of Shares acquired pursuant to the exercise of such
Option or Right for a period of six (6) months following the date of the
acquisition of such Option or Right and (b) that in the event of termination of
employment of such employee, other than as a result of dismissal without cause,
such employee will not, for a period to be fixed at the time of the grant of the
Option or Right, enter into any other employment or participate directly or
indirectly in any other business or enterprise which is competitive with the
business of the Company or any subsidiary corporation or parent corporation of
the Company, or enter into any employment in which such employee will be called
upon to utilize special knowledge obtained through employment with the Company
or any subsidiary corporation or parent corporation thereof.
All determinations and interpretations made by the Committee shall be
binding and conclusive on all participants and their legal representatives. No
member of the Committee and no employee of the Company shall be liable for any
act or failure to act hereunder, except in circumstances involving his or her
bad faith, gross negligence or willful misconduct, or for any act or failure to
act hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of this Plan have been delegated. The Company
shall indemnify members of the Committee and any agent of the Committee who is
an employee of the Company, a subsidiary or an affiliate against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the
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Committee or such person may have under the Plan. The Committee may employ such
legal or other counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion or computation received
from any such counsel, consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company, or the subsidiary or affiliate whose employees have benefitted from the
Plan, as determined by the Committee.
IV. ELIGIBILITY
Options and Rights may be granted only to salaried key employees of the
Company or any subsidiary corporation or parent corporation of the Company now
existing or hereafter formed or acquired, except as hereinafter provided, and
Non-Qualified Options shall be granted to non-employee directors of the Company
(including former officers or key employees) ("Director Participants") only
pursuant to and in accordance with the provisions of Articles X through XIII
hereof. Any person who shall have retired from the active employment by the
Company or any subsidiary corporation or parent corporation of the Company,
although such person shall have entered into a consulting contract with the
Company or a subsidiary corporation or parent corporation of the Company, shall
not be eligible to receive an Option or Right.
The Plan does not create a right in any person to participate in the
Plan, nor does it create a right in any person to have any Options or Rights
granted to him or her.
The aggregate number of Shares with respect to which Options and/or
Rights may be granted under the Plan to any employee in any one taxable year is
300,000.
V. OPTION PRICE AND PAYMENT
The price for each Share purchasable under any Option granted hereunder
shall be such amount as the Committee may determine; provided, however, that the
price shall not be less than one hundred percent (100%) of the Fair Market Value
(as defined below) of the Shares on the date the Option is granted; provided,
further, that in the case of an Incentive Option granted to a person who, at the
time such Option is granted, owns shares of the Company or any subsidiary
corporation or parent corporation of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any subsidiary corporation or parent corporation of the Company,
the purchase price for each Share shall not be less than one hundred ten percent
(110%) of the Fair Market Value per Share at the date the Option is granted. In
determining the stock ownership of an employee for any purpose under the Plan,
the rules of Section 424(d) of the Code shall be applied, and the Committee may
rely on representations of fact made to it by the employee and believed by it to
be true.
Except as set forth in Article XVI, for purposes of this Plan and any
Options and/or Rights awarded hereunder, Fair Market Value shall be the closing
price of the Shares on the date of calculation (or on the last preceding trading
date if Shares were not traded on such date) if the Shares are readily tradeable
on a national securities exchange or other market system, and if the Shares are
not readily tradeable, Fair Market Value shall mean the amount determined in
good faith by the Committee as the fair market value of the Shares of the
Company.
Upon the exercise of an Option granted hereunder, the Company shall cause
the purchased Shares to be issued only when it shall have received the full
purchase price for the Shares in cash; provided, however, that in lieu of cash,
the holder of an Option may, if the terms of such Option so provide and to the
extent permitted by applicable law, exercise an Option (a) in whole or in part,
by delivering to the Company Shares (in proper form
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for transfer and accompanied by all requisite stock transfer tax stamps or cash
in lieu thereof) owned by such holder having a Fair Market Value equal to the
cash exercise price applicable to that portion of the Option being exercised by
the delivery of such Shares, the Fair Market Value of the Shares so delivered to
be determined as of the date immediately preceding the date on which the Option
is exercised, or as may be required in order to comply with or to conform to the
requirements of any applicable laws or regulations, or (b) in part, by
delivering to the Company an executed promissory note on such terms and
conditions as the Committee shall determine, at the time of grant, in its sole
discretion; provided, however, that (i) the principal amount of such note shall
not exceed ninety percent (90%) (or such lesser percentage as would be permitted
by applicable margin regulations) of the aggregate purchase price of the Shares
then being purchased pursuant to the exercise of such Option and (ii) payment
for Shares with a promissory note is permissible under applicable law. The
Committee may prescribe any other method of paying the exercise price that it
determines to be consistent with applicable law and the purpose of the Plan.
VI. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option granted hereunder shall be exercisable at such times, in such
amounts and during such period or periods as the Committee shall determine at
the date of the grant of such Option; provided, however, that an Incentive
Option shall not be exercisable after the expiration of ten (10) years from the
date such Option is granted; provided, further, that in the case of an Incentive
Option granted to a person who, at the time such Incentive Option is granted,
owns stock of the Company or any subsidiary corporation or parent corporation of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any subsidiary corporation or
parent corporation of the Company, such Incentive Option shall not be
exercisable after the expiration of five (5) years from the date such Incentive
Option is granted. Notwithstanding anything herein to the contrary, Incentive
Options may not be granted after the tenth anniversary of the Effective Date.
Each Option shall be subject to such additional terms and conditions as
may from time to time be prescribed by the Committee (which terms and conditions
may be subsequently waived by the Committee), subject to the limitations
contained in the Plan. The Committee shall have the right to accelerate, in
whole or in part, from time to time, conditionally or unconditionally, rights to
exercise any Option granted hereunder.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
Except to the extent otherwise provided under the Code, to the extent
that the aggregate Fair Market Value of stock for which Incentive Options (under
all stock option plans of the Company and of any parent corporation or
subsidiary corporation of the Company) are exercisable for the first time by an
employee during any calendar year exceeds one hundred thousand dollars
($100,000), such Options shall be treated as NonQualified Options. For purposes
of this limitation, (a) the Fair Market Value of stock is determined as of the
time the Option is granted and (b) the limitation will be applied by taking into
account Options in the order in which they were granted.
In no event shall an Option granted hereunder be exercised for a fraction
of a Share.
