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
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14a-6(e)(2))
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[ ] Soliciting Material Under Rule 14a-12
LEUCADIA NATIONAL CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[Logo]
April 15, 2002
Dear shareholder:
We are seeking your approval for:
(i) our reorganization from New York, our current place of
organization, to Bermuda; and
(ii)an amendment to our charter to reduce from two-thirds to a
majority the number of our outstanding shares necessary to
authorize any merger (including the reorganization
referred to above), consolidation, or dissolution of our
company, or any sale, lease, exchange or other disposition
of all or substantially all of our assets.
We believe the reorganization will allow us to obtain the
benefit of certain tax, business and financial advantages that are not
currently available to us. The reorganization should provide us with:
o the opportunity to improve cash flow and enhance long-term
profitability as a result, in significant part, of a
reduction in the overall effective tax rate to be paid on
our worldwide income, and a more favorable environment for
potential future asset sales,
o a more favorable and flexible corporate structure for the
formation and growth of non-U.S. based operations,
o an enhanced ability to pursue business combinations with
non-U.S. entities, and
o an expansion of our investor base, as our shares may become
more attractive to non-U.S. investors.
If the reorganization is approved and we change our place of
organization, the number of shares you own and your relative economic ownership
in our company at the time of the reorganization will remain unchanged. However,
you will then hold common shares in a Bermuda company, Leucadia National
Limited, rather than a New York corporation, and your common shares will
automatically become common shares of the Bermuda company. Following the
reorganization, you will be asked to exchange your current share certificates
for share certificates of Leucadia National Limited, the Bermuda company. We
will remain a publicly traded company and expect our shares to continue to be
listed on the New York Stock Exchange under the symbol "LUK." Due to a
technicality under New York law, we would first reincorporate in Arizona
immediately before becoming a Bermuda company.
Our Board of Directors believes that this proposal is favorable for us
and for you and unanimously recommends and approves this proposal for
reorganization. As structured, the reorganization would have no tax cost to you
as a shareholder, but will have a tax cost to the company. Currently, the tax
cost to the company is unacceptably high and so, we do not expect to implement
the reorganization at this time. However, because it is possible that the tax
cost to the company will decline to a level that would be acceptable given the
anticipated advantages of the reorganization, we are seeking your approval for
the reorganization now. This will enable us to be in a position to implement the
reorganization quickly if and at such time as the tax cost to the company
decreases to an acceptable level.
If the proposed charter amendment is approved, which will require
favorable votes from a majority of all outstanding shares, then we will only
need favorable votes from a majority of all outstanding shares to approve the
reorganization. If the proposed charter amendment is not approved, we will need
favorable votes from two-thirds of all outstanding shares to approve the
reorganization. Shares for which no votes are cast will be treated as though
they were voted against the reorganization and the charter amendment, so it is
very important for all shareholders to vote.
This proxy statement, which includes a prospectus covering the issuance
to you in the reorganization of the same number of shares of the Bermuda company
that you currently own in our company, provides you with detailed information
regarding the reorganization and the charter amendment.
Along with the benefits mentioned above, the proposed reorganization
involves certain important changes to your rights as shareholders and is not
without some risk. While we believe the potential benefits outweigh any change
in your rights and any possible risks, we encourage you to read this entire
document, including the annexed bye-laws of Leucadia National Limited,
carefully.
Your support and your vote for these actions matter greatly. Whether or
not you plan to attend the annual meeting, please complete, date and sign the
enclosed proxy card and mail it promptly in the enclosed return envelope.
Because the proposed reorganization requires the affirmative vote of at least a
majority (assuming the proposed charter amendment to be considered at the annual
meeting is approved) of all outstanding common shares, it is extremely important
that you respond. We urge you to join us in supporting this important
opportunity.
Sincerely,
/s/ Ian M. Cumming
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Ian M. Cumming
Chairman of the Board
You should carefully consider the risk factors beginning on page 35.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of the securities to be issued under this
proxy statement/prospectus or determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated April 15, 2002 and is first
being mailed to shareholders on or about April 15, 2002.
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 14, 2002
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April 15, 2002
To our common shareholders:
You are cordially invited to attend the annual meeting of shareholders
of Leucadia National Corporation to be held on May 14, 2002, at 10:00 a.m., at
Credit Suisse First Boston, 11 Madison Avenue, Level 2B Auditorium, New York,
New York:
1. To elect six directors.
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants to audit the consolidated financial statements of our company and
our subsidiaries for the year ended December 31, 2002.
3. To approve an amendment to our charter to reduce from two-thirds to
a majority the number of our outstanding shares necessary to authorize any
merger, consolidation, or dissolution of our company, or any sale, lease,
exchange or other disposition of all or substantially all of our assets.
4. To approve the proposed corporate reorganization whereby we will
change our domicile from New York to Bermuda pursuant to:
(a) an agreement and plan of merger, a copy of which is
attached as Annex I to the accompanying proxy statement/prospectus,
pursuant to which we will be merged with and into Leucadia National
Corporation-Arizona, a newly-formed, wholly-owned Arizona subsidiary,
and
(b) a memorandum of continuance, a copy of which is attached
as Annex II to the accompanying proxy statement/prospectus, upon the
registration of which Leucadia National Corporation-Arizona will become
Leucadia National Limited, a Bermuda company, with bye-laws
substantially in the form of Annex III to the accompanying proxy
statement/prospectus, through a continuance under Arizona and Bermuda
law.
The reorganization will only be effected at such time as our Board of
Directors determines that the costs, particularly the tax cost to our company,
resulting from the reorganization are acceptable considering the anticipated
benefits.
5. To transact any other business as may properly come before the
meeting or any adjournments of the meeting.
Only holders of record of our common shares at the close of business on
April 11, 2002 will be entitled to notice of and to vote at the meeting. Please
vote your shares, either (i) by signing, dating and mailing the enclosed proxy
card in the accompanying postage prepaid envelope, (ii) by telephone using the
toll-free telephone number printed on the proxy card, or (iii) by voting on the
Internet, using the instructions printed on the proxy card. This will assure
that your shares are represented at the meeting.
By Order of the Board of Directors.
LAURA E. ULBRANDT
Secretary
LEUCADIA NATIONAL CORPORATION
315 Park Avenue South
New York, New York 10010
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PROXY STATEMENT/PROSPECTUS
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Annual Meeting of Shareholders
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April 15, 2002
This proxy statement/prospectus is being furnished to the shareholders
of Leucadia National Corporation, a New York corporation, in connection with the
solicitation of proxies by the Board of Directors for use at the annual meeting
of shareholders of the company to be held on May 14, 2002 and at any
adjournments thereof.
At the meeting, shareholders will be asked:
1. To elect six directors.
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants to audit the consolidated financial statements of our company and
our subsidiaries for the year ended December 31, 2002.
3. To approve an amendment to our charter to reduce from two-thirds to
a majority the number of our outstanding shares necessary to authorize any
merger, consolidation, or dissolution of our company, or any sale, lease,
exchange or other disposition of all or substantially all of our assets.
4. To approve the proposed corporate reorganization whereby we will
change our domicile from New York to Bermuda pursuant to:
(a) an agreement and plan of merger, a copy of which is
attached as Annex I to this proxy statement/prospectus, pursuant to
which the company will be merged with and into Leucadia National
Corporation-Arizona, a newly-formed, wholly-owned Arizona subsidiary,
and
(b) a memorandum of continuance, a copy of which is attached
as Annex II to this proxy statement/prospectus, upon the registration
of which Leucadia National Corporation-Arizona will become Leucadia
National Limited, a Bermuda company (with bye-laws substantially in the
form of Annex III to this proxy statement/prospectus), through a
continuance under Arizona and Bermuda law.
The reorganization will only be effected at such time as the Board of
Directors determines that the costs, particularly the tax cost to our company,
resulting from the reorganization are acceptable considering the anticipated
benefits.
5. To transact any other business as may properly come before the
meeting or any adjournments of the meeting.
The Board of Directors has fixed the close of business on April 11,
2002 as the record date for the determination of the holders of our common
shares, par value $1.00 per share, entitled to notice of and to vote at the
meeting. Each eligible 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 by completing the enclosed proxy card and returning it in the enclosed
postage prepaid envelope or, as indicated on the proxy card, by voting on the
Internet or by voting by telephone. At the close of business on April 11, 2002,
there were 55,324,307 common shares entitled to vote.
This proxy statement/prospectus and the accompanying form of proxy are
first being sent to holders of the common shares on or about April 15, 2002.
TABLE OF CONTENTS
Page
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I. QUESTIONS AND ANSWERS...................................................................................1
II. THE MEETING.............................................................................................7
III. ELECTION OF DIRECTORS..................................................................................10
IV. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS...................................................26
V. APPROVAL OF CHARTER AMENDMENT..........................................................................27
VI. APPROVAL OF REORGANIZATION.............................................................................28
RISK FACTORS......................................................................................35
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LEUCADIA NATIONAL CORPORATION.................41
SUMMARY PRO FORMA FINANCIAL INFORMATION...........................................................43
THE REORGANIZATION................................................................................44
THE MERGER AGREEMENT AND THE MEMORANDUM OF CONTINUANCE............................................45
LEUCADIA NATIONAL CORPORATION AND LEUCADIA NATIONAL LIMITED.......................................48
DESCRIPTION OF AUTHORIZED SHARES OF LEUCADIA NATIONAL LIMITED.....................................49
COMPARISON OF RIGHTS OF SHAREHOLDERS..............................................................50
MANAGEMENT OF LEUCADIA NATIONAL LIMITED...........................................................60
MATERIAL TAX CONSIDERATIONS.......................................................................62
LEGAL MATTERS.....................................................................................69
EXPERTS...........................................................................................69
WHERE YOU CAN FIND MORE INFORMATION...............................................................70
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS...................................................71
VII. ANNUAL REPORT..........................................................................................72
VIII. PROPOSALS BY SHAREHOLDERS..............................................................................72
ANNEX I - FORM OF AGREEMENT AND PLAN OF MERGER
ANNEX II - FORM OF MEMORANDUM OF CONTINUANCE
ANNEX III - FORM OF BYE-LAWS
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS.
I. QUESTIONS AND ANSWERS
THE REORGANIZATION
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Q: Why is the reorganization being proposed?
A: We believe the reorganization will allow us to obtain the benefit of
certain tax, business and financial advantages that are not currently
available to us. The reorganization should provide us with:
o the opportunity to improve cash flow and enhance long-term
profitability as a result, in significant part, of a
reduction in the overall effective tax rate to be paid on
our worldwide income, and a more favorable environment for
potential future asset sales,
o a more favorable and flexible corporate structure for the
formation and growth of non-U.S. based operations,
o an enhanced ability to pursue business combinations with
non-U.S. entities, and
o an expansion of our investor base, as our shares may become
more attractive to non-U.S. investors.
Q: How would I benefit from this change?
A: Our principal objective in this reorganization is to enhance shareholder
value by increasing our long-term profitability.
Q: Will I be taxed as a result of this proposal?
A: The reorganization is structured so that it will be tax-free to you. Your
tax basis and holding period in your company shares will remain intact.
Q: Will our company have to pay taxes as a result of the proposal?
A: At the time of the reorganization, Leucadia National Corporation, the
parent company of our corporate group, will be treated for U.S. federal
income tax purposes as if it sold all of its directly owned assets in a
fully taxable transaction in which gains, if any, but not losses will be
recognized. As a result, it is anticipated that we (and not you, our
shareholders) will pay taxes as a consequence of the reorganization.
Q: Will the reorganization be implemented immediately if shareholder
approval is received?
A: We intend to implement the reorganization only if the estimated cost of
the reorganization is acceptable given the anticipated benefits. Based on
our current estimates of the fair market values of our assets, the amount
of our liabilities, the current per share price of our common shares, the
tax basis that we have in our assets and our other tax attributes, we
expect that the tax cost of the reorganization, if implemented now, could
be approximately $315 million as of April 8, 2002. We believe this cost
is unacceptably high, considering the anticipated benefits of the
reorganization and compared to the tax cost we would otherwise expect to
incur if we, instead, actually sold our assets in one or more
tax-efficient transactions.
Q: What factors will we consider in deciding when and whether to implement
the reorganization?
A: We would consider implementing the reorganization if our estimate of the
tax cost declines to a level more commensurate with the amount of tax the
company would incur were we to sell all our assets in one or more
tax-efficient transactions. Based on and assuming no significant change
to our assessment of asset values and the approximate $315 million tax
cost that could result from the actual sale of all our assets as of April
8, 2002, we believe that a tax cost of approximately $100 million would
be acceptable, given the anticipated benefits of the reorganization; we
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believe this reduced estimated tax cost would occur if our market
capitalization declines by $615 million, our liabilities decrease by $615
million, or the tax basis of our assets increases by $615 million, or
upon some combination thereof, recognizing that changes in two or more of
these factors could have an offsetting impact on the calculation of this
tax cost. If, however, there are significant changes to our asset
configuration, our tax profile and/or our assessment of asset values and
the tax cost that would be incurred if we were to sell all our assets in
tax-efficient transactions, then our determination of the tax cost at
which the reorganization would be implemented could increase above $100
million, perhaps significantly. In addition and in any event, prior to
implementing the reorganization, we will continue to monitor changes in
these considerations as well as changes in our share ownership and other
relevant factors, including any legislative and administrative
developments as they relate to the risk of additional costs at the time
of or after the reorganization for us or for our shareholders.
Q: Will shareholder approval, if received, be effective indefinitely?
A: No. If the Board of Directors has not determined to implement the
reorganization before the 2005 annual meeting of shareholders, management
will either abandon the reorganization or resubmit it for shareholder
approval at the 2005 annual meeting of shareholders. In addition, the
Board of Directors may determine to abandon the reorganization for other
reasons deemed to be in our best interests and/or the best interests of
our shareholders.
Q: Will the Internal Revenue Service accept our determination of our tax
liability?
A: The Internal Revenue Service is not obliged to accept our determination
or the methodologies we use.
Q: Has the Internal Revenue Service rendered an opinion on the
reorganization?
A: We are not requesting any ruling or expression of views from the Internal
Revenue Service, as the reorganization is fully taxable to us to the
extent of any gains. With respect to our shareholders, our counsel has
rendered an opinion that the reorganization is not taxable to you. See
"Material Tax Considerations."
Q: Why was Bermuda selected as the new domicile for our company?
A: We chose Bermuda for its political stability and its legal framework.
There are currently many companies that are domiciled in Bermuda and
publicly traded on U.S. and European markets. In addition, the corporate
legal system in Bermuda is based on English legal principles. Under
current Bermuda law, a Bermuda company is not required to pay taxes in
Bermuda on income, including capital gains.
Q: Were any alternatives considered to effectuate the reorganization of the
company?
A: The company evaluated variations in the basic structure of the
reorganization. We believe, based on advice from management and its
outside advisors, that the proposed structure of the reorganization is
the best structure to provide the advantages we are seeking, without
substantial operational or financial risks. No assurances can be given,
however, that the reorganization will be consummated or that if
consummated the anticipated benefits of the reorganization will be
realized.
Q: Will the proposal affect our current operations and jobs? What about the
future?
A: This reorganization will have limited immediate effect on our current
U.S. or foreign operations or employees. In the future, we may form
Bermuda and/or other foreign domiciled subsidiaries, at which point we
can expect to have employees and operations in Bermuda and/or other
jurisdictions outside of the United States. As we grow, locations of
future operations will be chosen based on the needs of the business,
which we expect to address independently from where we are legally
domiciled.
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Q: Will the reorganization affect our dividend policy?
A: No. As is currently the case, the payment of any future cash dividends on
the Leucadia National Limited common shares will necessarily be dependent
upon the earnings and financial needs of Leucadia National Limited, along
with applicable legal and contractual restrictions.
Q: What effect will the reorganization have on management and director
compensation?
A: We do not anticipate any significant changes to management and director
compensation levels resulting from the reorganization. However, the form
of certain future incentive compensation may change as a result of the
reorganization.
Q: What significant changes will be made to our organizational documents as
a result of the reorganization?
A: o our Board of Directors will be empowered to mandatorily redeem
shares from a shareholder at fair market value if it determines
that share ownership by that shareholder may result in adverse
tax, regulatory or legal consequences to us, any of our
subsidiaries or any of our shareholders,
o generally, the voting rights of our shareholders will be limited
to 9.9% regardless of the number of common shares owned. For this
purpose, each shareholder will be treated as owning common shares
that are owned directly, indirectly, beneficially or
constructively, all as determined under the controlled foreign
corporation rules of the Internal Revenue Code and applicable
Treasury regulations. Initially, this 9.9% voting limitation will
not be applicable to Ian M. Cumming or Joseph S. Steinberg, any
foundation or trust established by either Mr. Cumming or Mr.
Steinberg, and/or any affiliate or associate of any of them or any
group of which any of them is a part (each a "Cumming Entity" or
"Steinberg Entity," and collectively, the "Cumming Entities" and
the "Steinberg Entities," as the case may be) with respect to any
matter to be submitted to shareholders. However, if we acquire a
foreign insurance company, the voting rights of all Cumming
Entities considered together and all Steinberg Entities considered
together would be limited in each case to 9.9% with respect to the
election of directors, unless the voting limitation is unnecessary
or the Board of Directors determines, and Mr. Cumming and Mr.
Steinberg agree, to allow us or the insurance company to be
considered a controlled foreign corporation. This provision, to
some extent in conjunction with the 1% ownership restriction
described immediately below, is intended to prevent us and any of
our current or future foreign subsidiaries from being
characterized as a controlled foreign corporation, which could
cause U.S. persons owning or treated as owning 10% or more of our
shares to suffer adverse U.S. tax consequences.
o generally, no shareholder will be able to own 1% or more of our
common shares. However, if a shareholder already owns more than 1%
of our common shares immediately preceding the effective date of
the reorganization, that shareholder may continue to own those
shares, but may not, without the company's consent, increase its
common share ownership above what it owns on that date. For
purposes of this restriction, each shareholder will be treated as
owning our common shares if they are owned directly, indirectly,
beneficially or constructively, all as determined under the
foreign personal holding company rules of the Internal Revenue
Code and the applicable Treasury regulations. Our Board of
Directors will have the ability to waive this limitation on a case
by case basis. This provision is intended to prevent us and any of
our current and future foreign subsidiaries from being
characterized as foreign personal holding companies, which would
cause all U.S. persons owning or treated as owning our shares to
suffer adverse U.S. tax consequences. Generally, the U.S. tax law
characterizes a foreign corporation as a foreign personal holding
company if five or fewer U.S. individuals own, including
indirectly and through attribution, more than 50% of the foreign
corporation's vote or value, and the corporation's passive-type
income exceeds certain thresholds for a given year. You should
note that expansive attribution rules apply under the tax law with
regard to the 50% ownership test, including a provision that
treats shares owned, directly or indirectly, by or for a
corporation, partnership, estate or trust as owned proportionately
by its shareholders, partners or beneficiaries. In addition, the
3
attribution rules treat an individual as owning the shares owned
directly or indirectly by the individual's partners and specified
family members,
o our New York charter currently generally restricts the
accumulation of 5% or more of our common shares, a restriction
adopted to preserve the use of our tax attributes. This charter
restriction will not be included in the organizational documents
of Leucadia National Limited,
o under New York law, a merger, consolidation, or dissolution of our
company, or any sale, lease, exchange or other disposition of all
or substantially all of our assets, must be approved by the
affirmative vote of one-half of all outstanding shares (if the
charter amendment is approved) or two-thirds of all outstanding
shares (if the charter amendment is not approved); under Bermuda
law and the Bermuda bye-laws, any such transaction must be
approved by the affirmative vote of a majority of the shares
voted,
o unless otherwise provided by law, our Bermuda bye-laws will only
be permitted to be amended with both the prior approval of the
Board of Directors and approval by the holders of a majority of
the shares voting on the amendment, and
o under Bermuda law, shareholders' rights to bring derivative suits
will be more limited.
Q: Why is Arizona involved in the proposal?
A: New York does not provide for a procedure to move our domicile to a
non-U.S. jurisdiction in the manner proposed. Going through a state such
as Arizona, which does provide for a move to a foreign jurisdiction, is
the only practical way to accomplish this step in the reorganization. Our
merger with and into Leucadia National Corporation-Arizona will occur
only if the change of domicile to Bermuda is to occur immediately after
that merger.
Q: What shareholder vote is required to approve the reorganization?
A: If the proposed charter amendment is approved, which will require
favorable votes from a majority of all outstanding common shares, then we
will need favorable votes from a majority of all outstanding shares to
approve the reorganization. If the proposed charter amendment is not
approved, we will need favorable votes from two-thirds of all outstanding
common shares to approve the reorganization. Shares for which no votes
are cast will be treated as though they were voted against the
reorganization, so it is very important for all shareholders to vote.
Q: Won't this proposal add another level of cost and complexity to our
operations that will be distracting to management?
A: Short term, there will be some additional financial and legal
requirements; however, we don't expect these requirements or the related
costs to be material or burdensome. On a long-term basis, we expect the
reorganization will enhance our future profitability.
Q: Do I have to exchange my share certificates?
A: Not at this time. If the reorganization becomes effective, you will
receive a transmittal form with instructions on how to exchange your
existing share certificates for Leucadia National Limited common share
certificates.
Q: What if I want to buy or sell shares during the time it takes us to
become domiciled in Bermuda?
A: The reorganization should have no impact on your ability to trade your
shares during this time period.
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Q: Will our shares remain listed on the New York Stock Exchange after the
reorganization?
A: We currently expect that our shares will continue to trade on the New
York Stock Exchange under the symbol "LUK."
Q: Will a dissenting shareholder be entitled to dissenters' rights?
A: No. Pursuant to the New York Business Corporation Law and the Arizona
Business Corporation Act, the holders of our shares will not have
dissenters' appraisal rights in connection with the reorganization.
Q: What should I do now to vote?
A: You should indicate on your proxy card how you want to vote and mail your
signed proxy card in the enclosed return envelope as soon as possible so
that your shares can be voted at the annual meeting. You can also attend
the annual meeting and vote in person.
Q: If my broker holds my shares in "street name," will my broker vote my
shares for me?
A: No. You must instruct your broker how to vote your shares or else your
broker will not vote your shares. Follow your broker's directions as to
the procedure for voting your shares.
Q: Can I change my vote after I grant my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at
the meeting. You can do this in the manner described under "The
Meeting--Voting and Revocation of Proxies."
Q: Whom do I contact with further questions?
A: Please call our proxy solicitor and information agent, Innisfree M&A
Incorporated, toll free at (888) 750-5834, or us at (212) 460-1950.
THE CHARTER AMENDMENT
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Q: Why is the charter amendment being proposed?
A: Currently, under New York law, a vote of two-thirds of the voting power
of our shareholders is required to authorize a merger or consolidation,
sale, lease, exchange or other disposition of all or substantially all of
our assets. The charter amendment would permit authorization of these
transactions by a vote of a majority of the voting power, consistent with
the requirements of corporations organized in New York after 1998 and
corporations in numerous other states.
Q: What are the advantages of the proposal?
A: We believe this amendment is advisable because it will:
o give us greater flexibility in approving any of the specified
transactions, including, but not limited to, approval of the
proposed reorganization of the company to Bermuda being considered
at the annual meeting,
o limit the ability of a minority of the shareholders to block a
transaction approved by the majority,
o make it easier to solicit the required positive votes to approve
any of these transactions, and
o make applicable to us the same voting requirements that are
applicable to New York corporations formed since 1998. Many
states, including Delaware, the jurisdiction of incorporation of
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many major corporations, only require a majority vote unless a
company's certificate of incorporation provides to the contrary.
We believe that the charter amendment is important to maintaining our
flexibility to restructure the company, especially if the proposed
reorganization to Bermuda is not implemented or its implementation is
significantly delayed, and that it better aligns our governance structure
with that of many other corporations.
Q: Are there other impacts of the proposal?
A: Mr. Ian M. Cumming, our chairman, and Mr. Joseph S. Steinberg, our
President, together with certain family members and trusts beneficially
own (excluding warrants to purchase common shares) approximately 33.6% of
our common shares outstanding on the record date. If the charter
amendment is approved, only an additional 16.4% of the common shares
outstanding will be required to approve the reorganization, or any other
merger, consolidation, sale, lease exchange or other disposition of all
or substantially all of our assets, in addition to the common shares
beneficially owned by them. If the charter amendment is not approved,
approval of the these transactions will require an additional affirmative
vote of 33.1% of the common shares outstanding on the record date, in
addition to those beneficially owned by them. As a result, approval of
the charter amendment will increase the ability of Messrs. Cumming and
Steinberg to implement these extraordinary corporate transactions.
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II. THE MEETING
Date, Time and Place
The annual meeting will be held on May 14, 2002, 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 ratify the selection of independent accountants, to
approve the proposed charter amendment and to approve the proposed corporate
reorganization whereby we would change our domicile from New York to Bermuda.
See "ELECTION OF DIRECTORS," "RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTANTS", "APPROVAL OF CHARTER AMENDMENT" and "APPROVAL OF REORGANIZATION."
The Board of Directors does not know of any matters to be brought before the
meeting other than as set forth in the notice of meeting. If any other matters
properly come before the meeting, the persons named in the enclosed form of
proxy or their substitutes will vote in accordance with their best judgment on
such matters.
Record Date; Shares Outstanding and Entitled to Vote
Shareholders as of the record date, i.e., the close of business on
April 11, 2002, are entitled to notice of and to vote at the meeting. As of the
record date, there were 55,324,307 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 the 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 the nominee, including broker non-votes, will not be
counted toward the nominee's achievement of a plurality.
Selection of Accountants. The ratification of the selection of
PricewaterhouseCoopers LLP as independent accountants is being submitted to
shareholders because we believe that this 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 Board of Directors will
reconsider the selection of independent accountants. If the shareholders ratify
the selection, the Board of Directors, in its discretion, may still direct the
appointment of new independent accountants at any time during the year if we
believe that this change would be in our and our shareholders' best interests.
Abstentions and broker non-votes are not counted in determining the votes cast
in connection with the ratification of accountants, but do have the effect of
reducing the number of affirmative votes required to achieve a majority for this
matter by reducing the total number of shares from which the majority is
calculated.
Approval of Charter Amendment. Approval of the charter amendment
requires the affirmative vote of the holders of a majority of the outstanding
common shares. Abstentions and broker non-votes will be treated as votes against
the proposal to approve the charter amendment.
Approval of Reorganization. If the charter amendment is approved,
approval of the reorganization will require the affirmative vote of the holders
of a majority of the outstanding common shares. If the charter amendment is not
approved, approval of the reorganization will require the affirmative vote of
the holders of two-thirds of the outstanding common shares. Abstentions and
broker non-votes will be treated as votes against the proposal to approve the
reorganization.
7
Ian M. Cumming, Chairman of the Board of Directors of our company,
beneficially owns 9,635,102 or approximately 17.4% of the common shares
outstanding at the record date, excluding 370,000 common shares which Mr.
Cumming and his family currently have the right to acquire upon the exercise of
warrants. Joseph S. Steinberg, a Director and President of our company,
beneficially owns 8,940,389 or approximately 16.2% of the common shares
outstanding at the record date, excluding 400,000 common shares which Mr.
Steinberg currently has the right to acquire upon exercise of warrants. Two
trusts for the benefit of Mr. Steinberg's children beneficially own 1,107,646 or
approximately 2.0% of the common shares outstanding at the record date. Mr.
Steinberg disclaims beneficial ownership of the common shares held by these
trusts. The Cumming Foundation, a private charitable foundation established by
Mr. Cumming, beneficially owns 106,209 or approximately .2% of the common shares
outstanding at the record date. In addition, the Joseph S. and Diane H.
Steinberg 1992 Charitable Trust, a private charitable foundation established by
Mr. Steinberg, beneficially owns 168,058 or approximately .3% of the common
shares outstanding at the record date. Mr. Cumming and Mr. Steinberg each
disclaims beneficial ownership of the common shares held by their private
charitable foundations. Messrs. Cumming and Steinberg have advised us 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: (1) each nominee named herein; (2) ratification of the selection of
independent accountants; (3) the proposed charter amendment; and (4) the
proposed reorganization. In addition to Messrs. Cumming and Steinberg, all our
other directors and officers beneficially own approximately .5% of the common
shares outstanding at the record date.
Voting and Revocation of Proxies
Shareholders are requested to vote by proxy in one of three ways:
o Use the toll-free telephone number shown on your proxy
card;
o Visit the Internet website at www.voteproxy.com and follow
the on-screen instructions; or
o Mail, date, sign and promptly return your proxy card in the
enclosed postage prepaid envelope.
Common shares represented by properly executed proxies, received by us
or voted by telephone or via the Internet, which are 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, for ratification of the selection of independent
accountants, for approval of the proposed charter amendment and for approval of
the proposed reorganization.
Voting instructions, including instructions for both telephonic and
Internet voting, are provided on the proxy card. The Internet and telephone
voting procedures are designed to authenticate shareholder identities, to allow
shareholders to give voting instructions and to confirm that shareholders'
instructions have been recorded properly. A control number, located on the proxy
card, will identify shareholders and allow them to vote their shares and confirm
that their voting instructions have been properly recorded. Shareholders voting
via the Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholder. If you do vote by
Internet or telephone, it will not be necessary to return your proxy card.
If your shares are held in the name of a bank or broker, follow the
voting instructions on the form you receive from your record holder. The
availability of Internet and telephone voting will depend on their voting
procedures.
If a shareholder neither returns a signed proxy card, votes by the
Internet or by telephone, nor attends the meeting and votes in person, his or
her shares will not be voted.
8
Any proxy signed and returned by a shareholder or voted by telephone or
via the Internet may be revoked at any time before it is exercised by giving
written notice of revocation to the Secretary of our company, at our address set
forth herein, by executing and delivering a later-dated proxy, either in
writing, by telephone or via the Internet, or by voting in person at the
meeting. Attendance at the meeting will not alone constitute revocation of a
proxy.
Proxy Solicitation
We will bear the costs of solicitation of proxies for the meeting. In
addition to solicitation by mail, directors, officers and our regular employees
may solicit proxies from shareholders by telephone, telegram, personal interview
or otherwise. These directors, officers and employees will not receive
additional compensation, but may be reimbursed for out-of-pocket expenses in
connection with this solicitation. In addition to solicitation by our directors,
officers and employees, we have engaged Innisfree M&A Incorporated, a proxy
solicitation agent, in connection with the solicitation of proxies for the
meeting. We will bear the costs of the fees for the solicitation agent, which
are not expected to exceed $12,500. 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 these custodians will be
reimbursed for their reasonable expenses.
Independent Accountants
We have been advised that representatives of PricewaterhouseCoopers
LLP, our independent accountants for 2001, 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.
9
III. 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 the substitute nominees as the Board of Directors may
propose. The following information is as of April 11, 2002.
Name and present position, Age, period served as director, other business experience
if any, with the company during the last five years and family relationships, if any
------------------------ -----------------------------------------------------------
Ian M. Cumming,
Chairman of the Board..............Mr. Cumming, 61, has served as a director and our Chairman of the Board since
June 1978. In addition, he is a director of Allcity Insurance Company and MK
Gold Company and he is Chairman of the Board of The FINOVA Group Inc.
Allcity, one of our subsidiaries, is a property and casualty insurer. MK
Gold, another of our subsidiaries, is an international mining company. FINOVA
is a middle market lender, in which we have an indirect 25% equity interest.
Mr. Cumming is also a director of Skywest, Inc., a Utah-based regional air
carrier, HomeFed Corporation, a publicly held real estate development company,
and Carmike Cinemas, Inc., a publicly held motion picture exhibitor in the
United States, in which we have an approximate 11% equity interest.
Paul M. Dougan........................Mr. Dougan, 64, has served as a director since May 1985. He has been a
director and President and Chief Executive Officer of Equity Oil Company, a
company engaged in oil and gas exploration and production, since January
1994. Prior to that time, he served as corporate secretary and manager of
corporate development of Equity Oil since May 1968.
Lawrence D. Glaubinger................Mr. Glaubinger, 76, has served as a director since May 1979. Mr. Glaubinger
is a private investor. He was Chairman of the Board of Stern & Stern
Industries, Inc., a New York corporation, which primarily manufactures and
sells industrial textiles, from November 1977 through 2000. 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, 58, has served as a director since February 1981. Mr. Jordan is a
private investor. From October 1986 to June 1997, he was President of The
William Penn Corporation, a holding company for an investment advisor to the
William Penn family of mutual funds. During that period, we beneficially
owned approximately 19.7% of the common stock of William Penn. Mr. Jordan is
a director of First Eagle SoGen family of mutual funds, JZ Equity Partners
Plc., a British investment trust company, and Allcity, one of our subsidiaries.
Jesse Clyde Nichols, III..............Mr. Nichols, 62, has served as a director since June 1978. Mr. Nichols is a
private investor. He was President, from May 1974 through 2000, of Crimsco,
Inc., a manufacturing company.
10
Name and present position, Age, period served as director, other business experience
if any, with the company during the last five years and family relationships, if any
------------------------ -----------------------------------------------------------
Joseph S. Steinberg, President........Mr. Steinberg, 58, has served as a director since December 1978 and as our
President since January 1979. He is also a director of MK Gold, FINOVA, Jordan
Industries, Inc., a public company, of which we beneficially own approximately
10% of the common stock, which owns and manages manufacturing companies, and
White Mountains Insurance Group, Ltd., a publicly traded insurance holding
company in which we have a less than 5% equity interest. In addition, Mr.
Steinberg is Chairman of the Boards of HomeFed and Allcity.
The Board of Directors recommends a vote FOR the above-named nominees.
11
INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Meetings and Committees
During 2001, the Board of Directors held five 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 assist the Board of
Directors in fulfilling its responsibility to oversee management's conduct of
our financial reporting process, including selecting our outside accountants and
reviewing the financial reports and other financial information provided by us
to governmental or regulatory bodies, the public or other users, our systems of
internal accounting and financial controls and the annual independent audit of
our financial statements. During 2001, the Chairman of the Audit Committee met
three times with our management and outside accountants, and the Audit Committee
as a whole met with management and the outside accountants once and took action
on one other occasion. The Board of Directors has adopted a charter for the
Audit Committee, which was attached as Annex A to our 2001 proxy statement. The
Audit Committee consists of Messrs. Jordan (Chairman), Nichols and Glaubinger.
All members of the Audit Committee are "independent" under the rules of the New
York Stock Exchange currently applicable to us. See "Audit Committee Report"
below. The information contained in this proxy statement/prospectus with respect
to the Audit Committee charter and the independence of the members of the Audit
Committee shall not be deemed to be "soliciting material" or to be "filed" with
the Securities and Exchange Commission, nor shall the information be
incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate it by reference in a filing.
The function of the Executive Committee is to exercise the authority of
the Board of Directors in the management of our business at such times as the
full Board of Directors is unavailable. The Executive Committee, which did not
meet during 2001, 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 the Senior Executive Warrant Plan. The Employee Benefits Committee met once
during 2001. The Employee Benefits Committee consists of Messrs. Nichols
(Chairman) and Jordan.
The function of the Option Committee is to administer the terms of our
1999 Stock Option Plan. The Option Committee, which did not meet during 2001,
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 our officers and directors. The
Nominating Committee took action on one occasion during 2001 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 that shareholder's intent to make the nomination has been given to us,
with respect to an election to be held at an annual meeting of shareholders, not
less than 120 days before the first anniversary of our 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 the meeting is first given to
shareholders. The notice shall include the name and address of the shareholder
12
and his or her nominees, a representation that the shareholder is entitled to
vote at the meeting and intends to nominate the person, a description of all
arrangements or understandings between the shareholder and each nominee, other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the shareholder's nominees, and the consent of each
nominee to serve as a director of the company if so elected. We may require any
proposed nominee to furnish other information as we may reasonably require to
determine the eligibility of the proposed nominee to serve as a director of the
company. We did not receive any nominations from shareholders for election as
directors at the meeting.
All directors attended at least 75% of the meetings of the Board of
Directors and committees of the Board of Directors on which they served.
13
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES
Set forth below is certain information as of April 11, 2002 with
respect to the beneficial ownership of common shares by (1) each person who, to
our knowledge, is the beneficial owner of more than 5% of our outstanding common
shares, which is our only class of voting securities, (2) each director and
nominee for director, (3) each of the executive officers named in the Summary
Compensation Table under "Executive Compensation," (4) two trusts for the
benefit of Mr. Steinberg's children and the private charitable foundations
established by Mr. Cumming and Mr. Steinberg, and (5) all of our executive
officers and directors 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
Carl Marks & Co., 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).............................................. 3,199,984 5.8%
Ian M. Cumming.................................................... 10,005,102 (c)(d) 18.0%
Paul M. Dougan.................................................... 2,975 (e) *
Lawrence D. Glaubinger............................................ 80,250 (f) .1%
James E. Jordan................................................... 34,250 (g) *
Barbara L. Lowenthal.............................................. 6,000 (h) *
Thomas E. Mara.................................................... 10,000 (i) *
Jesse Clyde Nichols, III.......................................... 63,189 (g) .1%
Joseph A. Orlando................................................. 12,356 (i) *
H.E. Scruggs...................................................... 8,200 (j) *
Joseph S. Steinberg............................................... 9,340,389 (d)(k) 16.8%
The Steinberg Children Trusts..................................... 1,107,646 (l) 2.0%
Cumming Foundation ............................................... 106,209 (m) .2%
The Joseph S. and Diane H. Steinberg
1992 Charitable Trust......................................... 168,058 (n) .3%
All directors and executive officers
as a group (10 persons)...................................... 19,613,961 (o) 34.9%
-------------------
* Less than .1%.
(a) The business address of this beneficial owner is c/o Carl Marks & Co.,
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 Carl Marks & Co., Inc., Robert Davidoff, Edwin S. Marks,
Nancy A. Marks, Boas GRAT No. 1 Trust, Marks Family Foundation, Marjorie
M. Boas, Mark Claster and Andrew Boas and information provided by Carl
Marks & Co., Inc.
(c) Includes (1) 120,312 (.2%) 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 and (2) 370,000
(.7%) common shares which Mr. Cumming and his family currently have the
right to acquire upon exercise of warrants.
14
(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 (1) 2,875 common shares that may be acquired upon the
exercise of currently exercisable stock options and (2) 100 (less than
.1%) common shares owned by Mr. Dougan's wife as to which Mr. Dougan
disclaims beneficial ownership.
(f) Includes 2,250 common shares that may be acquired upon the exercise of
currently exercisable stock options.
(g) Includes 4,250 common shares that may be acquired upon the exercise of
currently exercisable stock options.
(h) Includes 6,000 common shares that may be acquired upon the exercise of
currently exercisable stock options.
(i) Includes 10,000 common shares that may be acquired upon the exercise of
currently exercisable stock options.
(j) Includes 8,000 common shares that may be acquired upon the exercise of
currently exercisable stock options.
(k) Includes (1) 46,400 (less than .1%) common shares beneficially owned by
Mr. Steinberg's wife and daughter and 2,678,808 (4.8%) common shares held
in a family trust as to which Mr. Steinberg may be deemed to be the
beneficial owner and (2) 400,000 (.7%) common shares which Mr. Steinberg
currently has the right to acquire upon exercise of warrants.
(l) Mr. Steinberg disclaims beneficial ownership of the common shares held by
the Steinberg Children Trusts.
(m) Mr. Cumming is a trustee and President of the foundation and disclaims
beneficial ownership of the common shares held by the foundation.
(n) Mr. Steinberg and his wife are the trustees of the foundation. Mr.
Steinberg disclaims beneficial ownership of the common shares held by the
foundation.
(o) Includes (1) 100 common shares owned of record by the spouse of a
director of the company as to which the director disclaims beneficial
ownership; (2) 770,000 common shares that may be acquired by Messrs.
Cumming and Steinberg or their respective family members pursuant to the
exercise of currently exercisable warrants; (3) 13,625 common shares that
may be acquired by directors pursuant to the exercise of currently
exercisable stock options; and (4) 32,000 common shares that may be
acquired by certain officers pursuant to the exercise of currently
exercisable stock options. Does not include Mr. Scruggs, who resigned as
an executive officer on December 28, 2001.
As of April 8, 2002, Cede & Co. held of record 34,724,223 common shares
(approximately 62.8% 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.
15
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information in respect of the
compensation of our Chairman of the Board, our President, each of our other
three most highly compensated current executive officers in 2001, and one former
executive officer for services in all capacities to us and our subsidiaries in
2001, 2000 and 1999.
