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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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] 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).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
_________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
(5) Total fee paid:
_________________________________________________________________________
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_________________________________________________________________________
(3) Filing Party:
_________________________________________________________________________
(4) Date Filed:
_________________________________________________________________________
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[LOGO]
- -----------------------------
GEICO
CORPORATION
ONE GEICO PLAZA
Washington, D.C. 20076-0001
November 20, 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 20, 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') not owned by Berkshire or any of its
subsidiaries 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 November 16, 1995, are entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
As of November 16, 1995, the directors and executive officers of the
Company beneficially owned, in the aggregate, 1,543,871 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.
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,
<TABLE>
<S> <C>
OLZA M. NICELY LOUIS A. SIMPSON
OLZA M. NICELY LOUIS A. SIMPSON
President and Chief Executive Officer -- President and Chief Executive Officer --
Insurance Operations Capital Operations
</TABLE>
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GEICO CORPORATION
ONE GEICO PLAZA
WASHINGTON, DC 20076-0001
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 20, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of GEICO
Corporation (the 'Special Meeting') will be held on December 20, 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 November 16,
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.
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.
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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 ANN PHILLIPS
Secretary
Washington, D.C.
November 20, 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>
<PAGE>
GEICO CORPORATION
ONE GEICO PLAZA
WASHINGTON, DC 20076-0001
---------------------------------
PROXY STATEMENT
---------------------------------
SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 20, 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 20, 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 November 16, 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.
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 November
21, 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.
------------------------
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 November 20, 1995.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
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......................................................................... 7
Appraisal Rights...................................................................................... 8
Solicitation of Proxies............................................................................... 8
Recommendation of the Board........................................................................... 8
Opinion of Financial Advisor.......................................................................... 8
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........................................ 10
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...................................................................................... 13
Solicitation of Proxies............................................................................... 15
THE COMPANY................................................................................................ 16
BERKSHIRE.................................................................................................. 17
SPECIAL FACTORS............................................................................................ 17
Background of the Transaction......................................................................... 17
Purpose of the Transaction............................................................................ 21
Reasons for the Transaction........................................................................... 22
Opinion of Financial Advisor.......................................................................... 24
Interests of Certain Persons in the Transaction....................................................... 29
Certain Federal Income Tax Consequences............................................................... 32
Anticipated Accounting Treatment...................................................................... 32
Regulatory Approvals.................................................................................. 33
Source and Amount of Funds............................................................................ 33
THE MERGER AGREEMENT....................................................................................... 33
Effective Time........................................................................................ 33
The Merger............................................................................................ 34
Representations and Warranties........................................................................ 35
Conduct of the Business Pending the Merger............................................................ 35
</TABLE>
2
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<TABLE>
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No Solicitation; Fiduciary Out........................................................................ 36
Other Agreements of the Company, Berkshire and Sub.................................................... 37
Employee Benefit Plans................................................................................ 37
Stock Options......................................................................................... 38
Indemnification and Insurance......................................................................... 38
Conditions to the Merger.............................................................................. 38
Termination........................................................................................... 39
Expenses.............................................................................................. 39
Amendment; Waiver..................................................................................... 39
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS............................................. 40
STOCKHOLDER LITIGATION..................................................................................... 42
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 42
CERTAIN TRANSACTIONS IN THE COMMON STOCK................................................................... 43
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 44
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY AFTER THE MERGER.................................. 44
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 45
STOCKHOLDER PROPOSALS...................................................................................... 45
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
</TABLE>
3
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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(e) 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 Ann Phillips, Corporate Secretary, GEICO Corporation, One
GEICO Plaza, Washington, DC 20076-0001, telephone (301) 986-2077. In order to
ensure delivery of documents prior to the Special Meeting, requests therefor
should be made no later than December 6, 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 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.
4
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the SEC
pursuant to the Exchange Act (file number 1-8012) 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, June 30, 1995 and September 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.