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A person entitled to receive Shares upon the exercise of an Option shall
not have the rights of a stockholder with respect to such Shares until the date
of issuance of a stock certificate to him for such Shares; provided, however,
that until such stock certificate is issued, any holder of an Option using
previously acquired Shares in payment of an option exercise price shall continue
to have the rights of a shareholder with respect to such previously acquired
Shares.
VII. STOCK APPRECIATION RIGHTS
In the discretion of the Committee, a Right may be granted (a) alone, (b)
simultaneously with the grant of an Option (either Incentive or Non-Qualified)
and in conjunction therewith or in the alternative thereto or (c) subsequent to
the grant of a Non-Qualified Option and in conjunction therewith or in the
alternative thereto.
The exercise price of a Right granted alone shall be determined by the
Committee but shall not be less than one hundred percent (100%) of the Fair
Market Value of one Share on the date of grant of such Right. A Right granted
simultaneously with or subsequent to the grant of an Option and in conjunction
therewith or in the alternative thereto shall have the same exercise price as
the related Option, shall be transferable only upon the same terms and
conditions as the related Option, and shall be exercisable only to the same
extent as the related Option; provided, however, that a Right, by its terms,
shall be exercisable only when the Fair Market Value of the Shares subject to
the Right and related Option exceeds the exercise price thereof.
Upon exercise of a Right granted simultaneously with or subsequent to an
Option and in the alternative thereto, the number of Shares for which the
related Option shall be exercisable shall be reduced by the number of Shares for
which the Right shall have been exercised. The number of Shares for which a
Right shall be exercisable shall be reduced upon any exercise of a related
Option by the number of Shares for which such Option shall have been exercised.
Any Right shall be exercisable upon such additional terms and conditions
as may from time to time be prescribed by the Committee.
A Right shall entitle the holder upon exercise thereof to receive from
the Company, upon a written request filed with the Secretary of the Company at
its principal offices (the "Request"), a number of Shares (with or without
restrictions as to substantial risk of forfeiture and transferability, as
determined by the Committee in its sole discretion), an amount of cash, or any
combination of Shares and cash, as specified in the Request (but subject to the
approval of the Committee, in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash payment), having an
aggregate Fair Market Value equal to the product of (a) the excess of the Fair
Market Value, on the day of such Request, of one Share over the exercise price
per Share specified in such Right or its related Option, multiplied by (b) the
number of Shares for which such Right shall be exercised; provided, however,
that the Committee, in its discretion, may impose a maximum limitation on the
amount of cash, the Fair Market Value of Shares, or a combination thereof, which
may be received by a holder upon exercise of a Right.
Any election by a holder of a Right to receive cash in full or partial
settlement of such Right, and any exercise of such Right for cash, may be made
only by a Request filed with the Corporate Secretary of the Company during the
period beginning on the third business day following the date of release for
publication by the Company of quarterly or annual summary statements of earnings
and ending on the twelfth business day following such date. Within thirty (30)
days after the receipt by the Company of a Request to receive cash in full or
partial settlement of a Right or to exercise such Right for cash, the Committee
shall, in its sole discretion, either consent to or disapprove, in whole or in
part, such Request.
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If the Committee disapproves in whole or in part any election by a holder
to receive cash in full or partial settlement of a Right or to exercise such
Right for cash, such disapproval shall not affect such holder's right to
exercise such Right at a later date, to the extent that such Right shall be
otherwise exercisable, or to elect the form of payment at a later date, provided
that an election to receive cash upon such later exercise shall be subject to
the approval of the Committee. Additionally, such disapproval shall not affect
such holder's right to exercise any related Option or Options granted to such
holder under the Plan.
A holder of a Right shall not be entitled to request or receive cash in
full or partial payment of such Right during the first six (6) months of its
term; provided, however, that such prohibition shall not apply if the holder of
such Right is not subject to the reporting requirements of Section 16(a) of the
Exchange Act.
For all purposes of this Article VII, the fair market value of Shares
shall be determined in accordance with the principles set forth in Article V
hereof.
VIII. TERMINATION OF EMPLOYMENT
Upon termination of employment of any employee with the Company and all
subsidiary corporations and parent corporations of the Company, any Option or
Right previously granted to the employee, unless otherwise specified by the
Committee in the Option or Right, shall, to the extent not theretofore
exercised, terminate and become null and void; provided, however, that:
(a) if the employee shall die while in the employ of such
corporation or during either the three (3) month or one (1) year period,
whichever is applicable, specified in clause (b) below and at a time when
such employee was entitled to exercise an Option or Right as herein
provided, the legal representative of such employee, or such person who
acquired such Option or Right by bequest or inheritance or by reason of
the death of the employee, may, not later than one (1) year from the date
of death, exercise such Option or Right, to the extent not theretofore
exercised, in respect of any or all of such number of Shares as specified
by the Committee in such Option or Right; and
(b) if the employment of any employee to whom such Option or Right
shall have been granted shall terminate by reason of the employee's
retirement (at such age or upon such conditions as shall be specified by
the Committee), disability (as described in Section 22(e)(3) of the Code)
or dismissal by the employer other than for cause (as defined below), and
while such employee is entitled to exercise such Option or Right as
herein provided, such employee shall have the right to exercise such
Option or Right so granted in respect of any or all of such number of
Shares as specified by the Committee in such Option or Right, at any time
up to and including (i) three (3) months after the date of such
termination of employment in the case of termination by reason of
retirement or dismissal other than for cause, and (ii) one (1) year after
the date of termination of employment in the case of termination by
reason of disability.
In no event, however, shall any person be entitled to exercise any Option
or Right after the expiration of the period of exercisability of such Option or
Right, as specified therein.
If an employee voluntarily terminates his or her employment, or is
discharged for cause, any Option or Right granted hereunder shall, unless
otherwise specified by the Committee, forthwith terminate with respect to any
unexercised portion thereof.
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If an Option or Right granted hereunder shall be exercised by the legal
representative of a deceased grantee or by a person who acquired an Option or
Right granted hereunder by bequest or inheritance or by reason of the death of
any employee or former employee, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative or other person to exercise such Option
or Right.
