SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GEICO Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value
(2) Aggregate number of securities to which transaction applies:
33,272,033 shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$70.00, the purchase price per share
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(4) Proposed maximum aggregate value of transaction:
$2,329,042,310
(5) Total fee paid:
$465,808.46, equaling 1/50th of one percent of the proposed maximum
aggregate value of transaction
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Preliminary Proxy Materials
[Letterhead of GEICO Corporation]
, 1995
To the Stockholders of GEICO Corporation:
You are cordially invited to attend a Special Meeting of Stockholders
of GEICO Corporation (the "Company") to be held at 10:00 a.m. on December
8, 1995, at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware.
As described in the accompanying Proxy Statement, at the Special
Meeting you will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger dated August 25,
1995 (the "Merger Agreement"), among Berkshire Hathaway Inc.
("Berkshire"), HPKF Inc., an indirect subsidiary of Berkshire ("Sub"),
and the Company, pursuant to which Sub will be merged with and into
the Company (the "Merger") and each outstanding share of Common Stock
of the Company ("Common Stock") will be converted into the right to
receive $70 in cash.
Your Board of Directors has determined that the Merger is in the
best interests of the Company and its Independent Stockholders (as
defined below) and has approved the Merger Agreement and the Merger by
unanimous vote of those directors voting. The Board recommends that
you vote "FOR" approval and adoption of the Merger Agreement.
Consummation of the Merger is subject to certain conditions,
including approval and adoption of the Merger Agreement by the
affirmative vote of the holders of 80% of the outstanding shares of
Common Stock entitled to vote thereon, including the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock
not owned by Berkshire and its subsidiaries (the "Independent
Stockholders"), and the receipt of certain approvals from regulatory
authorities. Only holders of Common Stock of record at the close of
business on October 23, 1995, are entitled to notice of and to vote at
the Special Meeting or any adjournments or postponements thereof.
As of September 15, 1995, the directors and executive officers of
the Company beneficially owned, in the aggregate, 1,543,641 shares of
Common Stock, representing approximately 2.29% of such shares
outstanding. To the knowledge of the Company, all directors and
executive officers of the Company intend to vote their beneficially
owned shares of Common Stock eligible to be voted for the approval and
adoption of the Merger Agreement.
If the Merger is consummated, holders of Common Stock who
properly demand appraisal prior to the Stockholder vote on the Merger
Agreement, do not vote in favor of approval of the Merger Agreement
and otherwise comply with the requirements of Section 262 of the
Delaware General Corporation Law will be entitled to statutory
appraisal rights.
You are urged to read the accompanying Proxy Statement, which
provides you with a description of the terms of the proposed Merger. A
copy of the Merger Agreement is included as Appendix A to the
accompanying Proxy Statement.
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It is very important that your shares be represented at the
Special Meeting. Whether or not you plan to attend the Special
Meeting, you are requested to complete, date, sign and return the
proxy card in the enclosed postage-paid envelope. Failure to return a
properly executed proxy card or vote at the Special Meeting would have
the same effect as a vote against the Merger Agreement. Executed
proxies with no instructions indicated thereon will be voted "FOR"
approval and adoption of the Merger Agreement.
Consummation of the Merger will not occur earlier than January 2,
1996.
Please do not send in your stock certificates at this time. In
the event the Merger is consummated, you will be sent a letter of
transmittal for that purpose promptly thereafter.
Sincerely,
Olza M. Nicely Louis A. Simpson
President and Chief Executive-- President and Chief Executive Officer--
Insurance Operations Capital Operations
<PAGE>
Preliminary Proxy Materials
GEICO CORPORATION
One GEICO Plaza
Washington, DC 20076-0001
Notice of Special Meeting of Stockholders
To Be Held December 8, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
GEICO Corporation (the "Special Meeting") will be held on December 8, 1995,
at 10:00 a.m., at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, for the following purposes:
(i) To consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated August 25, 1995 (the
"Merger Agreement"), among Berkshire Hathaway Inc., a Delaware
corporation ("Berkshire"), HPKF Inc., a Delaware corporation and
an indirect subsidiary of Berkshire ("Sub"), and GEICO
Corporation, a Delaware corporation (the "Company"). A copy of
the Merger Agreement is attached to the accompanying Proxy
Statement as Appendix A. As more fully described in the Proxy
Statement, the Merger Agreement provides that: (A) Sub would be
merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation; (B) the Company would
thereupon become an indirect subsidiary of Berkshire; and (C)
each outstanding share of common stock, par value $1.00 per share
(the "Common Stock"), of the Company (other than certain shares
owned by the Company which would be cancelled, shares owned by
Berkshire or any of its subsidiaries which would remain
outstanding without change and shares held by stockholders who
exercise their appraisal rights under Delaware law) would be
converted into the right to receive $70 in cash.
(ii) To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on October
23, 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Only holders
of Common Stock of record at the close of business on that date will
be entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
The accompanying Proxy Statement describes the Merger Agreement,
the proposed Merger and the actions to be taken in connection with the
Merger. To ensure that your vote will be counted, please complete,
date and sign the enclosed proxy card and return it promptly in the
enclosed postage-paid envelope, whether or not you plan to attend the
Special Meeting. You may revoke your proxy in the manner described in
the accompanying Proxy Statement at any time before it is voted at the
Special Meeting.
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In the event that there are not sufficient votes to approve and
adopt the Merger Agreement, it is expected that the Special Meeting
will be postponed or adjourned in order to permit further solicitation
of proxies by the Company.
If the Merger is consummated, holders of Common Stock who
properly demand appraisal prior to the Stockholder vote on the Merger
Agreement, do not vote in favor of approval of the Merger Agreement
and otherwise comply with the requirements of Section 262 of the
Delaware General Corporation Law will be entitled to statutory
appraisal rights.
By Order of the Board of Directors,
Rosalind A. Phillips
Secretary
Washington, D.C.
, 1995
THE BOARD RECOMMENDS THAT INDEPENDENT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE AFFIRMATIVE VOTE OF HOLDERS OF 80% OF THE OUTSTANDING SHARES
OF COMMON STOCK ENTITLED TO VOTE THEREON, INCLUDING THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON
STOCK OF THE COMPANY NOT OWNED BY BERKSHIRE AND ITS SUBSIDIARIES, IS
REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT. WE URGE YOU TO
SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY
REVOKE THE PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT
THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT
THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE
MERGER AGREEMENT AT THE SPECIAL MEETING. EXECUTED PROXIES WITH NO
INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
<PAGE>
Preliminary Proxy Materials
GEICO CORPORATION
One GEICO Plaza
Washington, DC 20076-0001
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
December 8, 1995
---------------------
This Proxy Statement is being furnished to the holders of Common
Stock, par value $1.00 per share (the "Common Stock"), of GEICO
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the
"Board") for use at the Special Meeting of Stockholders to be held on
December 8, 1995, at 10:00 a.m. at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware, and at any adjournments or postponements
thereof (the "Special Meeting"). The Board has fixed the close of business
on October 23, 1995, as the record date (the "Record Date") for the
determination of stockholders entitled to notice of, and to vote at, the
Special Meeting.
At the Special Meeting, the holders of Common Stock (the
"Stockholders") will consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated August 25, 1995 (the
"Merger Agreement"), among Berkshire Hathaway Inc., a Delaware
corporation ("Berkshire"), HPKF Inc., a Delaware corporation and an
indirect subsidiary of Berkshire ("Sub"), and the Company. A copy of
the Merger Agreement is attached to this Proxy Statement as Appendix
A. Pursuant to the Merger Agreement and subject to satisfaction of the
conditions set forth therein, (i) Sub would be merged with and into
the Company (the "Merger"), with the Company continuing as the
surviving corporation (the "Surviving Corporation"), (ii) the Company
would thereupon become an indirect subsidiary of Berkshire and (iii)
each outstanding share of Common Stock (other than certain shares
owned by the Company which would be cancelled, shares owned by
Berkshire or any of its subsidiaries which would remain outstanding
without change and shares ("Dissenting Shares") held by Stockholders
who properly exercise their appraisal rights pursuant to Section 262
of the General Corporation Law of the State of Delaware (the "DGCL"))
would be converted into the right to receive $70 in cash from the
Surviving Corporation.
The Board recommends that Independent Stockholders (as
hereinafter defined) vote "FOR" approval and adoption of the Merger
Agreement.
Stockholders are urged to read and consider carefully the
information contained in this Proxy Statement.
This Proxy Statement, the accompanying Notice of Special Meeting
and the accompanying proxy are first being mailed to Stockholders on
or about , 1995.
----------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
----------------------
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------------
The date of this Proxy Statement is , 1995.
----------------------
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2
TABLE OF CONTENTS
Page
ADDITIONAL INFORMATION.................................. 4
AVAILABLE INFORMATION................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......... 5
SUMMARY................................................. 6
The Parties........................................ 6
The Special Meeting................................ 7
The Berkshire Proxy Agreement...................... 8
Appraisal Rights................................... 8
Solicitation of Proxies............................ 8
Recommendation of the Board........................ 8
Opinion of Financial Advisor....................... 9
Interests of Certain Persons in the Transaction.... 9
Certain Federal Income Tax Consequences............ 9
Regulatory Approvals............................... 9
Source and Amount of Funds......................... 9
The Merger Agreement............................... 9
No Solicitation; Fiduciary Out..................... 10
Termination........................................ 10
Security Ownership of Management and Certain
Beneficial Owners................................ 11
Market Price and Dividend Information.............. 11
Selected Consolidated Financial Data............... 11
THE SPECIAL MEETING.................................... 12
Matters To Be Considered at the Special Meeting.... 12
Record Date and Voting............................. 12
Vote Required; Revocability of Proxies............. 13
Appraisal Rights................................... 14
Solicitation of Proxies............................ 16
THE COMPANY............................................. 16
BERKSHIRE............................................... 17
SPECIAL FACTORS......................................... 18
Background of the Transaction...................... 18
Purpose of the Transaction......................... 22
Reasons for the Transaction........................ 22
Opinion of Financial Advisor....................... 25
Interests of Certain Persons in the Transaction.... 31
Certain Federal Income Tax Consequences............ 36
Anticipated Accounting Treatment................... 36
Regulatory Approvals............................... 36
Source and Amount of Funds ........................ 37
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3
THE MERGER AGREEMENT.................................... 38
Effective Time..................................... 38
The Merger......................................... 38
Representations and Warranties..................... 39
Conduct of the Business Pending the Merger......... 40
No Solicitation; Fiduciary Out..................... 41
Other Agreements of the Company, Berkshire and Sub. 42
Employee Benefit Plans............................. 42
Stock Options...................................... 43
Indemnification and Insurance...................... 43
Conditions to the Merger........................... 43
Termination........................................ 44
Expenses........................................... 44
Amendment; Waiver.................................. 45
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS............................................. 46
STOCKHOLDER LITIGATION.................................. 49
MARKET PRICE AND DIVIDEND INFORMATION................... 50
CERTAIN TRANSACTIONS IN THE COMMON STOCK................ 51
SELECTED CONSOLIDATED FINANCIAL DATA.................... 51
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY
AFTER THE MERGER................................... 53
INDEPENDENT PUBLIC ACCOUNTANTS.......................... 53
STOCKHOLDER PROPOSALS................................... 54
APPENDIX A - THE MERGER AGREEMENT
APPENDIX B - FAIRNESS OPINION OF MORGAN STANLEY
APPENDIX C - SECTION 262 OF THE DGCL
APPENDIX D - CERTAIN INFORMATION REGARDING DIRECTORS AND
EXECUTIVE OFFICERS OF BERKSHIRE AND THE COMPANY
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4
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 13e-3
promulgated thereunder, the Company, as issuer of the class of equity
securities that are the subject of the Rule 13e-3 transaction, and
Berkshire and Sub, as its affiliates, have filed with the Securities and
Exchange Commission (the "SEC") a Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") relating to the transactions contemplated by the
Merger Agreement, on the assumption that Section 13(c) and Rule 13e-3 are
applicable to such transactions. The filing of the Schedule 13E-3 shall not
be construed as an admission by the Company or Berkshire that the Company
is "controlled by" Berkshire or that Berkshire is an "affiliate" of the
Company within the meaning of Rule 13e-3 under Section 13(e). As permitted
by the rules and regulations of the SEC, this Proxy Statement omits certain
information, exhibits and undertakings contained in the Schedule 13E-3.
Such additional information can be inspected at and obtained from the SEC
in the manner set forth below under "AVAILABLE INFORMATION".
Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Schedule 13E-3. Each
such statement is qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and the rules and regulations thereunder, and in
accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, DC 20549, and at the SEC's regional
offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, IL 60661, and Suite 1300, Seven World Trade Center,
New York, NY 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, DC 20549. The Common Stock is listed
on the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange
(the "PSE") and certain reports, proxy statements and other
information concerning the Company also can be inspected at the
offices of the NYSE, 20 Broad Street, New York, NY 10005 and the PSE,
301 Pine Street, San Francisco, CA 94104. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE".
This Proxy Statement incorporates by reference documents that are
not presented herein or delivered herewith. Copies of such documents
(other than exhibits thereto which are not specifically incorporated
by reference herein) are available, without charge, to any person,
including any beneficial owner of Common Stock, to whom this Proxy
Statement is delivered, upon oral or written request to Rosalind A.
Phillips, Corporate Secretary, GEICO Corporation, One GEICO Plaza,
Washington, DC 20076, telephone (301) 986-2077. In order to ensure
delivery of documents prior to the Special Meeting, requests therefor
should be made no later than November 22, 1995.
All information contained in this Proxy Statement concerning
Berkshire and its subsidiaries, including Sub, has been supplied by
Berkshire and has not been independently verified by the Company.
Except as otherwise indicated, all other information contained in this
Proxy Statement has been supplied by the Company.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
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5
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR BERKSHIRE
SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
SEC pursuant to the Exchange Act are incorporated herein by this
reference:
1. The Company's Annual Report on Form 10-K for the year
ended December 31, 1994;
2. The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995; and
3. The Company's Current Report on Form 8-K dated August 25, 1995.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date hereof
and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date
any such document is filed.
Any statements contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed
to constitute a part hereof except as so modified or superseded. All
information appearing in this Proxy Statement is qualified in its
entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding statement.
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6
SUMMARY
The following is a summary of material information contained
elsewhere in this Proxy Statement. This summary is not intended to be a
complete description and is qualified in its entirety by reference to the
more detailed information contained in this Proxy Statement or incorporated
by reference in this Proxy Statement or in the documents attached as
Appendices hereto.
The Parties
The Company. The Company was organized as a Delaware corporation
in 1978. In 1979 the Company became the parent of Government Employees
Insurance Company ("GEICO"), its principal subsidiary, and is also the
parent corporation of various additional subsidiaries which are in the
business of providing insurance and financial services (collectively, the
"GEICO Companies").
GEICO was founded in 1936 and has been continuously engaged in
the insurance business. GEICO is a multiple line property and casualty
insurer, the principal business of which is writing private passenger
automobile insurance primarily for preferred-risk government employees and
military personnel. To a lesser extent it also writes homeowners insurance
(a business that GEICO plans to have exited in three years), personal
umbrella liability and boat owners and fire insurance for all qualified
applicants. GEICO General Insurance Company ("GEICO General") is a
subsidiary of GEICO which, in 1987, began writing private passenger
automobile insurance for preferred-risk drivers not associated with the
government or the military. GEICO Indemnity Company ("GI"), a subsidiary of
the Company, writes standard-risk private passenger automobile and
motorcycle insurance. GEICO Casualty Company ("GEICO Casualty") (the name
of which was changed from Criterion Casualty Company effective January 6,
1994), a subsidiary of GI, writes nonstandard-risk private passenger
automobile insurance. The insurance companies market their policies
primarily through direct response methods. Currently, GEICO, GEICO General,
GI and GEICO Casualty have an A.M. Best rating of A++ (Superior) and a
Standard & Poor's claims paying ability rating of AAA (Superior).
For a description of certain other active subsidiaries of the
Company and GEICO, see "THE COMPANY".
The address and telephone number of the Company's principal
executive offices is One GEICO Plaza, Washington, DC 20076; (301) 986-3000.
Berkshire. 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 conducted on both a
direct and reinsurance basis through a number of subsidiaries.
Berkshire is the beneficial owner of 34,250,000 shares of Common
Stock, representing 50.72% of the outstanding shares of Common Stock at
September 15, 1995 (the "Berkshire-Owned Shares").
Investment portfolios of Berkshire's insurance subsidiaries
include meaningful equity ownership percentages of other publicly traded
companies. Such investments at the end of 1994 included, in addition to the
Berkshire-Owned Shares, approximately 13% of the capital stock of Capital
Cities/ABC, Inc. ("Capital Cities/ABC"), approximately 11% of the capital
stock of The Gillette Company, approximately 8% of the capital stock of The
Coca-Cola Company, approximately 15% of the capital stock of The Washington
Post Company, approximately 13% of the common stock of Wells Fargo &
Company and common and convertible preferred stock of Salomon Inc having
approximately 20% of the total voting power of that company. Much
information about these publicly-owned companies is available, including
information released from time to time by the companies themselves.
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7
Additionally, Berkshire publishes the Buffalo News, a daily and Sunday
newspaper in upstate New York. Other business activities conducted by
non-insurance subsidiaries include publication and distribution of
encyclopedias and related educational and instructional material (World
Book and Childcraft products), manufacture and marketing of home cleaning
systems and related accessories (sold principally under the Kirby name),
manufacture and sale of boxed chocolates and other confectionery products
(See's Candies), retailing of home furnishings (Nebraska Furniture Mart and
R.C. Willey Home Furnishings), manufacture and distribution of uniforms
(Fechheimer Brothers Company), manufacture, import and distribution of
footwear (H.H. Brown Shoe Company, Lowell Shoe, Inc. and Dexter Shoe
Company), retailing of fine jewelry (Borsheim Jewelry Company and
Helzberg's Diamond Shops) and manufacture and distribution of air
compressors, air tools and painting systems (Campbell Hausfeld products).
Berkshire also owns a number of other businesses engaged in a variety of
activities.
Berkshire is a Delaware corporation and the address and telephone
number of its principal executive offices is 1440 Kiewit Plaza, Omaha,
NE 68131; (402) 346-1400.
The Special Meeting
Matters To Be Considered at the Special Meeting. The Special
Meeting is scheduled to be held at 10:00 a.m. on December 8, 1995, at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware. At the
Special Meeting, Stockholders will consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and (ii) such other matters as may
properly be brought before the Special Meeting. See "THE SPECIAL MEETING -
Matters To Be Considered at the Special Meeting".
Record Date and Voting. The Record Date for the Special Meeting is the
close of business on October 23, 1995. At the close of business on the
Record Date, there were shares of Common Stock outstanding and entitled to
vote, held by approximately Stockholders of record. Each holder of Common
Stock on the Record Date will be entitled to one vote for each share held
of record. The presence, either in person or by proxy, of a majority of the
outstanding shares of Common Stock entitled to be voted is necessary to
constitute a quorum at the Special Meeting. See "THE SPECIAL MEETING -
Record Date and Voting".
Vote Required; Revocability of Proxies. Approval and adoption of the
Merger Agreement will require the affirmative vote of the holders of 80% of
the outstanding shares of Common Stock entitled to vote thereon, including
the affirmative vote of holders of a majority of the outstanding shares of
Common Stock not owned by Berkshire and its subsidiaries (the "Independent
Stockholders").
The required vote of the Stockholders on the Merger Agreement is based
upon the total number of outstanding shares of Common Stock. The failure to
submit a proxy card (or vote in person at the Special Meeting) or the
abstention from voting by a Stockholder (including broker non-votes) will
have the same effect as a vote against the Merger Agreement. Brokers who
hold shares of Common Stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the
beneficial owners thereof. See "THE SPECIAL MEETING - Vote Required;
Revocability of Proxies".
A Stockholder may revoke a proxy at any time prior to its
exercise by (i) delivering to Rosalind A. Phillips, Corporate
Secretary, GEICO Corporation, One GEICO Plaza, Washington, DC 20076, a
written notice of revocation prior to the Special Meeting, (ii)
delivering prior to the Special Meeting a duly executed proxy bearing
a later date or (iii) attending the Special Meeting and voting in
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8
person. The presence of a Stockholder at the Special Meeting will not
in and of itself automatically revoke such Stockholder's proxy.
The Berkshire Proxy Agreement
In connection with the initial purchase by Berkshire in 1976 of the
Berkshire-Owned Shares, Berkshire was directed by the District of Columbia
Superintendent of Insurance (the "DC Superintendent"), then the state
insurance regulatory authority with jurisdiction over GEICO, to enter into
an independent proxy agreement (the "Berkshire Proxy Agreement") with
Suburban Trust Company, now NationsBank of Maryland (the "Independent
Proxy"). Pursuant to the Berkshire Proxy Agreement, all Berkshire-Owned
Shares are to be voted by the Independent Proxy "guided solely by its best
judgment as to which decision will be in the best interests of Berkshire as
an investor and without regard to the status of Berkshire or the
subsidiaries as actual or potential competitors", but Berkshire has the
right to direct the Independent Proxy not to vote the Berkshire-Owned
Shares or to vote such shares in the same proportion as the vote ultimately
cast by all other voting Stockholders. Pursuant to the Merger Agreement,
Berkshire has agreed not to exercise this right in connection with the vote
at the Special Meeting. Accordingly, the Independent Proxy will vote the
Berkshire-Owned Shares at the Special Meeting guided solely by the
Independent Proxy's best judgment as to whether the approval of the Merger
Agreement will be in the best interests of Berkshire as an investor.
Appraisal Rights
Under the DGCL, Stockholders who properly demand appraisal prior
to the Stockholder vote on the Merger Agreement, do not vote in favor
of approval of the Merger Agreement and otherwise comply with the
requirements of DGCL Section 262 will be entitled to statutory
appraisal rights. See "THE SPECIAL MEETING - Appraisal Rights" and
DGCL Section 262, which is attached hereto as Appendix C.
Solicitation of Proxies
The Company will bear the costs of soliciting proxies from
Stockholders. In addition to soliciting proxies by mail, directors,
officers and employees of the Company, without receiving additional
compensation therefor, may solicit proxies by telephone, by telegram or in
person. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of shares held of record by such persons, and the
Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith. The Company has retained Georgeson & Company Inc.
("Georgeson") to aid in the solicitation of proxies. See "THE SPECIAL
MEETING - Solicitation of Proxies".
Recommendation of the Board
The Board has determined that the Merger Agreement and the Merger
are advisable and fair to and in the best interests of the Company and
its Independent Stockholders and has approved the Merger Agreement and
the Merger by unanimous vote of those directors voting. Accordingly,
the Board recommends that Independent Stockholders vote "FOR" approval
and adoption of the Merger Agreement.
In determining to approve the Merger Agreement and the Merger and to
recommend that Independent Stockholders approve the Merger Agreement, the
Board considered a number of factors, as more fully described under
"SPECIAL FACTORS - Background of the Transaction" and " - Reasons for the
Transaction".
<PAGE>
9
Opinion of Financial Advisor
On August 25, 1995, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), financial advisor to the Company, delivered its opinion to the
Board that, as of the date of such opinion, the consideration to be
received by the Independent Stockholders pursuant to the Merger Agreement
is fair from a financial point of view. The full text of the written
opinion of Morgan Stanley dated August 25, 1995, which sets forth the
assumptions made, general procedures followed, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached hereto as Appendix B. Stockholders should read such opinion
carefully and in its entirety. See "SPECIAL FACTORS - Opinion of Financial
Advisor".
Interests of Certain Persons in the Transaction
Certain directors and executive officers of the Company have interests
in the Merger that may be different from, or in addition to, those of
Stockholders generally, including employee stock options ("Company
Options") (all of which will become exercisable in full if the Merger
Agreement is approved at the Special Meeting), interests in the Company's
Equity Cash Bonus Plan (which will become nonforfeitable and payable in
full if the Merger Agreement is so approved), interests in the Company's
Employee Stock Ownership Plan (the "ESOP") (which will vest and be
distributed following the effective time of the Merger (the "Effective
Time")), and interests in the Company's Pension Plan for Retired
Nonemployee Directors (which Plan provides that, if the Stockholders
approve the Merger Agreement, then each director will receive a lump-sum
cash payment equal to the actuarial equivalent of the benefit under such
Plan). Three directors of the Company have certain relationships with
Berkshire and Mr. Warren E. Buffett, the Chairman of the Board and Chief
Executive Officer of Berkshire, that were reviewed with the Board prior to
the consideration of the Merger Agreement. See "SPECIAL FACTORS - Interests
of Certain Persons in the Transaction".