5
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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 and fire insurance (businesses
that GEICO plans to have exited in three years), personal umbrella liability and
boat owners 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). According to the A.M. Best Company, Best's
ratings are intended to measure an insurance company's financial strength,
operating performance, competitive market position and ability to meet
obligations to policyholders currently and in the near future. The Best's
ratings of the Company's insurance company subsidiaries are not ratings of the
investment merits of the Common Stock.
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 20076-0001; (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 November 16,
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.
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
6
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<PAGE>
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 20, 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 November 16, 1995. At the close of business on the Record
Date, there were 67,528,833 shares of Common Stock outstanding and entitled to
vote, held by approximately 2,847 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 Ann 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.
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
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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. The Company has been informed by the Independent Proxy
that it has not presently determined how it will vote.
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. Mr. William J. Ruane, a director of the Company, elected to abstain
from voting on the Merger and on the Board's recommendation to the Independent
Stockholders because of his relationships with Warren E. Buffett, the Chairman
of the Board and Chief Executive Officer of Berkshire, and Berkshire.
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'.
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.
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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. Buffett 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. The Merger has been
approved by the Maryland Insurance Adminstration. As of the date of this Proxy
Statement, Berkshire and the Company have filed all required applications with
the New York Insurance Department, but the Department has not completed its
review of the filing. 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 $2.3 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 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
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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'.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
As of November 16, 1995, the directors and executive officers of the
Company beneficially owned, in the aggregate, 1,543,871 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 November 16, 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
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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 November 17, 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 $69 1/4. 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'.
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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 20, 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 November 16, 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
67,528,833 shares of Common Stock outstanding and entitled to vote at the
Special Meeting, held by approximately 2,847 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 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.
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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. The Company has been informed by the
Independent Proxy that it has not presently determined how it will vote.
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 Ann 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'.
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.
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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 Ann Phillips,
Corporate Secretary, GEICO Corporation, One GEICO Plaza, Washington, DC
20076-0001, 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.
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
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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 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.
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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 and fire insurance (businesses
that GEICO plans to have exited in three years), personal umbrella liability and
boat owners 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). According to the A.M. Best Company, Best's
ratings are intended to measure an insurance company's financial strength,
operating performance, competitive market position and ability to meet
obligations to policyholders currently and in the near future. The Best's
ratings of the Company's insurance company subsidiaries are not ratings of the
investment merits of the Common Stock.
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 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 20076-0001; (301) 986-3000.
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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
November 16, 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 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
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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 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. These conversations occurred in a
social or otherwise casual context, and were not understood by either party to
be, or intended
as, proposals or indications of interest. Accordingly, these conversations
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did not precipitate discussions or negotiations of any sort, result in the
preparation of any analyses or require any Company response. However, on August
17, 1994, at Mr. Buffett's request, Mr. Simpson, President and 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. At the August 17 meeting, Messrs.
Butler and Simpson stated that any transaction would have to be tax-free to the
Independent Stockholders and 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 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. Mr. Butler's view was based
on his familiarity with the Company's affairs, including its financial
condition, results of operations, prospects and stock trading history, gleaned
from his 23 years of experience as a director of the Company and GEICO, as well
as his general assessment of market and economic conditions and his knowledge of
the premiums paid in many acquisition transactions.
Mr. Buffet had requested the August 17, 1994 meeting to explore the
Company's potential interest in a transaction because he was in Washington at
the time and because by that time he had had sufficient experience observing the
performance of Mr. Olza M. (Tony) Nicely since his appointment in 1993 as
President and Chief Executive Officer -- Insurance Operations to determine that
Mr. Nicely would be an effective leader with whom Mr. Buffett would be
comfortable working in the event of an acquisition. This assessment was an
essential prerequisite to consideration of any transaction, because Mr. Buffett
would only be interested in an acquisition of this size if he believed he would
enjoy working in a close relationship with senior management. Having satisfied
himself on that score, Mr. Buffett was otherwise satisfied with the Company's
business, based upon his evaluation of, among other factors, its size,
demonstrated earning power, historic return on equity, and market position. Mr.
Buffett believed that an acquisition of the Company was worth exploring because,
if the management and Board of the Company were interested, and if mutually
satisfactory price and terms could be agreed upon, such an acquisition would
have the potential to enhance the performance and value of Berkshire.