For the purposes of the Plan, the term "for cause" shall mean (a) with
respect to an employee who is a party to a written employment agreement with,
or, alternatively, participates in a compensation or benefit plan of the Company
or a subsidiary corporation or parent corporation of the Company, which
agreement or plan contains a definition of "for cause" or "cause" (or words of
like import) for purposes of termination of employment thereunder by the Company
or such subsidiary corporation or parent corporation of the Company, "for cause"
or "cause" as defined therein; or (b) in all other cases, as determined by the
Committee or the Board of Directors, in its sole discretion, (i) the willful
commission by an employee of an act that causes or may cause substantial damage
to the Company or a subsidiary corporation or parent corporation of the Company;
(ii) the commission by an employee of an act of fraud in the performance of such
employee's duties on behalf of the Company or a subsidiary corporation or parent
corporation of the Company; (iii) conviction of the employee for commission of a
felony in connection with the performance of his duties on behalf of the Company
or a subsidiary corporation or parent corporation of the Company, or (iv) the
continuing failure of an employee to perform the duties of such employee to the
Company or a subsidiary corporation or parent corporation of the Company after
written notice thereof and a reasonable opportunity to be heard and cure such
failure are given to the employee by the Committee.
For the purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for purposes
of Section 422(a) of the Code. If an individual is on leave of absence taken
with the consent of the corporation by which such individual was employed, or is
on active military service, and is determined to be an "employee" for purposes
of the exercise of an Option or Right, such individual shall not be entitled to
exercise such Option or Right during such period and while the employment is
treated as continuing intact unless such individual shall have obtained the
prior written consent of such corporation, which consent shall be signed by the
chairman of the board of directors, the president, a senior vice-president or
other duly authorized officer of such corporation.
A termination of employment shall not be deemed to occur by reason of (i)
the transfer of an employee from employment by the Company to employment by a
subsidiary corporation or a parent corporation of the Company or (ii) the
transfer of an employee from employment by a subsidiary corporation or a parent
corporation of the Company to employment by the Company or by another subsidiary
corporation or parent corporation of the Company.
In the event of the complete liquidation or dissolution of a subsidiary
corporation, or if ownership of 50% or more of such corporation ceases to be
held by the Company or another subsidiary corporation, any unexercised Options
or Rights theretofore granted to any person employed by such subsidiary
corporation will be deemed cancelled unless such person is employed by the
Company or by any parent corporation or another subsidiary corporation after the
occurrence of such event. If an Option or Right is to be cancelled pursuant to
the provisions of the previous sentence, notice of such cancellation will be
given to each employee holding unexercised Options, and such holder will have
the right to exercise such Options or Rights in full (without regard to any
limitation set forth or imposed pursuant to Article VI) during the thirty (30)
day period following notice of such cancellation.
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IX. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the optionee as to
all or part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and accompanied by payment of the purchase price. Subject to the terms of
Articles XVIII, XIX, XX and XXI hereof, the Company shall cause certificates for
the Shares so purchased to be delivered at the principal business office of the
Company, against payment of the full purchase price, on the date specified in
the notice of exercise.
X. STOCK OPTION GRANTS TO DIRECTOR PARTICIPANTS
Subject to the terms and conditions of Articles X through XIII hereof,
commencing with the Annual Meeting of Shareholders of the Company to be held in
2000, each Director Participant of the Company shall automatically be granted a
Non-Qualified Option to purchase 1,000 Shares on the date on which the annual
meeting of the Company's shareholders including any adjournments thereof is held
in each year. However, the Board of Directors may, in its discretion, during the
first year of the Plan and after payment of the cash dividend declared by the
Company on April 1, 1999, grant to the Director Participants Non-Qualified
Options. The purchase price of the Shares covered by the Non-Qualified Options
granted pursuant to this Article X shall be the Fair Market Value of such Shares
on the date of grant.
XI. DIRECTOR PARTICIPANT'S EXERCISE OF OPTIONS
A Non-Qualified Option granted to any Director Participant of the Company
shall not be exercisable for the twelve-month period immediately following the
grant of such Non-Qualified Option. Thereafter, the Non-Qualified Option shall
be exercisable for the period ending five years from the date of grant of such
NonQualified Option, except to the extent such exercise is further limited or
restricted pursuant to the provisions hereof.
If, in any year of the Non-Qualified Option, such Non-Qualified Option
shall not be exercised for the total number of Shares available for purchase
during that year, the Non-Qualified Option shall not thereby terminate as to
such unexercised portion, but shall be cumulative. As used herein, the term
"year of the NonQualified Option" shall mean a one (1) year period commencing
with the date of, or the anniversary of the date of, the granting of such
Non-Qualified Option.
XII. DIRECTOR PARTICIPANT'S TERMINATION
If a Director Participant's service as a director of the Company is
terminated, any Non-Qualified Option previously granted to such Director
Participant shall, to the extent not theretofore exercised, terminate and become
null and void; provided, however, that:
(a) if a Director Participant holding an outstanding Non-Qualified
Option dies, such NonQualified Option shall, to the extent not
theretofore exercised, remain exercisable for one (1) year after such
Director Participant's death, by such Director Participant's legatee,
distributee, guardian or legal or personal representative; and
(b) if the service of a Director Participant to whom such
Non-Qualified Option shall have been granted shall terminate by reason of
(i) such Director Participant's disability (as described in
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Section 22(e)(3) of the Code), (ii) voluntary retirement from service as
a director of the Company, or (iii) failure of the Company to retain or
nominate for re-election such Director Participant who is otherwise
eligible, unless due to any act of (A) fraud or intentional
misrepresentation, or (B) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any direct or indirect
subsidiary of the Company, while such Director Participant is entitled to
exercise such NonQualified Option as herein provided, such Director
Participant shall have the right to exercise such Non-Qualified Option so
granted in respect of any or all of such number of Shares subject to such
NonQualified Option at any time up to and including (X) three (3) months
after the date of such termination of service in the case of termination
by reason of voluntary retirement or failure of the Company to retain or
nominate for re-election such Director Participant who is otherwise
eligible, unless due to any act of (1) fraud or intentional
misrepresentation, or (2) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any direct or indirect
subsidiary of the Company, and (Y) one (1) year after the date of
termination of service in the case of termination by reason of
disability; and
(c) if the Director Participant shall die during either the three
(3) month or one (1) year period, whichever is applicable, specified in
clause (b) above and at a time when such Director Participant was
entitled to exercise a Non-Qualified Option as herein provided, the legal
representative of such Director Participant, or such person who acquired
such Non-Qualified Option by bequest or inheritance or by reason of the
death of the Director Participant may, not later than one (1) year from
the date of death, exercise such Non-Qualified Option, to the extent not
theretofore exercised, in respect of any or all of such number of Shares
subject to such Non-Qualified Option.