Certain Federal Income Tax Consequences
The Merger will be a taxable transaction to Stockholders. Stockholders
will recognize gain or loss in the Merger in an amount determined by the
difference between the consideration received in the Merger and their tax
basis in the Common Stock exchanged therefor. For further information, see
"SPECIAL FACTORS - Certain Federal Income Tax Consequences".
Regulatory Approvals
The obligation of each of Berkshire and the Company to consummate
the Merger is conditioned upon the approval of the Merger by the
Maryland Insurance Administration and the New York Insurance
Department. As of the date of this Proxy Statement, Berkshire and the
Company have filed all required applications with both regulatory
agencies, but neither agency has completed its review of these
filings. See "SPECIAL FACTORS - Regulatory Approvals".
Source and Amount of Funds
The total amount of funds required by Berkshire to effect the
Merger and to pay the fees of its legal counsel and advisors (the only
expenses related to the Merger that are expected to be paid by
Berkshire) is approximately $ billion. See "SPECIAL FACTORS - Source
and Amount of Funds".
The Merger Agreement
Subject to the provisions of the Merger Agreement, at the
Effective Time: (i) each issued and outstanding share of Common Stock
(other than shares of Common Stock to be cancelled or to remain
<PAGE>
10
outstanding in accordance with clauses (ii) and (iii) below and other than
Dissenting Shares) will be converted into the right to receive $70 per
share in cash; (ii) each share of Common Stock that is owned by the Company
will be automatically cancelled and retired and will cease to exist, and no
consideration will be delivered or deliverable in exchange therefor; and
(iii) all shares of Common Stock owned by Berkshire or any subsidiary of
Berkshire will remain outstanding without change. See "THE MERGER AGREEMENT
- - - - Effective Time" and "- The Merger".
Consummation of the Merger is subject to various conditions,
including, among others: (i) the approval and adoption of the Merger
Agreement by the affirmative vote of holders of 80% of the outstanding
shares of Common Stock entitled to vote thereon, including the affirmative
vote of Independent Stockholders holding a majority of the outstanding
shares of Common Stock not owned by Berkshire and its subsidiaries; (ii)
the absence of any injunction preventing consummation of the Merger and
(iii) the approval of the Merger by the Maryland Insurance Administration
and the New York Insurance Department. Consummation of the Merger will not
occur earlier than January 2, 1996. See "THE MERGER AGREEMENT - Conditions
to the Merger" and "SPECIAL FACTORS - Regulatory Approvals".
No Solicitation; Fiduciary Out
Pursuant to the Merger Agreement, the Company has agreed that it will
not authorize or permit any of its executive officers or directors or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Takeover
Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal, except under certain
circumstances to the extent required so that the Board may, in its good
faith judgment, comply with its fiduciary duties to Stockholders. "Takeover
Proposal" is defined in the Merger Agreement to mean any inquiry, proposal
or offer from any person (other than Berkshire or any of its subsidiaries)
relating to any direct or indirect acquisition or purchase of a substantial
amount of assets of the Company or any of its subsidiaries or of 50% or
more of the shares of Common Stock, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 50% or more
of the shares of Common Stock, any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company,
other than the Merger, or any other transaction the consummation of which
could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to Berkshire of the transactions contemplated by
the Merger Agreement. See "THE MERGER AGREEMENT - No Solicitation;
Fiduciary Out".
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after the approval by the Stockholders,
as follows: (i) by the mutual written consent of the Company and Berkshire;
(ii) by either the Company or Berkshire in the event of (A) the failure of
the Stockholders to approve the Merger Agreement or (B) a material breach
by the other party thereto of any representation, warranty, covenant or
agreement contained in the Merger Agreement which is not cured within two
business days following receipt by the breaching party of notice of such
breach; (iii) by either the Company or Berkshire if any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger has become final and
non-appealable; (iv) by either the Company or Berkshire in the event the
Merger is not consummated by March 31, 1996; or (v) by the Company or
Berkshire under certain circumstances in connection with a Takeover
Proposal. See "THE MERGER AGREEMENT - Termination".
<PAGE>
11
Security Ownership of Management and Certain Beneficial Owners
As of September 15, 1995, the directors and executive officers of
the Company beneficially owned, in the aggregate, 1,543,641 shares of
Common Stock, representing approximately 2.29% of such shares
outstanding. To the knowledge of the Company, all directors and
executive officers of the Company intend to vote their beneficially
owned shares of Common Stock eligible to be voted for the approval and
adoption of the Merger Agreement. See "SECURITY OWNERSHIP OF
MANAGEMENT AND CERTAIN BENEFICIAL OWNERS".
As of September 15, 1995, Berkshire beneficially owned 34,250,000
shares of Common Stock, representing approximately 50.72% of such
shares outstanding. The Berkshire-Owned Shares will be voted at the
Special Meeting by the Independent Proxy. See "- The Berkshire Proxy
Agreement" above for further information regarding the voting of the
Berkshire-Owned Shares.
Market Price and Dividend Information
The Common Stock is listed on the NYSE and the PSE under the
symbol "GEC". On August 24, 1995, the last trading day before the
public announcement of the execution of the Merger Agreement, the
reported closing sale price per share of the Common Stock was $55-3/4.
On , 1995, the last full trading day prior to the date of
this Proxy Statement, the reported closing sale price per share of the
Common Stock was $ . For additional information concerning
historical market prices of the Common Stock and the dividends paid
thereon, see "MARKET PRICE AND DIVIDEND INFORMATION".
Selected Consolidated Financial Data
Certain selected historical financial data of the Company are set
forth under "SELECTED CONSOLIDATED FINANCIAL DATA". That data should
be read in conjunction with the consolidated financial statements and
related notes incorporated by reference in this Proxy Statement. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
<PAGE>
12
THE SPECIAL MEETING
Matters To Be Considered at the Special Meeting
Each copy of this Proxy Statement mailed to Stockholders is
accompanied by a proxy card furnished in connection with the solicitation
of proxies by the Board for use at the Special Meeting. The Special Meeting
is scheduled to be held at 10:00 a.m., on December 8, 1995, at Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware. At the Special
Meeting, Stockholders will consider and vote upon (i) a proposal to approve
and adopt the Merger Agreement and (ii) such other matters as may properly
be brought before the Special Meeting.
The Board has determined that the Merger and the Merger Agreement
are advisable and in the best interests of the Company and its
Independent Stockholders and has approved the Merger and the Merger
Agreement by unanimous vote of those directors voting. Accordingly,
the Board recommends that Independent Stockholders vote "FOR" approval
and adoption of the Merger Agreement. See "SPECIAL FACTORS -
Background of the Transaction" and "- Reasons for the Transaction".
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE
AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT.
Record Date and Voting
The Board has fixed the close of business on October 23, 1995, as
the Record Date for the determination of the holders of Common Stock
entitled to notice of and to vote at the Special Meeting. Only
Stockholders of record at the close of business on that date will be
entitled to receive notice of or to vote at the Special Meeting. At
the close of business on the Record Date, there were shares of Common
Stock outstanding and entitled to vote at the Special Meeting, held by
approximately Stockholders of record.
Each holder of Common Stock on the Record Date will be entitled
to one vote for each share held of record. The presence, in person or
by proxy, of a majority of the outstanding shares of Common Stock
entitled to be voted at the Special Meeting is necessary to constitute
a quorum for the transaction of business. Abstentions (including
broker non-votes) will be included in the calculation of the number of
votes represented at the Special Meeting for purposes of determining
whether a quorum has been achieved. The Independent Proxy is expected
to attend the Special Meeting to vote the Berkshire-Owned Shares and,
accordingly, a quorum for the transaction of business at the Special
Meeting is assured.
If the enclosed proxy card is properly executed and received by
the Company in time to be voted at the Special Meeting, the shares
represented thereby will be voted in accordance with the instructions
marked thereon. Executed proxies with no instructions indicated
thereon will be voted "FOR" approval and adoption of the Merger
Agreement.
The Board is not aware of any matters other than that set forth
in the Notice of Special Meeting of Stockholders that may be brought
before the Special Meeting. If any other matters properly come before
the Special Meeting, including a motion to adjourn the meeting for the
purpose of soliciting additional proxies, the persons named in the
accompanying proxy will vote the shares represented by all properly
executed proxies on such matters in their discretion , except that
<PAGE>
13
shares represented by proxies which have been voted "against" the Merger
Agreement will not be used to vote "for" adjournment of the Special Meeting
for the purpose of allowing additional time for soliciting additional votes
"for" the Merger Agreement. See "-Vote Required; Revocability of Proxies".
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES
WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET
FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE SENT TO STOCKHOLDERS
BY THE BANK OF NEW YORK, IN ITS CAPACITY AS THE PAYING AGENT, PROMPTLY
AFTER THE EFFECTIVE TIME.
Vote Required; Revocability of Proxies
The affirmative vote of holders of 80% of the outstanding shares of
Common Stock entitled to vote thereon, including the affirmative vote of
Independent Stockholders holding a majority of the outstanding shares of
Common Stock not owned by Berkshire and its subsidiaries, is required to
approve and adopt the Merger Agreement. Because the Berkshire-Owned Shares
constitute approximately 50.72% of the outstanding shares of Common Stock,
obtaining the affirmative vote of holders of 80% of the outstanding shares
of Common Stock will in fact require the affirmative vote of holders of
approximately 59% of the outstanding shares of Common Stock owned by
Independent Stockholders, together with the affirmative vote of the
Independent Proxy.
Pursuant to the Berkshire Proxy Agreement, the Berkshire-Owned Shares
will be voted by the Independent Proxy guided solely by the Independent
Proxy's best judgment as to whether the approval of the Merger Agreement
will be in the best interests of Berkshire as an investor.
Because the required vote of the Stockholders on the Merger Agreement
is based upon the total number of outstanding shares of Common Stock, the
failure to submit a proxy card (or to vote in person at the Special
Meeting) or the abstention from voting by a Stockholder will have the same
effect as a vote against approval and adoption of the Merger Agreement.
Brokers who hold shares of Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof.
A Stockholder may revoke a proxy at any time prior to its exercise by
(i) delivering to Rosalind A. Phillips, Corporate Secretary, GEICO
Corporation, One GEICO Plaza, Washington, DC 20076-0001, a written notice
of revocation prior to the Special Meeting, (ii) delivering prior to the
Special Meeting a duly executed proxy bearing a later date or (iii)
attending the Special Meeting and voting in person. The presence of a
Stockholder at the Special Meeting will not in and of itself automatically
revoke such Stockholder's proxy.
If fewer shares of Common Stock are voted in favor of approval and
adoption of the Merger Agreement than the number required for approval, it
is expected that the Special Meeting will be adjourned for the purpose of
allowing additional time for soliciting and obtaining additional proxies or
votes, and, at any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn.
No vote of the stockholders of Berkshire is required in connection
with the Merger Agreement or the Merger. The obligations of the Company and
Berkshire to consummate the Merger are subject, among other things, to the
condition that the Stockholders approve and adopt the Merger Agreement. See
"THE MERGER AGREEMENT - Conditions to the Merger".
<PAGE>
14
Appraisal Rights
Under the DGCL, record holders of shares of Common Stock who follow
the procedures set forth in Section 262 and who have not voted in favor of
the Merger Agreement will be entitled to have their shares of Common Stock
appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, as determined by such court. The following is a
summary of certain of the provisions of Section 262 of the DGCL and is
qualified in its entirety by reference to the full text of such Section, a
copy of which is attached hereto as Appendix C.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of stockholders, as in the case of the
Special Meeting, not less than 20 calendar days prior to the meeting, the
Company must notify each of the holders of Common Stock at the close of
business on the Record Date that such appraisal rights are available and
include in each such notice a copy of Section 262. This Proxy Statement
constitutes such notice. Any Stockholder who wishes to exercise appraisal
rights should review the following discussion and Appendix C carefully
because failure to timely and properly comply with the procedures specified
in Section 262 will result in the loss of appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal
rights must deliver to the Company before the vote on the approval and
adoption of the Merger Agreement at the Special Meeting, a written demand
for appraisal of such holder's shares of Common Stock. Such demand will be
sufficient if it reasonably informs the Company of the identity of the
Stockholder and that the Stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the Merger Agreement will
not constitute such a demand. In addition, a holder of shares of Common
Stock wishing to exercise appraisal rights must hold of record such shares
on the date the written demand for appraisal is made and must continue to
hold such shares through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to
assert appraisal rights for the shares of Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record fully and correctly, as the holder's name appears on
the stock certificates. Holders of Common Stock who hold their shares in
brokerage accounts or other nominee forms and who wish to exercise
appraisal rights are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for appraisal by such
nominee. All written demands for appraisal of Common Stock should be sent
or delivered to Rosalind A. Phillips, Corporate Secretary, GEICO
Corporation, One GEICO Plaza, Washington, DC 20076, so as to be received
before the vote on the approval and adoption of the Merger Agreement at the
Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the
demand should be made in that capacity, and if the shares of Common Stock
are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all
joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however,
the agent must identify the record owner or owners and expressly disclose
the fact that, in executing the demand, the agent is agent for such owner
or owners. A record holder such as a broker who holds Common Stock as
nominee for several beneficial owners may exercise appraisal rights with
respect to the Common Stock held for one or more beneficial owners while
not exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the
number of shares as to which appraisal is sought and where no number of
shares is expressly mentioned the demand will be presumed to cover all
Common Stock held in the name of the record owner.
<PAGE>
15
Within 10 calendar days after the Effective Time, the Company, as
the surviving corporation in the Merger, must send a notice as to the
effectiveness of the Merger to each person who has satisfied the
appropriate provisions of Section 262 and who has not voted in favor
of the Merger Agreement. Within 120 calendar days after the Effective
Time, the Company, or any Stockholder entitled to appraisal rights
under Section 262 and who has complied with the foregoing procedures,
may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of all such
Stockholders. The Company is not under any obligation, and has no
present intention, to file a petition with respect to the appraisal of
the fair value of the shares of Common Stock. Accordingly, it is the
obligation of the Stockholders to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section
262.
Within 120 calendar days after the Effective Time, any
Stockholder of record who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request,
to receive from the Company a statement setting forth the aggregate
number of shares of Common Stock with respect to which demands for
appraisal have been received and the aggregate number of holders of
such shares. Such statements must be mailed within 10 calendar days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on
such petition, the Delaware Court of Chancery will determine the
Stockholders entitled to appraisal rights and will appraise the "fair
value" of the shares of Common Stock, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with
a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal should be aware
that the fair value of their shares of Common Stock as determined under
Section 262 could be more than, the same as or less than the $70 per share
that they would otherwise receive if they did not seek appraisal of their
shares of Common Stock. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy.
The Court will also determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose shares of Common Stock
have been appraised. The costs of the action may be determined by the Court
and taxed upon the parties as the Court deems equitable. The Court may also
order that all or a portion of the expenses incurred by any holder of
shares of Common Stock in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value
of all of the shares of Common Stock entitled to appraisal.
The Court may require Stockholders who have demanded an appraisal and
who hold Common Stock represented by certificates to submit their
certificates of Common Stock to the Court for notation thereon of the
pendency of the appraisal proceedings. If any Stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
Stockholder.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the
shares of Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of
shares of Common Stock as of a date prior to the Effective Time).
If any Stockholder who demands appraisal of shares under Section 262
fails to perfect, or effectively withdraws or loses, the right to
appraisal, as provided in the DGCL, the shares of Common Stock of such
holder will be converted into the right to receive $70 per share in
<PAGE>
16
accordance with the Merger Agreement, without interest. A Stockholder will
fail to perfect, or effectively lose, the right to appraisal if no petition
for appraisal is filed within 120 calendar days after the Effective Time. A
Stockholder may withdraw a demand for appraisal by delivering to the
Company a written withdrawal of the demand for appraisal and acceptance of
the Merger, except that any such attempt to withdraw made more than 60
calendar days after the Effective Time will require the written approval of
the Company. Once a petition for appraisal has been filed, such appraisal
proceeding may not be dismissed as to any Stockholder without the approval
of the Court.
Solicitation of Proxies
The Company will bear the costs of soliciting proxies from Stockholders. In
addition to soliciting proxies by mail, directors, officers and employees
of the Company, without receiving additional compensation therefor, may
solicit proxies by telephone, by telegram or in person. Arrangements also
will be made with brokerage firms and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of
shares held of record by such persons, and the Company will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith. The
Company has retained Georgeson to aid in the solicitation of proxies.
Georgeson's fee for solicitation of the proxies is estimated to be $14,000
plus reimbursement for out-of-pocket costs and expenses.
THE COMPANY
The Company was organized as a Delaware corporation in 1978. In 1979 the
Company became the parent of GEICO, its principal subsidiary, and is also
the parent corporation of the other GEICO Companies, all of which are in
the business of providing insurance and financial services.
GEICO was founded in 1936 and has been continuously engaged in the
insurance business. GEICO is a multiple line property and casualty insurer,
the principal business of which is writing private passenger automobile
insurance primarily for preferred-risk government employees and military
personnel. To a lesser extent it also writes homeowners insurance (a
business that GEICO plans to have exited in three years), personal umbrella
liability and boat owners and fire insurance for all qualified applicants.
GEICO General is a subsidiary of GEICO which, in 1987, began writing
private passenger automobile insurance for preferred-risk drivers not
associated with the government or the military. GI, a subsidiary of the
Company, writes standard-risk private passenger automobile and motorcycle
insurance. GEICO Casualty (the name of which was changed from Criterion
Casualty Company effective January 6, 1994), a subsidiary of GI, writes
nonstandard-risk private passenger automobile insurance. The insurance
companies market their policies primarily through direct response methods.
Currently, GEICO, GEICO General, GI and GEICO Casualty have an A.M. Best
rating of A++ (Superior) and a Standard & Poor's claims paying ability
rating of AAA (Superior).
Criterion Life Insurance Company ("Criterion Life") was formed by GEICO in
1991 to offer structured settlement single premium annuities to claimants
of its property/casualty company affiliates. On December 31, 1991
Critierion Life assumed all the structured settlement annuity business in
force from Garden State Life Insurance Company, which was also wholly-owned
by GEICO until it was sold in June 1992. Criterion Life has an A.M. Best
rating of A++ (Superior).
Other active subsidiaries of the Company and GEICO involved in
the sale of insurance and insurance related products include:
International Insurance Underwriters, Inc., which provides various
insurance services to military personnel as they are transferred
overseas or back to the United States; The Top Five Club, Inc., which
offers travel-related benefits to military personnel in the top five
<PAGE>
17
military enlisted pay grades; GEICO Financial Services, GMbH, which
sells automobile policies to American military personnel through
offices in Germany and through agents in England, Germany, Italy,
Portugal and Turkey; Insurance Counselors, Inc., Insurance Counselors
of Texas, Inc. and Insurance Counselors of Kentucky, Inc., formed
primarily to facilitate the marketing of insurance products; and Safe
Driver Motor Club, Inc., which offers motor club services to customers
of subsidiaries of the Company and sponsors of motor clubs.
The Company formerly offered additional financial services through its
subsidiary, Government Employees Financial Corporation ("GEFCO"), which,
directly or through one or more of its own subsidiaries, is in the business
of consumer and business lending and loan servicing. The Company is in the
process of winding down the business of GEFCO.
Other subsidiaries of the Company include Plaza Resources Company,
which is engaged in various investment ventures, and several other
companies which serve various corporate purposes including its real
estate/property companies, Maryland Ventures, Inc. and GEICO Facilities
Corporation.
Resolute Reinsurance Company ("Resolute"), a subsidiary of Resolute
Group, Inc., in turn a subsidiary of the Company, wrote property and
casualty reinsurance in the domestic and international markets until late
1987 when it suspended writing new and renewal reinsurance. Resolute is in
the process of running off its claims obligations. Effective December 31,
1993, the Company sold Merastar Insurance Company and Southern Heritage
Insurance Company, two small property casualty insurance companies which
had been purchased in 1991.
The address and telephone number of the Company's principal executive
offices is One GEICO Plaza, Washington, DC 20076; (301) 986-3000.
BERKSHIRE
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 conducted on both a
direct and reinsurance basis through a number of subsidiaries.
Investment portfolios of Berkshire's insurance subsidiaries
include meaningful equity ownership percentages of other publicly
traded companies. Such investments at the end of 1994 included, in
addition to the Berkshire-Owned Shares (which represented 50.72% of
the outstanding shares of Common Stock at September 15, 1995),
approximately 13% of the capital stock of Capital Cities/ABC,
approximately 11% of the capital stock of The Gillette Company,
approximately 8% of the capital stock of The Coca-Cola Company,
approximately 15% of the capital stock of The Washington Post Company,
approximately 13% of the common stock of Wells Fargo & Company and
common and convertible preferred stock of Salomon Inc having
approximately 20% of the total voting power of that company. Much
information about these publicly-owned companies is available,
including information released from time to time by the companies
themselves.
Additionally, Berkshire publishes the Buffalo News, a daily and
Sunday newspaper in upstate New York. Other business activities
conducted by non-insurance subsidiaries include publication and
distribution of encyclopedias and related educational and
instructional material (World Book and Childcraft products),
manufacture and marketing of home cleaning systems and related
accessories (sold principally under the Kirby name), manufacture and
sale of boxed chocolates and other confectionery products (See's
Candies), retailing of home furnishings (Nebraska Furniture Mart and
R. C. Willey Home Furnishings), manufacture and distribution of
uniforms (Fechheimer Brothers Company), manufacture, import and
<PAGE>
18
distribution of footwear (H.H. Brown Shoe Company, Lowell Shoe, Inc.
and Dexter Shoe Company), retailing of fine jewelry (Borsheim Jewelry
Company and Helzberg's Diamond Shops) and manufacture and distribution
of air compressors, air tools and painting systems (Campbell Hausfeld
products). Berkshire also owns a number of other businesses engaged in
a variety of activities.
Operating decisions for the various Berkshire businesses are made
by managers of the business units. Investment decisions and all other
capital allocation decisions are made for Berkshire and its
subsidiaries by Mr. Warren E. Buffett, in consultation with Mr.
Charles T. Munger. Mr. Buffett is Chairman and Mr. Munger is Vice
Chairman of Berkshire's Board of Directors.
Berkshire is a Delaware corporation and the address and telephone
number of its principal executive offices is 1440 Kiewit Plaza, Omaha,
NE 68131; (402) 346-1400.
SPECIAL FACTORS
Background of the Transaction
In 1951, after a meeting with Mr. Lorimer A. Davidson (for many
years until 1970 the Chairman of GEICO), Mr. Warren E. Buffett, then
age 20, invested over one half of his approximately $10,000 net worth
in GEICO. He sold this investment in 1952.
During 1975 and the first six months of 1976, GEICO suffered very
substantial operating losses in its automobile insurance business as a
result of inflation, inadequate pricing, the establishment of inadequate
reserves in earlier years and a far too aggressive expansion in the sales
of new policies. By May 1976, GEICO's then Chairman and Chief Executive
Officer and its President had both resigned and a Special Committee of the
GEICO Board of Directors, chaired by Mr. Samuel C. Butler, had hired Mr.
John J. Byrne as GEICO's new Chairman, President and Chief Executive
Officer. During the balance of 1976, Mr. Byrne and the Special Committee
negotiated a quota share reinsurance treaty with a group of 27 auto
insurance companies and an underwritten public subscription offering of
approximately $76,000,000 of a new GEICO cumulative convertible preferred
stock. The completion of these transactions in November 1976 substantially
eliminated the possibility that GEICO's business might be seized by state
insurance regulatory authorities.
In the third quarter of 1976, GEICO common stock reached a low price
of $2.125 per share (or $0.425 per share after adjustment for the 5-for-1
stock split in 1992). In July 1976, Berkshire made an initial investment in
GEICO and subsequently applied to the Department of Insurance of the
District of Columbia (where GEICO was then domiciled) for permission to
purchase GEICO common stock and GEICO convertible preferred stock having up
to 19% of the total voting power if all the outstanding GEICO convertible
preferred stock was converted to GEICO common stock. Berkshire stated in
its application that it was purchasing the GEICO shares for investment
purposes only and that it would cause such shares to be voted by an
independent proxy. By preliminary orders in late 1976 and a final order in
January 1977 (the "Final Order"), the DC Superintendent approved
Berkshire's application, and Berkshire purchased GEICO shares having 15.4%
of the total voting power on a fully converted basis.
