<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1996
REGISTRATION NO. 333-02141
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BERKSHIRE HATHAWAY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 04-2254452
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
1440 KIEWIT PLAZA, OMAHA, NEBRASKA 68131
(402) 346-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
MARC D. HAMBURG
BERKSHIRE HATHAWAY INC.
1440 KIEWIT PLAZA, OMAHA, NEBRASKA 68131
(402) 346-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
R. GREGORY MORGAN JOHN W. WHITE
MUNGER, TOLLES & OLSON CRAVATH, SWAINE & MOORE
355 SOUTH GRAND AVENUE 825 EIGHTH AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10019
(213) 683-9100 -------------- (212) 474-1000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (2) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Class B Common Stock,
$.1667 par value
per share 287,500 shares(1) $1,090 $313,375,000 $108,160(3)
</TABLE>
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(1) In addition to the 287,500 shares of Class B Common Stock being registered
hereby, this registration also includes a currently indeterminable amount
of Class B Common Stock that may be offered and sold from time to time by
Salomon Brothers Inc in the course of its business as a broker-dealer at
negotiated prices relating to prevailing market prices at the time of
sale.
(2) Estimated pursuant to Rule 457(c) solely for purpose of calculating the
registration fee.
(3) Of which, $44,950 has been paid previously; includes the minimum
registration fee payable pursuant to Section 6(b) of the Securities Act of
1933 of $100 in connection with the Class B Common Stock that may be
offered and sold from time to time by Salomon Brothers Inc in the course
of its business as a broker-dealer as described in Note 1 above.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 19, 1996
PROSPECTUS
250,000 SHARES
BERKSHIRE HATHAWAY INC.
CLASS B COMMON STOCK
($.1667 PAR VALUE)
Berkshire Hathaway Inc. ("Berkshire" or the "Company") is offering shares of
its Class B Common Stock, $.1667 par value per share (the "Class B Common
Stock"). The Company will assess investor demand for shares of Class B Common
Stock in this offering and intends to increase the size of the offering as
necessary to satisfy demand. The final maximum size of the offering will be
publicly announced after the close of business on the last day before the
initial public offering price is determined.
The initial public offering price per share of Class B Common Stock is expected
to be approximately one-thirtieth (1/30th) of the closing sale price per share
of Berkshire's common stock, $5.00 par value per share (referred to herein as
the "Class A Common Stock"), on the New York Stock Exchange on the date of
pricing. The closing sale price for the Class A Common Stock was $33,000 per
share on the New York Stock Exchange on April 18, 1996, the last trading day
before the date of this Prospectus.
WARREN BUFFETT, AS BERKSHIRE'S CHAIRMAN, AND CHARLES MUNGER, AS BERKSHIRE'S
VICE CHAIRMAN, WANT YOU TO KNOW THE FOLLOWING (AND URGE YOU TO IGNORE ANYONE
TELLING YOU THAT THESE STATEMENTS ARE "BOILERPLATE" OR UNIMPORTANT):
1. Mr. Buffett and Mr. Munger believe that Berkshire's Class A Common Stock is
not undervalued at the market price stated above. Neither Mr. Buffett nor
Mr. Munger would currently buy Berkshire shares at that price, nor would
they recommend that their families or friends do so.
2. Berkshire's historical rate of growth in per-share book value is NOT
indicative of possible future growth. Because of the large size of
Berkshire's capital base (approximately $17 billion at December 31, 1995),
Berkshire's book value per share cannot increase in the future at a rate
even close to its past rate.
3. In recent years the market price of Berkshire shares has increased at a rate
exceeding the growth in per-share intrinsic value. Market overperformance of
that kind cannot persist indefinitely. Inevitably, there will also occur
periods of underperformance, perhaps substantial in degree.
4. Berkshire has attempted to assess the current demand for Class B shares and
has tailored the size of this offering to fully satisfy that demand.
Therefore, buyers hoping to capture quick profits are almost certain to be
disappointed. Shares should be purchased only by investors who expect to
remain holders for many years.
FOR CERTAIN OTHER RISK FACTORS AND INVESTMENT CONSIDERATIONS, SEE "CERTAIN RISK
FACTORS AND INVESTMENT CONSIDERATIONS" ON PAGE 6.
(Continued on inside cover page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Class B Share .......................... $ $ $
Total(2).................................... $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company, estimated to be $ .
(2) Berkshire has granted to the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an aggregate of
37,500 additional shares of Class B Common Stock at the Price to Public,
less the Underwriting Discount, solely to cover over-allotments, if any. If
the Underwriter exercises such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Plan of Distribution."
The shares of Class B Common Stock are offered subject to receipt and
acceptance by the Underwriter, to prior sale and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that delivery of the shares of Class B
Common Stock will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about May , 1996.
-----------------------
SALOMON BROTHERS INC
-----------------------------------------------------------------------
The date of this Prospectus is May , 1996.
<PAGE>
(continued from cover page)
This offering is subject to the approval and effectiveness of an amendment
(the "Amendment") to Berkshire's Restated Certificate of Incorporation
creating the Class B Common Stock, to be considered by Berkshire's
shareholders at its annual meeting on May 6, 1996.
Berkshire has not paid a cash dividend on its common stock since 1967, and has
no present intention to pay a dividend on Class B Common Stock or Class A
Common Stock in the future.
Berkshire has applied to list the Class B Common Stock on the New York Stock
Exchange.
Salomon Brothers Inc does not currently intend to purchase or sell shares of
the Class B Common Stock following the initial offering of the shares of Class
B Common Stock offered hereby, but may do so if its intention changes. Salomon
Brothers Inc, acting as principal or agent, may use this Prospectus in
connection with offers and sales of shares of Class B Common Stock offered
hereby and any other shares of Class B Common Stock outstanding from time to
time in the course of its business as a broker-dealer. Such sales, if any,
will be made at prevailing market prices at the time of sale.
(end of cover page)
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SHARES OF CLASS B
COMMON STOCK AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA HAS NEITHER
APPROVED NOR DISAPPROVED OF THIS OFFERING, NOR HAS THE COMMISSIONER ACTED UPON
THE ACCURACY OR ADEQUACY OF THE PROSPECTUS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). All such reports, proxy
statements and other information filed with the Commission concerning the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
upon written request addressed to the Commission, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Class A Common Stock is listed on the New York Stock Exchange.
Application has been made to list the Class B Common Stock on the New York
Stock Exchange. Reports, proxy statements, information statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act"). This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement, which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment
of charges prescribed by the Commission.
2
<PAGE>
SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus.
Class B Common Stock.............. Class B Common Stock, $.1667 par value per
share.
Size of Offering..................
250,000 shares of Class B Common Stock
(287,500 shares if the Underwriter
exercises its over-allotment option in
full). However, the Company will assess
investor demand and intends to increase
the number of shares offered hereby as
necessary to satisfy demand. The final
maximum size of the offering will be
publicly announced after the close of
business on the last day before the
initial public offering price is
determined.
Use of Proceeds...................
The Company is making this offering in
response to the formation of unit
investment trusts unaffiliated with
Berkshire that would invest only in
Berkshire's Class A Common Stock or only
in Class A Common Stock and the stock of
other public companies in which Berkshire
has or has had a publicly disclosed
investment. See "The Offering". The
Company expects that, in time, it will use
the net proceeds for acquisitions of
businesses, for augmenting the capital of
its insurance subsidiaries, or for other
general corporate purposes. However, the
Company has no immediate or specific plans
for the use of proceeds from the offering.
The use of proceeds will not change even
if the offering changes by an order of
magnitude in size. See "Use of Proceeds".
Voting Rights..................... Holders of Class B Common Stock will be
entitled to one-two-hundredth (1/200th) of
a vote for each share held of record on
all matters submitted to a vote of
shareholders.
Dividend Rights................... Holders of Class B Common Stock will be
entitled to receive dividends and
distributions (including liquidating
distributions) equal to one-thirtieth
(1/30th) of the amount per share declared
by the Company's Board of Directors for
each share of Class A Common Stock.
Convertibility of Class A Common Commencing on the fifth trading day after
Stock............................. the initial sale of Class B Common Stock
to the public, each share of Class A
Common Stock may be converted into thirty
(30) shares of Class B Common Stock at the
holder's option at any time. Shares of
Class B Common Stock are not convertible
into shares of Class A Common Stock or any
other security.
Common Stock Outstanding..........
As of May , 1996, there were
shares of Class A Common Stock
outstanding. After giving effect to the
offering, before any conversion of shares
of Class A Common Stock there will be
shares of Class B Common Stock
outstanding ( shares if the
Underwriter exercises its over-allotment
option in full).
3
<PAGE>
THE OFFERING
Berkshire is offering shares of its Class B Common Stock, subject to
approval and effectiveness of the Amendment, in response to promotions
involving Berkshire stock by persons unrelated to Berkshire. In these
promotions, the sponsors planned to sell interests in unit investment trusts
that would hold only Berkshire stock, or only Berkshire stock and the stocks
of other public companies in which Berkshire has or has had a publicly
disclosed investment. These trusts planned to market themselves as "miniature"
Berkshires and as a means of indirect investment in Berkshire for as little as
$1,000, when Berkshire's common stock is selling for about thirty times that
amount.