Long-Term
Annual Compensation Compensation
--------------------------------------------------- -------------- -------------
Options/
--------
Name and Principal Other Annual Warrants All Other
------------ -------- ---------
Position(s) Year Salary Bonus Compensation (# of shares) Compensation
----------- ---- ------ ----- ------------ ------------- ------------
Ian M. Cumming, 2001 $ 582,788 $ 17,742(1) $393,806(3) -- $ 135,419(5)
Chairman of the Board 2000 568,547 1,317,225(2) 457,872(3) 400,000 123,734
1999 557,059 2,620,558(2) 206,559(3) -- 91,998
Joseph S. Steinberg, 2001 $ 582,788 $ 17,742(1) $572,810(3) -- $120,415(5)
President 2000 568,547 1,317,225(2) 843,037(3) 400,000 116,492
1999 557,059 2,620,558(2) 415,203(3) -- 80,325
Thomas E. Mara, 2001 $ 275,000 $ 383,250 $ -- -- $33,600(5)
Executive Vice 2000 270,000 533,100 -- 25,000 22,100
President and Treasurer 1999 265,000 2,994,413 549,585(4) -- 11,672
Joseph A. Orlando, 2001 $ 210,000 $ 281,300 $ -- -- $19,100(5)
Vice President and 2000 205,000 406,150 -- 25,000 17,600
Chief Financial Officer 1999 200,000 613,167 304,647(4) -- 18,000
Barbara L. Lowenthal, 2001 $ 173,000 $ 185,190 $ -- -- $ 5,100(5)
Vice President and 2000 168,000 273,040 -- 15,000 5,100
Comptroller 1999 163,000 382,099 63,609(4) -- 4,000
H.E. Scruggs, 2001 $ 179,448 $ 280,400 $ -- -- $ 5,100(5)
Vice President (6) 2000 174,038 485,250 -- 20,000 5,100
----------------------
(1) Represents annual year-end bonus, based on a percentage of salary, paid
to all employees. Generally, the Employee Benefits Committee of the
Board of Directors would consider the payment of a 2001 performance
bonus to each of Messrs. Cumming and Steinberg at the Board of
Directors meeting to be held following the 2002 annual meeting.
However, Mr. Cumming and Mr. Steinberg have advised the Board of
Directors that they have waived the right to receive any bonus for 2001
that would otherwise be payable to them under the Company's Senior
Executive Annual Incentive Bonus Plan or otherwise. See "Report of the
Compensation Committee of the Board of Directors--Compensation of
Messrs. Cumming and Steinberg."
(2) Represents annual performance bonus paid to Messrs. Cumming and
Steinberg under the Senior Executive Annual Incentive Bonus Plan. See
"Report of the Compensation Committee of the Board of
Directors--Compensation of Messrs. Cumming and Steinberg." Also
includes annual year-end bonus, based on a percentage of salary, paid
to all employees.
(3) Consists of non-cash compensation valued in accordance with the
disclosure rules of the Securities and Exchange Commission, as follows:
personal use of corporate aircraft (Mr. Cumming: $393,806 in 2001,
16
$457,872 in 2000 and $206,559 in 1999, and Mr. Steinberg: $572,810 in
2001, $843,037 in 2000 and $415,203 in 1999). The value of the non-cash
compensation may differ for federal tax purposes. Pursuant to the terms
of deferred compensation agreements between the company and Mr.
Steinberg, Mr. Steinberg reimbursed the company for the federal tax
value of his 2000 non-cash compensation ($406,055) as well as his 1999
non-cash compensation ($239,041). For information concerning Mr.
Steinberg's deferred compensation agreements and certain additional
compensation paid to him, see "Report of the Compensation Committee of
the Board of Directors" below.
(4) Represents amounts paid in respect of cancellation of options held by
each person as described below and includes amounts in respect of taxes
attributable to these payments as follows: Mr. Mara, $144,585, Mr.
Orlando, $80,147 and Ms. Lowenthal, $16,734.
On April 1, 1999, the company declared a cash dividend on the common
shares in the amount of $12.00 per share. In connection with the
dividend, and to comply with the terms of 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 the
holder's options and $32.875 (the higher of (1) $32.875 and (2) the
average closing price of a share of our common stock 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 the holder. Additional amounts were
paid to option holders, other than non-employee directors, to reimburse
them for certain 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 were made to directors on
April 12, 1999 and to all other employees on April 14, 1999.
(5) Includes the annual premium on a term life insurance policy paid by the
company for the benefit of each person ($10,645 for Mr. Cumming and
$2,815 for Mr. Steinberg), directors' fees from affiliates of the
company ($119,674 for Mr. Cumming, $112,500 for Mr. Steinberg, $28,500
for Mr. Mara and $14,000 for Mr. Orlando) and a $5,100 contribution
made by the company to a defined contribution 401(k) plan on behalf of
each named person. Omits the annual premium or certain term life
insurance paid by the company as described under "Certain Relationships
and Related Transactions."
(6) Mr. Scruggs became an executive officer of the company on March 6,
2000. He subsequently resigned as an executive officer on December 28,
2001.
17
Aggregate Option/Warrant Exercises in 2001 and
Option/Warrant Values at Year End 2001
The following table provides information as to options and warrants
exercised by each of the named executives in 2001 and the value of options and
warrants held by the executives at year end measured in terms of the last
reported sale price for the common shares on December 31, 2001, ($28.87, as
reported on the New York Stock Exchange Composite Tape).
Value of Unexercised
Number of Unexercised In-the-Money
Options/Warrants Options/Warrants
at December 31, 2001 at December 31, 2001
Number of Shares -------------------- --------------------
Underlying Options/ Exercisable/ Exercisable/
Name Warrants Exercised Value Realized Unexercisable Unexercisable
---- ------------------ -------------- ------------- -------------
Ian M. Cumming -- -- 370,000/0 $1,820,400(1)/$0
Joseph S. Steinberg -- -- 400,000/0 $1,968,000(1)/$0
Thomas E. Mara -- -- 5,000/20,000 $31,225/$124,900
Joseph A. Orlando -- -- 5,000/20,000 $31,225/$124,900
Barbara L. Lowenthal -- -- 3,000/12,000 $18,735/$74,940
H.E. Scruggs -- -- 4,000/16,000 $24,980/$99,920
-------------------
(1) To the extent Mr. Cumming or Mr. Steinberg (a) terminates his
employment or is terminated "for cause" before May 16, 2002, the second
anniversary of the grant date of these warrants, and (b) the warrants
are exercised, penalty fees will be imposed.
Retirement Plan
We and certain of our affiliated companies maintain a retirement plan,
as amended and restated effective December 31, 1995, for certain of our
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. 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 not 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.
Generally, a participant employed by us with 10 or more years of
service, who is age 55 or over, but less than age 65, and who has retired from
employment with us 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 us or a participating
affiliate, may elect to receive an early deferred vested benefit. The amount of
the benefits are actuarially reduced to reflect payment before age 65.
The projected annual retirement benefits under the retirement plan of
the executive officers named in the Summary Compensation Table, expressed in the
form of a straight-life annuity with no reduction for early commencement are
estimated as follows:
18
Ian M. Cumming........................ $25,394
Joseph S. Steinberg................... 25,394
Thomas E. Mara........................ 25,394
Joseph A. Orlando..................... 27,451
Barbara L. Lowenthal.................. 10,344
H.E. Scruggs.......................... 7,933
We and certain of our affiliated companies maintain a 401(k)/profit
sharing plan for certain of our employees and employees of these affiliated
companies. The profit sharing plan is entitled to qualify under the provisions
of the Internal Revenue Code. Participants may make pre-tax and/or after-tax
contributions to the plan and we will match a portion of an eligible
participant's pre-tax contributions. The profit sharing plan also provides a
quarterly contribution for eligible participants equal to a percentage of
eligible compensation determined on the basis of age and service.
Employment Agreements
We have employment agreements with Messrs. Cumming and Steinberg that
provide for Mr. Cumming's employment as our Chairman of the Board and Chief
Executive Officer and for Mr. Steinberg's employment as our President and Chief
Operating Officer through June 30, 2005 at annual salaries of $500,000, subject
to cost-of-living adjustments, plus any additional compensation as may be voted
by the Board of Directors. Messrs. Cumming and Steinberg are entitled to
participate in all of our incentive plans and those of our other subsidiary and
affiliated companies. We have also agreed to carry at our expense term life
insurance policies on their lives in the amount of $1,000,000 each, payable to
the beneficiaries as each of Messrs. Cumming and Steinberg shall designate.
Under the agreements, if (1) there is a change in control of the company; (2) if
either the employment of Messrs. Cumming or Steinberg is terminated by us
without cause; or (3) 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 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, we or our
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.
For information concerning deferred compensation agreements between us
and Mr. Steinberg, see "Report of the Compensation Committee of the Board of
Directors" below.
Compensation of Directors
Directors who are also our employees receive no remuneration for
services as a member of the Board of Directors or any committee of the Board of
Directors. In 2001, each director who was not our employee received a retainer
of $24,000 plus $500 for each meeting of the Board of Directors and $300 for
each meeting of a committee of the Board of Directors ($400 if a committee
chairman) that he attended. In addition, under the terms of the 1999 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 our
shareholders is held each year. The purchase price of the common shares covered
by the options is the fair market value of the 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 $33.14 per common share
were awarded to each of Messrs. Dougan, Glaubinger, Jordan and Nichols on June
6, 2001.
For additional information, see "Certain Relationship and Related
Transactions" below.
19
Indemnification
Pursuant to contracts of insurance dated October 1, 2000 with National
Union Fire Insurance Company of Pittsburgh, Pennsylvania, 175 Water Street, New
York, New York 10038, Twin City Fire Insurance Company, Hartford Plaza,
Hartford, Connecticut 06115, and Greenwich Insurance Company, c/o Executive
Liability Underwriters, One Constitution, 16th Floor, Hartford, Connecticut
06103, we maintain a combined $30,000,000 indemnification insurance policy
covering all of our directors and officers and our named subsidiaries. The
annual premium for the insurance is approximately $520,000. During 2001, no
payments were received under our 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, we have agreed to
purchase from his estate up to 55% of his direct and/or indirect interest in us,
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 us 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. We have 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. We have purchased the life insurance
contemplated by this agreement, the premiums for which aggregated approximately
$472,000 in 2001. These amounts are not included in the Summary Compensation
Table appearing elsewhere in this proxy statement/prospectus.
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, consisting
of Mr. Nichols (Chairman) and Mr. Jordan, each of whom is a non-employee
director, recommends to the Board of Directors the compensation of Mr. Cumming,
our Chairman of the Board, and Mr. Steinberg, our President. The Option
Committee of the Board of Directors awards stock options upon the recommendation
of Messrs. Cumming and Steinberg. Messrs. Cumming and Steinberg determine salary
and bonus compensation of our executive officers under authority of the Board of
Directors.
Our 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 our 1999 Stock Option Plan; and
-----------------------
* The disclosure contained in this section of this proxy statement/prospectus is
not incorporated by reference into any of our filings under the Securities Act
of 1933 or the Securities Exchange Act of 1934 that incorporate filings or
portions thereof, (including this proxy statement/prospectus or the "Executive
Compensation" section of this proxy statement/prospectus) without specific
reference to the incorporation of this section of this proxy
statement/prospectus.
20
(4) retirement benefits pursuant to our Savings and Retirement
Plan and, with respect to eligible employees, the Retirement
Plan. Other elements of compensation include 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, annual salary increases may be significant to reflect
an executive's increase in office and/or responsibility.
Our 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 our success, 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, our performance and each individual's
contribution to our company. Bonus compensation is not based on any specific
formula.
We, by means of our Stock Option Plan, seek to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling the 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 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 our performance.
In connection with the special cash dividend declared by us on April 1,
1999, and to comply with the terms of a ruling from the Internal Revenue Service
related to that dividend, we cancelled all outstanding options under our 1992
Stock Option Plan and made cash payments to the holders of those options. See
footnote (4) of the Summary Compensation Table above.
Under the provisions of Section 162(m) of the Internal Revenue Code, we
would not be able to deduct compensation to our executive officers whose
compensation is required to be disclosed in our proxy statement for any year in
excess of $1 million per year unless the 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. We believe that ordinarily it is in our best
interest to retain maximum flexibility in its compensation programs to enable it
to appropriately reward, retain and attract the executive talent necessary to
our success. To the extent these 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), the
compensation plans will be used. However, the Employee Benefits Committee
recognizes that, in appropriate circumstances, compensation that is not
deductible under Section 162(m) may be paid in the Employee Benefits Committee's
discretion.
We believe that the executive compensation program has enabled us to
attract, motivate and retain senior management by providing a competitive total
compensation opportunity based on performance. Base salaries, combined with
21
annual variable performance based bonus awards that reflect the individual's
level of responsibility, performance and contribution to the company are
important elements of our cash compensation philosophy. Together with our
executive stock ownership, our total executive compensation program not only
aligns the interest of executive officers and shareholders, but also permits us
to attract talented senior management. Messrs. Cumming and Steinberg and we
believe the program strikes an appropriate balance between short and long-term
performance objectives.
Compensation of Messrs. Cumming and Steinberg
The base compensation of Mr. Ian M. Cumming, Chairman of the Board, and
Mr. Joseph S. Steinberg, President of the company, is set pursuant to employment
agreements between the company and each of Messrs. Cumming and Steinberg entered
into as of December 28, 1993, that initially covered the period from July 1,
1994 through June 30, 2003. In consideration of the Board of Director's
consideration of the company's Senior Executive Warrant Plan, the agreements
were extended to June 30, 2005. See "Employment Agreements." The base salaries
of Messrs. Cumming and Steinberg provided for in the current employment
agreements were determined by the Employee Benefits 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 Employee Benefits Committee
reviews other compensation for each of Messrs. Cumming and Steinberg and
presents its recommendations thereon to the entire Board of Directors.
Deferred Compensation Agreements. In December 1998, pursuant to board
approval, we and Mr. Steinberg entered into a Deferred Compensation Agreement
that deferred all compensation payable by us to Mr. Steinberg for the calendar
year ending December 31, 1999. Mr. Steinberg's 1999 compensation accrued
interest at a rate equal to the one year treasury bill rate in effect,
resettable quarterly and was paid to Mr. Steinberg in March 2000 in accordance
with the terms of the agreement.
The agreement also provided that Mr. Steinberg would reimburse us for
the dollar value of any benefit provided by us to Mr. Steinberg during 1999,
which in the absence of this reimbursement obligation would have been taxable as
compensation to Mr. Steinberg. During 1999, Mr. Steinberg reimbursed us $239,041
for these benefits. In December 1999, upon the recommendation of the Employee
Benefits Committee, the Board of Directors awarded additional compensation to
Mr. Steinberg of $239,041. This award was made to recognize Mr. Steinberg's
reimbursement of the value for tax purposes of the 1999 benefits created a
circumstance in which Mr. Steinberg's 1999 compensation for tax purposes would
not be comparable to his compensation for tax purposes for years before 1999,
where Mr. Steinberg did not pay for benefits, and would not be on par with the
compensation for tax purposes paid to Mr. Cumming in 1999, or in prior years. To
alleviate this inequality in compensation, the Employee Benefits Committee
recommended that Mr. Steinberg be paid the additional compensation for 1999 as
described above. This amount is not reflected in the Summary Compensation Table
included above. Instead, the table reflects the higher valuation for these
benefits valued in accordance with the disclosure rules of the Securities and
Exchange Commission.
In December 1999, we and Mr. Steinberg entered into another deferred
compensation agreement containing the same terms with respect to compensation
payable to Mr. Steinberg by us for the calendar year ending December 31, 2000.
During 2000, Mr. Steinberg reimbursed the company $406,055 for benefits provided
by us to him during 2000. In December 2000, the Board of Directors awarded
additional compensation to Mr. Steinberg of $406,055 to alleviate the inequality
in compensation created by Mr. Steinberg's reimbursement of the value for tax
purposes of the 2000 benefits. The Summary Compensation Table reports Mr.
Steinberg's compensation for 2000 in the same manner as for 1999, as described
above.
2000 Performance Bonus. In May 2001, in connection with the 2001 annual
shareholders meeting, the Employee Benefits Committee met to consider 2000
performance bonuses for Messrs. Cumming and Steinberg. In doing so, the Employee
Benefits Committee considered awards to which Messrs. Cumming and Steinberg were
entitled under the Senior Executive Annual Incentive Bonus Plan.
22
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 our performance, while providing the Employee
Benefits 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 Internal Revenue Code, which limits to $1 million per employee per year
the deductibility of non-performance based compensation payable to each of our
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 this 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% of our
audited pre-tax earnings and our 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 Employee
Benefits Committee, in its sole discretion. Payments under the incentive bonus
plan will be made in cash following written certification by the Employee
Benefits Committee as to the amount of the annual incentive bonus for any given
year.
The Employee Benefits Committee has discretion, where appropriate, to
pay additional bonuses to Messrs. Cumming and Steinberg outside the Incentive
Bonus Plan. In this event, the Employee Benefits Committee will consider amounts
paid to Messrs. Cumming and Steinberg under the incentive bonus plan. To the
extent that the Employee Benefits Committee determines to award performance
bonuses for a given year outside the incentive bonus plan, this compensation may
not be deemed to be performance-based compensation.
Pursuant to the incentive bonus plan, each of Messrs. Cumming and
Steinberg was entitled to a 2000 performance bonus of $1,863,430, constituting
1% of our pre-tax earnings and those of our consolidated subsidiaries as
reported in our audited consolidated financial statements. The Employee Benefits
Committee determined that it was appropriate to reduce the amount of the awards
to $1,300,000. Thereafter, as required by the incentive bonus plan, the Employee
Benefits Committee certified in writing 2000 performance bonuses of $1,300,000
to each of Messrs. Cumming and Steinberg.
2001 Performance Bonus. Mr. Cumming and Mr. Steinberg each have advised
us that they have waived their right to receive any bonus for 2001 that would
otherwise be payable to them under the incentive bonus plan or otherwise.
The Employee Benefits Committee consists of Jesse Clyde Nichols, III,
Chairman and James E. Jordan.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than 10%
of a registered class of our 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 the forms furnished to us and written representations from our
executive officers, directors and greater than 10% beneficial shareholders, we
believe that during the year ended December 31, 2001, all persons subject to the
reporting requirements of Section 16(a) filed the required reports on a timely
basis.
23
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 (Multi-Line
Insurance) Index for the five-year period commencing December 31, 1996, as
required by the Securities and Exchange Commission. Standard & Poor's Compustat
Services, Inc. furnished the data.
Comparison of Five-Year Cumulative Total Return of the Company, S&P 500 Index
and S&P Insurance Index
1996 1997 1998 1999 2000 2001
THE COMPANY 100 129.91 118.61 146.5 226.08 185.78
S&P 500 INDEX 100 133.36 171.48 207.56 188.66 166.24
S&P INSURANCE INDEX 100 152.53 168.04 214.09 301.19 248.22
The graph assumes that $100 was invested on December 31, 1996 in each
of the common shares, the S&P 500 Index and the S&P Insurance Index and that all
dividends were reinvested.
AUDIT COMMITTEE REPORT
The following is the report of our Audit Committee with respect to our
audited financial statements for the fiscal year ended December 31, 2001.
----------
** The disclosure contained in this section of the proxy statement/prospectus is
not incorporated by reference into any of our prior filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934 that incorporated future
filings or portions thereof, including this proxy statement/prospectus or the
"Executive Compensation" section of this proxy statement/prospectus.
24
Review with Management
The Audit Committee reviewed and discussed our audited financial
statements with management.
Review and Discussions with Independent Accountants
The Audit Committee discussed with PricewaterhouseCoopers LLP, our
independent accountants, the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, regarding the
auditor's judgments about the quality of our accounting principles as applied in
its financial reporting.
The Audit Committee also received the written disclosures and the
letter from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, and has
discussed with PricewaterhouseCoopers LLP their independence.
Conclusion
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that its audited consolidated
financial statements be included in our Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee of the Board of Directors
James E. Jordan, Chairman
Jesse Clyde Nichols, III
Lawrence D. Glaubinger
The information contained in the foregoing report shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall the information be incorporated by reference into any
future filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the company specifically incorporates it by
reference in a filing.
25
INDEPENDENT ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to us for the
fiscal year ended December 31, 2001 by our independent accounting firm,
PricewaterhouseCoopers LLP:
Audit Fees............................... $1,683,000
Financial Information Systems
Design and Implementation Fees......
Tax Consulting Fees...................... --
All Other Fees........................... 617,000 (b)
594,000 (a)(b)
----------
$2,894,000
==========
--------------------
(a) Includes fees for other non-audit services.
(b) The Audit Committee has considered whether the provision of these
services is compatible with the maintenance of the accountant's
independence.
IV. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the shareholders ratify the
selection of PricewaterhouseCoopers LLP, certified public accountants, as the
independent accountants to audit our accounts and those of our subsidiaries for
2002. The Audit Committee recommended the selection of PricewaterhouseCoopers
LLP to the Board of Directors. PricewaterhouseCoopers LLP are currently our
independent accountants.
The Board of Directors recommends a vote FOR this proposal.
26
V. APPROVAL OF CHARTER AMENDMENT
The Board of Directors recommends an amendment to our certificate of
incorporation to lower from two-thirds to a majority the number of our
outstanding shares necessary to authorize any merger, consolidation, or
dissolution of the company or any sale, lease, exchange or other disposition of
all or substantially all of our assets. This amendment will ensure that our
shareholder approval process for any of these transactions will conform to that
of most major modern corporations.
We are a New York corporation, governed both by the provisions of our
certificate of incorporation and by the New York Business Corporation Law (BCL).
Amendments to the BCL effective in 1998 provide that, for new corporations, the
required shareholder vote to authorize these specified transactions is a
majority of the outstanding voting power, unless otherwise provided in its
certificate of incorporation. Those BCL amendments also permit us, as well as
any other New York corporation in existence when the BCL amendments went into
effect, to amend our certificate of incorporation to reduce the shareholder vote
required for the specified transactions from two-thirds to a majority of the
outstanding voting power.
Currently, a vote of two-thirds of the voting power of our shareholders
is required to authorize a merger or consolidation, sale, lease, exchange or
other disposition of all or substantially all of our assets, or a dissolution of
the company, because our certificate of incorporation is silent on the required
vote level and the 1998 BCL amendments did not reduce the voting requirements
for corporations already in existence. The Board of Directors unanimously
recommends an amendment to the certificate of incorporation to permit
authorization of any of these transactions by a vote of a majority of the voting
power, consistent with requirements for new corporations organized in New York
and corporations in numerous other states.
We believe this amendment is advisable because it will give us greater
flexibility in approving any of these specified transactions, including, but not
limited to, approval of our proposed reorganization to Bermuda being considered
at the meeting, and would: (1) limit the ability of a minority of the
shareholders to block a transaction approved by the majority; (2) make it easier
to solicit the required positive votes to approve any of these transactions; and
(3) will make applicable to us the same voting requirements that are applicable
to New York corporations formed since 1998. Many states, including Delaware, the
jurisdiction of incorporation of many major corporations, only require a
majority vote unless a company's certificate of incorporation provides to the
contrary.
Mr. Ian M. Cumming, our chairman, and Mr. Joseph S. Steinberg, our
President, together with certain family members and trusts beneficially own
(excluding warrants to purchase common shares) approximately 33.6% of our common
shares outstanding on the record date. If the charter amendment is approved,
only an additional 16.4% of the common shares outstanding will be required to
approve the reorganization, or any other merger, consolidation, sale, lease
exchange or other disposition of all or substantially all of our assets, in
addition to the common shares beneficially owned by Messrs. Cumming and
Steinberg and certain family members and trusts; if the charter amendment is not
approved, approval of the reorganization, or any other merger, consolidation,
sale, lease exchange or other disposition of all or substantially all of our
assets, will require an additional affirmative vote of 33.1% of the common
shares outstanding on the record date, in addition to those beneficially owned
by Messrs. Cumming and Steinberg and certain family members and trusts. As a
result, approval of the charter amendment will increase the ability of Messrs.
Cumming and Steinberg to implement these extraordinary corporate transactions.
We believe that this charter amendment is important to maintaining our
flexibility to restructure or otherwise take advantage of new opportunities,
especially if the proposed reorganization to Bermuda is not implemented, or is
not implemented for some time. This amendment will also better align our
governance structure with that of many other corporations. Except as described
in this proxy statement/prospectus, we have no current agreement, understanding
or arrangement for any transaction that would be affected by this reduction in
voting requirements.
The Board of Directors recommends a vote FOR this proposal.
27
VI. APPROVAL OF REORGANIZATION
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
reorganization more fully and for a more complete description of the legal terms
of the merger and the other transactions, you should read this entire document
and its appendices carefully before you decide how to vote. See "Where You Can
Find More Information" on page 70 of this proxy statement/prospectus. The actual
terms of the reorganization are contained in the merger agreement and memorandum
of continuance. The form of the merger agreement is included in this proxy
statement/prospectus as Annex I. The form of the memorandum of continuance and
the bye-laws substantially in the form of those that will govern us once we are
domiciled in Bermuda are included in this proxy statement/prospectus as Annex II
and Annex III.
In this document, "we," "us," "our" and "our company" refer to Leucadia
National Corporation and its subsidiaries and "you" refers to the shareholders
of Leucadia National Corporation. The reorganization means both the merger and
the change of domicile, taken together. The term "by-laws" refers to the by-laws
of Leucadia National Corporation, the New York corporation, while the term
"bye-laws" refers to the bye-laws of Leucadia National Limited, the Bermuda
company.
PARTIES TO THE REORGANIZATION
(See Page 48)
Leucadia National Corporation
We are a diversified holding company, engaged in a variety of
businesses, including banking and lending, manufacturing, winery operations,
real estate activities, development of a copper mine and property and casualty
insurance and reinsurance. We concentrate on return on investment and cash flow
to build long-term shareholder value, rather than emphasizing volume or market
share. Additionally, we continuously evaluate the retention and disposition of
our existing operations and investigate possible acquisitions of new businesses
in order to maximize shareholder value. In identifying possible acquisitions, we
tend to seek assets and companies that are troubled or out of favor and, as a
result, are selling substantially below the values we believe to be present.
Leucadia National Corporation-Arizona
Leucadia National Corporation-Arizona is an Arizona corporation. It has
only transacted business to date in connection with the reorganization and
related transactions. We currently hold all shares of Leucadia National
Corporation-Arizona.
Leucadia National Limited
In the reorganization, Leucadia National Corporation-Arizona will be
converted into and continue its existence as Leucadia National Limited, a
Bermuda company. Leucadia National Limited will be registered and existing under
the laws of Bermuda upon registration of the memorandum of continuance by the
Registrar of Companies in Bermuda. After the reorganization, you will be a
shareholder of Leucadia National Limited.
Although we will become a Bermuda company, we expect that our principal
executive offices will remain at 315 Park Avenue South, New York, NY 10010
(telephone 212-460-1900). We also expect to maintain an office in Bermuda at
Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda (telephone 441-295-2244)
and in Barbados.
28
THE REORGANIZATION
(See Pages 44-45)
General
Our Board of Directors has unanimously approved and recommends that you
approve a proposed corporate reorganization whereby we would change our domicile
from New York to Bermuda. As a holder of our common shares, you would, after the
reorganization, continue to own, as a holder of Leucadia National Limited common
shares, the same relative economic interest in Leucadia National Limited as you
held in us immediately before the reorganization. However, there will be
significant differences in your rights as a shareholder of Leucadia National
Limited which are described in "Risk Factors" and "Comparison of Rights of
Shareholders," including certain provisions that will limit voting and ownership
rights.
Advantages of the Reorganization
We believe the reorganization will allow us to obtain the benefit of
certain tax, business and financial advantages that are not currently available
to us. The reorganization should provide us with:
o the opportunity to improve cash flow and enhance
long-term profitability as a result, in significant
part, of a reduction in the overall effective tax
rate to be paid on our worldwide income, and a more
favorable environment for potential future asset
sales,
o a more favorable and flexible corporate structure for
the formation and growth of non-U.S. based
operations,
o an enhanced ability to pursue business combinations
with non-U.S. entities, and
o an expansion of our investor base, as our shares may
become more attractive to non-U.S. investors.
Costs and Risks
The reorganization would impose some costs on us and would expose us
and our shareholders to some risks and constraints. Our Board of Directors
believes that the potential advantages of the reorganization substantially
outweigh these costs, risks and constraints.
At the time of the reorganization, Leucadia National Corporation, the
parent company of our corporate group, will be treated for U.S. federal income
tax purposes as if it sold all of its directly owned assets in a fully taxable
transaction in which gains, if any, but not losses will be recognized. As a
result, it is anticipated that we (and not you, our shareholders) will pay taxes
as a consequence of the reorganization. We intend to implement the
reorganization only if the estimated cost of the reorganization is acceptable
given the anticipated benefits. Based on our current estimates of the fair
market values of our assets, the amount of our liabilities, the current per
share price of our common shares, the tax basis that we have in our assets and
our other tax attributes, we expect that the tax cost of the reorganization, if
implemented now, could be approximately $315 million as of April 8, 2002. We
believe this cost is unacceptably high, considering the anticipated benefits of
the reorganization and compared to the tax cost we would otherwise expect to
incur if we, instead, actually sold our assets in one or more tax-efficient
transactions.
We would consider implementing the reorganization if our estimate of
the tax cost declines to a level more commensurate with the amount of tax the
company would incur were we to sell all our assets in one or more tax-efficient
transactions. Based on, and assuming no significant change to our assessment of
asset values and the approximate $315 million tax cost that could result from
the actual sale of all our assets as of April 8, 2002, we believe that a tax
cost of approximately $100 million would be acceptable, given the anticipated
benefits of the reorganization; we believe this reduced estimated tax cost would
occur if our market capitalization declines by $615 million, our liabilities
29
decrease by $615 million, or the tax basis of our assets increases by $615
million, or upon some combination thereof, recognizing that changes in two or
more of these factors could have an offsetting impact on the calculation of this
tax cost. If, however, there are significant changes to our asset configuration,
our tax profile and/or our assessment of asset values and the tax cost that
would be incurred if we were to sell all our assets in tax-efficient
transactions, then our determination of the tax cost at which the reorganization
would be implemented could increase, above $100 million, perhaps significantly.
In addition and in any event, prior to implementing the reorganization, we will
continue to monitor changes in these considerations, as well as changes in our
share ownership and other relevant factors, including any legislative and
administrative developments as they relate to the risk of additional costs at
the time of or after the reorganization for us or for our shareholders. The
Internal Revenue Service may contest our calculation of the gain and the
methodologies we use to calculate it. See "Risk Factors", "Unaudited Pro Forma
Financial Information" and "Material Tax Considerations."
There are differences between New York and Bermuda corporate law. We
discuss the material differences under "Comparison of Rights of Shareholders."
We describe the principal tax and enforcement risks related to the
reorganization under "Risk Factors."
THE MERGER AGREEMENT AND THE MEMORANDUM OF CONTINUANCE
(See Pages 45-48)
The first step of the reorganization will be accomplished through our
merger with and into Leucadia National Corporation-Arizona, which will be the
surviving corporation in the merger. At that time, each of our outstanding
shares will be automatically converted into one Leucadia National
Corporation-Arizona common share. Immediately after the merger, Leucadia
National Corporation-Arizona will, through a statutory
reincorporation/continuation procedure, become Leucadia National Limited. At
that time, each outstanding Leucadia National Corporation-Arizona common share
will be automatically converted into one Leucadia National Limited common share.
Because the reincorporation/continuation from Arizona into Bermuda is expected
to occur immediately following the merger, no certificates for Leucadia National
Corporation-Arizona common shares will be issued to shareholders.
EFFECTIVE TIME
(See Page 47)
As described above under "The Reorganization--Background and Advantages
of the Reorganization," we intend to implement the reorganization only if the
estimated cost of the reorganization is acceptable given the anticipated
benefits. Based on our current estimates of the fair market values of our
assets, the amount of our liabilities, the current per share price of our common
shares, the tax basis that we have in our assets and our other tax attributes,
we expect that the tax cost of the reorganization, if implemented now, would be
unacceptably high.
Because the tax cost is dependent (as described above) in part on
values that fluctuate with market conditions, we cannot predict when and whether
the tax cost will decline to an acceptable level. Thus, we currently are unable
to predict when and whether the reorganization will take place.
If the Board of Directors has not determined to implement the
reorganization before the 2005 annual meeting of shareholders, management will
either abandon the reorganization or resubmit it for shareholder approval at the
2005 annual meeting of shareholders. In addition, the Board of Directors may
determine to abandon the reorganization for other reasons deemed to be in our
best interests and/or the best interests of our shareholders.
Our merger with and into Leucadia National Corporation-Arizona will
occur only if the change of domicile to Bermuda is to occur immediately after
the merger. Procedurally, the reorganization will become effective on the date
that the Registrar of Companies of Bermuda registers the memorandum of
continuance.
30
RECOMMENDATION OF THE BOARD OF DIRECTORS
(See Page 45)
The Board of Directors recommends a vote FOR this proposal.
VOTE REQUIRED FOR APPROVAL
(See Pages 7-8)
If the proposed charter amendment is approved, which will require
favorable votes from a majority of all outstanding common shares, then favorable
votes from a majority of all outstanding common shares will be required to
approve the reorganization. Once the charter amendment is approved, we intend to
cause the charter amendment to be filed immediately, and before the vote on the
reorganization, which may require a short adjournment of the meeting while the
charter amendment is being filed. If the proposed charter amendment is not
approved, then favorable votes from two-thirds of all outstanding common shares
will be required to approve the reorganization. Common shares for which no votes
are cast will be treated as though they were voted against the reorganization.
Ian M. Cumming, Chairman of the Board of Directors of our company,
beneficially owns 9,635,102 or approximately 17.4% of the common shares
outstanding at the record date, excluding 370,000 common shares which Mr.
Cumming and his family currently have the right to acquire upon the exercise of
warrants. Joseph S. Steinberg, a Director and President of our company,
beneficially owns 8,940,389 or approximately 16.2% of the common shares
outstanding at the record date, excluding 400,000 common shares which Mr.
Steinberg currently has the right to acquire upon exercise of warrants. Two
trusts for the benefit of Mr. Steinberg's children beneficially own 1,107,646 or
approximately 2.0% of the common shares outstanding at the record date. Mr.
Steinberg disclaims beneficial ownership of the common shares held by these
trusts. The Cumming Foundation, a private charitable foundation established by
Mr. Cumming, beneficially owns 106,209 or approximately .2% of the common shares
outstanding at the record date. In addition, the Joseph S. and Diane H.
Steinberg 1992 Charitable Trust, a private charitable foundation established by
Mr. Steinberg, beneficially owns 168,058 or approximately .3% of the common
shares outstanding at the record date. Mr. Cumming and Mr. Steinberg each
disclaims beneficial ownership of the common shares held by their private
charitable foundations. Messrs. Cumming and Steinberg have advised us 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 the proposed charter amendment and the proposed reorganization. In addition
to Messrs. Cumming and Steinberg, all our other directors and officers
beneficially own approximately .5% of the common shares outstanding at the
record date.
NEW YORK STOCK EXCHANGE TRADING
(See Page 45)
Our common stock is currently traded on the New York Stock Exchange
under the symbol "LUK." We currently expect that Leucadia National Limited
common shares will be listed under the same symbol immediately following the
reorganization. As is currently the case with our company, Leucadia National
Limited, as a New York Stock Exchange listed company, would be subject to the
informational requirements of the securities laws of the United States.
MARKET PRICE
(See Page 48)
The high, low and closing price per share of our common shares on the
New York Stock Exchange were $37.76, $36.96 and $37.69, respectively, on April
10, 2002, the last trading day before the public announcement of the
reorganization.
31
COMPARISON OF RIGHTS OF SHAREHOLDERS
(See Pages 50-60)
There are differences between the rights of shareholders under New York
law and Bermuda law. In addition, there are differences between our current
certificate of incorporation and by-laws and Leucadia National Limited's
memorandum of continuance and bye-laws.
The most significant differences are:
o our Board of Directors will be empowered to mandatorily redeem
shares from a shareholder at fair market value if it
determines that share ownership by that shareholder may result
in adverse tax, regulatory or legal consequences to us, any of
our subsidiaries or any of our shareholders,
o a provision limiting to 9.9% the voting rights of any person
who owns, directly, indirectly, beneficially or constructively
as determined for purposes of the controlled foreign
corporation rules of the Internal Revenue Code, 10% or more of
our common shares. Initially, this 9.9% voting limitation will
not be applicable to any Cumming Entity or any Steinberg
Entity. However, if we acquire a foreign insurance company
which would be or would cause us to be characterized as a
controlled foreign corporation, the voting rights for the
election of directors of all Cumming Entities considered
together and all Steinberg Entities considered together would
be limited in each case to 9.9%, unless the voting limitations
were unnecessary because neither we nor any of our
subsidiaries would be characterized as a controlled foreign
corporation or the Board of Directors determines, and Mr.
Cumming and Mr. Steinberg agree, to allow us or the insurance
company to be considered a controlled foreign corporation.
This provision, to some extent in conjunction with the 1%
ownership restriction described immediately below, is intended
to prevent us and any of our current or future foreign
subsidiaries from being characterized as a controlled foreign
corporation, which could cause U.S. persons owning or treated
as owning 10% or more of our shares to suffer adverse U.S. tax
consequences,
o a provision restricting the ability of a person or entity from
owning, directly, indirectly, beneficially or constructively
as determined for purposes of the foreign personal holding
company rules of the Internal Revenue Code, 1% or more of our
common shares. However, this restriction on ownership would
permit any person or entity who owned, as determined under
these rules and regulations, more than 1% of our outstanding
common shares immediately preceding the effective date of the
reorganization, to continue to own common shares owned on that
date, but would not permit that person or entity to increase
its common share ownership above what is owns on that date.
Moreover, the Leucadia National Limited Board of Directors
may, in its discretion, waive this limitation on a case by
case basis. This provision is intended to prevent us and any
of our current and future foreign subsidiaries from being
characterized as foreign personal holding companies, which
would cause all U.S. persons owning or treated as owning our
shares to suffer adverse U.S. tax consequences. Generally, the
U.S. tax law characterizes a foreign corporation as a foreign
personal holding company if five or fewer U.S. individuals
own, including indirectly and through attribution, more than
50% of the foreign corporation's vote or value, and the
corporation's passive-type income exceeds certain thresholds
for a given year. You should note that expansive attribution
rules apply under the tax law with regard to the 50% ownership
test, including a provision that treats shares owned, directly
or indirectly, by or for a corporation, partnership, estate or
trust as owned proportionately by its shareholders, partners
or beneficiaries. In addition, the attribution rules treat an
individual as owning the shares owned directly or indirectly
by the individual's partners and specified family members,
o our New York charter currently generally restricts the
accumulation of 5% or more of our common shares, a restriction
adopted to preserve the use of our tax attributes. This
charter restriction will not be included in the organizational
documents of Leucadia National Limited,
32
o under New York law, a merger, consolidation, or dissolution of
our company, or any sale, lease, exchange or other disposition
of all or substantially all of our assets, must be approved by
the affirmative vote of one-half of all outstanding shares (if
the charter amendment is approved) or two-thirds of all
outstanding shares (if the charter amendment is not approved);
under Bermuda law and the Bermuda bye-laws, and any such
transaction must be approved by the affirmative vote of a
majority of the shares voted,
o unless otherwise provided by law, our Bermuda bye-laws will
only be permitted to be amended with both the prior approval
of the Board of Directors and approval by the holders of a
majority of the shares voting on the amendment, and
o under Bermuda law, shareholders' rights to bring derivative
suits will be more limited.
TAX CONSIDERATIONS
(See Pages 62-69)
Taxation of Leucadia National Corporation Shareholders
As it relates to the shareholders, the reorganization will be
characterized for U.S. federal income tax purposes as a tax-free reorganization
in which you will not recognize any gain or loss and in which your tax basis and
holding period with respect to Leucadia National Limited common shares will be
the same as your tax basis and holding period for our common shares.
Ownership of shares in Leucadia National Limited by U.S. shareholders
may present risks of income recognition, even in the absence of the receipt of
any distributions from Leucadia National Limited or any disposition of Leucadia
National Limited shares, as well as risks of increased tax (and interest
charges) payable upon disposition of Leucadia National Limited shares or upon
receipt of certain distributions from Leucadia National Limited, depending upon
the characterization of Leucadia National Limited under various anti-deferral
rules contained in the Internal Revenue Code, including rules related to
controlled foreign corporations, foreign personal holding companies, and passive
foreign investment companies that can be applied to foreign corporations and
their U.S. shareholders. See "Risk Factors--Our shareholders could be subject to
U.S. tax on our undistributed income."