In the Final Order, Berkshire was directed (i) to enter into an
independent proxy agreement (which it did by entering into the
Berkshire Proxy Agreement with the Independent Proxy), (ii) not to
change the designated Independent Proxy without the prior approval of
the DC Superintendent or upon his order, (iii) not to permit any
officer or director of Berkshire, or any other person suggested by one
<PAGE>
19
of them, to seek to become a director or officer of GEICO, (iv) that
no officer or director of Berkshire could serve as a director of GEICO, (v)
to have all material correspondence with the Independent Proxy be in
writing, maintained for three years and subject to inspection by the DC
Superintendent, (vi) to instruct the Independent Proxy to vote all GEICO
shares covered by the order if a failure to do so would result in GEICO not
having a quorum to conduct its corporate business and (vii) not to continue
any corporation as the Independent Proxy if any of its directors or
officers became a director or officer of GEICO or any natural person as
such if he or she became a director or officer of GEICO, in each case,
without the prior approval of the DC Superintendent.
On February 24, 1977, pursuant to the Final Order, Berkshire and the
Independent Proxy entered into the Berkshire Proxy Agreement which sets
forth the arrangements pursuant to which the GEICO shares are to be voted
by the Independent Proxy. The Berkshire Proxy Agreement provides that in
voting any GEICO shares held by Berkshire the Independent Proxy "shall be
guided solely by its best judgment as to which decision will be in the best
interests of Berkshire as an investor and without regard to the status of
Berkshire or the subsidiaries as actual or potential competitors of GEICO."
The Berkshire Proxy Agreement further provides that Berkshire may direct
the Independent Proxy not to vote the GEICO shares on a specific matter or
to vote such shares on a matter in the same proportion as the vote
ultimately cast by all other voting Stockholders. The Berkshire Proxy
Agreement has been extended each year since 1977 by Berkshire on the same
terms. When GEICO redomesticated to become domiciled in Maryland in 1986,
the Independent Proxy arrangements were reconfirmed by Berkshire with the
Maryland Insurance Administration which allowed them to continue in effect
without change. Mr. Buffett has historically been invited by the Board
to attend all meetings of the Board and has frequently attended such
meetings.
On January 31, 1979, the stockholders of GEICO approved an Agreement
and Plan of Reorganization dated as of December 15, 1978, pursuant to which
GEICO became a subsidiary of the Company, which had been organized by GEICO
earlier, and the shares of GEICO common stock and GEICO convertible
preferred stock were converted on a share-for-share basis into shares of
Common Stock and Company convertible preferred stock. Subsequently, on
August 6, 1980, Berkshire received approval from the DC Superintendent to
acquire up to 33 1/3% of the Company's total common share equivalents, and
it purchased additional Common Stock in 1979 and 1980.
Since 1980, Berkshire has not acquired any additional shares of Common
Stock, except on conversion of Company convertible preferred stock. Its
ownership percentage of Common Stock (on a fully diluted basis) has
gradually increased from approximately 33.2% in 1980 to the current 50.72%
solely as a result of the Company's purchases of Common Stock in the open
market pursuant to Board authorized and publicly announced repurchase
programs and three self-tender or exchange offers (in one of which
Berkshire tendered stock owned by it in the same percentage as the other
Stockholders tendered their shares). As a result of the Company's continued
open market purchases, in November 1994 Berkshire's ownership interest in
Common Stock for the first time exceeded 50%.
For a number of years, Mr. Buffett from time to time had
mentioned to a director and a senior officer of the Company that
perhaps at some time Berkshire should consider acquiring 100% of the
Company, but no discussions ever took place until August 17, 1994
when, at Mr. Buffett's request, Mr. Simpson, Co-President and Co-Chief
Executive Officer-Capital Operations, of the Company, and Mr. Butler,
Chairman of the Executive Committee of the Board, met with Mr. Buffett
in Washington, DC and had a general conversation about the possibility
of Berkshire acquiring the remaining outstanding shares of Common
Stock in a tax-free transaction. Messrs. Butler and Simpson expressed
concerns about Independent Stockholders receiving Berkshire common
stock as Berkshire did not pay a dividend and the Company did and
because, due to the very high per share market price of Berkshire
<PAGE>
20
common stock (then about $18,700 per share), an Independent Stockholder of
less than several hundred shares would be entitled only to a fractional
share and thus would be cashed out in the transaction. The conversation
turned to the possible use of a new Berkshire convertible preferred stock
having a dividend equal to the Company's Common Stock dividend, a
conversion premium ranging from 10% to 15% and a no-call provision in which
the range discussed was from three to ten years. Mr. Buffett indicated that
Berkshire might be willing to issue one share of such convertible preferred
stock, having a stated value of around $55 per share, for each share of
Common Stock not owned by Berkshire. Mr. Butler responded that his initial
reaction, subject to further reflection and to consultation with financial
advisors, was that he would not recommend any transaction to the Board
unless the fair market value of Berkshire's convertible preferred stock was
somewhere in the $60's. On August 17, 1994, the Common Stock closed at
$49-1/4.
After the meeting concluded, Messrs. Simpson and Butler agreed that
Mr. Butler should contact Mr. Gary W. Parr of Morgan Stanley and ask his
views as to the likely fair market value of a share of Berkshire
convertible preferred stock having the terms which had been outlined. Mr.
Parr then discussed with certain Morgan Stanley capital markets
professionals the concept of Berkshire making an acquisition of an unnamed
company with Berkshire convertible preferred stock. Thereafter for several
weeks, a series of telephone conversations took place between Mr. Butler
and Mr. Parr and among Messrs. Simpson and/or Butler and Mr. Buffett.
During these conversations Mr. Butler expressed the view, based on Mr.
Parr's and Morgan Stanley's very preliminary analysis, that the proposed
Berkshire convertible preferred stock might trade somewhat below its stated
value and that even if it traded somewhat above its stated value, the price
being offered was too low. Mr. Butler again reiterated that the fair market
value of any securities to be issued should be in the $60's, and Mr.
Buffett continued to suggest that, if there were to be a transaction, $55
in stated value of a share of Berkshire convertible preferred stock would
be a price acceptable to Berkshire. During this time Mr. Buffett also
raised a tax issue that had to be considered in connection with any
tax-free acquisition of the Company by Berkshire, and representatives of
Berkshire and the Company began to research and discuss this issue. In
early 1995, such representatives began to prepare a draft of a joint ruling
request to the Internal Revenue Service ("IRS"); thereafter such draft was
extensively revised and the issue was discussed on an informal basis twice
with a representative of the IRS.
On March 1, 1995, Messrs. Simpson and Butler met, again at Mr.
Buffett's request, with Mr. Buffett and Mr. Charles T. Munger, Vice
Chairman of Berkshire, in New York City. They discussed generally the
feasibility and desirability of an acquisition of the Company by Berkshire
and the regulatory and economic climate for property and casualty insurers.
They also generally discussed the possible structure and terms of any such
transaction and essentially the same positions were taken as in the earlier
conversations. In addition, Mr. Butler pointed out that, in view of the
sharp rise in the market price of Berkshire's common stock in recent months
(the per share price then being about $22,000), both Mr. Simpson and he had
become more concerned about the fair market value of a share of Berkshire
convertible preferred stock, particularly if something should happen to Mr.
Buffett. After discussion, all those present agreed that there should be no
further discussion of any transaction until the previously mentioned tax
issue could be resolved by obtaining a ruling from the IRS.
In April 1995, Mr. Butler asked Mr. Parr to have Morgan Stanley
commence work on a valuation of the Company to be presented to the
Board in case a transaction should ever come close to being agreed
upon, and on April 27, Messrs. Simpson, Butler and Mr. Olza M. Nicely,
Co-President and Co-Chief Executive Officer-Insurance Operations of
the Company, and Mr. W. Alvon Sparks, Jr., Executive Vice President
and Chief Financial Officer of the Company, met with representatives
of Morgan Stanley at its offices to discuss these matters.
By early August 1995 the ruling request was almost ready to file with
the IRS. On August 15 Messrs. Nicely, Simpson, Sparks, Butler and Parr met
in the Company's offices to discuss the preliminary
<PAGE>
21
results of Morgan Stanley's valuation of the Company. After receiving Mr.
Parr's preliminary view that the valuation range for a share of Common
Stock would be from the high $50's to the mid $60's on the basis of a
discounted cash flow analysis, the parties discussed the possible terms of
a transaction. It was noted that the market price of Common Stock had
increased over 10% in recent months and that, as a result, Mr. Butler's
previous indication of a possible sales price if Berkshire's convertible
preferred stock was used would have to be revised upward. The group
expressed considerable concern about filing a tax ruling request without an
agreed upon transaction and noted the difficulty of keeping discussions
confidential and Mr. Buffett's and the Company's desire for complete
secrecy until an agreement was signed. A concern was expressed that the
continued discussions were distracting to the Company's most senior
management. The group also expressed its belief that Mr. Buffett might well
prefer a cash transaction and that it might be possible to obtain a
significantly higher price for the Independent Stockholders from Berkshire
in a cash transaction than in a stock transaction. The group also thought
that, given the recently-announced merger between The Walt Disney Company
and Capital Cities/ABC, it might be a particularly opportune time to
propose a cash transaction to Berkshire because Berkshire, a major
shareholder of Capital Cities/ABC, might be interested in reinvesting any
cash proceeds it would receive in that transaction. As a result of all the
foregoing factors, the group believed that it might be possible at this
time to arrange a cash transaction that would be favorable to the
Independent Stockholders. At the conclusion of the meeting, Mr. Butler was
requested by the group to call Mr. Buffett and advise him that Messrs.
Nicely, Simpson, Sparks and Butler would recommend to the Board a cash
transaction at $70 per share or an acquisition in exchange for a Berkshire
convertible preferred stock having a fair market value as determined by
Morgan Stanley of approximately the same price.
On August 17, Mr. Butler called Mr. Buffett, told him about the
earlier meeting and the group's concern over seeking a tax ruling and
maintaining confidentiality, said the group believed that the continued
conversations were becoming a distraction to senior management, reported
that senior management and he were very comfortable with continuing the
independent status of the Company with Independent Stockholders but felt it
would be their duty to recommend to the Board and the Independent
Stockholders a transaction that might be regarded as very attractive and,
finally, made the proposal which the group had said it would recommend. Mr.
Buffett and Mr. Butler then briefly discussed "fiduciary out" and "break-up
fee" arrangements, and Mr. Buffett asked if the price was negotiable and
Mr. Butler replied that it was not. Mr. Buffett stated that he would prefer
a cash transaction and would not issue stock at the proposed price. Mr.
Buffett said he wanted to discuss the matter with Mr. Munger and would call
back. Mr. Buffett called Mr. Butler later that same day and said he had
discussed the matter with Mr. Munger and that Berkshire would be prepared
to accept the Company's proposal, subject to resolution of all legal and
other issues, approval by the Board and the signing of a merger agreement.
From August 17 through August 24, counsel for and representatives of
the Company and Berkshire negotiated various issues and drafted the Merger
Agreement and Morgan Stanley completed work on its valuation of the
Company. On August 21 and 22, Mr. Simpson informed each member of the Board
of the proposal by telephone (which was the first occasion that any of the
nonemployee members of the Board, other than Mr. Butler, were advised of
any proposal for Berkshire to acquire the shares of Common Stock it did not
already beneficially own). On August 22, counsel for the Company
distributed to each member of the Board a summary of the Merger Agreement
prepared by such counsel, a draft of the Merger Agreement and other
materials in preparation for the Board's forthcoming meeting.
The Board met on August 24 to consider the Merger and discussed the
factors described below under "-Reasons for the Transaction". Mr. Buffett
was not invited to and did not attend or otherwise participate in the meeting.
The Board did not believe it was necessary to create a special committee of
the Board to represent the Independent Stockholders or to retain an
unaffiliated representative to advise the Board or any such committee solely
on behalf of the Independent
<PAGE>
22
Stockholders because (i) none of the members of the Board were nominees of,
or (except to the limited extent described below under "- Interests of
Certain Persons in the Transaction") affiliated with, Berkshire, (ii) the
Final Order and the Berkshire Proxy Agreement effectively prevent Berkshire
from exercising control or influence over the Company or the Board and
(iii) the proposed terms of the Merger Agreement require the Merger
Agreement to be approved by the affirmative vote of the holders of 80% of
the outstanding shares of Common Stock, including the affirmative vote of
Independent Stockholders holding a majority of the outstanding shares of
Common Stock not beneficially owned by Berkshire, which means that holders
of approximately 59% of the outstanding shares of Common Stock owned by
Independent Stockholders must vote for the Merger. The Board met again in
the early morning of August 25, and voted to approve the Merger by the
unanimous vote of those directors voting. Mr. William J. Ruane, a director
of the Company, elected to abstain from voting on the Merger because of his
relationships with Mr. Buffett and Berkshire. See "- Interests of Certain
Persons in the Transaction".
The Berkshire Board of Directors met in the late afternoon of August
24 and approved the Merger. On August 25, following the approval of the
Merger by the Board, the Merger Agreement was signed, the NYSE was notified
before the opening of trading and a joint press release was issued.
Purpose of the Transaction
The purpose of the Merger is to effect the acquisition by
Berkshire of all the outstanding shares of Common Stock not currently
owned by Berkshire or its subsidiaries. Berkshire and the Company did
not consider any alternative means to accomplish this purpose (other
than with respect to the form of the consideration to be used as
described under "- Background of the Transaction"), because the Merger
is the most direct means for effecting the acquisition of the shares
of Common Stock held by the Independent Stockholders.
Reasons for the Transaction
The Company. The Board has determined that the Merger Agreement
and the Merger are fair to and in the best interests of the Company
and the Independent Stockholders, has approved the Merger Agreement
and the Merger and has recommended to the Independent Stockholders
that they vote for the approval and adoption of the Merger Agreement.
In taking these actions, the Board considered many factors, including
among others the following:
(i) Management's Recommendation. The Board reviewed
presentations from, and discussed the terms and
conditions of the Merger Agreement and the Merger
with, senior executive officers of the Company,
representatives of its legal counsel and
representatives of its financial advisor. The Board
considered the view of management that the Company's
businesses might realize certain operational
advantages if the Company were no longer an
independent public company (which advantages the
Board took into account in assessing the adequacy of
the $70 per share to be received in the Merger). The
Board also considered favorably management's stated
belief that the Merger would not have an adverse
effect on the Company's associates or policyholders.
<PAGE>
23
(ii) The Company's Business, Condition and Prospects. In
evaluating the terms of the Merger, the Board considered,
among other things, information with respect to the
financial condition, results of operations, investment
results and businesses of the Company, on both a
historical and a prospective basis, and current industry,
economic and market conditions. The members of the Board
were generally familiar with and knowledgeable about the
Company's affairs, including the present and possible
future economic, regulatory and competitive environment
in which the Company operates its direct automobile
insurance business, and further reviewed these matters in
the course of their deliberations. In evaluating the
Company's prospects, the Board considered, among other
things, the opportunities available to the Company to
improve its results, including such growth opportunities
as increasing utilization of cable television advertising
(which the Company began testing in 1994) and the
Internet as distribution channels and expanding the
geographic areas in which the Company operates. The Board
also considered the growth opportunities inherent in the
Company's new program to provide GI or GEICO Casualty
(the Company's standard risk and nonstandard risk
subsidiaries) rate quotes to direct response inquirers
who do not meet GEICO preferred-risk guidelines, thus
making more efficient use of the Company's overall
marketing resources. The Board also considered the risks
facing the Company, including the recent entry of
financially stronger and much larger companies into the
Company's businesses, the Company's capacity to
efficiently and profitably manage its future growth, the
investment spending that would be required to boost
growth by more than 2-3%, and the Company's ability to
achieve planned reductions in its expense ratio. The
Board also considered the risks inherent in the shift of
the Company's mix of business from the preferred risk
segment to the standard and nonstandard risk segments.
The Board also considered the Company's continued
exposure to catastrophe losses over the next two to three
years, particularly in light of the Company's decision in
1994 not to purchase catastrophe reinsurance.
(iii) Historical and Recent Market Prices Compared to the
Consideration to be Received in the Merger. The Board
reviewed the historical market prices and recent trading
activity of the Common Stock. The Board considered as
favorable to its determination the fact that the $70 per
share price to be paid in the Merger represents a premium
of approximately 26% over the $55-3/4 price at which the
Common Stock closed on August 24, 1995, the last trading
day before the public announcement of the proposed
Merger. The Board also considered as favorable the fact
that $70 per share (i) is higher than the highest price
ever reached by the Common Stock (which was $67-5/8 on
January 22 and 27, 1993), and (ii) represents a premium
of approximately 33% over the $52.80 median price for the
Common Stock over the three and one-half year period
ending July 24, 1995 (during which period the total
number of shares of Common Stock traded represented
approximately 59.3% of the total number of shares held by
the Independent Stockholders) estimated by Morgan Stanley
as part of its price/volume analysis of the trading
history of the Common Stock.
(iv) Opinion of Morgan Stanley. The Board considered the
opinion of Morgan Stanley that the consideration to be
received by the Independent Stockholders
<PAGE>
24
pursuant to the Merger Agreement is fair to such holders
from a financial point of view, as well as the
presentation made by Morgan Stanley to the Board, to
support the Board's determination that the Merger is fair
to the Independent Stockholders. Morgan Stanley's opinion
and presentation are described below under "- Opinion of
Financial Advisor". As described below, Morgan Stanley
performed certain valuation analyses on the Company in
order to reach its opinion. These analyses resulted in
the following per share valuation ranges for the Company
(each of which is described in more detail below under "-
Opinion of Financial Advisor"):
Public Market Reference Range $47.25-$56.85
M&A Market Reference Range $61.76-$73.22
Acquisition Reference Range $53.16-$70.36
Discounted Cash Flow Range $61.97-$67.00
Discounted Cash Flow Range-Fast
Growth Case $66.89-$73.43
Discounted Cash Flow Range-Higher
Expense Ratio Case $52.00-$56.75
Discounted Cash Flow Range-Higher
Expense Ratio and Lower Leverage
Case $50.80-$55.15
The Board determined that the Merger is fair to the
Independent Stockholders notwithstanding the fact that
the high end of two of Morgan Stanley's ranges (the M&A
Market Reference Range and the Discounted Cash Flow
Range-Fast Growth Case) exceeded $70 by more than three
dollars because $70 per share is close to the high end of
the M&A Market Reference Range and approximately at the
midpoint of the Discounted Cash Flow Range-Fast Growth
Case, as well as being in excess (or in one case
approximately equal to) the high end of each of the other
five ranges derived by Morgan Stanley. See "- Opinion of
Financial Advisor".
(v) No Financing Condition; Strong Acquiror. The Board
regarded as favorable to its determination that the
Merger Agreement does not contain a financing condition,
that Berkshire is a financially strong enterprise with a
market value (at the time the Board was making its
determination) of $29 billion and a very strong balance
sheet, and that accordingly the Merger has a low risk of
noncompletion due to any financial inability of
Berkshire.
(vi) Multiple Analysis. The Board reviewed the multiples of
1994 actual, and 1995 and 1996 estimated, earnings
calculated in accordance with generally accepted
accounting principles ("GAAP") represented by the
consideration to be received in the Merger (which were
23.9x, 21.3x and 18.9x, respectively) as well as the
multiple of GAAP book value at June 30, 1995 represented
by the consideration to be received in the Merger (which
was 2.88x). The Board compared these multiples to the
multiples at which other comparable publicly-held
property and casualty insurers were trading and the
multiples represented by the purchase price in certain
precedent transactions and determined that the multiples
<PAGE>
25
represented by the consideration to be received in
the Merger were in each case substantially higher.
(vii) Stockholder Approval Requirement. The Board considered
the fact that the Merger is conditioned on the approval
and adoption of the Merger Agreement by the affirmative
vote of the holders of 80% of the outstanding shares of
Common Stock entitled to vote thereon, including the
affirmative vote of Independent Stockholders holding a
majority of the outstanding shares of Common Stock not
owned by Berkshire and its subsidiaries, as supporting
its view that the Merger is fair procedurally to the
Independent Stockholders.
(viii) Alternative Transactions. The Board determined, taking
into account, among other things, Berkshire's ownership
interest in the Company, that it was unlikely that a
combination transaction with any other corporation could
be structured in a manner that would offer comparable
value to the Independent Stockholders.
(ix) Termination Provision; No Breakup Fee. The Board
considered as favorable to its determination that the
Merger Agreement (i) permits the Board to approve a
Takeover Proposal that it believes is in the interests of
the Independent Stockholders and (ii) is terminable by
the Board if a Takeover Proposal is so approved, in each
case without making any payment to Berkshire.
The foregoing description of the factors considered by the Board is
not all inclusive but covers the principal matters discussed in detail by
the Board. In view of the wide variety of factors considered, the Board did
not consider it practical to, nor did it attempt to, quantify or attach any
particular weight to any of the factors it reviewed in reaching its
conclusion to recommend the Merger to the Independent Stockholders as being
in their best interests.
Berkshire. Berkshire believes that the Merger is fair to the
Independent Stockholders based on the same conclusions, and the bases
therefor, reached by the Board in approving the Merger, as set forth
above, and based on the fact that the terms of the Merger were negotiated
on an arm's-length basis with the Company, which was assisted by
experienced and independent legal counsel and financial advisors. However,
Berkshire has a conflict of interest with respect to the Merger Agreement
and the Merger, in that it is the other party to the Merger Agreement and
will acquire all the shares of Common Stock held by the Independent
Stockholders if the Merger is consummated.
Opinion of Financial Advisor
Morgan Stanley delivered its written opinion to the Board on
August 25, 1995, that, as of such date, the consideration to be
received by the Independent Stockholders in the Merger is fair to them
from a financial point of view. No limitations were imposed by the
Company with respect to the investigations made or the procedures
followed by Morgan Stanley in rendering its opinion.
The full text of the opinion of Morgan Stanley, which sets forth
assumptions made, matters considered and limitations on the review
undertaken by Morgan Stanley, is included as Appendix B to this Proxy
Statement. Stockholders are urged to read the opinion in its entirety.
The full text of the report by Morgan Stanley relating to its opinion
is attached as an exhibit to the Schedule 13E-3 (see "ADDITIONAL
INFORMATION"), and is also available for inspection and copying at the
<PAGE>
26
principal executive offices of the Company (see "SUMMARY - The Parties")
during the Company's regular business hours by any Interested Stockholder
or such Stockholder's representative who has been so designated in writing.
Morgan Stanley's opinion is directed only to the consideration to be
received by the Independent Stockholders in the Merger and does not
constitute a recommendation to any Stockholder as to how such Stockholder
should vote at the Special Meeting. The summary of the opinion of Morgan
Stanley set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, Morgan Stanley (i) reviewed certain
publicly available financial statements and other information of the
Company; (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company; (iii) analyzed certain financial projections
prepared by the management of the Company; (iv) discussed the past and
current operations and financial condition and the prospects of the Company
with senior executives of the Company; (v) reviewed the reported prices and
trading activity for the Common Stock; (vi) compared the financial
performance of the Company and the prices and trading activity of the
Common Stock with that of certain other comparable publicly traded
companies and their securities; (vii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement; and (ix) performed such other
analyses as it deemed appropriate.
Morgan Stanley assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by
it for purposes of rendering its opinion. Morgan Stanley also assumed that
the financial projections provided to it were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
future financial performance of the Company. Morgan Stanley did not make
any independent valuation or appraisals of the assets or liabilities of the
Company. Morgan Stanley's opinion was based on the economic, market and
other conditions in effect on, and the information made available to it as
of, the date of the opinion. In arriving at its opinion, Morgan Stanley was
not authorized to solicit, and did not solicit, interest from any party
with respect to the acquisition of the Company or any of its assets.
The following is a summary of the analyses Morgan Stanley utilized in
arriving at its opinion as to the fairness of the consideration to be
received by the Independent Stockholders in the Merger and that Morgan
Stanley discussed with the Board on August 24, 1995.
Overview. Morgan Stanley described the corporate structure of the
Company and the Company's lines of business -- including property and
casualty insurance, property and casualty reinsurance, life insurance
and consumer finance, noting that private automobile insurance
represents approximately 93% of the property and casualty premiums
received, with homeowners insurance representing approximately 6% of
premiums. Morgan Stanley described the Company's remaining exposure in
the homeowners insurance business, which the Company plans to exit in
three years. Morgan Stanley presented an overview of the estimated
market shares of the leading companies in the private passenger
automobile insurance market, noting that the Company's 2% market share
ranks it sixth, behind State Farm Group, Allstate, Farmers Group,
Nationwide Group and USAA Group. Morgan Stanley described the three
customer segments of the private passenger automobile insurance market
-- preferred risk, standard risk and non-standard risk, and noted that
91% of the Company's existing private auto premiums in 1994 (and 71%
of its new premiums) were in the preferred risk segment, but that the
expected growth rate of the Company's auto premiums was higher in the
standard risk and non-standard risk segments. Morgan Stanley reviewed
the direct premiums written by the Company in 1994 on a state-by-state
basis, noting that New York, Florida and Maryland were the largest
states, with 21.7%, 13.5% and 11.5%, respectively, of the total direct
premiums written. Morgan Stanley described the distribution channels
for the Company's private automobile insurance, noting that 60% of new
sales are
<PAGE>
27
from referrals and that the Company had been successful in the 1980's
in utilizing direct mail as a distribution channel and had achieved
success beginning in 1994 with cable-television advertising.