Berkshire's Board of Directors and management believe that these unit
investment trusts, and other similar investment vehicles that would surely be
proposed if the trusts were successfully marketed, are contrary to the long-
term interests of Berkshire and its shareholders. The trusts would be promoted
by sales people motivated by substantial incentive commissions, who management
believes would inevitably seek to sell the trusts by making misleading
references to Berkshire's past performance. Investors in such trusts would
bear the disadvantages of management fees, of taxes and other costs, and of
sales commissions far higher than those borne by buyers of Berkshire stock on
the New York Stock Exchange. Furthermore, many investors in such trusts,
having been brought in by highly aggressive marketing, would be relatively
unsophisticated and would have bought with totally unrealistic hopes that
future growth in Berkshire's stock price would resemble its past growth.
Moreover, if sales of the trusts were as successful as seemed likely, these
new entities would have needed to acquire a large amount of Berkshire stock,
thereby greatly increasing the demand for that stock, even as the supply
remained constant. This new market demand seemed likely to create, at least
temporarily, an unrealistic increase in Berkshire's stock price, unrelated to
any change in the stock's intrinsic value, given that most Berkshire shares
are held by longtime shareholders who have very low income-tax bases for their
holdings and are reluctant to sell their shares regardless of the price
offered for them. Over the years, annual trading in Berkshire stock has in
fact been exceptionally low as a percentage of shares outstanding.
Under these conditions, it seemed likely to Berkshire that the new
promotions would have had financial consequences much like those of a 1920s-
style "bull pool" in which the price of a popular stock was pushed to
artificial heights through activity that combined orchestrated bursts of
buying with a restricted supply. But the consequences to Berkshire stock might
quite possibly be more extreme, given that, first, income taxes were low in
the 1920s and did not tend to inhibit sales by existing shareholders and,
second, the "bull pools" of that day were typically not driven by the tail
wind of high sales commissions. Thus Berkshire believed that the new trusts
destined Berkshire, against its will and without its assistance, to be
associated with stock promotions that were almost sure in due course to create
many disappointed investors who had not fully understood the risks they were
taking.
To be sure, there are rational arguments that a corporation should not mind
a temporary and unrealistic "spike" in its stock price that occurs because of
the promotional activity of others and without fault or participation of the
corporation. After all, an unrealistically high stock price gives current
shareholders advantages of two types: (1) they can, at least for a brief
period, sell their shares at the unrealistically high price, or (2) assuming
they choose not to sell and that the corporation issues stock at the
unrealistically high price, they will benefit from an increase in the
intrinsic value of the shares they have continued to hold.
Current shareholders, however, can attain neither of these advantages
without disadvantaging some other party. For present and future shareholders
as a group, there can be no "free lunch" from a temporary spike in the price-
value ratio of their stock.
Moreover, in Berkshire's view, any advantages possibly accruing to its
present shareholders from an unrealistically high stock price would not
outweigh the long-term disadvantages that continuing
4
<PAGE>
shareholders would probably sustain as a result of Berkshire being unwillingly
associated with the new aggressively-promoted unit trusts. Just as Berkshire
believes that its See's Candies subsidiary would be harmed if unauthentic,
poor-quality candy bearing the See's label were continuously and aggressively
sold by others, Berkshire believes that its business reputation would be
harmed by the new unit trusts, were these to come successfully into existence.
Berkshire's reputation has been an important factor in both the Company's
business and investment purchases, and also in the success of its insurance
operations. Though the point is impossible to quantify, Berkshire believes
that its reputation has added significantly to the Company's intrinsic value
over the years. Berkshire further believes that its reputation, if it remains
unimpaired, will produce substantial gains in the future as well.
Given these conclusions, Berkshire first tried, by means of vigorous
objections, to dissuade the promoters of the unit trusts from proceeding with
their plans. Proving unsuccessful in that attempt, Berkshire was forced to
fall back to the next-best alternative: a public offering of a newly
authorized Class B Common Stock, with the offering to incorporate both
unusually low sales commissions and a prospectus that appropriately emphasizes
and illuminates the negatives for investors considering purchase of the
shares. In creating the Class B shares, which will have economic rights
equivalent to those of one-thirtieth (1/30th) of a common share of the type
Berkshire has long had outstanding, Berkshire intends to provide a direct,
low-cost means of investment in Berkshire so superior to the investments
offered by the unit trust promoters that their products will be rendered
unmarketable.
A simple split of its shares was also considered by Berkshire. One advantage
of that action was clear: It would have ended any marketing of unit trusts.
However, a split would likely have encouraged unsophisticated, price-
insensitive buyers to purchase shares and, absent a major new supply of
shares, might well have created price irrationalities of the type apt to be
produced by the unit trusts.
Holding all the foregoing beliefs, Berkshire, while it would now still
prefer, if it could, to turn back the clock to a time when it did not have to
contend with the unit trusts, has decided to sell not only a minimum of about
$100 million worth of Class B Common Stock as it initially announced, but also
to sell enough additional Class B shares to meet whatever demand remains after
prospective investors have absorbed the precautionary statements in this
Prospectus. Berkshire considers this course of action to be its least-of-evils
choice.
The creation and sale of Berkshire's new Class B shares, with Class A shares
(the former common stock) thereafter being convertible into Class B shares at
a thirty-for-one conversion ratio, will (1) create minor advantages of
convenience with respect to gift taxes for all holders of Berkshire's Class A
shares, and (2) be likely to increase over time the voting power of Warren E.
Buffett and Susan T. Buffett and other very long-term shareholders. But these
points are incidental. The prompting reason for the creation and sale of the
new Class B shares was the threat to Berkshire's reputation posed by the new,
promotional unit trusts that sought to make themselves vehicles through which
investors could acquire indirect interests in Berkshire stock.
Unlike the indirect investments offered by the trusts, shares of Class B
Common Stock entitle holders to the attributes of Berkshire shares, such as
the power to vote on matters put to Berkshire shareholders, the right to
receive Berkshire's annual report and other communications to shareholders,
and the right to attend meetings of Berkshire's shareholders. See "Description
of Capital Stock" for further information on the relative powers, rights, and
qualifications of Class A Common Stock, Class B Common Stock, and Berkshire's
authorized but presently unissued preferred stock.
As noted above, Berkshire has structured this offering to encourage
investors to make their own investment decisions, encumbered by as little
pressure as possible from securities sales people pushing to earn high
commissions. For investors who seek to buy Class B Common Stock, shares are
expected to be available from a large group of securities dealers. However,
the sales commission to dealers has been set at the lowest commercially
reasonable level, so that dealers have less incentive to solicit customers who
have not on their own decided to buy shares of Class B Common Stock.
5
<PAGE>
As is implicit in all of the above, Berkshire is not making the offering
while having in mind any immediate and specific use for the proceeds. To the
contrary, Berkshire does not have at present any identified use for additional
equity capital, though it expects that, in time, the net proceeds will be used
for acquisitions of businesses, for augmenting the capital of insurance
subsidiaries, or for other general corporate purposes. The use of proceeds
will not change even if the offering changes by an order of magnitude in size.
See "Use of Proceeds."
Furthermore, Mr. Buffett and Mr. Munger believe that Berkshire's Class A
Common Stock, whose closing sale price was $33,000 per share on the New York
Stock Exchange on April 18, 1996, the last trading day before this Prospectus'
date, is not undervalued. Neither Mr. Buffett nor Mr. Munger would currently
buy Berkshire shares at that price, nor would they recommend purchase by their
families or friends. For investors determined to buy, however, Mr. Buffett and
Mr. Munger believe that the shares of Class B Common Stock offered hereby are
a superior investment to interests in the unit investment trusts.
CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS
Past Growth Rate in Berkshire Stock is Not an Indication of Future
Results. In the years since Berkshire's present management acquired control of
the Company, its book value per share has grown at a highly satisfactory rate.
But because Berkshire's shareholders' equity has grown to approximately $17
billion as of December 31, 1995, nothing like the growth rate of the past can
be achieved in the future--and it would be clearly erroneous to think
otherwise. Also, Berkshire's stock price has grown in recent years at a faster
rate than Mr. Buffett and Mr. Munger judge the Company's intrinsic value to
have grown. Market overperformance of that kind is likely to foster
underperformance in the future.
Increase in Book Value to Existing Berkshire Shareholders. Berkshire's book
value per share as of December 31, 1995 was $14,426. On the last trading day
in 1995, the closing sale price for Berkshire shares on the New York Stock
Exchange was $32,100. Berkshire's book value per share continues to be far
less than the market price of its shares as of the date of this Prospectus.
Because the market price exceeds the book value per share, the sale of Class B
Common Stock at the fractional equivalent of the market price for Class A
Common Stock will result in an immediate increase in the book value per share
of the shares held by existing Berkshire shareholders. The more shares of
Class B Common Stock sold, the greater will be the increase in book value per
share accruing to holders of Class A Common Stock.
Convertibility of Class A Common Stock. As part of the Amendment, each share
of Class A Common Stock will become convertible into thirty (30) shares of
Class B Common Stock at the option of the holder on or after the fifth trading
day after the initial public sale of the Class B Common Stock. Accordingly,
additional shares of Class B Common Stock will become available to the market
if and when holders of Class A Common Stock convert such shares. Though a
Class B share may sell below one-thirtieth (1/30th) of the market price for
Class A Common Stock, it is unlikely that a Class B share will sell more than
fractionally above one-thirtieth (1/30th) of the market price for Class A
Common Stock because higher prices than that would cause arbitrage activity to
ensue.