Taxation of Leucadia National Corporation
At the time of the reorganization, Leucadia National Corporation, the
parent company of our corporate group, will be treated for U.S. federal income
tax purposes as if it sold all of its directly owned assets in a fully taxable
transaction in which gains, if any, but not losses will be recognized. Based on
and assuming no significant change to our assessment of asset values and the tax
cost that would result from the actual sale of all of our assets, the Board of
Directors would not implement the reorganization unless this anticipated tax
cost was estimated to be less than $100 million. However, the Internal Revenue
Service may contest our calculation of the gain and the methodology used by our
advisors to calculate it.
After the reorganization, Leucadia National Limited and its non-U.S.
subsidiaries generally will be subject to U.S. federal income tax only to the
extent that they derive any U.S. source income subject to U.S. withholding tax,
or other income that is effectively connected with the conduct of a trade or
business within the United States and is not exempt from U.S. tax under an
applicable income tax treaty with the United States. Our U.S. subsidiaries will
continue to be subject to U.S. tax on their worldwide income.
We urge you to consult your own tax advisors regarding your particular
tax consequences.
RIGHTS OF DISSENTING SHAREHOLDERS
(See Page 45)
You will not have dissenters' appraisal rights in connection with the
reorganization.
33
ACCOUNTING TREATMENT
(See Page 45)
The transaction involves a reorganization among companies under common
control and, therefore, there will be no change in accounting.
34
RISK FACTORS
You should consider the following risk factors carefully as well as the
other information in this document.
We also caution you that this document contains statements that contain
"forward-looking" information that are not related to historical facts, as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on our current beliefs as to the outcome and timing of
future events, and actual results may differ materially from those projected or
implied in the forward-looking statements. Further, some forward-looking
statements are based upon assumptions of future events that may not prove to be
accurate. The forward-looking statements involve risks and uncertainties
including, but not limited to, the risks and uncertainties referred to under
"Risk Factors," "Disclosure Regarding Forward Looking Statements" and elsewhere
within the document and in other of our filings with the Securities and Exchange
Commission.
THE REORGANIZATION
The Internal Revenue Service may assert that the tax cost incurred by the
company as a result of the reorganization is higher than the tax cost calculated
by management.
At the time of the reorganization, Leucadia National Corporation, the
parent company of our corporate group, will be treated for U.S. federal income
tax purposes as if it sold all of its directly owned assets in a fully taxable
transaction in which gains, if any, but not losses will be recognized. As a
result, it is anticipated that we (and not you, our shareholders) will pay taxes
as a consequence of the reorganization. We intend to implement the
reorganization only if the estimated cost of the reorganization is acceptable
given the anticipated benefits. Based on our current estimates of the fair
market values of our assets, the amount of our liabilities, the current per
share price of our common shares, the tax basis that we have in our assets and
our other tax attributes, we expect that the tax cost of the reorganization, if
implemented now, could be approximately $315 million as of April 8, 2002. We
believe this cost is unacceptably high, considering the anticipated benefits of
the reorganization and compared to the tax cost we would otherwise expect to
incur if we, instead, actually sold our assets in one or more tax efficient
transactions.
We would consider implementing the reorganization if our estimate of
the tax cost declines to a level more commensurate with the amount of tax the
company would incur were we to sell all our assets in one or more tax-efficient
transactions. Based on, and assuming no significant change to our assessment of
asset values and the approximate $315 million tax cost that could result from
the actual sale of all our assets as of April 8, 2002, we believe that a tax
cost of approximately $100 million would be acceptable, given the anticipated
benefits of the reorganization; we believe this reduced estimated tax cost would
occur if our market capitalization declines by $615 million, our liabilities
decrease by $615 million, or the tax basis of our assets increases by $615
million, or upon some combination thereof, recognizing that changes in two or
more of these factors could have an offsetting impact on the calculation of this
tax cost. If, however, there are significant changes to our asset configuration,
our tax profile and/or our assessment of asset values and the tax cost that
would be incurred if we were to sell all our assets in tax-efficient
transactions, then our determination of an acceptable tax cost at which the
reorganization would be implemented could increase above $100 million, perhaps
significantly. In addition and in any event, prior to implementing the
reorganization, we will continue to monitor changes in these values, as well as
changes in our share ownership and other relevant factors, including any
legislative and administrative developments as they relate to the risk of
additional costs at the time of or after the reorganization for us or for our
shareholders.
The Internal Revenue Service is not bound by our determination of the
tax cost incurred by us as a result of the reorganization and may assert that it
is, in fact, higher than the tax cost calculated by management.
35
We will become subject to changes in Bermuda law or political circumstances. We
may become subject to Bermuda tax, which would reduce our net income.
Under current Bermuda law, we are not subject to tax on income or
capital gains and would not be subject to these taxes in Bermuda if the
reorganization were implemented now. We expect to obtain from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act, 1966,
assurances that, in the event that Bermuda enacts legislation imposing any tax
computed on profits, income, any capital asset, gain or appreciation, or any tax
in the nature of estate, duty or inheritance tax, that tax will not be
applicable to us or our operations, or shares, debentures or other obligations
until March 28, 2016, currently the latest date for which such assurances can be
given under Bermuda law. We could be subject to taxes in Bermuda after that
date, which would reduce our net income. These assurances do not, however,
prevent the imposition of taxes on any person ordinarily resident in Bermuda or
any company in respect of its ownership of real property or leasehold interests
in Bermuda.
Bermuda's political structure is based upon a parliamentary system with
two major parties, the United Bermuda Party and the Progressive Labour Party. In
the latest election, the Progressive Labour Party gained control of the
legislative branch for the first time over the incumbent United Bermuda Party.
Although to date, the government's financial and regulatory policies have not
been changed in a way that we believe would materially affect us, it is possible
that changes in the political climate in Bermuda could materially affect us and
our profitability.
The enforcement of civil liabilities against us may be more difficult.
If the reorganization is consummated, we will be a Bermuda company and
in the future some of our officers and directors may be residents of various
jurisdictions outside the United States. All or a substantial portion of the
assets of Leucadia National Limited and of those persons may be located outside
the United States. As a result, it may be difficult for investors to effect
service of process within the United States upon those persons or to enforce
judgments obtained against those persons in United States courts. Leucadia
National Limited will irrevocably agree that it may be served with process with
respect to actions based on offers and sales of securities made in the United
States by having CT Corporation System, 1633 Broadway, New York, New York 10019,
be its United States agent appointed for that purpose.
Appleby Spurling & Kempe, our special Bermuda counsel, has advised us
that currently there is no treaty in force between the United States and Bermuda
providing for the reciprocal recognition and enforcement of judgments in civil
and commercial matters. As a result, whether the judgment of a U.S. court is or
would be enforceable in Bermuda against Leucadia National Limited or its
officers and directors depends on whether the U.S. court is recognized by the
Bermuda court as having jurisdiction over Leucadia National Limited or its
officers and directors, as determined by reference to Bermuda conflict of law
rules. A judgement debt from a U.S. court which is final and for a sum certain
based on U.S. federal securities law will be enforceable in Bermuda only if the
judgement debtor had submitted to the jurisdiction of the U.S. court, and the
issue of submission and jurisdiction is a matter of Bermuda, and not U.S., law.
Additionally, and irrespective of the issue of jurisdiction, the Bermuda court
will not enforce a U.S. federal securities law which is either penal or of a
public law nature, nor would the remedies flowing from such laws be available or
enforceable in Bermuda. Further, no claim can be brought in Bermuda against
Leucadia National Limited or its officers or directors in the first instance for
violation of U.S. securities law, as U.S. securities law has no extraterritorial
jurisdiction under Bermuda law and lacks the force of law in Bermuda. A Bermuda
court may, however, impose civil liability on Leucadia National Limited or its
officers and directors, if the facts alleged constitute or give rise to a cause
of action under Bermuda law.
Some of your rights as a shareholder will change as a result of the
reorganization.
Because of differences in New York law and Bermuda law and differences
in the governing documents of Leucadia National Corporation and Leucadia
National Limited, your rights as a shareholder will change if we complete the
reorganization.
36
The most significant differences are:
o our Board of Directors will be empowered to mandatorily redeem
shares from a shareholder at fair market value if it
determines that share ownership by that shareholder may result
in adverse tax, regulatory or legal consequences to us, any of
our subsidiaries or any of our shareholders,
o a provision limiting to 9.9% the voting rights of any person
who owns, directly, indirectly, beneficially or constructively
as determined for purposes of the controlled foreign
corporation rules of the Internal Revenue Code, 10% or more of
our common shares. Initially, this 9.9% voting limitation will
not be applicable to any Cumming Entity or any Steinberg
Entity. However, if we acquire a foreign insurance company
which would be or would cause us to be characterized as a
controlled foreign corporation, the voting rights for the
election of directors of all Cumming Entities considered
together and all Steinberg Entities considered together would
be limited in each case to 9.9%, unless the voting limitations
were unnecessary because neither we nor any of our
subsidiaries would be characterized as a controlled foreign
corporation or the Board of Directors determines, and Mr.
Cumming and Mr. Steinberg agree, to allow us or the insurance
company to be considered a controlled foreign corporation.
This provision, to some extent in conjunction with the 1%
ownership restriction described immediately below, is intended
to prevent us and any of our current or future foreign
subsidiaries from being characterized as a controlled foreign
corporation, which could cause U.S. persons owning or treated
as owning 10% or more of our shares to suffer adverse U.S. tax
consequences,
o a provision restricting the ability of a person or entity from
owning, directly, indirectly, beneficially or constructively
as determined for purposes of the foreign personal holding
company rules of the Internal Revenue Code, 1% or more of our
common shares. However, this restriction on ownership would
permit any person or entity who owned, as determined under
these rules and regulations, more than 1% of our outstanding
common shares immediately preceding the effective date of the
reorganization, to continue to own common shares owned on that
date but would not permit that person or entity to increase
its common share ownership above what it owns on that date.
Moreover, the Leucadia National Limited Board of Directors
may, in its discretion, waive this limitation on a case by
case basis. This provision is intended to prevent us and any
of our current and future foreign subsidiaries from being
characterized as foreign personal holding companies, which
would cause all U.S. persons owning or treated as owning our
shares to suffer adverse U.S. tax consequences. Generally, the
U.S. tax law characterizes a foreign corporation as a foreign
personal holding company if five or fewer U.S. individuals
own, including indirectly and through attribution, more than
50% of the foreign corporation's vote or value, and the
corporation's passive-type income exceeds certain thresholds
for a given year. You should note that expansive attribution
rules apply under the tax law with regard to the 50% ownership
test, including a provision that treats shares owned, directly
or indirectly, by or for a corporation, partnership, estate or
trust as owned proportionately by its shareholders, partners
or beneficiaries. In addition, the attribution rules treat an
individual as owning the shares owned directly or indirectly
by the individual's partners and specified family members,
o our New York charter currently generally restricts the
accumulation of 5% or more of our common shares, a restriction
adopted to preserve the use of our tax attributes. This
charter restriction will not be included in the organizational
documents of Leucadia National Limited,
o under New York law, a merger, consolidation, or dissolution of
our company, or any sale, lease, exchange or other disposition
of all or substantially all of our assets, must be approved by
the affirmative vote of one-half of all outstanding shares (if
the charter amendment is approved) or two-thirds of all
outstanding shares (if the charter amendment is not approved);
under Bermuda law and the Bermuda bye-laws, and any such
transaction must be approved by the affirmative vote of a
majority of the shares voted,
37
o unless otherwise provided by law, our Bermuda bye-laws will
only be permitted to be amended with both the prior approval
of the Board of Directors and approval by the holders of a
majority of the shares voting on the amendment, and
o under Bermuda law, shareholders' rights to bring derivative
suits will be more limited.
The potential benefits from the reorganization are not guaranteed.
We anticipate that several potential benefits will result from the
reorganization. However, these potential benefits are not guaranteed. We may not
realize benefits from the Bermuda and other foreign tax, business and regulatory
environments. As a result, we may not experience any competitive advantages or
enhanced returns for shareholders from the reorganization. In addition, we
currently estimate that the process of reorganizing will result in expenses,
other than the tax cost to the company, of approximately $5 million. If the
Board decides to implement the reorganization, these expenses as well as the tax
cost to the company will be incurred regardless of whether we are able to
realize any benefits of the reorganization. See "The Reorganization--Background
and Advantages of the Reorganization."
We may become subject to U.S. corporate income tax, which would reduce our net
income.
We currently are subject to U.S. income tax on our worldwide income.
After the reorganization, our U.S. subsidiaries will continue to be subject to
U.S. income tax on their operations. We anticipate that our non-U.S. operations
generally will not be subject to U.S. income tax other than withholding tax on
U.S. source income and corporate income tax (and possibly the branch profits
tax) on income which is effectively connected with the conduct of a trade or
business within the United States or otherwise attributable to the United
States. There is, however, no assurance that this result will be achieved. In
this regard, the Internal Revenue Service may challenge our tax reporting
positions and assert that all or some of our non-U.S. income and operations are
subject to U.S. tax.
We may become subject to Barbados tax, which would reduce our net income.
We intend to have offices located in Barbados and expect to apply for
an international business company license under the Barbados International
Business Companies Act, 1991-24. If this license is granted, we will be entitled
to certain tax benefits and exemptions, including a preferred rate of
corporation tax. All dividends, interest, royalties, fees or management fees
deemed to be paid by us as a licensed international business to a company
carrying on international business or to a person resident outside Barbados will
be exempt from tax under the Barbados Income Tax Act. As an international
business company in Barbados, we will not need to withhold any portion of the
dividends, royalties, interest, management fees, fees or other income paid or
deemed to be paid by us to a person who is not resident in Barbados or who, if
so resident, carries on an international business. We intend to apply to the
Minister of Finance for assurances or guarantees that all or any of the benefits
or exemptions contained in the International Business Companies Act will apply
to us for a period of fifteen years upon our becoming a licensee. There are
currently no procedures for extending these assurances or guarantees. It is
possible that we would not receive this license or these assurances and/or
guarantees, which would make us ineligible to receive these benefits or would
limit the availability of these benefits to us. This would reduce our net
income.
Our shareholders could be subject to U.S. tax on our undistributed income.
In general, our U.S. shareholders should be subject to U.S. federal
income tax only when they receive a distribution from us or dispose of our
common shares. However, as described in this proxy statement/prospectus under
the heading "Material Tax Considerations," U.S. tax law contains various
anti-deferral rules, applicable in specified circumstances. Our Bermuda bye-laws
have been designed, to the extent possible, to eliminate or reduce the
possibility that those anti-deferral rules would apply to you. However, there
can be no assurance that the bye-laws will eliminate all risk in this regard. If
one or another of these anti-deferral rules were to apply, it is possible that
some or all of our U.S. shareholders would be taxed on all or certain types of
38
income earned by us or our subsidiaries, even if no distributions are made to
these U.S. shareholders.
Our shareholders could be subject to adverse U.S. tax consequences as a result
of our ownership of passive assets.
If we are characterized, for U.S. tax purposes, as a passive foreign
investment company under the Internal Revenue Code, all of our U.S. shareholders
could suffer adverse U.S. tax consequences in connection with distributions from
us or upon disposition of our shares. While we intend to manage our affairs in a
manner designed to avoid this characterization, there can be no assurance that
we, or one or more of our foreign subsidiaries, will not in the future be
characterized as a passive foreign investment company.
Application of the bye-law provision restricting your ability to own 1% or more
of Leucadia National Limited common shares could result in an economic loss to
you which may include a forced sale of your shares.
As previously discussed, if you acquire ownership of 1% or more of
Leucadia National Limited common shares (or if you already own 1% or more and
you increase your ownership of common shares) you will be in violation of the
bye-laws. In this event, your Leucadia National Limited common shares will
become subject to a forced sale in accordance with the bye-laws and you may
suffer economic loss as a result of such sale. If you have already sold shares
that you owned in violation of this restriction, you may be subject to a loss of
profits of such sale.
The expansive attribution rules under U.S. tax law may result in your
inadvertent violation of the bye-law provision restricting your ability to own
1% or more of Leucadia National Limited common shares as a result of events
unrelated to your direct ownership of shares.
As previously discussed, the foreign personal holding company
attribution rules under the Internal Revenue Code are expansive. Under these
rules, you may be deemed to own shares held by a corporation, partnership,
estate, or trust in which you have an ownership interest. In addition, an
individual is considered to own the stock owned, directly or indirectly, by or
for his or her partners and family. For these purposes, an individual's family
includes his or her brothers and sisters (whether by the whole or half blood),
spouse, ancestors, and lineal descendants. These attribution rules can have
application in situations and as a result of events that otherwise have nothing
to do with your direct share ownership.
For example, (i) the marriage of the son of Shareholder "A" to the
daughter of Shareholder "B" would result in a combination of the holdings of
Shareholder "A" and Shareholder "B", all being deemed to own the shares of
Shareholder "A" and Shareholder "B", and (ii) the investment by "Mr. Smith", a
Leucadia National Limited shareholder, in a partnership unrelated to Leucadia
National Limited, would cause "Mr. Jones", another Leucadia National Limited
shareholder and partner in that partnership, and "Mr. Smith", as well as all
other individuals who are partners in that partnership, to be treated as owning
"Mr. Smith's" and "Mr. Jones'" Leucadia National Limited common shares.
The foregoing examples are for illustration only and are not intended
to be all inclusive. You are urged to consult your tax advisor as to the
potential application of, and to assure compliance with, these bye-law
provisions.
Congress may enact new legislation that would tax us or our shareholders on our
worldwide income.
The Treasury Department recently announced that it will conduct a study
to review tax laws affecting U.S. companies that reincorporate offshore. In
addition, a number of pieces of legislation were recently introduced in
Congress, each of which would treat a foreign corporation that results from the
reincorporation of a U.S. corporation, as a domestic corporation for U.S. tax
purposes. It is currently unknown whether any of this legislation, or any other
proposal, whether legislative or administrative, which would modify the current
U.S. tax treatment of companies which relocate offshore, will be enacted or
39
adopted. If so, the outcome of such initiatives could reduce or eliminate the
tax benefits we expect to realize after the reorganization, and could result in
increased tax on our shareholders.
Certain provisions in our Bermuda bye-laws may make it more unlikely that
someone will attempt to acquire us at a premium in a hostile offer.
Provisions in our Bermuda bye-laws could have the effect of
discouraging unsolicited takeover bids from third parties or the removal of
incumbent management. As a result, it may be less likely that you will receive
premium prices for your shares in an unsolicited takeover of our company by
another party. These provisions include:
o the voting cut-back, repurchase and ownership restriction
provisions described above, and
o a requirement that no provision of our bye-laws (including the
provisions relating to the voting cut-back, repurchase rights
and ownership restriction) can be amended or repealed without
prior Board of Directors and shareholder approval.
Our Board of Directors also has the right to issue preferred shares
having the rights and qualifications that it determines. The issuance of
preferred shares may have the effect of delaying, deferring or preventing a
merger, amalgamation, tender offer or proxy contest involving us. This may cause
the market price of our shares to fall, and may further dilute the voting rights
of our existing shareholders.
We may seek to raise additional capital by selling our shares in the future.
After the change in domicile, we intend to examine acquisition
opportunities and/or equity or debt capital raising opportunities, which may
include rights offerings to our shareholders. Any of these actions could
adversely affect the market price of our common shares or be dilutive to our
shareholders.
40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF LEUCADIA NATIONAL CORPORATION
The following selected financial data have been summarized from our
consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such
consolidated financial statements.
Year Ended December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share amounts)
SELECTED INCOME STATEMENT DATA:
Revenues (a) $375,298 $571,865 $522,908 $233,367 $270,392
Interest expense (b) 55,200 57,713 50,665 45,139 46,007
Income (loss) from continuing operations before
income taxes, minority expense of trust
preferred securities, extraordinary gain (loss)
and cumulative effect of a change in accounting
principle 53,673 253,466 267,458 39,580 (25,945)
Income (loss) from continuing operations before
minority expense of trust preferred securities,
extraordinary gain (loss) and cumulative effect
of a change in accounting principle 70,321 160,152 215,295 62,140 (15,401)
Minority expense of trust preferred securities,
net of taxes (5,521) (5,521) (5,521) (8,248) (7,942)
Income (loss) from continuing operations before
extraordinary gain (loss) and cumulative effect
of a change in accounting principle 64,800 154,631 209,774 53,892 (23,343)
Income (loss) from discontinued operations,
including gain (loss) on disposal, net of taxes (72,719) (39,606) 7,856 451 687,215
Extraordinary gain (loss) from early
extinguishment of debt, net of taxes - 983 (2,588) - (2,057)
Cumulative effect of a change in accounting
principle 411 - - - -
Net income (loss) (7,508) 116,008 215,042 54,343 661,815
Per share:
Basic earnings (loss) per common share:
Income (loss) from continuing operations
before extraordinary gain (loss) and
cumulative effect of a change in accounting
principle $ 1.17 $2.78 $3.53 $.85 $ (.38)
Income (loss) from discontinued operations,
including gain (loss) on disposal (1.32) (.71) .13 .01 11.05
Extraordinary gain (loss) - .02 (.04) - (.03)
Cumulative effect of a change in accounting
principle .01 - - - -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (.14) $2.09 $3.62 $.86 $10.64
========== ========== ========== ======= ==========
(continued)
41
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations
before extraordinary gain (loss) and
cumulative effect of a change in accounting
principle $ 1.17 $2.78 $3.53 $.85 $ (.38)
Income (loss) from discontinued operations,
including gain (loss) on disposal (1.32) (.71) .13 .01 11.05
Extraordinary gain (loss) - .02 (.04) - (.03)
Cumulative effect of a change in accounting
principle .01 - - - -
----------- ----------- ---------- ---------- -----------
Net income (loss) $ (.14) $2.09 $3.62 $.86 $10.64
=========== =========== ========== ========== ===========
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share amounts)
SELECTED BALANCE SHEET DATA:
Cash and investments $1,182,874 $1,182,014 $ 884,687 $1,520,868 $1,596,430
Total assets 2,577,239 2,626,156 2,488,130 3,222,286 2,980,418
Debt, including current maturities 343,276 374,523 483,309 722,601 352,872
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely subordinated debt securities
of the Company 98,200 98,200 98,200 98,200 150,000
Customer banking deposits 476,495 526,172 329,301 189,782 198,582
Common shareholders' equity 1,195,453 1,204,241 1,121,988 1,853,159 1,863,531
Book value per common share $21.61 $21.78 $19.75 $29.90 $29.17
Cash dividends per common share $ .25 $ .25 $13.58 $ - $ .25
------------------
(a) Includes net securities gains (losses) of $29,624,000, $124,479,000,
$16,268,000, $(66,159,000) and $3,943,000 for the years ended December
31, 2001, 2000, 1999, 1998 and 1997, respectively.
(b) Includes interest on customer banking deposits.
42
SUMMARY PRO FORMA FINANCIAL INFORMATION
A pro forma condensed balance sheet for Leucadia National Limited is
not presented in this proxy statement/prospectus because there would be no
significant pro forma adjustments required to be made to our historical
consolidated balance sheet as of December 31, 2001 other than provisions of an
estimated $100 million in taxes and other expenses of $5 million as part of the
reorganization. The Internal Revenue Service would not be obligated to accept
our determination or the methodologies we used in calculating the tax provision.
The effect of these provisions would be to increase total liabilities and to
decrease net income and shareholders' equity by the amount of the provisions.
The transaction involves a reorganization among companies under common control
and, therefore, there will be no change in accounting.
We note that the long-term impact of the events described above on our
financial statements and book value per share likely will be less material than
indicated here, as a significant portion of the transaction costs represent the
acceleration of expenses that would have ordinarily been incurred in future
periods.
These pro forma adjustments assume that the United States federal
income tax rate is 35%, the maximum statutory rate for corporations.
43
THE REORGANIZATION
General
The Board of Directors has unanimously approved and recommends that you
approve the proposed reorganization, in which we will merge into Leucadia
National Corporation-Arizona, with Leucadia National Corporation-Arizona
surviving. Immediately after the merger, Leucadia National Corporation-Arizona
will become Leucadia National Limited, a Bermuda company, pursuant to a
conversion and continuation procedure. The merger will occur only if the change
in domicile to Bermuda is to occur immediately thereafter.
After the reorganization, Leucadia National Limited will own the same
assets that Leucadia National Corporation owned before the reorganization. The
Board of Directors and officers will not change. Your proportionate economic
ownership at the time of the reorganization also will not change as a result of
the reorganization. The material differences in your rights as a shareholder of
Leucadia National Limited are described under "Risk Factors--Some of Your Rights
as a Shareholder Will Change as a Result of the Reorganization," "Description of
Authorized Shares of Leucadia National Limited" and "Comparison of Rights of
Shareholders." The actual terms of the reorganization are contained in the
merger agreement and memorandum of continuance. The form of the merger agreement
is included in this proxy statement/prospectus as Annex I. The form of the
memorandum of continuance and the bye-laws substantially in the form of those
that will govern our company once we are domiciled in Bermuda are included in
this proxy statement/prospectus as Annex II and Annex III. We encourage you to
read these documents carefully.
Background and Advantages of the Reorganization
We believe the reorganization will allow us to obtain the benefit of
certain tax, business and financial advantages that are not currently available
to us. The reorganization should provide us with:
o the opportunity to improve cash flow and enhance long-term
profitability as a result, in significant part, of a reduction
in the overall effective tax rate to be paid on our worldwide
income, and a more favorable environment for potential future
asset sales,
o a more favorable and flexible corporate structure for the
formation and growth of non-U.S. based operations,
o an enhanced ability to pursue business combinations with
non-U.S. entities, and
o an expansion of our investor base, as our shares may become
more attractive to non-U.S. investors.
In addition to the potential benefits described above, the
reorganization will impose some moderate costs on us and will expose you and us
to certain risks. See "Risk Factors."
There are also differences between New York and Bermuda corporate law,
and our New York and Bermuda organizational documents. See "Comparison of Rights
of Shareholders." There are also selected tax and enforcement risks related to
the reorganization. See "Risk Factors." We believe that the potential advantages
of the reorganization substantially outweigh these risks and differences.
Although management considered alternate structures for providing you
with the benefits associated with investing in a Bermuda company, management
determined and advised the Board of Directors that the proposed structure of the
reorganization is the best structure to provide the advantages we are seeking,
without direct cost to you. No assurances can be given, however, that the
reorganization will be consummated or that if consummated the anticipated
benefits of the reorganization will be realized.
44
While the Board of Directors has determined that it is in our best
interest to request your approval for the proposed reorganization at this time,
as noted previously, it is anticipated that we will implement the reorganization
only if the estimated tax cost to the company decreases to an acceptable level
and there are no other circumstances that would make it unadvisable to proceed
with the reorganization, none of which the Board of Directors is currently aware
of. In addition, the Board of Directors may determine to abandon the
reorganization for reasons deemed to be in our best interests or in the best
interests of our shareholders.
Recommendation of the Board of Directors
The Board of Directors has unanimously approved the proposed
reorganization and recommends that you vote for the proposal to approve the
reorganization.
Rights of Dissenting Shareholders
Pursuant to Section 910 of the New York Business Corporation Law and
Section 10-1302 of the Arizona Business Corporation Act, the holders of Leucadia
National Corporation common shares and the Leucadia National Corporation-Arizona
common shares will not have dissenters' appraisal rights under New York or
Arizona law in connection with the reorganization because, among other reasons,
our shares currently are traded on the New York Stock Exchange.
Amendments to Stock Based Plans
In connection with the reorganization, we will amend our stock based
compensation plans to provide that common shares will be issued by Leucadia
National Limited. We will revise or amend our other employee benefit plans, as
necessary.
Your approval of the reorganization will also constitute approval of
amendments to our stock based compensation plans and other employee benefit
plans providing for use after the reorganization of Leucadia National Limited
common shares in lieu of Leucadia National Corporation common shares.
New York Stock Exchange Trading
Our common stock is currently traded on the New York Stock Exchange
under the symbol "LUK." We currently expect that Leucadia National Limited
common shares will be listed under the same symbol immediately following the
reorganization. As is currently the case with our company, Leucadia National
Limited, as a New York Stock Exchange listed company, would be subject to the
informational requirements of the securities laws of the United States.
Accounting Treatment
The transaction involves a reorganization among companies under common
control and, therefore, there will be no change in accounting.
THE MERGER AGREEMENT AND THE
MEMORANDUM OF CONTINUANCE
General
We propose that the reorganization be effected pursuant to the merger
agreement and the memorandum of continuance. The steps to the reorganization
are:
o merging Leucadia National Corporation with and into Leucadia
National Corporation-Arizona, with Leucadia National
Corporation-Arizona surviving;
45
o automatically converting the shares of Leucadia National
Corporation outstanding immediately before the effective time
of the merger into an equal number of Leucadia National
Corporation-Arizona shares;
o filing the memorandum of continuance with the Registrar of
Companies of Bermuda for registration immediately after the
merger, which will result in Leucadia National
Corporation-Arizona becoming a Bermuda company pursuant to a
continuation procedure under Bermuda and Arizona law; and
o automatically converting each outstanding Leucadia National
Corporation-Arizona common share into one Leucadia National
Limited common share.
The certificate of incorporation and by-laws of Leucadia National
Corporation-Arizona will be amended and restated at the effective time of the
merger as is set forth in Exhibit A and Exhibit B to the merger agreement, the
form of which is attached as Annex I to this proxy statement/prospectus. The
amended and restated certificate of incorporation and by-laws will be the
certificate of incorporation and by-laws of the surviving corporation of the
merger. Following the continuation of Leucadia National Corporation-Arizona
into Bermuda, the memorandum of continuance and the bye-laws of Leucadia
National Limited will be the governing organizational documents and the forms
thereof are set forth as Annexes II and III to this proxy statement/prospectus.
Exchange of Share Certificates
Shareholders holding share certificates representing Leucadia National
Corporation common shares should not send their share certificates with their
proxy cards. If the reorganization is completed, a transmittal form with
instructions on how to exchange share certificates for certificates representing
Leucadia National Limited common shares will be mailed to shareholders.
Conditions to Consummation of the Reorganization
The reorganization will be completed only if, among other requirements,
the following conditions are satisfied or, if allowed by law, waived:
o Our shareholders approve the reorganization by the requisite
vote.
o The anticipated tax cost of the reorganization is at a level
that is acceptable to the Board of Directors.
o There are no orders or injunctions prohibiting the
consummation of the reorganization.
o The registration statement on Form S-4 filed with the
Securities and Exchange Commission to register the Leucadia
National Limited common shares becomes effective and no stop
order or proceeding seeking a stop order will be in effect.
o Except as set forth below, we receive all material third-party
consents to the reorganization. At December 31, 2001, we had
outstanding an aggregate of $99,419,000 principal amount of
our 7-3/4% Senior notes due 2013, $19,101,000 principal amount
of our 8-1/4% Senior Subordinated notes due 2005, $21,623,000
principal amount of our 7-7/8% Senior Subordinated notes due
2006 and $98,200,000 aggregate liquidating amount of
company-obligated mandatorily redeemable 8.65% preferred
securities of a subsidiary trust holding our solely
subordinated debt securities. Under the terms of the senior
notes and of each issue of senior subordinated notes, a
majority in principal amount of each issue of notes is
required to consent to the reorganization. We currently intend
to seek the consent of each issue of notes; however, we will
still consider implementing the reorganization even if we do
not receive the required consents. Implementation of the
reorganization without the consent of an issue of notes would
be an event of default under the terms of the indentures
governing that issue and any other issue of notes that did not
consent. As a result, the Trustee or holders of not less than
46
25% in aggregate principal amount of each non-consenting issue
of notes would be able to declare the full amount of that
issue of notes to be due and payable immediately. Any
acceleration would also result in a default under the trust
preferred securities, giving the Trustee or holders of not
less than 25% in aggregate principal amount of the trust
preferred securities the ability to declare the full amount of
the trust preferred securities to be due and immediately
payable. We believe that we have adequate liquid resources to
pay off the full amount of the notes and the trust preferred
securities if acceleration were to occur.
We reserve the right to waive any or all of the conditions listed
above, except as required by law.
Effective Time
We intend to implement the reorganization only if the estimated cost of
the reorganization is acceptable given the anticipated benefits. Based on our
current estimates of the fair market values of our assets, the amount of our
liabilities, the current per share price of our common shares, the tax basis
that we have in our assets and our other tax attributes, we expect that the tax
cost of the reorganization, if implemented now, could be approximately $315
million as of April 8, 2002. We believe this cost is unacceptably high,
considering the anticipated benefits of the reorganization and compared to the
tax cost we would otherwise expect to incur if we, instead, actually sold our
assets in one or more tax-efficient transactions.
We would consider implementing the reorganization if our estimate of
the tax cost declines to a level more commensurate with the amount of tax the
company would incur were we to sell all our assets in one or more tax-efficient
transactions. Based on, and assuming no significant change to our assessment of
asset values and the approximate $315 million tax cost that could result from
the actual sale of all our assets as of April 8, 2002, we believe that a tax
cost of approximately $100 million would be acceptable, given the anticipated
benefits of the reorganization; we believe this reduced estimated tax cost would
occur if our market capitalization declines by $615 million, our liabilities
decrease by $615 million, or the tax basis of our assets increases by $615
million, or upon some combination thereof, recognizing that changes in two or
more of these factors could have an offsetting impact on the calculation of this
tax cost. If, however, there are significant changes to our asset configuration,
our tax profile and/or our assessment of asset values and the tax cost that
would be incurred if we were to sell all our assets in tax-efficient
transactions, then our determination of the tax cost at which the reorganization
would be implemented could increase above $100 million, perhaps significantly.
In addition and in any event, prior to implementing the reorganization, we will
continue to monitor changes to these considerations, as well as changes in our
share ownership and other relevant factors, including any legislative and
administrative developments as they relate to the risk of additional costs at
the time of or after the reorganization for us or for our shareholders.
Because the tax cost is dependent in part on values that fluctuate with
market conditions, we cannot predict when and whether the tax cost will decline
to an acceptable level. Thus, we currently are unable to predict when and
whether the reorganization will take place.
If the Board of Directors has not implemented the reorganization before
the 2005 annual meeting of shareholders, management will either abandon the
reorganization or resubmit it for shareholder approval at the 2005 annual
meeting of shareholders. In addition, the Board of Directors may determine to
abandon the reorganization for other reasons deemed to be in our best interests
and/or those of our shareholders.
Our merger into Leucadia National Corporation-Arizona, if approved by
our shareholders, will become effective upon the later of: (1) the time of
filing a certificate of merger with the New York Secretary of State; (2) the
time of filing articles of merger with the Corporation Commission of the State
of Arizona; or (3) a later effective time specified in the filings with those
states. The conversion of Leucadia National Corporation-Arizona and its
continuance as a Bermuda company, will become effective when the Registrar of
Companies of Bermuda registers the memorandum of continuance.
Immediately following the effective time of the reorganization,
Leucadia National Limited will have the same directors and executive officers as
we had immediately before that date.
47
Amendment
Leucadia National Corporation and Leucadia National
Corporation-Arizona, by action of their respective boards of directors, may
amend, modify or supplement the merger agreement or the memorandum of
continuance at any time, except no amendment, modification or supplement may be
made or effected that by law requires your further approval without your
approval.
LEUCADIA NATIONAL CORPORATION AND LEUCADIA
NATIONAL LIMITED
Leucadia National Corporation
We are a diversified holding company, engaged in a variety of
businesses, including banking and lending, manufacturing, winery operations,
real estate activities, development of a copper mine and property and casualty
insurance and reinsurance. We concentrate on return on investment and cash flow
to build long-term shareholder value, rather than emphasizing volume or market
share. Additionally, we continuously evaluate the retention and disposition of
our existing operations and investigate possible acquisitions of new businesses
in order to maximize shareholder value. In identifying possible acquisitions, we
tend to seek assets and companies that are troubled or out of favor and, as a
result, are selling substantially below the values we believe to be present.
Our common shares are traded on the New York Stock Exchange under the
symbol "LUK." The following table sets forth the quarterly range of high and low
reported sale prices of our common shares on the New York Stock Exchange for the
periods indicated.
High Low
---- ---
2000:
First Quarter................................ $ 24.19 $ 20.63
Second Quarter............................... 26.75 22.13
Third Quarter................................ 28.13 23.06
Fourth Quarter............................... 37.50 23.06
2001:
First Quarter................................ $ 35.70 $ 30.50
Second Quarter............................... 34.90 30.58
Third Quarter................................ 33.65 28.25
Fourth Quarter............................... 31.96 26.31
2002:
First Quarter................................ $ 36.04 $ 28.00
Second Quarter (through April 8, 2002) 36.85 35.00
On April 8, 2002, the last reported sale price of our common shares as
reported on the New York Stock Exchange was $36.81 per share. As of April 8,
2002, there were approximately 3,129 record holders of our common shares.
Leucadia National Limited
Leucadia National Limited will be a Bermuda company registered and
existing under the laws of Bermuda upon registration of the memorandum of
continuance by the Registrar of Companies in Bermuda. Leucadia National
Limited's registered office will be located in Bermuda.
48
DESCRIPTION OF AUTHORIZED SHARES OF
LEUCADIA NATIONAL LIMITED
The following discussion is a summary of Leucadia National Limited's
share capital. This summary is subject to the complete text of Leucadia National
Limited's memorandum of continuance and bye-laws as they will be in effect on
the effective date. Annexes II and III to this proxy statement/prospectus set
forth the memorandum of continuance and the bye-laws.
Authorized Share Capital
The memorandum of continuance and the bye-laws of Leucadia National
Limited will provide that the authorized share capital is limited to 150,000,000
common shares having a par value of US$1.00 per share and 6,000,000 preferred
shares having a par value of US$1.00 per share.
Voting
The holders of Leucadia National Limited's common shares will be
entitled to one vote per share except as restricted by the voting limitation
described below, subject to the rights of the holders of any other class of
shares that may be issued. All actions submitted to a vote of shareholders shall
be voted on by the holders of Leucadia National Limited common shares, voting
together as a single class, except as provided by law.
With respect to the election of directors, each holder of Leucadia
National Limited common shares entitled to vote at the election will have the
right to vote, in person or by proxy, the number of shares held by him or her
for as many persons as there are directors to be elected and for whose election
that holder has a right to vote. Those nominees receiving the highest number of
votes, up to the number of directors elected, shall be deemed elected.
The bye-laws contain provisions limiting shareholders' voting rights as
set forth in "Comparison of Rights of Shareholders--Voting of Shareholders;
Limitations on Share Ownership--Leucadia National Limited."
Dividends
As is the case with the Leucadia National Corporation common shares,
holders of Leucadia National Limited common shares will be entitled to
participate, on a share-for-share basis, with the holders of any other common
shares outstanding, with respect to any dividends declared by the Board of
Directors of Leucadia National Limited. Dividends will generally be payable in
U.S. dollars. In December of each of 2000 and 2001, we declared and paid an
annual cash dividend of $0.25 per common share.
The payment of any future cash dividends on the Leucadia National
Limited common shares is necessarily dependent upon the earnings and financial
needs of Leucadia National Limited, along with applicable legal and contractual
restrictions.
Rights Upon Liquidation
As is the case with the Leucadia National Corporation common shares, on
a liquidation of Leucadia National Limited, holders of Leucadia National Limited
common shares will receive any assets remaining after the payment of Leucadia
National Limited's debts and the expenses of the liquidation, subject to any
special rights as may be attached to any other class of shares.
49
COMPARISON OF RIGHTS OF SHAREHOLDERS
The following discussion is a summary of material changes in your
rights as a shareholder following the reorganization. We believe this summary is
accurate. It is, however, subject to the complete text of the relevant
provisions of the Bermuda Companies Act 1981, the New York Business Corporation
Law, Leucadia National Corporation's certificate of incorporation and by-laws
and Leucadia National Limited's memorandum of continuance and bye-laws.
Your rights as a shareholder of Leucadia National Corporation are
governed by New York law and Leucadia National Corporation's restated
certificate of incorporation and amended and restated by-laws. After the
reorganization, you will become a shareholder of Leucadia National Limited and
your rights will be governed by Bermuda law and Leucadia National Limited's
memorandum of continuance and bye-laws.