Finally, Morgan Stanley reviewed certain GAAP financial
information for the Company, including net premiums earned, total
revenues, net operating earnings, common book value, long-term debt,
return on average equity as well as certain statutory information,
including loss ratio, expenses ratio, combined ratio and the ratio of
net premiums written to surplus. Morgan Stanley reviewed the trading
volume and price history of the Common Stock since December 31, 1993
and the relationship between movements of the Common Stock and
movements of Standard & Poor's 500 Stock Price Index (the "S&P 500").
Morgan Stanley also presented a price/volume analysis that suggested
the percentage of the total number of outstanding shares of the Common
Stock that had traded within specified price ranges over the past four
years. Morgan Stanley also reviewed the relationship over the last ten
years between the price/earnings and price/book ratios of the Common
Stock to the price/earnings and price/book ratios of the S&P 500 and
to the price/earnings and price/book ratios of a composite index
composed of the following property and casualty insurance companies:
Lincoln National Corporation, The St. Paul Companies Inc., SAFECO
Corporation, Ohio Casualty Corporation, Allmerica Property & Casualty
Companies, Inc., USF&G Corporation, American International Group,
Inc., Cincinnati Financial Corporation, The Progressive Corporation
and The Hartford Steam Boiler Inspection and Insurance Company. Morgan
Stanley also presented a summary of earnings forecasts for 1995 and
1996 for the Company from selected equity analysts who follow the
Company.
Morgan Stanley noted that $70 per share, the consideration to be
received by Independent Stockholders in the Merger, represented a
23.9% premium to the closing price of the Common Stock on August 21,
1995. In addition, Morgan Stanley noted that $70 per share in cash
represented multiples of 23.9x, 21.3x and 18.9x, respectively,
earnings for 1994 and estimated earnings for 1995 and 1996 calculated
in accordance with GAAP and 2.88x GAAP book value.
Valuation Analysis. Morgan Stanley arrived at a range of values
for the Company by utilizing three principal valuation methodologies:
a comparable company analysis; a precedent transactions analysis; and
a discounted cash flow analysis. Comparable company analysis analyzes
a company's operating performance and outlook relative to a group of
publicly traded peers to determine an implied unaffected market
trading value. Precedent transactions analysis provides a valuation
range based upon financial information of companies in the same or
similar industries as the target which have been acquired in selected
recent transactions. Discounted cash flow analysis provides insight
into the intrinsic value of a company based on projected earnings and
capital requirements and the subsequent cash flows generated by the
assets of the target company. No company used in the comparable
company analysis described below is identical to the Company and no
transaction used in the precedent transactions analysis described
below is identical to the Merger. Accordingly, an analysis of the
results of analyses described below necessarily involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that
could affect the public trading value or the acquisition value of the
companies to which they are being compared.
Comparable Company Analysis. Morgan Stanley compared certain
financial information of the Company with the following group of
companies that Morgan Stanley believed to be appropriate for
comparison: The Allstate Corporation, Cincinnati Financial
Corporation, Ohio Casualty Corporation, The Progressive
Corporation and SAFECO
<PAGE>
28
Corporation. The financial information compared included market
capitalization, current price, price as a percentage of the
previous 52-weeks' high and low sales price, earnings per share
for 1994, estimated earnings per share for 1995 and 1996, five
year projected growth rate, return on average equity and dividend
yield. The credit statistics compared included Best's rating and
Moody's and S&P's credit ratings, the ratio of 1994 net premiums
written to surplus, the ratio of earnings before interest, taxes,
depreciation and amortization ("EBITDA") to interest, the ratio
of long-term debt to book capitalization and to market
capitalization, real estate and mortgages as a percentage of
total invested assets, dividend yield and payout ratio. In order
to arrive at a public market reference range for the Company,
Morgan Stanley derived multiples for the comparable companies,
including price as a multiple of (i) earnings for 1994 and
estimated earnings for 1995 and 1996 in accordance with GAAP and
(ii) GAAP book value. The market price information used in such
analysis was as of August 18, 1995. The earnings per share
estimates used were based on estimates as of August 19, 1995 by
Institutional Brokers Estimate System ( "IBES"), a data service
that monitors and publishes a compilation of earnings estimates
regarding companies of interest to institutional investors
produced by selected research analysts.
Price as a Multiple of (1)
GAAP Earnings GAAP 1994 Statutory
1994A 1995E 1996E Book Net Gain Surplus
Company 17.2x 16.8x 15.2x 2.33x 18.3x 3.71x(3)
Comparables
Allstate(2)(4) 11.7x 9.0x 8.4x 1.47x NM 2.16x
Cinncinnati Fin. 14.5 13.7 12.6 1.24 20.1 2.80
Ohio Casualty(4) 8.9 11.3 9.6 1.22 NM 1.72
Progressive 12.0 14.3 12.6 2.38 12.7 3.16
SAFECO 12.0 11.1 9.6 1.08 14.1 2.48
MEAN 11.8x 11.9x 10.5x 1.48x 15.6x 2.47x
MEDIAN 12.0 11.3 9.6 1.24 14.1 2.48
Notes:
(1) Financial data as of June 30, 1995 unless otherwise
stated. Market data as of August 18, 1995. Estimates are from
IBES as of August 19, 1995.
(2) Before catastrophe charges for the Northridge earthquake of
$1.63 billion pre-tax ($1.06 after-tax).
(3) Based on consolidated policyholders' surplus.
(4) Financial data as of March 31, 1995.
Morgan Stanley then derived from this and other data
(based on the relative comparability of the comparable
companies to that of the Company) the ranges of these
multiples deemed most meaningful for its analysis (which
were 14.3x-16.8x 1995 estimated net operating income,
12.6x-15.2x 1996 estimated net operating income and
2.00x-2.38x June 30, 1995 GAAP equity) and applied these
multiples to the Company.
<PAGE>
29
This analysis resulted in a public market reference
range for the Company of between $3.2 billion and $3.85
billion (or $47.25 per share to $56.85 per share). In
addition, Morgan Stanley derived an M&A market reference
range for the Company of between $4.308 billion and $5.108
billion (or between $61.76 per share and $73.22 per share)
by applying a premium of approximately 30% (the premium that
Morgan Stanley believed to be the most appropriate in light
of the Company's stock price and financial performance and
market conditions) to the public market reference range
derived above, which includes the addition of $108 million
of option proceeds.
Precedent Transactions Analysis. The transactions used
in the analysis included Guaranty National Group, Inc.'s
acquisition of Viking Insurance Holdings, Inc.; USF&G
Corporation's acquisition of Victoria Financial Corp.;
Integon Corporation's acquisition of Bankers and Shippers
Insurance Company; Guardian Royal Exchange PLC's acquisition
of National Corp.; Vik Brothers Insurance, Inc.'s
acquisition of Armco Inc.'s insurance operations; Anthem P&C
Holdings Inc.'s acquisition of Federal Kemper Insurance Co.;
Guardian Royal Exchange PLC's acquisition of American
Ambassador Casualty Co.; The St. Paul Companies Inc.'s
acquisition of Economy Fire & Casualty Co.; The Penn Central
Corporation's acquisition of Leader National Insurance
Company; Chandler Management's acquisition of Chandler
Insurance Co., Ltd.; Lawrence Insurance Group, Inc.'s
acquisition of Global Insurance Company; The Associated
Group's acquisition of The Shelby Insurance Company; The
Penn Central Corporation's acquisition of Atlanta Casualty
Company, Windsor Insurance Company and subsidiaries;
Winterthur Insurance Company's acquisition of General
Casualty Companies; American Financial Corporation's
acquisition of Mid-Continent Casualty Company; BATUS Inc.'s
acquisition of Farmers Group, Inc. and Orion Capital
Corporation's acquisition of Guaranty National Corporation.
The financial information compared in the analysis included
aggregate transaction value and return on average equity of
the acquired company. In order to arrive at an acquisition
reference range for the Company, Morgan Stanley derived
multiples for the precedent transactions, including the
price paid for the acquired company as a multiple of (i)
GAAP and statutory (x) net income, (y) book value and (z)
net premiums and (ii) market value. Morgan Stanley then
derived from this and other data (based on the relative
comparability of the precedent transactions to the Merger)
the ranges of these multiples deemed most meaningful for its
analysis (which were 15.0x - 21.0x 1995 estimated net
operating income and 2.50x - 3.00x June 30, 1995 GAAP
equity) and applied these multiples to the Company.
<PAGE>
30
Price Paid as a Multiple of Acquiree
GAAP/Statutory
Net Book Net Market
Income Value Premiums Value
High 25.4x 3.23x 113.6% 2.27x
38.6 3.41 220.1
Low 6.5 0.80x 34.6% 1.07
7.6 0.67 39.8
Mean 14.0 1.7x 71.7% 1.50
16.2 1.9 94.2
Median 11.2 1.5 69.6% 1.33
13.2 1.8 99.4
Applying the multiples derived from the precedent
transactions (which include $108 million of option proceeds)
resulted in a range of values for the Company of between
$3.708 billion and $4.908 billion (or $53.16 per share to
$70.36 per share).
Discounted Cash Flow Analysis. The stand-alone valuation of
the Company was determined by adding (i) the present value of the
projected dividend streams of the continuing property and
casualty operations of the Company (the "Operations") over a
10-year period from 1995 through 2004, (ii) the present value of
the Operations' 2004 terminal value and (iii) certain adjustments
totaling $478 million reflecting estimates of the value of the
assets and liabilities of the Company other than those of the
Operations. The terminal value of the Operations' common equity
at the end of the 10-year period was determined by multiplying
the final year's projected GAAP net income by numbers
representing various terminal multiples (ranging from 15.0x to
17.0x). Earnings were projected assuming the Operations performed
in accordance with the management's base case projections and
certain variations thereof (a fast growth case, a higher expense
ratio case and a higher expense ratio and lower leverage case).
The base case projections assume, among other things, that (i)
the growth rate for new premiums written will be highest in 1995,
will remain steady at a slightly lower rate through 2000 and that
the rate of growth will be lower thereafter, (ii) the loss ratio
will gradually increase through the year 2000 and remain steady
thereafter and (iii) the expense ratio will decline through 2000
and remain steady thereafter. The fast growth case is similar to
the base case except that it assumes, among other things, (i) a
faster growth rate for new premiums written for four years, (ii)
a higher loss ratio and (iii) one time investments totalling $90
million from 1996 to 1998. The higher expense ratio case is
similar to the base case except that it assumes a smaller
decrease in the expense ratio than that assumed in the base case.
The higher expense ratio and lower leverage case is similar to
the higher expense ratio case except that it assumes that the
ratio of net premiums written to surplus will be lower than in
the base case. The dividend streams and terminal values of the
Operations were discounted to present values using different
discount rates (ranging from 11% to 13%) chosen to reflect
different assumptions regarding the required rates of return of
holders or prospective
<PAGE>
31
buyers of the Company's common equity. Morgan Stanley
calculated a range of discounted cash flow values per share
of Common Stock on a fully diluted basis of from $61.97 to
$67.00 using the base case, $66.89 to $73.43 using the fast
growth case, $52.00 to $56.75 using the higher expense ratio
case and $50.80 to $55.15 using the higher expense ratio and
lower leverage case.
The summary set forth above does not purport to be a complete
description of the analyses performed by Morgan Stanley. The
preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Morgan Stanley believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering
all analyses, would create an incomplete view of the process
underlying its opinion. In performing its analyses, Morgan Stanley
made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of
which are beyond the control of the Company. The analyses performed by
Morgan Stanley are not necessarily indicative of actual values, which
may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of businesses
do not purport to be appraisals or to reflect the prices at which such
businesses actually may be sold. Because such analyses are inherently
subject to uncertainty, none of the Company, Morgan Stanley or any
other person assumes responsibility if future events do not conform to
the judgments reflected in the opinion of Morgan Stanley.
The Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is a nationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
Pursuant to a letter agreement dated August 24, 1995, between the
Company and Morgan Stanley (the "Engagement Letter"), the Company
agreed to pay Morgan Stanley an advisory fee of $200,000. In addition,
the Company agreed to pay Morgan Stanley a financial opinion fee of
$2,000,000, half of which became payable upon delivery of Morgan
Stanley's opinion and the balance of which (against which the advisory
fee will be credited) will be payable upon the consummation of the
Merger. In addition to the advisory fee and the opinion fee, the
Company agreed to pay Morgan Stanley a "time and efforts" fee, based
on Morgan Stanley's customary charges, if Morgan Stanley is required
to perform material services after the delivery of its opinion. The
Engagement Letter with Morgan Stanley provides that the Company will
reimburse Morgan Stanley for its expenses as incurred and will
indemnify Morgan Stanley against certain liabilities incurred in
connection with its services.
Interests of Certain Persons in the Transaction
In considering the recommendation of the Board with respect to
the Merger Agreement and the transactions contemplated thereby, the
Independent Stockholders should be aware that certain members of the
management of the Company and of the Board have interests in the
Merger that are different from, or in addition to, the interests of
the Independent Stockholders generally.
Officers of the Company. Following the Merger, all the officers
of the Company will continue as such in their present positions. The
directors of the Company will all cease to serve as such at the
Effective Time.
<PAGE>
32
Employee Stock Options. The Merger Agreement provides that, at
the Effective Time, each holder of a then outstanding Company Option
will, in settlement thereof, receive from the Company for each share
of Common Stock subject to such option an amount in cash equal to the
excess of $70 over the per share exercise price of such Company Option
(the "Cash Settlement"). Pursuant to a resolution adopted by the Human
Resources Committee of the Board, eligible participants in the
Company's Directors and Officers Deferred Compensation Plan may defer
any such Cash Settlement if such participant timely submits to the
Company a signed election form to such effect.
Pursuant to the terms of the Company's 1985 Stock Option Plan for
Key Employees (the "1985 Plan") and 1992 Stock Option Plan for Key
Employees (the "1992 Plan"), the approval of the Merger Agreement by
the Stockholders will result in all Company Options under the 1985
Plan and the 1992 Plan becoming exercisable in full. At September 15,
1995, executive officers of the Company listed below held outstanding
Company Options to purchase 1,032,500 shares of Common Stock under the
1992 Plan at exercise prices ranging from $38.15 to $64.4375 per
share. In addition, at September 15, 1995, executive officers of the
Company listed below held outstanding Company Options to purchase
141,775 shares of Common Stock under the 1985 Plan at exercise prices
ranging from $17.4250 to $29.6125 per share. All but 3,000 of the
Company Options outstanding under the 1985 Plan were fully exercisable
prior to the execution of the Merger Agreement. The following table
sets forth information with respect to the number of vested and
unvested Company Options held by the persons named below:
<PAGE>
33
<TABLE>
<CAPTION>
Number of Weighted
Unvested Average
Number of Company Options Exercise
Vested at September 15, Price Per
Company 1995 to Become Share of Vested
Options at Exercisable Upon and Unvested Cash
September 15 Stockholder Company Settlement
Name and Title 1995 Approval Options Amount
- - - -------------- ------------ ----------------- -------------- ----------
<S> <C> <C> <C> <C>
Olza M. Nicely, 186,775 180,000 $ 44.710 $9,275,696
President and
Chief Executive
Officer-Insurance
Operations
Louis A. Simpson, 520,000 130,000 62.610 4,803,125
President and
Chief Executive
Officer-Capital
Operations
W. Alvon Sparks, Jr., 27,000 48,000 56.649 1,001,563
Executive Vice
President and Chief
Financial Officer
James M. Hitt, 18,500 14,000 38.769 1,015,000
Vice President of
GEICO
Simone J. Pace, 5,000 10,000 53.479 247,813
Senior Vice President
and Chief Information
Officer
Richard C. Van Essendelft, 21,000 14,000 38.884 1,089,063
Vice President of GEICO
</TABLE>
Equity Cash Bonus Plan. Pursuant to the terms of the Company's
Equity Cash Bonus Plan (the "ECB Plan"), the approval of the Merger
Agreement by the Stockholders will constitute a "change in control" of
the Company resulting in all unpaid bonuses under such Plan becoming
nonforfeitable and all current and deferred amounts held for the Chief
Investment Officer in such ECB Plan being promptly paid to him in
full. Accordingly, if the Stockholders approve the Merger Agreement,
Mr. Simpson, who is the Company's Chief Investment Officer, will be
paid the $6,434,550 presently in such ECB Plan. In addition, Mr.
Simpson will, in 1996, be paid the amount he is entitled to receive
under such ECB Plan for the year 1995, less any allocations to other
participants in such Plan, based upon the total return of the
Company's Equity Portfolio (as defined in such Plan) during 1995 as
compared to the total return on the S&P 500 for that year; if such
total return of the Equity Portfolio is negative to the S&P 500 Index,
then the negative amount will be carried forward to reduce awards in
future years.
<PAGE>
34
Employee Stock Ownership Plan. The Merger Agreement provides
that, following the Effective Time, all outstanding borrowings by the
ESOP will be paid in full from the unallocated assets of the ESOP, any
remaining unallocated assets of the ESOP will be allocated among the
ESOP participants, the interests of all ESOP participants will be
vested and distributed and the ESOP will be terminated. The payments
under the ESOP to Messrs. Nicely, Simpson, Sparks, Hitt, Pace and Van
Essendelft are expected to be approximately $.5 million, $1.0 million,
$.5 million, $.3 million, $.1 million and $.3 million, respectively.
Performance Share Plan. The Merger Agreement provides that all
awards under the Company's Performance Share Plan will remain in
effect in accordance with their terms, and vesting and payout will not
be accelerated, except that any payments made after the Effective Time
on outstanding awards will be made on the basis of $70 per share and
no Common Stock will be issued with respect to such awards after the
Effective Time.
Pension Plan for Retired Nonemployee Directors. The Company's
Pension Plan for Retired Nonemployee Directors provides that, if the
Stockholders approve the Merger Agreement, then each director who has
been such for one year or more (all directors qualify) will receive an
immediate lump-sum cash payment equal to the actuarial equivalent of
the benefit under such Plan, which is $22,500 per year (75% of the
present annual director's retainer of $30,000), for life, or, if such
director has less than ten years of service, then for the number of
years of service as a director of the Company and of GEICO to the date
of the Special Meeting, in each case applied as if the director were
65 or, if older, his or her actual age. A former director of the
Company who is already retired can elect to continue his monthly
retirement benefit or to receive its actuarial equivalent in a single
payment. The payments under this Plan to Messrs. Bretherick, Butler,
Cheek, Clark, Lewis, Raphael and Ruane and General Brown are expected
to be approximately $105,113, $198,774, $152,753, $59,238, $109,890,
$101,162, $122,186, and $141,851, respectively.
Employee Benefit Plans. The Merger Agreement provides that the
benefit plans of the Company and its subsidiaries in effect at the
date of the Merger Agreement (other than the 1992 and 1985 Plans, the
Performance Share Plan and the ESOP (the "Company Stock Plans")) will,
to the extent practicable, remain in effect without amendment until
the Effective Time and that thereafter the Surviving Corporation will
maintain, subject to such changes and modifications as may be
necessary or desirable to facilitate compliance by Berkshire and its
subsidiaries (including the Surviving Corporation) with applicable
statutory and regulatory requirements, for a period of three years
after the Effective Time, benefit plans (other than the Company Stock
Plans) which are no less favorable, in the aggregate, to the employees
covered by such plans as the benefit plans in effect at the Effective
Time (other than the Company Stock Plans). Berkshire will, and will
cause the Surviving Corporation to, honor without modification for a
period of three years after the Effective Time all employee severance
plans (or policies) and employment and severance agreements of the
Company or any of its subsidiaries in existence on the date of the
Merger Agreement as such plans, policies and agreements shall be in
effect at the Effective Time. In the Merger Agreement, Berkshire and
the Company also agreed to use their best efforts to agree on
compensation plans for the officers and employees of the Company and
its subsidiaries after the Effective Time to provide them incentive
compensation that in the aggregate is reasonably comparable (without
giving effect to the payments to them resulting from the Merger) to
that historically provided by the Company Stock Plans, except that
Berkshire will not be required to issue any shares of its equity
securities in connection with such compensation plans.
<PAGE>
35
Indemnification. The Merger Agreement provides that, from and
after the Effective Time, Berkshire and the Surviving Corporation will
indemnify, defend and hold harmless the Company, each person who is at
the date of the Merger Agreement, or had been at any time prior to
such date, an officer, director or employee of the Company
(individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages, costs,
expenses (including attorneys' fees), liabilities, judgments or
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation based on or arising out of (i) the fact
that such Indemnified Party is or was a director, officer or employee
of the Company or its subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time or (ii)
the Merger Agreement or the transactions contemplated thereby. In the
case of the Surviving Corporation, such indemnification is only to be
to the fullest extent a corporation is permitted under the DGCL to
indemnify its own directors, officers and employees, and in the case
of Berkshire only to the extent such indemnification is not based upon
claims arising out of the Indemnified Parties (i) gaining in fact any
personal profit or advantage to which they were not entitled or (ii)
committing in fact any criminal or deliberate fraudulent act.
Other. At the meeting of the Board on August 24, 1995, three directors
reviewed with the Board certain relationships they each had with Berkshire
and Mr. Buffett. Mr. Butler reported that Cravath, Swaine & Moore
("Cravath"), the law firm of which Mr. Butler is a partner and which has
represented the Company in the Merger, does estate planning work for Mr.
Buffett and has advised the Buffett Foundation, a private foundation
established by Mr. Buffett that makes grants for charitable, scientific and
educational purposes. He also stated that, while Berkshire was not
otherwise a Cravath client, Cravath had acted on behalf of both the Company
and Berkshire in preparing the draft joint IRS ruling request referred to
above. See "-Background of the Transaction". Among Cravath's clients are
Salomon Inc and The Washington Post Company, in each of which Berkshire
holds a substantial investment interest. Both Salomon Inc and The
Washington Post Company were Cravath clients for many years before
Berkshire made its investments in them. Mr. Butler also reported that Mr.
Buffett, who is a director of Capital Cities/ABC, the largest shareholder
of which is Berkshire, had called Mr. Butler to see if Cravath could
represent Capital Cities/ABC in connection with its proposed merger with
The Walt Disney Company and that thereafter the management of Capital
Cities/ABC had retained Cravath to represent Capital Cities/ABC in that
matter, which representation is ongoing.
Mr. Simpson noted his relationships with Berkshire, stating that
in the past he represented Berkshire's interests on the boards of the
National Housing Partnership and the Bowery Savings Bank. He also
stated that he serves as a director of Salomon Inc.
Mr. Ruane stated that Sequoia Fund, Inc. and other clients of his
investment management firm hold very significant investment positions
in the common stock of Berkshire. He also noted that his firm also had
invested its clients' funds, including Sequoia Fund's, in the stocks
of Salomon Inc and Capital Cities/ABC and that his firm managed a
portion of the pension funds of Capital Cities/ABC and The Washington
Post Company. Mr. Ruane is Chairman of the Board of Sequoia Fund and a
director of The Washington Post Company. Mr. Ruane said, given his 45
years of close friendship with Mr. Buffett and his other relationships
with Berkshire, he would be more comfortable abstaining from voting on
the Merger even though he thought the proposal was a good one for the
Independent Stockholders.
<PAGE>
36
Certain Federal Income Tax Consequences
The receipt of cash in exchange for Common Stock pursuant to the
Merger will be a taxable transaction for Federal income tax purposes
and may also be a taxable transaction under applicable state, local
and foreign tax laws. A Stockholder will generally recognize gain or
loss for Federal income tax purposes in an amount equal to the
difference between such Stockholder's adjusted tax basis in such
Stockholder's Common Stock and the consideration received by such
Stockholder in the Merger. Such gain or loss will be calculated
separately for each block of Common Stock exchanged by a Stockholder.
Such gain or loss will be a capital gain or loss if a block of Common
Stock is held as a capital asset and will be long-term capital gain or
loss if, at the Effective Time, such block of Common Stock has been
held for more than one year.