Risk of Downward Pressure on Class B Common Stock Market Price. Unlike the
usual practice in public offerings of selling fewer shares than potential
investors have expressed an interest in purchasing, the shares of Class B
Common Stock to be sold by the Company in this offering, plus any shares sold
if the Underwriter exercises its over-allotment option, will represent 100% of
the number of shares for which the Company, through Salomon Brothers Inc and
certain dealers, will have received firm indications of interest from
potential investors. As a result, an active trading market in the shares of
Class B Common Stock may not develop immediately after the offering since all
firm indications known to the Company and Salomon Brothers Inc will have been
satisfied in full, and
6
<PAGE>
subsequent resales of Class B Common Stock offered hereby or issued upon
conversions of shares of Class A Common Stock may result in downward pressure
on the price for shares of Class B Common Stock. If an active trading market
does develop, there can be no assurance that such market will be sustained.
Salomon Brothers Inc currently does not intend to purchase or sell shares of
the Class B Common Stock following the initial offering of the shares of Class
B Common Stock.
Dependence on Key Management. Investment decisions and all other capital
allocation decisions are made for Berkshire's businesses by Mr. Buffett, its
Chairman, age 65, in consultation with Mr. Munger, its Vice Chairman, age 72.
In addition, Ajit Jain, age 44, plays a central role in much of Berkshire's
insurance business, including its "super-cat" specialty, in consultation with
Mr. Buffett. If for any reason the services of any of these individuals, and
particularly Mr. Buffett, were to become unavailable to Berkshire, there could
be a material adverse effect both on Berkshire and on the market price of the
Class B Common Stock.
Super-Cat Insurance. Berkshire believes that in recent years it has been the
largest writer in the world of "super-cat" insurance, whereby reinsurers (such
as Berkshire) assume a risk of large losses from mega-catastrophes such as
hurricanes or earthquakes. This business has produced underwriting gains of
approximately $152 million, $240 million, and $110 million in 1995, 1994, and
1993, respectively, but is virtually certain to produce huge losses in some
years in the future. Berkshire's present underwriting standards (which are
subject to change) seek to limit Berkshire's exposure to a loss from a single
event to $1 billion.
Absence of Shareholder-Designated Contributions Program. For some years
Berkshire has let its shareholders of record designate charitable
contributions to be made by the Company. In 1995 this designation amounted to
$12 per share. It is anticipated that this program will continue in the future
for shareholders of record of Class A Common Stock. However, shares of Class B
Common Stock will not participate in the program.
Concentration of Investments. Compared to other insurers, Berkshire's
insurance subsidiaries keep an unusually high percentage of their assets in
common stocks and diversify their portfolios far less than is conventional. A
significant decline in the general stock market would produce a large decrease
in Berkshire's book value, one far greater than likely to be experienced by
most other property-casualty insurance companies. Such a decrease could have a
material adverse effect on the share price for the Class B Common Stock.
BERKSHIRE HATHAWAY INC.
Berkshire is a holding company owning subsidiaries engaged in a number of
diverse business activities. The most important of these is the property and
casualty insurance business, which Berkshire conducts through subsidiaries
referred to collectively as the Berkshire Hathaway Insurance Group. See "--
Berkshire Hathaway Insurance Group." The investment portfolios of the
insurance subsidiaries include meaningful equity ownership percentages of
other publicly traded companies. See "--Common Stock Investments." In
addition, Berkshire publishes the Buffalo News, a daily and Sunday newspaper
in upstate New York, and its non-insurance subsidiaries engage in a variety of
manufacturing, publication, retail, and finance businesses. See "--Non-
Insurance Businesses of Berkshire."
Operating decisions for the various insurance and non-insurance businesses
of Berkshire are made by the managers of the business units. Investment
decisions and all other capital allocation decisions are made for Berkshire
and its subsidiaries by Mr. Buffett, Berkshire's Chairman, in consultation
with Mr. Munger, its Vice Chairman.
Berkshire's executive offices are located at 1440 Kiewit Plaza, Omaha,
Nebraska 68131, and its telephone number at that location is (402) 346-1400.
7
<PAGE>
Berkshire Hathaway Insurance Group
The Berkshire Hathaway Insurance Group (the "Group") operates a primary or
direct insurance business nationwide and a reinsurance business worldwide. The
largest subsidiary in the Group is National Indemnity Company ("National
Indemnity"), headquartered in Omaha, Nebraska with offices also in Stamford,
Connecticut.
The Group maintains capital strength at high levels, significantly higher
than normal in the industry. Statutory surplus as regards policyholders
increased to approximately $19.5 billion at December 31, 1995. This capital
strength differentiates Group members from their competitors. For example, in
each of the past five years the Group's ratio of net premiums written to year-
end statutory surplus was 10% or less. The industry average net premiums-to-
surplus ratio from 1990 through 1994 ranged from 130% to 157% (based on
statistics published by A.M Best & Company).
Because it maintains large capital in relation to annual premiums written,
Berkshire can pay losses under the most adverse circumstances. This obvious
margin of safety is very attractive to the Group's insureds, and creates
opportunities for the Group to negotiate and enter into contracts of insurance
specially designed to meet unique needs of sophisticated insurance and
reinsurance buyers. Berkshire's capital base also allows the Group to issue
policies with limits larger than other insurance companies are typically
prepared to write. Finally, large capital combined with low overhead allows
the Group to respond to insurance opportunities with exceptional speed and be
selective about the business it writes. The Group can forbear from writing
policies when it perceives rates to be inadequate. Conversely, it can more
fully utilize its capital strength when better-than-industry-average results
may be expected.
Reinsurance. The Reinsurance Division of National Indemnity, located in
Stamford, Connecticut, provides excess of loss and quota share treaty
reinsurance to other property/casualty insurers and reinsurers. Minimal
organizational resources, but huge financial resources, are currently devoted
to this business. Over the past five years, premium volume generated from
reinsurance activities has totalled approximately 75% of aggregate premium
volume produced by the Insurance Group.
During 1990, management of the Group perceived declines in industry capacity
and competition for mega-catastrophe excess-of-loss reinsurance coverages.
Consequently, National Indemnity has written coverages for a number of such
risks. Management believes that in recent years the Group has been the largest
provider in the world of this type of coverage. These coverages may provide
sizeable amounts of indemnification per contract (often in excess of $10
million), and a single event may result in payments under a number of
contracts. This business can produce extreme volatility in reported periodic
results. Accounting consequences, however, do not influence decisions of
Berkshire's management with respect to this or any other business, and this
fact plus the Group's extraordinary financial strength are believed to be the
primary reasons why the Group has become a major provider of these coverages.
Since 1992, there has been a substantial increase in catastrophe reinsurance
capacity for the industry. Most of the additional capacity has arisen from
equity capital raised by newly-formed entities. Berkshire management has
observed that, in some instances, catastrophe reinsurance prices have fallen
below the amounts that it considered adequate. The result was a decrease in
the level of business accepted in 1995. Management anticipates that the level
of business accepted in 1996, and possibly in subsequent years as well, may be
significantly reduced.
In recent years, the Group has entered into several non-traditional
reinsurance arrangements known as finite-risk contracts. These contracts have
become increasingly significant in the Group's business and the
property/casualty insurance marketplace. These reinsurance agreements provide
essentially traditional coverages but also contractually establish minimum and
maximum payouts by the reinsurer. Minimum payout requirements may call for
repayments to the reinsured, on specified
8
<PAGE>
dates, of sums not otherwise paid out by the reinsurer as losses. The amount
of risk transferred, while significant, is limited. Because the period over
which claims are expected to be paid can be lengthy, the time value of money
is an important element in pricing and setting terms for these contracts.
Transaction amounts and limits of indemnifications are likely to be large. In
addition, a single contract may relate to loss occurrences in a number of
lines of business that span a number of years.
Providers of such non-traditional products need significant financial
strength. Increased competition for such business and new accounting standards
for ceding companies have limited the number of opportunities to write such
business, particularly with respect to retroactive reinsurance coverages of
past loss events. However, the occasional acceptance of such business produced
considerable premium volume to the Group in 1994 and 1995.
Primary or Direct Basis Insurance. The Group also writes insurance on a
primary or direct basis (policies issued in the name of and to the insured
party). The Group's primary or direct business was significantly expanded when
GEICO Corporation ("GEICO") became a wholly owned subsidiary of Berkshire on
January 2, 1996.
GEICO, through its own subsidiaries, is a multiple line property casualty
insurer, the principal business of which is writing private passenger
automobile insurance. GEICO markets its policies to individuals in 49 states
and the District of Columbia by direct response methods, which is a major
aspect of GEICO's strategy to be a low-cost provider of such coverages. See
"GEICO Merger and Certain Pro Forma Condensed Financial Data."