There are differences between your rights under New York law and
Bermuda law, which is based on English legal principles. In addition, there are
differences between Leucadia National Corporation's certificate of incorporation
and by-laws and Leucadia National Limited's memorandum of continuance and
bye-laws. The most significant differences are:
o once we are a Bermuda company, our Board of Directors will be
empowered to mandatorily redeem shares from a shareholder at
fair market value if it determines that share ownership by
that shareholder may result in adverse tax, regulatory or
legal consequences to us, any of our subsidiaries or any of
our shareholders,
o our bye-laws will contain a provision limiting to 9.9% the
voting rights of any person who owns, directly, indirectly,
beneficially or constructively as determined for purposes of
the controlled foreign corporation rules of the Internal
Revenue Code, 10% or more of our common shares. Initially,
this 9.9% voting limitation will not be applicable to any
Cumming Entity or any Steinberg Entity. However, if we acquire
a foreign insurance company which would be or would cause us
to be characterized as a controlled foreign corporation, the
voting rights for the election of directors of all Cumming
Entities considered together and all Steinberg Entities
considered together would be limited in each case to 9.9%,
unless the voting limitations were unnecessary because neither
we nor any of our subsidiaries would be characterized as a
controlled foreign corporation or the Board of Directors
determines, and Mr. Cumming and Mr. Steinberg agree, to allow
us or the insurance company to be considered a controlled
foreign corporation. This provision, to some extent in
conjunction with the 1% ownership restriction described
immediately below, is intended to prevent us and any of our
current or future foreign subsidiaries from being
characterized as a controlled foreign corporation, which could
cause U.S. persons owning or treated as owning 10% or more of
our shares to suffer adverse U.S. tax consequences,
o our bye-laws will contain a provision restricting the ability
of a person or entity from owning, directly, indirectly,
beneficially or constructively as determined for purposes of
the foreign personal holding company rules of the Internal
Revenue Code, 1% or more of our common shares. However, this
restriction on ownership would permit any person or entity who
owned, as determined under these rules and regulations, more
than 1% of our outstanding common shares immediately preceding
the effective date of the reorganization, to continue to own
common shares owned on that date, but would not permit that
person or entity to increase its common share ownership above
what it owns on that date. Moreover, the Leucadia National
Limited Board of Directors may, in its discretion, waive this
limitation on a case by case basis. This provision is intended
to prevent us and any of our current and future foreign
subsidiaries from being characterized as foreign personal
holding companies, which would cause all U.S. persons owning
or treated as owning our shares to suffer adverse U.S. tax
consequences. Generally, the U.S. tax law characterizes a
foreign corporation as a foreign personal holding company if
five or fewer U.S. individuals own, including indirectly and
through attribution, more than 50% of the foreign
corporation's vote or value, and the corporation's
passive-type income exceeds certain thresholds for a given
year. You should note that expansive attribution rules apply
50
under the tax law with regard to the 50% ownership test,
including a provision that treats shares owned, directly or
indirectly, by or for a corporation, partnership, estate or
trust as owned proportionately by its shareholders, partners
or beneficiaries. In addition, the attribution rules treat an
individual as owning the shares owned directly or indirectly
by the individual's partners and specified family members,
o our New York charter currently generally restricts the
accumulation of 5% or more of our common shares, a restriction
adopted to preserve the use of our tax attributes. This
charter restriction will not be included in the organizational
documents of Leucadia National Limited,
o under New York law, a merger, consolidation, or dissolution of
our company, or any sale, lease, exchange or other disposition
of all or substantially all of our assets, must be approved by
the affirmative vote of one-half of all outstanding shares (if
the charter amendment is approved) or two-thirds of all
outstanding shares (if the charter amendment is not approved);
under Bermuda law and the Bermuda bye-laws, and any such
transaction must be approved by the affirmative vote of a
majority of the shares voted,
o unless otherwise provided by law, our Bermuda bye-laws will
only be permitted to be amended with both the prior approval
of the Board of Directors and approval by the holders of a
majority of the shares voting on the amendment, and
o under Bermuda law, shareholders' rights to bring derivative
suits will be more limited.
MEETINGS OF SHAREHOLDERS; QUORUM
Leucadia National Corporation
Under New York law, shareholder meetings must be held annually and a
special meeting of shareholders may be called by the Board of Directors or by
persons authorized in the charter or the by-laws. Our by-laws provide that the
Board of Directors may call special meetings of shareholders at any time.
Our current by-laws provide that, except as otherwise required by law,
the certificate or incorporation or the by-laws, a majority of shares entitled
to vote, present in person or represented by proxy, shall constitute a quorum at
a meeting of shareholders (subject to class voting rights, if any).
Leucadia National Limited
Under Bermuda law, an annual general meeting must be convened at least
once in every calendar year. A special meeting of shareholders may be convened
by the directors at any time and must be convened upon the request of
shareholders holding at least 10% of the paid-up capital of the company carrying
the right to vote at shareholders' meetings.
The bye-laws of Leucadia National Limited provide that the presence of
two or more persons representing, in person or by proxy, not less than a
majority of the total issued and outstanding common shares shall constitute a
quorum at all meetings of the shareholders for the transaction of business,
except as otherwise provided by Bermuda law.
VOTING OF SHAREHOLDERS; LIMITATIONS ON SHARE OWNERSHIP
Leucadia National Corporation
Under New York law, unless otherwise provided in the certificate of
incorporation, each shareholder is entitled to one vote for each share of
capital stock held by that shareholder. However, our current charter contains a
provision that generally restricts the accumulation of 5% or more of our common
shares.
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Leucadia National Limited
The bye-laws contain a provision limiting to 9.9% the voting rights of
any person who owns, directly, indirectly, beneficially or constructively as
determined for purposes of the controlled foreign corporation rules of the
Internal Revenue Code, 10% or more of our common shares. Initially, this 9.9%
voting limitation will not be applicable to any Cumming Entity or any Steinberg
Entity. However, if we acquire a foreign insurance company which would be or
would cause us to be characterized as a controlled foreign corporation, the
voting rights for the election of directors of all Cumming Entities considered
together and all Steinberg Entities considered together would be limited in each
case to 9.9%, unless the voting limitations were undesirable or unnecessary
because neither we nor any of our subsidiaries would be characterized as a
controlled foreign corporation or the Board of Directors determines, and Mr.
Cumming and Mr. Steinberg agree, to allow us or the insurance company to be
considered a controlled foreign corporation. This provision, to some extent in
conjunction with the 1% ownership restriction described below, is intended to
prevent us and any of our current or future foreign subsidiaries from being
characterized as a controlled foreign corporation, which could cause U.S.
persons owning or treated as owning 10% or more of our shares to suffer adverse
U.S. tax consequences.
Currently the Cumming Entities and the Steinberg Entities are, to our
knowledge, the only shareholders beneficially owning more than 9.9% of our
outstanding voting securities, and as a result, they would be the only current
shareholders affected by the voting cut back. The company does not believe that
we currently would be characterized as a controlled foreign corporation even if
the vote of all of the Cumming Entities and the Steinberg Entities remain
unrestricted. Therefore, the company has determined not to restrict the vote of
the Cumming Entities or the Steinberg Entities at the present time. However, if
under certain circumstances, we or any of our non-U.S. subsidiaries could be
characterized as a controlled foreign corporation, the company will have the
ability to have the voting cut back applied to the Cumming Entities and the
Steinberg Entities.
The company believes that the 9.9% voting cutback is prudent, as a
protection against the potential characterization of the company or our non-U.S.
subsidiaries as controlled foreign corporations for U.S. tax purposes,
notwithstanding the bye-law restriction on ownership of more than 1% of our
common shares. This is due to the fact that, because the 1% restriction is
designed only to protect against characterization of the company as a foreign
personal holding company, restricted "ownership" for these rules will not
prevent, in all cases, ownership that would potentially result in application of
the controlled foreign corporation rules.
Further, the bye-laws contain a provision restricting the ability of a
person or entity from owning, directly, indirectly, beneficially or
constructively as determined for purposes of the foreign personal holding
company rules of the Internal Revenue Code, 1% or more of our common shares.
However, this restriction on ownership would permit any person or entity who
owned, as determined under these rules and regulations, more than 1% of our
outstanding common shares immediately preceding the effective date of the
reorganization, to continue to own common shares owned on that date, but would
not permit that person or entity to increase its common share ownership above
what it owns on that date. Moreover, the Leucadia National Limited Board of
Directors may, in its discretion, waive this limitation on a case by case basis.
This provision is intended to prevent us and any of our current and future
foreign subsidiaries from being characterized as foreign personal holding
companies, which would cause all U.S. persons owning or treated as owning our
shares to suffer adverse U.S. tax consequences. Generally, the U.S. tax law
characterizes a foreign corporation as a foreign personal holding company if
five or fewer U.S. individuals own, including indirectly and through
attribution, more than 50% of the foreign corporation's vote or value, and the
corporation's passive-type income exceeds certain thresholds for a given year.
You should note that expansive attribution rules apply under the tax law with
regard to the 50% ownership test, including a provision that treats shares
owned, directly or indirectly, by or for a corporation, partnership, estate or
trust as owned proportionately by its shareholders, partners or beneficiaries.
In addition, the attribution rules treat an individual as owning the shares
owned directly or indirectly by the individual's partners and specified family
members.
52
Our charter currently generally restricts the accumulation of 5% or
more of our common shares, a restriction adopted to preserve the use of our tax
attributes. This charter restriction will not be included in the organizational
documents of Leucadia National Limited.
MANDATORY REDEMPTION OF COMMON STOCK
Leucadia National Corporation
Subject to certain restrictions, under New York law, a corporation may
mandatorily redeem shares of its common shares if the charter so provides and
provided that there is a common class that is not redeemable.
Leucadia National Limited
The bye-laws contain a provision that the Board of Directors of
Leucadia National Limited may redeem shares at fair market value if it
determines that any shareholder's share ownership may result in adverse tax,
regulatory or legal consequences to the company or any shareholder, provided
that as a result of such redemption the issued share capital of Leucadia
National Limited would not be reduced below the minimum share capital required
by Bermuda law.
PREFERRED STOCK
Leucadia National Corporation
Under New York law and our current certificate of incorporation, the
Board of Directors has the right to issue preferred shares with the powers,
rights and designations as it may so determine, subject to certain restrictions
set forth in our certificate of incorporation.
Leucadia National Limited
Under the bye-laws of Leucadia National Limited, the Board of Directors
has the right to issue preference shares with the powers, rights and
designations as it may so determine.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS
AND DIRECTOR NOMINATIONS
Leucadia National Corporation
Our current by-laws provide that shareholders seeking to bring business
before an annual meeting of shareholders or to nominate candidates for election
as directors at an annual meeting of shareholders must provide timely notice in
writing. To be timely, a shareholder's notice must be received by our Secretary
not less than:
o 120 days before the first anniversary date of our proxy
statement in connection with the last annual meeting, or
o if no annual meeting was held in the previous year, not less
than a reasonable time, as determined by the Board of
Directors, before the date of the applicable annual meeting.
Leucadia National Limited
The bye-laws of Leucadia National Limited will be substantially
identical to the by-laws of Leucadia National Corporation, subject to Bermuda
law, in this regard. In addition, Bermuda law provides that shareholders
totaling at least 100 shareholders or holding at least 5% of the total voting
rights can, at their own expense, require the company to:
53
o give notice of any resolution which those shareholders can
properly propose and intend to propose at the next annual
general meeting of the company; or
o circulate a statement prepared by those shareholders in
respect of any matter referred to in a proposed resolution or
any business to be dealt with at a general meeting.
DISTRIBUTIONS AND DIVIDENDS; STOCK REPURCHASES
Leucadia National Corporation
Under New York law, a corporation may pay dividends out of surplus,
unless the corporation is insolvent or would be rendered insolvent by paying the
dividend, or the declaration, payment or distribution of the dividend would be
contrary to any restrictions contained in the certificate of incorporation.
A New York corporation generally may purchase shares only out of
surplus, but not if the corporation: (1) is then insolvent or (2) would thereby
be made insolvent.
Acquired shares can be reissued generally without shareholder action.
Leucadia National Limited
Under Bermuda law and the bye-laws, the Board of Directors of Leucadia
National Limited may declare dividends, or make distributions out of contributed
surplus, as long as there are no reasonable grounds for believing that Leucadia
National Limited is, or after the dividend or distribution would be, unable to
pay its liabilities as they became due or that the realizable value of Leucadia
National Limited's assets would thereby be less than the aggregate of its
liabilities and its issued share capital and share premium accounts.
Under Bermuda law and the bye-laws, Leucadia National Limited can
purchase its own shares generally, to the extent it can otherwise pay a
dividend.
Acquired shares can be reissued generally without shareholder action.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Leucadia National Corporation
New York law generally permits a corporation to provide indemnification
and advancement of expenses, by by-law provision, agreement or otherwise,
against judgments, fines, expenses and amounts paid in settlement actually and
reasonably incurred by the person in connection with a proceeding if the person
acted in good faith and for a purpose he or she reasonably believed to be in or,
in the case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to the
best interests of the corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
Our current by-laws provide for indemnification on our part to the
fullest extent permitted by law.
Leucadia National Limited
Under Bermuda law, a company is permitted to indemnify any officer or
director, out of the funds of the company, against:
o any liability he or she incurs in defending any proceedings,
whether civil or criminal, in which (1) judgment is given in
his or her favor, or (2) he or she is acquitted, or (3) he or
54
she is granted relief from liability by the court in
connection with any application under relevant Bermuda
legislation; and
o any loss or liability resulting from negligence, default,
breach of duty or breach of trust, other than for his or her
fraud or dishonesty.
The bye-laws provide that Leucadia National Limited shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including all appeals, by reason of
the fact that he is or was a director, officer or committee member, or is or was
serving at the request of Leucadia National Limited as a director or officer of
another enterprise, against expenses, judgments, decrees, fines, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if:
o he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Leucadia
National Limited, and
o with respect to any criminal action, suit or proceeding, had
no reasonable cause to believe his conduct was unlawful, and
o with respect to shareholder derivative actions (other than
with respect to indemnification of expenses), a judgment is
given in favour of such person, such person is acquitted or a
court determines upon application that, in view of all the
circumstances of the case, such person is fairly and
reasonably entitled to indemnity, and
o except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
finally adjudged to be liable for fraud or dishonesty in the
performance of his duty to Leucadia National Limited.
Leucadia National Limited will advance all reasonable expenses incurred
by or on behalf of any person in connection with any related proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall be ultimately determined that such person is not entitled to be
indemnified by Leucadia National Limited pursuant to the bye-laws or Bermuda
law.
LIMITED LIABILITY OF DIRECTORS
Leucadia National Corporation
New York law permits the adoption of a charter provision limiting or
eliminating the monetary liability of a director to a corporation or its
shareholders by reason of a director's breach of duty. New York law, however,
does not permit any limitation of the liability of a director:
o if the director's acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law;
or
o if the director personally gained a financial profit or other
advantage to which he was not legally entitled or his acts
violated Section 719 of the New York Business Corporation Law.
Our current certificate of incorporation eliminates the monetary
liability of a director to the fullest extent permitted by New York law.
55
Leucadia National Limited
Under Bermuda law, a director must observe the statutory duty of care
which requires a director to act honestly and in good faith with a view to the
best interests of the company and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Bermuda law renders void any provision in the bye-laws or any contract
between a company and any director exempting him or her from, or indemnifying
him or her against, any liability in respect of any fraud or dishonesty of which
he or she may be guilty in relation to the company.
The Leucadia National Limited bye-laws provide that no director of
Leucadia National Limited will be personally liable to Leucadia National Limited
or its shareholders for damages for any breach of duty as a director, except
where the person is found by a judgment or other final adjudication to be guilty
of fraud or dishonesty or to have personally gained in fact a financial profit
or other advantage to which he was not legally entitled.
INTERESTED DIRECTOR TRANSACTIONS
Leucadia National Corporation
Under New York law, no contract or other transaction between a
corporation and one or more of its directors, or between a corporation and any
entity in which one or more of its directors are directors or officers, or have
a substantial financial interest, shall be either void or voidable for this
reason alone or by reason alone that the director or directors are present at
the meeting of the Board of Directors, or of a committee thereof, which approves
the contract or transaction, or that his or their votes are counted for the
purpose, if:
o the material facts as to the director's interest in the
contract or transaction and as to any common directorship,
officership or financial interest are disclosed in good faith
or known to the Board of Directors or committee, and the Board
of Directors or committee approves the contract or transaction
without counting the vote of the interested director or, if
the votes of the disinterested directors are insufficient to
constitute an act of the Board of Directors, by unanimous vote
of the disinterested directors;
o the material facts as to the director's interest in the
contract or transaction and as to any common directorship,
officership or financial interest are disclosed in good faith
or known to the shareholders entitled to vote thereon, and the
contract or transaction is approved by vote of eligible
shareholders; or
o the contract or transaction was fair and reasonable as to the
corporation at the time it was approved by the Board of
Directors, a committee or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that approves the contract or transaction.
Leucadia National Limited
The bye-laws provide that any director who is directly or indirectly
interested in a contract or proposed contract or arrangement with our company
will not be liable to our company for any benefit that he derives therefrom if
where it is necessary he declares the nature of his interest at the first
opportunity at a meeting of the board or by writing to the directors as required
by Bermuda law. Following such a declaration being made, an interested director
may vote in respect of any contract or arrangement or proposed contract or
arrangement and may be counted in the quorum at such meeting. The shareholders
may, in general or with respect to any particular vote of the board, remove any
or all of these restrictions or requirements, and may ratify any action taken by
56
the board in contravention of these restrictions and requirements.
In addition, under Bermuda law, without the consent of the holders of
shares carrying at least nine-tenths of the total voting rights or in other
limited instances, a company may not make a loan to or enter into any guarantee
or provide security in respect of any loan made to any person who is a director
of that company or of its holding company. Exceptions to this provision are:
o loans or guarantees by the company in the ordinary course of
its business, if the business includes lending money or giving
guarantees; or
o loans for the purposes of the company or to enable its
directors to perform their duties, given with prior approval
at a general meeting where the purposes of the loan are
disclosed; or if not given at that meeting, the loan is repaid
or discharged within six months from the conclusion of the
next following annual general meeting.
This provision does not preclude the reimbursement of expenses or loans
to directors who are or were employees of the company, to enable them to acquire
shares or stock options.
SHAREHOLDERS' SUITS
Leucadia National Corporation
New York law requires that the shareholder bringing a derivative suit
must have been a shareholder at the time of the transaction complained of or
that the shares passed to him or her by operation of law. In addition, the
shareholder must be a shareholder at the time of bringing the action.
Leucadia National Limited
The Bermuda courts ordinarily would be expected to follow English
precedent, which would permit a shareholder to commence a derivative action in
the name of the company to remedy a wrong done to the company only:
o where the act complained of is alleged to be beyond the
corporate power of the company or is illegal;
o where the act complained of is alleged to constitute a fraud
against the minority shareholders by those controlling the
company, provided that the majority shareholders have used
their controlling position to prevent the company from taking
action against the wrongdoers;
o where an act requires approval by a greater percentage of the
company's shareholders than actually approved it; or
o where a derivative action is necessary to avoid a violation of
the company's memorandum of continuance or bye-laws.
SHAREHOLDER APPROVAL OF BUSINESS COMBINATIONS
Leucadia National Corporation
Under New York law, for corporations in existence on February 22, 1998,
whose certificate of incorporation expressly provides, or for corporations
formed after that date, the holders of a majority of the shares entitled to vote
must approve a merger or consolidation, sale, lease, exchange or other
disposition of all or substantially all of the property of the corporation not
in the usual and regular course of the corporation's business, or a dissolution
of the corporation. In the case of all other corporations, approval by the
57
holders of two-thirds of the votes of all outstanding shares entitled to vote is
required. Currently, our certificate of incorporation does not so expressly
provide for approval by the holders of a majority of the shares entitled to
vote, although an amendment to the certificate of incorporation to that effect
is being submitted to a vote of the shareholders through this proxy statement.
See "Approval of Charter Amendment."
New York law generally prohibits a domestic corporation from engaging
in a business combination with an "interested shareholder" for a period of five
years from the date the shareholder acquired the stock in the domestic
corporation, unless certain conditions are met. An interested shareholder is one
who is the beneficial owner of 20% or more of the corporation's shares or an
affiliate or associate of the corporation who has within the previous five
years, beneficially owned 20% or more of the corporation's then outstanding
shares. Under the New York statute, the term "interested shareholder" would not
apply to Messrs. Cumming or Steinberg.
The domestic corporation may engage in a business combination with the
interested shareholder within the five-year period if the interested
shareholder's share purchase made on his share acquisition date, as defined
below, was approved by the corporation's board of directors before the date the
shareholder became an interested shareholder (the "share acquisition date"). The
business combination is also permitted if any of the following criteria are met:
o the business combination was approved by the board of
directors before the interested shareholder's share
acquisition date or where the purchase of shares by the
interested shareholder on the shareholder's share acquisition
date had been approved by the board of directors before the
shareholder's share acquisition date;
o the combination was approved by a majority of the outstanding
voting shares not beneficially owned by the interested
shareholder or any affiliate or associate of the interested
shareholder at a meeting called no earlier than five years
after the interested shareholder's share acquisition date; or
o the consideration to be received by shareholders meets certain
requirements of the New York Business Corporation Law with
respect to form and amount.
The definition of "business combinations" includes mergers, assets
sales and other transactions resulting in a disproportionate financial benefit
to the interested shareholder.
Leucadia National Limited
Bermuda law permits an amalgamation between two or more Bermuda
companies, or between one or more Bermuda exempted companies and one or more
foreign corporations, subject, unless the bye-laws otherwise provide, to
obtaining a vote of 75% of the shares of each of the companies, and of each
class of shares, present and voting in person or by proxy at a meeting called
for that purpose. Unless the bye-laws otherwise provide, Bermuda law also
requires that the quorum at the meetings be one-third of the issued shares of
the company or the class. Each share carries the right to vote in respect of an
amalgamation, whether or not it otherwise carries the right to vote. The Bermuda
bye-laws reduce the vote required to approve an amalgamation to a majority of
shares voted, and increase the quorum for purposes thereof to one-half of the
outstanding shares.
Bermuda law also provides that where an offer is made for shares in a
company by another company and, within four months of the offer, the holders of
at least 90% in value of the shares which are the subject of the offer, other
than shares already held by or on behalf of the offeror, accept, the offeror may
by notice, given within two months after the expiration of the said four months,
require any dissenting shareholders to transfer their shares on the terms of the
offer. Dissenting shareholders may apply to a court within one month of notice
objecting to the transfer and the court may make any order it thinks fit.
58
AMENDMENT OF GOVERNING DOCUMENTS
Leucadia National Corporation
Under New York law, an amendment to the certificate of incorporation
requires the approval of the corporation's Board of Directors and the
affirmative vote of a majority of the outstanding shares entitled to vote,
provided that (1) provisions in the certificate of incorporation requiring a
greater vote on a matter may be amended only with that greater vote and (2) the
affirmative vote of a majority of the outstanding shares of classes of stock
that would be adversely affected is required, in addition to the foregoing, in
certain circumstances.
Under New York law, the Board of Directors may amend by-laws if so
authorized in the charter or a by-law adopted by the shareholders or the
incorporators. Our current by-laws authorize the Board of Directors to amend
by-laws by a vote of the majority of directors present at a meeting at which a
quorum is present. The shareholders of a New York corporation also have the
power to amend by-laws, by majority vote of shares outstanding and entitled to
vote in an election of directors.
Leucadia National Limited
Under Bermuda law, the bye-laws may be amended only by both (1) a
resolution of the Board of Directors and (2) a resolution of the shareholders
approved by shareholders with a majority of voting power voting on the
amendment.
APPRAISAL RIGHTS
Leucadia National Corporation
New York law provides that, upon compliance with the applicable
statutory requirements and procedures, a dissenting shareholder has the right to
receive payment of the fair value of his or her shares if the shareholder
objects to:
o certain mergers or consolidations to which the corporation is
a party, but not if the corporation's shares are listed on a
national securities exchange or quoted on NASDAQ-NMS;
o a disposition of all or substantially all of the assets of the
corporation which requires shareholder approval other than a
transaction wholly for cash where the shareholders' approval
thereof is conditioned upon the dissolution of the corporation
and the distribution of substantially all of its net assets to
the shareholders within one year after the date of the
transaction; or
o specified shares exchanges.
Leucadia National Limited
Under Bermuda law, a dissenting shareholder of a company participating
in an amalgamation, other than an amalgamation between a company and its
wholly-owned subsidiary or between two or more wholly-owned subsidiaries of the
same holding company, may apply to the court to appraise the fair value of his
or her shares.
INSPECTION OF BOOKS AND RECORDS
Leucadia National Corporation
Under New York law, any person who shall have been a shareholder of
record of a corporation upon at least five days' written demand shall have the
right to examine in person or by agent or attorney, during usual business hours,
59
its minutes of the proceedings of its shareholders and record of shareholders
and to make extracts therefrom for any purpose reasonably related to the
person's interest as a shareholder.
Leucadia National Limited
Bermuda law provides the general public with a right of inspection of a
Bermuda company's public documents at the office of the Registrar of Companies
in Bermuda, and provides a Bermuda company's shareholders with a right of
inspection of the company's bye-laws, minutes of general shareholders' meetings
and audited financial statements. The register of shareholders is also open to
inspection by shareholders free of charge and, upon payment of a small fee, by
any other person.
A Bermuda company is required to maintain its share register in Bermuda
but may establish a branch register outside of Bermuda. A Bermuda company is
required to keep at its registered office a register of its directors and
officers that is open for inspection by members of the public without charge.
REMOVAL OF DIRECTORS; VACANCIES ON THE BOARD OF DIRECTORS
Leucadia National Corporation
Under New York law, any director or the entire Board of Directors may
be removed for cause by holders of a majority of the shares voting on the
removal. Under New York law and the by-laws of Leucadia National Corporation,
any director may be removed for cause by the affirmative vote of a majority of
the directors present, provided a quorum (one-third of the directors) is
present.
Under New York law and the by-laws of Leucadia National Corporation, a
vacancy, other than due to the removal of a director without cause, may be
filled by a vote of the Board of Directors or if the number of directors then in
office is less than a quorum, by vote of a majority of directors then in office.
A vacancy created by the removal of a director without cause may be filled only
by a vote of the shareholders.
Leucadia National Limited
Under the bye-laws of Leucadia National Limited, the Board of Directors
may remove a director for cause. Further, shareholders will have the right to
remove directors only with cause and only with the approval of holders of a
majority of the company's common shares voting on the removal.
Under the bye-laws, any vacancy on the board will be filled by the
board or, if a quorum of directors cannot be achieved, by the shareholders.
CLASSIFIED BOARD OF DIRECTORS
Leucadia National Corporation
Under New York law, a corporation may establish up to four classes of
directors, as specified either in the corporation's by-laws or certificate of
incorporation. The current certificate of incorporation and by-laws of Leucadia
National Corporation do not provide for classes of directors.
Leucadia National Limited
The bye-laws of Leucadia National Limited will not establish a
classified Board of Directors, although a classified board would be permitted
under Bermuda law.
MANAGEMENT OF LEUCADIA NATIONAL LIMITED
After the reorganization, the Board of Directors of Leucadia National
Limited will consist of those persons who, at the effective time, are serving as
directors of Leucadia National Corporation. Each director will serve the term of
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office for which he or she was elected or appointed. After the reorganization,
Leucadia National Limited's executive officers will be the same as those persons
who, at the effective time, are employed as executive officers of Leucadia
National Corporation.
The committees of the Board of Directors of Leucadia National
Corporation immediately before the effective time will continue to exist as
committees of the Board of Directors of Leucadia National Limited after the
reorganization with identical members and functions.
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MATERIAL TAX CONSIDERATIONS
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS
REGARDING YOUR PARTICULAR TAX CONSEQUENCES.
United States Federal Income Tax Consequences
The following discussion sets forth the material U.S. federal income
tax consequences to U.S. holders (as defined below) of Leucadia National
Corporation common shares with respect to the reorganization and the ownership
and disposition of Leucadia National Limited common shares.
This discussion does not purport to be a comprehensive description of
all of the tax considerations that may be relevant to a decision to approve the
reorganization or to own or dispose of Leucadia National Limited common shares.
In particular, this discussion deals only with holders who hold Leucadia
National Corporation common shares, and will hold Leucadia National Limited
common shares, as capital assets. This discussion does not address the tax
treatment of the reorganization or of the ownership and disposition of the
Leucadia National Limited common shares under applicable state or local tax laws
or the laws of any jurisdiction other than the United States.
In addition, this summary does not address federal alternative minimum
tax consequences or gift or estate tax considerations and does not address all
aspects of U.S. federal income taxation that may be applicable to holders
because of their particular circumstances, or to holders subject to special
treatment under U.S. federal income tax law including, but not limited to the
following:
o securities dealers, financial institutions, insurance
companies, or tax exempt organizations;
o holders who hold shares as part of a hedging or larger
integrated financial or conversion transaction;
o holders who hold shares through a partnership or other
pass-through entity;
o holders whose functional currency is a currency other than the
U.S. dollar;
o holders who hold shares pursuant to selected retirement plans,
pursuant to the exercise of employee stock options or
otherwise as compensation; and
o certain expatriates or former long-term residents of the
United States.
This discussion is based on current provisions of the Internal Revenue
Code, current and proposed Treasury regulations, and administrative and judicial
interpretations as of the date of this proxy statement/prospectus and all of
which are subject to change or reinterpretation at any time by legislative,
judicial or administrative action, possibly on a retroactive basis. Leucadia
National Corporation shareholders should note that no rulings have been sought,
or are expected to be sought, from the Internal Revenue Service with respect to
any of the U.S. federal income tax consequences of the reorganization. This
discussion is not binding on the Internal Revenue Service, and there can be no
assurance that the Internal Revenue Service will not take a position contrary to
one or more of the positions described below, or that those positions would be
upheld by the courts if challenged by the Internal Revenue Service.
"U.S. holder" means a beneficial owner of Leucadia National Corporation
common shares or Leucadia National Limited common shares who is:
o a citizen or resident of the United States,
o a corporation or other entity treated as a corporation for
U.S. federal income tax purposes created or organized in or
under the laws of the United States or any political
subdivision thereof,
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o an estate, the income of which is subject to U.S. federal
income tax regardless of its source, or
o a trust, if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
TAXATION OF LEUCADIA NATIONAL CORPORATION
The Reorganization
At the time of the reorganization, Leucadia National Corporation, the
parent company of our corporate group, will be treated for U.S. federal income
tax purposes as if it sold all of its directly owned assets in a fully taxable
transaction in which gains, if any, but not losses will be recognized. The Board
of Directors would only begin to consider implementing the reorganization if the
anticipated tax cost falls below $100 million, assuming no significant changes
in its asset configuration, tax profile or asset values as of April 8, 2002. The
Internal Revenue Service is not obliged to accept our determination of the
amount of our tax liability or the methodologies we used to calculate it.
After the Reorganization
After the reorganization, Leucadia National Limited and any of its
non-US subsidiaries will be subject to U.S. federal income tax on income that is
effectively connected with the conduct of a trade or business within the United
States, to the extent not exempt under an applicable U.S. income tax treaty, as
well as on gain recognized upon the sale of interests in U.S. real property.
Such tax would be computed in a manner generally analogous to that applied to
the income of a domestic corporation, except that a foreign corporation is
allowed deductions and credits only if it files a U.S. income tax return.
Leucadia National Limited, and possibly certain of its non-U.S. subsidiaries,
expect that a portion of their income would be effectively connected with the
conduct of a U.S. trade or business and consequently, will be subject to U.S.
income tax. If, and for so long as, Leucadia National Limited and the
subsidiaries file U.S. income tax returns, they should not lose the benefit of
U.S. tax deductions and credits as a result of their non-U.S. jurisdiction. In
addition, it is anticipated that Leucadia National Limited and any of its
non-U.S. subsidiaries would be subject to the branch profits tax imposed on
effectively connected earnings and profits, with some adjustments, deemed
repatriated out of the United States. In addition, there may be implications for
Leucadia National Limited and its non-U.S. subsidiaries under the personal
holding company rules, as described in "--Taxation of Leucadia National
Corporation Shareholders--Foreign Personal Holding Company and Personal Holding
Company Rules."
Our U.S. subsidiaries will continue to be subject to U.S. tax on their
worldwide income. While we currently file a consolidated federal income tax
return, as a result of the reorganization, there may be U.S. tax inefficiencies
for certain of the subsidiaries of Leucadia National Limited.
In addition, Leucadia National Limited, and its non-U.S. subsidiaries
will be subject to withholding taxes on certain dividends, interest and other
payments received from U.S. subsidiaries, U.S. investments, or other U.S.
sources which generally range from 0% to 30%, depending upon the tax
jurisdiction of the entity that receives the income and the terms of the treaty,
if any, between the jurisdiction and the United States.
We intend to manage and control Leucadia National Limited in Barbados,
and register Leucadia National Limited as an external company under Barbados law
which, among other things, is anticipated to reduce the rate of tax withholding
on distributions from Leucadia National Limited's U.S. subsidiaries (and other
U.S. sources) from 30% to 5%. However, there can be no assurance that we will be
able to reduce the rate of tax withholding on these distributions.
63
TAXATION OF LEUCADIA NATIONAL CORPORATION SHAREHOLDERS
The Reorganization
Our merger with and into Leucadia National Corporation-Arizona,
followed by the continuation of Leucadia National Corporation-Arizona as
Leucadia National Limited will be characterized for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
Accordingly, in general, a U.S. holder will not recognize any gain or
loss on the exchange of our common shares for Leucadia National Limited common
shares. An exchanging holder's tax basis and holding period with respect to its
Leucadia National Limited common shares will be the same as the holder's tax
basis and holding period for the Leucadia National Corporation common shares
exchanged therefor.
A U.S. holder who directly, indirectly or by attribution owns 10% or
more by vote or value of the outstanding shares of Leucadia National Corporation
at the effective time of the reorganization could be treated as annually
receiving a deemed royalty to the extent certain intangibles described in
Section 367(d) of the Internal Revenue Code are deemed sold by Leucadia National
Corporation to Leucadia National Limited. We believe we have no intangibles to
which this rule would apply.
After the Reorganization
Taxation of Distributions
Generally, U.S. holders will be subject to U.S. federal income tax on
the receipt of distributions from Leucadia National Limited. Subject to the
possible application of certain exceptions to the general rules described below,
cash distributions made to holders of Leucadia National Limited common shares
will constitute dividends for U.S. federal income tax purposes to the extent
paid out of current or accumulated earnings and profits. To the extent that a
distribution exceeds earnings and profits, it will be treated first as a return
of the U.S. holder's tax basis in the shares to the extent of that basis, and
then as gain from the sale of a capital asset. As a result of the
reorganization, Leucadia National Limited generally will inherit our tax
attributes, including our significant current and accumulated earnings and
profits at the time of the reorganization. Dividends paid by Leucadia National
Limited generally will not qualify for the dividends received deduction
otherwise generally available to corporate shareholders, except to the extent
treated as paid from earnings and profits accumulated by us.
Disposition of Common Shares
Subject to the possible application of certain exceptions to the
general rules discussed below, gain or loss recognized by a U.S. holder on the
sale, exchange or other disposition of common shares of Leucadia National
Limited generally will be treated as capital gain or loss in an amount equal to
the difference between that holder's basis in the common shares and the amount
realized on the sale, exchange or other disposition. Such capital gain or loss
will be long-term capital gain or loss if the holding period for the common
shares exceeds one year at the time of disposition. Some non-corporate
taxpayers, including individuals, are eligible for preferential rates of
taxation of long-term capital gain. The deductibility of capital losses is
subject to limitations.
Repurchases
Subject to the possible application of certain exceptions to the
general rules discussed below, a repurchase of Leucadia National Limited shares
will be treated as a dividend subject to tax at ordinary income tax rates (to
the extent of Leucadia National Limited's current or accumulated earnings and
profits), unless the repurchase satisfies certain tests set forth in Section
302(b) of the Code enabling the repurchase to be treated as a sale or exchange.
Generally, a repurchase will satisfy such tests if it is (i) "substantially
64
disproportionate" with respect to the shareholder, (ii) results in a "complete
termination" of the shareholder's stock interest in Leucadia National Limited,
or (iii) is "not essentially equivalent to a dividend" with respect to the
shareholder. In determining whether any of these tests have been met, shares
considered to be owned by the shareholder by reason of certain constructive
ownership rules, as well as shares actually owned, must generally be taken into
account. Because the determination as to whether any of the alternative tests of
Section 302(b) of the Code is satisfied with respect to any particular holder of
common shares will depend upon the facts and circumstances as of the time the
determination is made, U.S. holders are advised to consult their own tax
advisors to determine such tax treatment.
Passive Foreign Investment Company Rules
A foreign corporation generally will constitute a passive foreign
investment company with respect to a taxable year if 75% or more of its gross
income for that taxable year consists of passive income, or 50% or more of its
average assets, measured by value, held during that taxable year consist of
passive assets. A U.S. holder treated as owning passive foreign investment
company stock is subject to special rules that are generally intended to reduce
or eliminate any benefits from the deferral of U.S. federal income tax that the
holder could otherwise derive from investing in a foreign company that does not
distribute all of its earnings on a current basis. If Leucadia National Limited
is or becomes a passive foreign investment company, then, unless the U.S. holder
makes either a qualified electing fund election or a "mark-to-market" election,
the U.S. holder generally will be subject to tax upon the disposition of
appreciated Leucadia National Limited shares or upon certain distributions from
Leucadia National Limited as if the gain or distribution were ordinary income
ratably allocated over the period during which the Leucadia National Limited
common shares were held (including periods prior to the reorganization),
including any periods in which Leucadia National Limited was not a passive
foreign investment company. Any income allocated to the U.S. holder's current
year or taxable year period prior to Leucadia National Limited becoming a
passive foreign investment company will be included in the U.S. holder's gross
income as ordinary income. All other income allocated by the U.S. holder through
its holding period will be subject to an additional tax intended to eliminate
any U.S. tax deferral benefits. The rules discussed herein will also apply to
any U.S. holder's interest in a lower tier foreign corporation in which Leucadia
National Limited owns a direct or indirect interest if Leucadia National Limited
is itself a passive foreign investment company.
The passive foreign investment company tax rules described above will
not apply to a U.S. holder if the holder elects to have Leucadia National
Limited treated as a qualified electing fund with respect to the holder and
Leucadia National Limited provides certain information to U.S. holders. If and
at the time as Leucadia National Limited were to become a passive foreign
investment company, a U.S. holder that makes a qualified electing fund election
generally will be currently taxed on its pro rata share of Leucadia National
Limited's ordinary earnings at ordinary income rates and net capital gain at
capital gains rates for each taxable year, regardless of whether the U.S. holder
receives a distribution. A U.S. holder's basis in the common shares generally
will be increased to reflect taxed but undistributed income. Distributions of
income that were previously taxed will result in a corresponding reduction of
basis in the common shares and will not be taxed again upon actual distribution
to the U.S. holder.
Alternatively, a U.S. holder of common shares in a passive foreign
investment company that qualify as "marketable stock" may make a mark-to-market
election. A U.S. holder who makes a mark-to-market election is not subject to
the passive foreign investment company rules described above, but instead
generally (i) must include in each year as ordinary income any excess of the
fair market value of the common shares at the end of the taxable year over their
adjusted basis and (ii) will be permitted an ordinary loss in respect of any
excess of the adjusted basis of the common shares over their fair market value
at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. The
U.S. holder's basis in the common shares will be adjusted to reflect those
income or loss amounts, if any. The mark-to-market election is only available
with respect to stock traded on certain U.S. exchanges and other exchanges
designated by the U.S. treasury department. Leucadia National Limited expects
that this election will be available to the U.S. holders of its common shares.
65
We believe Leucadia National Limited will not be a passive foreign
investment company. However, should Leucadia National Limited determine that it
is a passive foreign investment company in any taxable year, it intends to
provide U.S. holders with information to enable the holders to make a timely
qualified electing fund election for that taxable year. If Leucadia National
Limited's passive foreign investment company status is unclear, it may be
advisable for U.S. holders to make a protective qualified electing fund election
to preserve their ability to obtain the benefit of an election in the event the
company is later determined to be a passive foreign investment company. U.S.
holders are urged to consult their tax advisors regarding the advisability of
making a protective qualified electing fund election.