As a result of the Merger, certain state and local real property
transfer and real estate transfer gains taxes ("Transfer Taxes") may
be imposed on Stockholders. Pursuant to the Merger Agreement,
Berkshire or the Company has agreed to pay all such Transfer Taxes, if
any, directly to state and local taxing authorities on behalf of the
Stockholders. For Federal income tax purposes, any such payments made
on behalf of a Stockholder by Berkshire may result in the deemed
receipt of additional consideration by such Stockholder in proportion
to the number of shares of Common Stock owned by such Stockholder. In
such event, such Stockholder would be deemed to have paid such tax on
its own behalf and therefore such Stockholder should be permitted to
reduce such Stockholder's gain (or increase such Stockholder's loss)
on the sale by the amount of the tax. Any such payments made on behalf
of a Stockholder by the Company may be treated as a distribution by
the Company to such Stockholder taxable as a dividend. In such event,
such Stockholder would recognize ordinary income in the amount of such
taxes, would be deemed to have paid such taxes on its own behalf and
should be permitted to reduce such Stockholder's gain (or increase
such Stockholder's loss) on the sale by the amount of the tax. A
Stockholder would not be permitted to offset such tax payment against
the ordinary income created by such dividend.
The foregoing discussion may not apply to Stockholders who
acquired their Common Stock pursuant to the exercise of employee stock
options or other compensation arrangements with the Company, who are
not citizens or residents of the United States or who are otherwise
subject to special tax treatment. Each Stockholder is urged to consult
his, her or its tax advisor with respect to the tax consequences of
the Merger, including the effects of applicable state, local or other
tax laws.
Anticipated Accounting Treatment
The Merger will be accounted for by Berkshire under the purchase
method of accounting in accordance with Accounting Principles Opinion
No. 16, "Business Combinations", as amended. Under this method of
accounting, the purchase price will be allocated to assets acquired
and liabilities assumed based on their estimated fair values at the
Effective Time.
Regulatory Approvals
State Insurance Regulatory Approvals. State insurance company
holding laws and regulations applicable to the Company generally
provide that no person may acquire control of the Company unless such
person has provided certain required information to, and such
acquisition has been approved (or not disapproved) by the appropriate
insurance regulatory authorities. In accordance with the insurance
holding company laws of Maryland and New York, Berkshire, on behalf of
itself and certain of its subsidiaries, has filed an application on
Form A for the approval of the Merger with the Maryland Insurance
<PAGE>
37
Administration and the New York Insurance Department. Neither agency
has completed its review of these filings.
Hart-Scott-Rodino Antitrust Improvements Act. The acquisition by
Berkshire of the voting securities of the Company pursuant to the
Merger Agreement is exempt from the notification and waiting period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") pursuant to 15 U.S.C. ss. 18a(c)(3) of the HSR
Act, which provides that acquisitions of voting securities of an
issuer at least 50% of the voting securities of which are owned by the
acquiring person prior to the acquisition are so exempt.
Source and Amount of Funds
The total amount of funds necessary for payment of the
consideration to be received by the Independent Stockholders in the
Merger and the fees of Berkshire's legal counsel and advisors (the
only expenses related to the Merger that are expected to be paid by
Berkshire) is approximately $ billion. Berkshire anticipates paying
such amount from internally generated funds but may make limited
short-term unsecured borrowings of a duration of less than 45 days to
temporarily finance a portion of such amount. Berkshire's obligation
to consummate the Merger is not conditioned on obtaining such
financing.
The Merger Agreement provides that all costs and expenses
incurred in connection with the Merger Agreement and the Merger will
be paid by the party incurring the expense. Estimated costs and fees
to be incurred by the Company in connection with the Merger, assuming
completion of the Merger, are as follows:
Investment Banking Fees ............................ $
Legal Fees .........................................
SEC Filing Fees ....................................
Printing Costs .....................................
Solicitation Costs .................................
Miscellaneous ......................................
Total............
<PAGE>
38
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached hereto as Appendix A and
incorporated by reference herein. All references to and summaries of
the Merger Agreement in this Proxy Statement are qualified in their
entirety by reference to the Merger Agreement. Stockholders are urged
to read the Merger Agreement carefully and in its entirety.
Effective Time
Subject to the provisions of the Merger Agreement, as soon as
practicable on or after the day the Merger closes, which will be the
later of (i) January 2, 1996, and (ii) the second business day after
the satisfaction or waiver of all the conditions set forth in the
Merger Agreement (the "Closing Date"), unless another time or date is
agreed to in writing by the Company, Berkshire and Sub, a certificate
of merger or other appropriate documents (the "Certificate of Merger")
will be filed with the Secretary of State of the State of Delaware.
The "Effective Time" of the Merger will be upon the filing of the
Certificate of Merger or at such time thereafter as is provided in the
Certificate of Merger.
The Merger
The Merger Agreement provides that, subject to the approval and
adoption of the Merger Agreement by the Stockholders, approval by
certain regulatory authorities and compliance with certain other
covenants and conditions, Sub will be merged with and into the
Company, at which time the separate corporate existence of Sub will
cease and the Company will continue as the Surviving Corporation.
Following consummation of the Merger, the Company, as the Surviving
Corporation, will be an indirect subsidiary of Berkshire. As a result
of the Merger, all the property, rights, privileges, powers and
franchises of the Company and Sub will vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Sub will become the debts, liabilities and duties of the Surviving
Corporation.
Conversion of Securities. At the Effective Time, (i) each share
of Common Stock that is owned by the Company will be automatically
cancelled and retired and will cease to exist, and no consideration
will be delivered or deliverable in exchange therefor, (ii) all
Berkshire-Owned Shares will remain outstanding without change, (iii)
each issued and outstanding share of Common Stock (other than shares
to be cancelled or to remain outstanding in accordance with the
immediately preceding clauses (i) and (ii) and other than Dissenting
Shares) will be converted into the right to receive $70 per share in
cash, without interest thereon, upon surrender of the certificates
representing shares of Common Stock, and (iv) each share of capital
stock of Sub will be converted into and become that number of shares
of fully paid and nonassessable shares of Common Stock equivalent to
the quotient obtained by dividing (i) the difference between (A) the
total number of outstanding shares of Common Stock immediately prior
to the Effective Time and (B) the total number of shares of
Berkshire-Owned Shares immediately prior to the Effective Time by (ii)
10,000.
Directors and Officers; Governing Documents. At the Effective
Time, the directors of Sub will become the directors, and the officers
of the Company will become the officers, of the Surviving Corporation
until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may
be. At the Effective Time, the Certificate of Incorporation and the
By-Laws of the Company, as in effect immediately prior to the
Effective Time, will be the Certificate of Incorporation and the
By-Laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
<PAGE>
39
Exchange Procedures. Berkshire has designated The Bank of New
York to act as Paying Agent for the payment of the consideration to be
received by Independent Stockholders in the Merger upon surrender of
certificates representing shares of Common Stock, and from time to
time on and after the Effective Time, Berkshire will make available,
or cause its subsidiaries (other than the Surviving Corporation) to
make available, to the Paying Agent funds in amounts and at the times
necessary for the payment of the consideration to be received by
Independent Stockholders in the Merger and any payments to holders of
Dissenting Shares pursuant to the Merger Agreement. As soon as
reasonably practicable after the Effective Time, the Paying Agent will
mail to each holder of record (other than Berkshire or any of its
subsidiaries, or holders of Dissenting Shares) (i) a letter of
transmittal and (ii) instructions for the surrender of certificates
representing ownership of shares of Common Stock ("Certificates") in
exchange for $70 per share in cash. Upon surrender of a Certificate
for cancellation to the Paying Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably
be required by the Paying Agent, the holder of such Certificate will
be entitled to receive in exchange therefor the amount of cash into
which the shares theretofore represented by such Certificate have been
converted pursuant to the Merger Agreement, and the Certificate so
surrendered will forthwith be cancelled. No interest will be paid or
accrued on the cash payable upon the surrender of any Certificate. If
payment is to be made to a person other than the person in whose name
a surrendered Certificate is registered, it will be a condition to
such payment that the Certificate so surrendered be properly endorsed
or otherwise be in proper form for transfer, and that the person
requesting such payment pay any transfer or other taxes which may be
required by reason of such payment to a person other than the
registered holder of the surrendered Certificate, or establishes to
the satisfaction of the Surviving Corporation that such tax has been
paid or is not applicable. After the Effective Time, each Certificate
will represent only the right to receive upon surrender to the Paying
Agent the amount of cash, without interest, into which the shares
theretofore represented by such Certificate have been converted
pursuant to the Merger Agreement, determined as of the Effective Time.
The right of any Stockholder to receive $70 per share in cash will be
subject to and reduced by the amount of any required tax withholding
obligation.
Cancellation and Retirement of Common Stock. All cash paid upon
the surrender of Certificates in accordance with the Merger Agreement
will be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Common Stock theretofore represented by
such Certificates. At the Effective Time, the stock transfer books of
the Company will be closed, and there will be no further registration
of transfers on the stock transfer books of the Surviving Corporation
of the shares that were outstanding immediately prior to the Effective
Time, except for shares owned by Berkshire or its subsidiaries.
All interest earned on funds made available to the Paying Agent
pursuant to the Merger Agreement will be turned over to Berkshire or
the subsidiary providing such funds, as applicable.
Representations and Warranties
The Merger Agreement contains certain representations and
warranties of the Company, including representations and warranties
regarding: the due organization, good standing and authority to
conduct business and own, lease and operate the properties of the
Company and its subsidiaries; the capitalization of the Company; the
authority of the Company to enter into the Merger Agreement, subject
to Stockholder approval; the absence of conflict between transactions
contemplated by the Merger Agreement and other agreements and
documents; consents and approvals; the adequacy of filings with the
SEC; the absence of certain material adverse changes since December
31, 1994; the absence of undisclosed material liabilities; compliance
with applicable law; the absence of (i) any suit, action or proceeding
pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries which,
<PAGE>
40
individually or in the aggregate, is reasonably likely to have a
material adverse effect on the Company and its subsidiaries taken as a
whole or a material adverse effect on the ability of the Company to
consummate the transactions contemplated by the Merger Agreement or
(ii) except as otherwise disclosed prior to August 25, 1995, any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future
would have a material adverse effect on the Company and its
subsidiaries taken as a whole or a material adverse effect on the
ability of the Company to consummate the transactions contemplated by
the Merger Agreement; certain matters relating to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); the
absence of contracts or agreements that would be altered, terminated
or cancelled as a result of, or otherwise affected by, the Merger and
the transactions contemplated by the Merger Agreement; the opinion of
Morgan Stanley as to the fairness, from a financial point of view, of
the consideration to be received by the Independent Stockholders in
the Merger; and the Stockholder vote required to approve the Merger
Agreement.
The Merger Agreement also includes certain representations and
warranties by Berkshire and Sub, including representations and
warranties regarding: the due organization, good standing and
authority to conduct business and own, lease and operate the
properties of Berkshire and those of its subsidiaries that own Common
Stock; the authority to enter into the Merger Agreement; the absence
of conflict with other agreements and documents; consents and
approvals; the conduct of business by Sub; and the accuracy and
truthfulness of documents filed with or sent to the SEC or any other
regulatory authority.
Conduct of the Business Pending the Merger
During the period from August 25, 1995, until the Effective Time,
the Company has agreed as to itself and its subsidiaries that, except
as expressly contemplated or permitted by the Merger Agreement or as
consented to in writing by Berkshire, the Company and its subsidiaries
will carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as conducted prior to
August 25, 1995 and will use all reasonable efforts to preserve intact
their present business organizations, keep available the services of
their present officers and employees and preserve their relationships
with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing business will not be
impaired in any material respect at the Effective Time. Except as
expressly contemplated or permitted by the Merger Agreement or as
consented to in writing by Berkshire, the Company also has agreed that
it will not, nor will it permit any of its subsidiaries to, nor will
it propose to: (i) (A) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, other than
regular quarterly dividends not in excess of $.27 per share with usual
record and payment dates and other than cash dividends paid to the
Company or any subsidiary on or with respect to the capital stock of
another subsidiary, (B) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (C) repurchase, redeem or otherwise
acquire, or permit any subsidiary to purchase, redeem or otherwise
acquire, any shares of capital stock of the Company or any of its
subsidiaries; or (ii) issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of
any class or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any such shares or
convertible securities, other than (1) the issuance of shares of
Common Stock upon the exercise of employee stock options outstanding
on August 25, 1995 under the Company Stock Plans and (2) issuance by a
wholly owned subsidiary of its capital stock to its parent.
The Company has also agreed that it: (i) will not amend or
propose to amend its Certificate of Incorporation or By-laws; (ii)
will confer on a regular and frequent basis with Berkshire, report on
<PAGE>
41
operational matters and promptly advise Berkshire orally and in
writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on the
Company and its subsidiaries taken as a whole; and (iii) will not (1)
enter into, adopt, amend in any material respect (except as may be
required by law) or terminate any Company Benefit Plan or other
employee benefit plan or any agreement, arrangement, plan or policy
between the Company and one or more of its directors or officers or
(2) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in
a material increase in benefits or compensation expense to the
Company, increase in any manner the compensation or fringe benefits of
any director, officer or key employee or pay any benefit not required
by any plan and arrangement as in effect as of August 25, 1995
(including, without limitation, the granting of stock options or
Performance Share awards) or, except as provided for in the Merger
Agreement, enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
No Solicitation; Fiduciary Out
The Company has agreed that it will not authorize or permit any
of its executive officers or directors or any investment banker,
financial advisor, attorney, accountant or other representative
retained by it or any of its subsidiaries to (i) solicit, initiate or
encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to,
any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that,
if at any time prior to the Effective Time the Board determines in
good faith, after consultation with counsel, that it is necessary to
do so in order to comply with its fiduciary duties to the
Stockholders, the Company may, in response to an unsolicited Takeover
Proposal, and subject to compliance with the Merger Agreement, (x)
furnish information with respect to the Company to any person pursuant
to a confidentiality agreement and (y) participate in negotiations
regarding such Takeover Proposal.
Except as set forth in this paragraph, the Merger Agreement
provides that neither the Board nor any committee thereof will (i)
withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Berkshire, the approval or recommendation by such Board of
the Merger Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or (iii) cause
the Company to enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to
the Effective Time the Board determines in good faith, after
consultation with counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Stockholders, the Merger
Agreement permits the Board to withdraw or modify its approval or
recommendation of the Merger Agreement and the Merger, approve or
recommend a Takeover Proposal or cause the Company to enter into an
agreement with respect to a Takeover Proposal. While the fact that any
Takeover Proposal may be conditioned on Berkshire's agreeing to it may
be considered by the Board, such fact will not prevent the Board from
taking any action pursuant to the Merger Agreement even if Berkshire
has stated or indicated in any way that it will not agree to such
Takeover Proposal.
The Company also agreed in the Merger Agreement to immediately
advise Berkshire orally and in writing of any request for information
or of any Takeover Proposal, or any inquiry with respect to or which
could lead to any Takeover Proposal, and to describe the material
terms and conditions of such request, Takeover Proposal or inquiry and
the identity of the person making such request, Takeover Proposal or
inquiry. The Company also agreed to keep Berkshire fully informed of
the status and details (including amendments or proposed amendments)
of any such request, Takeover Proposal or inquiry.
<PAGE>
42
Nothing contained in the Merger Agreement prohibits the Company
from taking and disclosing to the Stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Stockholders if, in the opinion of the Board, after
consultation with counsel, failure so to disclose would be
inconsistent with its fiduciary duties to the Stockholders; provided,
however, that neither the Company nor the Board nor any committee
thereof may, except as permitted by the Merger Agreement, withdraw or
modify, or propose to withdraw or modify, its position with respect to
the Merger or approve or recommend, or propose to approve or
recommend, a Takeover Proposal.
Other Agreements of the Company, Berkshire and Sub
In the Merger Agreement, the Company, Berkshire and Sub have
agreed to use their best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement,
including cooperating fully with the other party, including by
providing information and making all necessary filings under state
insurance laws. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of
the Merger Agreement or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and
franchises of either the Company or Sub, the proper officers and
directors of the Company, Berkshire and Sub will take all such
necessary action.
So long as the Merger Agreement has not been terminated,
Berkshire has agreed that it will not, as permitted by the Berkshire
Proxy Agreement, instruct the Independent Proxy (i) not to vote the
Berkshire-Owned Shares on the Merger or (ii) to vote such shares on
the Merger in the same proportion as the votes cast by the Independent
Stockholders.
Berkshire and the Company have agreed to cooperate in the
preparation, execution and filing of any returns, questionnaires,
applications or other documents related to any New York State Tax on
Gains Derived from Certain Real Property Transfers and any other
similar taxes that become payable by the Company or the Surviving
Corporation on transfers of the Company's tangible assets, Berkshire
or Surviving Corporation having agreed to pay, without deduction or
withholding from any amount payable to the Stockholders, any such
taxes.
Employee Benefit Plans
The Merger Agreement provides that the benefit plans of the
Company and its subsidiaries in effect at the date of the Merger
Agreement (other than the Company Stock Plans) will, to the extent
practicable, remain in effect without amendment until the Effective
Time. Berkshire has agreed to maintain for a period of three years
following the Effective Time, subject to such changes and
modifications as may be necessary or desirable to facilitate
compliance with applicable statutory and regulatory requirements,
benefit plans, other than the Company Stock Plans, that are no less
favorable, in the aggregate, to the employees covered by such plans as
the benefits plans in effect in accordance with the Merger Agreement
at the Effective Time (other than the Company Stock Plans). Berkshire
has further agreed to honor without modification for a period of three
years after the Effective Time all employee severance plans or
policies and employment and severance agreements of the Company or any
of its subsidiaries in effect on the date of the Merger Agreement, as
such agreements may be in effect as of the Effective Time. Berkshire
and the Company have also agreed to use their best efforts to agree on
compensation plans for officers and employees of the Company after the
Effective Time to provide them incentive compensation that in the
aggregate is reasonably comparable (without giving effect to the
<PAGE>
43
payments to them resulting from the Merger) to that historically
provided by the Company Stock Plans, except that Berkshire will not be
required to issue any shares of its equity securities in connection
with such compensation plans.
Berkshire and the Company have agreed that the ESOP will be
terminated in connection with the Merger. The Company has agreed that
all outstanding borrowings by the ESOP will be paid in full from the
unallocated assets of the ESOP, any remaining unallocated assets of
the ESOP will be allocated among the ESOP participants and the
interests of all ESOP participants will be vested and paid out. The
Merger Agreement also provides that Performance Share awards
outstanding under the Company's Performance Share Plan for Key
Executives of the Company and its subsidiaries will remain in effect
in accordance with the terms thereof, except that any payments after
the Effective Time will be made on the basis of $70 per share and no
Common Stock shall be issued under such Performance Share Plan after
the Effective Time.
Stock Options
At the Effective Time, each holder of a then outstanding option
to purchase shares of Common Stock under the 1992 and 1985 Plans,
will, in settlement thereof, receive, except under certain
circumstances relating to Section 16 of the Exchange Act, from the
Company for each share of Common Stock subject to such option an
amount (subject to any applicable withholding tax) in cash equal to
the excess of $70 per share over the per share exercise price of such
option. Upon such holder's receipt of such amount, such option will be
cancelled. Such surrender of an option to the Company will be deemed a
release of any and all rights the holder thereof had or may have had
in respect thereof.
Indemnification and Insurance
The Merger Agreement provides that from and after the Effective
Time, Berkshire and the Surviving Corporation will, indemnify, defend
and hold harmless the Company, each person who is at the date of the
Merger Agreement, or had been at any time prior to such date or who
becomes such prior to the Effective Time, a director, officer or
employee of the Company (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties"), against all losses, claims,
damages, costs, expenses (including attorneys' fees), liabilities,
judgments or amounts that are paid in settlement with the approval of
the indemnifying party (which approval may not be unreasonably
withheld) of or in connection with any claim, action, suit, proceeding
or investigation based on or arising out of (i) the fact that such
Indemnified Party is or was a director, officer or employee of the
Company or its subsidiaries, whether pertaining to any matter existing
or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, at or after, the Effective Time or (ii) the Merger
Agreement or the transactions contemplated thereby. In the case of the
Surviving Corporation, such indemnification will only be to the
fullest extent a corporation is permitted under the DGCL to indemnify
its own directors, officers and employees. In the case of Berkshire,
such indemnification will not be limited by the DGCL but will not be
applicable to any claims arising out of the Indemnified Parties (i)
gaining in fact any personal profit or advantage to which they were
not legally entitled or (ii) committing in fact any criminal or
deliberate fraudulent act.
Conditions to the Merger
All Parties. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger are subject to the
satisfaction of the following conditions prior to the Closing Date:
(i) approval and adoption of the Merger Agreement by the holders of at
least 80% of the Company's outstanding shares of Common Stock,
including the affirmative vote of Independent Stockholders holding a
<PAGE>
44
majority of the outstanding shares of Common Stock not owned by
Berkshire and its subsidiaries; (ii) all authorizations, consents,
orders or approvals of, or declarations or filings with, or
expirations of waiting periods proposed by, any governmental entity
the failure to obtain which would have a material adverse effect on
Berkshire and its subsidiaries or the Surviving Corporation and its
subsidiaries, in each case taken as a whole, having been filed,
occurred or been obtained; and (iii) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger being in effect.
Berkshire and Sub. Pursuant to the Merger Agreement, the
obligations of Berkshire and Sub to effect the Merger are subject to
the satisfaction or waiver of the following conditions: (i) the
representations and warranties of the Company set forth in the Merger
Agreement being true and correct in all material respects as of August
25, 1995, and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date and the
Company having performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior
to the Closing Date, except to the extent the failure of such
representations to be true and correct or the failure to perform the
obligations under the Merger Agreement would not, in the aggregate,
have a material adverse effect with respect to the Company; and (ii)
Berkshire and Sub having received, on and as of the Closing Date, an
opinion of Cravath, counsel to the Company, in usual and customary
form reasonably acceptable to Berkshire and Sub.
The Company. Pursuant to the Merger Agreement, the obligation of
the Company to effect the Merger is subject to the satisfaction or
waiver of the following conditions: (i) the representations and
warranties of Berkshire and Sub set forth in the Merger Agreement
being true and correct in all material respects as of August 25, 1995,
and (except to the extent such representations speak as of an earlier
date) as of the Closing Date and Berkshire and Sub having performed in
all material respects all obligations required to be performed by them
under the Merger Agreement at or prior to the Closing Date; and (ii)
the Company having received, on and as of the Closing Date, an opinion
of Munger, Tolles & Olson, counsel to Berkshire and Sub, in usual and
customary form reasonably acceptable to the Company.
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after the approval of the Merger
Agreement by the Stockholders, by mutual consent of Berkshire and the
Company, or by either party if: (i) there has been a material breach
on the part of the other party of any representation, warranty,
covenant or agreement set forth in the Merger Agreement, which breach
has not been cured within two business days following receipt by the
breaching party of notice of such breach; (ii) any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final and
non-appealable; (iii) the Board withdraws or modifies its approval or
recommendation of the Merger Agreement and the Merger, approves or
recommends a Takeover Proposal or causes the Company to enter into an
agreement with respect to a Takeover Proposal, all in accordance with
the provisions of the Merger Agreement; (iv) the Merger has not been
consummated on or before March 31, 1996; or (v) the Merger Agreement
is not approved and adopted by the Stockholders at the Special
Meeting.
Expenses
The Merger Agreement provides that whether or not the Merger is
consummated all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be
paid by the party incurring such expenses.
<PAGE>
45
Amendment; Waiver
The Merger Agreement provides that it may be amended by written
instrument signed on behalf of each of the Company, Berkshire and Sub
pursuant to action taken or authorized by their respective boards of
directors at any time before or after Stockholder approval of the
Merger Agreement, but after any such approval, no amendment will be
made which by law requires further approval by the Stockholders
without obtaining such further approval in accordance with the Merger
Agreement. The Merger Agreement further provides that, at any time
prior to the Effective Time, the parties to the Merger Agreement, by
action taken or authorized by their respective boards of directors,
may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other
parties thereto, (ii) waive any inaccuracies in the representations
and warranties of any other party contained in the Merger Agreement or
in any document delivered pursuant to the Merger Agreement or (iii)
waive compliance with any of the conditions or agreements contained in
the Merger Agreement.
<PAGE>
46
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 15, 1995,
information concerning beneficial ownership of the Common Stock by any
person known to the Company to be the beneficial owner of more than 5%
of such stock, by each director, by each of the two individuals who
serve as Chief Executive Officer of the Company, by each of the four
other most highly compensated executive officers of the Company,
individually, and by directors and executive officers of the Company
as a group. Individuals have sole voting and investment power over
such stock unless otherwise indicated in the footnotes.