In no event, however, shall a Director Participant be entitled to
exercise any Option after the expiration of the period of exercisability of such
Option, as specified therein.
XIII. DIRECTOR PARTICIPANT'S INELIGIBILITY FOR OTHER GRANTS
Any Director Participant eligible to receive an Option pursuant to
Article X hereof shall be ineligible to receive any other grant or award under
any other Article of this Plan.
XIV. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of Directors shall determine.
XV. NON-TRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
Neither an Option nor a Right granted hereunder shall be transferable,
whether by operation of law or otherwise, other than by will or the laws of
descent and distribution, and any Option or Right granted hereunder shall be
exercisable, during the lifetime of the holder, only by such holder. Except to
the extent provided above, Options and Rights may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Notwithstanding the foregoing, at the discretion of the Committee, an award of
an Option (other than an Incentive Option) and/or a Right may permit the
transferability of such Option and/or Right by a participant solely to the
participant's spouse, siblings, parents, children and grandchildren or trusts
for the benefit of such
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persons or partnerships, corporations, limited liability companies or other
entities owned solely by such persons, including trusts for such persons,
subject to any restriction included in the award of the Option and/or Right.
XVI. ADJUSTMENT PROVISIONS; EFFECT OF CERTAIN TRANSACTIONS
(a) If there shall be any change in the Shares of the Company, through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, split up, spinoff, combination of shares, exchange
of shares, dividend in kind or other like change in capital structure or
distribution to shareholders of the Company (other than normal cash dividends),
in order to prevent dilution or enlargement of participants' rights under the
Plan, the Committee shall adjust, in an equitable manner, the number and kind of
shares that may be issued under the Plan, the number and kind of shares subject
to outstanding Options and Rights, the consideration to be received upon
exercise of Options or in respect of Rights, the exercise price applicable to
outstanding Options and Rights, and/or the fair market value of the Shares and
other value determinations applicable to outstanding Options and Rights.
Appropriate adjustments may also be made by the Committee in the terms of any
Options and Rights under the Plan to reflect such changes or distributions and
to modify any other terms of outstanding Options and Rights on an equitable
basis. In addition, the Committee is authorized to make adjustments to the terms
and conditions of, and the criteria included in, Options and Rights in
recognition of unusual or nonrecurring events affecting the Company or the
financial statements of the Company, or in response to changes in applicable
laws, regulations, or accounting principles.
(b) Notwithstanding any other provision of this Plan, if there is an
Extraordinary Event with respect to the Company, all then outstanding Options
and Rights that have not vested or become exercisable at the time of such
Extraordinary Event shall immediately vest and become exercisable. For purposes
of this Article XVI(b), an "Extraordinary Event" with respect to the Company
shall be deemed to have occurred upon any of the following events:
(i) A change in control of the direction and administration of the
Company's business of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A (or any successor rule or
regulation) of Regulation 14A promulgated under the Exchange Act whether
or not the Company is then subject to such reporting requirement; or
(ii) The Company's Board of Directors shall approve a sale of all
or substantially all of the assets of the Company, a partial liquidation
of the Company under Section 302(b)(4) of the Code or other extraordinary
corporate contraction or distribution or other extraordinary transaction
that is determined by the Board of Directors to be appropriate and in the
best interests of the Company and which by its terms precludes the
existence of Company securities convertible into Shares; or
(iii)The Company's Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of any
event described in Article XVI(b)(i) or (ii) above.
Notwithstanding the foregoing, (A) any spin-off of a division or subsidiary of
the Company to its shareholders and (B) any event listed in (i) through (iii)
above that the Board of Directors determines not to be an Extraordinary Event
with respect to the Company, shall not constitute an Extraordinary Event with
respect to the Company.
The Committee, in its discretion, may determine that, upon the occurrence
of an Extraordinary Event with respect to the Company, each Option and Right
outstanding hereunder shall terminate within a specified
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number of days after notice to the holder, and such holder shall receive with
respect to each Share that is subject to an Option or a Right (assuming no
exercise) an amount equal to the excess of the "fair market value" of such Share
over the exercise price per share of such Option or Right (as the case may be);
such amount to be payable in cash, in one or more kinds of property (including
the property, if any, payable in the transaction, if any) or in a combination
thereof, as the Committee, in its discretion, shall determine. For purposes of
this provision, the "fair market value" of the Shares shall be determined by the
Board of Directors in good faith and shall be not less than the Fair Market
Value determined in accordance with Article V as of the date of the occurrence
of the Extraordinary Event. The provisions contained in the preceding sentence
shall be inapplicable to an Option or Right granted within six (6) months before
the occurrence of an Extraordinary Event if the holder of such Option or Right
is subject to the reporting requirements of Section 16(a) of the Exchange Act
and no exception from liability under Section 16(b) of the Exchange Act is
otherwise available to such holder.
XVII. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the employment
or directorship of any holder of an Option or Right and it shall not impose any
obligation on the part of any holder of an Option or Right to remain in the
employ of the Company or of any subsidiary corporation or parent corporation
thereof. Termination of service of a Director Participant shall be governed by
the provisions of Article XII hereof.
XVIII. PURCHASE FOR INVESTMENT
Except as hereinafter provided, the Committee may require the holder of
an Option or Right granted hereunder, as a condition of exercise of such Option
or Right, to execute and deliver to the Company a written statement, in form
satisfactory to the Committee, in which such holder represents and warrants that
such holder is purchasing or acquiring the Shares acquired thereunder for such
holder's own account, for investment only and not with a view to the resale or
distribution thereof, and agrees that any subsequent resale or distribution of
any of such Shares shall be made only pursuant to either (i) a Registration
Statement on an appropriate form under the Securities Act of 1933, as amended
(the "Securities Act"), which Registration Statement has become effective and is
current with regard to the Shares being sold, or (ii) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the holder shall, prior to any offer of sale or sale of such Shares,
obtain a prior favorable written opinion of counsel, in form and substance
satisfactory to counsel for the Company, as to the application of such exemption
thereto. The foregoing restriction shall not apply to (x) issuances by the
Company so long as the Shares being issued are registered under the Securities
Act and a prospectus in respect thereof is current or (y) reofferings of Shares
by affiliates of the Company (as defined in Rule 405 or any successor rule or
regulation promulgated under the Securities Act) if the Shares being reoffered
are registered under the Securities Act and a prospectus in respect thereof is
current.