Controlled Foreign Corporation Rules
Special U.S. federal income tax rules apply to certain large holders of
stock of a foreign corporation classified as a controlled foreign corporation. A
foreign corporation generally will constitute a controlled foreign corporation
only if U.S. shareholders owning 10% or more of its voting power ("10% Voting
U.S. Shareholders") collectively own more than 50% (more than 25% in the case of
certain income of certain foreign insurance companies) of the total combined
voting power or total value of the corporation's stock. Any U.S. person owning,
directly or indirectly through foreign persons, or considered to own (under
applicable constructive ownership rules) 10% or more of the total combined
voting power of all classes of stock of a foreign corporation will be a 10%
Voting U.S. Shareholder. In general, if Leucadia National Limited or any of its
non-U.S. subsidiaries were a controlled foreign corporation, a 10% Voting U.S.
Shareholder would be required to include in its gross income for U.S. federal
income tax purposes its pro rata share of certain income of Leucadia National
Limited, even if the income is not distributed to the shareholder. In addition,
all or a portion of any gain from the sale or exchange of the shares held by a
10% Voting U.S. Shareholder may be treated as ordinary income. Based on our
current ownership and the bye-law provisions limiting voting rights as set forth
in "Comparison of Rights of Shareholders--Voting of Shareholders--Leucadia
National Limited," we believe that neither Leucadia National Limited nor any of
its non-U.S. subsidiaries will be a controlled foreign corporation.
Foreign Personal Holding Company and Personal Holding Company Rules
Special U.S. federal income tax rules apply to a holder in a foreign
personal holding company and to a foreign corporation on its U.S. source income
if the foreign corporation is a personal holding company. Generally, a foreign
corporation will constitute a foreign personal holding company only if (i) five
or fewer individuals who are U.S. citizens or residents, directly or indirectly
(including through attribution), own more than 50% of the voting power or the
value of its shares and (ii) more than 60% (50% if and after the corporation
first becomes a foreign personal holding company) of the corporation's income is
passive income. For purposes of the personal holding company ownership test,
certain tax exempt entities are treated as individuals. Expansive attribution
rules apply with regard to the 50% ownership test, including a provision that
treats shares owned, directly or indirectly, by or for a corporation,
partnership, estate or trust as owned proportionately by its shareholders,
partners or beneficiaries. In addition, the attribution rules treat an
individual as owning the stock owned directly or indirectly by the individual's
partners and specified family members. If Leucadia National Limited were treated
as a foreign personal holding company, all U.S. holders (including certain
indirect holders) would be treated as receiving a dividend, generally taxable at
ordinary income tax rates, at the end of each of Leucadia National Limited's
taxable years in an amount equal to the holder's pro rata share, as calculated
for these purposes, of Leucadia National Limited's income. Similarly, a
corporation will constitute a personal holding company, which would result in
additional tax liability to the corporation, only if five or fewer individuals
own directly, indirectly or by attribution, more than 50% of the value of its
shares. Based upon our current ownership and the bye-law provisions limiting
ownership of Leucadia National Limited common shares, we believe that neither
Leucadia National Limited nor any of its subsidiaries or affiliates will be a
foreign personal holding company or a personal holding company.
66
Foreign Investment Company Rules
Special rules also apply to treat as ordinary income any gain realized
on the sale of shares of a foreign investment company. We expect that Leucadia
National Limited will conduct its business and obtain controlling interests in
subsidiaries so as not to be a "foreign investment company."
The rules governing the treatment of U.S. holders of stock of
corporations that are passive foreign investment companies, controlled foreign
corporations, foreign personal holding companies, and foreign investment
companies are complex. U.S. holders of common shares of Leucadia National
Limited are urged to consult their tax advisors about the application of these
rules, as well as the interplay between these rules if Leucadia National Limited
is treated as a combination of one or more of a passive foreign investment
company, controlled foreign corporation, foreign personal holding company,
personal holding company and foreign investment company. In addition, the
Bye-law provisions restricting vote and ownership of the shares are keyed off of
and governed, in certain respects, by the complicated and expansive attribution
rules under the Internal Revenue Code; consequently, holders are urged to
consult their tax advisor as to the potential application of, and to assure
compliance with, those Bye-law provisions.
Related Person Insurance Income Rules
Special provisions of the Internal Revenue Code apply to foreign
insurance companies that have "related person insurance income" (essentially
premium and investment income attributable to insuring or reinsuring of risks of
certain U.S. persons or their related parties). After the reorganization, we
will continue to own an interest in a foreign insurance company and may form a
foreign insurance company subsidiary. We believe that the premium income of any
foreign insurance company in which we own an interest is likely to be managed so
as to avoid the creation of "related person insurance income" currently taxable
to our U.S. shareholders.
U.S. Backup Withholding Tax and Information Reporting
As is the case currently with respect to distributions paid on our
common shares, "backup" withholding tax and information reporting requirements
generally will apply to distributions paid on Leucadia National Limited common
shares to a non-corporate U.S. holder, if that holder fails to provide a correct
taxpayer identification number and other information or fails to comply with
certain other requirements. The proceeds from the sale of Leucadia National
Limited common shares by a U.S. holder will be subject to U.S. backup
withholding tax and information reporting, unless the holder has provided the
required certification or has otherwise established an exemption.
A U.S. holder can establish an exemption from the imposition of backup
withholding tax by providing a duly completed Internal Revenue Service Form W-9
to the holder's broker or paying agent, reporting the holder's taxpayer's
identification number, which for an individual will be his or her social
security number, or by otherwise establishing its corporate or exempt status.
Any amounts withheld under the backup withholding tax rules from a
payment to a holder will be allowed as a refund or a credit against that
holder's U.S. federal income tax, provided that the required information is
furnished to the Internal Revenue Service.
Congress may enact new legislation that would tax us or our shareholders on our
worldwide income.
In late February, the Treasury Department announced that it will
conduct a study to review tax laws affecting U.S. companies that reincorporate
offshore. In addition, a number of pieces of legislation were recently
introduced in Congress, each of which would treat a foreign corporation as a
domestic corporation for U.S. tax purposes, if the foreign corporation is
effectively a continuation of a U.S. corporation. It is currently unknown
whether any of this legislation, or any other proposal, whether legislative or
administrative, which would modify the current U.S. tax treatment of companies
which relocate offshore, will be enacted or adopted. The outcome of such
67
initiatives may reduce or eliminate the tax and other benefits we expect to
realize after the reorganization, and may result in increased tax on our
shareholders. Management will monitor the introduction and development of
legislative and other proposals with the intent of effecting the reorganization
only if, among other things, the risk in this area is determined to be at an
acceptable level; however, there can be no certainty that management's
assessment of the risk will prove accurate or that, in the future, new
legislative or administrative initiatives will not materialize.
The preceding discussion is only a summary of certain of certain
federal income tax implications of the reorganization and the ownership and
disposition of the common shares of Leucadia National Limited. Holders are urged
to consult with their tax advisors.
BERMUDA TAX CONSEQUENCES
The following paragraph is a summary of certain Bermuda tax
considerations relating to U.S. holders of Leucadia National Limited common
shares, based upon the advice of Appleby Spurling & Kempe, our Bermuda counsel.
This summary does not purport to be a comprehensive discussion of all the tax
considerations that may be relevant, and as recommended above, you should
consult your own professional advisors regarding your particular tax situation.
At the present time, there is no Bermuda income, corporation or profits
tax, withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by a Bermuda exempted company or its shareholders, other
than shareholders ordinarily resident in Bermuda. Leucadia National Limited will
apply for and expects to obtain a written assurance from the Minister of Finance
under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended.
The assurance would provide that if any legislation is enacted in Bermuda
imposing any tax computed on profits or income, or computed on any capital
asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, that tax shall not be applicable until March 28, 2016 to
Leucadia National Limited or to any of its operations or to its shares,
debentures or other obligations; provided that the assurance will not be
construed to prevent the application of any of those taxes to persons ordinarily
resident in Bermuda or to any land owned or leased by Leucadia National Limited.
Therefore, there will be no Bermuda tax consequences to U.S. shareholders,
including any taxes imposed by way of withholding, with respect to the sale or
exchange of the Leucadia National Limited common shares or with respect to
distributions in respect of the Leucadia National Limited common shares. As an
exempted company, Leucadia National Limited will be liable to pay in Bermuda an
annual government fee based upon its authorized share capital and any premium on
its issued shares.
As a matter of Bermuda tax law, no income tax, capital gains tax or
withholding tax will be payable by Leucadia National Corporation, Leucadia
National Limited or any of their U.S. shareholders as a consequence of the
reorganization. In addition, there will be no Bermuda withholding tax on
dividends paid by Leucadia National Limited to its U.S. shareholders. U.S.
shareholders will not be subject to Bermuda tax upon the disposition of their
Leucadia National Limited common shares.
BARBADOS TAX CONSEQUENCES
The following discussion sets forth the material Barbados tax
consequences to U.S. holders of the reorganization and the ownership and
disposition of Leucadia National Limited common shares which may be applicable
if Leucadia National Limited is managed and controlled in Barbados for Barbados
tax purposes.
Leucadia National Limited expects to register in Barbados as an
external company under the Companies Act, Cap. 308 of Barbados. Leucadia
National Limited also expects to become licensed as an international business
company under the Barbados International Business Companies Act, 1991-24. As a
result, Leucadia National Limited will be entitled to tax benefits, including a
preferred rate of corporation tax (currently ranging from 1% to 2.5%) on profits
and gains and an exemption from withholding tax in respect of any dividends,
68
interest, royalties, management fees, fees or other income paid or deemed to be
paid to a person who is not resident in Barbados or who, if so resident, carries
on an international business.
Leucadia National Limited will be subject to a Barbados corporation
tax, assessed at a rate of 2.5% on profits and gains of up to 10 million
Barbados dollars (approximately U.S. $5 million), and at declining rates on
profits and gains exceeding that amount. Leucadia National Limited may elect to
take a credit in respect of taxes paid to a country other than Barbados,
provided that the election does not reduce that tax payable in Barbados to a
rate less than 1% of the profits and gains of Leucadia National Limited in any
taxable year. As a company incorporated outside of Barbados but managed and
controlled in Barbados, Leucadia National Limited's taxable income will not
include distributions from non-Barbados sources.
Under Barbados law, capital gains are not taxable. Thus, Leucadia
National Limited will not be subject to any capital gains tax. The transfer of
securities or assets, other than taxable assets, of Leucadia National Limited,
to a non-resident or to another international business company is exempted from
the payment of Barbados property transfer tax but is subject to the payment of
stamp duty of 10 Barbados dollars per transaction.
As an international business company, Leucadia National Limited also
will be exempt from duties and other imposts on assets that it imports into
Barbados for use in its business. These assets would include equipment, plant,
machinery, fixtures, appliances, apparatus, tools and spare parts, and any raw
materials, goods, components and articles that are necessary for Leucadia
National Limited to carry on its international business.
No income tax, capital gains tax or withholding tax will be payable in
Barbados by Leucadia National Corporation, Leucadia National Limited or any of
their shareholders by reason of the reorganization. In addition, because of
Leucadia National Limited's status as an international business company, there
will be no Barbados withholding tax on dividends paid by Leucadia National
Limited to shareholders who are not resident in Barbados or who, if so resident,
carry on an international business. Furthermore, U.S. holders will not be
subject to Barbados tax on gain recognized as a result of the disposition of
their Leucadia National Limited common shares.
LEGAL MATTERS
Appleby Spurling & Kempe, Hamilton, Bermuda, as Bermuda counsel, has
passed upon certain legal matters in connection with Leucadia National Limited
common shares. Appleby Spurling & Kempe has also provided a summary of Bermuda
tax considerations regarding the reorganization referred to in "Material Tax
Considerations." Clarke & Co., as Barbados counsel, has rendered an opinion
regarding Barbados tax consequences of the reorganization referred to in
"Material Tax Considerations." Weil, Gotshal & Manges LLP, New York, New York,
has rendered an opinion regarding the United States federal income tax
consequences of the reorganization referred to in "Material Tax Considerations."
Certain legal matters relating to the Leucadia National Corporation-Arizona
shares have been passed upon by Bryan Cave LLP, Phoenix, Arizona.
EXPERTS
Our financial statements incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement, as defined
herein, to the extent and for the periods indicated in their report appearing in
our Annual Report on Form 10-K for the year ended December 31, 2001 have been
audited by PricewaterhouseCoopers LLP, independent accountants, as indicated in
their report and are incorporated by reference herein in reliance on their
report given on the authority of said firm as experts in accounting and
auditing.
69
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 under the Securities
Act of 1933 with the Securities and Exchange Commission. This proxy
statement/prospectus, which constitutes a part of the registration statement,
does not contain all of the information set forth in the registration statement,
some parts of which are omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. For further information, reference is made
to the registration statement.
Statements made in this proxy statement/prospectus as to the contents
of any contract, agreement or other document are not necessarily complete. With
respect to each contract, agreement or other document filed as an exhibit to the
registration statement or otherwise filed with the Securities and Exchange
Commission, reference is made to the copy so filed, and each statement shall be
deemed qualified in its entirety by this reference.
We have filed, and after the reorganization, Leucadia National Limited
will file, annual, quarterly and special reports, proxy statements, and other
information with the Securities and Exchange Commission. You can inspect and
copy these materials at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain
information about the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. Copies of reports, proxy and information
statements and other information regarding registrants that file electronically,
which includes us are available on the Securities and Exchange Commission's Web
Site at http://www.sec.gov.
Upon completion of the reorganization, we expect that the Leucadia
National Limited common shares will be traded on the New York Stock Exchange. At
the time of commencement of this trading, the Leucadia National Corporation
common shares will be delisted and will no longer be registered pursuant to
Section 12 of the Exchange Act.
The following documents filed by us with the Securities and Exchange
Commission pursuant to the Exchange Act are hereby incorporated by reference in
this proxy statement/prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended December
31, 2001 (File No. 001-05721),
(2) Current Report on Form 8-K filed on February 8, 2002; and
(3) The description of the Leucadia National Corporation common
stock in the Registration Statement No. 33-57054, including
any amendment or report for the purpose of updating this
description.
Any statement contained in this proxy statement/prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this proxy
statement/prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes the statement. Any statements so
modified or superseded shall be deemed, only to the extent as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this proxy statement/prospectus, which means that we
can disclose important information by referring you to another document filed
separately with the Securities and Exchange Commission. Copies of the
incorporated documents, other than exhibits to those documents, unless those
exhibits are specifically incorporated by reference, will be furnished upon
request without charge to each person to whom we deliver this proxy
statement/prospectus. Written or telephone requests should be directed to
Leucadia National Corporation, 315 Park Avenue South, New York, N.Y. 10010,
Attention: Laura E. Ulbrandt, Secretary (telephone 212-460-1977). If you would
70
like to request documents from us please do so by April 30, 2002, to receive
them before the annual meeting.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this proxy statement/prospectus and, if given or made, the
information or representation must not be relied upon as having been authorized.
This proxy statement/prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction in which it is unlawful to make an offer or solicitation. Leucadia
National Limited is prohibited from making any invitation to the public in
Bermuda to subscribe for any of its shares.
Neither delivery of this proxy statement/prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in our affairs since the date of this proxy statement/prospectus.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This document, and the documents
incorporated by reference, or any other written or oral statements made by or on
behalf of our company may include forward-looking statements which reflect our
current views with respect to future events and financial performance. These
statements include forward-looking statements both with respect to our company
and the businesses in which we operate and/or invest, including the insurance
and reinsurance sectors in general, both as to underwriting and investment
matters. Statements that include the words "expect", "intend", "plan",
"believe", "project", "anticipate", "will" and similar statements of a future or
forward-looking nature identify forward-looking statements for purposes of the
PSLRA.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in those
statements. We believe that these factors include, but are not limited to, the
following:
o ineffectiveness or obsolescence of our business strategy,
including the planned reorganization, due to changes in
current or future market conditions or law, rule or
regulation; these changes in law, rule or regulation could
result from changes in U.S. tax law, rule or regulation or
policy; changes in the U.S.-Bermuda tax treaty; changes in the
political climate of Bermuda; changes in the U.S.-Barbados tax
treaty;
o developments in the world's financial and capital markets
which, among other things, adversely affect the performance of
our operating subsidiaries or investments or the availability,
on terms deemed attractive to our company, of new investments
or acquisitions;
o changes in tax or other laws, rules or regulations or in the
interpretation or enforcement thereof, including differences
between our understanding thereof, and the resulting
structuring of our business and business relationships, and
regulatory or judicial interpretation or enforcement thereof;
o loss of key personnel or advisors;
o the effects of mergers, acquisitions and divestitures;
o increased competition on the basis of pricing, excess
capacity, coverage terms or other factors;
o greater frequency or severity of claims and loss activity than
our underwriting, reserving or investment practices
anticipate;
71
o changes in the availability, cost or quality of reinsurance;
o increased consolidation of insurers and/or brokers;
o changes in rating agency policies or practices;
o changes in accounting policies or practices; and
o changes in general economic conditions, including inflation,
foreign currency exchange rates, and other factors.
The foregoing review of important factors should not be construed as
exhaustive and should be read in conjunction with other cautionary statements
that are included herein in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our 2001 Annual Report to
Shareholders or elsewhere. We undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information,
future developments or otherwise.
VII. ANNUAL REPORT
A copy of our 2001 Annual Report to shareholders is being furnished to
shareholders concurrently herewith.
VIII. PROPOSALS BY SHAREHOLDERS
Proposals that shareholders wish to include in our proxy statement and
form of proxy for presentation at our 2003 annual meeting of shareholders must
be received by us at 315 Park Avenue South, New York, New York 10010, Attention
of Laura E. Ulbrandt, Secretary, no later than December 17, 2002.
Any shareholder 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 2003 proxy
statement and related form of proxy, timely notice of any shareholder proposal
must be received by us in accordance with our by-laws and our rules and
regulations no later than December 17, 2002. Any proxies solicited by the Board
of Directors for the 2003 annual meeting may confer discretionary authority to
vote on any proposals notice of which is not timely received.
It is important that your proxy be returned promptly, whether by mail,
by the Internet or by telephone. You may revoke the proxy at any time before it
is exercised. If you attend the meeting in person, you may withdraw any proxy
(including an Internet or telephonic proxy) and vote your own shares.
By Order of the Board of Directors
Laura E. Ulbrandt
Secretary
72
ANNEX I
TO PROXY STATEMENT/PROSPECTUS
AGREEMENT AND PLAN OF MERGER OF
LEUCADIA NATIONAL CORPORATION
(A NEW YORK CORPORATION)
AND
LEUCADIA NATIONAL CORPORATION-ARIZONA
(AN ARIZONA CORPORATION)
AGREEMENT AND PLAN OF MERGER (this "Agreement") entered into as of
______, 200_ by and between Leucadia National Corporation, a New York
corporation, originally incorporated as Talcott National Corporation on May 24,
1968, ("Leucadia NY") and Leucadia National Corporation-Arizona, an Arizona
corporation ("Leucadia Arizona").
WHEREAS, Leucadia NY is a business corporation of the State of New
York with its registered office therein located at 315 Park Avenue South, New
York, NY, 10010; and
WHEREAS, the total number of shares of stock which Leucadia NY has
authority to issue is 150,000,000 shares of common stock, each with a par value
of $1.00 per share (each, a "Leucadia NY Common Share") and 6,000,000 shares of
preferred stock, each with a par value of $1.00 per share; and
WHEREAS, Leucadia Arizona is a business corporation of the State of
Arizona with its registered office therein located at 3225 North Central Avenue,
Suite 1601, Phoenix, Arizona, 85012; and
WHEREAS, the total number of shares of stock which Leucadia Arizona
has authority to issue is 150,000,000 shares of common stock, each with a par
value of $1.00 per share (each, a "Leucadia Arizona Common Share") and 6,000,000
shares of preferred stock, each with a par value of $1.00 per share; and
WHEREAS, neither Leucadia NY nor Leucadia Arizona has any shares of
preferred stock outstanding; and
WHEREAS, the Business Corporation Law of the State of New York
permits a merger of a business corporation of the State of New York with and
into a business corporation of another jurisdiction; and
WHEREAS, the Arizona Business Corporation Act permits the merger of a
business corporation of another jurisdiction with and into a business
corporation of the State of Arizona; and
WHEREAS, Leucadia NY and Leucadia Arizona and the respective Boards
of Directors thereof deem it in the best interests of said corporations and
their respective shareholders to merge Leucadia NY with and into Leucadia
Arizona, with Leucadia Arizona as the surviving corporation in the merger,
pursuant to the provisions of the Business Corporation Law of the State of New
York and pursuant to the provisions of the Arizona Business Corporation Act upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by Leucadia
NY and approved by a resolution adopted by its board of directors (but subject
to approval by its stockholders) and being thereunto duly entered into by
Leucadia Arizona and approved by a resolution adopted by its board of directors
and further approved by Leucadia NY as its sole shareholder, this Agreement and
the terms and conditions hereof and the mode of carrying the same into effect,
together with any provisions required or permitted to be set forth herein, are
hereby determined and agreed upon as hereinafter set forth.
1. Merger. Leucadia NY shall, pursuant to the provisions of the
Business Corporation Law of the State of New York and the provisions of the
Arizona Business Corporation Act, be merged with and into Leucadia Arizona,
which shall be the surviving corporation from and after the effective time of
the merger, and which is sometimes herein referred to as the "surviving
corporation," and which shall continue to exist as said surviving corporation
under the name "Leucadia National Corporation" pursuant to the provisions of the
Arizona Business Corporation Act. The separate existence of Leucadia NY, which
is sometimes herein referred to as the "terminating corporation," shall cease at
said effective time in accordance with the provisions of the Business
Corporation Law of the State of New York.
2. Effective Time. In the event that this Agreement shall have been
fully approved and adopted on behalf of the terminating corporation in
accordance with the provisions of the Business Corporation Law of the State of
New York and on behalf of the surviving corporation in accordance with the
provisions of the Arizona Business Corporation Act and as soon thereafter as the
Board of Directors of Leucadia NY shall determine, following the satisfaction or
waiver of the other conditions set forth in Section 10 and subject to the
termination right in Section 11 of this Agreement, the said corporations agree
that they will cause to be executed and filed and recorded any document or
documents prescribed by the laws of the State of New York (including without
limitation a Certificate of Merger) and by the laws of the State of Arizona
(including without limitation a Certificate and Articles of Merger), and that
they will cause to be performed all necessary acts within the State of New York
and the State of Arizona and elsewhere to effectuate the merger herein provided
for. The merger shall become effective at the close of business on the date that
that appropriate certificates of merger are duly filed with the Secretary of
State of the State of New York and the Commissioner of Corporations of the State
of Arizona, or at such later time as the parties shall agree should be specified
in such certificates of merger (the time the merger becomes effective being
herein referred to as the "effective time of the merger").
3. Articles of Incorporation. Annexed hereto as Exhibit A and made a
part hereof is a copy of the Articles of Incorporation of the surviving
corporation as the same shall be in force and effect at the effective time in
the State of Arizona of the merger herein provided for; and said Articles of
2
Incorporation shall continue to be the Articles of Incorporation of said
surviving corporation until amended and changed pursuant to the provisions of
the Arizona Business Corporation Act.
4. By-laws. The by-laws attached as Exhibit B hereto will be the
by-laws of the surviving corporation and will continue in full force and effect
until changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the Arizona Business Corporation Act.
5. Directors and Officers. The directors and officers in office of
the terminating corporation at the effective time of the merger shall be the
members of the board of directors and the officers of the surviving corporation
at the effective time of the merger, all of whom shall hold their directorships
and offices until the election and qualification of their respective successors
or until their tenure is otherwise terminated in accordance with the by-laws of
the surviving corporation.
6. Conversion of Shares. (a) Except as set forth in Section 7, each
issued Leucadia NY Common Share shall, at the effective time of the merger, be
converted into one Leucadia Arizona Common Share.
(b) The issued shares of Leucadia Arizona prior to the merger shall
not be converted or exchanged in any manner, but each said share which is issued
as of the effective date of the merger shall cease to be outstanding.
7. Exchange of Shares. (a) Following the effective time of the
merger, each holder of an outstanding certificate or certificates theretofore
representing Leucadia NY Common Shares may, but shall not be required to
surrender the same to the surviving corporation for cancellation and exchange or
transfer, and each such holder or transferee will be entitled to receive
certificates representing the same number of common shares of the surviving
corporation as the number of Leucadia NY Common Shares previously represented by
the stock certificates surrendered. If any certificate representing common stock
of the surviving corporation is to be issued in a name other than that in which
the certificate theretofore representing Leucadia NY Common Shares surrendered
is registered, it shall be a condition to such issuance that the certificate
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such issuance shall either: (i) pay the surviving
corporation or its agents any taxes or other governmental charges required by
reason of the issuance of such new certificates in a name other than that of the
registered holder of the certificate so surrendered; or (ii) establish to the
satisfaction of the surviving corporation or its agents that such taxes or
governmental charges have been paid. From the effective time of the merger until
the surrender by shareholders of the certificates representing Leucadia NY
Common Shares in exchange for certificates representing Leucadia Arizona Common
Shares: all outstanding certificates representing Leucadia NY Common Shares
shall represent the ownership of the same number of shares of Common Stock of
the surviving corporation as though such surrender for cancellation and exchange
or transfer had taken place.
3
(b) All shares of common stock of the surviving corporation issued
upon the surrender for exchange of certificates in accordance with the terms of
this Section 7 shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the Leucadia NY Common Shares
theretofore represented by such certificates, subject, however, to the surviving
corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the effective time of the merger which may have been
declared or made by Leucadia NY on such Leucadia NY Common Shares prior to the
date of this Agreement and which remain unpaid at the effective time of the
merger, and there shall be no further registration of transfers on the stock
transfer books of the surviving corporation of the Leucadia NY Common Shares
which were outstanding immediately prior to the effective time of the merger.
If, after the effective time of the merger, certificates are presented to the
surviving corporation, they shall be canceled and exchanged as provided in this
Section 7, except as otherwise provided by law.
8. Stock Options. (a) At the effective time of the merger, each
outstanding option to purchase Leucadia NY Common Shares (a "Stock Option"), or
common share purchase warrant for Leucadia NY Common shares (a "Warrant")
whether vested or unvested, shall be deemed to constitute an option or right to
acquire, on the same terms and conditions as were applicable under such Stock
Option or Warrant, the same number of common shares of the surviving corporation
as the holder of such Stock Option or Warrant would have been entitled to
receive pursuant to the merger had such holder exercised such option in full
immediately prior to the effective time of the merger (not taking into account
whether or not such option was in fact exercisable). In the case of any Stock
Option to which Section 421 of the Internal Revenue Code of 1986 applies by
reason of its qualification under any of Sections 422-423 of the IRC ("qualified
stock options"), the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall comply
with Section 424(a) of the IRC.
(b) Following the effective time of the merger, each such Stock
Option and Warrant shall continue in effect on the same terms and conditions.
The surviving corporation shall comply with the terms of all such Stock Options
and Warrants and will ensure, to the extent required by, and subject to the
provisions of, any plan governing such Stock Options that Stock Options which
qualified as qualified stock options prior to the effective time of the merger
continue to qualify as qualified stock options after the effective time of the
merger. The surviving corporation shall take all corporate action necessary to
reserve for issuance a sufficient number of common shares of the surviving
corporation for delivery pursuant to the terms set forth in this Section 8.
9. Existing Plans. (a) At the effective time of the merger, each
incentive, compensation or benefit plan of Leucadia NY, unless terminated prior
to the effective time of the merger, shall be deemed to have been assumed by and
assigned to the surviving corporation and, to the extent that any such plan
provides for the issuance of Leucadia NY Common Shares and/or options to acquire
same, shall be deemed to have been amended to provide for the issuance of common
4
stock of the surviving corporation and/or options to acquire same on the same
terms and conditions, and in the same number, as provided for in the
corresponding plan of Leucadia NY.
(b) Following the effective time of the merger, each such plan shall
continue in effect as a plan of the surviving corporation, on the same terms and
conditions, as amended as provided in Section 9(a).
10. Conditions. The respective obligation of each party to effect the
merger is subject to the satisfaction or waiver of the following conditions:
(a) No Proceedings. The absence of any order or injunction
prohibiting the consummation of the merger.
(b) Third Party Consents. All requisite third party consents shall
have been obtained, if any.
11. Termination. This Agreement may be terminated at any time prior
to the effective time of the merger, whether before or after approval by the
shareholders of Leucadia NY of matters presented in connection with the merger,
for any reason, by action of the board of directors of Leucadia NY. In the event
of termination of this Agreement, this Agreement shall forthwith become void and
have no effect, without any liability or obligation on the part of Leucadia NY
or Leucadia Arizona.
12. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the merger by the shareholders of Leucadia NY, provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such shareholders without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
13. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
5
IN WITNESS WHEREOF, this Agreement is hereby executed upon behalf of
each of the constituent corporations parties thereto.
Executed as of , 200_.
----------------
LEUCADIA NATIONAL CORPORATION
(a New York corporation)
By:
-------------------------------------------
Its:
------------------------------------------
LEUCADIA NATIONAL CORPORATION-ARIZONA
(an Arizona corporation)
By:
-------------------------------------------
Its:
------------------------------------------
6
EXHIBIT A TO ANNEX I
TO PROXY STATEMENT/PROSPECTUS
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LEUCADIA NATIONAL CORPORATION-ARIZONA
FIRST: The name of the corporation is LEUCADIA NATIONAL
CORPORATION-ARIZONA.
SECOND: Attached hereto as Exhibit A is the text of the Amended and
Restated Articles of Incorporation.
THIRD: The Amended and Restated Articles do not provide for an
exchange, reclassification or cancellation of issued shares.
FOURTH: The Amended and Restated Articles were adopted the _____ day
of ________, 200_.
FIFTH: The Amended and Restated Articles were adopted by the Board of
Directors.
Dated as of this _____ day of ___________________, 200 .
-------
LEUCADIA NATIONAL CORPORATION-ARIZONA
By:
----------------------------------
Its:
----------------------------------
EXHIBIT A TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION FOR
LEUCADIA NATIONAL CORPORATION-ARIZONA
AMENDED AND RESTATED ARTICLES OF INCORPORATION
FOR
LEUCADIA NATIONAL CORPORATION
FIRST: The name of the corporation is LEUCADIA NATIONAL CORPORATION
(the "Corporation").
SECOND: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be engaged under the laws of the State of
Arizona.
THIRD: The Corporation initially intends to be a holding company.
FOURTH: The name and address of the registered office of the
Corporation in the State of Arizona is CT Corporation System, 3225 North Central
Avenue, Suite 1601, Phoenix, Arizona 85012.
FIFTH: The Board of Directors shall consist of six director(s).
SIXTH: The aggregate number of shares of capital stock of all classes
which the Corporation shall have authority to issue is 156,000,000, divided into
6,000,000 shares, having a par value of $1 each, which are designated Preferred
Stock and are issuable in series, and 150,000,000 shares having a par value of
$1 each, which are designated Common Stock.
No holder of shares of any class or series of stock of the
Corporation, whether now or hereafter authorized or outstanding, shall have any
pre-emptive, preferential or other right to subscribe for or purchase any shares
of any class or series of capital stock of the Corporation, whether now or
hereafter authorized or outstanding, or any bonds, notes, obligations, options,
warrants, rights or other securities which the Corporation may at any time issue
or sell, whether or not the same be convertible into or exercisable for the
purchase of any class or series of capital stock of the Corporation, it being
intended by this paragraph that all pre-emptive rights of any kind applicable to
the securities of the Corporation are eliminated.
The designations, relative rights, preferences and limitations of
each class of the Corporation's capital stock and each series thereof, to the
extent fixed in the Corporation's Articles of Incorporation, and the authority
vested in the Board of Directors of the Corporation to establish and designate
series of the Preferred Stock and to fix variations in the relative rights,
preferences and limitations between such series, are as follows:
1
I. PREFERRED STOCK
GENERAL PROVISIONS RELATING TO ALL SERIES
1. The Preferred Stock shall consist of one class, may be issued from
time to time in one or more series, and the shares of any one series thereof may
be issued from time to time. All shares of the Preferred Stock of the same
series shall be identical in all respects, except that shares of any one series
issued at different times may differ as to the dates, if any, from which
dividends thereon may accumulate. All shares of Preferred Stock of all series
shall be identical in all respects set forth in sections 1 through 5 hereof
(except as otherwise permitted in such sections) and shall be of equal rank as
set forth in sections 2 and 3 below. Subject to the foregoing, (i) the
designations, relative rights, preferences and limitations of the shares of each
such series may differ from those of any and all other such series authorized
and/or outstanding and (ii) the Board of Directors of the Corporation is hereby
expressly granted authority to establish and designate series and to fix with
respect to any such series, or alter in any one or more respects from time to
time, by resolution or resolutions adopted prior to the issuance of any shares
of such series, and by filing a certificate under Section 10-602 of the Arizona
Business Corporation Act, (a) the number of shares constituting such series and
the designation thereof, (b) the rate of dividends, (c) redemption terms
(including purchase and sinking funds provisions), (d) conversion rights into
any class or series of capital stock of the Corporation, (e) liquidation
preferences, (f) voting rights and (g) any other lawful rights, preferences and
limitations.
2. Unless otherwise provided in the resolutions creating or altering
a series, the holders of Preferred Stock of each series shall be entitled to
receive, as and when declared by the Board of Directors, out of funds or other
assets of the Corporation legally available therefor, cumulative dividends at
the annual rate fixed by the Board of Directors with respect to such series, and
no more, payable in cash, on such dates in each year as the Board of Directors
may determine, such dividends with respect to each series to be cumulative from
the date or dates fixed by the Board of Directors with respect to such series.
The first dividend or distribution with respect to shares of any particular
series not issued on a dividend date may be fixed by the Board of Directors at
more or less than the regular periodic dividend or distribution thereon. In the
event Preferred Stock of more than one series is outstanding, the Corporation in
making any dividend payment upon Preferred Stock shall make dividend payments
ratably upon all outstanding shares of Preferred Stock of all series in
proportion to the respective amounts of dividends accrued and payable thereon to
the date of such dividend payment. If the dividends or distributions on any
shares of Preferred Stock shall be in arrears, the holders thereof shall not be
entitled to any interest, or sum of money in lieu of interest, thereon. In no
event, so long as any Preferred Stock shall be outstanding, shall any dividend
whatsoever, whether in cash, stock or otherwise, other than a dividend payable
in stock of the Corporation of a class junior to the Preferred Stock, be
declared or paid, or any distribution made, on any stock of the Corporation of a
class ranking junior to the Preferred Stock, nor shall any shares of any such
junior class of stock be purchased or acquired for a consideration by the
Corporation or be redeemed by the Corporation, nor shall any moneys be paid to
the holders of, or set aside or made available for a sinking fund for the
purchase or redemption of, any shares of any such junior class of stock unless
(i) all dividends and distributions on all outstanding shares of Preferred Stock
of all series for all past dividend periods shall have been paid and all
2
dividends payable on or before the date of such dividend, distribution,
purchase, acquisition, redemption, setting aside or making available shall have
been paid or declared and a sum sufficient for the payment thereof set apart,
and (ii) the Corporation shall have paid or set aside all amounts, if any,
theretofore required to be paid or set aside as and for all matured purchase
fund and sinking fund obligations, if any, for the shares of Preferred Stock of
all series or to satisfy any distributions declared with respect to any shares
of Preferred Stock of any series. The holders of Preferred Stock shall not be
entitled to participate in any dividends payable on junior stock or to share in
the earnings or profits of the Corporation other than or in excess of that
hereinabove provided.
3. In the event of any dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the holders of each series of
Preferred Stock shall be entitled to receive, before any distribution or payment
is made upon any stock ranking junior to the Preferred Stock, such amount of
cash, shares, bonds or other property (which amount may vary depending on
whether such dissolution, liquidation or winding-up is voluntary or involuntary)
to which each such outstanding series of Preferred Stock shall be entitled in
accordance with the provisions thereof together with an amount in cash equal to
all dividends accrued and unpaid thereon to the date of such distribution or
payment, and shall be entitled to no further payment. If, upon any such
liquidation, dissolution or winding-up, the assets of the Corporation
distributable among the holders of the Preferred Stock shall be insufficient to
permit the payment in full to such holders of the amounts to which they are
respectively entitled, the assets so distributable shall be distributed among
the holders of the Preferred Stock then outstanding ratably in proportion to the
amounts to which they are respectively entitled. For the purposes of this
Section 3, neither the voluntary sale, lease, exchange or transfer of all or
substantially all of the Corporation's property or assets to, nor the
consolidation or merger of the Corporation with, one or more corporations, nor a
reduction of the capital stock or stated capital of the Corporation, shall be
deemed to be a dissolution, liquidation or winding-up, voluntary or involuntary.
4. The Corporation, at the option of the Board of Directors, may,
subject to the provisions applicable to such series, redeem at any time or
times, and from time to time, all or any part of the shares of any series of
Preferred Stock subject to redemption by paying for each share such price or
prices as shall have been fixed by the Board of Directors prior to the issuance
of such series, plus an amount equal to dividends accrued and unpaid thereon to
the date fixed for redemption, plus premiums in the amounts, if any, so fixed
with respect to such series (the total amount per share so payable upon any
redemption of shares of any series of Preferred Stock being herein referred to
as the "redemption price"). Except as otherwise provided in the provisions
relating to a particular series of Preferred Stock, not less than 15 days nor
more than 60 days prior written notice shall be given to the holders of record
of the shares so to be redeemed, which notice shall be given by mail, postage
prepaid, addressed to such holders at their respective addresses as shown on the
books of the Corporation. Such notice shall specify the shares called for
redemption, the redemption price and the place at which, and the date on which,
the shares called for redemption will, upon presentation and surrender of the
stock certificates evidencing such shares, be redeemed. In case of redemption of
less than all of the outstanding Preferred Stock of any one series, such
redemption (unless otherwise stated in the provisions relating to such series)
may be made pro rata or the shares to be redeemed may be chosen by lot, in such
manner as the Board of Directors may determine. No failure to deliver or mail
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such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares so to be redeemed.
If such notice of redemption shall have been duly given, and if on or
before the redemption date specified in such notice all funds necessary for such
redemption shall have been set aside so as to be available therefor, then,
notwithstanding that any certificate for the shares of such Preferred Stock so
called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall, from and after the date fixed for redemption,
no longer be deemed outstanding, the right to receive dividends thereon shall
cease to accrue from and after the date of redemption so fixed, and all rights
with respect to such shares of Preferred Stock so called for redemption shall
forthwith at the close of business on such redemption date cease and terminate,
except the right of the holders thereof to receive the amount payable upon
redemption thereof, but without interest; provided, however, that the
Corporation may, after giving such notice of any such redemption and prior to
the redemption date specified in such notice, deposit in trust, for the account
of the holders of such Preferred Stock to be redeemed, with a bank or trust
company having an office in the Borough of Manhattan, City, County and State of
New York and having a capital, undivided profits and surplus aggregating at
least $50,000,000, all funds necessary for such redemption, and, upon such
deposit in trust, all shares of such Preferred Stock with respect to which such
deposit shall have been made shall no longer be deemed to be outstanding, and
all rights with respect to such shares of such Preferred Stock shall forthwith
cease and terminate, except (a) the right of the holders thereof to receive the
amount payable upon the redemption thereof, but without interest, and (b) the
right of the holders thereof to exercise on or before the date fixed for
redemption the rights, if any, not having theretofore expired, which the holders
thereof shall have to convert the shares so called for redemption into, or
exchange such shares for, shares of stock of any other class or classes or of
any other series of the same or any other class or classes of stock of the
Corporation.
Any funds so deposited which shall not be required for such
redemption because of the exercise of any right of conversion or exchange or
otherwise subsequent to the date of such deposit shall be returned to the
Corporation forth-with. Any interest accrued on any funds so deposited shall
belong to the Corporation and be paid to it from time to time. Any funds so
deposited by the Corporation and unclaimed at the end of six years from the date
fixed for such redemption shall be repaid to the Corporation, upon its request,
after which repayment the holders of such shares so called for redemption shall
look only to the Corporation for the payment of the redemption price thereof.