Common Stock
Number of Shares
Beneficially Percent
Name/Group Owned of Class
Berkshire (1) ................................ 34,250,000 50.72%
1440 Kiewit Plaza
Omaha, NE 68131
The Riggs National Bank of Washington, DC ("Riggs")(2)
800 17th Street, N.W.
Washington, DC 20006
Tukman Capital Management, Inc. (3) .......... 4,096,031 6.07
60 East Sir Francis Drake Blvd., Suite 204
Larkspur, CA 94939
John H. Bretherick, Jr. ...................... 2,500 (4)
Norma E. Brown (5) ........................... 500 (4)
Samuel C. Butler (6) ......................... 55,000 (4)
James E. Cheek ............................... 500 (4)
A. James Clark ............................... 5,000 (4)
Delano E. Lewis (5) .......................... 1,500 (4)
Olza M. Nicely (5)(6)(7)(8)(9) ............... 278,911 (4)
Coleman Raphael (5) .......................... 2,200 (4)
William J. Ruane ............................. 25,000 (4)
Louis A. Simpson (6)(7)(8)(9) ................ 876,916 1.30
<PAGE>
47
W. Alvon Sparks, Jr. (5)(7)(8)(10) ........... 51,457 (4)
James M. Hitt (7)(8)(10)...................... 48,930 (4)
Simone J. Pace (7)(8)(10) .................... 5,709 (4)
Richard C. Van Essendelft (5)(7)(8)(10) ...... 43,929 (4)
Directors and Executive Officers as a Group
(22 persons) (5)(6)(7)(8) .................... 1,543,641 2.29
(1) The ownership of these shares is through several
subsidiaries of Berkshire. Mr. Buffett, his wife and a
trust of which Mr. Buffett is a trustee, but in which
he has no economic interest, own approximately 43.2% of
the outstanding shares of Berkshire /and Mr. Buffett
may be deemed to be in control of Berkshire under the
Federal securities laws. Mr. Buffett, Berkshire and the
subsidiaries of Berkshire that own shares of Common
Stock may be considered to share investment power with
respect to the shares of Common Stock owned by such
subsidiaries. Pursuant to the terms of the Berkshire
Proxy Agreement described in "SPECIAL FACTORS --
Background of the Transaction", Berkshire has granted a
proxy to the Independent Proxy to vote such shares
according to the Independent Proxy's best judgment as
to the best interests of Berkshire as an investor.
(2) According to the most recent information available to the
Company, Riggs was the beneficial owner of 6,530,579
shares of Common Stock on September 15, 1995. This
number includes shares as to which Riggs has or shares
voting and investment power as follows: sole voting
power, shares; shared voting power, shares; sole
investment power, shares; and shared investment power,
shares. Riggs has advised the Company that these
shares include 1,664,517 shares held by it as trustee
under the Company's Revised Profit Sharing Plan
("Profit Sharing Plan") and 4,728,662 shares held by it
as trustee under the ESOP. Riggs has the authority to
vote shares of Common Stock held by it as Trustee of
the Profit Sharing Plan but has pursuant to the terms
of the Profit Sharing Plan passed ownership rights with
respect to such shares held in participants' Funds C
and G accounts to such participants so that Riggs as
Trustee may be instructed how to respond and vote upon
the proposal to approve and adopt the Merger Agreement.
The Administrative Committees of the ESOP and Profit
Sharing Plan will, pursuant to the instructions
received from the participants, direct Riggs to vote
whole shares or share equivalents allocated to
participants' accounts. Fractional shares from all
participants' accounts may be combined and voted by
Riggs upon direction of the Committees on each issue in
the same ratio as the Committees were directed to vote
with respect to the whole shares or share equivalents
of participants. Riggs will not vote any shares for
which the Committees have not received instructions
from the participants, but the ESOP Committee may
<PAGE>
48
direct Riggs to vote any unallocated shares held in the
trust fund. Riggs has advised the Company that the
remaining 137,400 shares held by it as of September 15,
1995, were held by it in a variety of fiduciary
capacities.
(3) According to the most recent information available to the
Company, Tukman Capital Management, Inc. ("TCM"), a
registered investment advisor, was the beneficial owner
of 4,096,031 shares of Common Stock on September 15,
1995. Mr. Melvin T. Tukman is President and majority
shareholder of TCM. Mr. Tukman and TCM share the power
to vote 1,264,000 shares, have no power to vote
2,832,031 shares and have shared investment power over
4,096,031 shares. Neither Mr. Tukman nor TCM has sole
voting or investment power over any shares.
(4) Represents less than 1% of the outstanding shares of Common
Stock on September 15, 1995.
(5) Includes the following shares of Common Stock as to which
the respective persons share voting power and/or
investment power: General Brown, 500 shares; Mr. Lewis,
1,500 shares; Mr. Nicely, 53,330 shares; Mr. Raphael,
2,200 shares; Mr. Sparks, 12,525 shares; Mr. Van
Essendelft, 14,734 shares; and directors and executive
officers as a group, 99,460 shares.
(6) Includes the following shares of Common Stock as to which
the respective persons disclaim any beneficial
ownership: Mr. Butler, 15,000 shares owned by his wife;
Mr. Nicely, 14,603 shares owned by his wife; Mr.
Simpson, 11,685 shares owned by his wife and
grandchildren; and directors and executive officers as
a group, 41,288 shares owned by their spouses or in
fiduciary capacities.
(7) Of the shares beneficially owned, 186,775 of Mr. Nicely's
shares, 520,000 of Mr. Simpson's shares, 27,000 of Mr.
Sparks' shares, 18,500 of Mr. Hitt's shares, 5,000 of
Mr. Pace's shares, 21,000 of Mr. Van Essendelft's
shares, and 855,775 of the shares of directors and
executive officers as a group represent shares of
Common Stock which those persons have a right to
acquire through the exercise of stock options within 60
days.
(8) Of the shares beneficially owned, 24,203 of Mr. Nicely's
shares, 22,476 of Mr. Simpson's shares, 11,932 of Mr.
Sparks' shares, 9,098 of Mr. Hitt's shares, 609 of Mr.
Pace's shares, 8,195 of Mr. Van Essendelft's shares,
and 119,334 of the shares of directors and executive
officers as a group represent one or both of the
following: (i) shares of Common Stock allocated to
their participants' accounts under the ESOP, which
provides participants voting power and (ii) shares of
Common Stock purchased with contributions to their
participants' accounts in the Profit Sharing Plan,
which in the context of a proposed merger provides
participants with both investment and voting power.
(9) A director and has served as Chief Executive Officer since
May 19, 1993.
(10) One of the four most highly compensated executive officers,
other than individuals who serve as the Chief Executive
Officer.
<PAGE>
49
STOCKHOLDER LITIGATION
Three putative class action complaints have been filed in the
Court of Chancery of the State of Delaware, New Castle County, by
persons claiming to represent the Stockholders. The complaints name
each of the Company's directors, the Company and Berkshire as
defendants. Two of the complaints were filed on August 25, 1995
(Doniger v. Nicely, Civil Action No. 14502, and Schulman v. Butler,
Civil Action No. 14503); the third complaint was filed on August 28,
1995 (Vasquez v. Butler, Civil Action No. 14507). The complaints
allege, among other things, (i) that the Board's action in approving
the Merger Agreement constituted a breach of fiduciary duties by the
Company's directors; (ii) that the transaction is designed and
intended to eliminate Independent Stockholders from continued equity
participation in the Company at an inadequate price; and (iii) that
the Board has denied material information to the Independent
Stockholders that the Independent Stockholders need to determine
whether or not the price offered in the transaction is fair.
Among other things, the complaints seek (i) preliminarily and
permanently to enjoin the Merger; (ii) to rescind the Merger should it
be consummated, or award rescissionary damages; and/or (iii) to
recover unspecified damages and costs from the Company's directors for
their alleged breach of their fiduciary duties. The Company and
Berkshire believe the complaints are without merit and intend
vigorously to defend the actions.
<PAGE>
50
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is listed on the NYSE and the PSE under the
symbol "GEC". The following table sets forth, for the fiscal quarters
indicated, the high and low sales price per share of the Common Stock
on the NYSE Composite Tape and the quarterly cash dividends paid by
the Company on such shares.
Cash
1992 */ High Low Dividend
First Quarter $46 8/10 $39 6/10 $.15
Second Quarter 46 8/10 43 5/8 .15
Third Quarter 65 47 1/4 .15
Fourth Quarter 66 53 1/2 .15
1993
First Quarter 67 5/8 59 1/4 .17
Second Quarter 61 1/8 47 3/8 .17
Third Quarter 58 7/8 49 3/4 .17
Fourth Quarter 56 50 3/4 .17
1994
First Quarter 57 1/2 51 1/8 .25
Second Quarter 57 5/8 49 5/8 .25
Third Quarter 51 1/2 47 5/8 .25
Fourth Quarter 51 1/4 49 .25
1995
First Quarter 51 1/8 47 5/8 .27
Second Quarter 59 3/8 49 1/2 .27
Third Quarter 68 7/8 54 1/2 .27
Fourth Quarter
(to , 1995)
*/ Prices for the first and second quarters of 1992 have been adjusted
to give effect to a 5-for-1 split of the Common Stock that was effective in
May 1992.
On August 24, 1995, the last trading day before the public
announcement of the execution of the Merger Agreement, the reported
closing sale price per share of the Common Stock on the NYSE Composite
Tape was $55-3/4. On , 1995, the last full trading day prior to the
date of this Proxy Statement, the reported closing sale price per
share of the Common Stock on the NYSE Composite Tape was $ .
Stockholders are urged to obtain a current price quotation for the
Common Stock.
The Company's ability to pay dividends depends in part upon the
ability of the Company's insurance company subsidiaries to pay
dividends to the Company. Dividend payments by an insurance company
are subject to statutory limitations and in certain cases to the
approval of insurance regulatory authorities. Generally, annual
dividends in excess of maximum amounts prescribed by the state
<PAGE>
51
statutes may not be paid without the approval of the insurance
commissioner of the insurance company's state of domicile.
The restrictions described in the preceding paragraph have not
impaired the Company's ability to pay its regular quarterly cash
dividends for more than the past five years.
CERTAIN TRANSACTIONS IN THE COMMON STOCK
In 1993, the Company repurchased 453,854 shares of Common Stock
at prices ranging from $50.125 to $65.75. The average purchase price
for each quarterly period during such year was as follows: First
Quarter, $64.98; Second Quarter, $58.71; Third Quarter, $53.92; and
Fourth Quarter, $52.33. In 1994, the Company repurchased 2,745,934
shares of Common Stock at prices ranging from $48.05 to $57.60. The
average purchase price for each quarterly period during such year was
as follows: First Quarter, $53.11; Second Quarter, $52.31; Third
Quarter, $48.79; and Fourth Quarter, $49.96. In 1995 (through August
17, 1995), the Company has repurchased 1,203,002 shares of Common
Stock at prices ranging from $48.80 to $57.4375. The average purchase
price for each quarterly period during such year was as follows: First
Quarter, $49.03; Second Quarter, $52.33; and Third Quarter, $55.72.
The prices quoted above include commissions paid by the Company.
The Company effected the following repurchases of Common Stock during
the 60 days preceding the initial filing of this Proxy Statement with the
SEC:
No. Shares When and How Transactions
Trade Date Repurchased Price per Share were Effected
August 11, 1995 182 56.375 net per Through private transaction;
share settled at the Company's
Office of the Treasurer on
August 14, 1995 for cash
payment.
August 16, 1995 24,077 $56.625 net per Through private transaction;
share settled throughthe Depository
Trust Company on August 21,
1995 for cash payment at
Riggs.
August 17, 1995 26,900 $55.875 plus Through Cantor Fitzgerald
5 (cent) Securities; settled through
commission per the Depository Trust Company
share on August 22, 1995 for cash
payment at Riggs.
Robert M. Miller, a Vice President of the Company, exercised
Company Options on August 11, 1995 for 1,000 shares of Common Stock at
a price of $29.30 per share and sold 1,121 shares of Common Stock on
August 11, 1995 at a price of $56.25 per share.
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is certain historical consolidated financial
information of the Company. The selected financial information for,
and as of the end of, each of the years in the five year period ended
December 31, 1994 is derived from, and should be read in conjunction
<PAGE>
52
with, the historical consolidated financial statements of the Company
and its subsidiaries, which consolidated financial statements have
been audited by Coopers & Lybrand L.L.P., independent accountants. The
selected financial information for, and as of the end of, the sixth
month periods ended June 30, 1995 and 1994 is derived from, and should
be read in conjunction with, the Company's unaudited financial
statements contained in the Company's Quarterly Reports on Form 10-Q
for the quarters ended June 30, 1995 and 1994. More comprehensive
financial information is included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and Quarterly Reports
on Form 10-Q for the quarters ended June 30, 1995 and 1994 and the
financial information that follows is qualified by reference to such
reports and the financial statements and related notes incorporated by
reference herein.
<TABLE>
(in thousands, except per share data and ratios)
<CAPTION>
Income Statement At or for the Six Months At or for the Year Ended
Data: Ended June 30, December 31,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums $1,347,600 $1,192,797 2,476,276 $2,283,488 $2,084,502 $1,888,368 $1,692,518
Net investment
income 111,738 97,967 201,790 201,851 201,526 191,226 177,087
Realized gains 202 10,580 12,898 120,584 98,535 29,331 19,587
Net income 110,009 92,516 207,764 273,678 172,773 196,380 208,441
Net income per
share 1.62 1.31 2.97 3.83 2.39 2.70 2.73
Ratio of earnings
to fixed charges 8.09 7.68 8.66 15.41 7.44 7.45 6.95
Balance Sheet Data:
Assets $5,432,506 $4,941,506 $4,998,105 $4,831,440 $4,525,091 $4,242,193 $3,719,019
Shareholders'
Equity 1,658,102 1,495,719 1,445,941 1,534,579 1,292,511 1,184,261 970,008
Book value per
share 24.44 21.27 21.17 21.66 18.16 16.67 13.06
</TABLE>
<PAGE>
53
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY
AFTER THE MERGER
If the proposed Merger is consummated, the Independent
Stockholders will no longer have an equity interest in the Company
and, therefore, will not share in its future earnings and growth.
Instead, each Independent Stockholder will have the right to receive
$70 per share in cash.
The Company will as a result of the Merger, become an indirect
wholly owned subsidiary of Berkshire. The Common Stock will be
delisted from the NYSE, the registration of Common Stock under the
Exchange Act will terminate and the Company will be relieved of the
obligation to comply with the proxy rules of Regulation 14A under
Section 14 of the Exchange Act and its officers, directors and
beneficial owners of more than 10% of the Common Stock will be
relieved of the reporting requirements and restrictions on insider
trading under Section 16 of the Exchange Act. Accordingly, less
information will be required to be made publicly available than
presently is the case. Certain information about the Company will
continue to be available through the public reports of Berkshire.
Immediately after the Merger, all of the then outstanding Common Stock
will be beneficially owned by Berkshire. Accordingly, Berkshire's indirect
interest in the assets and liabilities of the Company, including the net
book value and net earnings of the Company, will increase, upon
effectiveness of the Merger, from 50.72% to 100%. The directors of Sub
immediately prior to the Effective Time (who will be designees of
Berkshire) will be the directors of the Company from and after the
Effective Time (until their successors are duly elected or appointed and
qualified).
Except as otherwise described in this Proxy Statement, Berkshire
expects that the Company will be operated after the Merger in a manner
substantially the same as its current operations.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as the Company's independent
certified public accountants. A representative of Coopers & Lybrand
L.L.P. will be at the Special Meeting to answer questions by
Stockholders and will have the opportunity to make a statement, if so
desired.
<PAGE>
54
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's
1996 annual meeting (which will only be held if the Merger has not
been consummated prior thereto), pursuant to Rule 14a-8(a)(3)(i)
promulgated by the SEC, must be received by the Company at its
principal office, One GEICO Plaza, Washington, DC 20076-0001,
attention of the Secretary, on or before December 18, 1995. In
addition, the Company's By-laws provide that any Stockholder wishing
to present a nomination for election of a director or wishing to bring
a proposal or other business before the annual meeting of Stockholders
for a vote must give written notice to the Company at least 90 days in
advance of the meeting and the notice must meet certain other
requirements. Any Stockholder interested in making such a nomination
or proposal should request a copy of the By-law provisions from the
Secretary of the Company.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER dated as of
August 25, 1995, by and among BERKSHIRE HATHAWAY
INC., a Delaware corporation ("Parent"), HPKF
INC., a Delaware corporation and an indirect
subsidiary of Parent ("Sub"), and GEICO
CORPORATION, a Delaware corporation (the
"Company").
WHEREAS the Board of Directors of each of Parent, Sub and
the Company deem it advisable and in the best interests of their
respective stockholders to consummate, and have approved, the
transaction provided for herein in which Sub would merge with and into
the Company and the Company would become an indirect subsidiary of
Parent;
WHEREAS the Board of Directors of the Company has (i)
determined that the consideration to be paid to the Independent
Stockholders (as defined below) of the Company for each share of
Common Stock of the Company in the Merger (as defined below) held by
them is fair to and in the best interests of such Independent
Stockholders, (ii) approved this Agreement and the transactions
contemplated hereby and (iii) resolved, subject to Section 5.02(b), to
recommend to such stockholders their approval of the Merger and this
Agreement;
WHEREAS the parties hereto intend and acknowledge that,
assuming the Merger takes place as contemplated hereunder, (i) the
Merger will be treated for Federal income tax purposes as a taxable
stock acquisition, and (ii) immediately after the Merger, the
aggregate tax basis of the Company Common Stock (as defined below)
owned by Parent and its Subsidiaries (as defined below) will be equal
to the sum of (A) the aggregate tax basis of the Company Common Stock
owned by Parent and its Subsidiaries immediately before the Merger,
(B) the aggregate Merger Consideration (as defined below) paid in the
Merger pursuant to Section 2.01(c), (C) the aggregate amount paid to
Dissenting Stockholders (as defined below), if any, in respect of such
Dissenting Stockholders' Company Common Stock pursuant to Section
2.01(d), and (D) any other amounts paid or costs incurred by Parent
and its Subsidiaries that are properly capitalized into the tax basis
of the Company Common Stock owned by Parent and its Subsidiaries
immediately after the Merger;
WHEREAS the Board of Directors of each of Parent and Sub
have each approved the merger (the "Merger") of Sub into the Company
in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set
forth herein the parties hereto agree as follows:
ARTICLE I
The Merger
SECTION 1.01. Effective Time of the Merger. Subject to the
provisions of this Agreement, a certificate of merger (the
"Certificate of Merger") shall be duly prepared, executed and
acknowledged by the Company and thereafter delivered to the Secretary
of State of the State of
<PAGE>
Delaware for filing, as provided in the DGCL, as soon as practicable
on or after the Closing Date (as defined in Section 1.02). The Merger
shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such time
thereafter as is agreed to between Parent and the Company and provided
in the Certificate of Merger (the "Effective Time").
SECTION 1.02. Closing. The closing of the Merger (the
"Closing") will take place at 9:00 a.m., Washington, D.C. time, on a
date to be specified by the parties, which shall be the later of (i)
January 2, 1996, and (ii) the second business day after satisfaction
of the latest to occur of the conditions set forth in Section 7.01
(provided that the other closing conditions set forth in Article VII
have been met or waived as provided in Article VII at or prior to the
Closing) (the "Closing Date"), at the offices of the Company, unless
another date or place is agreed to in writing by the parties hereto.
SECTION 1.03. Effect of the Merger. At the Effective Time
Sub shall be merged with and into the Company which shall continue as
the surviving corporation (the Company is sometimes referred to herein
as the "Surviving Corporation").
SECTION 1.04. Certificate of Incorporation and By-laws. (a)
The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The by-laws of the Company as in effect at the Effective
Time shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable
law.
SECTION 1.05. Directors. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving
Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the
case may be.
SECTION 1.06. Officers. The officers of the Company
immediately prior to the Effective Time shall be the officers of the
Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
Conversion of Securities
SECTION 2.01. Conversion of Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Common Stock, par value $1 per
share, of the Company (the "Company Common Stock") or capital stock of
Sub:
(a) Capital Stock of Sub. Each issued and outstanding share
of the capital stock of Sub shall be converted into and become that
number of shares of fully paid and nonassessable shares of Company
Common Stock equivalent to the quotient obtained by dividing (i) the
difference between (A) the total number of outstanding shares of
Company Common Stock immediately prior to the Effective Time and (B)
the total number of shares of Company Common Stock owned by Parent and
its Subsidiaries immediately prior to the Effective Time by (ii)
10,000.
<PAGE>
(b) Cancelation of Treasury Stock; Parent-Owned Stock to
Remain Outstanding. All shares of Company Common Stock that are owned
by the Company as treasury stock shall be canceled and retired and
shall cease to exist and no consideration shall be delivered in
exchange therefor. All shares of Company Common Stock owned by Parent
or any Subsidiary of Parent shall remain outstanding without change.
As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any
Subsidiary of such party do not have a majority of the voting interest
in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one
or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(c) Conversion of Company Common Stock. Subject to Section
2.01(d), each share of Company Common Stock issued and outstanding
(other than shares to be canceled or to remain outstanding in
accordance with Section 2.01(b)) shall be converted into the right to
receive $70.00 in cash without interest (the "Merger Consideration").
As of the Effective Time, all such shares shall no longer be
outstanding and shall automatically be canceled and shall cease to
exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration without interest. At the Effective
Time, each holder of a then outstanding option to purchase shares of
Company Common Stock under the Company Stock Plans (as defined below)
shall, in settlement thereof, receive from the Company for each share
of Company Common Stock subject to such option an amount (subject to
any applicable withholding tax) in cash equal to the excess of the
Merger Consideration over the per share exercise price of such option
(such amount being hereinafter referred to as the "Option
Consideration"); provided, however, that with respect to any person
subject to Section 16(a) of the Exchange Act, any such amount shall be
paid as soon as practicable after the first date payment can be made
without liability to such person under Section 16(b) of the Exchange
Act. Upon receipt of the Option Consideration, the option shall be
cancelled. The surrender of an option shall be deemed a release of any
and all rights the holder had or may have had in respect of such
option.
(d) Shares of Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding
shares of Company Common Stock held by a person (a "Dissenting
Stockholder") who duly demands appraisal of his shares of Company
Common Stock pursuant to the DGCL and complies with all the provisions
of the DGCL concerning the right of holders of Company Common Stock to
demand appraisal of their shares in connection with the Merger
("Dissenting Shares") shall not be converted as described in Section
2.01(c) but shall become the right to receive such cash consideration
as may be determined to be due to such Dissenting Stockholder as
provided in the DGCL. If, however, such Dissenting Stockholder
withdraws his demand for appraisal or fails to perfect or otherwise
loses his right of appraisal, in any case pursuant to the DGCL, his
shares shall be deemed to be converted as of the Effective Time into
the right to receive the Merger Consideration without interest. The
Company shall give Parent (i) prompt notice of any demands for
appraisal of shares received by the Company and (ii) the opportunity
to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior
written consent of Parent, make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such demands.
<PAGE>
(e) Withholding Tax. The right of any stockholder to receive
the Merger Consideration shall be subject to and reduced by the amount
of any required tax withholding obligation.
SECTION 2.02. Exchange of Certificates. (a) Paying Agent.
Prior to the Effective Time, Parent shall designate a bank or trust
company to act as paying agent in the Merger (the "Paying Agent"),
and, from time to time on and after the Effective Time, Parent shall
make available, or cause its Subsidiaries (other than the Surviving
Corporation) to make available, to the Paying Agent funds in amounts
and at the times necessary for the payment of the Merger Consideration
pursuant to Section 2.01(c), and any payments to Dissenting
Stockholders pursuant to Section 2.01(d), it being understood that any
and all interest earned on funds made available to the Paying Agent
pursuant to this Agreement shall be turned over to Parent or the
Subsidiary providing such funds, as applicable.
(b) Exchange Procedure. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder
of record (other than Parent or any of its Subsidiaries) of a
certificate or certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and
shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancelation to the
Paying Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Paying
Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which the shares theretofore
represented by such Certificate shall have been converted pursuant to
Section 2.01, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of shares that is
not registered in the transfer records of the Company, payment may be
made to a person other than the person in whose name the Certificate
so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required
by reason of the payment to a person other than the registered holder
of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the amount of cash, without
interest, into which the shares theretofore represented by such
Certificate shall have been converted pursuant to Section 2.01. No
interest will be paid or will accrue on the cash payable upon the
surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All
cash paid upon the surrender of Certificates in accordance with the
terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Common
Stock theretofore represented by such Certificates. At the Effective
Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares that were
outstanding immediately prior to the Effective Time, except for shares
owned by Parent or its Subsidiaries. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying
Agent for any reason, they shall be canceled and exchanged as provided
in this Article II.