Nothing herein shall be construed as requiring the Company to register
Shares subject to any Option or Right under the Securities Act. In addition, if
at any time the Committee shall determine that the listing or qualification of
the Shares subject to such Option or Right on any securities exchange or under
any applicable law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
granting of an Option or Right, or the issuance of Shares thereunder, such
Option or Right may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.
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XIX. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option or Right which may be granted hereunder
and, in the case of an Option, payment of the purchase price, a certificate or
certificates for the Shares shall be issued by the Company in the name of the
person exercising the Option or Right and shall be delivered to or upon the
order of such person.
The Company may endorse such legend or legends upon the certificates for
Shares issued pursuant to the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such Shares as the Committee,
in its discretion, determines to be necessary or appropriate to (a) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act, (b) implement the provisions of the Plan and any agreement
between the Company and the optionee or grantee with respect to such Shares, or
(c) permit the Company to determine the occurrence of a disqualifying
disposition, as described in Section 421(b) of the Code, of Shares transferred
upon exercise of an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer, except
fees and expenses which may be necessitated by the filing or amending of a
Registration Statement under the Securities Act, which fees and expenses shall
be borne by the recipient of the Shares unless such Registration Statement has
been filed by the Company for its own corporate purposes (and the Company so
states) in which event the recipient of the Shares shall bear only such fees and
expenses as are attributable solely to the inclusion of the Shares he or she
receives in the Registration Statement.
All Shares issued as provided herein shall be fully paid and
nonassessable to the extent permitted by law.
XX. WITHHOLDING TAXES
The Company may require an employee exercising a Right or a Non-Qualified
Option granted hereunder, or disposing of Shares acquired pursuant to the
exercise of an Incentive Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the corporation that
employs such employee for any taxes required by any government to be withheld or
otherwise deducted and paid by such corporation in respect of the issuance or
disposition of such Shares. In lieu thereof, the corporation that employs such
employee shall have the right to withhold the amount of such taxes from any
other sums due or to become due from such corporation to the employee upon such
terms and conditions as the Committee shall prescribe. The corporation that
employs such employee may, in its discretion, hold the stock certificate to
which such employee is entitled upon the exercise of an Option as security for
the payment of such withholding tax liability, until cash sufficient to pay that
liability has been accumulated. In addition, at any time that the Company
becomes subject to a withholding obligation under applicable law with respect to
the exercise of a Right or Non-Qualified Option (the "Tax Date"), except as set
forth below, a holder of a Right or NonQualified Option may elect to satisfy, in
whole or in part, the holder's related personal tax liabilities (an "Election")
by (a) directing the Company to withhold from Shares issuable in the related
exercise either a specified number of Shares or Shares having a specified value
(in each case not in excess of the related personal tax liabilities), (b)
tendering Shares previously issued pursuant to the exercise of an Option or
Right or other Shares owned by the holder or (c) combining any or all of the
foregoing options in any fashion. Once made, an Election shall be irrevocable.
The withheld Shares and other Shares tendered in payment should be valued at
their Fair Market Value on the Tax Date. The Committee may disapprove of any
Election, suspend or terminate the right to make Elections or provide that the
right to make Elections shall not apply to particular
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<PAGE>
Shares or exercises. The Committee may impose any additional conditions or
restrictions on the right to make an Election as it shall deem appropriate. In
addition, the Company shall be authorized to effect any such withholding upon
exercise of a Non-Qualified Option or Right by retention of Shares issuable upon
such exercise having a Fair Market Value at the date of exercise which is equal
to the amount to be withheld; provided, however, that the Company shall not be
authorized to effect such withholding without the prior written consent of the
employee if such withholding would subject such employee to liability under
Section 16(b) of the Exchange Act. The Committee may prescribe such rules as it
determines with respect to employees subject to the reporting requirements of
Section 16(a) of the Exchange Act to effect such tax withholding in compliance
with the Rules established by the Securities and Exchange Commission (the
"Commission") under Section 16 of the Exchange Act and the positions of the
staff of the Commission thereunder expressed in no-action letters exempting such
tax withholding from liability under Section 16(b) of the Exchange Act.
XXI. LISTING OF SHARES AND RELATED MATTERS
The Board of Directors may delay any issuance or delivery of Shares if it
determines that listing, registration or qualification of Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, until such listing, registration, qualification, consent
or approval shall have been effected or obtained, or otherwise provided for,
free of any conditions not acceptable to the Board of Directors.
XXII. FOREIGN LAWS
The Committee may grant Options and Rights to individual participants who
are subject to the tax laws of nations other than the United States, which
Options and Rights may have terms and conditions as determined by the Committee
as necessary to comply with applicable foreign laws. The Committee may take any
action which it deems advisable to obtain approval of such Options and Rights by
the appropriate foreign governmental entity; provided, however, that no such
Options or Rights may be granted pursuant to this Article XXII and no action may
be taken which would result in a violation of the Exchange Act, the Code or any
other applicable law.
XXIII. AMENDMENT OF THE PLAN
The Board of Directors may, from time to time, amend the Plan, provided
that no amendment shall be made, without the approval of the shareholders of the
Company, that will increase the total number of Shares reserved for Options and
Rights under the Plan or the maximum number of Shares with respect to which
Options and/or Rights may be granted under the Plan to any one employee (other
than an increase resulting from an adjustment provided for in Article XVI
hereof) or alter the class of eligible participants in the Plan. The Committee
shall be authorized to amend the Plan and the Options granted hereunder to
permit the Incentive Options granted hereunder to continue to qualify as
incentive stock options within the meaning of Section 422 of the Code and the
Treasury regulations promulgated thereunder. Except to the extent and in the
circumstances expressly permitted under Article XVI, the rights and obligations
under any Option or Right granted before amendment of the Plan or any
unexercised portion of such Option or Right shall not be adversely affected by
amendment of the Plan or the Option or Right without the consent of the holder
of such Option or Right.
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<PAGE>
XXIV. DURATION; TERMINATION OR SUSPENSION OF THE PLAN
The Plan shall continue indefinitely until terminated by the Board of
Directors or the Committee or unless terminated pursuant to Article XXVIII. The
Board of Directors may at any time suspend or terminate the Plan. Options and
Rights may not be granted while the Plan is suspended or after it is terminated.