If at any time the Corporation shall have failed to pay dividends in
full on all series of Preferred Stock then outstanding, thereafter and until
such dividends, including all accrued and unpaid dividends, shall have been paid
in full, or declared and funds sufficient for the payment thereof set aside for
payment, the Corporation shall not redeem or purchase less than all of the
Preferred Stock at such time outstanding; provided, however, that nothing shall
prevent the Corporation from completing the purchase of shares of Preferred
Stock for which a purchase contract has been entered into, or the redemption of
any shares of Preferred Stock for which notice of redemption has been given,
prior to such default.
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5. Except as otherwise specifically provided with respect to a
particular series of Preferred Stock, as hereinafter in this section 5 provided,
and as required by law, the Preferred Stock shall have no voting rights.
Whenever dividends payable on the Preferred Stock shall be in default
in an aggregate amount equivalent to at least six quarterly dividends on any of
the shares of Preferred Stock then outstanding, the number of directors
constituting the Board of Directors of the Corporation shall be increased by
two, and the holders of the Preferred Stock, voting as a class (whether or not
otherwise entitled to vote for the election of directors), shall be entitled to
elect two directors of the Corporation to fill such newly-created directorships.
Such directors shall serve (subject to the last sentence of the next paragraph
of this section 5) until the next annual meeting of shareholders and until their
successors are elected and qualify. Whenever such right of the holders of the
Preferred Stock shall have vested, such right may be exercised initially either
at a special meeting of such holders called as provided herein, or at any annual
meeting of shareholders, and thereafter at annual meetings of shareholders. The
right of the holders of the Preferred Stock, voting as a class, to elect members
of the Board of Directors of the Corporation as aforesaid shall continue until
such time as the dividends accumulated on the Preferred Stock shall have been
paid in full, at which time the special right of the holders of the Preferred
Stock so to vote separately as a class for the election of directors shall
terminate, subject to renewal and divestment from time to time upon the same
terms and conditions.
At any time after the voting power to elect two additional members of
the Board of Directors of the Corporation has become vested in the holders of
the Preferred Stock, the Secretary of the Corporation may, and upon the request
of the holders of record of at least 5% of the Preferred Stock then outstanding
addressed to him, shall, call a special meeting of the holders of Preferred
Stock for the purpose of electing such directors, to be held within 50 days
after the receipt of such request; provided, however, that the Secretary need
not call any such special meeting if the annual meeting of shareholders is to
convene within 90 days after the receipt by the Secretary of such request. Such
meeting shall be held at such place as shall be specified in the notice and upon
notice as provided in the By-Laws of the Corporation for the holding of special
meetings of shareholders. If such meeting shall not be so called within 20 days
after the receipt of such request (not including, however, a request falling
within the proviso of the second preceding sentence), then the holders of record
of at least 5% of the Preferred Stock then outstanding may designate in writing
one of their number to call such meeting, and the person so designated shall
call such meeting at the place and upon the notice above provided, and for that
purpose shall have access to the stock books of the Corporation. At any such
special or annual meeting at which the holders of the Preferred Stock shall have
the right to vote for the election of such two directors as aforesaid, the
holders of 33 1/3% of the then outstanding Preferred Stock present in person or
represented by proxy shall be sufficient to constitute a quorum of said class
for the election of such two directors and for no other purpose, and the vote of
the holders of a plurality of the Preferred Stock so present at any such meeting
at which there shall be such a quorum shall be sufficient to elect two
directors. Whenever the holders of the Preferred Stock shall be divested of such
voting right hereinabove provided, the directors so elected by the Preferred
Stock shall thereupon cease to be directors of the Corporation and thereupon the
number of directors shall be reduced by two.
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Every shareholder entitled to vote at any particular time in
accordance with the foregoing two paragraphs shall have one vote for each share
of Preferred Stock held of record by him and entitled to vote.
6. As used in connection with any series of Preferred Stock, the
terms "junior stock", "junior class of stock" and "stock ranking junior to the
Preferred Stock" shall mean and refer to the Common Stock and any other class or
series of stock of the Corporation hereafter authorized which shall rank junior
to the Preferred Stock with respect to the declaration and payment of dividends
thereon and the distribution of amounts with respect thereto payable in the
event of any liquidation, dissolution or winding-up of the Corporation.
II. COMMON STOCK
Subject to all of the rights of the Preferred Stock, dividends may be
paid upon the Common Stock as and when declared by the Board of Directors out of
funds and other assets legally available for the payment of dividends. The Board
of Directors may declare a dividend or distribution upon the Common Stock in
shares of any class or series of capital stock of the Company.
In the event of any liquidation, dissolution or other winding-up of
the Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they
respectively shall be entitled, or an amount sufficient to pay the aggregate
amount to which such holders shall be entitled shall have been deposited in
trust with a bank or trust company having its principal office in the Borough of
Manhattan, City, County and State of New York, having a capital, undivided
profits and surplus aggregating at least $50,000,000, for the benefit of the
holders of the Preferred Stock, the remaining net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock.
Except as otherwise expressly provided with respect to the Preferred
Stock and except as otherwise may be required by law, the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes and each holder of Common Stock shall be entitled to one vote for each
share held.
A majority vote of the outstanding Common Stock shall be required to
authorize any merger, consolidation, or dissolution of the Corporation or any
sale, lease, exchange, or other disposition of all or substantially all of the
Corporation's assets.
III. TRANSFER RESTRICTIONS
(a) Certain Definitions. As used in this Part III of Article SIXTH,
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).
6
"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
Regulationss.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 SIXTH.
"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 Regulationss.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 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 SIXTH 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
7
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 SIXTH 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 Transfer, of the Excess Securities
at the time of the attempted Transfer to the Purported Transferee by gift,
8
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 SIXTH
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 SIXTH 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 SIXTH 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 SIXTH.
(ii) All certificates representing Corporation Securities issued
after the effectiveness of this Part III of Article SIXTH shall bear a
conspicuous legend as follows:
THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT TO
RESTRICTIONS PURSUANT TO PART III OF ARTICLE SIXTH OF THE ARTICLES 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 SIXTH including without limitation (1) whether a new Five-Percent
9
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 SIXTH, 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 SIXTH.
SEVENTH: The Corporation shall indemnify any person against expenses,
including without limitation, attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, in all circumstances in which, and to the full extent that,
such indemnification is permitted and provided for by the laws of the State of
Arizona as then in effect.
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or its shareholders for money damages for any action taken or
any failure to take any action as a director, except liability for any of the
following: (a) the amount of a financial benefit received by a director to which
the director is not entitled; (b) an intentional infliction of harm on the
Corporation or the shareholders; (c) a violation of section 10-833 of the
Arizona Business Corporation Act or any successor statute; or (d) an intentional
violation of criminal law. The limitation of liability provided herein shall
continue after a director has ceased to occupy such position as to acts or
omissions occurring during such director's term or terms of office, and no
amendment or repeal of this Article EIGHTH shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
NINTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, or
repeal the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
Meetings of shareholders may be held within or without the State of
Arizona, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Arizona at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
TENTH: Subject to the provision of Section 10-101 of the Business
Corporation Act of the State of Arizona, the Corporation reserves the right to
amend, alter, change, or repeal any provision contained in these Articles in the
manner now or hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
10
ELEVENTH: The Corporation hereby elects (i) pursuant to Section
10-2721 (A)(1) of the Arizona Business Corporation Act, not to be subject to
Article 2 (Control Share Acquisitions) of Chapter 23 of Title 10 of the Arizona
Revised Statutes, and (ii) pursuant to Section 10-2743(A)(1) of the Arizona
Business Corporation Act, not subject to Article 3 (Business Combinations) of
Chapter 23 of Title 10 of the Arizona Revised Statutes. This election shall
apply to any successor provisions of any of the foregoing.
IN WITNESS WHEREOF, we have signed these Amended and Restated
Articles of Incorporation on the _____ day of _____________, 200__.
Name:
----------------------------
Its:
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Name:
----------------------------
Its:
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11
EXHIBIT B TO ANNEX I
TO PROXY STATEMENT/PROSPECTUS
AMENDED AND RESTATED
BYLAWS
of
LEUCADIA NATIONAL CORPORATION
-----------------------------
ARTICLE I. SHAREHOLDERS MEETING
Section 1.The annual meeting of shareholders of the Corporation shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Arizona, on such date and at such time as shall
be determined by the Board of Directors in each year for the purpose of electing
Directors, and for the transaction of such other business as may be brought
before the meeting.
Section 2.Special meetings of shareholders may be called at any time
by the Board of Directors.
Section 3.Written notice of meetings of shareholders shall be given
whenever shareholders are to take any action at a meeting. Such notice shall
state the place, date and hour of the meeting and, unless it is the annual
meeting, indicate that it is being issued by or at the direction of the person
or persons calling the meeting. Notice of a special meeting shall, in addition,
state the purpose or purposes for which the meeting was called.
A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than fifty days before the date of the meeting,
to each shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage thereon prepaid,
directed to the shareholder at his address as it appears on the record of
1
shareholders, or, if he shall have filed with the Secretary of the Corporation a
written request that such notices to him be mailed to some other address, then
directed to him at such other address.
Section 4.For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or for
the purpose of determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other action,
the Board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action.
Section 5.Except as may be otherwise required by applicable law, the
Articles of Incorporation or these Bylaws, the holders of a majority of the
shares entitled to vote thereat present in person or by proxy shall constitute a
quorum at a meeting of shareholders for the transaction of any business,
provided that when a specified item of business is required to be voted on by a
class or a series, voting as a class, the holders of a majority of shares of
such class or series present in person or by proxy shall constitute a quorum for
the transaction of such specified item of business.
Section 6.In order to properly submit any business to an annual
meeting of shareholders, a shareholder must give timely notice in writing to the
Secretary of the Corporation of such shareholder's intention to present such
business. To be considered timely, a shareholder's notice must be delivered,
either in person or by United States certified mail, postage prepaid, and
received at the principal executive office of the Corporation, not less than one
hundred twenty (120) days prior to the first anniversary date of the
Corporation's proxy statement in connection with the last Annual Meeting or if
2
no Annual Meeting was held in the previous year, not less than a reasonable
time, as determined by the Board of Directors, prior to the date of the
applicable Annual Meeting.
Each notice to the Secretary shall set forth (i) the name and address
of the shareholder and his or her nominees, (ii) a representation that the
shareholder is entitled to vote at such meeting, indicating the number of shares
owned of record and beneficially by such shareholder, together with a statement
that such shareholder intends to appear in person or by proxy at the meeting to
present such proposal or proposals, (iii) a description of the proposal or
proposals to be presented, including the complete text of any resolutions to be
presented at the meeting and the reasons for conducting such business at the
meeting and (iv) any material interest of the shareholder in the business to be
submitted at the meeting. In addition, the shareholder shall promptly provide
any other information reasonably requested by the Corporation.
The presiding officer of the meeting may, if the facts warrant,
determine that a proposal was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective proposal shall be disregarded. Notwithstanding the foregoing
provisions of this Section 6, a shareholder who seeks to have any proposal
included in the Corporation's proxy statement shall comply with applicable state
law and the requirements of the rules and regulations promulgated by the
Securities and Exchange Commission.
ARTICLE II. DIRECTORS
Section 1.The number of the Directors of the Corporation shall be
such number not less than three, as is designated from time to time by
resolution adopted by a majority of the members of the Board of Directors, plus
the number of Directors, if any, elected by the holders of the Preferred Stock,
3
voting as a class, pursuant to Section 5 of the General Provisions Relating to
All Series of the Preferred Stock in Article SIXTH of the Articles of
Incorporation of the Corporation. The terms of the Directors, if any, elected by
the holders of the Preferred Stock, voting as a class, pursuant to Section 5 of
the General Provisions Relating to All Series of the Preferred Stock in Article
SIXTH of the Articles of Incorporation of the Corporation shall be as set forth
in such Section 5. The Directors other than those, if any, elected by the
holders of the Preferred Stock, voting as a class, shall, except as otherwise
set forth herein, be elected for one year terms which shall expire at each
annual meeting of shareholders and when their successors shall have been elected
and qualified. Such election shall be by ballot by the shareholders entitled to
vote and present in person or by proxy at such meeting. In case of any vacancy
in the Board of Directors (including any vacancy due to an increase in the size
of the Board of Directors), the remaining Directors, although less than a
quorum, by affirmative vote of a majority thereof, may elect a successor to fill
such vacancy to serve until the next annual meeting of shareholders and when
such Director's successor shall have been elected and qualified. Any Director or
Directors (other than a Director or Directors elected by the holders of the
Preferred Stock pursuant to Section 5 of the General Provisions Relating to All
Series of the Preferred Stock in Article SIXTH of the Articles of Incorporation
of the Corporation) may be removed for cause by the affirmative vote of a
majority of the Directors present (including by means of a conference telephone
or similar communications equipment) at a meeting at which such action is
considered, provided a quorum is present.
Section 2.Nominations for the election of Directors may be made by a
committee appointed by the Board of Directors (or, in the absence of such
committee, by the Board of Directors) or by any shareholder entitled to vote
generally in the election of Directors. However, any shareholder entitled to
4
vote generally in the election of Directors may nominate one or more persons for
election as Directors at a meeting only if written notice of such shareholder's
intention to make such nomination or nominations has been given, to the
Secretary of the Corporation, either by personal delivery or by-United States
certified mail, postage prepaid, and received at the principal executive office
of the Corporation (1) with respect to an election to be held at an Annual
Meeting of Shareholders, (a) not less than one hundred twenty (120) days prior
to the first anniversary date of the Corporation's proxy statement in connection
with the last Annual Meeting or (b) if no Annual Meeting was held in the
previous year, not less than a reasonable time, as determined by the Board of
Directors, prior to the date of the applicable Annual Meeting and (2) with
respect to an election to be held at a Special Meeting of Shareholders, the
close of business on the tenth (10th) day following the date on which notice of
such meeting is first given to shareholders.
Each such notice to the Secretary shall set forth (i) the name and
address of the shareholder and his or her nominees; (ii) a representation that
the shareholder is entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (iii) a description of all arrangements or understandings between
the shareholder and each such nominee; (iv) such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the nominees of such shareholder; and (v) the consent of each nominee to
serve as a Director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. The presiding officer of the
5
meeting may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Section 3.The Board of Directors may adopt such rules and regulations
for the conduct of their meetings and management of the affairs of the
Corporation, as they may deem proper, not inconsistent with applicable law, the
Articles of Incorporation or these Bylaws.
Section 4.The regular meetings of the Board of Directors shall be
held as determined by the Board of Directors. Special meetings shall be held
whenever called by direction of the Chairman of the Board or any Vice Chairman,
or the President or of any two of the Directors, on at least three days previous
notice by mail or two days previous notice by telegraph to each Director. Notice
of such meeting shall be effective as of the sending of the notice by mail or
telegram. Unless otherwise indicated in the notice thereof or otherwise provided
by the applicable law, the Articles of Incorporation or these Bylaws, any and
all business may be transacted at a special meeting. One-third of the Directors
shall constitute a quorum at any meeting of the Board of Directors. At the first
meeting of the Board of Directors held after the annual meeting of shareholders,
the Board shall proceed to the election of the officers of the Corporation.
Section 5.Any action required or permitted to be taken by the Board
of Directors may be taken without a meeting if all members of the Board of
Directors consent in writing to the adoption of a resolution authorizing such
action.
Section 6.Any one or more members of the Board of Directors may
participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment allowing all persons participating
in such meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at such meeting.
6
ARTICLE III. COMMITTEES OF THE BOARD
Section 1.The Board of Directors may, by resolution or resolutions
adopted by a majority of the members of the Board of Directors designate a
committee of the board to be known as the Finance Committee of the Board
("Finance Committee") and to consist of the Chairman of the Board and such
number of other Directors as shall be designated from time to time by resolution
adopted by a majority of the members of the Board of Directors. The Board of
Directors may designate one or more Directors as alternate members of the
Finance Committee, who may replace any absent member or members of the Committee
at any meeting of the Finance Committee. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve the
Finance Committee. The Finance Committee shall have and may exercise, when the
Board is not in session, all authority of the Board of Directors with respect to
designating as a depository any bank, banker or trust company, opening lines of
credit with any bank, banker or trust company and all matters appertaining
thereto, including, but not limited to, the authorization of all resolutions and
agreements and the execution of all instruments required by any bank, banker or
trust company in connection therewith, including the certification thereof by
the Secretary of the Corporation, the designation of officers and employees of
the Corporation authorized to withdraw or charge any of the funds of the
Corporation so deposited upon checks, notes, drafts, bills of exchange,
acceptances, undertakings or other instruments or orders for the payment of
money drawn against the account of the Corporation, the designation of officers
authorized to borrow or obtain credit for the Corporation from any bank, banker
or trust company or to endorse for discount or otherwise, negotiable or
7
non-negotiable instruments held by the Corporation, the authorization of leases
of safe deposit boxes, the designation of officers and employees authorized to
have access to said boxes, and the authorization of guarantees required by
symbol endorsement.
Section 2.The Board of Directors may, by resolution or resolutions,
passed by a majority of the members of the Board of Directors designate a
committee of the Board to be known as the Executive Committee of the Board
("Executive Committee") and to consist of the Chairman of the Board of
Directors, who shall be Chairman of the Executive Committee, and such number of
other Directors as shall be designated from time to time by resolution adopted
by a majority of the members of the Board of Directors. The Executive Committee
shall have and may exercise when the Board of Directors is not in session, all
authority of the Board of Directors, except as may be limited by Section 10-825
of the Arizona Business Corporation Act. The Board of Directors may designate
one or more Directors as alternate members of such committee who may replace any
absent member or members at any meeting of the Executive Committee.
Section 3.The Board of Directors shall, by resolution or resolutions,
designate three of its members, none of whom are members of management, as the
Audit Committee of the Board ("Audit Committee"), and will further designate one
member as Chairman of the Audit Committee. The Audit Committee shall have
responsibility for recommending to the Board the retention or replacement of the
independent auditors of the company; for administration of the internal audit
function of the corporation; and for such other matters pertaining to the
internal control, audit, or reporting of the financial affairs of the company as
the Audit Committee, in its sole discretion, deems advisable and necessary. A
full report of the activities of the Audit Committee will be made by the
Chairman or his designee to each meeting of the Board of Directors.
8
Section 4.The Board of Directors may, by resolution or resolutions,
passed by a majority of the members of the Board of Directors designate three of
its members as the Nominating Committee of the Board ("Nominating Committee"),
and will further designate one member as Chairman of the Nominating Committee.
The Nominating Committee shall meet annually for the purpose of considering and
presenting to the Board its nominations for officers and directors.
Section 5.The Board of Directors may, by resolution or resolutions
adopted by a majority of the members of the Board of Directors designate such
other committees of the Board as shall be designated from time to time. Such
committees shall have such number of Directors as are designated by the Board
and shall have such powers designated by the Board as are consistent with the
provisions of the Arizona Business Corporation Act. The Board of Directors may
designate one or more Directors as alternate members of such committee who may
replace any absent member or members at any meeting of any such committee. Any
such committee shall have and exercise the authority of the Board of Directors.
Section 6.Such committees may meet either regularly at stated times
or specially on notice given twenty-four hours in advance by any member thereof
by mail, telegraph or telephone to all the other members thereof provided such
notice is received before the meeting takes place; but no notice of any regular
meeting need be given; and no notice need be given of any special meeting at
which all the members shall be present or notice of which shall be waived by all
the absent members before or after such meeting. Such committees may make rules
for the holding and conduct of their meetings and may appoint such subcommittees
and assistants, as they shall from time to time deem necessary. A number of
regular members or alternate members or both equal to a majority of the number
9
of regular members of a committee shall constitute a quorum and the act of a
majority of those present at a meeting at which a quorum is present and action
shall be the act of a committee. All action taken by a committee shall be
reported to the Board of Directors at its meeting next succeeding such action.
The Secretary or an Assistant Secretary shall attend and act as secretary of all
meetings of a committee and keep the minutes thereof.
Section 7.Any action required or permitted to be taken by any
committee of the Board may be taken without a meeting if all members of the
committee consent in writing to the adoption of a resolution authorizing such
action.
Section 8.Any one or more members of any committee of the Board may
participate in a meeting of such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in such
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting.
ARTICLE IV. OFFICERS
Section 1.The officers of the Corporation shall be a Chairman of the
Board of Directors, a President, one or more Vice Presidents, one or more of
whom may be designated Executive Vice President and one or more of whom may be
designated Senior Vice President, a Treasurer, a Secretary and a Comptroller,
all of whom may be appointed by the Board of Directors, and such other officers
as the Board of Directors, from time to time may appoint and each officer shall
serve at the discretion of the Board of Directors until the next annual election
of officers. One person may serve as more than one of such officers, except that
the same person shall not serve both as President and Secretary.
Section 2.The Board of Directors shall appoint from their number a
Chairman of the Board of Directors who shall be the chief executive officer of
the Corporation and, subject to the control of the Board of Directors, shall
10
have general charge of the management of the affairs of the Corporation. He
shall preside at meetings of the Board of Directors and of the shareholders of
the Corporation.
Section 3.The Board of Directors may appoint from their number one or
more Vice Chairmen of the Board of Directors who shall perform such duties as
may be assigned to them by the Board of Directors or the Chairman of the Board
of Directors. In the absence or incapacity of the Chairman of the Board of
Directors, the Vice Chairmen, in order of seniority determined by time of
appointment to office, shall preside over meetings of the Board of Directors.
The Board of Directors may appoint from their number a Chairman of the Executive
Committee who shall preside at meetings of the Executive Committee and perform
such other duties as may be assigned to him by the Board of Directors.
Section 4.The Board of Directors shall appoint from their number a
President who shall be the chief operating officer of the Corporation and,
subject to the direction of the Board of Directors and of the Chairman of the
Board of Directors, shall direct and supervise the administration of the
business and affairs of the Corporation. In the absence or incapacity of the
Chairman of the Board of Directors, the President shall exercise all of the
powers and duties of the Chairman of the Board of Directors, provided that he
shall preside at meetings of the Board of Directors only in the absence or
incapacity of all the Vice Chairmen, if any, of the Board of Directors.
Section 5.The Board of Directors shall appoint one or more Vice
Presidents, one or more of whom may be designated Executive Vice President or
Senior Vice President, and one of whom may be designated Vice President-Finance,
who shall have such powers and shall perform such duties as may be assigned by
the Board of Directors. In the absence or incapacity of the President, the
11
Executive Vice Presidents, in order of seniority determined by time of
appointment to office, shall exercise all of the powers and duties of the
President.
Section 6.The Board of Directors shall elect a Treasurer who shall
have such powers and shall perform such duties as may be assigned to him by the
Board of Directors.
Section 7.The Board of Directors shall appoint a Secretary who shall
keep the minutes of all meetings of the Board of Directors and of the
shareholders of the Corporation. He shall give or cause to be given notice of
all meetings of the shareholders and of such meetings of the Board of Directors
as may require notice. He shall keep in safe custody the seal of the Corporation
and shall affix the same to all instruments requiring it when authorized by the
Board of Directors, the Chairman of the Board of Directors or the President. He
shall have such further powers and shall perform such further duties as may be
assigned to him by the Board of Directors. The Secretary shall enforce the
restrictions on the transfer of the capital stock of the Corporation set forth
in Part III of Article SIXTH of the Articles of Incorporation. In connection
therewith, the Secretary shall supervise the Corporation's transfer agent and/or
registrar for the capital stock.
Section 8.The Board of Directors shall elect a Comptroller who shall
be the chief accounting officer of the Corporation and shall be in charge of its
books of account and accounting records and of its accounting procedures. He
shall have such further powers and shall perform such further duties as may be
assigned to him by the Board of Directors.
Section 9.The Board of Directors shall from time to time appoint such
other officers to have such powers and to perform such duties as may be assigned
to them by the Board of Directors.
12
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation, to the full extent permitted and in the manner
required by the laws of the State of Arizona as in effect at the time of the
adoption of this Article V or as the law may be amended from time to time, shall
(i) indemnify any person (and the heirs and legal representatives of such
person) made, or threatened to be made, a party in an action or proceeding
(including, without limitation, one by or in the right of the Corporation to
procure a judgment in its favor), whether civil, criminal, administrative or
investigative, including an action by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, which any director or officer
of the Corporation served in any capacity at the request the Corporation, by
reason of the fact that he, his testator or intestate, was a director or officer
of the Corporation or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity and (ii)
provide to any such person (and their heirs and legal representatives of such
person) advances for expenses incurred in pursuing such action or proceeding,
upon receipt of a written affirmation and a written undertaking by or on behalf
of such director or officer to repay such amount as, and to the extent, required
by Section 10-852 or 10-853 of the Arizona Business Corporation Act, as the case
may be.
The indemnification and advancement of expenses provided herein shall
not be deemed exclusive of any other rights to which the person seeking
indemnification or advancement of expenses may be entitled (i) under the
Articles of Incorporation or Bylaws of this or any other corporation, or (ii) by
any resolution of shareholders, resolution of directors or agreement providing
for such indemnification or advancement, all of which are authorized by these
Bylaws (except with respect to matters which at the time of indemnification is
sought are prohibited by applicable law), or (iii) otherwise.
13
ARTICLE VI. CAPITAL STOCK
Section 1.Subject to Part III of Article SIXTH of the Articles of
Incorporation, certificates for each class and series of stock shall be in such
form as shall be adopted by the Board of Directors, shall be duly numbered and
registered in the order issued and shall be signed by the Chairman or Vice
Chairman of the Board or the President or a Vice President and the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation, and may be sealed with the seal of the Corporation or facsimile
thereof. The signatures of the officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent or registered by a
registrar other than the Corporation itself or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue.
Section 2.Subject to Part III of Article SIXTH of the Articles of
Incorporation, transfers of shares shall only be made upon the books of the
Corporation by the registered holder in person or by attorney, duly authorized,
and upon surrender of the certificate or certificates for such shares, properly
signed for transfer.
Section 3.A new certificate of stock may in the discretion of the
Board of Directors, and under such regulations with respect to indemnification
and otherwise as they may prescribe, be issued in place of the certificate
claimed to have been lost, stolen or destroyed.
Section 4.So long as the restrictions set forth in Part III of
Article SIXTH of the Articles of Incorporation shall not have lapsed, all share
certificates representing shares of capital stock shall bear a conspicuous
legend as follows:
14
"THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS
PURSUANT TO PART III OF ARTICLE SIXTH OF THE ARTICLES OF
INCORPORATION OF THE CORPORATION REPRINTED IN ITS ENTIRETY ON THE
BACK OF THE CERTIFICATE."
Section 5.Subject to Part III of Article SIXTH of the Articles of
Incorporation, the Corporation shall be entitled to treat the registered holder
of any share or shares as the holder thereof in fact and law and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, save as otherwise expressly provided by statute.
ARTICLE VII. DIVIDENDS
Dividends shall be declared and paid out of the surplus of the
Corporation as often and at such times as the Board of Directors may determine,
and in accordance with the New York Business Corporation Law.
ARTICLE VIII. INSPECTORS OF ELECTION
The Board of Directors, in advance of any shareholders' meeting,
shall appoint two inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at a shareholders'
meeting shall appoint two inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat.
15
ARTICLE IX. SEAL
The seal of the Corporation, if any, shall be in the form of a circle
and shall bear the name of the Corporation and the year of its incorporation.
ARTICLE X. AMENDMENTS
Bylaws of the Corporation may be adopted, amended or repealed by vote
of the holders of the shares at the time entitled to vote in the election of any
Directors. Bylaws may also be adopted, amended or repealed by the Board of
Directors by vote of a majority of the Directors present at the time of the vote
if a quorum is then present. If any Bylaw regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of shareholders for the election
of Directors the Bylaw so adopted, amended or repealed, together with a concise
statement of the changes made.
ARTICLE XI. WAIVERS OF NOTICE
Whenever the Corporation or the Board of Directors or any committee
of the Board is authorized to take any action after notice to any person or
persons or after the lapse of a prescribed period of time, such action may be
taken without notice and without the lapse of such period of time, if at any
time before or after such action is completed the person or persons entitled to
such notice or entitled to participate in the action to be taken or, in the case
of a shareholder, his attorney-in-fact or proxy, submits a signed waiver of
notice of such requirement.
16
ANNEX II
TO PROXY STATEMENT/PROSPECTUS
THE BERMUDA COMPANIES ACT 1981
COMPANY LIMITED BY SHARES
(SECTION 132C(2))
MEMORANDUM OF CONTINUANCE
OF
LEUCADIA NATIONAL LIMITED
(HEREINAFTER REFERRED TO AS THE "COMPANY")
1. The liability of the members of the Company is limited to the amount
(if any) for the time being unpaid on the shares respectively held by
them.
2. The Company is an exempted company as defined by the Companies Act
1981.
3. The authorized share capital of the Company is US$156,000,000 divided
into 150,000,000 common shares of par value US$1.00 each and
6,000,000 preference shares of par value US$1.00 each.
4. The Company shall not have power to hold land situated in Bermuda.
5. Details of Incorporation:
The Company was incorporated under the name "Leucadia National
Corporation-Arizona" in the State of Arizona, U.S.A. on April 3, 2002
as a wholly-owned subsidiary of Leucadia National Corporation, a
corporation which was incorporated in the State of New York, U.S.A.
on May 24, 1968 under the name Talcott National Corporation. On
________, 200_, Leucadia National Corporation merged with and into
Leucadia National Corporation-Arizona, which, as the surviving
corporation, changed its name to "Leucadia National Corporation."
6. The objects of the Company from the date of continuance are:
(1) to carry on any and all functions of a holding company
and/or to provide and/or to coordinate management,
advisory and administrative services to any or all of the
following: (i) any affiliated company (as such term is
understood in the Companies Act 1981, irrespective of the
jurisdiction of incorporation) of the Company and (ii) any
entity (wherever formed or existing) controlled, directly
or indirectly, by the Company;
(2) to provide and/or procure financing and financial
investment, management and advisory services to any or all
of the following: (i) any affiliated company (as such term
is understood in the Companies Act 1981, irrespective of
the jurisdiction of incorporation) of the Company and (ii)
any entity (wherever formed or existing) controlled,
directly or indirectly, by the Company, and in this
connection, to provide and/or procure credit, financial
accommodation, loans and/or advances with or without
interest to any such company or entity and to lend to
and/or deposit with any financial institutions, fund,
trust or other entity, any property of the company and/or
any interest therein to provide collateral for loans or
other forms of financing provided to such Company or
entity; and
(3) as set out in paragraphs (b) to (n) and to (p) to (u)
inclusive of the Second Schedule to the Companies Act
1981.
7. From the date of continuance the Company shall, pursuant to Section
42 of the Companies Act 1981, have the power to issue preference
shares which are, at the option of the holder, liable to be redeemed.
8. From the date of continuance, the Company shall, pursuant to Section
42A of the Companies Act 1981, have the power to purchase its own
shares.
Signed by duly authorized persons in the presence of at
least one witness attesting the signature thereof:
-------------------------------- -----------------------------
Director Witness
-------------------------------- -----------------------------
Director Witness
2
ANNEX III
TO PROXY STATEMENT/PROSPECTUS
B Y E - L A W S
OF
LEUCADIA NATIONAL LIMITED
I HEREBY CERTIFY that the within written Bye-laws are a true copy of the
Bye-laws of
LEUCADIA NATIONAL LIMITED
approved by the Shareholders with effect as of ________________.
Secretary
TABLE OF CONTENTS
Page
1. Interpretation.......................................................1
BOARD OF DIRECTORS............................................................4
2. Board of Directors...................................................4
3. Management of the Company............................................4
4. Power to appoint chief executive officer.............................4
5. Power to authorize specific actions..................................4
6. Power to appoint attorney............................................5
7. Power to appoint and dismiss employees...............................5
8. Power to delegate to a committee.....................................5
9. Power to borrow and charge property..................................6
10. Election of Directors................................................7
11. Nominations proposed by Shareholders.................................7
12. Defects in appointment of Directors..................................8
13. Removal of Directors.................................................8
14. Vacancies on the Board...............................................8
15. Summoning of meetings of the Board...................................9
16. Meetings of the Board................................................9
17. Unanimous written resolutions........................................9
18. Contracts and disclosure of Directors' interests.....................9
19. Remuneration of Directors...........................................11
20. Other interests of Directors........................................11
OFFICERS.....................................................................11
21. Officers of the Company.............................................11
22. Duties of Officers..................................................12
23. Chairman of meetings................................................12
24. Register of Directors and Officers..................................13
25. Absence or incapacity of certain Officers...........................13
MINUTES......................................................................13
26. Obligations of Board to keep minutes................................13
i
TABLE OF CONTENTS
(continued)
Page
INDEMNITY; EXCULPATION; INSURANCE; GRATUITIES AND PENSIONS...................13
27. Indemnity; Exculpation; Insurance; Gratuities and Pensions..........13
MEETINGS.....................................................................17
28. Annual general meeting; notice......................................17
29. Special general meeting; notice.....................................18
30. Meeting called on requisition of Shareholders.......................18
31. Postponement of meetings............................................18
32. Quorum for general meeting..........................................18
33. Adjournment of meetings.............................................19
34. Attendance at meetings..............................................19
35. Attendance of Directors.............................................19
36. Voting at meetings..................................................19
37. Decision of chairman................................................19
38. Demand for a poll...................................................19
39. Seniority of joint holders voting...................................21
40. Instrument of proxy.................................................21
41. Representation of corporations at meetings..........................21
42. Submission by Shareholder of business to an annual general meeting..21
SHARE CAPITAL AND SHARES.....................................................22
43. Rights of shares....................................................22
44. Power to issue shares...............................................24
45. Voting Cut-Back; Purchase of shares by Company or its assignee(s)...25
46. Variation of rights and alteration of share capital.................29
47. Registered holder of shares.........................................29
48. Death of a joint holder.............................................30
49. Share certificates..................................................30
50. No pre-emptive rights...............................................31
REGISTER OF SHAREHOLDERS; SETTING OF RECORD DATE.............................31
51. Contents of Register of Shareholders................................31
ii
TABLE OF CONTENTS
(continued)
Page
52. Inspection of Register of Shareholders..............................31
53. Setting of record date..............................................32
TRANSFER OF SHARES; RESTRICTIONS ON TRANSFER AND OWNERSHIP...................32
54. Instrument of transfer..............................................32
55. Restrictions on transfer; restrictions on ownership.................33
TRANSMISSION OF SHARES.......................................................38
56. Representative of deceased Shareholder..............................38
57. Registration on death or bankruptcy.................................38
58. Successors of Shareholders..........................................38
DIVIDENDS AND OTHER DISTRIBUTIONS............................................39
59. Declaration of dividends by the Board...............................39
60. Other distributions.................................................39
61. Reserve fund........................................................39
62. Deduction of amounts due to the Company.............................39
63. Unclaimed dividends.................................................39
64. No interest on dividends or distributions...........................39
CAPITALIZATION...............................................................40
65. Capitalization......................................................40
ACCOUNTS AND FINANCIAL STATEMENTS............................................40
66. Record of account...................................................40
67. Financial year end..................................................40
68. Financial statements................................................40
AUDIT........................................................................41
69. Appointment of Auditor..............................................41
70. Remuneration of Auditor.............................................41
71. Vacation of office of Auditor.......................................41
72. Access to books of the Company......................................41
73. Report of the Auditor...............................................41
NOTICES......................................................................42
iii
74. Form and effectiveness of notices...................................42
75. Notices to Directors and Shareholders...............................42
76. Notices to joint Shareholders.......................................42
77. Short notice to Directors...........................................42
78. Short notice to Shareholders........................................42
79. Waivers of notice...................................................43
80. Accidental omission of notice of general meeting....................43
WINDING-UP...................................................................43
81. Determination to liquidate..........................................43
82. Winding-up/distribution by liquidator...............................43
MISCELLANEOUS................................................................43
83. Alteration of Memorandum of Continuance and Bye-laws................43
84. Registered office...................................................44
85. The seal............................................................44
86. Certain Foreign Subsidiaries........................................44
87. Title without a written instrument..................................45
88. Overseas or branch registers........................................45
89. Proposals regarding two or more Directors...........................45
90. Approval of Amalgamation Agreement..................................45
91. Severability........................................................45
SCHEDULE - FORM A............................................................46
SCHEDULE - FORM B............................................................47
SCHEDULE - FORM C............................................................48
iv
B Y E - L A W S
---------------
OF
--
LEUCADIA NATIONAL LIMITED
-------------------------
1. Interpretation
(1) In these Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings
respectively:
(a) "1981 Act" means the Companies Act 1981 of Bermuda as amended
from time to time;
(b) "Auditor" includes any individual or partnership;
(c) "Bermuda" means the Islands of Bermuda;
(d) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in
accordance with the Companies Acts and these Bye-laws or the
Directors present at a meeting of Directors at which there is
a quorum;
(e) "Code" means the United States Internal Revenue Code of 1986,
as amended, or any United States federal statute then in
effect that has replaced such statute, and a reference to a
particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such
replacement United States federal statute;
(f) "Company" means the company for which these Bye-laws are
approved and confirmed;
(g) "Common Shares" shall have the meaning ascribed to it in
Bye-law 43;
(h) "Companies Acts" means every Bermuda statute from time to time
in force concerning companies, insofar as the same applies to
the Company;
(i) "Controlled Shares" in reference to any person means all
Common Shares and Preferred Shares directly, indirectly,
beneficially or constructively owned by such person within the
meaning of Section 958 of the Code;
(j) "Cumming Entity" means Ian M. Cumming, and any person whose
Common Shares would be treated as owned by Ian M. Cumming, and
any person who would be treated as owning the Common Shares
owned by Ian M. Cumming, in each of the latter two cases as a
result of the application of the constructive ownership rules
of Section 958 of the Code;
(k) "Director" means a director of the Company;
(l) "Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, or any United States federal statute then
in effect that has replaced such statute, and a reference to a
particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such
replacement United States federal statute;
(m) "Officer" means any person appointed by the Board to hold an
office in the Company;
(n) "Over-the-Threshold Common Shareholder" shall have the meaning
ascribed to it in Bye-law 45;
(o) "person" means an individual, a trust, estate, partnership,
limited liability company, limited liability partnership,
association, company, corporation, joint venture or other
legal or similar entity;
(p) "Preferred Shares" shall have the meaning ascribed to it in
Bye-law 43;
(q) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in Bye-law 24;
(r) "Register of Shareholders" means the Register of Shareholders
referred to in Bye-law 51;
(s) "Secretary" means the person appointed to perform any or all
the duties of secretary of the Company and includes any deputy
or assistant secretary;
(t) "Securities Act" means the United States Securities Act of
1933, as amended, or any United States federal statute then in
effect that has replaced such statute, and a reference to a
particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such
replacement United States federal statute;
(u) "Securities and Exchange Commission" means the Securities and
Exchange Commission of the United States;
(v) "Shareholder" means the person registered in the Register of
Shareholders as the holder of shares and, when two or more
persons are so registered as joint holders of shares, means
the person whose name stands first in the Register of
Shareholders as one of such joint holders or all of such
persons as the context so requires;
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(w) "Steinberg Entity" means Joseph S. Steinberg, and any person
whose Common Shares would be treated as owned by Joseph S.
Steinberg, and any person who would be treated as owning the
Common Shares owned by Joseph S. Steinberg, in each of the
latter two cases as a result of the application of the
constructive ownership rules of Section 958 of the Code;
(x) "these Bye-laws" means these Bye-laws in their present form or
as amended from time to time;
(y) "United States" shall mean the United States of America and
dependent territories or any part thereof;
(z) "U.S. Person", except as otherwise indicated, means an
individual who is a citizen or resident of the United States,
a corporation, partnership, limited liability company or
limited liability partnership created or organized under the
laws of the United States or any state thereof, or an estate
or trust, all of the income of which is includable in gross
income for United States federal income tax purposes,
regardless of its source.
(2) In these Bye-laws, where not inconsistent with the context:
(a) words denoting the plural number include the singular number
and vice versa;
(b) words denoting the masculine gender include the feminine
gender; and
(c) the word:
(i) "may" shall be construed as permissive;
(ii) "shall" shall be construed as imperative; and
(iii) unless otherwise provided herein words or expressions
defined in the Companies Acts shall bear the same
meaning in these Bye-laws.
(3) Expressions referring to writing or written shall, unless the contrary
intention appears, include facsimile, printing, lithography,
photography, electronic mail and other modes of representing words in a
visible form.
(4) Headings used in these Bye-laws are for convenience only and are not to
be used or relied upon in the construction hereof.