Other Group members engaged in primary or direct basis insurance underwrite
multiple lines of principally casualty coverages nationwide for primarily
commercial accounts. These members write business through insurance agents and
brokers. The traditional business of National Indemnity has been largely in
providing liability coverages for commercial truck and bus operators and
related commercial transportation activities that require specialized
underwriting knowledge and techniques. The Commercial Casualty Division and
Professional Liability and Special Risk Division of National Indemnity, also
with offices in Stamford, solicit and underwrite especially large or unusual
risks. Other member companies, referred to as "homestate operations," market
various commercial coverages for standard risks to insureds in an increasing
number of selected states. The Group also insures the credit card debt of
policyholders through Berkshire's 82%-owned Central States Indemnity Co. of
Omaha ("Central States"), which markets to individuals through credit card
issuers nationwide, and provides workers' compensation insurance primarily to
employers in California through Cypress Insurance Company.
All primary or direct insurance operations employ disciplined underwriting
practices that encourage rejection of underpriced risks. Other than at GEICO
and Central States, premium rates for these businesses peaked in 1986 and have
generally decreased thereafter. Because of the lower rates, the Group's other
members have written substantially less of this business since 1986. The
amount of primary or direct insurance premiums written in recent years by
these businesses has stabilized at about 25% of the amount written in 1986.
Underwriting Results and "Float". The increases in reinsurance business in
recent years have produced an exceptional increase in the amount of "float"
generated by the Group. Float is an estimate of the net investable funds
provided by policyholders to the Group and held by it prior to payment of
claims and claims adjustment expenses. Float arises because of the time lapse
between the dates premiums are paid by policyholders and the dates policy
costs, primarily losses and loss adjustment expenses, are paid. Float equals
the sum of unpaid losses, unpaid loss adjustment expenses, unearned premiums,
and other liabilities to policyholders, less the aggregate of premium balances
receivable, amounts recoverable as reinsurance on paid and unpaid losses,
deferred policy acquisition costs, deferred charges applicable to assumed
reinsurance and prepaid income taxes. The Group generates float in exceptional
amounts relative to premium volume. Since 1967, when Berkshire entered the
insurance business, its float has grown at an annual compounded rate of 20.7%.
9
<PAGE>
The "cost" of float in any year is the underwriting loss that occurs when
premiums earned by an insurer are less than losses and expenses incurred by
the insurer for the year. In years when an underwriting profit is achieved, as
the Group has in each of the past three years, the "cost" of float is
negative; that is, the Group has had access to money at no cost. The following
table shows the Group's pre-tax underwriting profit or loss (stated on the
basis of generally accepted accounting principles and not including GEICO),
average float, and approximate cost of float (compared to the year-end yield
on long-term U.S. Treasury bonds) for the past five years:
<TABLE>
<CAPTION>
YEAR-END
YIELD ON
(1) LONG-TERM
UNDERWRITING (2) APPROXIMATE GOVERNMENT
GAIN (LOSS) AVERAGE FLOAT COST OF FUNDS BONDS
--------------- --------------- -------------- ----------
(IN $ MILLIONS) (IN $ MILLIONS)
<S> <C> <C> <C> <C>
1991.............. (119.6) 1,895.0 6.31% 7.40%
1992.............. (109.0) 2,290.4 4.76% 7.39%
1993.............. 30.0 2,624.7 less than zero 6.35%
1994.............. 129.0 3,056.6 less than zero 7.88%
1995.............. 19.6 3,607.2 less than zero 5.95%
</TABLE>
Underwriting results from the last three years have benefitted from the
profitability of the super-cat business (see "Certain Risk Factors and
Investment Considerations," page 6).
Common Stock Investments
Berkshire's investment portfolio, held principally through insurance
subsidiaries, includes marketable equity securities valued at approximately
$21.7 billion as of March 31, 1996. Such investments include:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
OF CAPITAL
STOCK
-----------
<S> <C>
American Express Company......................................... 10%
The Coca-Cola Company............................................ 8%
The Walt Disney Company.......................................... 3 1/2%
Federal Home Loan Mortgage Company............................... 9%
The Gillette Company............................................. 11%
Salomon Inc...................................................... 18%*
The Washington Post Company...................................... 16%
Wells Fargo & Company............................................ 7%
</TABLE>
- --------
* Includes convertible preferred stock with a carrying value of $588 million
as of March 31, 1996 not included in the $21.7 billion stated above.
Much information about these publicly owned companies is available, including
that released from time to time by the companies themselves.
Mr. Buffett and Mr. Munger select marketable equity securities in much the
same way as they evaluate a business for acquisition in its entirety. They
seek businesses that they can understand, with favorable long-term prospects,
operated by honest and competent people, and available at an attractive price.
When pro-rata portions of outstanding businesses sell in the securities
markets at discounts from the prices they would command in negotiated
transactions involving entire companies, bargains in business ownership that
are not available through corporate acquisition can be obtained indirectly
through minority stock ownership.
Berkshire is willing to take very large positions in selected companies, not
with an intention of taking control, but with the expectation that excellent
business results by corporations will translate over the long term into
correspondingly excellent market value and dividend results for owners,
minority as well as majority. Large positions of the type reflected in the
table above may be less liquid
10
<PAGE>
than smaller positions, in that such large positions often cannot be sold
readily without causing a decline in market value. However, Berkshire is
willing to hold such positions for the very long term.
Non-Insurance Businesses of Berkshire
Berkshire's non-insurance businesses engage in a variety of manufacturing,
publication, retail, and finance activities. Mr. Buffett and Mr. Munger apply
the same economic principles in acquiring whole businesses as in acquiring
marketable equity securities. They seek businesses they understand, with
demonstrated consistent earning power, good returns on equity while employing
little or no debt, and management in place. Applying these criteria, Berkshire
has accumulated over many years a collection of businesses operated by
managers, whom Mr. Buffett and Mr. Munger admire and trust, working with
extraordinary autonomy.
Berkshire's non-insurance businesses accounted for approximately 62% of
Berkshire's consolidated revenues and 26% of consolidated net earnings in 1995
and consisted primarily of the following:
<TABLE>
<CAPTION>
PRODUCT OR SERVICE
------------------
<S> <C>
See's Candies Manufacture and distribution of candy at retail and by
catalog solicitation
World Book Publication and marketing of encyclopedias and other
reference materials, principally by the direct sales method
Kirby, Douglas and Cleveland Wood Manufacture and sale of home cleaning systems, principally to
Divisions of The Scott Fetzer distributors
Company
Nebraska Furniture Mart and R.C. Retailing of home furnishings
Willey Home Furnishings
Buffalo News Publication of a daily and Sunday newspaper
H. H. Brown Shoe Co., Lowell Manufacture, importing and distribution of shoes at wholesale
Shoe, Inc. and Dexter Shoe and retail
Companies
Fechheimer Bros. Co. Manufacture and distribution of uniforms at wholesale and
retail
Borsheim's and Helzberg's Diamond Retailing of fine jewelry
Shops
Scott Fetzer Financial Group and Consumer and commercial financing and annuities
other finance companies
Campbell Hausfeld and other Scott Manufacture and sale of diverse industrial tools and products
Fetzer Manufacturing Group
companies
</TABLE>
USE OF PROCEEDS
The net proceeds to be received by Berkshire from the sale of the shares
offered hereby are estimated to be $ ($ if the Underwriter
exercises its over-allotment option in full). The Company is making this
offering in response to the formation of unit investment trusts unaffiliated
with Berkshire that would invest only in the Class A Common Stock or only in
the Class A Common Stock and the stock of other public companies in which
Berkshire has or has had a publicly disclosed investment. The Company expects
that, in time, it will use the net proceeds for acquisitions of businesses,
for augmenting the capital of its insurance subsidiaries, or for other general
corporate purposes. However, the Company has no immediate or specific plans
for the use of the net proceeds from the offering. The use of proceeds will
not change even if the offering changes by an order of magnitude in size. See
"The Offering."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from
Berkshire's consolidated financial statements included in documents which are
incorporated by reference into this Prospectus, and should be read in
conjunction with such documents. See "Incorporation of Certain Documents by
Reference." These financial data do not consolidate the assets or operations
of GEICO. See "GEICO Merger and Certain Pro Forma Condensed Financial Data."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales and service
revenues.............. $2,755.9 $2,351.9 $1,962.9 $1,774.4 $1,651.1
Insurance premiums
earned................ 957.5 923.2 650.7 664.3 776.4
Interest and dividend
income................ 474.8 426.1 354.1 364.9 347.3
Income from investment
in Salomon Inc........ 78.8 30.1 63.0 63.0 63.0
Income from finance
businesses............ 26.6 24.9 22.2 20.7 19.5
Realized investment
gain.................. 194.1 91.3 546.4 89.9 192.5
-------- -------- -------- -------- --------
Total revenues...... $4,487.7 $3,847.5 $3,599.3 $2,977.2 $3,049.8
======== ======== ======== ======== ========
Earnings:
Before realized
investment gain and
cumulative effect of
accounting change..... $ 600.2 $ 433.7 (1) $ 402.4 (2) $ 347.7 $ 315.7
Realized investment
gain.................. 125.0 61.1 356.7 59.6 124.2
Cumulative effect of
change in accounting
for income taxes...... -- -- (71.0) -- --
-------- -------- -------- -------- --------
Net earnings........ $ 725.2 $ 494.8 $ 688.1 $ 407.3 $ 439.9
======== ======== ======== ======== ========
Sources of net earnings:
Property and casualty
insurance:
Underwriting.......... $ 10.4 $ 79.9 $ 19.2 $ (71.1) $ (77.2)
Investment income..... 416.3 349.2 320.9 305.8 285.1
-------- -------- -------- -------- --------
426.7 429.1 340.1 234.7 207.9
Non-insurance
businesses............ 191.4 202.2 166.5 154.1 131.8
Realized investment
gain(3)............... 125.0 61.1 356.7 59.6 124.2
Interest expense....... (34.9) (37.3) (35.6) (62.9) (57.2)
Other.................. 17.0 12.3 6.7 21.8 33.2
-------- -------- -------- -------- --------
Earnings before non-
recurring charges and
effect of accounting
change................. 725.2 667.4 834.4 407.3 439.9
Non-recurring charges
and effect of
accounting changes.... -- (172.6)(1) (146.3)(4) -- --
-------- -------- -------- -------- --------
Net earnings........ $ 725.2 $ 494.8 $ 688.1 $ 407.3 $ 439.9
======== ======== ======== ======== ========
Net earnings per
share.............. $ 611 $ 420 $ 595 $ 355 $ 384
======== ======== ======== ======== ========
Average shares
outstanding, in
thousands.......... 1,187 1,178 1,156 1,146 1,146
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year-end data:
Total assets................ $29,928.8 $21,338.2 $19,520.5 $17,132.0 $14,461.9
Borrowings under investment
contracts and other
debt(5).................... 1,061.7 810.7 972.4 1,154.7 1,100.5
Shareholders' equity........ 17,217.1 11,875.0 10,428.5 8,896.4 7,379.9
Common shares outstanding,
in thousands............... 1,194 1,178 1,178 1,149 1,146
Shareholders' equity per
outstanding share.......... $ 14,426 $ 10,083 $ 8,854 $ 7,745 $ 6,437
========= ========= ========= ========= =========
</TABLE>
- -------
(1) Includes a charge of $172.6 representing an other-than-temporary decline
in value of investment in USAir Group, Inc. preferred stock.