Rights and obligations under any Option or Right granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option or Right was
granted. The power of the Committee to construe and administer any Options or
Rights granted prior to the termination or suspension of the Plan under Article
III nevertheless shall continue after such termination or during such
suspension.
XXV. SAVINGS PROVISION
With respect to persons subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
XXVI. GOVERNING LAW
The Plan, such Options and Rights as may be granted hereunder and all
related matters shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
XXVII. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be deemed
to affect the validity of any other provision.
XXVIII. EFFECTIVE DATE
The Plan shall become effective at 9:00 A.M., New York City time, on the
Effective Date; provided, however, that if the Plan is not approved by a vote of
the shareholders of the Company at an annual meeting or any special meeting or
by unanimous written consent within twelve (12) months after the Effective Date,
the Plan and any Options or Rights granted thereunder shall terminate.
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<PAGE>
ANNEX B
LEUCADIA NATIONAL CORPORATION
SENIOR EXECUTIVE WARRANT PLAN
1. PURPOSE
The purpose of the Senior Executive Warrant Plan (the "Plan") is to
provide key senior executives of Leucadia National Corporation (the "Company")
with incentives to maximize shareholder value through the issuance of warrants
("Warrants") to purchase common shares, par value $1.00 per share (the "Common
Shares"), of the Company.
2. ELIGIBILITY
Eligibility for the Plan is limited to Ian M. Cumming, Chairman of the
Board of the Company, and Joseph S. Steinberg, President of the Company.
Individuals eligible to participate in the Plan are herein called
"Participants."
3. PLAN ADMINISTRATION
The Plan shall be administered by the Employee Benefits Committee of the
Board of Directors (the "Committee"). The Committee may delegate any of its
duties and powers, in whole or in part, to any subcommittee thereof.
The Committee shall have full power to administer and interpret the Plan
and to establish rules for its administration. The Committee shall have the
authority, in its discretion and subject to the express provisions of the
Warrants (the form of which is attached as Exhibit 1 and incorporated herein by
reference), to grant Warrants to the Participants, to determine the date of
grant of Warrants to the Participants, the number of Common Shares to be subject
to each Warrant and the vesting provisions thereof.
The Committee, in making any determination under or referred to in the
Plan, shall be entitled to rely on opinions, reports or statements of officers
or employees of the Company and other entities and of counsel, public
accountants and other professional expert persons.
4. WARRANTS
The maximum number of Common Shares that may be issuable upon exercise of
Warrants granted under the Plan shall not exceed 800,000 Common Shares, subject
to adjustment as set forth herein. Warrants to purchase up to 400,000 Common
Shares may be granted to each Participant under the Plan. The exercise price per
Common Share issuable upon the exercise of any Warrant granted hereunder shall
be not less than 105% of the fair market value of a Common Share on the date of
grant of the Warrant. Warrants may not be granted prior to (a) the date of
payment of the cash dividend declared by the Company on April 1, 1999 and (b)
shareholder approval of the Plan. A Warrant may not be exercised after the
expiration of five years from the date the Warrant is granted. All other terms
of Warrants granted under the Plan shall be as set forth in the form of Warrant,
attached hereto as Exhibit 1.
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NYFS04...:\30\76830\0198\347\WAR3179T.20D
<PAGE>
5. AMENDMENT AND TERMINATION OF THE PLAN
The Company's Board of Directors may at any time, or from time to time,
suspend or terminate the Plan, in whole or in part, or amend it in such respects
as the Board of Directors may determine; provided, however, that no such
suspension, termination or amendment shall affect any outstanding Warrant
without the consent of the holder thereof.
6. MISCELLANEOUS PROVISIONS
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant any right to continue to be employed by or perform
services for the Company or any subsidiary.
The Plan shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
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<PAGE>
Exhibit 1
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] COMMON SHARES
THIS CERTIFIES that, for value received,
[IAN M. CUMMING OR JOSEPH S. STEINBERG]
(the "Executive") 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"), [four hundred thousand] ([400,000]) fully
paid and nonassessable Common Shares, $1 par value, of the Company ("Common
Shares"), subject, 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, 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 [vesting provisions to be inserted],
until 5:00 p.m.
New York City time on ______ __, [2004].
(b) "Termination" for purposes hereof shall mean either (1) the
voluntary termination by the Executive of his employment with the Company,
or (2) the discharge of the Executive from such employment for "cause."
"Cause" is defined as the commission by the Executive 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 the
Executive of any material act of disloyalty, dishonesty or breach of trust
against the Company or any of its subsidiary or affiliated companies.
(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
- - -------------------------------
1. 105% of closing price of a Common Share on the date the Warrants are
granted by the Company.
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<PAGE>
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.
(e) In the event that the Board of Directors or the Option Committee
of the Board of Directors accelerates vesting of all outstanding stock
options issued under any stock option plan of the Company pursuant to the
terms thereof, the Warrants shall also become immediately exercisable.
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
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<PAGE>
in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto 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
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<PAGE>
forthwith be adjusted to such respective amount as would have been
obtained had such right or option never been issued as to such 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).
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4D. Dividends and Distributions. If the Company shall at any time
declare a dividend or make a distribution in respect of its Common Shares,
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;
provided that no adjustment under this paragraph 4(D) shall be required in
the case of a cash dividend payable out of earnings or surplus and
otherwise than in securities of the Company unless such cash dividend is a
special dividend 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 surplus
only to the extent that such earnings or 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
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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 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
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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.
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. Subject to 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. Limitations on Transferability; 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.
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"Company Securities" means (i) shares of common stock of the
Company, (ii) shares of preferred stock of the Company, (iii) warrants,
rights, or options (within the meaning of Treasury Regulation
ss.1.382-2T(h)(4)(v)) to purchase stock of the Company, and (iv) any other
interests that would be treated as "stock" of the Company pursuant to
Treasury Regulation ss.1.382-2T(f)(18).
"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 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. For purposes of obtaining approval by the Board of
Directors pursuant to Part III of Article Fourth of the Company's
Certificate of Incorporation, "Transfer" shall mean any direct or indirect
sale, transfer, assignment, conveyance, pledge, or other disposition. A
Transfer also shall include the creation or grant of an option (within the
meaning of Treasury Regulation ss.1.382-2T(h)(4)(v)). A Transfer shall not
include an issuance or grant of Company Securities by the Company.