<PAGE>
(d) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub as
follows:
SECTION 3.01. Organization. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and corporate authority and all
necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing or
to have such power, authority and governmental approvals would not
have a material adverse effect on the Company and its Subsidiaries
taken as a whole. As used in this Agreement, any reference to any
event, change or effect being material or having a material adverse
effect on or with respect to an entity (or group of entities taken as
a whole) means such event, change or effect is materially adverse to
the consolidated condition (financial or otherwise), properties,
assets (including intangible assets), liabilities (including
contingent liabilities), businesses or results of operations of such
entity (or, if with respect thereto, of such group of entities taken
as a whole). The Company and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified
or licensed and in good standing would not in the aggregate have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
SECTION 3.02. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 150,000,000
shares of Company Common Stock of which, as of June 30, 1995,
67,835,260 shares were issued and outstanding and 3,801,249 shares
were held in treasury, (ii) 10,000,000 shares of Cumulative Senior
Preferred Stock, par value $1 per share, no shares of which are issued
and outstanding and (iii) 15,000,000 shares of Cumulative Junior
Preferred Stock, par value $1 per share, no shares of which are issued
and outstanding. As of the date hereof, 1,958,002 shares of Company
Common Stock are reserved for issuance upon exercise of outstanding
options pursuant to the Company's 1985 and 1992 Stock Option Plans and
payment of outstanding awards under its Performance Share Plan (the
"Company Stock Plans"). All the outstanding shares of Company Common
Stock are, and all shares which may be issued pursuant to Company
Stock Plans will be, when issued in accordance with the terms thereof,
duly authorized, validly issued, fully paid and nonassessable and free
of any preemptive rights in respect thereto. As of the date hereof, no
bonds, debentures, notes or other indebtedness convertible into
securities having the right to vote ("Convertible Debt") of the
Company are issued or outstanding. Except as set forth above, as of
the date hereof, there are no existing options, warrants, calls,
subscriptions or other rights or other agreements or commitments of
any character relating to the issued or unissued capital stock or
Convertible Debt of the Company or any of its Subsidiaries or
obligating the Company or any of its Subsidiaries to issue, transfer
or sell or cause to be issued, transferred or sold any shares of
capital stock or Convertible Debt of, or other equity interests in,
the Company or of any of its Subsidiaries or
<PAGE>
securities convertible into or exchangeable for such shares or equity
interests or obligating the Company or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date
hereof, there are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
Subsidiaries.
SECTION 3.03. Authority. The Company has the requisite
corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the approval and adoption of this
Agreement by the holders of 80% of the outstanding shares of Company
Common Stock which shall include, pursuant to the terms of this
Agreement, the holders of a majority of the outstanding shares of
Company Common Stock not owned by Parent and its Subsidiaries (the
"Independent Stockholders")). The execution, delivery and performance
of this Agreement and the consummation of the Merger and of the other
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company and no other
corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so
contemplated (other than as aforesaid). This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of Parent and Sub, as the
case may be, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
SECTION 3.04. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), state insurance laws and the DGCL, neither the execution,
delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby
nor compliance by the Company with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of the
charter or by-laws of the Company or of any of its Subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval
of, any court, arbitral tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency (a
"Governmental Entity") (except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings
would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole), (iii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancelation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their
properties or assets, except in the case of (iii) or (iv) for
violations, breaches or defaults which would not, individually or in
the aggregate, have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
SECTION 3.05. SEC Reports and Financial Statements. Each of
the Company and its Subsidiaries has filed with the Securities and
Exchange Commission (the "SEC") and has heretofore made available to
Parent true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it since
January 1, 1994, under the Exchange Act or the Securities Act of 1933,
as amended (the "Securities Act") (as such documents have been amended
since the time of their filing, collectively, the "Company SEC
Documents"). The Company SEC
<PAGE>
Documents, including without limitation any financial statements or
schedules included therein, at the time filed, (a) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading and (b) complied in all material respects
with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. The financial statements of the
Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to
normal, recurring audit adjustments) the consolidated financial
position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
SECTION 3.06. Absence of Certain Changes. Except as
disclosed in the Company SEC Documents filed with the SEC prior to the
date hereof, since December 31, 1994, there have been no events,
changes or effects having, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
SECTION 3.07. No Undisclosed Liabilities. Except as and to
the extent set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, as of December 31, 1994, neither the
Company nor any of its Subsidiaries had any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that
would be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto). Since December 31, 1994,
neither the Company nor any of its Subsidiaries has incurred any
liabilities of any nature, whether or not accrued, contingent or
otherwise, which would have, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
SECTION 3.08. Benefit Plans. (a) With respect to each
employee benefit plan (including, without limitation, any "employee
benefit plan", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and any material
bonus, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan,
arrangement or under- standing (whether or not legally binding), in
each case maintained or contributed to for the benefit of employees of
the Company or any of its Subsidiaries (all the foregoing being herein
called the "Company Benefit Plans"), individually and in the
aggregate, no event has occurred, and to the knowledge of the Company
or any of its Subsidiaries, there exists no condition or set of
circumstances, in connection with which the Company or any of its
Subsidiaries could be subject to any liability that is reasonably
likely to have a material adverse effect on the Company and its
Subsidiaries, taken as a whole (except liability for benefits claims
and funding obligations payable in the ordinary course), under ERISA,
the Internal Revenue Code of 1986, as amended (the "Code") or any
other applicable law.
(b) With respect to the Company Benefit Plans, individually
and in the aggregate, there are no funded benefit obligations for
which contributions have not been made or properly accrued and there
are no unfunded benefit obligations which have not been accounted for
by reserves,
<PAGE>
established in accordance with generally accepted accounting
principles, or otherwise properly footnoted in accordance with
generally accepted accounting principles, on the financial statements
of the Company or any of its Subsidiaries, which obligations are
reasonably likely to have a material adverse effect on the Company and
its Subsidiaries, taken as a whole.
SECTION 3.09. Other Benefit Plans. Neither the Company nor
any of its Subsidiaries is a party to any oral or written (i)
consulting agreement not terminable on 60 days' or less notice
involving the payment of more than $200,000 per annum or union or
collective bargaining agreement which covers more than 1,000
employees, (ii) agreement with any executive officer or other key
employee of the Company or any of its Subsidiaries, the benefits of
which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the
nature contemplated by this Agreement or agreement with respect to any
executive officer of the Company providing any term of employment or
compensation guarantee extending for a period longer than one year and
for the payment of in excess of $200,000 per annum, or (iii) agreement
or plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
provided that (A) the employee stock options outstanding on the date
hereof under the 1992 Company Stock Plan will, as provided in such
Plan, be accelerated as to vesting, (B) pursuant to the terms of the
Pension Plan for Retired Non-Employee Directors, participants who have
not attained age 65 shall be deemed to be age 65 and all participants
shall be entitled to a lump sum payment of the benefits thereunder and
(C) all deferred bonus awards under the Equity Cash Bonus Plan will,
as provided in such Plan, be vested and paid out in full.
SECTION 3.10. Litigation. There is no suit, claim, action,
proceeding or investigation pending or, to the best knowledge of the
Company, threatened against, the Company or any of its Subsidiaries
before any Governmental Entity which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on
the Company and its Subsidiaries taken as a whole or a material
adverse effect on the ability of the Company to consummate the
transactions contemplated by this Agreement. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement,
neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future
would have a material adverse effect on the Company and its
Subsidiaries taken as a whole or a material adverse effect on the
ability of the Company to consummate the transactions contemplated
hereby.
SECTION 3.11. Compliance with Applicable Law. The Company
and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the
"Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which would not,
individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries taken as a whole. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits,
except where the failure so to comply would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
Except as disclosed in the Company SEC Documents filed prior to the
date of this Agreement, to the best knowledge of the Company, the
businesses of the Company and its Subsidiaries are not being conducted
in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which individually or in the
aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a
<PAGE>
material adverse effect on the Company and its Subsidiaries taken as a
whole. No investigation or review by any Governmental Entity with
respect to the Company or any of its Subsidiaries is pending or, to
the best knowledge of the Company, threatened, nor has any
Governmental Entity indicated an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably
can be foreseen, in the future will not have a material adverse effect
on the Company and its Subsidiaries taken as a whole.
SECTION 3.12. Opinion of Financial Advisor. The Company has
received the opinion of Morgan Stanley & Co. Incorporated, dated the
date hereof, to the effect that, as of such date, the consideration to
be received in the Merger by the Independent Stockholders is fair to
such Stockholders from a financial point of view, a copy of which
opinion has been delivered to Parent.
SECTION 3.13. Vote Required. The affirmative vote of the
holders of 80% of the outstanding shares of Company Common Stock,
including Independent Stockholders holding a majority of the
outstanding shares of Company Common Stock not owned by Parent and its
Subsidiaries, is the only vote of the holders of any class or series
of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
ARTICLE IV
Representations and Warranties
of Parent and Sub
Parent and Sub represent and warrant to the Company as
follows:
SECTION 4.01. Organization. Each of Parent and Sub and
Parent's Subsidiaries which own shares of Company Common Stock is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and corporate authority and all necessary
governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted except where the failure
to be so organized, existing and in good standing or to have such
power, authority, and governmental approvals would not have a material
adverse effect on Parent and its Subsidiaries taken as a whole. Parent
and each of its Subsidiaries which owns shares of Company Common Stock
is duly qualified or licensed to do business and in good standing in
each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not in the
aggregate have a material adverse effect on Parent and its
Subsidiaries taken as a whole.
SECTION 4.02. Authority. Parent and Sub have requisite
corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
Merger and of the other transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
Parent, and no other corporate proceedings on the part of Parent and
Sub are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed
and delivered by Parent and Sub, as the case may be, and, assuming
this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid
<PAGE>
and binding obligation of each of Parent and Sub, as the case may be,
enforceable against Parent and Sub in accordance with its respective
terms.
SECTION 4.03. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the Exchange
Act, the HSR Act, state insurance laws and the DGCL, neither the
execution, delivery or performance of this Agreement by Parent and Sub
nor the consummation by Parent and Sub of the transactions
contemplated hereby nor compliance by Parent and Sub with any of the
provisions hereof will (i) conflict with or result in any breach of
any provision of the respective certificate of incorporation or
by-laws of Parent and Sub, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a material adverse
effect on Parent and its Subsidiaries taken as a whole), (iii) result
in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of
termination, cancelation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
license, lease, contract, agreement or other instrument or obligation
to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or (iv)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent, any of its Subsidiaries or any of
their properties or assets, except in the case of (iii) and (iv) for
violations, breach or defaults which would not, individually or in the
aggregate, have a material adverse effect on Parent and its
Subsidiaries taken as a whole.
SECTION 4.04. Information in Proxy Statement. None of the
information supplied by Parent or Sub in writing specifically for
inclusion or incorporation by reference in the Company's Proxy
Statement for the special meeting of its stockholders to be called to
consider the Merger (the "Proxy Statement") will, at the date mailed
to stockholders and at the time of the meeting of the Company's
stockholders to be held in connection with the Merger, 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, in light of the circumstances under which they are
made, not misleading.
SECTION 4.05. Interim Operations of Sub. Sub was formed
solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted
its operations only as contemplated hereby.
ARTICLE V
Covenants
SECTION 5.01. Covenants of the Company. During the period
from the date of this Agreement and continuing until the Effective
Time, the Company agrees as to itself and its Subsidiaries that
(except as expressly contemplated or permitted by this Agreement, or
to the extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company and its Subsidiaries shall
carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted and use all reasonable efforts to preserve intact their
present business organizations, keep available the services of their
present officers and employees and preserve their relation-
<PAGE>
ships with customers, suppliers and others having business dealings
with them to the end that their goodwill and ongoing business shall
not be impaired in any material respect at the Effective Time.
(b) Dividends; Changes in Stock. The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall it propose to,
(i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except that it may continue the
declaration and payment of regular quarterly cash dividends in an
amount not in excess of $0.27 per share, with usual record and payment
dates for such dividends in accordance with the Company's past
dividend practice, and except for dividends by any Subsidiary to the
Company or to another Subsidiary, (ii) split, combine or reclassify
its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (iii) repurchase, redeem or otherwise
acquire, or permit any Subsidiary to repurchase, redeem or otherwise
acquire, any shares of capital stock of the Company or any of its
Subsidiaries.
(c) Issuance of Securities. The Company shall not, nor shall
it permit any of its Subsidiaries to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of
its capital stock of any class or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to acquire, any
such shares or convertible securities, other than (i) the issuance of
shares of Company Common Stock upon the exercise of employee stock
options outstanding on the date hereof under the Company Stock Plans
and (ii) issuance by a wholly owned Subsidiary of its capital stock to
its parent.
(d) Governing Documents. The Company shall not amend or
propose to amend its Certificate of Incorporation or By-laws.
(e) Advice of Changes; Filings. The Company shall confer on
a regular and frequent basis with Parent, report on operational
matters and promptly advise Parent orally and in writing of any change
or event having, or which, insofar as can reasonably be foreseen,
could have, a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company and Parent shall promptly
provide the other copies of all filings made by such party with any
Federal, state or foreign Governmental Entity in connection with this
Agreement and the transactions contemplated hereby, other than the
portions of such filings that include confidential information not
directly related to the transactions contemplated by this Agreement.
(f) The Company shall not (i) enter into, adopt, amend in
any material respect (except as may be required by law) or terminate
any Company Benefit Plan or other employee benefit plan or any
agreement, arrangement, plan or policy between the Company and one or
more of its directors or officers or (ii) except for normal increases
in the ordinary course of business consistent with past practice that,
in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company, increase in any manner the
compensation or fringe benefits of any director, officer or key
employee or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including, without limitation, the
granting of stock options or Performance Share awards) or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing, except as provided in Section 6.05(d).
SECTION 5.02. No Solicitation; Fiduciary Out. (a) The
Company shall not authorize or permit any of its executive officers or
directors or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its
Subsidiaries to
<PAGE>
(i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or
the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Takeover
Proposal; provided, however, that, if at any time prior to the
Effective Time the Board of Directors of the Company determines in
good faith, after consultation with counsel, that it is necessary to
do so in order to comply with its fiduciary duties to the Company's
stockholders, the Company may, in response to an unsolicited Takeover
Proposal, and subject to compliance with Section 5.02(c), (x) furnish
information with respect to the Company to any person pursuant to a
confidentiality agreement and (y) participate in negotiations
regarding such Takeover Proposal. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the
preceding sentence by any director or executive officer of the Company
or any of its Subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative of the Company
or any of its Subsidiaries shall be deemed to be a breach of this
Section 5.02(a) by the Company. For purposes of this Agreement,
"Takeover Proposal" means any inquiry, proposal or offer from any
person (other than Parent or any of its Subsidiaries) relating to any
direct or indirect acquisition or purchase of a substantial amount of
assets of the Company or any of its Subsidiaries or of 50% or more of
the shares of Company Common Stock, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 50%
or more of the shares of Company Common Stock, any merger,
consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the Merger, or any other
transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or
which would reasonably be expected to dilute materially the benefits
to Parent of the transactions contemplated hereby.
(b) Except as set forth in this Section 5.02(b), neither the
Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, the approval or recommendation by such Board of
Directors of this Agreement or the Merger, (ii) approve or recommend,
or propose to approve or recommend, any Takeover Proposal or (iii)
cause the Company to enter into any agreement with respect to any
Takeover Proposal. Notwithstanding the foregoing, in the event that
prior to the Effective Time the Board of Directors of the Company
determines in good faith, after consultation with counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders, the Board of Directors of the Company may
withdraw or modify its approval or recommendation of this Agreement
and the Merger, approve or recommend a Takeover Proposal or cause the
Company to enter into an agreement with respect to a Takeover
Proposal. While the fact that any Takeover Proposal may be conditioned
on Parent's agreeing to it may be considered by the Company's Board of
Directors, such fact shall not prevent the Company's Board of
Directors from taking any action pursuant to this Section 5.02(b) even
if Parent has stated or indicated in any way that it will not agree to
such Takeover Proposal.
(c) In addition to the obligations of the Company set forth
in Section 5.02(a), the Company shall immediately advise Parent orally
and in writing of any request for information or of any Takeover
Proposal, or any inquiry with respect to or which could lead to any
Takeover Proposal, and shall describe the material terms and
conditions of such request, Takeover Proposal or inquiry and the
identity of the person making such request, Takeover Proposal or
inquiry. The Company will keep Parent fully informed of the status and
details (including amendments or proposed amendments) of any such
request, Takeover Proposal or inquiry.
<PAGE>
(d) Nothing contained in this Section 5.02 shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or
from making any disclosure to the Company's stockholders if, in the
opinion of the Board of Directors of the Company, after consultation
with counsel, failure so to disclose would be inconsistent with its
fiduciary duties to the Company's stockholders; provided, however,
that neither the Company nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 5.02(b), withdraw or
modify, or propose to withdraw or modify, its position with respect to
the Merger or approve or recommend, or propose to approve or
recommend, a Takeover Proposal.
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of the Proxy Statement. The
Company shall promptly prepare and file with the SEC preliminary and
final versions of the Proxy Statement and a Schedule 13E-3. The
Company shall use its best efforts to have the Proxy Statement cleared
by the SEC and mailed to its stockholders at the earliest practicable
date. The Company shall cooperate and consult with Parent with respect
to the Proxy Statement and the Schedule 13E-3 and any related SEC
comments. The Company covenants that (i) the Proxy Statement and the
Schedule 13E-3 will comply in all material respects as to form with
the requirements of the Exchange Act and the rules and regulations
thereunder and (ii) as of the date of mailing of the Proxy Statement
and at the time of the meeting of the Company's stockholders to be
held in connection with the Merger, the Proxy Statement and the
Schedule 13E-3 will not contain any untrue statement of material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, provided that
no representation is made by the Company with respect to any
information included in the Proxy Statement and the Schedule 13E-3
regarding Parent or its Subsidiaries supplied by Parent in writing
specifically for inclusion in the Proxy Statement and the Schedule
13E-3.
SECTION 6.02. Access to Information. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use
reasonable efforts to be released), the Company shall (and shall cause
each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Parent, access,
during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records
and, during such period, the Company shall (and shall cause each of
its Subsidiaries to) furnish promptly to Parent (a) a copy of each
report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of
Federal securities laws and (b) all other information concerning its
business, properties and personnel as Parent may reasonably request.
Unless otherwise required by law, Parent will hold any such
information which is nonpublic in confidence until such time as such
information otherwise becomes publicly available through no wrongful
act of either party, and in the event of termination of this Agreement
for any reason Parent shall promptly upon request return all nonpublic
documents obtained from the Company, and any copies made of such
documents, to the Company.
SECTION 6.03. Stockholders Meeting. The Company shall call a
meeting of its stockholders to be held as promptly as practicable for
the purpose of voting upon this Agreement and the Merger. Subject to
Section 5.02(b), the Company will, through its Board of Directors,
recommend
<PAGE>
to its stockholders approval of this Agreement and the Merger and
shall use its best efforts to hold such meeting as soon as reasonably
practicable after the date hereof.
SECTION 6.04. Legal Conditions to Merger. Each of the
Company, Parent and Sub will take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on
itself with respect to the Merger (which actions shall include,
without limitation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with state
insurance authorities and any other Governmental Entity) and will
promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any
of their Subsidiaries in connection with the Merger. Each of the
Company, Parent and Sub will, and will cause its Subsidiaries to, take
all reasonable actions necessary to obtain (and will cooperate with
each other in obtaining) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Parent, the
Company or any of their Subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement.
SECTION 6.05. Employee Benefit Plans. (a) Parent and the
Company agree that the benefit plans of the Company and its
Subsidiaries in effect at the date of this Agreement (other than the
Company Stock Plans and the Company's Employee Stock Ownership Plan
(the "ESOP")) shall, to the extent practicable, remain in effect
without amendment until the Effective Time and that thereafter the
Surviving Corporation will maintain, subject to such changes and
modifications as may be necessary or desirable to facilitate
compliance by Parent and its Subsidiaries (including the Surviving
Corporation) with applicable statutory and regulatory requirements,
for a period of three years after the Effective Time, benefit plans
(other than the Company Stock Plans and the ESOP) which are no less
favorable, in the aggregate, to the employees covered by such plans as
the benefit plans in effect at the Effective Time (other than the
Company Stock Plans and the ESOP).
(b) Parent will, and will cause the Surviving Corporation
to, honor without modification for a period of three years after the
Effective Time all employee severance plans (or policies) and
employment and severance agreements of the Company or any of its
Subsidiaries in existence on the date hereof as such plans, policies
and agreements shall be in effect in accordance with the terms of this
Agreement at the Effective Time.
(c) Parent and the Company will use their best efforts to
agree on compensation plans for the officers and employees of the
Company after the Effective Time to provide them incentive
compensation that in the aggregate is reasonably comparable (without
giving effect to the payments to them resulting from the Merger) to
that historically provided by the Company Stock Plans and the ESOP,
except that Parent shall not be required to issue any shares of its
equity securities in connection with such compensation plans.
(d) The Company agrees that (i) all the outstanding
borrowings by the ESOP will be paid in full from the unallocated
assets of the ESOP, any remaining unallocated assets of the ESOP will
be allocated among ESOP participants, the interests of all
participants in the ESOP will be vested and distributed and, pursuant
to resolutions adopted by the Company's Board of Directors prior to
the execution of this Agreement, the ESOP will be terminated and (ii)
in accordance with amendments to the Performance Share Plan effected
prior to the execution of this Agreement, all Performance Share awards
outstanding on the date hereof will remain in effect in accordance
with the terms of such awards on such date except that any payments
after the Effective Time will be made on the basis of the Merger
<PAGE>
Consideration and no Company Common Stock shall be issued after the
Effective Time. The Company represents and warrants to Parent that,
following the Effective Time, the unallocated assets of the ESOP will
substantially exceed the amount required to prepay in full the
borrowings of the ESOP.
SECTION 6.06. Expenses. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense.
SECTION 6.07. Brokers or Finders. Each of Parent and the
Company represents, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any brokers' or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement except Morgan Stanley &
Co. Incorporated, whose fees and expenses will be paid by the Company
in accordance with the Company's agreement with such firm (copies of
which have been delivered by the Company to Parent prior to the date
of this Agreement), and each of Parent and the Company agree to
indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act
or statement alleged to have been made by such party or its affiliate.
SECTION 6.08. Indemnification; Insurance. (a) The Company
shall, and from and after the Effective Time Parent and the Surviving
Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or
who becomes such prior to the Effective Time, an officer, director or
employee of the Company or any of its Subsidiaries (the "Indemnified
Parties") against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party (which approval shall not be
unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was
a director, officer or employee of the Company or any of its
Subsidiaries, whether pertaining to any matter existing or occurring
at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified
Liabilities") and (ii) all Indemnified Liabilities based in whole or
in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated hereby; provided,
however, in the case of the Company and the Surviving Corporation such
indemnification shall only be to the fullest extent a corporation is
permitted under the DGCL to indemnify its own directors, officers and
employees; in the case of Parent, such indemnification shall not be
limited by the DGCL but such indemnification shall not be applicable
to any claims made against the Indemnified Parties (A) arising out of,
based upon or attributable to the gaining in fact of any personal
profit or advantage to which they were not legally entitled or (B)
arising out of, based upon or attributable to the committing in fact
of any criminal or deliberate fraudulent act; and the Company, Parent
and the Surviving Corporation, as the case may be, will pay all
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party, in the case of the Company and
the Surviving Corporation only to the fullest extent permitted by law
upon receipt of any undertaking contemplated by Section 145(e) of the
DGCL. Without limiting the foregoing, in the event any such claim,
action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to
them and the Company (or them and Parent and the Surviving Corporation
after the Effective Time), (ii) the Company (or after the Effective
Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received, and (iii) the Company (or after the
Effective
<PAGE>
Time, Parent and the Surviving Corporation) will use all reasonable
efforts to assist in the vigorous defense of any such matter, provided
that none of the Company, Parent or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written
consent, which consent, however, shall not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under this
Section 6.08, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Company, Parent or the
Surviving Corporation (but the failure so to notify an Indemnifying
Party shall not relieve it from any liability which it may have under
this Section 6.08 except to the extent such failure prejudices such
party), and shall deliver to the Company (or after the Effective Time,
the Surviving Corporation (but not Parent)) the undertaking
contemplated by Section 145(e) of the DGCL. The Indemnified Parties as
a group may retain only one law firm to represent them with respect to
each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
(b) The provisions of this Section 6.08 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified
Party, his or her heirs and representatives.