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, and Mr. Butler thereafter did so. 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 resolved before there could be 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.
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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 Nicely, 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 results of Morgan Stanley's
valuation of the Company. After receiving Mr. Parr's preliminary view that, as
of August 15, 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. Messrs. Nicely, Simpson, Sparks and Butler came to
the conclusion that they would recommend a transaction at $70 per share based
on, among other things, their familiarity with the Company's financial
condition, results of operations, investment results and prospects, the fact
that $70 represented a premium to Morgan Stanley's preliminary view as to the
value of the Common Stock and the fact that $70 per share was higher than the
highest price ever reached by the Common Stock (which was $67 5/8 on January 22
and 27, 1993).
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
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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 proposal, if the
Board agreed to it, and subject to resolution of all legal and other issues.
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 in connection with the Merger or to
evaluate the future prospects of the Company, or to retain an unaffiliated
representative to advise the Board or any such committee solely on behalf of the
Independent 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 Board did not attempt to solicit competing acquisition proposals
because the Board believed that the absence of any 'break-up' fee or other
'lock-up' provisions in the Merger Agreement and the freedom of the Board to
consider any transaction proposed by a third party after the signing of the
Merger Agreement meant that a third party interested in submitting a competing
bid is free to do so despite the execution of the Merger Agreement. To date, the
Company has received no inquiries whatsoever regarding a possible competing bid.
Furthermore, the Board had been advised by Morgan Stanley that, in its view,
none of the companies that Morgan Stanley considered as potential candidates to
acquire the Company would be willing to pay $70 per share because of the
dilutive effect on reported earnings of such a purchase price. Finally, the
Board considered the possibility that, given Berkshire's beneficial ownership of
50.72% of the outstanding shares of Common Stock, no acquisition could be
approved by the Stockholders without the affirmative vote of the Independent
Proxy and that, if any other acquisition proposal were presented to the
Stockholders, Berkshire could prevent the approval of any such proposal by
exercising its right to cause the Independent Proxy not to vote the Berkshire-
Owned Shares.
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
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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 fairness 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.
(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
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Common Stock. In evaluating the premiums to historical and recent market
prices represented by the $70 per share price to be paid in the Merger, the
Board considered the fact that, while the premiums are indicative of the
relative benefit of the Merger to an Independent Stockholder who would have
otherwise sold his shares of Common Stock in the market, because of the
effect of taxes these premiums are not directly comparable to the benefit
to an Independent Stockholder of a tax-free transaction at the same price.
However, as noted under ' -- Background of the Transaction' above,
Berkshire had not indicated interest in a stock transaction at the $70 per
share price level.
(iv) Opinion of Morgan Stanley. The Board considered the opinion of
Morgan Stanley that the consideration to be received by the Independent
Stockholders 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'):
<TABLE>
<S> <C>
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
</TABLE>
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 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.
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<PAGE>
(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. In making its determination, the
Board considered the view of Morgan Stanley that none of the companies that
Morgan Stanley considered as potential candidates to acquire the Company
would be willing to pay $70 per share because of the dilutive effect on
their reported earnings of such a purchase price. In addition, as described
under ' -- Background of the Transaction', the Board considered the
possibility that, given Berkshire's beneficial ownership of 50.72% of the
outstanding shares of Common Stock, no acquisition could be approved by the
Stockholders without the affirmative vote of the Independent Proxy and
that, if any other acquisition proposal were presented to the Stockholders,
Berkshire could prevent the approval of any such proposal by exercising its
right to cause the Independent Proxy not to vote the Berkshire-Owned
Shares.
(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.
(x) No Longer a Public Company. The Board viewed as a negative factor
that, following the consummation of the Merger, the Company would no longer
be a public company.
(xi) Taxable Transaction. The Board viewed as a negative factor to its
determination that, like all cash mergers, the Merger would be a taxable
transaction. However, the Board determined that this factor was offset by
the favorable price to be paid in the Merger. In addition, for the reasons
described under ' -- Background of the Transaction', the Board did not
believe that it would be able to effect a tax-free transaction offering
comparable value to the Independent Stockholders.