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"Treasury Regulation ss.1.382-2T" means the temporary income tax
regulations promulgated under Section 382, and any successor regulations.
References to any subsection of such regulations include references to any
successor subsection thereof.
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 ______ __, 1999, 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."
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.
(4) Unless and until removed as provided in Part III of
Article Fourth of the Company's Certificate of Incorporation, 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:
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In the case of this Warrant: "The transfer of this
Warrant and the Common Shares issuable upon exercise hereof is
subject to restrictions pursuant to Part III of Article Fourth
of the Certificate of Incorporation of Leucadia National
Corporation reprinted in its entirety on Appendix 1 of this
Warrant."
In the case of Common Shares: "The transfer of the
Securities represented hereby is subject to restrictions
pursuant to Part III of Article Fourth of the Certificate of
Incorporation of Leucadia National Corporation reprinted in
its entirety on the back of this Certificate."
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, provided that the holder has
complied with the provisions of Part III of Article Fourth of the
Company's Certificate of Incorporation, if applicable, unless the Company
determines within 20 days following such delivery that registration under
the Securities Act is required with respect to such proposed transfer or
that such transfer would violate the provisions of such Part III of
Article Fourth. 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 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.
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(2) The Company's obligation to effect a registration under
this paragraph is subject to the conditions that:
(a) The Executive 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 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.
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(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 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
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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
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
B-15
<PAGE>
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.
B-16
<PAGE>
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 ______ __, 1999.
LEUCADIA NATIONAL CORPORATION
By:
---------------------------------
ATTEST:
---------------------------------
Secretary
B-17
<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 _________________________
B-18
<PAGE>
APPENDIX 1
PART III OF ARTICLE FOURTH OF
THE CERTIFICATE OF INCORPORATION OF
LEUCADIA NATIONAL CORPORATION
III. TRANSFER RESTRICTIONS
(a) Certain Definitions. As used in this Part III of Article FOURTH, the
following terms have the following respective meanings:
"Corporation Securities" means (i) shares of common stock of the
Corporation, (ii) shares of preferred stock of the Corporation, (iii) warrants,
rights, or options (within the meaning of Treasury Regulation ss.1.382-
2T(h)(4)(v)) to purchase stock of the Corporation, and (iv) any other interests
that would be treated as "stock" of the Corporation pursuant to Treasury
Regulation ss.1.382-2T(f)(18).
"Percentage Stock Ownership" means percentage stock ownership as
determined in accordance with Treasury Regulation ss.1.382-2T(g), (h), (j), and
(k).
"Five-Percent Shareholder" means a Person or group of Persons that is
identified as a "5-percent shareholder" of the Corporation pursuant to Treasury
Regulation ss.1.382-2T(g)(1).
"Person" means an individual, corporation, estate, trust, association,
company, partnership, joint venture or similar organization.
"Prohibited Transfer" means any purported Transfer of Corporation
Securities to the extent that such Transfer is prohibited and void under this
Part III of Article FOURTH.
"Restriction Release Date" means the earlier of December 31, 2005, the
repeal of Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code") (and any comparable successor provision) ("Section 382"), or the
beginning of a taxable year of the Corporation (or any successor thereof) to
which no Tax Benefits may be carried forward.
"Tax Benefits" means the net operating loss carryovers, capital loss
carryovers, general business credit carryovers, alternative minimum tax credit
carryovers and foreign tax credit carryovers, as well as any "net unrealized
built-in loss" within the meaning of Section 382, of the Corporation or any
direct or indirect subsidiary thereof.
"Transfer" means any direct or indirect sale, transfer, assignment,
conveyance, pledge, or other disposition. A Transfer also shall include the
creation or grant of an option (within the meaning of Treasury Regulation
ss.1.382-2T(h)(4)(v)). A Transfer shall not include an issuance or grant of
Corporation Securities by the Corporation.
"Treasury Regulation ss.1.382-2T" means the temporary income tax
regulations promulgated under Section 382, and any successor regulations.
References to any subsection of such regulations include references to any
successor subsection thereof.
(b) Restrictions. Any attempted Transfer of Corporation Securities prior
to the Restriction Release Date, or any attempted Transfer of Corporation
Securities pursuant to an agreement entered into prior to the Restriction
Release Date, shall be prohibited and void ab initio to the extent that, as a
result of such Transfer (or any series
B-19
<PAGE>
of Transfers of which such Transfer is a part), either (1) any Person or group
of Persons shall become a Five-Percent Shareholder, or (2) the Percentage Stock
Ownership interest in the Corporation of any Five-Percent Shareholder shall be
increased; provided, however, that nothing herein contained shall preclude the
settlement of any transaction entered into through the facilities of the New
York Stock Exchange, Inc. in the Corporation Securities.
(c) Certain Exceptions. The restrictions set forth in paragraph (b) of
this Part III of Article FOURTH shall not apply to an attempted Transfer if the
transferor or the transferee obtains the approval of the Board of Directors of
the Corporation. As a condition to granting its approval, the Board of Directors
may, in its discretion, require an opinion of counsel selected by the Board of
Directors that the Transfer shall not result in the application of any Section
382 limitation on the use of the Tax Benefits.
(d) Treatment of Excess Securities.
(i) No employee or agent of the Corporation shall record any Prohibited
Transfer, and the purported transferee of such a Prohibited Transfer (the
"Purported Transferee") shall not be recognized as a shareholder of the
Corporation for any purpose whatsoever in respect of the Corporation Securities
which are the subject of the Prohibited Transfer (the "Excess Securities").
Until the Excess Securities are acquired by another Person in a Transfer that is
not a Prohibited Transfer, the Purported Transferee shall not be entitled with
respect to such Excess Securities to any rights of shareholders of the
Corporation, including without limitation, the right to vote such Excess
Securities and to receive dividends or distributions, whether liquidating or
otherwise, in respect thereof, if any. Once the Excess Securities have been
acquired in a Transfer that is not a Prohibited Transfer, the Securities shall
cease to be Excess Securities.