(5) In these Bye-laws, (a) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto; (b) the
word "Board" in the context of the exercise of any power contained in
these Bye-laws includes any committee consisting of one or more
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Directors, any Director holding executive office and any local or
divisional Board, manager or agent of the Company to which or, as the
case may be, to whom the power in question has been delegated; (c)
except where expressly provided by the terms of delegation, no power of
delegation shall be limited by the existence or the exercise of any
other power of delegation; and (d) except where expressly provided by
the terms of delegation, the delegation of a power shall not exclude
the concurrent exercise of that power by any other body or person who
is for the time being authorized to exercise it under these Bye-laws or
under another delegation of the powers.
BOARD OF DIRECTORS
2. Board of Directors
The business of the Company shall be managed and conducted by the
Board.
3. Management of the Company
In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws,
required to be exercised by the Company in general meeting subject,
nevertheless, to these Bye-laws, the provisions of any statute and to
such regulations as may be prescribed by the Company in general
meeting.
No regulation or alteration to these Bye-laws made by the Company in
general meeting shall invalidate any prior act of the Board which would
have been valid if that regulation or alteration had not been made.
The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.
The Board may exercise all the powers of the Company to discontinue the
Company in Bermuda and continue it to a named country or jurisdiction
outside Bermuda pursuant to Section 132G of the 1981 Act.
4. Power to appoint chief executive officer
The Board may from time to time appoint one or more Directors to the
office of chief executive officer of the Company (one of whom shall
also be the Chairman of the Board) who shall, subject to the control of
the Board, have general charge of the management of the affairs of the
Company.
5. Power to authorize specific actions
The Board may from time to time and at any time authorize any Director,
Officer or other person to act on behalf of the Company for any
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specific purpose and in connection therewith to execute any agreement,
document or instrument on behalf of the Company.
6. Power to appoint attorney
The Board may from time to time and at any time by power of attorney
appoint any company, firm, person or body of persons, whether nominated
directly or indirectly by the Board, to be an attorney of the Company
for such purposes and with such powers, authorities and discretions
(not exceeding those vested in or exercisable by the Board) and for
such period and subject to such conditions as it may think fit and any
such power of attorney may contain such provisions for the protection
and convenience of persons dealing with any such attorney as the Board
may think fit and may also authorize any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the
attorney. Such attorney may, if so authorized under the seal of the
Company, execute any deed or instrument under such attorney's personal
seal with the same effect as the affixation of the seal of the Company.
7. Power to appoint and dismiss employees
The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and
determine their duties.
8. Power to delegate to a committee
The Board may appoint one or more Board committees and may delegate any
of its powers to any such committee. Without limiting the foregoing,
such committees may include:
(a) an Executive Committee, to consist of the Chairman of the
Board, who shall be Chairman of the Executive Committee, and
such number of other Directors as shall be designated from
time to time by resolution of the Board. The Executive
Committee shall have and may exercise when the Board is not in
session, all authority of the Board, except as may be limited
by Bermuda law. The Board may designate one or more Directors
as alternate members of such committee who may replace any
absent member or members at any meeting of the Executive
Committee;
(b) an Audit Committee, to consist of such number of Directors as
shall be designated from time to time by resolution of the
Board, which number initially shall be three, none of whom are
members of management, and one of whom shall be designated by
the Board as Chairman of the Audit Committee. The Audit
Committee shall have responsibility for recommending to the
Board the retention or replacement of the independent Auditor
of the Company; for administration of the internal audit
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function of the Company; and for such other matters pertaining
to the internal control, audit, or reporting of the financial
affairs of the company as the Audit Committee, in its sole
discretion, deems advisable and necessary;
(c) a Nominating Committee, which shall, among other things,
propose to the Shareholders or to continuing Directors, before
any election of Directors by the Shareholders or the filling
of any vacancy by the Board, a slate of director candidates
equal in number to the vacancies to be filled. The Nominating
Committee shall have such number of Directors as shall be
designated from time to time by resolution of the Board, which
number initially shall be three, one of whom shall be
designated by the Board as the Chairman of the Nominating
Committee;
(d) an Option Committee, which shall, among other things,
administer the terms of the Company's stock option plans; and
(e) an Employee Benefits Committee, which shall, among other
things, review compensation of the Chairman of the Board and
the President, and employee benefit and incentive plans.
All Board committees shall conform to such directions as the Board
shall impose on them, provided that each member shall have one (1)
vote, and each committee shall have the right as it deems appropriate
to retain outside experts. All committees are authorized to act by
unanimous written consent, and each committee may adopt rules for the
conduct of its affairs, including the place, time, and notice of
meetings, as shall be advisable and as shall not be inconsistent with
these Bye-laws or with any applicable resolution adopted by the Board.
Each committee shall cause minutes to be made of all meetings of such
committee and of the attendance thereat and shall cause such minutes
and copies of resolutions adopted by unanimous consent to be promptly
inscribed or incorporated by the Secretary in the minute book. The
Board shall have the power at any time to fill vacancies in, to change
the membership of, or to dissolve any committee. Any committee of the
Board may from time to time and at any time, with respect to any matter
within the authority of such committee, authorize any Director, Officer
or other person to act on behalf of the Company for any specific
purpose and in connection therewith to execute any agreement, document
or instrument on behalf of the Company.
9. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow money,
to assume, guarantee or otherwise become directly or indirectly liable
for indebtedness for borrowed money, and to mortgage or charge its
undertaking, property and uncalled capital, or any part thereof, and
may issue debentures, debenture stock and other securities whether
6
outright or as security for any debt, liability or obligation of the
Company or any third party.
10. Election of Directors
The number of Directors constituting the Board shall be not less than
three (3), the exact number to be determined from time to time by
resolution of the Board (provided that if no such resolution shall be
in effect the number of Directors shall be six (6)). The Board shall
not be divided into classes.
Notwithstanding any other provision of this Bye-law, no person shall
be elected as a Director, other than persons nominated by the Board
or a committee thereof, unless advance notice of the nomination of
such person shall have been given to the Company in the manner
provided in Bye-law 11.
11. Nominations proposed by Shareholders
If a Shareholder desires to nominate one or more persons for election
as Directors at any general meeting duly called for the election of
Directors, written notice of such Shareholder's intent to make such a
nomination must be received by the Secretary at the registered office
of the Company (1) with respect to an election to be held at an
annual general meeting of Shareholders, (a) not less than one hundred
twenty (120) days prior to the first anniversary date of the
Company's proxy statement in connection with the last annual general
meeting or (b) if no annual general meeting was held in the previous
year, not less than a reasonable time, as determined by the Board,
prior to the date of the applicable annual general meeting and (2)
with respect to an election to be held at a special general meeting
of Shareholders, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
Shareholders. Such notice shall set forth (i) the name and address,
as it appears in the Register of Shareholders, of the Shareholder who
intends to make such nomination; (ii) a representation that the
Shareholder is a holder of record of shares of the Company entitled
to vote at such meeting and intends to appear in person or by proxy
at the meeting to make such nomination; (iii) the class and number of
shares of the Company which are held by the Shareholder; (iv) the
name and address of each person to be nominated; (v) a description of
all arrangements or understandings between the Shareholder and any
such nominee and any other person or persons (naming such person or
persons) pursuant to which such nomination is to be made by the
Shareholder; (vi) such other information regarding any such nominee
proposed by such Shareholder as would be required to be included in a
proxy statement filed pursuant to Regulation 14A under the Exchange
Act, whether or not the Company is then subject to such Regulation;
and (vii) the consent of any such nominee to serve as a Director, if
so elected. The Company may require any proposed nominee to furnish
such other information as may reasonably be required by the Company
to determine the eligibility of such proposed nominee to serve as a
Director of the Company. The Chairman of such general meeting shall,
7
if the facts warrant, refuse to acknowledge a nomination that is not
made in compliance with the procedure specified in this Bye-law, and
any such nomination not properly brought before the meeting shall not
be considered.
12. Defects in appointment of Directors
All acts done bona fide by any meeting of the Board or by a committee
of the Board or by any person acting as a Director shall,
notwithstanding that it be afterwards discovered that there was some
defect in the appointment of any Director or person acting as
aforesaid, or that they or any of them were disqualified, be as valid
as if every such person had been duly appointed and was qualified to
be a Director.
13. Removal of Directors
Any Director may be removed for cause by the affirmative vote of a
majority of Directors present at a meeting at which a quorum is
present. Any Director may be removed by the Shareholders only for
cause and only by the affirmative vote of holders of a majority of
the Common Shares of the Company voting on the removal.
14. Vacancies on the Board
The Board shall have the power from time to time and at any time, by
the affirmative vote of a majority of Directors present at a meeting
at which a quorum is present, to appoint any person as a Director to
fill a vacancy on the Board. If the number of Directors then in
office is less than a quorum, such appointment shall be made by the
Shareholders. A Director so appointed shall hold office until the
next annual general meeting or until such Director's successor is
elected or appointed or such Director's office is otherwise vacated.
The Board may act notwithstanding any vacancy in its number but, if
and for so long as its number is reduced below the number fixed by
these Bye-laws as the quorum necessary for the transaction of
business at meetings of the Board, the continuing Directors or
Director may act only for the purpose of (i) summoning a general
meeting of the Company or (ii) preserving the assets of the Company.
The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-laws;
(b) is prohibited from being a Director by Bermuda law;
(c) is or becomes of unsound mind or dies; or
(d) resigns his or her office by notice in writing to the
Company.
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15. Summoning of meetings of the Board
The Chairman or Deputy Chairman, or the President, or any two (2)
Directors may as they deem necessary or appropriate, and the
Secretary on the requisition of the Chairman or Deputy Chairman, or
the President, or any two (2) Directors shall, at any time summon a
meeting of the Board on reasonable notice to each Director; provided,
that the Board shall hold at least two meetings each year.
16. Meetings of the Board
(a) The quorum necessary for the transaction of business shall
be one-third of the Directors then in office.
(b) Directors may participate in any meeting of the Board by
means of such telephone, electronic or other communication
facilities as permit all persons participating in the
meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall
constitute presence in person at such meeting.
(c) The Directors shall elect one of their number to be
Chairman of the Board (who shall also be the chief
executive officer) and may elect one or more others to be
Deputy Chairman of the Board.
(d) A resolution put to the vote at a meeting of the Board
shall be carried by the affirmative vote of more than
fifty percent (50%) of the votes of the Directors present
at a duly constituted meeting at which a quorum is present
and acting throughout unless otherwise provided by these
Bye-laws or by Bermuda law.
(e) Meetings of the Directors may be held within or outside of
Bermuda.
17. Unanimous written resolutions
A resolution in writing signed by all the Directors, which may be in
counterparts, shall be as valid as if it had been passed at a meeting
of the Board duly called and constituted. Such resolution shall be
deemed to be adopted at the place where, and at the time when, the
last signature of a Director is affixed thereto.
18. Contracts and disclosure of Directors' interests
(a) A Director may hold any other office or place of profit
with the Company (except that of Auditor) in conjunction
with his office of Director for such period and upon such
terms as the Board may determine, and may be paid such
extra remuneration therefor (whether by way of salary,
commission, participation in profits or otherwise) as the
Board may determine, and such extra remuneration shall be
in addition to any remuneration provided for by or
pursuant to any other Bye-Law.
9
(b) A Director may act by himself or his firm in a
professional capacity for the Company (otherwise than as
Auditor) and he or his firm shall be entitled to
remuneration for professional services as if he were not a
Director.
(c) Subject to the provisions of the Companies Acts, a
Director may notwithstanding his office be a party to, or
otherwise interested in, any transaction or arrangement
with the Company or in which the Company is otherwise
interested; and be a director or other officer of, or
employed by, or a party to any transaction or arrangement
with, or otherwise interested in, any body corporate
promoted by the Company or in which the Company is
interested. The Board may also cause the voting power
conferred by the shares in any other company held or owned
by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof
in favour of any resolution appointing the Directors or
any of them to be directors or officers of such other
company, or voting or providing for the payment of
remuneration to the directors or officers of such other
company.
(d) So long as, where it is necessary, he declares the nature
of his interest at the first opportunity at a meeting of
the Board or by writing to the Directors as required by
the Companies Acts, a Director shall not by reason of his
office be accountable to the Company for any benefit which
he derives from any office or employment to which these
Bye-Laws allow him to be appointed or from any transaction
or arrangement in which these Bye-Laws allow him to be
interested, and no such transaction or arrangement shall
be liable to be avoided on the ground of any interest or
benefit.
(e) A Director who has disclosed his interest in a transaction
or arrangement with the Company, or in which the Company
is otherwise interested, may be counted in the quorum and
vote at any meeting at which such transaction or
arrangement is considered by the Board.
(f) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a
Director or Officer declaring that he is a director or
officer or has an interest in a person and is to be
regarded as interested in any transaction or arrangement
made with that person, shall be a sufficient declaration
of interest in relation to any transaction or arrangement
so made.
(g) The Shareholders may, in general or with respect to any
particular vote of the Board, remove any or all of the
restrictions or requirements contained in this Bye-law,
and may ratify any action taken by the Board in
contravention of this Bye-law, whereupon such action shall
be deemed to be duly authorized.
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19. Remuneration of Directors
The remuneration (if any) of the Directors shall be determined by the
Board and shall be deemed to accrue from day to day. The Directors
shall be reimbursed for all travel, hotel and other expenses which
are reasonable and properly incurred by them in attending and
returning from meetings of the Board, any committee appointed by the
Board, general meetings of the Company, or in connection with the
business of the Company or their duties as Directors generally.
A Director may hold any other office or place of profit under the
Company (other than the office of Auditor) in conjunction with his
office of Director for such period on such terms as to remuneration
and otherwise as the Directors may determine.
20. Other interests of Directors
A Director of the Company may be or become a director or other
officer of or otherwise interested in any company promoted by the
Company or in which the Company may be interested as member or
otherwise, and no such Director shall be accountable to the Company
for any remuneration or other benefits received by him as a director
or officer of, or from his interest in, such other company. Subject
to the provisions of these Bye-laws, the Directors may also cause the
voting power conferred by the shares in any other company held or
owned by the Company to be exercised in such manner in all respects
as the Board thinks fit, including the exercise thereof in favour of
any resolution appointing the Directors or any of them to be
directors or officers of such other company, or voting or providing
for the payment of remuneration to the directors or officers of such
other company.
OFFICERS
21. Officers of the Company
The Officers, who shall be appointed by the Board, shall consist of a
Chairman (who shall also be the chief executive officer), one or more
Deputy Chairmen, a President (who shall also be the chief operating
officer), one or more Vice Presidents (one or more of whom may be
designated Executive Vice President, one or more of whom may be
designated Senior Vice President and one of whom may be designated
Vice President and Chief Financial Officer), a Treasurer, a
Secretary, a Comptroller (who shall also be the chief accounting
officer) and such other Officers as the Board may from time to time
determine to be necessary or advisable in the conduct of the affairs
of the Company, including without limitation one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries. The same person may hold two (2) or more
offices in the Company, except no person may hold the offices of
President and Secretary, Chairman and Deputy Chairman or President
and Vice President at the same time. No Deputy Chairman shall by
11
virtue of such office have any executive authority on behalf of the
Company. The Officers shall receive such remuneration as the Board
may from time to time determine. The Officers shall be appointed
annually and any or all Officers may be removed and replaced by the
Board at any time in the Board's sole discretion. The Board shall
also have the authority to grant one or more honorary titles, such as
"Emeritas", to Officers of the Company.
22. Duties of Officers
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated
to them by the Board from time to time. Without limiting the
foregoing, unless otherwise determined by the Board, the following
Officers shall have the following duties, in addition to any other
duties as may be delegated to them by the Board from time to time:
(a) the Chairman shall be the chief executive officer of the
Company and, subject to the control of the Board, shall
have general charge of the management of the affairs of
the Company;
(b) the President shall be the chief operating officer of the
Company and, subject to the direction of the Board and of
the Chairman of the Board, shall direct and supervise the
administration of the business and affairs of the Company;
(c) the Secretary or an Assistant Secretary shall (i) keep the
minutes of all meetings of the Board and of the
Shareholders of the Company, (ii) give or cause to be
given notice of all meetings of the Shareholders and of
such meetings of the Board as may require notice and (iii)
keep in safe custody the seal of the Company and shall
affix the same to all instruments requiring it when
authorized by the Board, the Chairman of the Board or the
President; and
(d) the Comptroller shall be the chief accounting officer of
the Company and shall be in charge of its books of account
and accounting records and of its accounting procedures.
23. Chairman of meetings
Unless otherwise agreed by a majority of those attending and entitled
to attend and vote thereat, the Chairman shall act as chairman at all
meetings of the Shareholders and of the Board at which such person is
present. In his absence, a Deputy Chairman, if present, shall act as
chairman and in the absence of all of them a chairman shall be
appointed or elected by those present at the meeting and entitled to
vote.
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24. Register of Directors and Officers
The Board shall cause to be kept in one or more books at the
registered office of the Company a Register of Directors and Officers
and shall enter therein the particulars required by the Companies
Acts.
The Register of Directors and Officers shall be open to inspection by
Shareholders and other entitled persons at the office of the Company
on every business day, subject to such reasonable restrictions as the
Board may impose, so that not less than two (2) hours in each
business day is allowed for inspection.
25. Absence or incapacity of certain Officers
In the absence or incapacity of the Chairman of the Board, the Deputy
Chairmen, if any, in order of seniority determined by time of
appointment to office, shall preside over meetings of the Board. In
the absence or incapacity of the Chairman of the Board, the President
shall exercise all of the powers and duties of the Chairman of the
Board, provided that he shall preside at meetings of the Board only
in the absence or incapacity of all the Deputy Chairmen, if any, of
the Board. In the absence or incapacity of the President, the
Executive Vice Presidents, in order of seniority determined by time
of appointment to office, shall exercise all of the powers and duties
of the President.
MINUTES
26. Obligations of Board to keep minutes
The Board shall cause minutes to be duly entered in books provided
for the purpose:
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of
the Board and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of
the Shareholders, meetings of the Board, meetings of
managers and meetings of committees appointed by the
Board.
INDEMNITY; EXCULPATION; INSURANCE; GRATUITIES AND PENSIONS
27. Indemnity; Exculpation; Insurance; Gratuities and Pensions
(a) The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, including all appeals (other than an
action, suit or proceeding by or in the right of the
13
Company) by reason of the fact that he is or was a
Director, Officer or committee member, or is or was
serving at the request of the Company as a director or
officer of another company, corporation, partnership,
limited liability company, limited liability partnership,
joint venture, trust or other enterprise, against expenses
(including, without limitation, reasonable professional
fees, expert witness fees and attorneys' fees), judgments,
decrees, fines, penalties and amounts paid in settlement
actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with
respect to any criminal action, suit or proceeding, had no
reasonable cause to believe his conduct was unlawful,
except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall
have been finally adjudged to be liable for fraud or
dishonesty in the performance of his duty to the Company.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Company,
and, with respect to any criminal action, suit or
proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, including all appeals, by or in the right of
the Company to procure a judgment in its favour by reason
of the fact that he is or was a Director, Officer or
committee member, or is or was serving at the request of
the Company as a director or officer of another company,
corporation, partnership, limited liability company,
limited liability partnership, joint venture, trust or
other enterprise, against expenses (including, without
limitation, reasonable professional fees, expert witness
fees and attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of
such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and except
that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have
been finally adjudged to be liable for fraud or dishonesty
in the performance of his duty to the Company, unless and
only to the extent that the court in which such action,
suit or proceeding was brought, or any other court of
competent jurisdiction, shall determine upon application
that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
14
(c) The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, including all appeals, by or in the right of
the Company to procure a judgment in its favour by reason
of the fact that he is or was a Director, Officer or
committee member, or is or was serving at the request of
the Company as a director or officer of another company,
corporation, partnership, limited liability company,
limited liability partnership, joint venture, trust or
other enterprise, against judgments, decrees, fines,
penalties and amounts paid in settlement actually and
reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to
the best interests of the Company, but only to the extent
that a judgment is given in favour of such person, he is
acquitted or a court determines upon application that, in
view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity.
(d) The purpose of this Bye-law as a whole is to provide the
broadest indemnity allowable at law, and to the extent any
indemnification hereunder is prohibited, unenforceable or
not authorized under applicable law, it is the intent of
this Bye-law that such indemnification be interpreted as
broadly as possible without invalidating the remaining
provisions hereof. Specifically, to the extent prohibited
by Bermuda law, these Bye-laws shall not result in
indemnification of any person to the extent he engaged in
fraud or dishonesty.
(e) If any person has been successful on the merits or
otherwise in defense of any action, suit or proceeding for
which he is entitled to indemnification pursuant to
Bye-law 27(a), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(f) Any indemnification under Bye-law 27(a), unless ordered by
a court, shall be made by the Company only as authorized
in the specific case upon a determination that
indemnification of such person is proper in the
circumstances because such person has met the applicable
standard of conduct set forth in Bye-law 27(a). Such
determination shall be made (1) by the Board by a majority
vote of Directors who were not parties to such action,
suit or proceeding (even if less than a quorum), or (2) at
the request of the Board, by independent legal counsel in
a written opinion, or (3) by the Shareholders. If any
person is entitled to indemnification under Bye-law 27(a)
for a portion of the expenses (including attorneys' fees),
judgments, decrees, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him in
connection with an action, suit or proceeding, the Company
shall indemnify such person only as to the portion to
which he is entitled.
15
(g) Expenses (including attorneys' fees) actually and
reasonably incurred by any person in defending any civil,
criminal, administrative or investigative action, suit or
proceeding or threat thereof shall be paid by the Company
in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall be
ultimately determined that he is not entitled to be
indemnified by the Company as authorized in these Bye-laws
or otherwise pursuant to applicable law; provided,
however, that if it is determined by -------- either (1) a
majority vote of Directors who were not parties to such
action, suit or proceeding, or (2) at the request of the
Board, by independent legal counsel in a written opinion,
that there is no reasonable basis to believe that such
person is entitled to be indemnified by the Company as
authorized in these Bye-laws or otherwise pursuant to
applicable law, then no expense shall be advanced in
accordance with this Bye-law 27(g).
(h) The indemnification and advancement of expenses provided
in these Bye-laws shall not be deemed exclusive of any
other rights to which those seeking indemnification and
advancement of expenses may now or hereafter be entitled
under any statute, agreement, vote of Shareholders or
otherwise, both as to action in an official capacity and
as to action in another capacity while holding such
office.
(i) The Company shall have power to purchase and maintain
insurance on behalf of any person who is or was a
Director, Officer or committee member, employee or agent
of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of
another company, corporation, partnership, limited
liability company, limited liability partnership, joint
venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any capacity,
or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such
liability under the provisions of these Bye-laws or under
law.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Bye-law shall, unless
otherwise provided when authorized or ratified, continue
as to a person who has ceased to hold the position for
which he is entitled to be indemnified or advanced
expenses and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The indemnification provided for in this Bye-law shall
extend to any person acting as a Director, Officer,
committee member, or designee of the Company to another
entity as described in 27(a) and (b) above, if such person
is so acting in the reasonable belief that he/she has been
so appointed or elected notwithstanding any defect in such
appointment or election.
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(l) In order to induce persons to serve as Directors, no
Director shall be personally liable to the Company or its
Shareholders for damages for any breach of duty as a
director, except for any matter in respect of which such
director shall be liable by reason that, in addition to
any and all other requirements for such liability, there
shall have been a judgment or other final adjudication
adverse to him that establishes that his acts or omissions
were fraudulent or dishonest or that he personally gained
in fact a financial profit or other advantage to which he
was not legally entitled. Neither the amendment nor repeal
of this Bye-law shall eliminate or reduce the effect of
this Bye-law in respect to any matter occurring, or any
cause of action, suit or claim that, but for this Bye-law,
would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision. This Bye-law shall
neither eliminate nor limit the liability of a Director
for any act or omission occurring prior to the adoption of
this Bye-law. If Bermuda law is amended hereafter to
expand or limit, without specific shareholder approval
therefor, the liability of a director, then the liability
of a Director of the Corporation shall be expanded to the
extent required or limited to the extent permitted by
Bermuda law, as so amended.
(m) The Board may (by establishment of or maintenance of
schemes or otherwise) provide benefits, whether by the
payment of gratuities or pensions or by insurance or
otherwise, for any past or present Director or employee of
the Company or any of its subsidiaries or any body
corporate associated with, or any business acquired by,
any of them, and for any member of his family (including a
spouse and a former spouse) or any person who is or was
dependent on him, and may (as well before as after he
ceases to hold such office or employment) contribute to
any fund and pay premiums for the purchase or provision of
any such benefit. No Director or former Director shall be
accountable to the Company or the Shareholders for any
benefit provided pursuant to this Bye-Law and the receipt
of any such benefit shall not disqualify any person from
being or becoming a Director of the Company.
MEETINGS
28. Annual general meeting; notice
The annual general meeting of the Company shall be held at such time
and place as the Board shall appoint. Annual general meetings may be
held within or outside of Bermuda. Written notice of such meeting
stating the date, place and time at which the meeting is to be held,
that the election of Directors will take place thereat, and as far as
practicable, the other business to be conducted at the meeting shall
be given to each Shareholder not less than ten (10) days nor more
than fifty (50) days before the date of such meeting.
17
29. Special general meeting; notice
The Board may convene a special general meeting of the Company
whenever in its judgment such a meeting is necessary or appropriate.
Special general meetings may be held within or outside of Bermuda.
Written notice of such meeting stating the date, place and the time
at which the meeting is to be held and the general nature of the
business to be considered at the meeting shall be given to each
Shareholder not less than ten (10) days nor more than fifty (50) days
before the date of such meeting.
30. Meeting called on requisition of Shareholders
Notwithstanding anything herein, the Board shall, on the requisition
of Shareholders holding of record at the date of the deposit of the
requisition not less than one-tenth of such of the paid-up share
capital of the Company as at the date of the deposit carries the
right to vote at general meetings of the Company, forthwith proceed
to convene a special general meeting of the Company and the
provisions of Section 74 of the 1981 Act shall apply.
31. Postponement of meetings
The Board may postpone any general meeting called in accordance with
the provisions of these Bye-laws (other than a meeting requisitioned
under Bye-law 30) provided that notice of postponement is given to
each Shareholder before the time for such meeting. Fresh notice of
the date, time and place for the postponed meeting shall be given to
each Shareholder in accordance with the provisions of these Bye-laws.
32. Quorum for general meeting
At any general meeting of the Company, two (2) or more persons
present in person and representing in person or by proxy in excess of
fifty percent (50%) of the total issued and outstanding Common Shares
throughout the meeting shall form a quorum for the transaction of
business (except as otherwise provided by the Companies Acts),
provided that if the Company shall at any time have only one (1)
Shareholder, one (1) Shareholder present in person or by proxy shall
form a quorum for the transaction of business at any general meeting
of the Company held during such time. If within half an hour from the
time appointed for the meeting a quorum is not present, the meeting
shall stand adjourned to the same day one (1) week later, at the same
time and place or to such other day, time or place as the Board may
determine. When a specified item of business is required to be voted
on by a class or a series, voting as a class, the holders of a
majority of shares of such class or series present in person or by
proxy shall constitute a quorum for the transaction of such specified
item of business.
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33. Adjournment of meetings
The chairman of a general meeting may, with the consent of the
Shareholders at any general meeting at which a quorum is present (and
shall if so directed), adjourn the meeting. Unless the meeting is
adjourned to a specific date and time, fresh notice of the date, time
and place for the resumption of the adjourned meeting shall be given
to each Shareholder in accordance with the provisions of these
Bye-laws.
34. Attendance at meetings
Shareholders may participate in any general meeting by means of such
telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and participation in such a
meeting shall constitute presence in person at such meeting.
35. Attendance of Directors
The Directors of the Company shall be entitled to receive notice of
and to attend and be heard at any general meeting.
36. Voting at meetings
(a) Subject to the provisions of the Companies Acts and these
Bye-laws, any question proposed for the consideration of
the Shareholders at any general meeting shall be decided
by the affirmative vote of more than fifty percent (50%)
of the votes cast in accordance with the provisions of
these Bye-laws.
(b) No Shareholder shall, unless the Board otherwise
determines, be entitled to vote at any general meeting
unless all calls or other sums presently payable by him in
respect of shares in the Company have been paid.
37. Decision of chairman
At any general meeting a declaration by the chairman of the meeting
that a question proposed for consideration has been carried, or
carried unanimously, or by a particular majority, or lost, and an
entry to that effect in a book containing the minutes of the
proceedings of the Company shall, subject to the provisions of these
Bye-laws, be conclusive evidence of that fact.
38. Demand for a poll
(a) Notwithstanding the provisions of the immediately
preceding Bye-law, at any general meeting of the Company,
in respect of any question proposed for the consideration
19
of the Shareholders, a poll may be demanded by any of the
following persons:
(1) the chairman of such meeting;
(2) at least three (3) Shareholders present in
person or represented by proxy;
(3) any Shareholder or Shareholders present in
person or represented by proxy and holding
between them not less than one-tenth of the
total voting power of all the Shareholders
having the right to vote at such meeting; or
(4) any Shareholder or Shareholders present in
person or represented by proxy holding Common
Shares for which an aggregate sum has been paid
up equal to not less than one-tenth of the
total sum paid up on all Common Shares.
(b) Where, in accordance with the provisions of subparagraph
(a) of this Bye-law, a poll is demanded, subject to any
rights or restrictions for the time being lawfully
attached to any class of shares and subject to the
provisions of these Bye-laws, every Shareholder present in
person or by proxy at such meeting shall have one (1) vote
for each Common Share of which such person is the holder
or for which such person holds a proxy and such votes
shall be counted in the manner set out in subparagraph (d)
of this Bye-law or in the case of a general meeting at
which one (1) or more Shareholders are present by
telephone in such manner as the chairman of the meeting
may direct and the result of such poll shall be deemed to
be the resolution of the meeting at which the poll was
demanded and shall replace any previous resolution upon
the same matter.
(c) A poll demanded in accordance with the provisions of
subparagraph (a) of this Bye-law, for the purpose of
electing a chairman or on a question of adjournment, shall
be taken forthwith, and a poll demanded on any other
question shall be taken in such manner and at such time at
such meeting as the chairman may direct, and any business
other than that upon which a poll has been demanded may be
proceeded with pending the taking of the poll.
(d) Where a vote is taken by poll, each Shareholder present in
person or by proxy and entitled to vote shall be furnished
with a ballot on which such person shall record his or her
vote in such manner as shall be determined at the meeting
having regard to the nature of the question on which the
vote is taken, and each ballot paper shall be signed or
initialed or otherwise marked so as to identify the voter.
At the conclusion of the poll, the ballot papers shall be
examined and counted by a committee of not less than two
20
(2) Shareholders, proxy holders or inspectors appointed by
the chairman for the purpose and the result of the poll
shall be declared by the chairman.
39. Seniority of joint holders voting
In the case of joint holders the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this
purpose seniority shall be determined by the order in which the names
stand in the Register of Shareholders.
40. Instrument of proxy
The instrument appointing a proxy shall be in writing in the form of
Form "A" in the Schedule hereto (or as near thereto as circumstances
admit, and modified as necessary to comply with any requirements of
the Securities and Exchange Commission), under the hand of the
appointor or of the appointor's attorney duly authorized in writing,
or if the appointor is a corporation, either under its seal or under
the hand of a duly authorized officer or attorney. The decision of
the chairman of any general meeting as to the validity of any
instrument of proxy shall be final.
41. Representation of corporations at meetings
A corporation which is a Shareholder may, by written instrument,
authorize such person as it determines to act as its representative
at any meeting of the Shareholders and the person so authorized shall
be entitled to exercise the same powers on behalf of the corporation
which such person represents as that corporation could exercise if it
were an individual Shareholder. Notwithstanding the foregoing, the
chairman of the meeting may accept such assurances as he or she
determines as to the right of any person to attend and vote at
general meetings on behalf of a corporation which is a Shareholder.
42. Submission by Shareholder of business to an annual general meeting
In order to properly submit any business to an annual general meeting
of Shareholders, a Shareholder must give timely notice in writing to
the Secretary of the Company of such Shareholder's intention to
present such business. To be considered timely, a Shareholder's
notice must be delivered, either in person or by United States or
other certified mail, postage prepaid, and received at the principal
executive office of the Company, not less than one hundred twenty
(120) days prior to the first anniversary date of the Company's proxy
statement in connection with the last annual general meeting or if no
annual general meeting was held in the previous year, not less than a
reasonable time, as determined by the Board, prior to the date of the
applicable annual general meeting.
21
Each notice to the Secretary shall set forth (i) the name and
address, as it appears in the Register of Shareholders, of the
Shareholder; (ii) a representation that the Shareholder is a holder
of record of shares of the Company entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to make
such nomination or submission; (iii) the class and number of shares
of the Company which are held by the Shareholder; (iv) a description
of the proposal or proposals to be presented, including the complete
text of any resolutions to be presented at the meeting and the
reasons for conducting such business at the meeting and (v) any
material interest of the Shareholder in the business to be submitted
at the meeting. In addition, the Shareholder shall promptly provide
any other information reasonably requested by the Company.
The presiding officer of the meeting may, if the facts warrant,
determine that a proposal was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective proposal shall be
disregarded.
Notwithstanding the foregoing provisions of this Bye-law, a
Shareholder who seeks to have any proposal included in the Company's
proxy statement shall comply with all applicable laws of Bermuda and
the requirements of the rules and regulations promulgated by the
Securities and Exchange Commission.
SHARE CAPITAL AND SHARES
43. Rights of shares
(a) The share capital of the Company shall be US$156,000,000
divided into two (2) classes of shares consisting of
156,000,000 shares of par value U.S. $1.00 divided into
(i) 150,000,000 common shares (the "Common Shares") and
(ii) 6,000,000 preferred shares (the "Preferred Shares").
(b) Subject to the provisions of these Bye-laws, the holders
of Common Shares shall:
(1) be entitled to one (1) vote per Common Share;
(2) be entitled to such dividends as the Board may
from time to time declare;
(3) in the event of any liquidation, dissolution or
other winding-up of the Company, whether
voluntary or involuntary, and after the
holders, if any, of the Preferred Shares shall
have been paid in full the amounts to which
they respectively shall be entitled, or an
amount sufficient to pay the aggregate amount
to which such holders shall be entitled shall
have been deposited in trust with a bank or
trust company having its principal office in
the Borough of Manhattan, City, County and
22
State of New York, having a capital, undivided
profits and surplus aggregating at least
$50,000,000, for the benefit of the holders of
the Preferred Shares, be entitled to the
remaining net assets of the Company on a pro
rata basis; and
(4) generally be entitled to enjoy all of the
rights attaching to shares.
(c) The Board is authorized, subject to limitations prescribed
by law and subject to Bye-laws 45 and 55, to issue
Preferred Shares in series, to establish from time to time
the number of Preferred Shares to be included in each such
series, and to fix the designation, powers, preferences
and rights of the Preferred Shares of each such series and
the qualifications, limitations or restrictions thereof.
The terms of any series of Preferred Shares shall be set
forth in a Certificate of Designation in the minutes of
the Company.
The authority of the Board with respect to each series
shall include, but not be limited to, determination of the
following, subject to Bye-laws 45 and 55:
(1) The number of Preferred Shares constituting
that series and the distinctive designation of
that series;
(2) The rate of dividend, and whether (and if so,
on what terms and conditions) dividends shall
be cumulative (and, if so, whether unpaid
dividends shall compound or accrue interest) or
shall be payable in preference or in any other
relation to the dividends payable on any other
class or classes of shares or any other series
of the Preferred Shares;
(3) Whether that series shall have voting rights in
addition to the voting rights provided by law
and, if so, the terms and extent of such voting
rights;
(4) Whether the Preferred Shares may be redeemed
and, if so, the terms and conditions on which
they may be redeemed (including, without
limitation, the dates upon or after which they
may be redeemed and the price or prices at
which they may be redeemed, which price or
prices may be different in different
circumstances or at different redemption
dates);
(5) Whether the Preferred Shares shall be issued
with the privilege of conversion or exchange
and, if so, the terms and conditions of such
conversion or exchange (including without
limitation the price or prices or the rate or
rates of conversion or exchange or any terms
for adjustment thereof);
23
(6) The amounts, if any, payable upon the Preferred
Shares in the event of voluntary liquidation,
dissolution or winding up of the Company in
preference of shares of any other class or
series and whether the Preferred Shares shall
be entitled to participate generally in
distributions on the Common Shares under such
circumstances;
(7) The amounts, if any, payable upon the Preferred
Shares in the event of involuntary liquidation,
dissolution or winding up of the Company in
preference of shares of any other class or
series and whether the Preferred Shares shall
be entitled to participate generally in
distributions on the Common Shares under such
circumstances;
(8) Sinking fund provisions, if any, for the
redemption or purchase of the Preferred Shares
(the term "sinking fund" being understood to
include any similar fund, however designated);
and
(9) Any other relative rights, preferences,
limitations and powers of that series.
Subject to the Companies Acts and to any confirmation or
consent required by law or these Bye-Laws, the Company may
by resolution from time to time convert any Preferred
Shares into redeemable Preferred Shares.
44. Power to issue shares
(a) Subject to the provisions of these Bye-laws, the unissued
shares of the Company (whether forming part of the
original share capital or any increased share capital)
shall be at the disposal of the Board, which may issue,
offer, allot, exchange or otherwise dispose of shares, or
options, warrants or other rights to purchase shares or
securities convertible into or exchangeable for shares
(including any employee benefit plan providing for the
issuance of shares or options or rights in respect
thereof), at such times, for such consideration and on
such terms and conditions as it may determine (including,
without limitation, such preferred or other special rights
or restrictions with respect to dividend, voting,
liquidation or other rights of the shares as may be
determined by the Board).
(b) The Board shall, in connection with the issue of any
share, have the power to pay such commissions and
brokerage and/or other fees and charges as may be
permitted by law.
(c) The Company shall not give, whether directly or
indirectly, whether by means of loan, guarantee, provision
of security or otherwise, any financial assistance for the
24
purpose of a purchase or subscription made or to be made
by any person of or for any shares, but nothing in this
Bye-law shall prohibit transactions mentioned in Sections
39A, 39B and 39C of the 1981 Act.
(d) Any Preferred Shares of any series which have been
redeemed or which, if convertible or exchangeable, have
been converted into or exchanged for shares of any other
class or classes shall have the status of authorized and
unissued Preferred Shares of the same series and may be
reissued as a part of the series of which they were
originally a part or may be reclassified and reissued as
part of a new series of Preferred Shares to be created by
resolution or resolutions of the Board or as part of any
other series of Preferred Shares, all subject to the
conditions and the restrictions on issuance set forth in
the resolution or resolutions adopted by the Board
providing for the issue of any series of Preferred Shares.
45. Voting Cut-Back; Purchase of shares by Company or its assignee(s)
(a) Exercise of power to purchase shares of the Company
The Board may, at its discretion and without the sanction
of a resolution, authorise the purchase by the Company of
its own shares, of any class, at any price (whether at par
or above or below par), and so that any shares to be so
purchased may be selected in any manner whatsoever, upon
such terms as the Board may in its discretion determine,
provided that such purchase is effected in accordance with
the provisions of the Companies Acts.
(b) Over-the-Threshold Common Shareholders
(i) Subject to the provisions of subsection (ii) below, if
and so long as the Controlled Shares of any person would,
upon giving effect to the principle that holders of Common
Shares shall have one vote for each Common Share so
registered, confer upon any such person ten percent (10%)
or more of the votes that may be cast by all holders of
Common Shares of the Company (any such person being
referred to as an "Over-the-Threshold Common
Shareholder"), each Controlled Share shall confer only a
fraction of a vote such that the aggregate votes to which
such Controlled Shares are entitled after application of
the Cut-back Formula (defined below) taking account of the
voting rights of all other Shareholders, including any
other Shareholder subject to the Cut-back Formula, is just
below 10%, such voting cut-back to be calculated according
to the following formula (the "Cut-back Formula"):
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[(D divided by 10) - 1] divided by B
Where:
1. "A" is equal to the number of outstanding Common
Shares.
2. "B" is equal to the number of Controlled Shares of
such person.
3. "C" is equal to [(A divided by 10) - 1] divided by A.
4. "D" is equal to (A minus B) divided by (1.00 minus C).