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 Merger was approved by the Board, which was advised 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. Berkshire received in February 1995 a copy of the Company's
business plan for 1995. The Company's actual results of operations for the nine
months ended September 30, 1995 are consistent with the projected results of
operations for that period contained in the business plan reviewed by Berkshire.
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 principal executive offices of the Company (see 'SUMMARY -- The
Parties') during the Company's regular business hours by any Independent
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. Morgan Stanley's opinion does not address the likely tax
consequences of the Merger to any Independent Stockholder. The
24
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<PAGE>
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 and fire 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 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
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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 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.
26
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<TABLE>
<CAPTION>
PRICE AS A MULTIPLE OF(1)
-------------------------------------------------------
GAAP EARNINGS 1994 STATUTORY
----------------------- GAAP -------------------
1994A 1995E 1996E BOOK NET GAIN SURPLUS
----- ----- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Company............................................... 17.2 x 16.8 x 15.2 x 2.33 x 18.3x 3.71x(3)
Comparables
Allstate(2)(4)................................... 11.7 x 9.0 x 8.4 x 1.47 x 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.................................................. 11.8 x 11.9 x 10.5 x 1.48 x 15.6x 2.47x
MEDIAN................................................ 12.0 11.3 9.6 1.24 14.1 2.48
</TABLE>
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. 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.
27
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<PAGE>
<TABLE>
<CAPTION>
PRICE PAID AS A MULTIPLE OF ACQUIREE
GAAP/STATUTORY
-------------------------------------
NET BOOK NET MARKET
INCOME VALUE PREMIUMS VALUE
------ ----- -------- ------
<S> <C> <C> <C> <C>
High.................................................... 25.4x 3.23x 113.6% 2.27x
38.6 3.41 220.1
Low..................................................... 6.5 0.80 34.6 1.07
7.6 0.67 39.8
Mean.................................................... 14.0 1.7 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
</TABLE>
Applying the multiples derived from the precedent transactions (which
includes $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 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.
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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. Because a substantial
portion of Morgan Stanley's fee is payable upon the consummation of the Merger,
Morgan Stanley may be deemed to have a financial interest in the consummation of
the Merger and, accordingly, a conflict of interest with respect to its fairness
opinion.
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.
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 November 16, 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 November 16, 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
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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:
<TABLE>
<CAPTION>
NUMBER OF UNVESTED WEIGHTED
COMPANY OPTIONS AVERAGE EXERCISE
AT NOVEMBER 16, PRICE PER SHARE
NUMBER OF VESTED 1995 TO BECOME OF VESTED AND CASH
COMPANY OPTIONS AT EXERCISABLE UPON UNVESTED COMPANY SETTLEMENT
NAME AND TITLE NOVEMBER 16, 1995 STOCKHOLDER 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.
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
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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 $141,651, 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.
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
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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.
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.
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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 Administration and the
New York Insurance Department. The Merger has been approved by the Maryland
Insurance Administration. As of the date of this Proxy Statement, Berkshire and
the Company have filed all required applications with the New York Insurance
Department, but the Department has not completed its review of the filing.
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. SS18a(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 $2.3 billion.
Berkshire anticipates paying such amount from cash on hand (including short-term
investments).
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:
<TABLE>
<CAPTION>
<S> <C>
Investment Banking Fees............................................... $2,000,000
Legal Fees............................................................ 3,500,000
SEC Filing Fees....................................................... 465,808
Printing Costs........................................................ 45,000
Solicitation Costs.................................................... 14,000
Miscellaneous......................................................... 50,000
----------
Total............................................................ $6,074,808
----------
----------
</TABLE>
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 (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.
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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.
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
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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,
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
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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 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
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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.
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
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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 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 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
38
<PAGE>
<PAGE>
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 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.
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.