(2) Includes a charge of $75.3 representing the effect of the change in
federal income tax rates on deferred taxes applicable to unrealized
appreciation.
(3) The amount of realized gain for any given period has no predictive value,
and variations in amount from period to period have no practical
analytical value, particularly in view of the unrealized price
appreciation now existing in Berkshire's consolidated investment
portfolio.
(4) Includes a charge of $71 related to change in accounting for income taxes
and $75.3 as described in (2) above.
(5) Excludes borrowings of finance businesses.
12
<PAGE>
GEICO MERGER
AND CERTAIN PRO FORMA CONDENSED FINANCIAL DATA
GEICO, through its subsidiaries, is a multiple line property casualty
insurer, the principal business of which is writing private passenger
automobile insurance. GEICO became an indirect wholly owned subsidiary of
Berkshire on January 2, 1996 (the "Merger Date") through the merger of GEICO
with an indirect Berkshire subsidiary. Berkshire subsidiaries had previously
acquired shares of GEICO prior to 1980, and held almost 51% of the outstanding
GEICO shares as of the Merger Date. Berkshire paid an aggregate consideration
of approximately $2.3 billion in cash in the merger.
GEICO's audited consolidated financial statements as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
are incorporated into Berkshire's Current Report on Form 8-K filed March 27,
1996, incorporated herein by reference. See "Incorporation of Certain
Documents by Reference."
The following unaudited pro forma combined condensed financial data result
from combining the separate consolidated financial data of GEICO and
Berkshire.
PRO FORMA COMBINED CONDENSED BALANCE SHEET*
AS OF DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents...... $ 758.3
Investments:
Securities with fixed
maturities................... 5,104.0
Marketable equity securities.. 20,812.9
Receivables.................... 1,213.9
Goodwill....................... 2,293.7
Other assets................... 2,432.9
---------
$32,615.7
=========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Property and casualty
insurance policyholder
liabilities.................. $ 7,655.5
Income taxes, principally
deferred..................... 4,873.6
Borrowings under
investment agreements and
other debt................... 1,475.5
Other liabilities............. 1,607.8
---------
15,612.4
---------
Minority shareholders'
interest..................... 264.5
---------
Total shareholders' equity.... 16,738.8
---------
$32,615.7
=========
</TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS*
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Revenues:
Insurance premiums earned............................................ $3,744.5
Sales and service revenues........................................... 2,755.9
Investment income and other.......................................... 631.1
Realized investment gain............................................. 215.7
--------
7,347.2
--------
Cost and expenses:
Insurance losses and underwriting expenses........................... 3,642.5
Cost of products and services sold................................... 1,706.7
Selling, general and administrative.................................. 816.9
Interest expense..................................................... 90.9
--------
6,257.0
--------
Earnings before income taxes and minority interest.................... 1,090.2
Income taxes and minority interest................................... 289.6
--------
Net earnings.......................................................... $ 800.6
========
</TABLE>
- --------
* As if the GEICO merger had occurred on December 31, 1995 (with respect to
the Pro Forma Combined Condensed Balance Sheet) and as if it had occurred as
of the beginning of 1995 (with respect to the Pro Forma Combined Condensed
Statement of Earnings), and reflecting certain pro forma adjustments which
are described in Berkshire's Current Report on Form 8-K filed March 27,
1996, incorporated in this Prospectus by reference.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon approval and effectiveness of the Amendment, the authorized capital
stock of the Company will consist of 1,500,000 shares of Class A Common Stock,
$5 par value per share, 50,000,000 shares of Class B Common Stock, $.1667 par
value per share, and 1,000,000 shares of preferred stock, no par value per
share ("Preferred Stock").
The following summary of certain provisions of the Class A Common Stock,
Class B Common Stock, and Preferred Stock of the Company does not purport to
be complete and is subject to, and qualified in its entirety by, the
provisions of applicable law and the Company's Restated Certificate of
Incorporation, including Article FOURTH thereof as proposed to be amended
(defining the Company's capital stock) included as an exhibit to the
Registration Statement of which this Prospectus is a part.
The holders of outstanding shares of Class A Common Stock are entitled to
one vote, and the holders of outstanding shares of Class B Common Stock will
be entitled to one-two-hundredth (1/200th) of a vote, for each share held of
record on all matters submitted to a vote of shareholders. Unless otherwise
required by the Delaware General Corporation Law, the Class A Common Stock and
Class B Common Stock will vote as a single class with respect to all matters
submitted to a vote of shareholders of the Company.
Mr. Buffett owns 39.8% of Berkshire's Class A Common Stock, and he shares
voting and investment power over another 3.1% of such stock, which is owned by
his wife Susan T. Buffett, and 0.4% of such stock, which is owned by a trust
of which he is trustee but in which he has no economic interest. Mr. and Mrs.
Buffett have entered into a voting agreement with Berkshire providing that,
should the voting power of shares held by Mr. and Mrs. Buffett and the trust
exceed 49.9% of the total voting power of Berkshire voting securities, they
will vote their shares in excess of that percentage proportionally with the
votes of the other Berkshire shareholders.
Commencing on the fifth business day after the initial sale of Class B
Common Stock to the public, each share of Class A Common Stock may be
converted into thirty (30) shares of Class B Common Stock at the holder's
option at any time. Shares of Class B Common Stock are not convertible into
Class A Common Stock or any other security.
Holders of Class A Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Holders of Class B Common Stock will be entitled to
dividends equal to one-thirtieth (1/30th) of the amount per share declared by
the Board of Directors for each share of Class A Common Stock. Dividends with
respect to the Class B Common Stock will be paid in the same form and at the
same time as dividends with respect to Class A Common Stock, except that, in
the event of a stock split or stock dividend, holders of Class A Common Stock
will receive shares of Class A Common Stock and holders of Class B Common
Stock will receive shares of Class B Common Stock, unless otherwise
specifically designated by resolution of the Board of Directors. The Company
has not declared a cash dividend since 1967 and has no present intention to
pay a dividend on Class B Common Stock or on Class A Common Stock (which would
necessitate a one-thirtieth (1/30th) equivalent dividend on Class B Common
Stock) in the future.
In the event of the liquidation, dissolution or winding-up of the Company,
holders of Class A Common Stock and Class B Common Stock are entitled to share
ratably in all assets remaining after the payment of liabilities, with holders
of Class B Common Stock entitled to receive per share one-thirtieth (1/30th)
of any amount per share received by holders of Class A Common Stock. Neither
holders of Class A Common Stock nor Class B Common Stock shall have preemptive
rights to subscribe for additional shares of either class. All outstanding
shares of Class A Common Stock are, and all shares of Class B Common Stock to
be outstanding upon completion of this offering will be, fully paid and
nonassessable.