If there is more than one person who is an
Over-the-Threshold Common Shareholder, the Cut-back Formula
shall be applied to each such person, taking into
consideration any reduction in the voting rights of any
other person or persons under the Cut-back Formula. If the
application of the Cut-back Formula results in any person
becoming an Over-the-Threshold Common Shareholder, then the
Cut-back Formula shall be applied again, and repeated,
until no Over-the-Threshold Common Shareholder remains with
Controlled Shares with ten percent (10%) or more of the
votes that may be cast by all holders of Common Shares of
the Company after application of the Cut-back Formula. The
Board shall have the power and authority to make all
determinations that may be required to effectuate the
provisions of this Bye-law 46(b), including any required
determination of the number of Common Shares that may be
deemed to be held by any person and any necessary
adjustments or applications of the Cut-back Formula
designed to achieve its stated purpose, and such
determinations shall be conclusive. All record and
beneficial owners of Common Shares shall be deemed to have
agreed, by virtue of their ownership thereof, to provide to
the Board, at such times and in such detail as the Board
may reasonably request, any information that the Board may
require to make such determinations.
(ii) Notwithstanding the foregoing, a Cumming Entity or a
Steinberg Entity shall be considered an "Over-the-Threshold
Common Shareholder" to which the provisions of subsection
(i) above shall apply only if (x) the Company, directly or
indirectly, has acquired an interest in a foreign insurance
company that would be, or would cause the Company to
become, a controlled foreign corporation within the meaning
of Section 957 of the Code but for the application of the
voting restrictions of this Bye-law to each Cumming Entity
and each Steinberg Entity, unless in connection with and
prior to such acquisition, (A) the Board, excluding Messrs.
Cumming and Steinberg, affirmatively determines that
application of the provisions of this Bye-law is
unnecessary or otherwise inappropriate with respect to the
Company and (B) each of Mr. Cumming (on behalf of all
Cumming Entities) and Mr. Steinberg (on behalf of all
Steinberg Entities) affirmatively agrees that the
application of the Cut-back Formula to the Cumming Entities
and the Steinberg Entities is unnecessary with respect to
the Cumming Entities and the Steinberg Entities,
respectively; or (y) the Company, directly or indirectly,
has acquired an interest in a foreign company and, in
26
connection with and prior to such acquisition (A) the
Board, excluding Messrs. Cumming and Steinberg,
affirmatively agrees to the application of the Cut-Back
Formula to the Cumming Entities and the Steinberg Entities
and (B) each of Mr. Cumming (on behalf of all Cumming
Entities) and Mr. Steinberg (on behalf of all Steinberg
Entities) affirmatively agrees to the application of the
Cut-Back Formula to the Cumming Entities and the Steinberg
Entities, respectively. In the event of an acquisition
under clause (x) or (y) above, if such an acquisition is
made by the Company and such determination is made by both
the Board and Messrs. Cumming and Steinberg, then the
provisions of this Bye-law shall apply to all Cumming
Entities considered together and all Steinberg Entities
considered together, but solely with respect to the
election of directors; in all other matters on which a
Shareholder vote is permitted or required, each Cumming
Entity and each Steinberg Entity shall have full voting
rights, and the Cut-back Formula shall not apply to such
Shareholders.
(c) Unilateral purchase right
Subject to Section 42A of the 1981 Act, if the Board in
its absolute and unfettered discretion, on behalf of the
Company, determines that share ownership by any
Shareholder (with or without the application of Bye-law
45(b) or 55) may result in adverse tax, regulatory or
legal consequences to the Company, any of its subsidiaries
or any of the Shareholders, the Company will have the
option, but not the obligation, to purchase all or part of
the shares held by such Shareholder to the extent the
Board, in the reasonable exercise of its discretion,
determines it is necessary to avoid or cure such adverse
consequences at a purchase price (the "Purchase Price")
equal to the fair market value of such shares (as
determined by the Board) on the date the Company sends the
Purchase Notice (defined below); provided that the Board
will use its best efforts to exercise this option equally
among similarly situated Shareholders (to the extent
possible under the circumstances); provided, further, that
as a result of such redemption the issued share capital of
the Company would not be reduced below the minimum share
capital required by Bermuda law. The Company will be
entitled to assign any of its purchase rights under this
Bye-law to a third party or parties including the other
Shareholders, with the consent of such assignee. Each
Shareholder shall be bound by the determination by the
Company to purchase or assign its right to purchase such
Shareholder's shares and, if so required by the Company,
shall sell the number of shares that the Company requires
it to sell.
In the event that the Company or its assignee(s)
determines to purchase any such shares, the Company shall
provide each Shareholder concerned with written notice of
such determination ("Purchase Notice") at least seven (7)
calendar days prior to such purchase or such shorter
period as each such Shareholder may authorize, specifying
27
the date on which any such shares are to be purchased and
the Purchase Price. The Company may revoke the Purchase
Notice at any time before it (or its assignee) pays for
the shares. Neither the Company nor its assignee(s) shall
be obliged to give general notice to the Shareholders of
any intention to purchase or the conclusion of any
purchase of shares. Payment of the Purchase Price by the
Company or its assignee(s) shall be by wire transfer or
certified check and made at a closing to be held no less
than seven (7) calendar days after receipt of the Purchase
Notice by the Shareholder, unless otherwise agreed to by
the Company and such Shareholder.
(d) Unilateral purchase right in the event of involuntary
transfer
If a Shareholder shall be involuntarily dissolved or
liquidated or shall have entered in respect of it an order
for relief under the United States Bankruptcy Code (or any
similar law of any applicable jurisdiction) or shall
otherwise be required to transfer involuntarily any or all
of its shares pursuant to a court order, foreclosure, tax
lien, government seizure, death or otherwise, and, in any
such case as a result thereof, any or all of such
Shareholder's shares (the "Involuntary Transfer Shares")
shall be actually or purportedly transferred or otherwise
disposed of (the "Involuntary Transfer"), such
Shareholder, or its legal representative or successor,
shall promptly give notice to the Company of such intended
transfer and the Company will have the option, but not the
obligation, to purchase all or part of the Involuntary
Transfer Shares held by such Shareholder for immediately
available funds in an amount equal to the fair market
value of such shares (as determined by the Board). In that
event, the Company will also be entitled to assign its
purchase right to a third party or parties including the
other Shareholders, with the consent of such assignee.
Each Shareholder shall be bound by the determination by
the Company to purchase or assign its right to purchase
the Involuntary Transfer Shares and, if so required by the
Company, shall sell the number of Involuntary Transfer
Shares that the Board requires it to sell.
In the event that the Company determines to purchase (or
assigns its right to purchase) any Involuntary Transfer
Shares, the Company or its assignee(s) shall provide each
Shareholder concerned with written notice at least thirty
(30) calendar days prior to such purchase or such shorter
period as each such Shareholder may authorize, specifying
the date on which any such Involuntary Transfer Shares are
to be purchased and the Purchase Price. Neither the
Company nor its assignee(s) shall be obliged to give
general notice to the Shareholders of any intention to
purchase or the conclusion of any purchase of the
Involuntary Transfer Shares. Payment of the fair market
value of the Involuntary Transfer Shares by the Company or
its assignee(s) shall be by wire transfer or certified
check and shall be made at a closing to be held no later
than the later to occur of (i) thirty (30) calendar days
28
after the date the Purchase Notice is sent to the
Shareholder or (ii) fifteen (15) calendar days after the
date that the final governmental approval or consent to
the consummation of the purchase, if required, is
obtained.
46. Variation of rights and alteration of share capital
(a) If the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise
provided by the terms of issue of the shares of that
class) may, whether or not the Company is being wound-up,
be varied with the consent in writing of the holders of
not less than a majority of the issued and outstanding
shares of that class, or with the sanction of a resolution
passed by the holders of not less than a majority of the
issued and outstanding shares of that class at a separate
general meeting of the holders of the shares of the class
held in accordance with Section 47(7) of the 1981 Act. The
rights conferred upon the holders of the shares of any
class issued with preferred or other rights shall not,
unless otherwise expressly provided by the terms of issue
of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu
therewith.
(b) The Company may from time to time by resolution of the
Shareholders change the currency denomination of,
increase, alter or reduce its share capital in accordance
with the provisions of Sections 45 and 46 of the 1981 Act,
provided, however, that any resolution of the Shareholders
to alter or reduce its share capital shall be by the
affirmative vote of Shareholders representing not less
than a majority of the votes conferred by the issued and
outstanding Common Shares entitled to vote. Where, on any
alteration of share capital, fractions of shares or some
other difficulty would arise, the Board may deal with or
resolve the same in such manner as it thinks fit
including, without limitation, the issue to Shareholders,
as appropriate, of fractions of shares and/or arranging
for the sale or transfer of the fractions of shares of
Shareholders.
47. Registered holder of shares
(a) Except as ordered by a court of competent jurisdiction or
as required by law, no person shall be recognized by the
Company as holding any share unless such person is the
registered holder, and the Company shall not be bound by
or required in any way to recognize (even when having
notice thereof) any equitable, contingent, future or
partial interest in any share or any interest in any
fractional part of a share or any other right in respect
of any share except an absolute right to the entirety
thereof in the registered holder, subject in all events to
the provisions of these Bye-laws.
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(b) Any dividend or other monies payable in cash in respect of
shares may be paid by cheque or draft sent through the
post directed to the Shareholder at such Shareholder's
address in the Register of Shareholders or, in the case of
joint holders, to such address of the holder first named
in the Register of Shareholders, or to such person and to
such address as the holder or joint holders may in writing
direct. Every such cheque or draft shall, unless the
holder or joint holders otherwise direct, be made payable
to the order of the holder or, in the case of joint
holders, to the order of the holder whose name stands
first in the Register of Shareholders in respect of such
shares, and shall be sent at his or their risk and payment
of the cheque or draft by the bank on which it is drawn
shall constitute a good discharge to the Company. If two
(2) or more persons are registered as joint holders of any
shares, any one (1) can give an effectual receipt for any
dividend paid in respect of such shares.
48. Death of a joint holder
Where two (2) or more persons are registered as joint holders of a
share or shares, unless the Company is notified to the contrary in
writing by such joint holders, in the event of the death of any joint
holder or holders, the remaining joint holder or holders shall be
absolutely entitled to the said share or shares and the Company shall
recognize no claim in respect of the estate of any joint holder
except in the case of the last survivor of such joint holders.
49. Share certificates
(a) Every Shareholder shall be entitled to a certificate under
the seal of the Company (or a facsimile thereof)
specifying the number and, where appropriate, the class of
shares held by such Shareholder and whether the same are
fully paid up and, if not, how much has been paid thereon.
The Board may by resolution determine, either generally or
in a particular case, that any or all signatures on
certificates may be printed thereon or affixed by
mechanical means.
(b) The Company shall be under no obligation to complete and
deliver a share certificate unless specifically called
upon to do so by the person to whom such shares have been
allotted.
(c) If any such certificate shall be proved to the
satisfaction of the Board to have been worn out, lost,
mislaid or destroyed the Board may cause a new certificate
to be issued and request an indemnity for the lost
certificate if it sees fit.
(d) So long as the restrictions set forth in either or both of
Bye-laws 45 and 55 are still in effect, all share
certificates representing shares of capital stock shall
bear a conspicuous legend as follows:
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"THE SHARES OF STOCK REPRESENTED HEREBY ARE
SUBJECT TO RESTRICTIONS PURSUANT TO THE BYE-LAWS
OF THE COMPANY, A COPY OF WHICH IS ON FILE IN THE
OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE
HOLDER HEREOF FREE OF CHARGE UPON WRITTEN
REQUEST."
(e) The preparation, issue and delivery of certificates shall
be governed by the Companies Acts. In the case of a share
held jointly by several persons, delivery of a certificate
to one of several joint holders shall be sufficient
delivery to all.
50. No pre-emptive rights
No holder of shares of any class or series of stock of the Company,
whether now or hereafter authorized or outstanding, shall have any
pre-emptive, preferential or other right to subscribe for or purchase
any shares of any class or series of capital stock of the Company,
whether now or hereafter authorized or outstanding, or any bonds,
notes, obligations, options, warrants, rights or other securities
which the Company may at any time issue or sell, whether or not the
same be convertible into or exercisable for the purchase of any class
or series of capital stock of the Company, it being intended by this
paragraph that all pre-emptive rights of any kind applicable to the
securities of the Company are eliminated.
REGISTER OF SHAREHOLDERS; SETTING OF RECORD DATE
51. Contents of Register of Shareholders
The Board shall cause to be kept in one (1) or more books a Register
of Shareholders and shall enter therein the following particulars:
(a) the name and address of each Shareholder, the number and
the class of shares held by such Shareholder and the
amount paid or agreed to be considered as paid on such
shares;
(b) the date on which each person was entered in the Register
of Shareholders;
(c) the date on which any person ceased to be a Shareholder
for one (1) year after such person so ceased; and
(d) the country where such Shareholder is resident.
52. Inspection of Register of Shareholders
The Register of Shareholders shall be open to inspection by
Shareholders or other entitled persons at the registered office of
the Company on every business day, subject to such reasonable
31
restrictions as the Board may impose, so that not less than two (2)
hours in each business day is allowed for inspection. The Register of
Shareholders may, after notice has been given by advertisement in an
appointed newspaper to that effect, be closed for any time or times
not exceeding in the whole thirty (30) days in each year.
53. Setting of record date
In lieu of or apart from closing the Register of Shareholders in
accordance with the Companies Act, the Directors may, for the purpose
of determining the Shareholders entitled to notice of or to vote at
any general meeting (whether annual or special) of the Company or any
adjournment thereof, or to express consent to or dissent from any
proposal without a meeting, or for the purpose of determining
Shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the
Board may fix, in advance, a date as the record date for any such
determination of Shareholders. Such date shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. When a determination of
Shareholders of record entitled to notice of or to vote at any
general meeting of the Company has been made as provided in this
Bye-law, such determination shall apply to any adjournment thereof,
unless the Board fixes a new record date under this Bye-law for the
adjourned meeting.
TRANSFER OF SHARES; RESTRICTIONS ON TRANSFER AND OWNERSHIP
54. Instrument of transfer. Subject to the Companies Acts and to such of
the restrictions contained in these Bye-laws or elsewhere as may be
applicable,
(a) Any Shareholder may transfer all or any of his shares by
an instrument of transfer as specified herein.
(b) An instrument of transfer shall be in the form or as near
thereto as circumstances permit of Form "B" in the
Schedule hereto or in such other common form as the Board
may accept. Such instrument of transfer shall be signed by
or on behalf of the transferor and transferee, provided
that, in the case of a fully paid share, the Board may
accept the instrument signed by or on behalf of the
transferor alone. The transferor shall be deemed to remain
the holder of such share until the same has been
transferred to the transferee in the Register of
Shareholders.
(c) The Board may refuse to recognize any instrument of
transfer unless it is accompanied by the certificate in
respect to the shares to which it relates and by such
other evidence as the Board may reasonably require to show
the right of the transferor to make the transfer.
32
55. Restrictions on transfer; restrictions on ownership
(a) Certain Definitions. As used in this Bye-law, the
following terms have the following respective meanings:
"Company Securities" means (i) Common Shares, (ii)
Preferred Shares, (iii) warrants, rights or options to
purchase Common Shares or Preferred Shares, and (iv) any
other interests that would be treated as "stock" or
ownership of the Company for purposes of the FPHC
Provisions.
"Event" means any act, event or happening of any nature,
other than a Transfer, including without limitation the
death or dissolution of a person, a marriage of any two
persons or the conduct of a joint venture or partnership,
including the formation of any such joint venture or
partnership or the subsequent admission of any person as a
partner, member or equity holder therein.
"Excess Securities" means (a) in the case of a person who
would, as a result of a Transfer or an Event, become a
One-Percent Shareholder (including any former One-Percent
Shareholder that would again become a One-Percent
Shareholder), the Company Securities that would be owned
(as determined in accordance with the provisions of
Section 554 of the Code) by the Purported Transferee or
the Subject Shareholder, as applicable, in excess of the
maximum amount of Company Securities that such person
could own without being a One-Percent Shareholder, and (b)
in the case of a person who is already a One-Percent
Shareholder on the date upon which these Bye-laws
originally become effective, the additional Company
Securities that would be owned (as determined in
accordance with the provisions of Section 554 of the Code)
by such Shareholder as a result of a Transfer or Event, in
each case, in the absence of this Bye-law.
"FPHC Provisions" means the foreign personal holding
company provisions contained in Section 551 et seq. of the
Code (or any comparable successor provisions).
"One-Percent Shareholder" means a person that owns,
directly, indirectly, beneficially or constructively, more
than one percent of the Company Securities, with ownership
determined pursuant to and for purposes of the FPHC
Provisions, including the provisions of Section 554 of the
Code.
"Percentage Stock Ownership" means percentage stock
ownership as determined in accordance with the FPHC
Provisions.
33
"PHC Provisions" means the personal holding company
provisions contained in Section 541 et seq. of the Code
(or any comparable successor provisions).
"Prohibited Transfer" means any purported Transfer of
Company Securities to the extent that such Transfer would,
but for the application of this Bye-law, result in the
ownership by any person of Excess Securities.
"Purported Transferee" mean the purported transferee of a
Prohibited Transfer, including the person who holds, as a
registered holder, any Company shares that are the subject
of a Prohibited Transfer.
"Restriction Release Date" means the effective date of the
repeal of the FPHC Provisions and the PHC Provisions.
"Subject Shareholder" means, with respect to a Trigger
Event, a person whose ownership of Company Securities, as
determined under the FPHC Provisions, would be affected,
but for the operation of this Bye-law, as a result of such
Trigger Event, including the person who holds, as a
registered holder, any Company Securities that are the
subject of such Trigger Event.
"Transfer" means any (x) direct or indirect sale,
transfer, assignment, conveyance, pledge, distribution or
other disposition of Company Securities, (y) issuance or
creation of an option or (z) other transaction, if and to
the extent any such transaction would affect ownership of
Company Securities for purposes of applying the FPHC
Provisions. A Transfer shall not include an issuance or
grant of Company Securities, including any warrant or
option, by the Company.
"Trigger Event" means any Event if and to the extent that
such Event would, but for the operation of this Bye-law,
result in the ownership by any person of Excess
Securities.
(b) Restrictions on Transfer; restrictions on ownership.
Subject to paragraph (i) below, any attempted Prohibited
Transfer of Company Securities prior to the Restriction
Release Date, or any attempted Prohibited Transfer of
Company Securities pursuant to an agreement entered into
prior to the Restriction Release Date, shall be prohibited
and void ab initio. In addition, in the event of any
Trigger Event prior to the Restriction Release Date, any
Excess Securities resulting from such Trigger Event shall
be treated, for all purposes, as not owned by the Subject
Shareholder, effective as of the day immediately prior to
34
such Trigger Event, and instead shall be treated as set
forth in paragraph (d) of this Bye-law.
(c) Certain Exceptions. The restrictions set forth in
paragraph (b) of this Bye-law and the provisions of
paragraph (d) of this Bye-law shall not apply to an
attempted Prohibited Transfer or to a Trigger Event if the
Purported Transferee or Subject Shareholder, as
applicable, obtains the written approval of the Board. As
a condition to granting its approval, the Board may, in
its discretion, require an opinion of counsel selected by
the Board that the Transfer or Event shall not result in
the characterization of the Company as a foreign personal
holding company.
(d) Treatment of Excess Securities.
(i) No employee or agent of the Company shall knowingly
record (x) any Prohibited Transfer or (y) to the extent
appropriate and necessary to effectuate the intent of this
Bye-law, the effect of any Trigger Event on the ownership
of Company Securities, and in the case of either (x) or (y)
above, the Purported Transferee or the Subject Shareholder,
as applicable, shall not be recognized as a Shareholder of
the Company for any purpose whatsoever in respect of the
Excess Securities. Until the Excess Securities are acquired
by another person in a Transfer that is not a Prohibited
Transfer or lose their status as Excess Securities as a
result of an Event, the Purported Transferee or the Subject
Shareholder, as applicable, shall not be entitled with
respect to such Excess Securities to any rights of
Shareholders of the Company, 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 or lose their status as Excess
Securities as a result of an Event, the Securities shall
cease to be Excess Securities.
(ii) If the Board determines that a Transfer of Company
Securities constitutes a Prohibited Transfer or that a
Trigger Event has occurred, then, upon written demand by
the Company, the Purported Transferee or Subject
Shareholder, as applicable, shall transfer or cause to be
transferred any certificate or other evidence of ownership
of the Excess Securities within the Purported Transferee's
or Subject Shareholder's possession or control, together
with any dividends or other distributions that were
received by the Purported Transferee or Subject Shareholder
from the Company with respect to the Excess Securities
("Prohibited Distributions"), to an agent designated by the
Board (the "Agent"). The Agent shall thereupon sell to a
buyer or buyers, which may include the Company, the Excess
Securities in one or more arm's-length transactions;
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
35
the Agent's discretion, such sale or sales would disrupt
the market for the Company Securities or otherwise would
adversely affect the value of the Company Securities. If
the Purported Transferee or Subject Shareholder, as
applicable, has resold the Excess Securities before
receiving the Company's demand to surrender the Excess
Securities to the Agent, the Purported Transferee or
Subject Shareholder 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 or Subject
Shareholder to retain a portion of such sales proceeds not
exceeding the amount that the Purported Transferee or
Subject Shareholder would have received from the Agent
pursuant to paragraph (d)(iii) of this Bye-law if the Agent
rather than the Purported Transferee or Subject Shareholder
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 or
Subject Shareholder, as applicable, had previously resold
the Excess Securities, any amounts received by it from the
Purported Transferee or Subject Shareholder, 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
or Subject Shareholder, up to the amount paid by the
Purported Transferee or, in the case of a Subject
Shareholder, the fair market value of the Excess Securities
as of the day immediately prior to the Trigger Event, which
amount (or fair market value) shall be determined in the
discretion of the Board; and (3) third, any remaining
amounts, subject to the limitations imposed by the
following proviso, shall be paid, at the discretion of the
Board, to the Leucadia Foundation or 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.
(iv) If the Purported Transferee or Subject Shareholder, as
applicable, 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 Company makes a
demand pursuant to paragraph (d)(ii) of this Bye-law, then
the Company shall institute legal proceedings to compel the
surrender.
(v) The Company shall make the demand described in
paragraph (d)(ii) of this Bye-law within thirty days of the
date on which the Board determines that the attempted
Prohibited Transfer or Trigger Event would result in Excess
Securities; provided, however, that if the Company makes
36
such demand at a later date, the provisions of this Bye-law
shall apply nonetheless.
(e) Determination of Compliance by Board. The Board of the
Company shall have the power to determine all matters
necessary to determine compliance with this Bye-law,
including without limitation (1) whether a new One-Percent
Shareholder would be required to be identified in certain
circumstances, (2) whether a Transfer is a Prohibited
Transfer or whether a Trigger Event has occurred, (3) the
Percentage Stock Ownership in the Company of any
One-Percent Shareholder, (4) whether an instrument
constitutes Company Securities, (5) the amount (or fair
market value) due to a Purported Transferee or Subject
Shareholder pursuant to clause (2) of paragraph (d)(iii)
of this Bye-law, and (6) any other matters which the Board
determines to be relevant; and the good faith
determination of the Board on such matters shall be
conclusive and binding for all the purposes of this
Bye-law and otherwise.
(f) No Invalidation. Notwithstanding any other provision of
these Bye-laws, no Shareholder vote shall be invalidated
by virtue of a subsequent discovery that at the time of
the taking of such Shareholder vote and then unknown to
the Company, Excess Securities existed as to which the
provisions of this Bye-law had not been applied.
(g) Consents, Etc. Without limiting the foregoing, the Board
shall decline to approve or register a transfer of shares
unless all applicable consents, authorisations,
permissions or approvals of any governmental body or
agency in Bermuda, the United States or any other
applicable jurisdiction required to be obtained prior to
such transfer shall have been obtained.
(h) Notice of Refusal. If the Board declines to approve or
register a transfer, it shall, within ten (10) days after
the date on which the Company received notice of the
transfer, send to the transferor and transferee notice of
such refusal.
(i) No Interference. Nothing in these Bye-Laws shall preclude
the settlement of any transaction entered into through the
facilities of the New York Stock Exchange, Inc. or any
other securities exchange or market in the Company
Securities.
(j) Enforcement. The Board shall enforce the restrictions on
the transfer of Company Securities set forth in this
Bye-law, and in connection therewith supervise the
Company's transfer agent and/or registrar for Company
Securities.
37
TRANSMISSION OF SHARES
56. Representative of deceased Shareholder
In the case of the death of a Shareholder, the surviving joint holder
or holders, where the deceased Shareholder was a joint holder, and
the legal personal representatives of the deceased Shareholder, where
the deceased Shareholder was a sole holder, shall be the only persons
recognised by the Company as having any title to the deceased
Shareholder's interest in the shares. Subject to the provisions of
Section 52 of the 1981 Act, for the purpose of this Bye-law, "legal
personal representative" means the executor or administrator of a
deceased Shareholder or such other person as the Board may in its
absolute discretion decide as being properly authorised to deal with
the shares of a deceased Shareholder.
57. Registration on death or bankruptcy
Subject to Bye-law 45(d), any person becoming entitled to a share in
consequence of the death or bankruptcy of any Shareholder may be
registered as a Shareholder upon such evidence as the Board may deem
sufficient or may elect to nominate some person to be registered as a
transferee of such share, and in such case the person becoming
entitled shall execute in favour of such nominee an instrument of
transfer in the form, or as near thereto as circumstances admit, of
Form "C" in the Schedule hereto. On the presentation thereof to the
Board, accompanied by such evidence as the Board may require to prove
the title of the transferor and such other information as the Board
shall deem necessary or appropriate, and the transferee shall be
registered as a Shareholder but the Board shall, in either case, have
the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Shareholder before
such Shareholder's death or bankruptcy, as the case may be.
If the person so becoming entitled shall elect to be registered as a
holder, such person shall deliver or send to the Company a notice in
writing signed by such person stating that it so elects.
58. Successors of Shareholders
Subject to Bye-law 45(d), a person becoming entitled to a share by
reason of the death or bankruptcy of the holder (or in any other case
than by transfer) shall be entitled to the same dividends and other
advantages to which he would be entitled if he were the registered
holder of the share, except that he shall not, before being
registered as a holder in respect of the share, be entitled in
respect of it to exercise any right conferred by virtue of being a
holder in relation to meetings of the Company, provided, however,
that the Directors may at any time give notice requiring any such
person to elect either to be registered himself or to transfer the
share and if the notice is not complied with within ninety (90) days
the Directors may thereafter withhold payment of all dividends,
38
bonuses or other monies payable in respect of the share until the
requirements of the notice have been complied with.
DIVIDENDS AND OTHER DISTRIBUTIONS
59. Declaration of dividends by the Board
Subject to any rights or restrictions at the time lawfully attached
to any class of shares and subject to the provisions of these
Bye-laws, the Board may, in accordance with Section 54 of the 1981
Act, declare a dividend to be paid to the Shareholders, in proportion
to the number of shares held by them, and such dividend may be paid
in cash or wholly or partly in specie in which case the Board may fix
the value for distribution in specie of any assets.
60. Other distributions
The Board may declare and make such other distributions (in cash or
in specie) to the Shareholders as may be lawfully made out of the
assets of the Company.
61. Reserve fund
The Board may from time to time before declaring a dividend set
aside, out of the surplus or profits of the Company, such sum as it
thinks proper as a reserve fund to be used to meet contingencies or
for equalising dividends or for any other special purpose.
62. Deduction of amounts due to the Company
The Board may deduct from the dividends or distributions payable to
any Shareholder all monies due from such Shareholder to the Company.
63. Unclaimed dividends
Any dividend unclaimed for a period of six (6) years from the date of
declaration of such dividend shall be forfeited and shall revert to
the Company and the payment by the Board of any unclaimed dividend or
other sum payable on or in respect of the share into a separate
account shall not constitute the Company a trustee in respect
thereof.
64. No interest on dividends or distributions
No dividend or distribution shall bear interest against the Company.
39
CAPITALIZATION
65. Capitalization
The Board may resolve to capitalise any part of the amount for the
time being standing to the credit of any of the Company's share
premium or other reserve accounts or to the credit of the profit and
loss account or otherwise available for distribution by applying such
sum in paying up unissued shares to be allotted as fully paid shares
pro rata to the Shareholders.
The Company may capitalise any sum standing to the credit of a
reserve account or sums otherwise available for dividend or
distribution by applying such amounts in paying up in full partly
paid shares of those Shareholders who would have been entitled to
such sums if they were distributed by way of dividend or
distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
66. Record of account
The Board shall cause to be kept proper records of account with
respect to all transactions of the Company and in particular with
respect to:
(a) all sums of money received and expended by the Company and
the matters in respect of which the receipt and
expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the
Company or, subject to Section 83(2) of the 1981 Act, at such other
place as the Board thinks fit and shall be available for inspection
by the Shareholders during normal business hours.
67. Financial year end
The financial year end of the Company may be determined by resolution
of the Board and failing such resolution shall be December 31 in each
year.
68. Financial statements
Subject to any rights to waive laying of accounts pursuant to Section
88 of the 1981 Act, financial statements as required by the Companies
Acts shall be laid before the Shareholders in general meeting.
40
AUDIT
69. Appointment of Auditor
Subject to Section 88 of the 1981 Act, at the annual general meeting
or at a subsequent special general meeting in each year, an
independent representative of the Shareholders shall be appointed by
them as Auditor of the accounts of the Company. Such Auditor may be a
Shareholder but no Director, Officer or employee of the Company
shall, during his or her continuance in office, be eligible to act as
an Auditor of the Company.
70. Remuneration of Auditor
The remuneration of the Auditor shall be fixed by the Board.
71. Vacation of office of Auditor
If the office of Auditor becomes vacant by the resignation or death
of the Auditor, or by the Auditor becoming incapable of acting by
reason of illness or other disability at a time when the Auditor's
services are required, the Board may fill the vacancy thereby
created.
72. Access to books of the Company
The Auditor shall at all reasonable times have access to all books
kept by the Company and to all accounts and vouchers relating
thereto, and the Auditor may call on the Directors or Officers of the
Company for any information in their possession relating to the books
or affairs of the Company.
73. Report of the Auditor
(a) Subject to any rights to waive laying of accounts or
appointment of an Auditor pursuant to Section 88 of the
1981 Act, the accounts of the Company shall be audited at
least once in every year.
(b) The financial statements provided for by these Bye-laws
shall be audited by the Auditor in accordance with
generally accepted auditing standards. The Auditor shall
make a written report thereon in accordance with generally
accepted auditing standards and the report of the Auditor
shall be submitted to the Shareholders in general meeting.
(c) The generally accepted auditing standards referred to in
subparagraph (b) of this Bye-law may be those of a country
or jurisdiction other than Bermuda or which have been
appointed pursuant to Section 90 of the 1981 Act. If so,
the financial statements and the report of the Auditor
must disclose this fact and identify the generally
accepted auditing standards used.
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NOTICES
74. Form and effectiveness of notices
Unless otherwise specifically set forth herein, notices hereunder,
whether to Directors, Shareholders or otherwise, when required to be
delivered in writing, shall be given in person or by mail, courier
service, cable, telex, telecopier, facsimile or other mode of
representing words in a legible and non-transitory form. Such notice
shall be deemed to be effective at the time when the same would be
delivered in the ordinary course of transmission and, in proving
such, it shall be sufficient to prove that the notice was properly
addressed and prepaid, if posted, and the time when it was posted,
delivered to the courier or to the cable company or transmitted by
telex, facsimile, e-mail or other method as the case may be.
75. Notices to Directors and Shareholders
Written notices to a Director shall be given at such Director's
address in the Register of Directors and Officers or to such other
address given by such Director to the Company for this purpose.
Written notices to a Shareholder shall be given at such Shareholder's
address in the Register of Shareholders or to such other address
given by such Shareholder to the Company for this purpose.
76. Notices to joint Shareholders
Any notice required to be given to a Shareholder shall, with respect
to any shares held jointly by two (2) or more persons, be given to
whichever of such persons is named first in the Register of
Shareholders and notice so given shall be sufficient notice to all
the holders of such shares.
77. Short notice to Directors
A Board meeting shall, notwithstanding that it is called by shorter
notice than that specified in these Bye-laws, be deemed to have been
properly called if it is so agreed by all the Directors, whether
present or not at the meeting.
78. Short notice to Shareholders
A general meeting of the Company shall, notwithstanding that it is
called by shorter notice than that specified in these Bye-laws, be
deemed to have been properly called if it is so agreed by (i) all the
Shareholders entitled to attend and vote thereat in the case of an
annual general meeting; and (ii) in the case of any other general
meeting, a majority in number of the Shareholders having the right to
attend and vote at the meeting, being a majority together holding not
less than ninety-five percent (95%) of the total issued and
outstanding Common Shares.
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79. Waivers of notice
Whenever the Company or the Board or any committee of the Board is
authorized to take any action after notice to any person or persons
or after the lapse of a prescribed period of time, such action may be
taken without notice and without the lapse of such period of time, if
at any time before or after such action is completed the person or
persons entitled to such notice or entitled to participate in the
action to be taken or, in the case of a Shareholder, his
attorney-in-fact or proxy, submits a signed waiver of notice of such
requirement.
80. Accidental omission of notice of general meeting
The accidental omission to give notice of a general meeting to, or
the non-receipt of notice of a general meeting by, any person
entitled to receive notice shall not invalidate the proceedings at
that meeting.
WINDING-UP
81. Determination to liquidate
The Company shall be wound up voluntarily by resolution of the
Shareholders.
82. Winding-up/distribution by liquidator
If the Company shall be wound up the liquidator may, with the
sanction of a resolution of the Shareholders, divide among the
Shareholders in specie or in kind the whole or any part of the assets
of the Company (whether they shall consist of property of the same
kind or not) and may, for such purpose, set such value as he or she
deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the
Shareholders or different classes of Shareholders. The liquidator
may, with the like sanction, vest the whole or any part of such
assets in trustees upon such trusts for the benefit of the
Shareholders as the liquidator shall think fit, but so that no
Shareholder shall be compelled to accept any shares or other
securities or assets whereon there is any liability.
MISCELLANEOUS
83. Alteration of Memorandum of Continuance and Bye-laws
Except as required by the Companies Acts, neither the Memorandum of
Continuance of the Company nor any Bye-law shall be rescinded,
altered or amended and no new Bye-law shall be made until the same
has been approved by a resolution of the Directors and confirmed by a
resolution of the Shareholders, provided that, if under applicable
law, action by the Board would be sufficient to amend a Bye-law (in
the absence of this sentence), then only a resolution of the Board
shall be required to amend such Bye-law.
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84. Registered office
The registered office of the Company shall be at such address as the
Board may fix from time to time by resolution.
85. The seal
The seal of the Company shall be in such form as the Board may from
time to time determine. The Board may adopt one or more duplicate
seals for use outside Bermuda.
The seal of the Company may be affixed to any instrument only if it
is attested by two signatures, each such signature being of a
Director, an Officer or any person appointed by the Board for the
purpose; provided, that the seal of the Company may be attested by a
single such signature in connection with the authentication of any
document, including these Bye-laws, the incorporating documents of
the Company and the minutes of any meetings. Any such signature may
be printed or affixed by mechanical means on any share certificate,
debenture stock certificate or other security certificate.
86. Certain Foreign Subsidiaries
(a) Subject to any applicable mandatory law of the relevant
jurisdiction and the provisions of subsection (b) below, with respect
to any direct or indirect interest of the Company in (x) an insurance
company that would be, or would cause the Company to become, a
controlled foreign corporation within the meaning of Section 957 of
the Code but for the application of this Bye-law or (y) any company
affirmatively designated by (i) the Board, excluding Messrs. Cumming
and Steinberg, and (ii) each of Mr. Cumming and Mr. Steinberg (any
such company being referred to as a "Designated Company"), the board
of directors of each Designated Company shall consist, to the extent
possible, of such persons as the Shareholders of the Company may from
time to time determine pursuant to a Shareholder vote in accordance
with these Bye-laws, the results of which shall be conveyed to and
implemented by the holder of a Standing Proxy from the Board in
respect of the Company's shareholdings in the Designated Company. The
Standing Proxy shall be given by the Board and shall appoint a
designee of the Board to act, whether in meeting, by written consent
or otherwise, with respect to all matters relating to the election,
appointment or removal of directors of such Designated Company as the
Shareholders of the Company shall instruct. The Standing Proxy shall
not be revocable by the Board without the prior approval of the
Shareholders representing not less than 90% of the outstanding shares
of the Company. The Company shall use all reasonable measures to
ensure that the constitutional or organic documents of each
Designated Company shall effectuate or implement this Bye-Law. The
provisions of this Bye-law shall not be amended without the
affirmative vote of not less than 90% of the outstanding shares of
the Company.
(b) The provisions of subsection (a) above shall not apply with
respect to a given Designated Company if, prior to the acquisition of
the Designated Company, (i) the Board, excluding Messrs. Cumming and
Steinberg , affirmatively determines that the application of the
provisions of subsection (a) of this Bye-law is unnecessary or
otherwise inappropriate with respect to the Designated Company and
(ii) each of Mr. Cumming and Mr. Steinberg affirmatively agrees that
the application of subsection (a) of this Bye-law is unnecessary or
otherwise inappropriate with respect to the Designated Company.
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87. Title without a written instrument
Nothing in these Bye-Laws shall prevent title to any securities of
the Company from being evidenced and/or transferred without a written
instrument in accordance with regulations made from time to time in
this regard under the Companies Acts, and the Board shall have power
to implement any arrangements which it may think fit for such
evidencing and/or transfer which accord with those regulations.
88. Overseas or branch registers
Subject to the provisions of the Companies Acts, the Company may keep
one or more overseas or branch registers in any place, and the Board
may make, amend and revoke any such regulations as it may think fit
respecting the keeping of such registers.
89. Proposals regarding two or more Directors
Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or employments with the Company or any body
corporate in which the Company is interested, the proposals may be
divided and considered in relation to each Director separately and in
such cases each of the Directors concerned (if not debarred from
voting under the provisions of Bye-Law 18) shall be entitled to vote
and be counted in the quorum in respect of each resolution except
that concerning his own appointment.
90. Approval of Amalgamation Agreement
Approval of any amalgamation agreement submitted to the Shareholders
pursuant to the Companies Acts shall be achieved by the affirmative
vote of more than fifty percent (50%) of the votes cast at a general
meeting at which a quorum, as specified in Bye-law 32, is present.
91. Severability
If any provision of these Bye-Laws, or any part thereof, shall at any
time be held to be invalid, in whole or in part, under any applicable
law, ruling or regulation by a court of competent jurisdiction or an
administrative agency of a pertinent government or an arbitrator with
proper jurisdiction, then such provision or a portion thereof, as
appropriate, shall remain in effect only to the extent permitted, and
the remaining Bye-Laws shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
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SCHEDULE - FORM A
LEUCADIA NATIONAL LIMITED
P R O X Y
of _____________ the holder of ____________ share(s) in the above-named Company
hereby appoint _______________________________ or failing him/her
__________________________ or failing him/her __________________________ as my
proxy to vote on my behalf at the General Meeting of the Company to be held on
the __ day of ____, 20__, and at any adjournment thereof.
Dated this ___ day of , 20__
Signed by the above-named
---------------------------------------
---------------------------------------
Witness
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SCHEDULE - FORM B
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED .................................... [amount]
.................................................... [transferor] hereby sell(s),
assign(s) and transfer(s) unto
......................................................................
[transferee] of .................................................... [address]
with residence in [country], [number of shares] shares of LEUCADIA NATIONAL
LIMITED
Dated ...........................
...................................
(Transferor)
In the presence of:
......................................
(Witness)
...................................
(Transferee)
In the presence of:
......................................
(Witness)
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SCHEDULE - FORM C
TRANSFER BY A PERSON
BECOMING ENTITLED ON DEATH OF A SHAREHOLDER
I/We having become entitled in consequence of the death of [name of the deceased
Shareholder] to [number] share(s) numbered [number in figures] standing in the
register of members of LEUCADIA NATIONAL LIMITED in the name of the said [name
of deceased Shareholder] instead of being registered myself/ourselves request to
have [name of transferee] (the "Transferee") registered as a transferee of such
share(s), and I/we do hereby accordingly transfer the said share(s), to the
Transferee to hold the same unto the Transferee, his or her executors,
administrators and assigns, subject to the conditions on which the same were
held at the time of the execution thereof; and the Transferee does hereby agree
to take the said share(s) subject to the same conditions.
WITNESS our hands this ...... day of ................., 20...
Signed by the above-named )
[person or persons entitled] )
in the presence of:.. )
Signed by the above-named )
[transferee]......... )
in the presence of:.. )
48