39
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of November 16, 1995 (unless otherwise
indicated), 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.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME/GROUP OWNED OF CLASS
- ------------------------------------------------------------------------------------- ---------------- --------
<S> <C> <C>
Berkshire(1) ........................................................................ 34,250,000 50.72%
1440 Kiewit Plaza
Omaha, NE 68131
The Riggs National Bank of Washington, DC ('Riggs')(2) .............................. 6,538,959 9.68
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)........................................................ 278,891 (4)
Coleman Raphael(5)................................................................... 2,200 (4)
William J. Ruane..................................................................... 25,000 (4)
Louis A. Simpson(6)(7)(8)(9)......................................................... 876,970 1.30
W. Alvon Sparks, Jr.(5)(7)(8)(10).................................................... 51,490 (4)
James M. Hitt(7)(8)(10).............................................................. 48,960 (4)
Simone J. Pace(7)(8)(10)............................................................. 5,722 (4)
Richard C. Van Essendelft(5)(7)(8)(10)............................................... 43,952 (4)
Directors and Executive Officers as a Group (22 persons)(5)(6)(7)(8)................. 1,543,871 2.29
</TABLE>
- ------------
(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 6,538,959 shares of Common Stock on
November 16, 1995. This number includes shares as to which Riggs has or
shares voting and investment power as follows: sole voting power, 1,673,697
shares; shared voting power, 127,500 shares; sole investment power,
6,401,859 shares; and shared investment power, 137,100 shares. Riggs has
advised the Company that these shares include
(footnotes continued on next page)
40
<PAGE>
<PAGE>
(footnotes continued from previous page)
1,662,022 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 direct Riggs to vote any
unallocated shares held in the trust fund. Riggs has advised the Company
that the remaining 148,275 shares held by it as of November 16, 1995, were
held by it in a variety of fiduciary capacities.
(3) According to the most recent information available to the Company (which is
as of March 20, 1995), Tukman Capital Management, Inc. ('TCM'), a
registered investment advisor, was the beneficial owner of 4,096,031 shares
of Common Stock. 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
November 16, 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, 53,230 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, 99,360 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, 24,283 of Mr. Nicely's shares, 22,530 of
Mr. Simpson's shares, 11,965 of Mr. Sparks' shares, 9,128 of Mr. Hitt's
shares, 622 of Mr. Pace's shares, 8,218 of Mr. Van Essendelft's shares, and
119,664 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.
41
<PAGE>
<PAGE>
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.
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.
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDEND
----- ----- --------
<S> <C> <C> <C>
1992*
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 November 17, 1995)..................................... 69 3/8 68 1/4 .27**
</TABLE>
- ------------
* 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.
** Payable on December 27, 1995, to Stockholders of record on December 4, 1995.
------------------------
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
42
<PAGE>
<PAGE>
Composite Tape was $55 3/4. On November 17, 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 $69 1/4. 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
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:
<TABLE>
<CAPTION>
NO. SHARES
TRADE DATE REPURCHASED PRICE PER SHARE WHEN AND HOW TRANSACTIONS WERE EFFECTED
- ----------------------- ----------- ---------------- --------------------------------------------
<S> <C> <C> <C>
August 11, 1995........ 182 $56.375 net per Through private transaction; settled at the
share 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; settled through
share the Depository Trust Company on August 21,
1995 for cash payment at Riggs.
August 17, 1995........ 26,900 $55.875 plus Through Cantor Fitzgerald Securities;
5[c] commission settled through the Depository Trust Company
per share on August 22, 1995 for cash payment at
Riggs.
</TABLE>
Robert M. Miller, a Vice President of GEICO, 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.
43
<PAGE>
<PAGE>
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 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
nine month periods ended September 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
September 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 September 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>
<CAPTION>
AT OR FOR THE NINE
MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, --------------------------------------------------------------
----------------------- 1990
1995 1994 1994 1993 1992 1991 --
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Premiums..................... $2,057,919 $1,822,393 $2,476,276 $2,283,488 $2,084,502 $1,888,368 $1,692,518
Net investment income........ 168,152 148,066 201,790 201,851 201,526 191,226 177,087
Realized gains............... 4,294 12,338 12,898 120,584 98,535 29,331 19,587
Net income................... 178,694 151,172 207,764 273,678 172,773 196,380 208,441
Net income per share......... 2.64 2.15 2.97 3.83 2.39 2.70 2.73
Ratio of earnings to fixed
charges.................... 8.55 8.63 8.66 15.41 7.44 7.45 6.95
Balance Sheet Data:
Assets....................... $5,594,417 $5,013,047 $4,998,105 $4,831,440 $4,525,091 $4,242,193 $3,719,019
Shareholders' Equity......... 1,738,865 1,470,606 1,445,941 1,534,579 1,292,511 1,184,261 970,008
Book value per share......... 25.75 21.40 21.17 21.66 18.16 16.67 13.06
</TABLE>
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.