14
<PAGE>
The Company may issue the Preferred Stock in one or more series. The Board
of Directors is authorized to determine, with respect to each series of
Preferred Stock which may be issued, the powers, designations, preferences,
and rights of the shares of such series and the qualifications, limitations,
or restrictions thereof, including any dividend rate, redemption rights,
liquidation preferences, sinking fund terms, conversion rights, voting rights
and any other preferences or special rights and qualifications. The effect of
any issuance of the Preferred Stock upon the rights of holders of the Class A
Common Stock and Class B Common Stock depends upon the respective powers,
designations, preferences, rights, qualifications, limitations and
restrictions of the shares of one or more series of Preferred Stock as
determined by the Board of Directors. Such effects might include dilution of
the voting power of the Class A Common Stock and Class B Common Stock, the
subordination of the rights of holders of Class A Common Stock and Class B
Common Stock to share in the Company's assets upon liquidation, and reduction
of the amount otherwise available for payment of dividends on Class A Common
Stock and Class B Common Stock.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to Salomon Brothers Inc (the "Underwriter"),
and the Underwriter has agreed to purchase, the shares of Class B Common Stock
offered hereby. In the Underwriting Agreement, the Underwriter has agreed,
subject to the terms and conditions set forth therein, to purchase all the
shares offered hereby if any shares are purchased. The Underwriter proposes
initially to offer the shares to the public at the public offering price set
forth on the cover page of this Prospectus.
Subject to the terms and conditions set forth in separate selected dealer
agreements, the Underwriter has agreed to sell to certain dealers (the
"Dealers"), and each of the Dealers has individually agreed to purchase, the
shares of Class B Common Stock allocated by the Underwriter for purchase by
such Dealer, in each case at the public offering price set forth on the cover
page of this Prospectus less a selling concession of $ per share of Class
B Common Stock sold to such Dealer.
After the offering pursuant to this Prospectus commences, the public
offering price and such concession may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments which the Underwriter may be
required to make in respect of such liabilities.
The Underwriter does not currently intend to purchase or sell shares of the
Class B Common Stock following the initial offering of the shares of Class B
Common Stock, but may do so if its intention changes. The Underwriter, acting
as principal or agent, may use this Prospectus in connection with offers and
sales of the Class B Common Stock offered hereby and any other shares of Class
B Common Stock outstanding from time to time in the course of its business as
a broker-dealer. Such sales, if any, will be made at prevailing market prices
at the time of sale.
The Underwriter is a wholly-owned subsidiary of Salomon Inc. The Company
owns common and convertible preferred stock representing approximately 18% of
the voting power of Salomon Inc. Mr. Buffett, Mr. Munger, and Louis A.
Simpson, President and Chief Executive Officer--Capital Operations of GEICO,
are directors of Salomon Inc. Because of such ownership and other
relationships between the Company and the Underwriter, the Company may be
deemed to be an affiliate of the Underwriter. Accordingly, the offering is
being made pursuant to the provisions of Schedule E of the By-Laws of the
National Association of Securities Dealers, Inc.
15
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the shares offered hereby will be passed
upon for the Company by Munger, Tolles & Olson, Los Angeles, California, and
for the Underwriter by Cravath, Swaine & Moore, New York, New York. Cravath,
Swaine & Moore has previously represented, and may continue to represent,
GEICO Corporation in connection with its significant legal matters.
EXPERTS
The financial statements and related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports which
are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of GEICO Corporation and subsidiaries
incorporated by reference in the Company's Current Report on Form 8-K dated
March 27, 1996, which is incorporated in this Prospectus by reference, have
been audited by Coopers & Lybrand L.L.P., independent auditors, as stated in
their report which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
Sections 13 and 14 of the Exchange Act (File No. 1-10125) are incorporated
herein by reference: (i) the Company's Annual Report on Form 10-K for the year
ended December 31, 1995; (ii) the Company's Current Report on Form 8-K filed
on January 16, 1996; (iii) the Company's Current Report on Form 8-K filed on
February 15, 1996; (iv) the Company's Current Report on Form 8-K filed on
March 27, 1996; and (v) the description of the Company's Class B Common Stock
included in the Registration Statement on Form 8-A filed on April 2, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus, and prior
to the termination of this offering, shall be deemed to be incorporated by
reference in this Prospectus and to be part of this Prospectus from the date
of filing of such documents.
Any statement contained in this 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 Prospectus to the extent that a statement
contained in this Prospectus or in any subsequently filed document which also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered may obtain, without charge, upon written or oral
request, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Written requests
for such copies should be directed to Lancaster Financial Fulfillment Center,
1842 Colonial Village Lane, Lancaster, Pennsylvania 17601. Telephone requests
for such copies should be directed to (212) 341-7474.
16
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information ..................................................... 2
Summary of the Offering ................................................... 3
The Offering .............................................................. 4
Certain Risk Factors and Investment Considerations......................... 6
Berkshire Hathaway Inc. .................................................. 7
Use of Proceeds ........................................................... 11
Selected Consolidated Financial Data ...................................... 12
GEICO Merger and Certain Pro Forma
Condensed Financial Data ................................................. 13
Description of Capital Stock .............................................. 14
Plan of Distribution ...................................................... 15
Legal Matters ............................................................. 16
Experts ................................................................... 16
Incorporation of Certain Documents by Reference............................ 16
</TABLE>
250,000 SHARES
BERKSHIRE HATHAWAY INC.
CLASS B COMMON STOCK
($.1667 PAR VALUE)
-----------------------------
SALOMON BROTHERS INC
-----------------------------------
PROSPECTUS
DATED MAY , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering are estimated as follows:(1)
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 108,160
NASD fee...................................................... $ 30,500
Blue sky fees and expenses.................................... 12,000
NYSE listing fees............................................. $ 6,775
Printing and engraving expenses............................... 185,000
Legal fees and expenses....................................... 125,000
Accounting fees and expenses.................................. (2)
Miscellaneous................................................. (2)
----------
Total....................................................... $ (2)
==========
</TABLE>
- --------
(1) All amounts other than the SEC registration fee, NASD fee, and NYSE
listing fees are estimated.
(2) To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers the Company
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened by reason
of the fact that such person is or was a director, officer, employee or agent
of the Company or is or was serving as such with respect to another
corporation or other entity at the request of the Company. Section 10 of the
Company's By-Laws provides that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware, indemnify
directors and officers of the Company from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
Section. Additionally, as permitted by said Section and the Company's By-Laws,
the Company has entered into Indemnification Agreements with each of its
Directors and Officers. The description of these Indemnification Agreements
under the caption "Summary of the Indemnification Agreements" on page 9 of the
Company's definitive proxy statement for its May 19, 1987 Annual Meeting of
Stockholders, Commission File No. 0-7413, is incorporated herein by reference.
As permitted by Section 102 of the General Corporation Law of Delaware, the
Company's Restated Certificate of Incorporation includes as Article Tenth
thereof a provision eliminating, to the extent permitted by Delaware law, the
personal liability of each director of the Company to the Company or any of
its shareholders for monetary damages resulting from breaches of such
director's fiduciary duty of care.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<C> <S>
1. Form of Underwriting Agreement
4.1 Article FOURTH of the registrant's Restated Certificate of
Incorporation, as proposed to be amended (incorporated by
reference to Exhibit A to the registrant's Definitive Proxy
Statement dated March 18, 1996 for registrant's Annual Meeting
of Shareholders to be held May 6, 1996).*
4.2 Form of Class B Common Stock certificate*
5 Opinion of Munger, Tolles & Olson*
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of Munger, Tolles & Olson (contained in Exhibit 5)*
24 Power of attorney (see page II-3)*
99.1 Voting Agreement dated March 15, 1996 among the registrant,
Warren E. Buffett, Susan T. Buffett, and the Howard Buffett
Family Trust*
99.2 Form of Selected Dealer Agreement and accompanying materials*
</TABLE>
- --------
* Filed as an Exhibit to the registrant's Registration Statement on Form S-3
(Registration No. 333-02141) on April 2, 1996.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement, and to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That, for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
II-2
<PAGE>
(6) That, for the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS PRE-EFFECTIVE
AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OMAHA, STATE OF
NEBRASKA, ON APRIL 19, 1996.
BERKSHIRE HATHAWAY INC.
By /s/ MARC D. HAMBURG
_____________________________________
Marc D. Hamburg
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW
BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
WARREN E. BUFFETT* Chairman of the Board and April 19, 1996
- ------------------------------------- Director (principal
Warren E. Buffett executive officer)
/s/ MARC D. HAMBURG Vice President and Chief April 19, 1996
- ------------------------------------- Financial Officer (principal
Marc D. Hamburg financial officer)
DANIEL J. JAKSICH* Controller (principal April 19, 1996
- ------------------------------------- accounting officer)
Daniel J. Jaksich
CHARLES T. MUNGER* Vice-Chairman of the Board April 19, 1996
- ------------------------------------- and Director
Charles T. Munger
SUSAN T. BUFFETT* Director April 19, 1996
- -------------------------------------
Susan T. Buffett
MALCOLM G. CHACE, III* Director April 19, 1996
- -------------------------------------
Malcolm G. Chace, III
WALTER SCOTT, JR.* Director April 19, 1996
____________________________________
Walter Scott, Jr.
HOWARD G. BUFFETT* Director April 19, 1996
- -------------------------------------
Howard G. Buffett
</TABLE>
*By /s/ MARC D. HAMBURG
- -------------------------------------
Marc D. Hamburg
Attorney-in-Fact
pursuant to Power of Attorney
previously filed
II-4
<PAGE>
EXHIBIT 1
Berkshire Hathaway Inc.