(ii) If the Board of Directors determines that a Transfer of Corporation
Securities constitutes a Prohibited Transfer then, upon written demand by the
Corporation, the Purported Transferee shall transfer or cause to be transferred
any certificate or other evidence of ownership of the Excess Securities within
the Purported Transferee's possession or control, together with any dividends or
other distributions that were received by the Purported Transferee from the
Corporation with respect to the Excess Securities ("Prohibited Distributions"),
to an agent designated by the Board of Directors (the "Agent"). The Agent shall
thereupon sell to a buyer or buyers, which may include the Corporation, the
Excess Securities transferred to it in one or more arm's-length transactions
(over the New York Stock Exchange, if possible); provided, however, that the
Agent shall effect such sale or sales in an orderly fashion and shall not be
required to effect any such sale within any specific time frame if, in the
Agent's discretion, such sale or sales would disrupt the market for the
Corporation Securities or otherwise would adversely affect the value of the
Corporation Securities. If the Purported Transferee has resold the Excess
Securities before receiving the Corporation's demand to surrender the Excess
Securities to the Agent, the Purported Transferee shall be deemed to have sold
the Excess Securities for the Agent, and shall be required to transfer to the
Agent any Prohibited Distributions and the proceeds of such sale, except to the
extent that the Agent grants written permission to the Purported Transferee to
retain a portion of such sales proceeds not exceeding the amount that the
Purported Transferee would have received from the Agent pursuant to paragraph
(d)(iii) of this Article FOURTH if the Agent rather than the Purported
Transferee had resold the Excess Securities.
(iii) The Agent shall apply any proceeds of a sale by it of Excess
Securities and, if the Purported Transferee had previously resold the Excess
Securities, any amounts received by it from a Purported Transferee, as follows:
(1) first, such amounts shall be paid to the Agent to the extent necessary to
cover its costs and expenses incurred in connection with its duties hereunder;
(2) second, any remaining amounts shall be paid to the Purported Transferee, up
to the amount paid by the Purported Transferee for the Excess Securities (or the
fair market value, calculated on the basis of the closing market price for
Corporation Securities on the day before the
B-20
<PAGE>
Transfer, of the Excess Securities at the time of the attempted Transfer to the
Purported Transferee by gift, inheritance, or similar Transfer), which amount
(or fair market value) shall be determined in the discretion of the Board of
Directors; and (3) third, any remaining amounts, subject to the limitations
imposed by the following proviso, shall be paid to the Leucadia Foundation;
provided, however, that (i) if the Leucadia Foundation shall have terminated
prior to its receipt of such amounts, such remaining amounts shall be paid to
one or more organizations qualifying under Section 501(c)(3) of the Code (and
any comparable successor provision) ("Section 501(c)(3)") selected by the Board
of Directors, and (ii) if the Excess Securities (including any Excess Securities
arising from a previous Prohibited Transfer not sold by the Agent in a prior
sale or sales), represent a 5% or greater Percentage Stock Ownership interest in
any class of Corporation Securities, then any such remaining amounts to the
extent attributable to the disposition of the portion of such Excess Securities
exceeding a 4.99 Percentage Stock Ownership interest in such class shall be paid
to one or more organizations qualifying under Section 501(c)(3) selected by the
Board of Directors. The recourse of any Purported Transferee in respect of any
Prohibited Transfer shall be limited to the amount payable to the Purported
Transferee pursuant to clause (2) of the preceding sentence. In no event shall
the proceeds of any sale of Excess Securities pursuant to this Part III of
Article FOURTH inure to the benefit of the Corporation.
(iv) If the Purported Transferee fails to surrender the Excess Securities
or the proceeds of a sale thereof to the Agent within thirty business days from
the date on which the Corporation makes a demand pursuant to paragraph (d)(ii)
of this Article, then the Corporation shall institute legal proceedings to
compel the surrender.
(v) The Corporation shall make the demand described in paragraph (d)(ii)
of this Part III of Article FOURTH within thirty days of the date on which the
Board of Directors determines that the attempted Transfer would result in Excess
Securities; provided, however, that if the Corporation makes such demand at a
later date, the provisions of this Part III of Article FOURTH shall apply
nonetheless.
(e) Bylaws, Legends, etc.
(i) The Bylaws of the Corporation shall make appropriate provisions to
effectuate the requirements of this Part III of Article FOURTH.
(ii) All certificates representing Corporation Securities issued after the
effectiveness of this Part III of Article FOURTH shall bear a conspicuous legend
as follows:
THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT TO
RESTRICTIONS PURSUANT TO PART III OF ARTICLE FOURTH OF THE
CERTIFICATE OF INCORPORATION OF LEUCADIA NATIONAL CORPORATION
REPRINTED IN ITS ENTIRETY ON THE BACK OF THIS CERTIFICATE.
(iii) The Board of Directors of the Corporation shall have the power to
determine all matters necessary to determine compliance with this Part III of
Article FOURTH, including without limitation (1) whether a new Five-Percent
Shareholder would be required to be identified in certain circumstances, (2)
whether a Transfer is a Prohibited Transfer, (3) the Percentage Stock Ownership
in the Corporation of any Five-Percent Shareholder, (4) whether an instrument
constitutes a Corporation Security, (5) the amount (or fair market value) due to
a Purported Transferee pursuant to clause (2) of paragraph (d)(iii) of this Part
III of Article FOURTH, and (6) any other matters which the Board of Directors
determines to be relevant; and the good faith determination of the Board of
Directors on such matters shall be conclusive and binding for all the purposes
of this Part III of Article FOURTH.
B-21
<PAGE>
PROXY
LEUCADIA NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF SHAREHOLDERS, MAY 5, 1999 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
5, 1999 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
9, 1999, the Proxy Statement furnished herewith, and a copy of the Annual Report
to Shareholders for the year ended December 31, 1998 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, 3 AND 4 AND PURSUANT TO ITEM 5.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
NYFS04...:\30\76830\0146\347\PXY2099R.15A
<PAGE>
ITEM 1. Election of Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
NOMINEES LISTED BELOW.
FOR all nominees listed on the right WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary nominees listed to the right.
hereon).
[-] [-]
NOMINEES: IAN M. CUMMING, PAUL M.
DOUGAN, LAWRENCE D. GLAUBINGER, JAMES E.
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 2. Approval of the 1999 Stock Option Plan.
FOR AGAINST ABSTAIN
[-] [-] [-]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
---
ITEM 3. Approval of the Senior Executive Warrant Plan.
FOR AGAINST ABSTAIN
[-] [-] [-]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
---
ITEM 4. Ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of Leucadia for 1999.
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: _____________, 1999
R
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.