44
<PAGE>
<PAGE>
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.
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.
45
<PAGE>
<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 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').
A-1
<PAGE>
<PAGE>
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.
(b) Cancellation 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
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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.
(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
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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.
(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
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.
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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, cancellation 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 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.
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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 understanding (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, 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
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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 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,
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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 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 relationships 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
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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 (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
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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.
(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
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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 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
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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 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
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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 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.
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
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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).
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;
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(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.
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
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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.
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.
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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 /s/ WARREN E. BUFFET
...................
Name: Warren E. Buffett
Title: Chairman and Chief
Executive Officer
HPKF INC.,
By /s/ WARREN E. BUFFET
...................
Name: Warren E. Buffett
Title: Chairman and Chief
Executive Officer
GEICO CORPORATION,
By /s/ OLZA M. NICELY
...................
Name: Olza M. Nicely
Title: President and Chief
Executive Officer
By /s/ LOUIS A. SIMPSON
...................
Name: Louis A. Simpson
Title: President and Chief
Executive Officer
A-17
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<PAGE>
APPENDIX B
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
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;
(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.
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<PAGE>
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: /s/ GARY W. PARR
...................
GARY W. PARR
MANAGING DIRECTOR
B-2
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<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 SS228 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 SSSS251, 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 SS251 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
SSSS251, 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;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs 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 subparagraphs 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 SS253 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
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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 SSSS228 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 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 a 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
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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 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.
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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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION; BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
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.
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, RI
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
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION; BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
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.
</TABLE>
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.
20076-0001. 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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
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 One GEICO Plaza, Washington, DC 20076-0001.
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 One
GEICO Plaza, Washington, DC 20076-0001.
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
</TABLE>
D-2
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Responsibility Committees. He has been Commissioner of Education
for the United States Virgin Islands since March 3, 1995. He was
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
Islands 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, Lockheed Martin
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's business address is National Public Radio, Room
640, 635 Massachusetts Avenue, NW, Washington, DC 20001.
Olza M. Nicely*........................... President and Chief Executive Officer - Insurance Operations and
Director of the Company, Chevy Chase, Maryland. Mr. Nicely, age 52,
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.
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
</TABLE>
D-3
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Chairman of the Board, Chief Executive Officer and a director of
Atlantic Research Corporation. Dr. Raphael's business address is
One GEICO Plaza, Washington, DC 20076-0001.
William J. Ruane*......................... Chairman of the Board and Director, Ruane, Cunniff & Co., Inc.,
investment advisors, New York, New York. Mr. Ruane, age 70, 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. and Thompson PBE,
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.
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,
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS ADDRESS;
PRINCIPAL BUSINESS OF EMPLOYER; AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
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 Director since 1993,
having served as an officer since May 1980. Mr. Miller, age 53, is
also a director and an officer of certain subsidiaries of the
Company and GEICO.
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 53, 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, 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 a Director since November
1995, having served as 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 45, also serves as a director
and/or an officer of several subsidiaries of the Company and GEICO.
</TABLE>
D-5
<PAGE>
<PAGE>
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 appointed proxies (the 'Proxies') of the
undersigned and authorized to represent and to vote, as designated below, all
shares of Common Stock of GEICO Corporation held of record by the undersigned on
November 16, 1995, at the Special Meeting of Stockholders to be held at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, on December
20, 1995, at 10:00 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:
[ ] FOR [ ] AGAINST [ ] 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>
<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.