250,000 Shares/*/
Class B Common Stock
($.1667 par value)
Underwriting Agreement
New York, New York
May , 1996
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Berkshire Hathaway Inc., a Delaware corporation (the "Company"), proposes
to sell to you (the "Underwriter") 250,000 shares of Class B Common Stock,
$.1667 par value per share ("Class B Common Stock"), of the Company (said shares
to be issued and sold by the Company being hereinafter called the "Underwritten
Securities"). The Company also proposes to grant to the Underwriter an option
to purchase up to 37,500 additional shares of Class B Common Stock (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities").
1. Representations and Warranties. The Company represents and warrants
-------------------------------
to, and agrees with, the Underwriter as set forth below in this Section 1.
Certain terms used in this Section 1 are defined in paragraph (c) hereof.
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933 (the "Act") and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (file
number 333-02141) on such Form, including a related preliminary prospectus,
for the registration under the Act of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
- ----------------
/*/ Plus an option to purchase from Berkshire Hathaway Inc. up to 37,500
additional shares to cover over-allotments.
<PAGE>
2
including the related preliminary prospectus, each of which has previously
been furnished to the Underwriter. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment to such registration statement,
including the form of final prospectus or (ii) a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause
(ii), the Company has included in such registration statement, as amended
at the Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in the
Prospectus with respect to the Securities and the offering thereof. As
filed, such amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together with all
other such required information, with respect to the Securities and the
offering thereof and, except to the extent the Underwriter shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to the Underwriter prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised the Underwriter,
prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date, the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act and the Securities Exchange Act of 1934 (the
"Exchange Act") and the respective rules thereunder; on the Effective Date,
the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the
<PAGE>
3
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
-------- --------
representations or warranties as to the information contained in or omitted
from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of the Underwriter specifically for
inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement and any post-effective amendment or
amendments thereto became or become effective. "Execution Time" shall mean
the date and time that this Agreement is executed and delivered by the
parties hereto. "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in paragraph (a) above and any preliminary
prospectus included in the Registration Statement at the Effective Date
that omits Rule 430A Information. "Prospectus" shall mean the prospectus
relating to the Securities that is first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is
required, shall mean the form of final prospectus relating to the
Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to
in paragraph (a) above, including incorporated documents, exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended. Such term shall include
any Rule 430A Information deemed to be included therein at the Effective
Date as provided by Rule 430A. "Rule 424", "Rule 430A" and "Regulation
S-K" refer to such rules or regulation under the Act. "Rule 430A
Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A. Any reference herein to
the Registration Statement, a Preliminary Prospectus
<PAGE>
4
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which
were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of such Preliminary Prospectus or
the Prospectus, as the case may be; and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act
after the Effective Date of the Registration Statement, or the issue date
of any Preliminary Prospectus or the Prospectus, as the case may be, deemed
to be incorporated therein by reference.
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to the Underwriter, and the Underwriter agrees to
purchase from the Company, at a purchase price of $ per share, the
Underwritten Securities.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the Underwriter to purchase up to 37,500 shares of Option Securities
at the same purchase price per share as the Underwriter shall pay for the
Underwritten Securities. Said option may be exercised only to cover over-
allotments in the sale of the Underwritten Securities by the Underwriter. Said
option may be exercised in whole or in part at any time (but not more than once)
on or before the 30th day after the date of the Prospectus upon written or
telegraphic notice by the Underwriter to the Company setting forth the number of
shares of the Option Securities as to which the Underwriter is exercising the
option and the settlement date. Delivery of certificates for the shares of
Option Securities by the Company, and payment therefor to the Company, shall be
made as provided in Section 3 hereof.
3. Delivery and Payment. Delivery of and payment for the
---------------------
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third business
day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
May , 1996, or such later date (not later than May , 1996) as the Underwriter
shall designate,
<PAGE>
5
which date and time may be postponed by agreement between the Underwriter and
the Company (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Underwriter for the account of the Underwriter against payment by the
Underwriter of the purchase price thereof to or upon the order of the Company by
wire transfer in immediately available funds. Delivery of the Underwritten
Securities and the Option Securities shall be made at such location as the
Underwriter shall reasonably designate at least one business day in advance of
the Closing Date and payment for such Securities shall be made at the office of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York. Certificates
for the Securities shall be registered in such names and in such denominations
as the Underwriter may request not less than two full business days in advance
of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Underwriter in New York, New York, not later than
1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after
the third business day prior to the Closing Date, the Company will deliver (at
the expense of the Company) to the Underwriter, at such location as the
Underwriter shall reasonably designate, on the date specified by the Underwriter
(which shall be within three business days after exercise of said option),
certificates for the Option Securities in such names and denominations as the
Underwriter shall have requested against payment of the purchase price thereof
to or upon the order of the Company by wire transfer in immediately available
funds. If settlement for the Option Securities occurs after the Closing Date,
the Company will deliver to the Underwriter on the settlement date for the
Option Securities, and the obligation of the Underwriter to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriter. It is understood that the Underwriter
------------------------
proposes to offer the Securities for sale to the public as set forth in the
Prospectus.
<PAGE>
6
5. Agreements. The Company agrees with the Underwriter that:
-----------
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus unless the Company has furnished
the Underwriter a copy for its review prior to filing and will not file any
such proposed amendment or supplement to which the Underwriter reasonably
objects. Subject to the foregoing sentence, if the Registration Statement
has become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will cause
the Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory to
the Underwriter of such timely filing. The Company will promptly advise
the Underwriter (i) when the Registration Statement, if not effective at
the Execution Time, and any amendment thereto, shall have become effective,
(ii) when the Prospectus, and any supplement thereto, shall have been filed
(if required) with the Commission pursuant to Rule 424(b), (iii) when,
prior to termination of the offering of the Securities, any amendment to
the Registration Statement shall have been filed or become effective, (iv)
of any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (vi) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the
<PAGE>
7
Act, any event occurs as a result of which the Prospectus as then
supplemented would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, or if
it shall be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the Exchange Act or the respective
rules thereunder, the Company promptly will prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section
5, an amendment or supplement which will correct such statement or omission
or effect such compliance.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Underwriter an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Underwriter and counsel for the
Underwriter, without charge, signed copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by
the Underwriter or dealer may be required by the Act, as many copies of
each Preliminary Prospectus and the Prospectus and any supplement thereto
as the Underwriter may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to the
offering.
(e) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Underwriter may
designate, and will maintain such qualifications in effect so long as
required for the distribution of the Securities and will pay the fee of the
National Association of Securities Dealers, Inc., in connection with its
review of the offering.
6. Conditions to the Obligations of the Underwriter. The
-------------------------------------------------
obligations of the Underwriter to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date
<PAGE>
8
and any settlement date pursuant to Section 3 hereof, to the accuracy of the
statements of the Company made in any certificates pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Underwriter agrees in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectus, and any such supplement, will be
filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Underwriter the opinion
of Munger, Tolles & Olson, counsel for the Company, dated the Closing Date,
to the effect that:
(i) each of the Company and National Indemnity Company, Columbia
Insurance Company and Government Employees Insurance Company
(individually a "Subsidiary" and collectively the "Subsidiaries") has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate power and authority to own
its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business;
<PAGE>
9
(ii) all the outstanding shares of capital stock of the
Subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and any other security interests, claims, liens or
encumbrances;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms to
the description thereof contained in the Prospectus; the Securities
have been duly and validly authorized, and, when issued and delivered
to and paid for by the Underwriter pursuant to this Agreement, will be
fully paid and nonassessable; the Securities have been duly authorized
for listing, subject to official notice of issuance, on the New York
Stock Exchange; the certificates for the Securities are in valid and
sufficient form; and the holders of outstanding shares of capital
stock of the Company are not entitled to preemptive or other rights to
subscribe for the Securities;
(iv) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise, contract or
other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit,
which is not described or filed as required;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such coun-
<PAGE>
10
sel, no stop order suspending the effectiveness of the Registration
Statement has been issued, no proceedings for that purpose have been
instituted or threatened and the Registration Statement and the
Prospectus (other than the financial statements and other financial
and statistical information contained therein as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the Exchange Act and
the respective rules thereunder; and such counsel has no reason to
believe that at the Effective Date the Registration Statement
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus includes
any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriter and such other approvals (specified
in such opinion) as have been obtained;
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
charter or by-laws of the Company or the terms of any indenture or
other agreement or instrument known to such counsel and to which the
Company or any of its subsidiaries is a party or bound or any
judgment, order or decree known to such counsel to be
<PAGE>
11
applicable to the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any of its
subsidiaries; and
(ix) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Delaware or the United States, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriter and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company
and public officials. References to the Prospectus in this paragraph (b)
include any supplements thereto at the Closing Date.