SECTION 6.09. (a) Additional Agreements; Best Efforts.
Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement, including cooperating fully with the other party, including
by provision of information and making of all necessary filings under
the HSR Act and state insurance laws. In case at any time after the
Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving
Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either the Company or Sub, the
proper officers and directors of each party to this Agreement shall
take all such necessary action.
(b) Parent agrees that it will not, as permitted by Section
2(b)(ii) of the Proxy Agreement to which it is a party with
NationsBank of Maryland, instruct the proxy named therein (i) not to
vote the shares of Company Common Stock owned by its Subsidiaries on
the Merger or (ii) to vote such shares on the Merger in the same
proportion as the votes cast by the Independent Stockholders, so long
as this Agreement has not been terminated pursuant to Article VIII.
(c) Parent or Surviving Corporation agrees, subject to
consummation of the Merger, to pay, without deduction or withholding
from any amount payable to the holders of Company Common Stock, any
New York State Tax on Gains Derived from Certain Real Property
Transfers and any other similar taxes that become payable by the
Company or the Surviving Corporation on transfers of the Company's
tangible assets. The Company and Parent shall cooperate in the
preparation, execution and filing of any returns, questionnaires,
applications and other documents related to such taxes required or
permitted to be filed on or before the Effective Time.
<PAGE>
ARTICLE VII
Conditions
SECTION 7.01. Conditions to Each Party's Obligation To
Effect the Merger. The respective obligation of each party to effect
the Merger shall be subject to the satisfaction prior to the Closing
Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the affirmative vote of the
holders of 80% of the outstanding shares of Company Common Stock,
including the affirmative vote of Independent Stockholders holding a
majority of the outstanding shares of Company Common Stock not owned
by Parent and its Subsidiaries.
(b) Other Approvals. Other than the filing provided for by
Section 1.01, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity the failure to obtain which would
have a material adverse effect on Parent and its Subsidiaries or the
Surviving Corporation and its Subsidiaries, in each case taken as a
whole, shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in
effect.
SECTION 7.02. Conditions of Obligations of Parent and Sub.
The obligations of Parent and Sub to effect the Merger are subject to
the satisfaction of the following conditions unless waived by Parent
and Sub:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing
Date.
(c) Opinion of Counsel to the Company. Parent and Sub shall
have received, on and as of the Closing Date, an opinion of Cravath,
Swaine & Moore, counsel to the Company, in usual and customary form
reasonably acceptable to Parent and Sub, substantially as to the
matters set forth in Sections 3.01 (only with respect to the first
sentence thereof), 3.03 (subject to customary exceptions regarding
insolvency and equitable remedies), and 3.04 (only with respect to
clause (i) thereof).
<PAGE>
SECTION 7.03. Conditions of Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement
and (except to the extent such representations speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations of Parent and Sub. Parent and
Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to
the Closing Date.
(c) Opinion of Counsel to Parent and Sub. The Company shall
have received, on and as of the Closing Date, an opinion of Munger,
Tolles & Olson, counsel to Parent and Sub, in usual and customary form
reasonably acceptable to the Company, substantially as to the matters
set forth in Sections 4.01 (only with respect to the first sentence
thereof), 4.02 (subject to customary exceptions regarding insolvency
and equitable remedies), and 4.03 (only with respect to clause (i)
thereof).
ARTICLE VIII
Termination and Amendment
SECTION 8.01. Termination. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company:
(a) by mutual consent of Parent and the Company;
(b) (i) by either Parent or the Company if there shall have
been a material breach of any representation, warranty, covenant
or agreement on the part of the other set forth in this Agreement
which breach shall not have been cured within two business days
following receipt by the breaching party of notice of such
breach, or (ii) by either Parent or the Company if any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final
and non-appealable;
(c) by either Parent or the Company if the Company's Board
of Directors takes any of the actions permitted by Section
5.02(b); provided the Company may so terminate only if it has
complied with all the provisions of Section 5.02(c);
(d) by either Parent or the Company if the Merger shall not
have been consummated on or before March 31, 1996; or
(e) by either party if the required approval of the
stockholders of the Company shall not have been obtained by
reason of the failure to obtain the required vote at a duly held
meeting of stockholders or at any adjournment thereof.
<PAGE>
SECTION 8.02. Effect of Termination. In the event of a
termination of this Agreement by either the Company or Parent as
provided in Section 8.01, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent,
Sub or the Company or their respective officers or directors, except
with respect to any breach of any provision of this Agreement prior to
such termination and except that the last sentence of Section 6.02 and
all of Sections 6.06 and 6.07 shall continue in effect.
SECTION 8.03. Amendment. This Agreement may be amended by
the parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of
the Company, but, after any such approval, no amendment shall be made
which by law requires further approval by such stockholders without
such further approval in accordance with Section 7.01(a). This
Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
SECTION 8.04. Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by
their respective Boards of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
ARTICLE IX
Miscellaneous
SECTION 9.01. Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in
this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time, except for the agreements
contained in Sections 2.01, 2.02, 6.05, 6.06, 6.07, 6.08 and 6.09 and
this Section 9.01.
SECTION 9.02. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or mailed by registered or
certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Sub, to
Berkshire Hathaway Inc.
1440 Kiewit Plaza
Omaha, Nebraska 68131
Attention: Marc D. Hamburg
Vice President, Treasurer
Telecopy No.: (402) 346-0476
<PAGE>
with a copy to
John B. Frank, Esq.
Munger, Tolles & Olson
355 South Grand Avenue, 35th floor
Los Angeles, California 90071-1560
Telecopy No.: (213) 687-3702
and
(b) if to the Company, to
GEICO Corporation
5260 Western Avenue
Washington, D.C. 20076
Attention: Rosalind A. Phillips
Secretary
Telecopy No.: (301) 986-3054
with a copy to
Samuel C. Butler, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Telecopy No.: (212) 474-3700
SECTION 9.03. Entire Agreement; No Third Party
Beneficiaries; Rights of Ownership. This Agreement (including the
documents and the instruments referred to herein) (a) constitute the
entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect
to the subject matter hereof and (b) except as provided in Sections
6.05 and 6.08, are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
SECTION 9.04. Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State of
Delaware without regard to any applicable conflicts of law.
SECTION 9.05. Publicity. Except as otherwise required by law
or the rules of the New York Stock Exchange, for so long as this
Agreement is in effect, neither the Company nor Parent shall, or shall
permit any of its Subsidiaries to, issue or cause the publication of
any press release or other public announcement with respect to the
transactions contemplated by this Agreement without the consent of the
other party, which consent shall not be unreasonably withheld.
<PAGE>
SECTION 9.06. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties, except that
Sub may assign, in its sole discretion, any or all of its rights,
interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and
assigns.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
BERKSHIRE HATHAWAY INC.,
by
------------------------------
Name: Warren E. Buffett
Title: Chairman and Chief
Executive Officer
HPKF INC.,
by
------------------------------
Name: Warren E. Buffett
Title: Chairman and Chief
Executive Officer
GEICO CORPORATION,
by
------------------------------
Name: Olza M. Nicely
Title: President and Chief
Executive Officer
by
------------------------------
Name: Louis A. Simpson
Title: President and Chief
Executive Officer
<PAGE>
[Letterhead of] APPENDIX B
MORGAN STANLEY
August 25, 1995
Board of Directors of GEICO Corporation
GEICO Corporation
One GEICO Plaza
Washington D.C. 20076
Members of the Board of Directors:
We understand that GEICO Corporation (the "Company"), Berkshire
Hathaway Inc. ("Buyer") and HPKF Inc., an indirect subsidiary of Buyer
("Acquisition Sub") propose to enter into an Agreement and Plan of
Merger dated as of August 25, 1995 (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of
Acquisition Sub with and into the Company. Pursuant to the Merger, the
Company will become an indirect subsidiary of Buyer and each
outstanding share of common stock, par value $1 per share (the "Common
Stock") of the Company, other than shares held in treasury or held by
Buyer or any subsidiary of Buyer or as to which dissenters' rights
have been perfected, will be converted into the right to receive $70
per share in cash. We understand that approximately 50.7% of the
outstanding shares of Common Stock is owned by Buyer. We further
understand that the Merger is conditioned upon, among other things,
the approval of the holders of 80% of the Common Stock. The terms and
conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such
holders (other than Buyer and its subsidiaries).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the
Common Stock;
(vi) compared the financial performance of the Company and the
prices and trading activity of the Common Stock with that of
certain other comparable publicly-traded companies and their
securities;
<PAGE>
(vii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement; and
(ix) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the
purposes of this opinion. With respect to the financial projections,
we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
future financial performance of the Company. We have not made any
independent valuation or appraisal of the assets or liabilities of the
Company nor have we been furnished with any such appraisals. In
addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Our
opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the
date hereof.
In arriving at our opinion, we were not authorized to solicit, and did
not solicit, interest from any party with respect to the acquisition
of the Company or any of its assets.
We have acted as financial advisor to the Board of Directors of the
Company in connection with this transaction and will receive a fee for
our services.
It is understood that this letter is for the information of Board of
Directors of the Company and may not be used for any other purpose
without our prior written consent. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy statement
distributed in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that
the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point
of view to such holders (other than the Buyer and its subsidiaries).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:
--------------------------------
Gary W. Parr
Managing Director
<PAGE>
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the
merger or consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record
of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation, and the
words "depository receipt" mean a receipt or other instrument issued
by a depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a merger
or consolidation to be effected pursuant to Sections 251, 252, 254,
257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof,
at the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders
to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.,
or (ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
holders of the surviving corporation as provided in subsections
(f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 stockholders;
<PAGE>
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subpara-
graphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares of fractional
depository receipts described in the foregoing subpara-
graphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under
Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any merger
or consolidation in which the corporation is a constituent corporation
or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth
in subsections (d) and (e) of this section, shall apply as nearly as
is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof,
that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written
demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder
of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Sections 228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of
the stockholders entitled to appraisal rights of the effective
date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered
mail, return receipt requested, addressed to the stockholder at
his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from
the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs
the corporation of the
<PAGE>
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his
demand for appraisal and to accept the terms offered upon the merger
or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such service
file in the office of the Register in Chancery in which the petition
was filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been reached
by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to
the surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall also be
given by one or more publications at least one week before the day of
the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall
be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section and who
have become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares and who
hold stock represented by certificates to submit their certificates of
stock to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair
value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, together
with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the
fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final
<PAGE>
determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and
who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto. Interest
may be simple or compound, as the Court may direct. Payment shall be
so made to each such stockholder, in the case of holders of
uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of
this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may order
all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as
provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however,
that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective
date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such
terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall have
the status of authorized and unissued shares of the surviving or
resulting corporation.
<PAGE>
APPENDIX D
CERTAIN INFORMATION REGARDING
DIRECTORS AND EXECUTIVE OFFICERS
OF BERKSHIRE AND THE COMPANY
Directors and Executive
Officers of Berkshire
Each of the persons named below is a citizen of the United
States of America. For each person whose principal employment is with
Berkshire, the principal business of such person's employer is
described in "BERKSHIRE", and the business address of such person is
1440 Kiewit Plaza, Omaha, Nebraska 68131. Except as set forth in
"SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS", none
of the persons named below is the beneficial owner of any Common
Stock. Members of the Board of Directors of Berkshire are indicated
with an asterisk.
Principal Occupation, Business Address;
Principal Business of Employer; and Five-
Name Year Employment History
Warren E. Buffett * Director of Berkshire since 1965 and
Chairman and Chief Executive Officer since
1970. Mr. Buffett, age 65, is a controlling
person of Berkshire. He is also a director
of Capital Cities/ABC, Inc., The Coca-Cola
Company, The Gillette Company, Salomon
Inc and USAir Group, Inc. (As previously
announced, Mr. Buffett will not stand for
reelection at the next annual meeting of
USAir Group, Inc.)
Howard G. Buffett * Director of Berkshire since 1993.
Mr. Buffett, age 40, is President of
International Operations, The GSI Group, a
company engaged primarily in the
manufacture of farm equipment. Prior to
July 5, 1995, Mr. Buffett had been since
1992, Vice President, Assistant to the
Chairman and a Director of Archer Daniels
Midland Company, a company engaged
principally in the business of processing and
merchandising agricultural commodities.
From 1988 until 1992, Mr. Buffett was a
member of the Douglas County, Nebraska
Board of Commissioners. He is also a
director of Coca-Cola Enterprises Inc.
Mr. Buffett's business address is
1004 East Illinois Street, Assumption,
Illinois 62510.
<PAGE>
Susan T. Buffett * Director of Berkshire since 1991. Mrs.
Buffett, age 63, has not been employed in
the past five years.
Malcolm G. Chace, III* Director of Berkshire since 1992. For more
than the past five years, Mr. Chace, age 61,
has been a private investor. Mr. Chace's
business address is 731 Hospital Trust
Building, Providence, Rhode Island 02903.
Charles T. Munger* Director of Berkshire and Vice Chairman of
Berkshire's Board of Directors since 1978.
He is Chairman of the Board of Directors of
Wesco Financial Corporation, approximately
80%-owned by Berkshire. Mr. Munger,
age 71, is also Chairman of the Board of
Directors of Daily Journal Corporation and
a director of Salomon Inc and USAir Group,
Inc. (As previously announced Mr. Munger
will not stand for reelection at the next
annual meeting of USAir Group, Inc.)
Walter Scott, Jr.* Director of Berkshire since 1988. For more
than the past five years, he has been
Chairman of the Board of Directors and
Chief Executive Officer of Peter Kiewit
Sons', Inc., a company engaged worldwide
in construction, mining and
telecommunications. Mr. Scott, age 64, is
also a director of Burlington Resources Inc.,
California Energy Company, Inc., C-TEC
Corporation, ConAgra, Inc., FirsTier
Financial, Inc., MFS Communications
Company, Inc. and Valmont Industries Inc.
Mr. Scott's business address is 1501 Kiewit
Plaza, Omaha, Nebraska 68131.
Marc D. Hamburg Vice President, Chief Financial Officer and
Treasurer of Berkshire since 1992.
Mr. Hamburg, age 46, was Treasurer of
Berkshire from 1987 until assuming his
current position in 1992.
<PAGE>
Directors and Executive Officers
of the Company
Each of the persons named below is a citizen of the United
States of America. For each person whose principal employment is with
the Company, the principal business of such person's employer is
described in "THE COMPANY", and the business address of such person is
One GEICO Plaza, Washington, D.C. 20076. Except as set forth in
"SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS", none
of the persons named below is the beneficial owner of any Common
Stock. Members of the Board of Directors of the Company are indicated
with an asterisk.
Principal Occupation, Business Address;
Principal Business of Employer; and Five-
Name Year Employment History
John H. Bretherick, Jr. * Retired President, Continental Corporation,
an insurance holding company, New York,
New York. Mr. Bretherick, age 65, is
Chairman of the Audit Committee and a
member of the Human Resources Committee.
He was President and a director of
Continental Corporation from 1984 until his
retirement in 1989. Mr. Bretherick's
business address is 39 Mile Drive, Chester,
New Jersey 07930.
Norma E. Brown * Major General, U.S. Air Force, Retired, San
Antonio, Texas. Major General Brown,
age 69, is Chairperson of the Social
Responsibility Committee and a member of
the Audit Committee. She retired from the
U.S. Air Force in 1982 after completing 31
years of service. From 1979 until her
retirement, she was Commander of the
Chanute Technical Training Center.
General Brown's business address is USAF
Retired 24815 House Mountain, San Antonio,
Texas 78255.
Samuel C. Butler * Partner, Cravath, Swaine & Moore,
attorneys, New York, New York. Mr.
Butler, age 65, is Chairman of the Executive
and Human Resources Committees. He has
been a partner in the law firm of Cravath,
Swaine & Moore since 1961. Mr. Butler is
a director of Ashland Inc., United States
Trust Corporation and Millipore Corporation.
Mr. Butler's business address is Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth
Avenue, New York, New York 10019.
James E. Cheek * President Emeritus, Howard University,
Washington D.C. Dr. Cheek, age 62, is a
member of the Finance and Social
Responsibility Committees. He was
<PAGE>
President of Howard University from 1969
until his retirement in 1989. Dr. Cheek's
business address is Department of Education,
Office of the Commissioner, 44-46 Kongens
Gade, St. Thomas, Virgin Island 00802.
A. James Clark * Chairman of the Board, President and
Director, Clark Enterprises, Inc., a
commercial real estate and construction
holding company, Bethesda, Maryland. Mr.
Clark, age 67, is a member of the Audit and
Human Resources Committees. He has been
Chairman and President of Clark Enterprises,
Inc. since 1972, Chairman and President of
The Clark Construction Group, Inc. since
1988 and Chairman of the Board of The
George Hyman Construction Company since
1986. He is a director of Potomac Electric
Power Company, Martin Marietta
Corporation and Carr Realty Corporation.
Mr. Clark's business address is Clark
Enterprises, Inc., 7500 Old Georgetown
Road, Bethesda, Maryland 20814-6195.
Delano E. Lewis * President and Chief Executive Officer,
National Public Radio, a non-profit
membership organization producing
programming for public radio stations,
Washington D.C. Mr. Lewis, age 56, is a
member of the Audit and Social
Responsibility Committees. He was elected
President and Chief Executive Officer of
National Public Radio in 1994. He served as
a director of The C&P Telephone Company
from 1983 to 1993, President from 1988 to
1993, Chief Executive Officer from 1990 to
1993 and was a Vice President from 1983 to
1988. He is a director of The Chase
Manhattan Corporation, the Colgate-
Palmolive Company, Apple Computer, Inc.
and BET Holdings, Inc. Mr. Lewis'
business address is National Public Radio,
Room 640, 635 Massachusetts Avenue, NW,
Washington, D.C. 20001.
Olza M. Nicely * President and Chief Executive Officer-
Insurance Operations and Director of the
Company, Chevy Chase, Maryland.
Mr. Nicely, age 51, is a member of the
Executive and Finance Committees. He was
elected President and Chief Executive Officer
- Insurance Operations of the Company in
1993. He has served as a Director of
GEICO since 1985, President since 1989,
Chief Executive Officer since 1992 and
Chairman of the Board since 1993, having
served as Executive Vice President from
1987 to 1989 and Senior Vice President from
1985 to 1987.
<PAGE>
Coleman Raphael * Retired Dean, School of Business
Administration, George Mason University,
Fairfax, Virginia. Dr. Raphael, age 70, is a
member of the Finance and Human
Resources Committees. He was Chairman of
the Board and Chief Executive Officer of
Night Owl Security, Inc. from 1991 to 1992
and Dean of the School of Business
Administration of George Mason University
from 1986 to 1991. From 1970 to 1986, he
was Chairman of the Board, Chief Executive
Officer and a director of Atlantic Research
Corporation. Dr. Raphael's business address
is 508 Hermleigh Road, Silver Spring,
Maryland 20902.
William J. Ruane * Chairman of the Board and Director, Ruane,
Cunniff & Co., Inc., investment advisors,
New York, New York. Mr. Ruane, age 69,
is a member of the Executive, Finance and
Human Resources Committees. He has been
Chairman of Ruane, Cunniff & Co., Inc.
since 1969. He is Chairman of the Board of
Sequoia Fund, Inc. and a director of The
Washington Post Company. Mr. Ruane's
business address is Ruane, Cuniff & Co.,
Inc., Suite 4701, 767 Fifth Avenue, New York,
New York 10153-4798.
Louis A. Simpson * President and Chief Executive Officer-Capital
Operations and Director of the Company,
Chevy Chase, Maryland. Mr. Simpson, age
58, is Chairman of the Finance Committee
and a member of the Executive Committee.
He was elected President and Chief
Executive Officer-Capital Operations of
the Company in 1993, having served as
Vice Chairman of the Board from 1985 to
1993. He was Senior Vice President of
GEICO from 1979 to 1989 and of the
Company from 1979 to 1985. He is a
director of Potomac Electric Power
Company, Salomon Inc, Pacific American
Income Shares Inc., Thompson PBE, Inc.
and Western Asset Trust, Inc.
W. Alvon Sparks, Jr.* Executive Vice President and
Chief Financial Officer and Director of
the Company, Chevy Chase, Maryland. Mr.
Sparks, age 60, is a member of the
Finance and Social Responsibility
Committees. He has been Executive Vice
President and Chief Financial Officer of
the Company since 1992, having served as
Senior Vice President from 1982 to 1992.
He has been a Director of GEICO since
1982, and was elected Executive Vice
President in February 1995, having served
as Senior Vice President since 1982.
Marion E. Byrd Director and Senior Vice President
of GEICO since May 1989. Mr. Byrd,
age 59, was a Vice President of
GEICO from January 1980 to May 1989. He
also is, or has served as, a director
and/or an officer of several subsidiaries
of the Company and GEICO.
Charles R. Davies Vice President and General Counsel
of the Company and GEICO and a director
of GEICO since November 1992. He served
as Vice President and Deputy General
Counsel of both the Company and GEICO
from March 1987 to November 1992 and
Assistant Vice President and Deputy
General Counsel from March 1982 to March
1987. Mr. Davies, age 55, also is, or has
served as, a director and/or an officer
of several subsidiaries of the Company
and GEICO.
<PAGE>
James M. Hitt Vice President of GEICO since August 1986
and an officer of GEICO since 1979. Mr.
Hitt, age 51, also is, or has served as,
an officer and/or director of various
subsidiaries of the Company and GEICO.
Donald R. Lyons Vice President of GEICO since May 1992
and an officer since September 1985. Mr.
Lyons, age 49, is also an officer of
certain subsidiaries of GEICO.
Robert M. Miller Vice President of GEICO since September
1987 and an officer since May 1980. Mr.
Miller, age 53, is also an officer of
certain subsidiaries of GEICO.
<PAGE>
Simone J. Pace Senior Vice President of the Company and
GEICO and a director of GEICO since
August 1993. Prior to joining the
Company, Mr. Pace, age 52, had been
president of Blue Cross/Blue Shield of
the National Capital Area from September
1992 to April 1993, Executive Vice
President from October 1988 to August
1992 and Senior Vice President from
January 1985 to October 1988, having
first joined that company in June 1971.
David H. Pushman Vice President of GEICO since May 1989.
Mr. Pushman, age 46, has been an officer
of GEICO since June 1986.
William E. Roberts Group Vice President of GEICO since May
1995, Vice President from May 1994 to May
1995 and Assistant Vice President from
August 1991 to May 1994 and Director of
GEICO since August 1994. Mr. Roberts, age
45, also serves as a Director and/or an
officer of several subsidiaries of the
Company and GEICO.
David L. Schindler Vice President of GEICO since May 1988
and an officer of GEICO since August
1983. Mr. Schindler, age 50, is also, or
has served as, an officer of several
subsidiaries of GEICO.
Richard C. Van Essendelft Vice President of GEICO since January
1992, and an Assistant Vice President
from August 1979 to January 1992. Mr. Van
Essendelft, age 55, also is, or has
served as, a director and/or an officer
of various subsidiaries of the Company.
Thomas M. Wells Group Vice President and Controller of the
Company and GEICO since August 1992 and a
director of GEICO since November 1992. He
served as Vice President and Controller
of the Company and GEICO from July 1985
to August 1992. Mr. Wells, age 44, also
serves as a director and/or an officer of
several subsidiaries of the Company and
GEICO.
PRELIMINARY COPY
PROXY GEICO CORPORATION COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OLZA M. NICELY, LOUIS A. SIMPSON and SAMUEL C. BUTLER, or
any of them, with full power of substitution, are hereby authorized to
represent and to vote, as designated below, all shares of Common Stock
of GEICO Corporation held of record by the undersigned on , 1995, at
the Special Meeting of Stockholders to be held at Corporation Trust
Center, 1209 Orange Street, Wilmington Delaware, on , 1995, at a.m.,
Eastern Standard Time, and at any adjournment or postponement thereof,
on the following:
(1) PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF
MERGER AMONG BERKSHIRE HATHAWAY INC., HPKF INC. AND
GEICO CORPORATION dated as of August 25, 1995, all as
more fully described in the accompanying Proxy
Statement:
o FOR o AGAINST o ABSTAIN
(2) In their discretion, the Proxies are authorized to
vote upon such other business as may properly come
before the Special Meeting.
This Proxy is given WITH authority to vote FOR Item (1) unless a
contrary choice is specified.
The Board of Directors recommends a vote "FOR" Item (1)
(SEE REVERSE SIDE)
<PAGE>
(PLEASE READ OTHER SIDE FIRST)
Shares
Signed:
(PLEASE SIGN EXACTLY AS
NAME APPEARS AT LEFT)
DATED: , 1995
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
