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Rule 424(b)(4)
Registration No. 33-58459
PROSPECTUS
GEICO CORPORATION
7.5% NOTES DUE 2005
7.35% DEBENTURES DUE 2023
9.15% DEBENTURES DUE 2021
The 7.5% Notes Due April 15, 2005 (the "7.5% Notes Due April 2005") are not
redeemable prior to maturity and are not entitled to any sinking fund.
The 7.35% Debentures Due July 15, 2023 (the "7.35% Debentures Due July 2023")
are not redeemable prior to maturity and are not entitled to any sinking fund.
The 9.15% Debentures Due September 15, 2021 (the "9.15% Debentures Due
September 2021") are redeemable at the option of the Company prior to maturity
and are not entitled to any sinking fund.
The 7.5% Notes Due April 2005, the 7.35% Debentures Due July 2023 and the 9.15%
Debentures Due September 2021 are referred to collectively as the "Securities".
See "Description of the Securities".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus is to be used by Salomon Brothers Inc ("Salomon") in connection
with offers and sales of the Securities in market-making transactions in the
over-the-counter market, in private transactions or otherwise at negotiated
prices related to prevailing market prices at the time of sale. Salomon may act
as principal or agent in such transactions. GEICO Corporation (the "Company")
will not receive any of the proceeds from the sale of the Securities.
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SALOMON BROTHERS INC
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The date of this Prospectus is April 18, 1995.
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THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA HAS NEITHER
APPROVED NOR DISAPPROVED OF THE OFFERING IN QUESTION, NOR HAS THE COMMISSIONER
ACTED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Sections 13
and 15(d) thereof and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information can also be inspected at the offices of the
New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York
10005, and the Pacific Stock Exchange Incorporated ("PSE"), 115 Sansome Street,
2nd Floor, San Francisco, California 94104. The Company's Common Stock is
listed on both the NYSE and the PSE.
The Company has filed with the Commission registration statements on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Act"), with respect to the Securities. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information, reference is made to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company heretofore filed by it with the
Commission are hereby incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (the "1994 Form 10-K"); and
(b) The Company's Form SE dated March 30, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus are
incorporated herein by reference and such documents shall be deemed to be a
part hereof from the date of filing of such documents. 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 of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
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The Company will provide without charge to each person to whom this
Prospectus is delivered, upon request of any such person, a copy of any or all
of the foregoing documents incorporated herein by reference (other than the
exhibits to such documents unless such exhibits are specifically incorporated
by reference herein). Requests for such copies should be directed to Rosalind
A. Phillips, Secretary, GEICO Corporation, One GEICO Plaza, Washington, D.C.
20076-0001 (Telephone: (301) 986-2077).
GEICO CORPORATION
GEICO Corporation (the "Company"), which was organized as a Delaware
corporation in 1978, is the parent corporation of various subsidiaries which
are in the business of providing insurance and financial services. In 1979, the
Company became the parent of Government Employees Insurance Company ("GEICO"),
its principal subsidiary. The Company's principal business is personal lines
property and casualty insurance. Private passenger automobile insurance
accounted for approximately 93% of the Company's total premiums earned in the
fiscal year ended December 31, 1994. Based on earned premiums in 1993, GEICO
and the other direct and indirect subsidiaries of the Company (as a group) are
the sixth largest overall provider of private passenger automobile insurance in
the United States. The Company's principal executive offices are located at One
GEICO Plaza, Washington, D.C. 20076-0001 (Telephone: (301) 986-3000). Unless
indicated otherwise, the term the "Company" as used herein refers to GEICO
Corporation and its consolidated subsidiaries.
PROPERTY AND CASUALTY INSURANCE
GEICO was founded in 1936 to provide private passenger automobile insurance
to government employees and military personnel. In 1958 GEICO began to insure
all eligible preferred-risk drivers. In 1987, GEICO returned to marketing new
automobile policies to preferred-risk government employees and military
personnel only, while a subsidiary, GEICO General Insurance Company ("GEICO
General"), began writing private passenger automobile insurance for new
preferred-risk applicants not associated with the government or military. GEICO
and GEICO General, which serve the preferred-risk market, accounted for
approximately 92% of the Company's total premiums earned in the fiscal year
ended December 31, 1994. GEICO also writes homeowners, personal umbrella
liability, boat owners and fire insurance. GEICO Indemnity Company ("GEICO
Indemnity"), also a subsidiary of the Company, writes standard-risk private
passenger automobile and motorcycle insurance. GEICO Casualty Company ("GEICO
Casualty"), a subsidiary of GEICO Indemnity, writes nonstandard-risk private
passenger automobile insurance.
As of April 3, 1995, GEICO, GEICO General, GEICO Indemnity and GEICO Casualty
have an A.M. Best rating of A++ (Superior) and a Standard & Poor's claims-
paying ability rating of AAA (Superior).
REINSURANCE
Resolute Reinsurance Company, a subsidiary of Resolute Group, Inc.
("Resolute"), which is 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 claim obligations. Resolute Reinsurance Company is
not currently rated.
LIFE INSURANCE AND ANNUITIES
Criterion Life Insurance Company 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 it 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 also has an A.M. Best rating at A++ (Superior).
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OTHER INSURANCE-RELATED SUBSIDIARIES
Other active subsidiaries of the Company and GEICO involved in the sale of
insurance and insurance-related products include: The Top Five Club, Inc.,
which offers travel-related benefits to military personnel in the top five
enlisted pay grades; International Insurance Underwriters, Inc., which provides
various insurance services to military personnel as they are transferred
overseas or back to the United States; 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. and Insurance Counselors of Texas, 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.
FINANCE
The Company offers 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 GEFCO and has signed an agreement to sell approximately $40 million of
GEFCO's remaining loans receivable and other assets.
BUSINESS SEGMENTS
The Company's dominant business segment, pursuant to Statement of Financial
Accounting Standards No. 14, is property and casualty insurance, reflecting a
reduction in the Company's reinsurance, life insurance and annuities, and
finance business in recent years.
REGULATION
Each of the Company's insurance company subsidiaries is subject to regulation
and supervision of its insurance businesses in each of the jurisdictions in
which it does business. In general, such regulation is for the protection of
policyholders rather than shareholders. Legislation has been introduced in
recent sessions of Congress proposing modification or repeal of the McCarran-
Ferguson Act which reaffirms the proposition that it is the responsibility of
state governments to regulate the insurance industry and provides a limited
exemption to the "business of insurance" from federal anti-trust laws. Whether
any changes to the current statute will be made and the effect of such changes,
if any, cannot be determined. The Congress and certain state legislatures are
also considering the effects of the use of sex, age, marital status, rating
territories and other traditional rating criteria as a basis for rating
classification; certain of such criteria no longer can be used in some states,
and have been and are being challenged in the courts of other states.
Clinton administration proposals to integrate the medical benefits portion of
both workers compensation and automobile insurance into a general health care
insurance system were not enacted during 1994 and, in fact, met with a certain
amount of public resistance. The Company believes these recommendations were
without merit but, at this time, cannot predict with certainty whether similar
proposals will be forthcoming from the newly seated Congress. Additionally,
some individual states are considering various health care reform proposals and
the Company cannot predict the outcome of such initiatives at this time.
RECENT DEVELOPMENTS
The Company announced on April 4, 1995 that Aetna Life & Casualty Company
will offer coverage to homeowners insurance customers of GEICO as GEICO phases
out its homeowners business over the next three years. The agreement will be
ongoing, does not represent a one-time business sale by the Company and will
have no significant impact on the Company's earnings in 1995. In 1994
homeowners' insurance policies constituted approximately 6% of the Company's
premiums earned.
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SELECTED FINANCIAL DATA
The following table sets forth selected financial information for the Company
and its consolidated subsidiaries. The data in the following table should be
read in conjunction with the Company's consolidated financial statements and
related notes thereto contained in the 1994 Form 10-K, which is incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Premiums................ $2,476,276 $2,283,488 $2,084,502 $1,888,368 $1,692,518
Net investment income... 201,790 201,851 201,526 191,226 177,087
Realized gains on
investments............ 12,898 120,584 98,535 29,331 19,587
Interest on loans
receivable............. 10,347 11,519 16,528 20,019 23,606
Equity in earnings of
unconsolidated
affiliates............. -- 3,306 2,292 4,139 3,303
Other revenue........... 14,698 17,552 16,619 13,944 18,776
---------- ---------- ---------- ---------- ----------
Total revenue........... 2,716,009 2,638,300 2,420,002 2,147,027 1,934,877
Total benefits and
expenses............... 2,507,194 2,351,873 2,247,229 1,950,647 1,726,436
---------- ---------- ---------- ---------- ----------
Net income before
cumulative effect of
changes in accounting
principles............. 208,815 286,427 172,773 196,380 208,441
Cumulative effect of
changes in accounting
principles............. (1,051) (12,749) -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 207,764 $ 273,678 $ 172,773 $ 196,380 $ 208,441
========== ========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 69,992 71,417 72,387 72,855 76,397
PER SHARE RESULTS
Net income(1)........... $ 2.97 $ 3.83 $ 2.39 $ 2.70 $ 2.73
Common Stock dividends.. $ 1.00 $ .680 $ .600 $ .456 $ .400
FINANCIAL CONDITION
Assets.................. $4,998,105 $4,831,440 $4,525,091 $4,242,193 $3,719,019
Short-term debt......... $ 91,848 $ 83,093 $ 96,608 $ 105,990 $ 68,895
Long-term debt.......... $ 299,530 $ 334,992 $ 190,399 $ 193,091 $ 211,904
Shareholders' equity.... $1,445,941 $1,534,579 $1,292,511 $1,184,261 $ 970,008
Common shares
outstanding............ 68,291 70,834 71,184 71,047 74,253
Book value per share.... $ 21.17 $ 21.66 $ 18.16 $ 16.67 $ 13.06
SIGNIFICANT STATUTORY
INDICATORS
PROPERTY AND CASUALTY
OPERATIONS (2)
Surplus for protection
of policyholders....... $1,039,930 $ 916,943 $ 968,286 $1,104,564 $ 811,628
Ratio of twelve months
written premiums to
surplus................ 2.4:1 2.2:1 2.2:1 1.7:1 2.1:1
Loss ratio.............. 82.1% 81.9% 84.8% 79.0% 80.8%
Expense ratio (3)....... 14.3% 17.2% 15.3% 15.9% 15.2%
Underwriting ratio...... 96.4% 99.1% 100.1% 94.9% 96.0%
Underwriting ratio after
policyholder dividends. 96.4% 99.1% 100.1% 96.4% 96.4%
Adjusted ratios (4)
Expense ratio.......... 15.6%
Underwriting ratio..... 97.5%
</TABLE>
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(1) The cumulative effect of changes in accounting reduced net income by $.01
in 1994 and $.18 in 1993.
(2) Property and Casualty includes GEICO, GEICO General, GEICO Indemnity, GEICO
Casualty and Resolute.
(3) Expense ratios are calculated using underwriting expenses less net service
charges, as related to premiums written.
(4) Adjusted ratios in 1993 are calculated to eliminate the effect of the
change in accounting for advance premiums.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the years and periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993 1992 1991 1990
---- ----- ---- ---- ----
<S> <C> <C> <C> <C>
8.66 15.41 7.44 7.45 6.95
</TABLE>
For purposes of computing the foregoing ratios, earnings consist of net
income before taxes less undistributed earnings of less than 50%-owned
affiliates plus an adjustment to include 100% of pretax losses of
unconsolidated subsidiaries plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest (whether capitalized or expensed),
amortization of debt discount and debt issuance expense, and a portion of rent
representative of interest (1/3 of rent expense).
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DESCRIPTION OF THE SECURITIES
The following summaries of certain provisions of the Securities and of the
respective indentures pursuant to which the Securities were issued do not
purport to be complete and are qualified in their entirety by reference to such
indentures, including the definitions therein of certain terms used below.
Terms defined in each respective summary with respect to any class or classes
of the Securities below are intended to define only such terms as used in such
summary.
7.5% NOTES DUE APRIL 2005
GENERAL
The 7.5% Notes Due April 2005 are to be issued under an Indenture dated as of
April 15, 1995 (the "7.5% Indenture"), between the Company and United States
Trust Company of New York, as trustee (the "Trustee"). A copy of the form of
the 7.5% Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following summary of certain provisions
of the 7.5% Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the 7.5%
Indenture and the 7.5% Notes Due April 2005, including the definitions therein
of terms not defined in this Prospectus. Wherever particular provisions of the
7.5% Indenture or terms defined therein are referred to, such provisions or
definitions are incorporated by reference as a part of the statements made.
The 7.5% Notes Due April 2005 will be unsecured obligations of the Company
limited to $100,000,000 aggregate principal amount and will be pari passu with
all other unsecured senior indebtedness of the Company. The 7.5% Notes Due
April 2005 will be issued in fully registered form, without coupons, in
denominations of $1,000 or integral multiples thereof and will bear interest
from April 24, 1995, at a rate of 7.5% per annum. The 7.5% Notes Due April 2005
will mature on April 15, 2005.
Interest on the 7.5% Notes Due April 2005 will be payable semiannually in
arrears on April 15 and October 15 of each year, commencing October 15, 1995,
to holders of record of the 7.5% Notes Due April 2005 at the close of business
on the April 1 or October 1 immediately preceding such April 15 or October 15.
Interest on the 7.5% Notes Due April 2005 will be computed on the basis of a
360-day year of twelve 30-day months.
Principal and interest are payable at the office of the Paying Agent, but, at
the option of the Company, interest may be paid by check mailed to the
registered holders at their registered addresses. The 7.5% Notes Due April 2005
are transferable and exchangeable at the office of the Registrar. The Company
has initially appointed the Trustee as the Paying Agent and the Registrar. The
Trustee's current address is 114 West 47th Street (15th Floor), New York, N.Y.
10036.
The Company does not intend to apply for listing of the 7.5% Notes Due April
2005 on any securities exchange.
The Company has no sinking fund obligations with respect to the 7.5% Notes
Due April 2005.
The Company primarily conducts its operations through its subsidiaries. The
rights of the Company and its creditors, including the holders of the 7.5%
Notes Due April 2005 offered hereby, to participate in the assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of the subsidiary's creditors except to the extent that the
Company may itself be a creditor with recognized claims against the subsidiary.
As of December 31, 1994, the Company's subsidiaries had total aggregate assets
(excluding equity investments made by such subsidiaries in other such
subsidiaries) of approximately $4,393,500,000 and total aggregate liabilities
of approximately $3,149,200,000.
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CERTAIN COVENANTS
Consolidation, Merger and Sale of Assets. The Company shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets as an entirety to, another person, unless (i) the resulting,
surviving or transferee person (if not the Company) is a person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia, and such person (if not the Company) expressly
assumes by supplemental indenture all the obligations of the Company under the
7.5% Notes Due April 2005 and the 7.5% Indenture; (ii) immediately after giving
effect to such transaction, no Default has occurred and is continuing; and
(iii) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture comply with the 7.5% Indenture. Upon any such
consolidation, merger or transfer, the resulting, surviving or transferee
person shall succeed to, and may exercise every right and power of, the Company
under the 7.5% Indenture. (Section 4.01 of the 7.5% Indenture.) The term
"substantially all the assets" of the Company is not defined in the 7.5%
Indenture, but under New York law such term is generally interpreted to mean
assets substantially in excess of 50% of the total assets of the Company and
its consolidated subsidiaries.
Limitations on Disposition of Stock of Restricted Subsidiaries. The 7.5%
Indenture provides that the Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of any shares of capital
stock of any Restricted Subsidiary (or of any Subsidiary having direct or
indirect control of any Restricted Subsidiary) except for, subject to the
covenant relating to consolidations, mergers and sales and conveyances of
assets described in the immediately preceding paragraph, (i) a sale, transfer
or other disposition of any capital stock of any Restricted Subsidiary (or of
any Subsidiary having direct or indirect control of any Restricted Subsidiary)
to a wholly owned Subsidiary of the Company; (ii) a sale, transfer or other
disposition of the entire capital stock of any Restricted Subsidiary (or of any
Subsidiary having direct or indirect control of any Restricted Subsidiary) held
by the Company and its Subsidiaries for at least fair value (as determined by
the Board of Directors of the Company acting in good faith); or (iii) a sale,
transfer or other disposition of any capital stock of any Restricted Subsidiary
(or of any Subsidiary having direct or indirect control of any Restricted
Subsidiary) for at least fair value (as determined by the Board of Directors of
the Company acting in good faith) if, after giving effect thereto, the Company
and its Subsidiaries would own at least 80% of the issued and outstanding
voting stock of such Restricted Subsidiary (or Subsidiary). (Section 3.04 of
the 7.5% Indenture.)
The Company is not required pursuant to the 7.5% Indenture to redeem or
otherwise repurchase the 7.5% Notes Due April 2005, in whole or in part, with
the proceeds of any sale, transfer or other disposition of any shares of
capital stock of any Restricted Subsidiary (or of any Subsidiary having direct
or indirect control of any Restricted Subsidiary). Furthermore, the 7.5%
Indenture does not provide for any restrictions on the Company's use of any
such proceeds.
Limitations upon Liens. The 7.5% Indenture provides that the Company will
not, nor will it permit any Restricted Subsidiary to, incur, issue, assume or
guarantee any indebtedness for borrowed money (all such indebtedness for
borrowed money issued, assumed or guaranteed being "Debt") if such Debt is
secured by a Lien upon any property or assets, whether now owned or hereafter
acquired, of the Company or any Restricted Subsidiary or upon any shares of
stock of a Restricted Subsidiary without in any such case effectively providing
that the 7.5% Notes Due April 2005 (together with, if the Company shall so
determine, any other Debt (or any bonds, debentures, notes, or other similar
evidences of indebtedness, whether or not for borrowed money) of the Company or
such Restricted Subsidiary then existing or thereafter created which is not
subordinated to the 7.5% Notes Due April 2005) shall be secured equally and
ratably with or prior to such Debt, so long as such Debt shall be so secured,
except that the foregoing restriction shall not apply to
(i) Liens on property of, or on any shares of stock of, any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
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(ii) Liens on property or shares of stock existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary;
(iii) Liens on property or shares of stock hereafter acquired (or, in the
case of property, constructed (including construction of improvements or
additions to improvements on existing property)) by the Company or any
Restricted Subsidiary and created prior to, at the time of, or within one
year after such acquisition (or, in the case of property, the completion of
such construction (including construction of improvements or additions to
improvements on existing property) or commencement of commercial operation
of such property, whichever is later) to secure or provide for the payment
of all or any part of the purchase price (or, in the case of property
(including construction of improvements or additions to improvements on
existing property), the construction price) thereof;
(iv) Liens in favor of the Company or any Restricted Subsidiary;
(v) Liens in favor of the United States of America, any State thereof or
the District of Columbia, or any political subdivision, agency, department
or other instrumentality thereof, to secure progress, advance or other
payments pursuant to any contract or provision of any statute;
(vi) Liens on property of a person existing at the time such person is
merged into or consolidated with the Company or a Restricted Subsidiary;
and
(vii) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to
in the foregoing clauses (i) to (vi), inclusive; provided, however, that
(x) such extension, renewal or replacement Lien shall be limited to all or
a part of the same property or shares of stock that secured the Lien
extended, renewed or replaced (plus improvements (including additions to
improvements) on such property) and (y) the Debt secured by such Lien at
such time is not increased (except, with respect to a Lien on property, to
the extent that additional Debt was incurred to provide for the payment of
all or any part of the construction price of improvements or additions to
improvements on such property).
Notwithstanding the above, the Company and one or more Restricted Subsidiaries
may, without securing the 7.5% Notes Due April 2005, issue, assume or guarantee
secured Debt which would otherwise be subject to the foregoing restrictions,
provided that after giving effect thereto the aggregate amount of such Debt
secured pursuant to such exception (not including secured Debt permitted under
the foregoing exceptions) at such time does not exceed 10% of Consolidated
Tangible Net Worth. (Section 3.03 of the 7.5% Indenture.)
Based on the Company's December 31, 1994 balance sheet included in the 1994
Form 10-K, as of the date of this Prospectus the amount of Debt which the
Company and its Restricted Subsidiaries would be permitted to secure pursuant
to the exception set forth in the last sentence of the preceding paragraph
would be approximately $144,433,000.
The following definitions apply to the covenants described above:
"Consolidated Tangible Net Worth" means, at any date, the total assets
appearing on the most recently prepared consolidated balance sheet of the
Company and its Subsidiaries as at the end of a fiscal quarter of the
Company, prepared in accordance with generally accepted accounting
principles consistently applied, less (a) the total liabilities appearing
on such balance sheet, and (b) intangible assets. "Intangible assets" means
the value (net of any applicable reserves), as shown on or reflected in
such balance sheet, of: (i) all trade names, trademarks, licenses, patents,
copyrights and goodwill; (ii) organizational and development costs (other
than deferred policy acquisition costs); and (iii) unamortized debt
discount and expense, less unamortized premium.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
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"Restricted Subsidiary" means any Subsidiary which is incorporated under
the laws of the United States of America, any State thereof or the District
of Columbia, and which is a regulated insurance company principally engaged
in one or more of the property, casualty and life insurance businesses;
provided, however, that no Subsidiary shall be a Restricted Subsidiary if
the total assets of such Subsidiary are less than 10% of the total assets
of the Company and its consolidated Subsidiaries (including such
Subsidiary) in each case as set forth on the most recently prepared balance
sheets of such Subsidiary and the Company and its consolidated
Subsidiaries, respectively, as at the end of a fiscal quarter of the
Company or such Subsidiary, as applicable, and computed in accordance with
generally accepted accounting principles.
"Subsidiary" means a corporation of which a majority of the capital stock
having voting power under ordinary circumstances to elect a majority of the
board of directors is owned by (i) the Company, (ii) the Company and one or
more Subsidiaries or (iii) one or more Subsidiaries. (Section 1.01 of the
7.5% Indenture.)
Based on the Company's December 31, 1994 balance sheet included in the 1994
Form 10-K, as of the date of this Prospectus GEICO is the Company's only
Restricted Subsidiary. As of December 31, 1994, GEICO held approximately 76% of
the Company's consolidated total assets, and GEICO's net income for the year
ended December 31, 1994 represented approximately 96% of the Company's
consolidated net income during such period.
AMENDMENT AND WAIVER
Subject to certain exceptions, the 7.5% Indenture may be amended with the
written consent of the holders of at least a majority in principal amount of
the 7.5% Notes Due April 2005 then outstanding, and any past default or
compliance with any provision may be waived with the consent of the holders of
at least a majority in principal amount of the 7.5% Notes Due April 2005 then
outstanding. However, without the consent of each holder of an outstanding 7.5%
Note Due April 2005 affected thereby, no amendment may, among other things, (i)
reduce the amount of 7.5% Notes Due April 2005 whose holders must consent to an
amendment; (ii) reduce the rate of or extend the time for payment of interest
on any 7.5% Note Due April 2005; (iii) reduce the principal of or extend the
fixed maturity of any 7.5% Note Due April 2005; (iv) change the currency for
payment of principal of or premium or interest on any 7.5% Note Due April 2005;
(v) impair the right to institute suit for the enforcement of any payment on or
with respect to any 7.5% Note Due April 2005; or (vi) waive certain payment
defaults with respect to the 7.5% Notes Due April 2005. (Section 8.02 of the
7.5% Indenture.) Without the consent of any holder of the 7.5% Notes Due April
2005, the Company and the Trustee may amend the 7.5% Indenture (A) to cure any
ambiguity, omission, defect or inconsistency, (B) to provide for the assumption
by a successor corporation of the obligations of the Company under the 7.5%
Indenture, (C) to provide for uncertificated 7.5% Notes Due April 2005 in
addition to or in place of certificated 7.5% Notes Due April 2005 so long as
such uncertificated 7.5% Notes Due April 2005 are in registered form for the
purposes of the Internal Revenue Code, (D) to add guarantees of the 7.5% Notes
Due April 2005, (E) to add to the covenants of the Company for the benefit of
the holders of the 7.5% Notes Due April 2005 or to surrender any right or power
conferred upon the Company, (F) to comply with any requirement of the
Commission in connection with the qualification of the 7.5% Indenture under the
Trust Indenture Act of 1939, as amended, and (G) to make any change that does
not adversely affect the rights of any holder of the 7.5% Notes Due April 2005.
(Section 8.01 of the 7.5% Indenture.)
TRANSFER
The 7.5% Notes Due April 2005 will be issued in registered form and will be
transferable only upon the surrender to the Registrar of the 7.5% Notes Due
April 2005 being transferred for registration of transfer. (Section 2.06 of the
7.5% Indenture.)
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EVENTS OF DEFAULT
An Event of Default as defined in the 7.5% Indenture includes the occurrence
of any of the following: (i) a default in the payment of principal of any 7.5%
Note Due April 2005 when due at its stated maturity, upon declaration or
otherwise; (ii) a default in the payment of interest on any 7.5% Note Due April
2005 when due, and such default continues for 30 days; (iii) a failure by the
Company for 15 days after notice to comply with its obligations under the
covenants described above under "Certain Covenants--Consolidation, Merger and
Sale of Assets" and "Certain Covenants--Limitations on Disposition of Stock of
Restricted Subsidiaries"; (iv) a failure by the Company for 60 days after
notice to comply with its other agreements contained in the 7.5% Indenture; (v)
the principal amount of any indebtedness of the Company or any Restricted
Subsidiary for borrowed money is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of an
event of default, the total amount of such indebtedness for borrowed money
unpaid or accelerated exceeds $25,000,000 and such default continues for 15
days after notice; or (vi) certain events of bankruptcy, insolvency or
reorganization of the Company or a Restricted Subsidiary. (Section 5.01 of the
7.5% Indenture.)
If an Event of Default occurs and is continuing with respect to the 7.5%
Indenture, the Trustee or the holders of 25% in principal amount of the
outstanding 7.5% Notes Due April 2005 may declare the principal of and accrued
interest on all the 7.5% Notes Due April 2005 to be due and payable. Upon such
a declaration, such principal and interest will be due and payable immediately.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding 7.5% Notes Due April 2005 may rescind any such acceleration
with respect to such 7.5% Notes Due April 2005 and its consequences. (Section
5.02 of the 7.5% Indenture.)
Prior to taking any action under the 7.5% Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action. Subject to
such provisions for indemnification and certain limitations contained in the
7.5% Indenture, the holders of a majority in principal amount of the 7.5% Notes
Due April 2005 at the time outstanding have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. (Section
5.05 of the 7.5% Indenture.)
No holder of any 7.5% Note Due April 2005 may pursue any remedy with respect
to the 7.5% Indenture or the 7.5% Notes Due April 2005, unless (i) such holder
shall have given to the Trustee written notice of a continuing Event of Default
with respect to the 7.5% Notes Due April 2005; (ii) the holders of at least 25%
in principal amount of the outstanding 7.5% Notes Due April 2005 shall have
made written request to the Trustee to pursue the remedy, and shall have
offered the Trustee reasonable security or indemnity against any loss,
liability or expense; (iii) within 60 days following the receipt of such
request and offer of security and indemnity, the Trustee shall not have
received from the holders of a majority in principal amount of the outstanding
7.5% Notes Due April 2005 a direction inconsistent with such request; and (iv)
the Trustee shall have failed to comply with such request within such 60-day
period. (Section 5.06 of the 7.5% Indenture.) Notwithstanding any other
provision of the 7.5% Indenture, the right of a holder of a 7.5% Note Due April
2005 to receive payment of the principal of and interest on such 7.5% Note Due
April 2005 on or after the respective due dates expressed in such 7.5% Note Due
April 2005, or to bring suit for the enforcement of any such payment, shall not
be impaired or affected without the consent of such holder. (Section 5.07 of
the 7.5% Indenture.)
The Company will deliver to the Trustee within 120 days after the end of each
fiscal year of the Company an Officers' Certificate stating whether such
Officers have knowledge of any Default which may have occurred during such
fiscal year. The Officers' Certificate shall describe such Default, its status
and what action the Company is taking or proposes to take with respect thereto.
(Section 3.05 of the 7.5% Indenture.)
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SATISFACTION AND DISCHARGE OF THE 7.5% INDENTURE
The 7.5% Indenture provides that when (i) the Company delivers to the Trustee
all outstanding 7.5% Notes Due April 2005 for cancellation or (ii) all
outstanding 7.5% Notes Due April 2005 have become due and payable and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all outstanding 7.5% Notes Due April 2005, including interest thereon,
and if in either case the Company pays all other sums payable under the 7.5%
Indenture by the Company, then the 7.5% Indenture shall cease to be of further
effect, except for certain obligations, including those respecting the
obligations to register the transfer or exchange of the 7.5% Notes Due April
2005, to replace mutilated, destroyed, lost or stolen 7.5% Notes Due April 2005
and to maintain a Registrar and Paying Agent in respect of the 7.5% Notes Due
April 2005. The Trustee shall acknowledge satisfaction and discharge of the
7.5% Indenture on demand of the Company accompanied by an Officers' Certificate
and an Opinion of Counsel and at the cost and expense of the Company. (Section
7.01 of the 7.5% Indenture.)
DEFEASANCE
The 7.5% Indenture provides that the Company at any time may terminate its
obligations under the 7.5% Indenture and the 7.5% Notes Due April 2005
("defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
7.5% Notes Due April 2005, to replace mutilated, destroyed, lost or stolen 7.5%
Notes Due April 2005 and to maintain a Registrar and Paying Agent in respect of
the 7.5% Notes Due April 2005. (Section 7.01 of the 7.5% Indenture.)
If the Company exercises its defeasance option, payment of the 7.5% Notes Due
April 2005 may not be accelerated because of an Event of Default with respect
thereto. (Section 7.01 of the 7.5% Indenture.)
In order to exercise its defeasance option, the Company must (i) irrevocably
deposit in trust with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the 7.5% Notes Due April 2005 to maturity;
(ii) deliver to the Trustee a certificate from a nationally recognized firm of
independent accountants expressing their opinion that the payments of principal
and interest when due and without reinvestment on the deposited U.S. Government
Obligations plus any deposited money without investment will provide cash at
such times and in such amounts as will be sufficient to pay principal and
interest when due on all the 7.5% Notes Due April 2005 to maturity; (iii)
deliver to the Trustee an Opinion of Counsel to the effect that the trust
resulting from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940; (iv) comply with
certain other conditions; and (v) deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the 7.5% Notes Due April 2005 have
been complied with. (Section 7.02 of the 7.5% Indenture.)
GOVERNING LAW
The 7.5% Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby. (Section 9.09 of the
7.5% Indenture.)
CONCERNING THE TRUSTEE
United States Trust Company of New York will act as Trustee for the 7.5%
Notes Due April 2005 issued under the 7.5% Indenture.
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7.35% DEBENTURES DUE JULY 2023
GENERAL
The 7.35% Debentures Due July 2023 were issued under an Indenture dated as of
July 1, 1993 (the "7.35% Indenture"), between the Company and United States
Trust Company of New York, as trustee (the "Trustee"). A copy of the form of
the 7.35% Indenture has been filed as an exhibit to a registration statement on
Form S-3 (No. 33-49603). The following summary of certain provisions of the
7.35% Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the 7.35%
Indenture and the 7.35% Debentures Due July 2023. Wherever particular
provisions of the 7.35% Indenture or terms defined therein are referred to,
such provisions or definitions are incorporated by reference as a part of the
statements made.
The 7.35% Debentures Due July 2023 are unsecured obligations of the Company
limited to $150,000,000 aggregate principal amount and are pari passu with all
other unsecured senior indebtedness of the Company. The 7.35% Debentures Due
July 2023 are issued in fully registered form, without coupons, in
denominations of $1,000 or integral multiples thereof and bear interest from
July 14, 1993, at a rate of 7.35% per annum. The 7.35% Debentures Due July 2023
will mature on July 15, 2023.
Interest on the 7.35% Debentures Due July 2023 is payable semiannually in
arrears on January 15 and July 15 of each year, commencing January 15, 1994, to
holders of record of the 7.35% Debentures Due July 2023 at the close of
business on the January 1 or July 1 immediately preceding such January 15 or
July 15. Interest on the 7.35% Debentures Due July 2023 is computed on the
basis of a 360-day year of twelve 30-day months.
Principal and interest are payable at the office of the Paying Agent, but at
the option of the Company, interest may be paid by check mailed to the
registered holders at their registered addresses. The 7.35% Debentures Due July
2023 are transferable and exchangeable at the office of the Registrar. The
Company has initially appointed the Trustee as the Paying Agent and the
Registrar. The Trustee's current address is 114 West 47th Street (15th Floor),
New York, New York 10036.
The Company has not applied for listing of the 7.35% Debentures Due July 2023
on any securities exchange.
The Company has no sinking fund obligations with respect to the 7.35%
Debentures Due July 2023.
The Company primarily conducts its operations through its subsidiaries. The
rights of the Company and its creditors, including the holders of the 7.35%
Debentures Due July 2023, to participate in the assets of any subsidiary upon
the latter's liquidation or reorganization are subject to the prior claims of
the subsidiary's creditors except to the extent that the Company may itself be
a creditor with recognized claims against the subsidiary.
CERTAIN COVENANTS
Consolidation, Merger and Sale of Assets. The Company shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all of its assets as an entirety to, another person, unless (i) the resulting,
surviving or transferee person (if not the Company) is a person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia,
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and such entity (if not the Company) expressly assumes by supplemental
indenture all the obligations of the Company under the 7.35% Debentures Due
July 2023 and the 7.35% Indenture; (ii) immediately after giving effect to such
transaction, no Default has occurred and is continuing; and (iii) the Company
delivers to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture comply with the 7.35% Indenture. Upon any such consolidation, merger
or transfer, the resulting, surviving or transferee person shall succeed to,
and may exercise every right and power of, the Company under the 7.35%
Indenture. (Section 4.01 of the 7.35% Indenture.) The term "substantially all
of the assets" of the Company is not defined in the 7.35% Indenture, but under
New York law such term is generally interpreted to mean assets substantially in
excess of 50% of the total assets of the Company and its consolidated
subsidiaries.
Limitations on Disposition of Stock of Restricted Subsidiaries. The 7.35%
Indenture provides that the Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of any shares of capital
stock of any Restricted Subsidiary (or of any Subsidiary having direct or
indirect control of any Restricted Subsidiary) except for, subject to the
covenant relating to consolidations, mergers and sales and conveyances of
assets described in the immediately preceding paragraph, (i) a sale, transfer
or other disposition of any capital stock of any Restricted Subsidiary (or of
any Subsidiary having direct or indirect control of any Restricted Subsidiary)
to a wholly owned Subsidiary of the Company; (ii) a sale, transfer or other
disposition of the entire capital stock of any Restricted Subsidiary (or of any
Subsidiary having direct or indirect control of any Restricted Subsidiary) held
by the Company and its Subsidiaries for at least fair value (as determined by
the Board of Directors of the Company acting in good faith); or (iii) a sale,
transfer or other disposition of any capital stock of any Restricted Subsidiary
(or of any Subsidiary having direct or indirect control of any Restricted
Subsidiary) for at least fair value (as determined by the Board of Directors of
the Company acting in good faith) if, after giving effect thereto, the Company
and its Subsidiaries would own more than 80% of the issued and outstanding
voting stock of such Restricted Subsidiary (or Subsidiary). (Section 3.04 of
the 7.35% Indenture.)
The Company is not required pursuant to the 7.35% Indenture to redeem or
otherwise repurchase the 7.35% Debentures Due July 2023, in whole or in part,
with the proceeds of any sale, transfer or other disposition of any shares of
capital stock of any Restricted Subsidiary (or of any Subsidiary having direct
or indirect control of any Restricted Subsidiary). Furthermore, the 7.35%
Indenture does not provide for any restrictions on the Company's use of any
such proceeds.
Limitations upon Liens. The 7.35% Indenture provides that the Company will
not, nor will it permit any Restricted Subsidiary to, issue, assume or
guarantee any indebtedness for borrowed money (all such indebtedness for
borrowed money issued, assumed or guaranteed being "Debt") if such Debt is
secured by a Lien upon any property or assets, whether now owned or hereafter
acquired, of the Company or any Restricted Subsidiary or upon any shares of
stock of a Restricted Subsidiary without in any such case effectively providing
that the 7.35% Debentures Due July 2023 (together with, if the Company shall so
determine, any other Debt (or any bonds, debentures, notes, or other similar
evidences of indebtedness, whether or not for borrowed money) of the Company or
such Restricted Subsidiary then existing or thereafter created which is not
subordinated to the 7.35% Debentures Due July 2023) shall be secured equally
and ratably with or prior to such Debt, except that the foregoing restriction
shall not apply to:
(i) Liens on property of, or on any shares of stock of, any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) Liens on property or shares of stock existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary;
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(iii) Liens on property or shares of stock hereafter acquired (or, in the case
of property, constructed (including construction of improvements or
additions to improvements on existing property)) by the Company or any
Restricted Subsidiary and created prior to, at the time of, or within one
year after such acquisition (or, in the case of property, the completion
of such construction (including construction of improvements or additions
to improvements on existing property) or commencement of commercial
operation of such property, whichever is later) to secure or provide for
the payment of all or any part of the purchase price (or, in the case of
property (including construction of improvements or additions to
improvements on existing property), the construction price) thereof;
(iv) Liens in favor of the Company or any Restricted Subsidiary;
(v) Liens in favor of the United States of America, any State thereof or
the District of Columbia, or any political subdivision, agency,
department or other instrumentality thereof, to secure progress,
advance or other payments pursuant to any contract or provisions of any
statute;
(vi) Liens on property of a person existing at the time such person is merged
into or consolidated with the Company or a Restricted Subsidiary; and
(vii) any extension, renewal or replacement (or successive extensions, renewals
or replacements), as a whole or in part, of any Lien referred to in the
foregoing clauses (i) to (vi), inclusive; provided, however, that (x) such
extension, renewal or replacement Lien shall be limited to all or a part
of the same property or shares of stock that secured the Lien extended,
renewed or replaced (plus improvements (including additions to
improvements) on such property) and (y) the Debt secured by such Lien at
such time is not increased (except, with respect to a Lien on property, to
the extent that additional Debt was incurred to provide for the payment of
all or any part of the construction price of improvements or additions to
improvements on such property).
Notwithstanding the above, the Company and one or more Restricted Subsidiaries
may, without securing the 7.35% Debentures Due July 2023, issue, assume or
guarantee secured Debt which would otherwise be subject to the foregoing
restrictions, provided that after giving effect thereto the aggregate amount of
such Debt secured pursuant to such exception (not including secured Debt
permitted under the foregoing exceptions) at such time does not exceed 10% of
Consolidated Tangible Net Worth. (Section 3.03 of the 7.35% Indenture.)
The following definitions apply to the covenants described above:
"Consolidated Tangible Net Worth" means, at any date, the total assets
appearing on the most recently prepared consolidated balance sheet of the
Company and its Subsidiaries as at the end of a fiscal quarter of the Company,
prepared in accordance with generally accepted accounting principles
consistently applied, less (a) the total liabilities appearing on such balance
sheet, and (b) intangible assets. "Intangible assets" means the value (net of
any applicable reserves), as shown on or reflected in such balance sheet, of:
(i) all trade names, trademarks, licenses, patents, copyrights and goodwill;
(ii) organizational and development costs (other than deferred policy
acquisition costs); and (iii) unamortized debt discount and expense, less
unamortized premium.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Restricted Subsidiary" means any Subsidiary which is incorporated under the
laws of the United States of America, any State thereof or the District of
Columbia, and which is a regulated insurance
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company principally engaged in one or more of the property, casualty and life
insurance businesses; provided, however, that no Subsidiary shall be a
Restricted Subsidiary if the total assets of such Subsidiary are less than 10%
of the total assets of the Company and its consolidated Subsidiaries (including
such Subsidiary) in each case as set forth on the most recently prepared
balance sheets of such Subsidiary and the Company and its consolidated
Subsidiaries, respectively, as at the end of a fiscal quarter of the Company or
such Subsidiary, as applicable, and computed in accordance with generally
accepted accounting principles.
"Subsidiary" means a corporation of which a majority of the capital stock
having voting power under ordinary circumstances to elect a majority of the
board of directors is owned by (i) the Company, (ii) the Company and one or
more Subsidiaries of (iii) one or more Subsidiaries. (Section 1.01 of the 7.35%
Indenture.)
AMENDMENT AND WAIVER
Subject to the certain exceptions, the 7.35% Indenture may be amended with
the written consent of the holders of at least a majority in principal amount
of the 7.35% Debentures Due July 2023 then outstanding, and any past default or
compliance with any provision may be waived with the consent of the holders of
at least a majority in principal amount of the 7.35% Debentures Due July 2023
then outstanding. However, without the consent of each holder of an outstanding
Debenture affected thereby, no amendment may, among other things, (i) reduce
the amount of 7.35% Debentures Due July 2023 whose holders must consent to an
amendment; (ii) reduce the rate of or extend the time or payment of interest on
any 7.35% Debenture Due July 2023; (iii) reduce the principal of or extend the
fixed maturity of any 7.35% Debenture Due July 2023; (iv) change the currency
for payment of principal of or premium or interest on any 7.35% Debenture Due
July 2023; (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any 7.35% Debenture Due July 2023; or (vi) waive
certain payment defaults with respect to the 7.35% Debentures Due July 2023.
(Section 8.02 of the 7.35% Indenture.) Without the consent of any holder of the
7.35% Debentures Due July 2023, the Company and the Trustee may amend the 7.35%
Indenture (A) to cure any ambiguity, omission, defect or inconsistency, (B) to
provide for the assumption by a successor corporation of the obligations of the
Company under the 7.35% Indenture, (C) to provide for uncertificated 7.35%
Debentures Due July 2023 in addition to or in place of certificated 7.35%
Debentures Due July 2023 so long as such uncertificated 7.35% Debentures Due
July 2023 are in registered form for the purposes of the Internal Revenue Code,
(D) to add guarantees of the 7.35% Debentures Due July 2023, (E) to add to the
covenants of the Company for the benefit of the holders of the 7.35% Debentures
Due July 2023 or to surrender any right or power conferred upon the Company,
(F) to comply with any requirement of the Commission in connection with the
qualification of the 7.35% Indenture under the Trust Indenture Act of 1939, as
amended, and (G) to make any change that does not adversely affect the rights
of any holder of the 7.35% Debentures Due July 2023. (Section 8.01 of the 7.35%
Indenture.)
TRANSFER
The 7.35% Debentures Due July 2023 will be issued in registered form and will
be transferable only upon the surrender to the Registrar of the 7.35%
Debentures Due July 2023 being transferred for registration of transfer.
(Section 2.06 of the 7.35% Indenture.)
EVENTS OF DEFAULT
An Event of Default as defined in the 7.35% Indenture includes the occurrence
of any of the following: (i) a default in the payment of principal of any 7.35%
Debenture Due July 2023 when due at its stated maturity, upon declaration or
otherwise; (ii) a default in the payment of interest on any 7.35% Debenture Due
July 2023 when due, and such default continues for 30 days; (iii) a failure by
the
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Company for 15 days after notice to comply with its obligations under the
covenants described above under "Certain Covenants--Consolidation, Merger and
Sale of Assets" and "Certain Covenants--Limitations on Disposition of Stock of
Restricted Subsidiaries"; (iv) a failure by the Company for 60 days after
notice to comply with its other agreements contained in the 7.35% Indenture;
(v) the principal amount of any indebtedness of the Company or any Restricted
Subsidiary for borrowed money is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of an
event of default, the total amount of such indebtedness for borrowed money
unpaid or accelerated exceeds $25,000,000 and such default continues for 15
days after notice; or (vi) certain events of bankruptcy, insolvency or
reorganization of the Company or a Restricted Subsidiary. (Section 5.01 of the
7.35% Indenture.)
If an Event of Default occurs and is continuing with respect to the 7.35%
Indenture, the Trustee or the holders of 25% in principal amount of the
outstanding 7.35% Debentures Due July 2023 may declare the principal of and
accrued interest on all the 7.35% Debentures Due July 2023 to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. Under certain circumstances, the holders of a majority in
principal amount of the outstanding 7.35% Debentures Due July 2023 may rescind
any such acceleration with respect to such 7.35% Debentures Due July 2023 and
its consequences. (Section 5.02 of the 7.35% Indenture.)
Prior to taking any action under the 7.35% Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action. Subject to
such provisions for indemnification and certain limitations contained in the
7.35% Indenture, the holders of a majority in principal amount of the 7.35%
Debentures Due July 2023 at the time outstanding have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. (Section
5.05 of the 7.35% Indenture.)
No holder of any 7.35% Debenture Due July 2023 may pursue any remedy with
respect to the 7.35% Indenture or the 7.35% Debentures Due July 2023, unless
(i) such holder shall have given to the Trustee written notice of a continuing
Event of Default with respect to the 7.35% Debentures Due July 2023; (ii) the
holders of at least 25% in principal amount of the outstanding 7.35% Debentures
Due July 2023 shall have made written request to the Trustee to pursue the
remedy, and shall have offered the Trustee reasonable security or indemnity
against any loss, liability or expense; (iii) within 60 days following the
receipt of such request and offer of security and indemnity, the Trustee shall
not have received from the holders of a majority in principal amount of the
outstanding 7.35% Debentures Due July 2023 a direction inconsistent with such
request; and (iv) the Trustee shall have failed to comply with such request
with such 60-day period. (Section 5.06 of the 7.35% Indenture.) Notwithstanding
any other provision of the 7.35% Indenture, the right of a holder of a 7.35%
Debenture Due July 2023 to receive payment of the principal of and interest on
such 7.35% Debenture Due July 2023 on or after the respective due dates
expressed in such 7.35% Debenture Due July 2023, or to bring suit for the
enforcement of any such payment, shall not be impaired or affected without the
consent of such holder. (Section 5.07 of the 7.35% Indenture.)
The Company will deliver to the Trustee within 120 days after the end of each
fiscal year of the Company an Officers' Certificate stating whether or not any
Default has occurred during such fiscal year. The Officers' Certificate shall
describe such Default, its status and what action the Company is taking or
proposes to take with respect thereto. (Section 3.05 of the 7.35% Indenture.)
SATISFACTION AND DISCHARGE OF THE 7.35% INDENTURE
The 7.35% Indenture provides that when (i) the Company delivers to the
Trustee all outstanding 7.35% Debentures Due July 2023 for cancelation or (ii)
all outstanding 7.35% Debentures Due July
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2023 have become due and payable and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity all outstanding 7.35% Debentures
Due July 2023, including interest thereon, and if in either case the Company
pays all other sums payable under the 7.35% Indenture by the Company, then the
7.35% Indenture shall cease to be of further effect, except for certain
obligations, including those respecting the obligations to register the
transfer or exchange of the 7.35% Debentures Due July 2023, to replace
mutilated, destroyed, lost or stolen 7.35% Debentures Due July 2023 and to
maintain a Registrar and Paying Agent in respect of the 7.35% Debentures Due
July 2023. The Trustee shall acknowledge satisfaction and discharge of the
7.35% Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company. (Section 7.01 of the 7.35% Indenture.)
DEFEASANCE
The 7.35% Indenture provides that the Company at any time may terminate its
obligations under the 7.35% Indenture and the 7.35% Debentures Due July 2023
("defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
7.35% Debentures Due July 2023, to replace mutilated, destroyed, lost or stolen
7.35% Debentures Due July 2023 and to maintain a Registrar and Paying Agent in
respect of the 7.35% Debentures Due July 2023. (Section 7.01 of the 7.35%
Indenture.)
If the Company exercises its defeasance option, payment of the 7.35%
Debentures Due July 2023 may not be accelerated because of an Event of Default
with respect thereto. (Section 7.01 of the 7.35% Indenture.)
In order to exercise its defeasance option, the Company must (i) irrevocably
deposit in trust with the Trustee money of U.S. Government Obligations for the
payment of principal and interest on the 7.35% Debentures Due July 2023 to
maturity; (ii) deliver to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the 7.35% Debentures
Due July 2023 to maturity; (iii) deliver to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment Company
Act of 1940; (iv) comply with certain other conditions; and (v) deliver to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent to the defeasance and discharge of the 7.35%
Debentures Due July 2023 have been complied with. (Section 7.02 of the 7.35%
Indenture.)
GOVERNING LAW
The 7.35% Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby. (Section 9.09 of the
7.35% Indenture.)
CONCERNING THE TRUSTEE
United States Trust Company of New York will act as Trustee for the 7.35%
Debentures Due July 2023 issued under the 7.35% Indenture.
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<PAGE>
9.15% DEBENTURES DUE SEPTEMBER 2021
GENERAL
The 9.15% Debentures Due September 2021 were issued under an Indenture dated
as of September 15, 1991 (the "9.15% Indenture"), between the Company and
United States Trust Company of New York, as trustee (the "Trustee"). A copy of
the form of the 9.15% Indenture was filed as an exhibit to a registration
statement on Form S-3 (No. 33-41981). The following summary of certain
provisions of the 9.15% Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the 9.15% Indenture and the 9.15% Debentures Due September 2021.
Wherever particular provisions of the 9.15% Indenture or terms defined therein
are referred to, such provisions or definitions are incorporated by reference
as a part of the statements made.
The 9.15% Debentures Due September 2021 are unsecured obligations of the
Company limited to $100,000,000 aggregate principal amount and are pari passu
with all other unsecured senior indebtedness of the Company. The 9.15%
Debentures Due September 2021 are issued in fully registered form, without
coupons, in denominations of $1,000 or integral multiples thereof and bears
interest from September 15, 1991, at a rate of 9.15% per annum. The 9.15%
Debentures Due September 2021 will mature on September 15, 2021.
Interest on the 9.15% Debentures Due September 2021 is payable semiannually
in arrears on March 15 and September 15 of each year, commencing March 15,
1992, to holders of record of the 9.15% Debentures Due September 2021 at the
close of business on the March 1 or September 1 immediately preceding such
March 15 or September 15. Interest on the 9.15% Debentures Due September 2021
is computed on the basis of a 360-day year of twelve 30-day months.
Principal (and premium, if any) and interest are payable at the office of the
Paying Agent, but at the option of the Company, interest may be paid by check
mailed to the registered holders at their registered addresses. The 9.15%
Debentures Due September 2021 are transferable and exchangeable at the office
of the Registrar. The Company has initially appointed the Trustee as the Paying
Agent and the Registrar. The Trustee's current address is 114 West 47th Street
(15th Floor), New York, N.Y. 10036.
The Company has not applied for listing of the 9.15% Debentures Due September
2021 on any securities exchange.
The Company has no sinking fund obligations with respect to the 9.15%
Debentures Due September 2021.
The Company primarily conducts its operations through its subsidiaries. The
rights of the Company and its creditors, including the holders of the 9.15%
Debentures Due September 2021, to participate in the assets of any subsidiary
upon the latter's liquidation or reorganization are subject to the prior claims
of the subsidiary's creditors except to the extent that the Company may itself
be a creditor with recognized claims against the subsidiary.
REDEMPTION AT THE OPTION OF THE COMPANY
The 9.15% Debentures Due September 2021 may not be redeemed prior to
September 15, 2001. Beginning on September 15, 2001, the 9.15% Debentures Due
September 2021 may be redeemed at the option of the Company, in whole, or from
time to time in part, on not less than 30 nor more than 60
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<PAGE>
days' prior notice, in multiples of $1,000 at the following redemption prices
(expressed in percentages of principal amount) plus accrued interest (if any)
to the redemption date:
If redeemed during the twelve month period commencing September 15,
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................... 104.5750%
2002........................................................... 104.1175%
2003........................................................... 103.6600%
2004........................................................... 103.2025%
2005........................................................... 102.7450%
2006........................................................... 102.2875%
2007........................................................... 101.8300%
2008........................................................... 101.3725%
2009........................................................... 100.9150%
2010........................................................... 100.4575%
</TABLE>
and thereafter, beginning September 15, 2011, at 100% of the principal amount
of the 9.15% Debentures Due September 2021.
If fewer than all the 9.15% Debentures Due September 2021 are to be redeemed,
the Trustee will select the 9.15% Debentures Due September 2021 or portions
thereof that will be redeemed pro rata or by lot or by any other method that
complies with applicable legal or securities exchange requirements, if any, and
that the Trustee considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances
(Section 3.02 of the 9.15% Indenture).
CERTAIN COVENANTS
Consolidation, Merger and Sale of Assets. The Company shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets as an entirety to, another person unless (i) the resulting,
surviving or transferee person (if not the Company) is a person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia, and such entity (if not the Company) expressly
assumes by supplemental indenture all the obligations of the Company under the
9.15% Debentures Due September 2021 and the 9.15% Indenture, (ii) immediately
after giving effect to such transaction, no Default has occurred and is
continuing; and (iii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture comply with the 9.15%
Indenture. Upon any such consolidation, merger or transfer, the resulting,
surviving or transfer person shall succeed to, and may exercise every right and
power of, the Company under the 9.15% Indenture. (Section 5.01 of the 9.15%
Indenture.)
Limitations on Disposition of Stock of Restricted Subsidiaries. The 9.15%
Indenture provides that the Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of any shares of capital
stock of any Restricted Subsidiary (or of any Subsidiary having direct or
indirect control of any Restricted Subsidiary) except for, subject to the
covenant relating to consolidations, mergers and sales and conveyances of
assets described in the immediately preceding paragraph, (i) a sale, transfer
or other disposition of any capital stock of any Restricted Subsidiary (or of
any Subsidiary having direct or indirect control of any Restricted Subsidiary)
to a wholly owned Subsidiary of the Company; (ii) a sale, transfer or other
disposition of the entire capital stock of any Restricted Subsidiary (or of any
Subsidiary having direct or indirect control of any Restricted Subsidiary) held
by the Company and its Subsidiaries for at least fair value (as determined by
the Board of Directors of the Company acting in good faith), or (iii) a sale,
transfer or other disposition of any capital stock of any Restricted Subsidiary
(or of any Subsidiary having direct or indirect control of any Restricted
Subsidiary) for at least fair value (as determined by the Board of Directors of
the Company acting in good faith) if, after giving
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<PAGE>
effect thereto, the Company and its Subsidiaries would own more than 80% of the
issued and outstanding voting stock of such Restricted Subsidiary (or
Subsidiary). (Section 4.04 of the 9.15% Indenture.)
The Company is not required pursuant to the 9.15% Indenture to redeem or
otherwise repurchase the 9.15% Debentures Due September 2021, in whole or in
part, with the proceeds of any sale, transfer or other disposition of any
shares of capital stock of any Restricted Subsidiary (or of any Subsidiary
having direct or indirect control of any Restricted Subsidiary). Furthermore,
the 9.15% Indenture does not provide for any restrictions on the Company's use
of any such proceeds.
Limitations upon Liens. The 9.15% Indenture provides that the Company will
not, nor will it permit any Restricted Subsidiary to, issue, assume or
guarantee any indebtedness for borrowed money (all such indebtedness for
borrowed money issued, assumed or guaranteed being "Debt") if such Debt is
secured by a Lien upon any property or assets, whether now owned or hereafter
acquired, of the Company or any Restricted Subsidiary or upon any shares of
stock of a Restricted Subsidiary without in any such case effectively providing
that the 9.15% Debentures Due September 2021 (together with, if the Company
shall so determine, any other Debt (or any bonds, debentures, notes, or other
similar evidences of indebtedness, whether or not for borrowed money) of the
Company or such Restricted Subsidiary then existing or thereafter created which
is not subordinated to the 9.15% Debentures Due September 2021) shall be
secured equally and ratably with or prior to such Debt, except that the
foregoing restriction shall not apply to
(i) Liens on property of, or on any shares of stock of, any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) Liens on property or shares of stock existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary;
(iii) Liens on property or shares of stock hereafter acquired (or, in the case
of property, constructed (including construction of improvements or
additions to improvements on existing property)) by the Company or any
Restricted Subsidiary and created prior to, at the time of, or within one
year after such acquisition (or, in the case of property, the completion
of such construction (including construction of improvements or additions
to improvements on existing property) or commencement of commercial
operation of such property, whichever is later) to secure or provide for
the payment of all or any part of the purchase price (or, in the case of
property (including construction of improvements or additions to
improvements on existing property), the construction price) thereof;
(iv) Liens in favor of the Company or any Restricted Subsidiary;
(v) Liens in favor of the United States of America, any State thereof or
the District of Columbia, or any political subdivision, agency,
department or other instrumentality thereof, to secure progress,
advance or other payments pursuant to any contract or provisions of any
statute;
(vi) Liens on property of a person existing at the time such person is merged
into or consolidated with the Company or a Restricted Subsidiary; and
(vii) any extension, renewal or replacement (or successive extensions, renewals
or replacements), as a whole or in part, of any Lien referred to in the
foregoing clauses (i) to (vi), inclusive; provided, however, that (x) such
extension, renewal or replacement Lien shall be limited to all or a part
of the same property or shares of stock that secured the Lien extended,
renewed or replaced (plus improvements (including additions to
improvements) on such property) and (y) the Debt secured by such Lien at
such time is not increased (except, with respect to a Lien on property, to
the extent that additional Debt was incurred to provide for the payment of
all or any part of the construction price of improvements or additions to
improvements on such property).
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<PAGE>
Notwithstanding the above, the Company and one or more Restricted Subsidiaries
may, without securing the 9.15% Debentures Due September 2021, issue, assume or
guarantee secured Debt which would otherwise be subject to the foregoing
restrictions, provided that after giving effect thereto the aggregate amount of
such Debt secured pursuant to such exception (not including secured Debt
permitted under the foregoing exceptions) at such time does not exceed 10% of
Consolidated Tangible Net Worth. (Section 4.03 of the 9.15% Indenture.)
The following definitions apply to the covenants described above:
"Consolidated Tangible Net Worth" means, at any date, the total assets
appearing on the most recently prepared consolidated balance sheet of the
Company and its Subsidiaries as at the end of a fiscal quarter of the
Company, prepared in accordance with generally accepted accounting
principles consistently applied, less (a) the total liabilities appearing
on such balance sheet, and (b) intangible assets. "Intangible assets" means
the value (net of any applicable reserves), as shown on or reflected in
such balance sheet, of; (i) all trade names, trademarks, licenses, patents,
copyrights and goodwill, (ii) organizational and development costs (other
than deferred policy acquisition costs); and (iii) unamortized debt
discount and expense, less unamortized premium.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Restricted Subsidiary" means any Subsidiary which is incorporated under
the laws of the United States of America, any State thereof or the District
of Columbia, and which is a regulated insurance company principally engaged
in one or more of the property, casualty and life insurance businesses;
provided, however, that no Subsidiary shall be a Restricted Subsidiary of
the total assets of such Subsidiary are less than 10% of the total assets
of the Company and its consolidated Subsidiaries (including such
Subsidiary) in each case as set forth on the most recently prepared balance
sheets of such Subsidiary and the Company and its consolidated
Subsidiaries, respectively, as at the end of a fiscal quarter of the
Company or such Subsidiary, as applicable, and computed in accordance with
generally accepted accounting principles.
"Subsidiary" means a corporation of which a majority of the capital stock
having voting power under ordinary circumstances to elect a majority of the
board of directors is owned by (i) the Company, (ii) the Company and one or
more Subsidiaries or (iii) one or more Subsidiaries. (Section 1.01 of the
9.15% Indenture.)
AMENDMENT AND WAIVER
Subject to the certain exceptions, the 9.15% Indenture may be amended with
the written consent of the holders of at least a majority in principal amount
of the 9.15% Debentures Due September 2021 then outstanding, and any past
default or compliance with any provision may be waived with the consent of the
holders of at least a majority in principal amount of the 9.15% Debentures Due
September 2021 then outstanding. However, without the consent of each holder of
an outstanding Debenture affected thereby, no amendment may, among other
things, (i) reduce the amount of 9.15% Debentures Due September 2021 whose
holders must consent to an amendment, (ii) reduce the rate of or extend the
time for payment of interest on any 9.15% Debenture Due September 2021, (iii)
reduce the principal of or extend the fixed maturity of any 9.15% Debenture Due
September 2021, (iv) reduce the premium payable upon redemption of any 9.15%
Debenture Due September 2021 or change the time at which any 9.15% Debenture
Due September 2021 may be redeemed; (v) change the currency for payment of
principal of or premium or interest on any 9.15% Debenture Due September 2021;
(vi) impair the right to institute suit for the enforcement of any payment on
or with respect to any 9.15% Debenture Due September 2021; or (vii) waive
certain payment defaults with respect to the 9.15% Debentures Due September
2021. (Section 9.02 of the 9.15% Indenture.) Without the consent of any holder
of the 9.15% Debentures Due September 2021, the Company and the Trustee may
amend the 9.15% Indenture (A) to cure any ambiguity, omission, defect or
inconsistency, (B) to provide for the assumption
22
<PAGE>
by a successor corporation of the obligations of the Company under the 9.15%
Indenture, (C) to provide for uncertificated 9.15% Debentures Due September
2021 in addition to or in place of certificated 9.15% Debentures Due September
2021 so long as such uncertificated 9.15% Debentures Due September 2021 are in
registered form for the purposes of the Internal Revenue Code, (D) to add
guarantees of the 9.15% Debentures Due September 2021, (E) to add to the
covenants of the Company for the benefit of the holders of the 9.15% Debentures
Due September 2021 or to surrender any right or power conferred upon the
Company, (F) to comply with any requirement of the Commission in connection
with the qualification of the 9.15% Indenture under the Trust 9.15% Indenture
Act of 1939, as amended, and (G) to make any change that does not adversely
affect the rights of any holder of the 9.15% Debentures Due September 2021.
(Section 9.01 of the 9.15% Indenture.)
TRANSFER
The 9.15% Debentures Due September 2021 will be issued in registered form and
will be transferable only upon the surrender to the Registrar of the 9.15%
Debentures Due September 2021 being transferred for registration of transfer.
(Section 2.06 of the 9.15% Indenture.)
EVENTS OF DEFAULT
An Event of Default as defined in the 9.15% Indenture includes the occurrence
of any of the following: (i) a default in the payment of principal of any 9.15%
Debenture Due September 2021 when due at the stated maturity, upon redemption,
upon declaration or otherwise; (ii) a default in the payment of interest on any
9.15% Debenture Due September 2021 when due, and such default continues for 30
days; (iii) a failure by the Company for 15 days after notice to comply with
its obligations under the covenants described above under "Certain Covenants--
Consolidation, Merger and Sale of Assets" and "Certain Covenants--Limitations
on Disposition of Stock of Restricted Subsidiaries"; (iv) a failure by the
Company for 60 days after notice to comply with its other agreements contained
in the 9.15% Indenture; (v) the principal amount of any indebtedness of the
Company or any Restricted Subsidiary for borrowed money is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of an event of default, the total amount of such indebtedness
for borrowed money unpaid or accelerated exceeds $25,000,000 and such default
continues for 15 days after notice; or (vi) certain events of bankruptcy,
insolvency or reorganization of the Company or a Restricted Subsidiary.
(Section 6.01 of the 9.15% Indenture.)
If an Event of Default occurs and is continuing with respect to the 9.15%
Indenture, the Trustee or the holders of 25% in principal amount of the
outstanding 9.15% Debentures Due September 2021 may declare the principal of
and accrued interest on all the 9.15% Debentures Due September 2021 to be due
and payable. Upon such a declaration, such principal and interest will be due
and payable immediately. Under certain circumstances, the holders of a majority
in principal amount of the outstanding 9.15% Debentures Due September 2021 may
rescind any such acceleration with respect to such 9.15% Debentures Due
September 2021 and its consequences. (Section 6.02 of the 9.15% Indenture.)
Prior to taking any action under the 9.15% Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action. Subject to
such provisions for indemnification and certain limitations contained in the
9.15% Indenture, the holders of a majority in principal amount of the 9.15%
Debentures Due September 2021 at the time outstanding have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. (Section 6.05 of the 9.15% Indenture.)
No holder of any 9.15% Debenture Due September 2021 may pursue any remedy
with respect to the 9.15% Indenture or the 9.15% Debentures Due September 2021
unless (i) such holder shall have given to the Trustee written notice of a
continuing Event of Default with respect to the 9.15%
23
<PAGE>
Debentures Due September 2021; (ii) the holders of at least 25% in principal
amount of the outstanding 9.15% Debentures Due September 2021 shall have made
written request to the Trustee to pursue the remedy, and shall have offered the
Trustee reasonable security or indemnity against any loss, liability or
expense; (iii) within 60 days following the receipt of such request and offer
of security and indemnity, the Trustee shall not have received from the holders
of a majority in principal amount of the outstanding 9.15% Debentures Due
September 2021 a direction inconsistent with such request; and (iv) the Trustee
shall have failed to comply with such request with such 60-day period. (Section
6.06 of the 9.15% Indenture.) Notwithstanding any other provision of the 9.15%
Indenture, the right of a holder of a 9.15% Debenture Due September 2021 to
receive payment of the principal of and interest on such 9.15% Debenture Due
September 2021 on or after the respective due dates expressed in such 9.15%
Debenture Due September 2021, or to bring suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder.
(Section 6.07 of the 9.15% Indenture.)
The Company will deliver to the Trustee within 120 days after the end of each
fiscal year of the Company an Officers' Certificate stating whether or not any
Default has occurred during such fiscal year. The Officers' Certificate shall
describe such Default, its status and what action the Company is taking or
proposes to take with respect thereto. (Section 4.05 of the 9.15% Indenture.)
SATISFACTION AND DISCHARGE OF THE 9.15% INDENTURE
The 9.15% Indenture provides that when (i) the Company delivers to the
Trustee all outstanding 9.15% Debentures Due September 2021 for cancelation or
(ii) all outstanding 9.15% Debentures Due September 2021 have become due and
payable and the Company irrevocably deposits with the Trustee funds sufficient
to pay at maturity all outstanding 9.15% Debentures Due September 2021,
including interest thereon, and if in either case the Company pays all other
sums payable under the 9.15% Indenture by the Company, then the 9.15% Indenture
shall cease to be of further effect, except for certain obligations, including
those respecting the obligations to register the transfer or exchange of the
9.15% Debentures Due September 2021, to replace mutilated, destroyed, lost or
stolen 9.15% Debentures Due September 2021 and to maintain a Registrar and
Paying Agent in respect of the 9.15% Debentures Due September 2021. The Trustee
shall acknowledge satisfaction and discharge of the 9.15% Indenture on demand
of the Company accompanied by an Officers' Certificate and an Opinion of
Counsel and at the cost and expense of the Company. (Section 8.01 of the 9.15%
Indenture.)
DEFEASANCE
The 9.15% Indenture provides that the Company at any time may terminate its
obligations under the 9.15% Indenture and the 9.15% Debentures Due September
2021 ("defeasance"), except for certain obligations, including those respecting
the defeasance trust and obligations to register the transfer or exchange of
the 9.15% Debentures Due September 2021, to replace mutilated, destroyed, lost
or stolen 9.15% Debentures Due September 2021 and to maintain a Registrar and
Paying Agent in respect of the 9.15% Debentures Due September 2021. (Section
8.01 of the 9.15% Indenture.)
If the Company exercises its defeasance option, payment of the 9.15%
Debentures Due September 2021 may not be accelerated because of an Event of
Default with respect thereto. (Section 8.01 of the 9.15% Indenture.)
In order to exercise its defeasance option, the Company must (i) irrevocably
deposit in trust with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the 9.15% Debentures Due September 2021 to
redemption or maturity, as the case may be; (ii) deliver to the Trustee a
certificate from a nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and interest when due
and without reinvestment on the deposited
24
<PAGE>
U.S. Government Obligations plus any deposited money without investment will
provide cash at such times and in such amounts as to be sufficient to pay
principal and interest when due on all the 9.15% Debentures Due September 2021
to maturity or redemption, as the case may be; (iii) deliver to the Trustee an
Opinion of Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company under the
Investment Company Act of 1940; (iv) comply with certain other conditions; and
(v) deliver to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent to the defeasance and discharge of
the 9.15% Debentures Due September 2021 have been complied with. Before or
after a deposit, the Company may make arrangements satisfactory to the Trustee
for the redemption of 9.15% Debentures Due September 2021 at a future date in
accordance with the indenture. (Section 8.02 of the 9.15% Indenture.)
GOVERNING LAW
The 9.15% Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby. (Section 10.09 of
the 9.15% Indenture.)
CONCERNING THE TRUSTEE
United States Trust Company of New York will act as trustee for the 9.15%
Debentures Due September 2021 issued under the 9.15% Indenture.
PLAN OF DISTRIBUTION
This Prospectus is to be used by Salomon in connection with offers and sales
of the Securities in market-making transactions in the over-the-counter market,
in private transactions or otherwise at negotiated prices related to prevailing
market prices at the time of sale. Salomon may act as principal or agent in
such transactions.
Warren E. Buffett, a Director and Chairman of the Executive Committee of the
Underwriter, is the Chairman of the Board and Chief Executive Officer of
Berkshire Hathaway Inc. ("Berkshire"). Berkshire and its subsidiaries own
6,633,600 shares of Common Stock and all the outstanding shares of Series A
Cumulative Convertible Preferred Stock (the "Preferred Stock") of Salomon Inc,
the parent of the Underwriter. The Preferred Stock is entitled to 18,421,053
votes, and, together with the Common Stock, constitutes approximately 24% of
the votes entitled to be cast by the outstanding voting securities of Salomon
Inc. The Preferred Stock is convertible into 18,421,053, or approximately 17%
of the outstanding shares of Common Stock of Salomon Inc. According to the most
recent information available to the Company, Berkshire, through several of its
subsidiaries, owns 34,250,000 shares, or approximately 50.2%, of the Company's
outstanding Common Stock. According to the most recent information available to
the Company, Mr. Buffett, his wife and a trust of which Mr. Buffett is a
trustee, but in which he has no economic interest, own approximately 43.8% of
the outstanding shares of Berkshire. In addition, Louis A. Simpson, Director
and President and Chief Executive Officer--Capital Operations of the Company,
is a Director of Salomon Inc. Mr. Simpson and members of his family own 950,119
shares, or approximately 1.4%, of the Company's outstanding Common Stock. Mr.
Simpson also owns 25,000 shares of the Common Stock of Salomon Inc. As a result
of the foregoing, the Underwriter may be deemed to be an affiliate of the
Company. However, both the Underwriter and the Company disclaim such affiliate
status. The Underwriter is nevertheless offering the Notes in
25
<PAGE>
compliance with the applicable provisions of Schedule E of the National
Association of Securities Dealers, Inc. By-Laws. The Underwriter has informed
the Company that neither they nor the dealers will confirm sales to
discretionary accounts without the prior specific written approval of the
customer.
PRIOR RELATIONSHIPS
Salomon acted as the underwriter in connection with the original offering of
the 7.5% Notes Due April 2005 and received an underwriting discount in the
aggregate amount of $650,000.
Salomon acted as the underwriter in connection with the original offering of
the 7.35% Debentures Due July 2023 and received an underwriting discount in the
aggregate amount of $1,312,500.
Salomon acted as the underwriter in connection with the original offering of
the 9.15% Debentures Due September 2021 and received an underwriting discount
in the aggregate amount of $875,000.
EXPERTS
The consolidated financial statements of GEICO Corporation at December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994, incorporated in this Prospectus by reference to the Annual Report on Form
10-K of the Company for the year ended December 31, 1994, have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their
report, which includes an explanatory paragraph regarding the adoption of
certain new accounting standards in 1994 and 1993, incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1994, and have been so incorporated in reliance
upon the authority of such firm as experts in accounting and auditing.
26
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY SALOMON. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
GEICO Corporation.......................................................... 3
Selected Financial Data.................................................... 5
Ratio of Earnings to Fixed Charges......................................... 6
Description of the Securities.............................................. 7
Plan of Distribution....................................................... 25
Experts.................................................................... 26
</TABLE>
GEICO CORPORATION
7.5% NOTES DUE 2005
7.35% DEBENTURES DUE 2023
9.15% DEBENTURES DUE 2021
-----------------------------
SALOMON BROTHERS INC
-----------------------------------
PROSPECTUS
DATED APRIL 18, 1995