(c) The Underwriter shall have received from Cravath, Swaine & Moore,
counsel for the Underwriter, such opinion or opinions or letters, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement
thereto) and other related matters as the Underwriter may reasonably
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(d) The Company shall have furnished to the Underwriter a certificate
of the Company, signed by the Chairman or Vice Chairman of the Board and
the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all
<PAGE>
12
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or other), earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(e) At the Execution Time and at the Closing Date, Deloitte & Touche
LLP shall have furnished to the Underwriter a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Underwriter, confirming that they are
independent auditors within the meaning of the Act and the Exchange Act and
the respective applicable published rules and regulations thereunder and
stating in effect that:
(i) in their opinion the audited consolidated financial
statements and financial statement schedules included or incorporated
in the Registration Statement and the Prospectus and reported on by
them comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the
related published rules and regulations thereunder;
(ii) on the basis of a reading of the latest unaudited
consolidated financial statements made available by the Company and
its subsidiaries; carrying out certain specified procedures (but not
an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with
<PAGE>
13
respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and audit
committee of the Company and the minutes of the meetings of the
stockholders and directors of the Subsidiary; and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to December 31, 1995, nothing came
to their attention which caused them to believe that:
(1) with respect to the period subsequent to December 31,
1995, there were any increases, at a specified date not more than
three business days prior to the date of the letter, in
borrowings under investment agreements and other debt or any
decreases in the stockholders' equity of the Company as compared
with the amounts shown on the December 31, 1995 pro forma
combined condensed balance sheet included or incorporated in the
Registration Statement and the Prospectus which accounts for the
merger of one of the Company's indirect wholly-owned subsidiaries
with and into GEICO Corporation, or (2) for the period from
January 1, 1996 to such specified date there were any decreases,
as compared with the corresponding period in the preceding year,
in total net earnings of the Company and its subsidiaries
(excluding earnings attributable to the merger of Capital
Cities/ABC, Inc. with Walt Disney Company), on a consolidated
basis, except in all instances for increases or decreases set
forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Underwriter;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in
<PAGE>
14
the Registration Statement and the Prospectus, including the
information set forth under the caption "Selected Consolidated
Financial Data" in the Prospectus, and the information included or
incorporated in Items 1, 6, and 7 of the Company's Annual Report on
Form 10-K, incorporated in the Registration Statement and the
Prospectus, agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation;
(iv) on the basis of a reading of the unaudited pro forma
condensed financial statements included or incorporated in the
Registration Statement and the Prospectus (the "pro forma financial
statements"); carrying out certain specified procedures; inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the pro forma financial statements, nothing came to their attention
which caused them to believe that the pro forma financial statements
do not comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company and its subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Underwriter, so material and adverse as to make
it impractical or inadvisable to
<PAGE>
15
proceed with the offering or delivery of the Securities as contemplated by
the Registration Statement (exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(g) Prior to the Closing Date, the Company shall have furnished to
the Underwriter such further information, certificates and documents as the
Underwriter may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and counsel for the Underwriter, this Agreement
and all obligations of the Underwriter hereunder may be canceled at, or at any
time prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
7. Reimbursement of Underwriter's Expenses. If the sale of the
----------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriter set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 9 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by the Underwriter, the Company will reimburse the Underwriter upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by it in connection with
the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless the Underwriter, the directors, officers, employees
and agents of the Underwriter and each person who controls the Underwriter
within the meaning of either the Act or the Exchange Act and each person who is
deemed to be an "underwriter" within the meaning of Section 2(11) of the Act by
reason of its acting as a selected dealer (a "Selected Dealer") pursuant to the
Selected Dealer Agreement dated April 8, 1996 (each, a "Selected Dealer
Agreement"), between the Underwriter and the Selected Dealer, and each director,
officer, employee and agent of the Selected Dealer and each person who controls
the Selected Dealer within the meaning of either the Act or the Exchange Act, in
each case against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or
<PAGE>
16
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Underwriter specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the meaning of either
the Act or the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Underwriter, but only with reference to written information
relating to the Underwriter furnished to the Company by or on behalf of the
Underwriter specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have. The Company acknowledges
that the statements set forth in the last paragraph of the cover page and in the
last paragraph of the continuation of the cover page and under the heading "Plan
of Distribution" in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus or the Prospectus, and the Underwriter
confirms that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in
<PAGE>
17
respect thereof is to be made against the indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that in the case of paragraph
--------- -------
(a) above such counsel shall be satisfactory to the Underwriter.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel to represent the indemnified
party in accordance with this paragraph (c) within a reasonable time after
notice of the institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the expense of the
indemnifying party; provided, however, that the indemnifying party shall not be
-------- -------
liable for the fees and expenses of more than one separate counsel and more than
one local counsel in each relevant jurisdiction, approved by the Underwriter in
the case of paragraph (a), representing the indemnified parties under paragraph
(a) who are parties to such action. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
<PAGE>
18
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriter agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and the Underwriter
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and by the Underwriter from the offering of the
Securities; provided, however, that in no case shall the Underwriter be
-------- -------
responsible for any amount in excess of the underwriting discount or commission
applicable to the Securities purchased by the Underwriter hereunder. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Underwriter shall contribute in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of the Company and of the Underwriter in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses), and
benefits received by the Underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or the Underwriter. The Company and the Underwriter agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
<PAGE>
19
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls the
Underwriter within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of the Underwriter shall have the same
rights to contribution as the Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) In the event that the indemnity provided in paragraph (a) of this
Section 8 is unavailable or insufficient to hold harmless any Selected Dealer
for any reason, the Selected Dealer shall be entitled to participate in
contribution as provided for in paragraph (d) of this Section 8 on the same
basis as the Underwriter and the Company, provided that the Selected Dealer has
delivered to the Underwriter and the Company its written agreement to so
contribute. In that event, for the purpose of allocating Losses among the
contributing parties, benefits received by the Selected Dealer shall be deemed
to be equal to the total selling concessions received by the Selected Dealer for
sales of Securities purchased by it pursuant to the Selected Dealer Agreement to
which it is a party. The amount of such benefits deemed received by the Selected
Dealer will reduce by an equal amount the amount of benefits deemed received by
the Underwriter for purposes of paragraph (d) of this Section 8. Each person who
controls the Selected Dealer within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of the Selected
Dealer shall have the same rights to contribution as the Selected Dealer.
9. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Underwriter, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Company's Class A Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Underwriter, impracticable or inadvisable to proceed
with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
10. Continuous Offering. The Company will, until this Section 10 is
--------------------
no longer in effect as provided in paragraph (f) of this Section 10:
(a) (i) Amend the Registration Statement or supplement the Prospectus
when necessary to reflect any material changes in the information provided
therein; and (ii) amend the Registration Statement when required to do so in
order to comply with Section 10(a)(3) of the Act as described in Part II, Item
17, of the Registration Statement (subject to the proviso set forth therein);
provided, however, that (A) prior to filing any post-effective amendment to the
- -------- -------
Registration Statement or any supplement to the Prospectus, the Company will
furnish to each of Cravath,
<PAGE>
20
Swaine & Moore, acting as counsel to the Underwriter, and the Underwriter copies
of all such documents proposed to be filed, which documents will be subject to
the review of such Underwriter's counsel and the Underwriter, (B) the Company
will not file any post-effective amendment to the Registration Statement or any
supplement to the Prospectus to which such Underwriter's counsel or the
Underwriter shall reasonably object, and (C) the Company will provide such
Underwriter's counsel and the Underwriter with copies of each amendment or
supplement filed.
(b) Notify the Underwriter's counsel and the Underwriter and (if
requested by any such person) confirm such advice in writing, (i) when any
Prospectus supplement or amendment or post-effective amendment has been filed,
and, with respect to any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission for any post-effective
amendment or supplement to the Registration Statement, any supplement or
amendment to the Prospectus or for additional information; (iii) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of Class B Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceedings for such
purpose; and (v) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any amendment or supplement
thereto untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any amendment or supplement thereto, in order to
make the statements therein not misleading.
(c) Furnish to the Underwriter's counsel and the Underwriter, without
charge, (i) at least one conformed copy of any post-effective amendment to the
Registration Statement; and (ii) as many copies of any amendment or supplement
to the Prospectus as each such person may request.
(d) Consent to the use of the Prospectus or any amendment or
supplement thereto by the Underwriter in connection with the offering and sale
of shares of Class B Common Stock.
(e) Agree to indemnify the Underwriter, and, if applicable,
contribute to the Underwriter, in a manner
<PAGE>
21
similar to that specified in Section 8 with respect to the Securities.
(f) The provisions of this Section 10 shall remain in effect until
December 1, 1996, provided that the Company may terminate its obligations under
this Section 10 at such time earlier or later than December 1, 1996 as the
Company may specify by written notice to the Underwriter not less than 10
business days in advance. Notwithstanding the foregoing, if at the time the
provisions of this Section 10 would otherwise terminate (at December 1, 1996, or
such earlier or later time as the Company may have so specified) the Underwriter
owns any shares of Class B Common Stock, then the provisions of this Section 10
shall continue in effect for such additional period of time as the Underwriter
reasonably requires to sell such shares of Class B Common Stock, provided that
such period of time shall be automatically extended during any period when
Section 10(b)(v) is applicable.
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriter set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Underwriter, will be mailed,
delivered or telegraphed and confirmed to it at Seven World Trade Center, New
York, New York, 10048; or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 1440 Kiewit Plaza, Omaha, Nebraska 68131,
attention of the chief financial officer.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder; provided, however,
-------- -------
that each Selected Dealer and its successors and its officers, directors and
controlling persons described in Section 8 hereof shall be third party
beneficiaries of the provisions of Section 8 hereof.
<PAGE>
22
14. Applicable Law. This Agreement will be governed by and construed
---------------
in accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the Underwriter.
Very truly yours,
Berkshire Hathaway Inc.
By:
........................
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
By:
............................
Title:
