<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
FLIGHTSAFETY INTERNATIONAL, INC.
-----------------------------------------------------
(Name of Registrant as Specified in its Charter)
------
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee Paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE>
FLIGHTSAFETY INTERNATIONAL, INC.
MARINE AIR TERMINAL
LAGUARDIA AIRPORT
FLUSHING, NEW YORK 11371
NOVEMBER 20, 1996
Dear FlightSafety International, Inc. Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
FlightSafety International, Inc. ("FlightSafety"), which will be held on
Monday, December 23, 1996 at the LaGuardia Marriott, 102-05 Ditmars Boulevard,
East Elmhurst, New York, at 3:00 p.m., New York City time (the "Special
Meeting").
At the Special Meeting, you will be asked to approve the Agreement and Plan
of Merger, dated as of October 14, 1996 (the "Merger Agreement"), among
FlightSafety, Berkshire Hathaway Inc. ("Berkshire") and NY Acquisition Sub
Inc., a wholly owned subsidiary of Berkshire ("Merger Sub"). The Merger
Agreement provides for the merger of FlightSafety with and into Merger Sub
(the "Merger"), pursuant to which FlightSafety would become a wholly owned
subsidiary of Berkshire.
The Merger Agreement provides that each outstanding share of common stock,
par value $.10 per share, of FlightSafety ("FlightSafety Common Stock"), other
than shares as to which dissenters' rights may have been properly exercised
and shares owned by FlightSafety, Berkshire or their respective subsidiaries,
will be converted into the right to receive, subject to the limitation on cash
consideration stated below, the following: (i) for FlightSafety shareholders
electing to receive cash in exchange for such share, $50.00 in cash, (ii) for
FlightSafety shareholders electing to receive Berkshire Class A Common Stock,
par value $5.00 per share ("Berkshire Class A Stock"), in exchange for such
share, that portion of a share of Berkshire Class A Stock determined by
dividing $48.00 by the average of the high and low trading prices of Berkshire
Class A Stock on the New York Stock Exchange Composite Tape for each of the
five consecutive trading days ending on the trading day which is the last
business day prior to the Special Meeting (the "Average Class A Stock Price")
or (iii) for FlightSafety shareholders electing to receive Berkshire Class B
Common Stock, par value $.1667 per share ("Berkshire Class B Stock"), in
exchange for such share, that portion of a share of Berkshire Class B Stock
determined by dividing $48.00 by the quotient of the Average Class A Stock
Price divided by 30. To the extent that none of the foregoing elections to
receive cash, Berkshire Class A Stock or Berkshire Class B Stock are
effectively made, shares of FlightSafety Common Stock will be converted into
Berkshire Class B Stock. No fractional shares of Berkshire Class A or Class B
Stock will be issued in the Merger. In lieu of any fractional share of
Berkshire Class A Stock, one or more whole shares of Berkshire Class B Stock
will be issued to the extent possible, and cash will be paid for any
fractional share interest for which Berkshire Class B Stock is not issued.
In order for the Merger to qualify as a tax-free reorganization, not more
than 58% of the total value of the consideration paid by Berkshire in the
Merger will be paid in cash. If, based on the elections of FlightSafety
shareholders, more than 58% of the total value of the consideration to be paid
in the Merger would be in cash, the elections to receive cash will be subject
to adjustment and certain FlightSafety shareholders electing to receive cash
will receive a combination of cash and Berkshire Class B Stock to the extent
necessary to reduce the cash portion of the Merger consideration to 58%, as
more fully described in the attached Proxy Statement/Prospectus.
A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS AND THE FULL BOARD OF DIRECTORS
HAVE UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF FLIGHTSAFETY AND ITS SHAREHOLDERS, HAVE UNANIMOUSLY ADOPTED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
<PAGE>
In view of the importance of the action to be taken at the Special Meeting,
we urge you to review carefully the accompanying Notice of Special Meeting of
Shareholders and the Proxy Statement/Prospectus, which contains information
about FlightSafety and Berkshire and describes in detail the Merger and
certain related matters.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED WHITE, POSTAGE PREPAID ENVELOPE AS SOON AS POSSIBLE. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND, IF YOU WISH, VOTE YOUR
SHARES OF FLIGHTSAFETY COMMON STOCK IN PERSON.
A FORM OF ELECTION ON WHICH TO ELECT TO RECEIVE CASH, BERKSHIRE CLASS A
STOCK OR BERKSHIRE CLASS B STOCK IN EXCHANGE FOR YOUR SHARES OF FLIGHTSAFETY
COMMON STOCK AND A MANILA ENVELOPE FOR RETURNING THE FORM OF ELECTION ARE
ENCLOSED. IF YOU MAKE NO INDICATION AND THE MERGER IS APPROVED, YOU WILL
RECEIVE BERKSHIRE CLASS B STOCK (AND/OR CASH IN LIEU OF A FRACTIONAL SHARE) AS
THE MERGER CONSIDERATION. YOU ARE URGED TO RETURN THE FORM OF ELECTION,
ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00 P.M., NEW YORK CITY
TIME, ON DECEMBER 19, 1996, IN ORDER TO ENSURE THAT THE FORM OF ELECTION WILL
BE RECEIVED BY THE ELECTION DEADLINE.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
/s/ A. L. Ueltschi
A. L. Ueltschi
President and Chairman of the Board
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE WHITE ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. TO
MAKE AN ELECTION AMONG CASH, BERKSHIRE CLASS A STOCK AND BERKSHIRE CLASS B
STOCK, SHAREHOLDERS MUST ENCLOSE THEIR STOCK CERTIFICATE(S) WITH THE
ENCLOSED FORM OF ELECTION IN THE MANILA ENVELOPE.
<PAGE>
FLIGHTSAFETY INTERNATIONAL, INC.
MARINE AIR TERMINAL
LAGUARDIA AIRPORT
FLUSHING, NEW YORK 11371
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 23, 1996
To the Shareholders of FlightSafety International, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
FlightSafety International, Inc. ("FlightSafety") will be held on Monday,
December 23, 1996 at 3:00 p.m., New York City time, at the LaGuardia Marriott,
102-05 Ditmars Boulevard, East Elmhurst, New York, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of October 14, 1996 (the "Merger Agreement"),
among FlightSafety, Berkshire Hathaway Inc. ("Berkshire") and NY Acquisition
Sub Inc., a wholly owned subsidiary of Berkshire ("Merger Sub"). The Merger
Agreement provides for the merger of FlightSafety with and into Merger Sub
(the "Merger"), pursuant to which FlightSafety would become a wholly owned
subsidiary of Berkshire. If the Merger Agreement is approved and adopted and
the Merger is consummated, each outstanding share of common stock, par value
$.10 per share, of FlightSafety ("FlightSafety Common Stock"), other than
shares as to which dissenters' rights have been properly exercised and shares
owned by FlightSafety, Berkshire or their respective subsidiaries, will be
converted into the right to receive, subject to the limitation on cash
consideration stated below, the following: (i) for shareholders electing to
receive cash, $50.00 in cash, (ii) for shareholders electing to receive
Berkshire Class A Common Stock, par value $5.00 per share ("Berkshire Class A
Stock"), that portion of a share of Berkshire Class A Stock determined by
dividing $48.00 by the average of the high and low trading prices of Berkshire
Class A Stock on the New York Stock Exchange Composite Tape for each of the
five consecutive trading days ending on the trading day which is the last
business day prior to the Special Meeting (the "Average Class A Stock Price")
or (iii) for shareholders electing to receive Berkshire Class B Common Stock,
par value $.1667 per share ("Berkshire Class B Stock"), that portion of a
share of Berkshire Class B Stock determined by dividing $48.00 by the quotient
of the Average Class A Stock Price divided by 30. TO THE EXTENT THAT NONE OF
THE FOREGOING ELECTIONS TO RECEIVE CASH, BERKSHIRE CLASS A STOCK OR BERKSHIRE
CLASS B STOCK ARE EFFECTIVELY MADE, SHARES OF FLIGHTSAFETY COMMON STOCK WILL
BE CONVERTED INTO BERKSHIRE CLASS B STOCK. No fractional shares of Berkshire
Class A or Class B Stock will be issued in the Merger. In lieu of any
fractional share of Berkshire Class A Stock, one or more whole shares of
Berkshire Class B Stock will be issued to the extent possible, and cash will
be paid for any fractional share interest for which Berkshire Class B Stock is
not issued. In order for the Merger to qualify as a tax-free reorganization,
not more than 58% of the total value of the consideration paid by Berkshire in
the Merger will be paid in cash. If, based on the elections of FlightSafety
shareholders, more than 58% of the total value of the consideration to be paid
in the Merger would be paid in cash, elections to receive cash will be subject
to adjustment and certain shareholders electing to receive cash will receive a
combination of cash and Berkshire Class B Stock to the extent necessary to
reduce the cash portion of the Merger consideration to 58%, as more fully
described in the attached Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment(s) or postponement(s) thereof.
<PAGE>
Shareholders of record of FlightSafety Common Stock at the close of business
on November 18, 1996 will be entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof. The affirmative vote of
the holders of two-thirds of the outstanding shares of FlightSafety Common
Stock entitled to vote thereon is required to approve and adopt the Merger
Agreement.
Shareholders can dissent from the Merger and demand payment of the "fair
value" of their shares if the Merger Agreement is approved and the Merger
consummated. The ability to receive such payment is contingent upon strict
compliance with the requirements of Section 623 of the New York Business
Corporation Law. THE FIRST STEP IN PERFECTING THE RIGHT TO DISSENT MUST BE
TAKEN PRIOR TO THE TIME THE VOTE ON THE MERGER AGREEMENT IS TAKEN AT THE
SPECIAL MEETING. The full text of Section 623 is set forth in Annex III of the
attached Proxy Statement/Prospectus. For a summary of these requirements, see
"THE SPECIAL MEETING--Dissenting Shareholders' Rights of Appraisal" in the
Proxy Statement/Prospectus.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE PREPAID, WHITE ENVELOPE AS SOON AS POSSIBLE. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
By Order of the Board of Directors,
Peter P. Mullen
Secretary
Flushing, New York
November 20, 1996
DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD. TO MAKE AN ELECTION
AMONG CASH, BERKSHIRE CLASS A STOCK AND BERKSHIRE CLASS B STOCK,
SHAREHOLDERS MUST ENCLOSE THEIR STOCK CERTIFICATE(S) AND FORM OF
ELECTION IN THE MANILA ENVELOPE. YOU ARE URGED TO RETURN THE FORM OF
ELECTION, ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00
P.M., NEW YORK CITY TIME, ON DECEMBER 19, 1996, IN ORDER TO
ENSURE THAT THE FORM OF ELECTION WILL BE RECEIVED BY THE
ELECTION DEADLINE.
<PAGE>
FLIGHTSAFETY INTERNATIONAL, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 23, 1996
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BERKSHIRE HATHAWAY INC.
PROSPECTUS
CLASS A COMMON STOCK
CLASS B COMMON STOCK
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to shareholders of FlightSafety International, Inc., a New York
corporation ("FlightSafety"), in connection with the solicitation of proxies
by the Board of Directors of FlightSafety (the "FlightSafety Board") for use
at the special meeting of shareholders of FlightSafety, including any and all
adjournment(s) or postponement(s) thereof, to be held on Monday, December 23,
1996 (the "Special Meeting"). This Proxy Statement/Prospectus relates to the
proposed merger (the "Merger") of FlightSafety with and into NY Acquisition
Sub Inc. ("Merger Sub"), a New York corporation and wholly owned subsidiary of
Berkshire Hathaway Inc., a Delaware corporation ("Berkshire"), pursuant to the
Agreement and Plan of Merger, dated as of October 14, 1996 (the "Merger
Agreement"), among Berkshire, Merger Sub and FlightSafety.
At the Effective Time (as defined) of the Merger, and subject to the
limitation that not more than 58% of the total value of the consideration paid
in the Merger be paid in cash (see "THE MERGER--Cash Limitation"), each
outstanding share of common stock, par value $.10 per share, of FlightSafety
("FlightSafety Common Stock"), other than shares owned by FlightSafety, any
subsidiary of FlightSafety, Berkshire, Merger Sub or any other subsidiary of
Berkshire or any Dissenting Shares (as defined), will be converted, (a) at the
election of the holder thereof, into the right to receive either (i) $50.00 in
cash, (ii) the portion of a share of Class A Common Stock, par value $5.00 per
share, of Berkshire ("Berkshire Class A Stock"), determined by dividing $48.00
by the Average Class A Stock Price (as defined) or (iii) the portion of a
share of Class B Common Stock, par value $.1667 per share, of Berkshire
("Berkshire Class B Stock" and together with the Berkshire Class A Stock, the
"Berkshire Common Stock"), determined by dividing $48.00 by the quotient of
the Average Class A Stock Price divided by 30 or (b) to the extent that none
of the foregoing elections are effectively made, shares of Berkshire Class B
Stock on the same basis as in clause (a)(iii) above. The "Average Class A
Stock Price" means the average of the high and low trading prices of the
Berkshire Class A Stock on the New York Stock Exchange ("NYSE") Composite Tape
for each of the five trading days ending on the trading day which is the last
business day prior to the Special Meeting. In lieu of fractional shares of
Berkshire Class A Stock or Class B Stock, one or more whole shares of
Berkshire Class B Stock will be issued to the extent possible, and cash will
be paid for any fractional share interest for which Berkshire Class B Stock is
not issued. See "THE MERGER--Fractional Shares."
This Proxy Statement/Prospectus also constitutes a prospectus of Berkshire
as part of a registration statement on Form S-4 (together with all amendments
and exhibits thereto, the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the shares of Berkshire
Common Stock issuable in the Merger.
Berkshire and FlightSafety Common Stock are listed for trading on the NYSE.
On October 14, 1996, the last trading day prior to the execution of the Merger
Agreement, the last reported sale prices of Berkshire Class A Stock, Berkshire
Class B Stock and FlightSafety Common Stock, as reported on the NYSE Composite
Tape, were $31,900, $1,065 and $43 7/8, respectively. On November 19, 1996,
the last trading day prior to the first mailing of this Proxy
Statement/Prospectus, the last reported per share sale prices, as reported on
the NYSE Composite Tape, of Berkshire Class A Stock, Berkshire Class B Stock
and FlightSafety Common Stock were $33,400, $1,112 and $49 3/8, respectively.
For a description of Berkshire Common Stock, see "DESCRIPTION OF BERKSHIRE
COMMON STOCK" and "COMPARISON OF RIGHTS OF HOLDERS OF BERKSHIRE COMMON STOCK
AND FLIGHTSAFETY COMMON STOCK."
This Proxy Statement/Prospectus, the accompanying forms of proxy and the
other enclosed documents are first being mailed to shareholders on or about
November 20, 1996.
---------------
SEE "CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS" STARTING ON PAGE 12
FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHAREHOLDERS SHOULD CAREFULLY
CONSIDER IN EVALUATING THE MERGER.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------
The date of this Proxy Statement/Prospectus is November 20, 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IN CONNECTION WITH THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
BERKSHIRE, MERGER SUB, OR FLIGHTSAFETY. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF BERKSHIRE, MERGER SUB, OR FLIGHTSAFETY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES COVERED BY THIS PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF AN
OFFER OR PROXY SOLICITATION IN ANY JURISDICTION WHERE, OR TO OR FROM ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION.
THE INFORMATION CONTAINED (OR INCORPORATED BY REFERENCE) HEREIN WITH RESPECT
TO BERKSHIRE HAS BEEN PROVIDED BY BERKSHIRE. THE INFORMATION CONTAINED (OR
INCORPORATED BY REFERENCE) HEREIN WITH RESPECT TO FLIGHTSAFETY HAS BEEN
PROVIDED BY FLIGHTSAFETY. NEITHER BERKSHIRE NOR FLIGHTSAFETY WARRANTS THE
ACCURACY OF INFORMATION RELATING TO THE OTHER PARTY.
AVAILABLE INFORMATION
Berkshire and FlightSafety are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy and information statements and other
information with the Commission. All such reports, proxy and information
statements, and other information filed by Berkshire and FlightSafety with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available for inspection and copying at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Berkshire Class A Stock, the
Berkshire Class B Stock and FlightSafety Common Stock are listed on the NYSE.
Reports, proxy and information statements, and other information concerning
Berkshire and FlightSafety should be available for inspection at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York
10005.
The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information concerning
Berkshire and FlightSafety, both of which file electronically with the
Commission.
Under the rules and regulations of the Commission, the solicitation of the
shareholders of FlightSafety to approve the Merger Agreement and the Merger
constitutes an offering of Berkshire Common Stock to be issued in conjunction
with the Merger. Berkshire has filed with the Commission the Registration
Statement to register the offering of Berkshire Common Stock issuable in the
Merger under the Securities Act. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted as permitted by the rules and regulations
of the Commission. Statements contained herein concerning the provisions of
any document do not purport to be complete and, in each instance, are
qualified in all respects by reference to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is subject to and qualified in its entirety by
such reference. Reference is made to such Registration Statement and to the
exhibits relating thereto for further information.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Berkshire with the Commission (File No. 1-
10125) are incorporated herein by reference: (i) Berkshire's Annual Report on
Form 10-K for the year ended December 31, 1995, (ii) Berkshire's Current
Report on Form 8-K filed on January 16, 1996, (iii) Berkshire's Current Report
on Form 8-K filed on February 15, 1996, (iv) Berkshire's Current Report on
Form 8-K filed on March 27, 1996, (v) Berkshire's Current Report on Form 8-K
filed on July 26, 1996, (vi) Berkshire's Current Report on Form 8-K filed on
October 16, 1996, (vii) Berkshire's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, (viii) Berkshire's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, and (ix) Berkshire's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
The following documents filed by FlightSafety with the Commission (File No.
1-6222) are incorporated herein by reference: (i) FlightSafety's Annual Report
on Form 10-K for the year ended December 31, 1995, (ii) FlightSafety's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, (iii)
FlightSafety's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, (iv) FlightSafety's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, (v) FlightSafety's Current Report on Form 8-K filed on
October 16, 1996 and (vi) the description of FlightSafety Common Stock
contained in the Registration Statement on Form 8-A filed on June 6, 1980.
All documents filed by Berkshire and FlightSafety pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus, and prior to the termination of this offering, shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and
to be part of this Proxy Statement/Prospectus from the date of filing of such
documents.
Any statement contained in this Proxy Statement/Prospectus or in a document
incorporated or deemed to be incorporated by reference herein is deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained in this Proxy Statement/Prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, MAY OBTAIN, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF
ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE, EXCEPT THE
EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS). WRITTEN OR ORAL REQUESTS, IN THE CASE OF
DOCUMENTS RELATING TO BERKSHIRE, SHOULD BE DIRECTED TO JERRY W. HUFTON,
ASSISTANT SECRETARY, BERKSHIRE HATHAWAY INC., 1440 KIEWIT PLAZA, OMAHA,
NEBRASKA 68131 (TELEPHONE NO. (402) 346-1400, FACSIMILE NO.: (402) 346-3375).
WRITTEN OR ORAL REQUESTS, IN THE CASE OF DOCUMENTS RELATING TO FLIGHTSAFETY,
SHOULD BE DIRECTED TO THOMAS A. EFF, ASSISTANT SECRETARY, FLIGHTSAFETY
INTERNATIONAL, INC., MARINE AIR TERMINAL, LAGUARDIA AIRPORT, FLUSHING, NEW
YORK 11371, (TELEPHONE NO.: (718) 565-4116, FACSIMILE NO.: (718) 565-4134). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
RECEIVED BY DECEMBER 13, 1996.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... i
INCORPORATION BY REFERENCE................................................ ii
SUMMARY................................................................... 1
The Companies........................................................... 1
The Special Meeting..................................................... 2
The Merger.............................................................. 2
Dissenting Shareholders' Rights of Appraisal............................ 5
Conflicts of Interest................................................... 5
Certain Risk Factors and Investment Considerations...................... 6
Berkshire Selected Consolidated Financial Data.......................... 7
FlightSafety Selected Consolidated Financial Data....................... 9
Comparative Stock Prices................................................ 10
Comparative Historical and Pro Forma Per Share Data..................... 11
CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS........................ 12
FLIGHTSAFETY RECENT DEVELOPMENTS ......................................... 13
THE SPECIAL MEETING....................................................... 14
General................................................................. 14
Record Date; Stock Entitled to Vote; Quorum............................. 14
Vote Required........................................................... 14
Proxies; Revocability of Proxies........................................ 14
Dissenting Shareholders' Rights of Appraisal............................ 15
Solicitation of Proxies; General........................................ 16
THE MERGER................................................................ 16
Background of the Merger................................................ 16
Reasons for the Merger; Recommendation of the FlightSafety Board and the
Special Committee...................................................... 18
FlightSafety Financial Advisors......................................... 20
Opinion of Merrill Lynch................................................ 20
Form of the Merger...................................................... 24
Merger Consideration.................................................... 25
Cash Limitation......................................................... 25
Election Procedures; Surrender of FlightSafety Common Stock
Certificates........................................................... 26
Fractional Shares....................................................... 29
Effective Time.......................................................... 29
Stock Exchange Listing.................................................. 29
Certain Federal Income Tax Considerations............................... 29
Treatment of FlightSafety Employee Stock Options........................ 32
Conflicts of Interest................................................... 32
Security Ownership of Certain Beneficial Owners and Management.......... 33
Accounting Treatment.................................................... 35
Approvals and Consents.................................................. 35
Dissenting Shareholders' Rights of Appraisal............................ 35
Delisting and Deregistration of FlightSafety Common Stock............... 38
Resales of Berkshire Common Stock....................................... 38
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................ 39
Certain Representations and Warranties.................................. 39
Conduct of Business Pending Merger...................................... 39
Indemnification......................................................... 40
Conditions to Consummation of the Merger................................ 40
No Solicitation......................................................... 42
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Board of Directors and Officers of Surviving Corporation................ 42
Termination............................................................. 43
Fees and Expenses....................................................... 43
Amendment and Waiver.................................................... 43
CAPITALIZATION............................................................ 44
BUSINESS OF BERKSHIRE..................................................... 44
BUSINESS OF FLIGHTSAFETY.................................................. 48
DESCRIPTION OF BERKSHIRE COMMON STOCK..................................... 48
COMPARISON OF THE RIGHTS OF HOLDERS OF BERKSHIRE AND FLIGHTSAFETY COMMON
STOCK.................................................................... 50
EXPERTS................................................................... 56
LEGAL MATTERS............................................................. 56
SHAREHOLDER PROPOSALS FOR 1997 FLIGHTSAFETY ANNUAL MEETING................ 56
</TABLE>
LIST OF ANNEXES
<TABLE>
<S> <C>
ANNEX I Agreement and Plan of Merger
ANNEX II Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
ANNEX III Section 623 of the New York Business Corporation Law relating to Dissenters' Appraisal Rights
</TABLE>
iv
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus, including the Annexes, or in the documents
incorporated herein by reference. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/ Prospectus, the Annexes and the documents incorporated herein
by reference. Shareholders are urged to read this Proxy Statement/Prospectus
and the Annexes, and the documents incorporated herein by reference, in their
entirety. Capitalized terms used in this Summary and not defined shall have the
meanings ascribed to them elsewhere in this Proxy Statement/Prospectus.
THE COMPANIES
Berkshire Hathaway Inc. Berkshire is a holding company owning subsidiaries
engaged in a number of diverse business activities. The most important of these
is the property and casualty insurance business conducted on both a direct and
reinsurance basis through a number of subsidiaries, including GEICO
Corporation, the seventh largest auto insurer in the United States. Investment
portfolios of Berkshire's insurance subsidiaries include meaningful equity
ownership percentages of other publicly traded companies. Such investments at
September 30, 1996 included approximately 10% of the capital stock of American
Express Company, approximately 8% of the capital stock of The Coca-Cola
Company, approximately 3 1/2% of the capital stock of The Walt Disney Company,
approximately 9% of the capital stock of Federal Home Loan Mortgage
Corporation, approximately 11% of the capital stock of The Gillette Company,
approximately 16% of the capital stock of The Washington Post Company,
approximately 8% of the common stock of Wells Fargo & Company, and common and
convertible preferred stock of Salomon Inc having approximately 18% of the
total voting power of that company. Much information about these publicly owned
companies is available, including information released from time to time by the
companies themselves.
Additionally, Berkshire publishes the Buffalo News, a daily and Sunday
newspaper in upstate New York. Other business activities conducted by non-
insurance subsidiaries include publication and distribution of encyclopedias
and related educational and instructional material (World Book and Childcraft
products), manufacture and marketing of home cleaning systems and related
accessories (sold principally under the Kirby name), manufacture and sale of
boxed chocolates and other confectionery products (See's Candies), retailing of
home furnishings (Nebraska Furniture Mart and R.C. Willey Home Furnishings),
manufacture and distribution of uniforms (Fechheimer Brothers Company),
manufacture, import and distribution of footwear (H.H. Brown Shoe Company,
Lowell Shoe, Inc. and Dexter Shoe Company), retailing of fine jewelry
(Borsheim's Jewelry Company and Helzberg's Diamond Shops) and manufacture and
distribution of air compressors, air tools and painting systems (Campbell
Hausfeld products). Berkshire also owns a number of other businesses engaged in
a variety of activities.
Operating decisions for the various insurance and non-insurance businesses of
Berkshire are made by the managers of the business units. Investment decisions
and all other capital allocation decisions are made for Berkshire and its
subsidiaries by Warren E. Buffett, Berkshire's Chairman, in consultation with
Charles T. Munger, its Vice-Chairman. Berkshire's principal executive offices
are located at 1440 Kiewit Plaza, Omaha, Nebraska 68131, and its telephone
number is (402) 346-1400. See "BUSINESS OF BERKSHIRE."
FlightSafety International, Inc. FlightSafety provides high-technology
training to operators of aircraft and ships. With its worldwide clients
including corporations, airlines, the military and government agencies,
FlightSafety utilizes total training systems, including sophisticated
simulators and training devices, computer-based training and professional
instructors. Such total training systems are designed to enable FlightSafety's
customers to learn, practice and perfect normal and emergency procedures.
FlightSafety operates 35 learning centers in the United States, Canada and
Europe and owns and operates the largest civil aviation simulator fleet in the
world, consisting of more than 170 simulators and training devices.
FlightSafety is also
1
<PAGE>
engaged in the design, manufacture and sale of full-motion flight simulators
and other training equipment and visual displays and systems for flight
simulators. FlightSafety's principal executive offices are located at Marine
Air Terminal, LaGuardia Airport, Flushing, New York 11371, and its telephone
number is (718) 565-4100. See "BUSINESS OF FLIGHTSAFETY."
NY Acquisition Sub Inc. Merger Sub was incorporated in October 1996 for the
sole purpose of consummating the Merger and has engaged in no other business.
THE SPECIAL MEETING
Time, Date and Place; Matters to be Considered; Record Date. The Special
Meeting of shareholders of FlightSafety is scheduled to be held at the
LaGuardia Marriott, 102-05 Ditmars Boulevard, East Elmhurst, New York on
December 23, 1996 at 3:00 p.m., New York City time. At the Special Meeting,
shareholders will consider and vote upon (i) a proposal to approve and adopt
the Merger Agreement and (ii) such other matters as may be properly brought
before the meeting. Shareholders of record at the close of business on November
18, 1996 (the "Record Date") will be entitled to notice of and to vote at the
Special Meeting. See "THE SPECIAL MEETING--General" and "--Record Date; Stock
Entitled to Vote; Quorum."
Vote Required; Quorum. As of the Record Date, there were 30,189,724 shares of
FlightSafety Common Stock outstanding and entitled to vote at the Special
Meeting. The affirmative vote of the holders of two-thirds of the outstanding
shares entitled to vote at the Special Meeting is required to approve the
Merger Agreement. It is expected that all of the 10,045,260 shares of
FlightSafety Common Stock (excluding 166,745 shares underlying stock options)
beneficially owned by directors and executive officers of FlightSafety at the
close of business on the Record Date (33.3% of the outstanding shares) will be
voted for approval and adoption of the Merger Agreement. The presence, in
person or by proxy, of the holders of one-third of the total number of issued
and outstanding shares entitled to vote at the Special Meeting will constitute
a quorum. Under applicable New York law, abstentions and broker non-votes will
have the same effect as a vote against the Merger Agreement. Approval of the
Merger by the Berkshire shareholders is not required. See "THE SPECIAL
MEETING--Record Date; Stock Entitled to Vote; Quorum" and "--Vote Required."
THE MERGER
Form of the Merger; Effective Time. If the approval of shareholders is
obtained and all other conditions to the Merger are satisfied or waived,
FlightSafety will be merged with and into Merger Sub, with Merger Sub being the
surviving corporation after the Merger (the "Surviving Corporation") and a
wholly owned subsidiary of Berkshire. The Merger will become effective upon the
filing of a certificate of merger with the Department of State of the State of
New York in accordance with applicable law or on such later date as the
certificate may specify (the "Effective Time"). The name of the Surviving
Corporation will be changed to FlightSafety International, Inc. See "THE
MERGER--Form of the Merger" and "--Effective Time."
Merger Consideration. The Merger Agreement provides that, as of the Effective
Time and subject to the limitation that not more than 58% of the total value of
the consideration paid in the Merger be paid in cash, each outstanding share of
FlightSafety Common Stock (other than shares owned by FlightSafety, any
subsidiary of FlightSafety, Berkshire, Merger Sub or any other subsidiary of
Berkshire or any Dissenting Shares) will be converted, at the election of the
holder thereof, into the right to receive (i) $50.00 in cash (the "Cash
Consideration"), (ii) the portion of a share of Berkshire Class A Stock
determined by dividing $48.00 by the Average Class A Stock Price (the "Class A
Stock Consideration") or (iii) the portion of a share of Berkshire Class B
Stock determined by dividing $48.00 by the quotient of the Average Class A
Stock Price divided by 30 (the "Class B Stock Consideration," and together with
the Class A Stock Consideration, the "Stock Consideration"). To the extent that
none of the foregoing elections is effectively made, shares of FlightSafety
Common Stock will be converted into Berkshire Class B Stock. No fractional
shares of Berkshire Class A Stock or Class B Stock will be issued in the
Merger. In lieu thereof, shareholders will receive Berkshire Class B Stock
and/or cash. See "THE MERGER--Fractional Shares" and "--Merger Consideration."
2
<PAGE>
Elections. To be effective, an election must be made on a properly completed
and signed Form of Election received by the Exchange Agent by 5:00 p.m., New
York City time, on the last business day prior to the date of the Special
Meeting and accompanied by the certificates representing shares of FlightSafety
Common Stock (duly endorsed in blank or otherwise in a form acceptable for
transfer) as to which election is being made (or an appropriate guarantee of
delivery). Shareholders can indicate on the Form of Election whether they wish
to receive the Cash Consideration, the Class A Stock Consideration or the Class
B Stock Consideration. If none of the elections is effectively made, the Class
B Stock Consideration (and/or cash in lieu of a fractional share of Berkshire
Class B Stock) will be issued and delivered in the Merger. See "The MERGER--
Election Procedures; Surrender of FlightSafety Common Stock Certificates."
SHAREHOLDERS ARE URGED TO DELIVER TO THE EXCHANGE AGENT A PROPERLY COMPLETED
FORM OF ELECTION, ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00
P.M., NEW YORK CITY TIME, ON DECEMBER 19, 1996. PLEASE USE THE MANILA ENVELOPE
FOR SENDING THE FORM OF ELECTION AND REQUIRED DOCUMENTS.
Cash Limitation. The election to receive the Cash Consideration will be
subject to adjustment so that the Total Cash Consideration (as defined) paid to
all FlightSafety shareholders in the Merger will not exceed 58% (the "Cash
Limitation") of the sum of (i) the Total Cash Consideration, (ii) the Total
Class A Merger Consideration (as hereinafter defined), and (iii) the Total
Class B Merger Consideration (as hereinafter defined). See "THE MERGER--Cash
Limitation." If the Cash Limitation is exceeded, then shareholders electing the
Cash Consideration who hold a sufficient number of shares of FlightSafety
Common Stock to receive as part of the Merger Consideration (as defined) at
least one share of Berkshire Class B Stock will receive one such share in lieu
of the cash election. If that procedure is not sufficient to reduce the Cash
Consideration to an amount equal to or less than the Cash Limitation, then each
shareholder electing the Cash Consideration who holds a sufficient number of
shares of FlightSafety Common Stock to receive as part of the Merger
Consideration at least two whole shares of Berkshire Class B Stock, and to the
extent necessary more than two shares, will receive such shares until the Cash
Consideration is equal to or less than the Cash Limitation. For a more detailed
description, see "THE MERGER--Cash Limitation; Surrender of FlightSafety Common
Stock Certificates." There can be no assurance that each shareholder will
receive only the Cash Consideration if such shareholder makes a Cash Election.
See "CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS." However, shareholders
who elect to receive the Class A Stock Consideration will receive their entire
consideration (except for the issuance of shares of Berkshire Class B Stock and
cash paid in lieu of fractional shares of Berkshire Class A Stock) in shares of
the Berkshire Class A Stock and will not be subject to such allocation
procedure. The receipt of cash may be taxable. See "THE MERGER--Certain Federal
Income Tax Considerations."
Recommendation of the FlightSafety Board and the Special Committee. The
FlightSafety Board, upon the unanimous recommendation of a special committee of
independent directors (the "Special Committee"), has determined that the Merger
is fair to and in the best interests of FlightSafety and its shareholders.
Accordingly, the FlightSafety Board has unanimously adopted the Merger
Agreement and recommends that the shareholders vote to approve and adopt the
Merger Agreement at the Special Meeting. See "THE MERGER--Background of the
Merger" and "--Reasons for the Merger; Recommendation of the FlightSafety Board
and the Special Committee."
Financial Advisors to the Special Committee. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and Morgan Lewis Githens & Ahn ("Morgan
Lewis") acted as financial advisors to the Special Committee in connection with
the Merger. On October 14, 1996, Merrill Lynch delivered its oral opinion
(subsequently confirmed in writing) to the Special Committee, to the effect
that, as of such date and based upon the assumptions made, matters considered
and certain limitations on the scope of review in connection with such opinion,
the aggregate amount of cash, shares of Berkshire Class A Stock and shares of
Berkshire Class B Stock (collectively, the "Merger Consideration") to be
received by FlightSafety shareholders (other than Berkshire and its affiliates)
in the Merger is fair to such holders from a financial point of view. A copy of
the written opinion of Merrill Lynch which sets forth the assumptions made,
matters considered, and limitations on the scope of
3
<PAGE>
review undertaken by Merrill Lynch is attached as Annex II. Shareholders are
urged to, and should, read such opinion in its entirety. Morgan Lewis'
engagement did not include the rendering of a fairness opinion. See "The
MERGER--FlightSafety Financial Advisors" and "--Opinion of Merrill Lynch."
Conditions to the Merger. The obligations of Berkshire, Merger Sub and
FlightSafety to consummate the Merger are subject to various conditions,
including, without limitation, (i) obtaining FlightSafety shareholder approval,
(ii) absence of any order or other legal restraint or prohibition preventing
the consummation of the Merger, (iii) execution and delivery by A. L. Ueltschi,
Chairman and President of FlightSafety, and his best efforts to cause specified
members of his family to execute and deliver, to Berkshire an agreement which
prohibits the disposition of Berkshire Common Stock (except under certain
circumstances) for a two-year period following the Effective Time and (iv)
receipt by FlightSafety and Berkshire of opinions of their respective counsel
to the effect that, on the basis of facts, representations, assumptions, and
agreements set forth or referred to in such opinions, for U.S. federal income
tax purposes, the Merger will qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that Berkshire, Merger Sub and FlightSafety will each be a party to the
reorganization within the meaning of Section 368(b) of the Code. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Conditions to Consummation of the Merger"
and "THE MERGER--Approvals and Consents."
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time (i) by mutual written consent of
Berkshire and FlightSafety or (ii) by either Berkshire or FlightSafety (a) if
any court or other governmental entity has issued a final and nonappealable
order, decree or ruling or taken any other final and nonappealable action
permanently enjoining or otherwise prohibiting the Merger or (b) if the Merger
has not been consummated on or before March 31, 1997 (other than due to the
failure of the party seeking to terminate the Merger Agreement to perform its
obligations thereunder).
The Merger Agreement also may be terminated by FlightSafety under the
following circumstances: (i) the failure of Berkshire or Merger Sub to perform
any of their respective material obligations under the Merger Agreement or (ii)
if after the receipt of an unsolicited proposal (a "Transaction Proposal") by a
third party to merge with or acquire a substantial equity interest in, or a
substantial portion of the assets of, FlightSafety, the FlightSafety Board
withdraws or modifies its recommendation of the Merger Agreement and the Merger
(provided that the FlightSafety Board has concluded in good faith, after
consulting with and considering the advice of outside legal counsel, that such
action is required in the exercise of its fiduciary duties to FlightSafety
shareholders). See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Termination."
The Merger Agreement may also be terminated by Berkshire (i) if the required
approval of the FlightSafety shareholders has not been obtained, (ii) if
FlightSafety fails to perform any of its material obligations under the Merger
Agreement, (iii) if the FlightSafety Board (a) withdraws, modifies or amends,
in a manner adverse to Berkshire, its approval or recommendation of the Merger
Agreement or the Merger or (b) recommends any Transaction Proposal from a third
party other than Berkshire or (iv) if FlightSafety exercises certain rights
with respect to a Transaction Proposal from a third party and continues
discussions with any third party regarding such Transaction Proposal for more
than 10 business days after receiving such Transaction Proposal or fails to
reject any publicly disclosed Transaction Proposal made by a third party within
10 business days after receiving such Transaction Proposal. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--No Solicitation" and "--Termination."
Certain Federal Income Tax Considerations. The obligations of Berkshire,
Merger Sub and FlightSafety to consummate the Merger are subject to the receipt
by Berkshire and FlightSafety of the opinions of their respective counsel to
the effect that, on the basis of facts, representations, assumptions and
agreements set forth or referred to therein, for U.S. federal income tax
purposes, the Merger will qualify as a reorganization within the meaning of
Section 368 of the Code, and Berkshire, Merger Sub and FlightSafety will each
be a party to the reorganization within the meaning of Section 368(b) of the
Code. See "CERTAIN PROVISIONS OF THE
4
<PAGE>
MERGER AGREEMENT--Conditions to Consummation of the Merger." If the Merger so
qualifies, then, in general (i) a shareholder who exchanges shares solely for
cash will recognize capital gain or loss equal to the difference between the
amount of cash received and the adjusted basis in the shares of FlightSafety
Common Stock surrendered therefor, (ii) a shareholder who exchanges shares
solely for shares of Berkshire Common Stock will not recognize any gain or loss
except with respect to cash received in lieu of a fractional share of Berkshire
Class B Stock and (iii) a shareholder who exchanges shares for a combination of
Berkshire Common Stock and cash will recognize gain equal to the lesser of (a)
the excess of the sum of the cash and fair market value of Berkshire Common
Stock received over the tax basis in the shares exchanged and (b) the amount of
cash received. Certain exceptions and/or other considerations may apply to the
above. See "THE MERGER--Certain Federal Income Tax Considerations."
Stock Exchange Listing. Berkshire will file an application to list the shares
of Berkshire Common Stock to be issued in connection with the Merger on the
NYSE, subject to the official notice of issuance. The shares of Berkshire Class
A Stock and Class B Stock are traded on the NYSE under the symbols "BRK.A" and
"BRK.B," respectively.
Accounting Treatment. The Merger will be accounted for by Berkshire under the
purchase method of accounting in accordance with Accounting Principles Opinion
No. 16, "Business Combinations," as amended. Under this method of accounting,
the aggregate consideration paid by Berkshire in the Merger will be allocated
to FlightSafety's assets and liabilities based on their fair market values at
the Effective Time, with any excess being treated as goodwill. The assets and
liabilities and results of operations of FlightSafety will be consolidated into
the assets and liabilities and results of operations of Berkshire commencing at
the Effective Time.
Regulatory Approvals Required. Pursuant to the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"), Berkshire and FlightSafety
each filed on October 28, 1996 with the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") a Notification and Report Form with respect to the
Merger. On November 8, 1996, the FTC notified FlightSafety that the HSR waiting
period had been terminated. See "THE MERGER--Approvals and Consents."
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Shareholders of FlightSafety will be entitled to exercise dissenters' rights
of appraisal if the Merger Agreement is approved and adopted and the Merger
consummated and to have their shares appraised by a court and to receive
payment for the "fair value" of their shares as determined by such court. To
exercise such rights, a shareholder must not vote to approve and adopt the
Merger Agreement and must comply with certain statutory procedures within time
periods specified in the appraisal provisions of New York law. The value
determined in such appraisal could be more than, the same as or less than the
value of the consideration to be received pursuant to the Merger Agreement by
FlightSafety shareholders who do not dissent from the Merger. For a summary of
the provisions of Section 623 of the New York Business Corporation Law
("NYBCL") relating to appraisal rights, see "THE MERGER--Dissenting
Shareholders' Rights of Appraisal." A copy of Section 623 of the NYBCL is
attached as Annex III. FlightSafety shareholders are urged to, and should, read
such Section 623 carefully in its entirety.
CONFLICTS OF INTEREST
Certain executive officers and directors of FlightSafety, including Messrs.
A.L. Ueltschi, John A. Morgan and Bruce N. Whitman, have interests in the
Merger in addition to their interests as shareholders of FlightSafety. Such
interests relate, among other things, to provisions in the Merger Agreement
regarding compensation plans, severance agreements, the exchange of exercisable
outstanding options to purchase FlightSafety Common Stock for cash or for
exercisable options to purchase shares of Berkshire Class B Stock and the
release of restricted FlightSafety Common Stock from such restrictions. Mr.
Morgan, a director of FlightSafety, is a partner in
5
<PAGE>
Morgan Lewis, one of the Special Committee's financial advisors which will
receive certain fees in that connection. See "THE MERGER--FlightSafety
Financial Advisors." Mr. Ueltschi, the Chairman and President of FlightSafety
and its largest shareholder, has publicly stated that he intends to vote for
approval and adoption of the Merger Agreement and elect to receive Berkshire
Class A Stock in the Merger and Berkshire has stated that it expects Mr.
Ueltschi to continue as President of FlightSafety following the Merger. See
"THE MERGER--Conflicts of Interest" and "--Background of the Merger."
CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS
In considering whether to vote for approval of the Merger Agreement,
shareholders of FlightSafety should carefully consider the following matters:
(i) the value of Berkshire Common Stock at the Effective Time may vary from its
price at the time of the determination of the Average Class A Stock Price, the
date of this Proxy Statement/Prospectus and the date of the Special Meeting;
(ii) each share of Berkshire Class A Stock is convertible into 30 shares of
Berkshire Class B Stock, but shares of Berkshire Class B Stock are not
convertible into shares of Berkshire Class A Stock or any other security; (iii)
if the Cash Limitation is exceeded, then certain FlightSafety shareholders
electing to receive the Cash Consideration will not receive the Cash
Consideration for all of their shares of FlightSafety Common Stock but will
receive a combination of cash and Berkshire Class B Stock; (iv) the past growth
rate of Berkshire's book value per share is not indicative of future results of
Berkshire; (v) if for any reason the services of key management personnel of
Berkshire, such as Warren E. Buffet, Charles T. Munger or Ajit Jain, were to
become unavailable to Berkshire, there could be a material adverse effect on
Berkshire and on the market price of Berkshire Common Stock; (vi) Berkshire's
"super-cat" insurance business is virtually certain to produce huge losses in
some years in the future; (vii) Berkshire's insurance subsidiaries keep an
unusually high percentage of their assets in common stock and diversify their
portfolios far less than is conventional and thus a significant decline in the
general stock market could have a material adverse effect on the price of
Berkshire Common Stock; and (viii) FlightSafety shareholders who receive
Berkshire Class B Stock will not participate in a shareholder-designated
charitable contributions program that is available to holders of Berkshire
Class A Stock. See "CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS."
6
<PAGE>
BERKSHIRE SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data which follows should be read in
conjunction with the restated audited consolidated financial statements and
accompanying notes and the unaudited condensed consolidated financial
statements and accompanying notes of Berkshire in the documents which are
incorporated by reference in this Proxy Statement/Prospectus. Berkshire's
consolidated financial statements for the years ended December 31, 1991 through
December 31, 1995 and the nine months ended September 30, 1995 have been
restated to account for Berkshire's acquisition of GEICO Corporation on January
2, 1996. The condensed consolidated financial statements of Berkshire as of
September 30, 1996 and September 30, 1995 and for the periods then ended are
unaudited; however, in Berkshire's opinion, they reflect all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the financial position and results of operations for such periods. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales and service
revenues............. $2,137.0 $1,871.4 $2,755.9 $2,351.9 $1,962.9 $1,774.4 $1,651.1
Insurance premiums
earned............... 2,904.8 579.4 957.5 923.2 650.7 664.3 776.4
Interest, dividend and
other investment
income............... 582.5 456.1 629.2 519.0 520.7 485.5 482.8
Income from finance
businesses........... 16.9 21.5 26.6 24.9 22.2 20.7 19.5
Realized investment
gain(1).............. 2,428.6(2) 141.2 194.1 91.3 546.4 89.9 192.5
-------- -------- -------- -------- -------- -------- --------
Total revenues........ $8,069.8 $3,069.6 $4,563.3 $3,910.3 $3,702.9 $3,034.8 $3,122.3
======== ======== ======== ======== ======== ======== ========
EARNINGS:
Before realized
investment gain and
cumulative effect of
accounting change.... $ 555.3 $ 435.5 $ 669.9 $ 491.9(3) $ 520.2(4) $ 400.8 $ 382.8
Realized investment
gain(1).............. 1,568.6(2) 90.2 125.0 61.1 356.7 59.6 124.2
Cumulative effect of
change in accounting
for income taxes..... -- -- -- -- (33.3) -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings.......... $2,123.9 $ 525.7 $ 794.9 $ 553.0 $ 843.6 $ 460.4 $ 507.0
======== ======== ======== ======== ======== ======== ========
SOURCES OF NET EARNINGS:
Property and casualty
insurance............ $ 454.5 $ 331.3 $ 496.4 $ 487.3 $ 436.2 $ 287.8 $ 275.0
Non-insurance
businesses........... 123.2 111.5 191.4 202.2 166.5 154.1 131.8
Realized investment
gain(1).............. 1,568.6(2) 90.2 125.0 61.1 356.7 59.6 124.2
Interest expense...... (45.1) (25.2) (34.9) (37.3) (35.6) (62.9) (57.2)
Other................. 22.7 17.9 17.0 12.3 6.7 21.8 33.2
-------- -------- -------- -------- -------- -------- --------
Earnings before non-
recurring charges and
effect of accounting
change............... $2,123.9 $ 525.7 $ 794.9 $ 725.6 $ 930.5 $ 460.4 $ 507.0
Non-recurring charges
and effect of
accounting change.... -- -- -- (172.6)(3) (86.9)(5) -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings.......... $2,123.9 $ 525.7 $ 794.9 $ 553.0 $ 843.6 $ 460.4 $ 507.0
======== ======== ======== ======== ======== ======== ========
Net earnings per
share(7)............. $ 1,766 $ 444 $ 670 $ 469 $ 730 $ 402 $ 442
======== ======== ======== ======== ======== ======== ========
Average shares
outstanding, in
thousands(7)......... 1,203 1,185 1,187 1,178 1,156 1,146 1,146
</TABLE>
7
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......... $39,206.7 $27,165.3 $28,711.4 $20,609.6 $18,697.5 $15,721.5 $13,869.9
Borrowings under
investment agreements
other debt(6)........ 1,435.2 806.6 1,061.7 810.7 972.4 1,154.7 1,100.5
Shareholders' equity.. 21,188.7 15,685.0 16,738.7 11,651.5 10,140.2 8,132.9 7,145.0
</TABLE>
- --------
(1) The amount of realized investment gain/loss for any given period has no
predictive value, and variations in amount from period to period have no
practical analytical value, particularly in view of the unrealized
appreciation now existing in Berkshire's consolidated investment portfolio.
(2) In March 1996, The Walt Disney Company completed its acquisition of Capital
Cities/ABC, Inc. A pre-tax realized gain related to this transaction of
$2.2 billion ($1.4 billion after-tax) is included in 1996's year-to-date
results.
(3) Includes a charge of $172.6 million representing an other-than-temporary
decline in value of investment in USAir Group, Inc. preferred stock.
(4) Includes a charge of $53.6 million representing the effect of the change in
U.S. federal income tax rates on deferred taxes applicable to unrealized
appreciation.
(5) Includes a charge of $33.3 million related to change in accounting for
income taxes and $53.6 million as described in (4) above.
(6) Excludes borrowings of finance businesses.
(7) On May 8, 1996, Berkshire issued 517,500 shares of Berkshire Class B Stock
in the initial public offering of that class of stock. Each share of
Berkshire Class B Stock has economic rights equal to one-thirtieth (1/30)
of a share of Berkshire Class A Stock. Average shares outstanding for the
1996 period includes average Berkshire Class A shares and average Berkshire
Class B shares determined on an equivalent Berkshire Class A Stock basis.
Net earnings per share shown above represents net earnings per share of
Berkshire Class A Stock. Net earnings per share of Berkshire Class B Stock
is equal to one-thirtieth (1/30) of such amount or $59 per share for the
first nine months of 1996.
8
<PAGE>
FLIGHTSAFETY SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data which follows should be read in
conjunction with the audited consolidated financial statements and accompanying
notes and the unaudited consolidated financial statements and notes of
FlightSafety in the documents which are incorporated by reference in this Proxy
Statement/Prospectus. The consolidated financial statements of FlightSafety as
of September 30, 1996 and September 30, 1995 and for the periods then ended are
unaudited; however, in FlightSafety's opinion, they reflect all adjustments,
consisting only of normal recurring items, necessary to present a fair
presentation of the financial position and the results of operations for such
periods. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues.............. $ 267.0 $ 234.7 $325.8 $301.3 $297.1 $278.4 $267.6
Operating costs and
expenses............. 141.1 114.6(1) 160.4(1) 148.2(1) 151.8(1) 132.4 131.1
Depreciation and
amortization......... 39.7 37.0 49.5 46.7 44.3 40.0 36.3
Income from
operations........... 86.2 83.1(1) 115.9(1) 106.4(1) 101.0(1) 106.1 100.2
Income taxes.......... 33.6 30.5 42.7 41.5 43.1(2) 45.7 38.2
Net income............ 61.1 60.4 84.5 74.5 66.4(2) 82.3(3) 72.4
Net income per share.. $ 2.00 $ 1.93 $ 2.71 $ 2.35 $ 2.01(2) $ 2.39(3) $ 2.11
Cash dividends
declared per share... $ .44 $ .38 $ .52 $ .44 $ .38 $ .32 $ .26
BALANCE SHEET DATA:
Working capital....... $ 163.7 $ 208.5 $202.3 $202.2 $178.1 $231.5 $184.5
Purchase of equipment
and facilities....... 84.4 60.1 90.0 64.4 64.0 68.3 49.5
Total assets.......... 860.2 828.4 844.4 792.9 753.9 814.5 690.6
Long-term debt........ 36.9 38.4 38.1 39.8 41.6 44.6 29.7
Shareholders' equity.. 619.0(4) 587.9(4) 603.0(4) 560.4(4) 526.4(4) 564.4 490.4
</TABLE>
- --------
(1) Reclassified to conform to 1996 presentation.
(2) Due to an increase in the federal income tax rate in 1993, additional
deferred income tax liabilities of $3.4 million, or $.10 per share, were
recorded in 1993 related to temporary differences that arose in prior
years.
(3) In July 1992, FlightSafety sold its minority financial interest in a
European venture to the majority shareholder for a pre-tax gain of $12.6
million which increased net income by $7.7 million, or $.22 per share.
(4) Shareholders' equity was reduced by $35.1 million for the nine months ended
September 30, 1996 ($23.7 million in 1995) to reflect the repurchase of 0.7
million shares in 1996 (0.5 million shares in 1995) of FlightSafety Common
Stock. Shareholders' equity was reduced annually by $29.5 million in 1995
($29.2 million in 1994 and $94.2 million in 1993) to reflect the repurchase
of approximately 0.6 million shares in 1995 (0.8 million and 2.5 million
shares in 1994 and 1993, respectively) of FlightSafety Common Stock.
9
<PAGE>
COMPARATIVE STOCK PRICES
FlightSafety Common Stock is listed and traded on the NYSE under the symbol
"FSI"; Berkshire Class A Stock and Berkshire Class B Stock are listed and
traded on the NYSE under the symbols "BRK.A" and "BRK.B," respectively.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of FlightSafety Common Stock and Berkshire Class A Stock
and Berkshire Class B Stock, as reported on the NYSE Composite Tape, and the
quarterly cash dividends per share of FlightSafety Common Stock. Berkshire has
not paid a cash dividend on its Common Stock since 1967 and has no present
intention of paying a dividend on either the Berkshire Class A Stock or
Berkshire Class B Stock in the future. Berkshire Class B Stock was first issued
to the public and commenced trading on the NYSE on May 8, 1996.
<TABLE>
<CAPTION>
BERKSHIRE BERKSHIRE FLIGHTSAFETY
CLASS A STOCK CLASS B STOCK COMMON STOCK
------------- ------------- -------------
DIVIDENDS
HIGH LOW HIGH LOW HIGH LOW PAID
------ ------ ------------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter.............. 16,900 15,150 -- -- 44 1/4 33 1/2 .10
Second Quarter............. 16,700 15,400 -- -- 39 1/2 35 1/8 .10
Third Quarter.............. 19,750 16,425 -- -- 39 5/8 35 3/8 .10
Fourth Quarter............. 20,800 18,200 -- -- 41 7/8 36 1/4 .12
1995
First Quarter.............. 25,200 20,250 -- -- 47 1/2 37 1/2 .12
Second Quarter............. 24,450 21,500 -- -- 49 3/8 45 1/2 .12
Third Quarter.............. 30,600 23,400 -- -- 49 1/2 43 1/2 .12
Fourth Quarter............. 33,400 28,850 -- -- 52 5/8 44 1/2 .14
1996
First Quarter.............. 38,000 29,800 -- -- 56 3/4 48 3/8 .14
Second Quarter............. 36,000 30,000 1,220 990 60 53 .14
Third Quarter.............. 33,500 30,500 1,117 1,005 54 1/2 42 1/8 .14
Fourth Quarter (through
November 19, 1996)........ 33,900 31,000 1,129 1,036 50 3/4 43 3/8 --
</TABLE>
On October 14, 1996, the last trading day prior to the announcement of the
Merger Agreement, the last reported per share sale prices, as reported on the
NYSE Composite Tape, of FlightSafety Common Stock, Berkshire Class A Stock and
Berkshire Class B Stock were $43 7/8, $31,900 and $1,065, respectively.
On November 19, 1996, the last trading day prior to the first mailing of this
Proxy Statement/Prospectus, the last reported per share sale prices, as
reported on the NYSE Composite Tape, of FlightSafety Common Stock, Berkshire
Class A Stock, Berkshire Class B Stock were $49 3/8, $33,400 and $1,112,
respectively.
The market prices of FlightSafety Common Stock, Berkshire Class A and Class B
Stock are subject to fluctuation. Consequently, FlightSafety shareholders are
urged to obtain current market quotations.
10
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The table below sets historical earnings per share, cash dividends per share
and book value per share data of Berkshire and FlightSafety, unaudited pro
forma combined per share data of Berkshire and pro forma equivalent per share
data of FlightSafety for the nine months ended September 30, 1996 and for the
year ended December 31, 1995. The data should be read in conjunction with the
historical financial statements and notes thereto incorporated by reference in
this Proxy Statement/Prospectus and the selected historical financial data
elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The pro forma data gives
effect to the Merger under the purchase method of accounting. Because the
relative amounts of Cash Consideration and Stock Consideration in the Merger
depend upon, among other things, the elections of FlightSafety shareholders and
the application of procedures to ensure that the Cash Consideration does not
exceed the Cash Limitation (see "THE MERGER--Merger Consideration" and "--Cash
Limitation"), two alternative scenarios of unaudited pro forma comparative per
share data are presented. Scenario 1 assumes that 58% of the Merger
Consideration is Cash Consideration and 42% of the Merger Consideration is
Stock Consideration. Scenario 2 assumes that 100% of the total consideration is
Stock Consideration.
<TABLE>
<CAPTION>
BERKSHIRE FLIGHTSAFETY
--------------------------------------- ---------------------------------------
NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996(1) DECEMBER 31, 1995 SEPTEMBER 30, 1996 DECEMBER 31, 1995
--------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Historical:
Earnings Per Share..... $ 1,766 $ 670 $ 2.00 $ 2.71
Cash Dividends Paid Per
Share(3).............. -- -- 0.42 0.50
Book Value Per Share... 17,500 14,025 20.51 19.58
<CAPTION>
SCENARIO 1--MAXIMUM CASH SCENARIO 2--MAXIMUM STOCK
--------------------------------------- ---------------------------------------
NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996(1) DECEMBER 31, 1995 SEPTEMBER 30, 1996(1) DECEMBER 31, 1995
--------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Pro Forma Combined:
Earnings Per Share..... $ 1,754 $ 682 $ 1,738 $ 696
Cash Dividends Per
Share(3).............. -- -- -- --
Book Value Per Share... 17,731 14,314 18,026 14,684
FlightSafety Pro Forma
Equivalents(2):
Earnings Per Share..... 2.62 1.02 2.60 1.04
Cash Dividends Per
Share(3).............. -- -- -- --
Book Value Per Share... 26.47 21.37 26.91 21.92
</TABLE>
- --------
(1) On May 8, 1996, Berkshire issued 517,500 shares of Berkshire Class B Stock
in the initial public offering of that class of stock. Each share of
Berkshire Class B Stock has economic rights equal to one-thirtieth of a
share of Berkshire Class A Stock. Earnings per share and book value per
share for 1996 are reflected above on the equivalent Berkshire Class A
Stock basis. The equivalent Berkshire Class B Stock amounts are equal to
one-thirtieth of such amounts.
(2) FlightSafety pro forma equivalent data represent the unaudited pro forma
combined earnings per share and book value per share calculated on the
basis of $48 in value of Berkshire Common Stock (valued at $32,150 per
share of Berkshire Class A Common Stock, the last reported sales price on
the NYSE Composite Tape on September 30, 1996).
(3) Berkshire has not paid a cash dividend on its common stock since 1967 and
has no present intention of paying a dividend on either the Berkshire Class
A Stock or Berkshire Class B Stock in the future.
11
<PAGE>
CERTAIN RISK FACTORS AND INVESTMENT CONSIDERATIONS
In considering whether to approve and adopt the Merger Agreement, the
shareholders of FlightSafety should consider the following:
VALUE OF BERKSHIRE COMMON STOCK. Shareholders who elect to receive Berkshire
Common Stock in the Merger will receive for each share of FlightSafety Common
Stock $48 in value of shares of Berkshire Class A Stock, or approximately $48
in value of shares of Berkshire Class B Stock, in each case based on the
Average Class A Stock Price, which is based on the average of the high and low
trading prices of Berkshire Class A Stock on the NYSE Composite Tape for the
five consecutive trading days ending on the last business day prior to the
Special Meeting. The $48 in value is approximate with respect to Berkshire
Class B Stock because the number of shares of Berkshire Class B Stock to be
received will be determined by dividing the Average Class A Stock Price by 30,
while the trading price of the Berkshire Class B Stock on the NYSE on any day
is approximately, but not necessarily exactly, one-thirtieth of the trading
price for Berkshire Class A Stock on that day. See "--Nonconvertibility and
Market Price of Berkshire Class B Stock" below. The price of Berkshire Common
Stock at the Effective Time may vary from its price at the time of
determination of the Average Class A Stock Price, the date of this Proxy
Statement/Prospectus and the date of the Special Meeting. Such variations may
be the result of changes in the business, operations or prospects of
Berkshire, changes in the market perception of Berkshire's business,
operations or prospects, or general market and economic conditions and other
factors. Because the Effective Time may occur at a date later than the Special
Meeting, there can be no assurance that the price of Berkshire Common Stock on
the date of the Special Meeting will be indicative of its price at the
Effective Time. The Effective Time will occur as soon as practicable following
the Special Meeting and the satisfaction or waiver of the other conditions set
forth in the Merger Agreement. Shareholders are urged to obtain current market
quotations for Berkshire Common Stock.
NONCONVERTIBILITY AND MARKET PRICE OF BERKSHIRE CLASS B STOCK. Each share of
Berkshire Class A Stock is convertible into 30 shares of Berkshire Class B
Stock, but shares of Berkshire Class B Stock are not convertible into shares
of Berkshire Class A Stock or any other security. Although a share of
Berkshire Class B Stock may sell below one-thirtieth of the market price for
Berkshire Class A Stock, it is unlikely that a share of Berkshire Class B
Stock will sell more than fractionally above one-thirtieth of the market price
for Berkshire Class A Stock because higher prices than that would cause
arbitrage activity to ensue. See "DESCRIPTION OF BERKSHIRE COMMON STOCK."
POSSIBILITY OF RECEIVING CLASS B STOCK CONSIDERATION IN LIEU OF CASH
CONSIDERATION. The Total Cash Consideration (as defined) in the Merger is
subject to the Cash Limitation (i.e., that not more than 58% of the total
value of the consideration paid in the Merger be paid in cash), which is
intended to allow the Merger to qualify as a tax-free reorganization under
Section 368(a) of the Code. Mr. Ueltschi, FlightSafety's largest shareholder,
has publicly stated that he intends to elect the Class A Stock Consideration
in exchange for his shares of FlightSafety Common Stock, which represent
approximately 32% of the outstanding shares of FlightSafety Common Stock.
Unless shareholders owning at least another 10% of the outstanding shares of
FlightSafety Common Stock elect to receive the Stock Consideration,
shareholders electing to receive the Cash Consideration will not receive such
Cash Consideration for all shares of FlightSafety Common Stock as to which
they make such election. If a FlightSafety shareholder who elects to receive
the Cash Consideration receives the Class B Stock Consideration with respect
to certain shares of FlightSafety Common Stock due to the Cash Limitation,
such shareholder will receive approximately $48 in value of Berkshire Class B
Stock, based on the Average Class A Stock Price, in exchange for such share of
FlightSafety Common Stock, in lieu of receiving $50 in cash. See "THE MERGER--
Cash Limitation" and "--Election Procedures."
PAST GROWTH RATE IN BERKSHIRE COMMON STOCK IS NOT AN INDICATION OF FUTURE
RESULTS. In the years since Berkshire's present management acquired control of
Berkshire, its book value per share has grown at a highly satisfactory rate.
But because Berkshire's shareholders' equity has grown to approximately $21
billion as of September 30, 1996, nothing like the growth rate of the past can
be achieved in the future.
12
<PAGE>
DEPENDENCE ON KEY MANAGEMENT. Investment decisions and all other capital
allocation decisions are made for Berkshire's businesses by Mr. Buffett, its
Chairman, age 66, in consultation with Mr. Munger, its Vice Chairman, age 72.
In addition, Ajit Jain, age 45, plays a central role in much of Berkshire's
insurance business, including its "super-cat" specialty. If for any reason the
services of any of these individuals, and particularly Mr. Buffett, were to
become unavailable to Berkshire, there could be a material adverse effect both
on Berkshire and on the market price of Berkshire Common Stock. See "BUSINESS
OF BERKSHIRE."
SUPER-CAT INSURANCE. Berkshire believes that in recent years it has been the
largest writer in the world of "super-cat" insurance, whereby reinsurers (such
as Berkshire) assume a risk of large losses from mega-catastrophes such as
hurricanes or earthquakes. This business has produced underwriting gains of
approximately $152 million, $240 million, and $110 million in 1995, 1994 and
1993, respectively, but is virtually certain to produce huge losses in some
years in the future. Berkshire's present underwriting standards (which are
subject to change) seek to limit Berkshire's exposure to a loss from a single
event to $1 billion in excess of the premium earned. See "BUSINESS OF
BERKSHIRE."
CONCENTRATION OF INVESTMENTS. Compared to other insurers, Berkshire's
insurance subsidiaries keep an unusually high percentage of their assets in
common stocks and diversify their portfolios far less than is conventional. A
significant decline in the general stock market would produce a large decrease
in Berkshire's book value, one far greater than likely to be experienced by
most other property-casualty insurance companies. Such a decrease could have a
material adverse effect on the share price for Berkshire Common Stock, but
would not be a basis for termination of the Merger Agreement by FlightSafety.
ABSENCE OF SHAREHOLDER-DESIGNATED CONTRIBUTIONS PROGRAM FOR BERKSHIRE CLASS
B STOCK. For some years Berkshire has let its shareholders of record of
Berkshire Class A Stock designate charitable contributions to be made by
Berkshire. In 1996, shareholders of record as of August 31, 1996 were entitled
to designate $14 per share. It is anticipated that this program will continue
in the future for shareholders of record of Berkshire Class A Stock. However,
shares of Berkshire Class B Stock do not participate in the program.
Accordingly, FlightSafety shareholders who receive the Class B Stock
Consideration will not participate in the program with respect to their shares
of Berkshire Class B Stock.
FLIGHTSAFETY RECENT DEVELOPMENTS
On October 15, 1996, FlightSafety reported third quarter net income of
$18,899,000, compared to $19,355,000 for the third quarter of 1995. Net income
per share was $.62 for both periods. Third quarter revenues were $87,078,000,
compared to $77,463,000 for the 1995 third quarter.
For the first nine months, net income was $61,055,000 ($2.00 per share), as
compared to $60,432,000 ($1.93 per share) for the corresponding period in
1995. Revenues were $266,979,000 as compared with $234,688,000 in 1995.
FlightSafety also reported that ". . . revenues increased for the third
quarter in most areas of the Company's business. Net income remained
relatively constant with the 1995 third quarter. Revenues were adversely
affected in part by reduced training at FlightSafety's Atlanta and Savannah
learning centers due to their proximity to the Summer Olympics and by reduced
new hire pilot training. In addition, there was an increase in salaries and
related expenses resulting from additional employees hired for new training
programs."
As reported in FlightSafety's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, FlightSafety had repurchased and subsequently
retired an aggregate of 4,625,800 shares of FlightSafety Common Stock since
February 1993 pursuant to stock repurchase programs previously authorized by
the FlightSafety Board. An additional 8,800 shares of FlightSafety Common
Stock were repurchased subsequent to September 30, 1996.
13
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is provided to the holders of FlightSafety
Common Stock in connection with the solicitation of proxies by the
FlightSafety Board for use at the Special Meeting to be held on Monday,
December 23, 1996 at 3;00 p.m., New York City time, at the LaGuardia Marriott,
102-05 Ditmars Boulevard, East Elmhurst, New York and at any adjournments or
postponements thereof. At the Special Meeting, FlightSafety shareholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement
and transact such other business as may properly come before the meeting. A
proxy is being provided to FlightSafety shareholders with this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes a prospectus furnished by
Berkshire for the issuance of shares of Berkshire Class A Stock and Berkshire
Class B Stock to be issued to holders of FlightSafety Common Stock upon
consummation of the Merger.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Shareholders of record of FlightSafety Common Stock at the close of business
on the Record Date of November 18, 1996 will be entitled to notice of and to
vote on approval and adoption of the Merger Agreement. As of the Record Date,
30,189,724 shares of FlightSafety Common Stock were issued and outstanding.
One-third of the outstanding shares of FlightSafety Common Stock entitled to
vote must be represented in person or by proxy at the Special Meeting in order
for a quorum to be present.
VOTE REQUIRED
The affirmative vote of holders of two-thirds of the outstanding shares of
FlightSafety Common Stock entitled to vote at the Special Meeting is required
to approve and adopt the Merger Agreement. Consequently, under applicable New
York law, abstentions and broker non-votes will have the same effect as a vote
against the Merger Agreement. Each share of FlightSafety Common Stock is
entitled to one vote.
THE FLIGHTSAFETY BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. SEE "THE MERGER--REASONS FOR THE MERGER; RECOMMENDATION OF THE
FLIGHTSAFETY BOARD AND THE SPECIAL COMMITTEE" AND "--CONFLICTS OF INTEREST."
As of the close of business on the Record Date, FlightSafety directors and
executive officers and their affiliates may be deemed to be beneficial owners
of 10,045,260 shares (excluding 166,745 shares underlying stock options) of
FlightSafety Common Stock, or approximately 33.3% of the outstanding shares.
Mr. A.L. Ueltschi, Chairman and President of FlightSafety and its largest
shareholder, has stated his intention to vote all of the 9,611,874 shares that
he beneficially owns, representing approximately 31.8% of the outstanding
shares, for approval and adoption of the Merger Agreement. See "THE MERGER--
Security Ownership of Certain Beneficial Owners and Management." All of the
other executive officers and directors of FlightSafety, who beneficially own
an additional 433,386 shares (1.4% of the outstanding shares), have also
stated their intention to vote for approval and adoption of the Merger
Agreement. In addition, Mr. Ueltschi has stated that he intends to elect to
receive Berkshire Class A Stock in the Merger for all of his shares of
FlightSafety Common Stock.
Approval of the Merger by the Berkshire shareholders is not required.
PROXIES; REVOCABILITY OF PROXIES
FlightSafety shares represented by properly executed proxies received in
time for the Special Meeting will be voted at the Special Meeting in the
manner specified by the holder thereof. PROXIES WHICH ARE PROPERLY EXECUTED
BUT WHICH DO NOT CONTAIN VOTING INSTRUCTIONS WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE
14
<PAGE>
MERGER AGREEMENT. It is not expected that any matter other than the Merger
Agreement will be brought before the Special Meeting. If a proxy is given to
vote for approval and adoption of the Merger Agreement, the persons named in
such proxy will have authority to vote in accordance with their best judgment
on any other matter that is properly presented at the Special Meeting for
action, including without limitation any proposal to adjourn the meeting or
otherwise concerning the conduct of the meeting.
Only shareholders of record on the Record Date are eligible to give their
proxies. Therefore, shareholders owning shares held in the name of a brokerage
firm, bank or other institution should sign, date and return their proxy cards
to such brokerage firm, bank or other institution in the envelope provided by
such firm. In addition, under the rules of the NYSE, brokers who hold shares
in street name for customers who are the beneficial owners of such shares are
prohibited from giving a proxy to vote shares held for such customers on the
proposal to approve and adopt the Merger Agreement without specific
instructions from such customers. Since the affirmative vote of the holders of
two-thirds of the outstanding shares of FlightSafety Common Stock entitled to
vote at the Special Meeting is required to approve and adopt the Merger
Agreement, the failure of such customers to provide specific instructions to
their brokers will have the effect of a vote against approval and adoption of
the Merger Agreement, and failure to return a properly executed proxy card or
to vote at the Special Meeting will have the same effect as a vote against
approval and adoption of the Merger Agreement.
The grant of a proxy on the enclosed FlightSafety form does not preclude a
shareholder from voting in person. A shareholder may revoke a proxy at any
time prior to its exercise by (i) delivering to Thomas A. Eff, Assistant
Secretary of FlightSafety, at the address set forth under "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," a written notice of revocation bearing a
later date than the proxy, (ii) delivering to the Assistant Secretary of
FlightSafety a duly executed proxy bearing a later date or (iii) attending the
Special Meeting and voting in person. Attendance at the Special Meeting will
not by itself constitute revocation of a proxy.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Section 910 of the NYBCL provides that FlightSafety shareholders who object
to the Merger and comply with the provisions of Section 623 of the NYBCL have
the right to receive a cash payment for the "fair value" of their shares of
FlightSafety Common Stock as of the close of business on the day prior to the
date of the Special Meeting. Any such payment may be higher or lower than, or
the same as, the per share consideration paid in the Merger. "Dissenting
Shares" are shares of FlightSafety Common Stock as to which dissenters' rights
are properly exercised pursuant to Section 623 of the NYBCL.
To exercise such rights prior to the vote being taken at the Special
Meeting, a shareholder must give written notice to FlightSafety of such
shareholder's election to dissent, name and residence address, number of
shares as to which a dissent is made and a demand for payment of the fair
value of such shares. A shareholder may not dissent as to less than all the
shares held by him of record which he owns beneficially. Written notices
should be sent to the attention of Thomas A. Eff, Assistant Secretary of
FlightSafety, at the address set forth under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." A shareholder who objects to the Merger must not vote
any shares in favor of approval and adoption of the Merger Agreement or return
a Form of Election. Failure to take any necessary step in connection with the
exercise of such rights may result in the termination or waiver of appraisal
rights. See "THE MERGER--Dissenting Shareholders' Rights of Appraisal."
NEITHER A VOTE AGAINST THE MERGER AGREEMENT NOR THE FAILURE TO VOTE WILL BY
ITSELF CONSTITUTE A PROPER WRITTEN OBJECTION TO THE MERGER.
15
<PAGE>
SOLICITATION OF PROXIES; GENERAL
FlightSafety will bear the cost of solicitation of proxies, except that
Berkshire and FlightSafety will share equally the cost of preparing and
printing this Proxy Statement/Prospectus and the Registration Statement,
including related filing fees. In addition to solicitation by mail, the
directors, officers and employees of FlightSafety and its subsidiaries may
solicit proxies by telephone, telegram or in person. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of stock
held of record by such persons, and FlightSafety will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
In addition, FlightSafety has retained D.F. King & Co., Inc. (the
"Information Agent") to assist FlightSafety with its solicitation of proxies
in connection with the Special Meeting. The Information Agent will receive a
fee of $15,000 as compensation for its services and reimbursement of its out-
of-pocket expenses. FlightSafety has agreed to indemnify the Information Agent
against certain liabilities arising out of or in connection with its
engagement.
Representatives of Price Waterhouse LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to questions.
FLIGHTSAFETY SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH
THEIR PROXY CARDS. PROXY CARDS SHOULD BE RETURNED IN THE WHITE ENVELOPE.
THE MERGER
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the principal terms of the Merger Agreement are subject to and
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached to this Proxy Statement/Prospectus as Annex I and is
incorporated herein by reference.
BACKGROUND OF THE MERGER
Over the past several years, representatives of FlightSafety have had a
number of preliminary contacts with representatives of other companies
relating to the possible acquisition of FlightSafety. None of these contacts
advanced beyond the initial stage, principally due to the unwillingness of
potential acquirors to absorb the substantial amount of goodwill which could
arise in connection with an acquisition of FlightSafety.
In late August 1996, acting on behalf of Berkshire, Robert E. Denham, the
Chairman and Chief Executive Officer of Salomon Inc and a Managing Director of
its subsidiary, Salomon Brothers Inc, contacted a representative of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to FlightSafety ("Skadden, Arps"),
and sought to determine whether A. L. Ueltschi, Chairman and President of
FlightSafety, would be willing to discuss with Warren E. Buffett, Chairman and
Chief Executive Officer of Berkshire, the possibility of Berkshire acquiring
FlightSafety.
On September 18, 1996, Messrs. Ueltschi and Buffett met and discussed their
respective businesses. In a letter dated September 19, 1996 to Mr. Ueltschi,
Mr. Buffett expressed an interest in Berkshire acquiring FlightSafety. During
the week of September 23, 1996, Mr. Ueltschi informed Mr. Buffett that he
would discuss the matter further. In a letter dated September 30, 1996 to Mr.
Ueltschi, Mr. Buffett described the terms of a possible merger of FlightSafety
with Berkshire whereby Berkshire would offer .0015 or .045 of a share of
Berkshire Class A Stock or Berkshire Class B Stock, respectively, or
marginally more in cash, for each share of FlightSafety Common Stock.
On October 4, 1996, Messrs. Buffett and Denham and a representative of
Munger, Tolles & Olson, counsel to Berkshire ("Munger, Tolles"), met with
Messrs. Ueltschi and Morgan, a director of FlightSafety and a partner in
Morgan Lewis, an investment banking firm which has advised FlightSafety on
various matters, and representatives of Skadden, Arps to discuss Mr. Buffett's
letter. During these discussions, the possibility of a
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cash election merger was discussed, with the cash portion being $50 per share,
and Mr. Ueltschi stated that he would elect stock in any such merger.
Berkshire and FlightSafety also entered into a mutual confidentiality
agreement pursuant to which they agreed to exchange certain information.
Following this meeting, Mr. Ueltschi discussed this matter with the other
FlightSafety directors, and Merrill Lynch and Morgan Lewis were engaged,
subject to approval by the Special Committee, to act as financial advisors to
FlightSafety and, in the case of Merrill Lynch, to render an opinion as to
whether or not the consideration proposed to be paid by Berkshire is fair to
FlightSafety shareholders from a financial point of view.
During the period of October 4-10, 1996, Merrill Lynch and Morgan Lewis
reviewed and analyzed public information relating to Berkshire and
FlightSafety and discussed this information and certain other information with
representatives of Berkshire and FlightSafety. Mr. Morgan also discussed and
reached general agreement with Mr. Denham on the financial terms of a proposed
transaction. In addition, counsel for Berkshire and FlightSafety assisted in
negotiating the form and terms of a proposed transaction and discussed various
legal issues, including FlightSafety employee stock incentive and benefit
plans, tax treatment and applicable procedures to elect stock and cash.
On October 10, 1996, the FlightSafety Board met to consider the proposed
transaction and, cognizant of the fact that certain directors could be
perceived to have potential conflicts of interest, appointed a committee of
independent directors, consisting of George B. Beitzel, Edward E. Hood, Jr.
and Charles R. Longsworth (the "Special Committee"), to consider the merger
proposal and make a recommendation to the FlightSafety Board.
The Special Committee met, preliminarily discussed the proposed transaction
and approved the retention of Merrill Lynch and Morgan Lewis. The Special
Committee then met jointly with the FlightSafety Board and reviewed with
management other companies' prior contacts with FlightSafety, including the
background of the Berkshire proposal. The Special Committee and the
FlightSafety Board reviewed and discussed with management FlightSafety's
business, management, financial performance and condition, strategic
objectives, prospects and competitive position, including a five-year
financial forecast of revenues, expenses and earnings prepared by FlightSafety
management subsequent to the Berkshire proposal (which forecast was neither
requested by nor shown to Berkshire or its representatives). Merrill Lynch
also presented its preliminary financial analyses, including a review of
management's and research analysts' expectations for FlightSafety's 1996 and
1997 earnings. Morgan Lewis discussed the financial terms of the proposal and
counsel reviewed various legal issues and the terms of a draft Merger
Agreement. The Special Committee then met separately and discussed the
information presented, as well as the desirability of FlightSafety being
acquired at this time and alternatives thereto.
The Special Committee met in a telephonic meeting on October 13, 1996 to
further consider the merger proposal. The Special Committee further reviewed
various legal and financial issues relating to the proposed transaction, and
reviewed and discussed FlightSafety's business, management, financial
performance and condition, strategic objectives, prospects and competitive
position, as well as the financial forecast. The Special Committee also
reviewed the draft Merger Agreement and noted that, among other things, the
Merger Agreement permitted the FlightSafety Board, in the exercise of its
fiduciary duties and subject to certain conditions, to furnish information
with respect to FlightSafety to a third party making an unsolicited
acquisition proposal, negotiate regarding such proposal and terminate the
Merger Agreement, if the FlightSafety Board determined that a superior
unsolicited acquisition proposal has been made, without FlightSafety being
required to pay a break-up fee of any kind to Berkshire.
On October 14, 1996, the Special Committee met and further reviewed legal
and financial issues relating to the proposed transaction and the factors
considered at its two prior meetings, including the potentially negative long-
term effects that increasing competition and a more costly expense structure
could have on FlightSafety's business, financial performance, competitive
position, prospects and market value. Merrill Lynch made a detailed financial
presentation to the full FlightSafety Board relating to the proposed
transaction, Morgan Lewis discussed the financial terms of the proposed
transaction and Merrill Lynch delivered its oral opinion to the Special
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Committee (subsequently confirmed in writing) to the effect that, as of such
date, the Merger Consideration to be received by FlightSafety shareholders in
the Merger is fair to such holders from a financial point of view. See "THE
MERGER--Opinion of Merrill Lynch".
The Special Committee then met separately, and after full discussion,
unanimously determined that the Merger is fair to and in the best interests of
FlightSafety shareholders, and recommended that the FlightSafety Board approve
and adopt the Merger Agreement and recommend that shareholders vote to approve
and adopt the Merger Agreement. The FlightSafety Board then reconvened,
discussed the Special Committee's recommendation and unanimously resolved that
the Merger is fair to and in the best interests of FlightSafety shareholders,
approved and adopted the Merger Agreement and recommended that shareholders
vote to approve and adopt the Merger Agreement.
On October 14, 1996, the Board of Directors of Berkshire (the "Berkshire
Board") met to review the terms of the proposed transaction. After full
discussion, the Berkshire Board determined that the Merger Agreement and
Merger are in the best interests of Berkshire and its shareholders, and
approved the Merger Agreement and authorized the issuance of Berkshire Common
Stock and payment of cash to FlightSafety shareholders pursuant to the Merger
Agreement.
FlightSafety, Berkshire and Merger Sub executed the Merger Agreement
following the conclusion of the FlightSafety Board meeting on the evening of
October 14, 1996. FlightSafety and Berkshire issued a joint press release
announcing the transaction prior to the opening of trading on the NYSE on
October 15, 1996.
REASONS FOR THE MERGER; RECOMMENDATION OF THE FLIGHTSAFETY BOARD AND THE
SPECIAL COMMITTEE
The Special Committee and the FlightSafety Board have unanimously concluded
that the Merger is fair to and in the best interests of FlightSafety and its
shareholders, and recommend that shareholders vote to approve and adopt the
Merger Agreement. In reaching its determination, the Special Committee
consulted with management, as well as its financial advisors and legal
counsel, and considered various factors, including the following principal
ones:
i) the financial presentation of Merrill Lynch (including the assumptions and
methodologies underlying its analyses and presentations of stand-alone
value of FlightSafety and of the market valuation and historical trading
performance of Berkshire) made to the Special Committee and the oral
opinion of Merrill Lynch (subsequently confirmed in writing) to the effect
that, as of October 14, 1996, the Merger Consideration to be received by
FlightSafety shareholders (other than Berkshire and its affiliates) in the
Merger is fair to such holders from a financial point of view, as well as
the advice provided by Morgan Lewis with respect to the financial terms of
the Merger (see "THE MERGER--Opinion of Merrill Lynch");
ii) the fact that the value of the merger consideration (based on a $48 market
value of FlightSafety Common Stock for Berkshire Common Stock and $50 in
cash) on a per share basis represented a premium over recently prevailing
market prices of FlightSafety Common Stock;
iii) a review of strategic alternatives, including possible business
combinations and the historical unwillingness of other companies to
consider the acquisition of FlightSafety due to the substantial goodwill
that could arise and based on the foregoing, the belief that a transaction
with another company could not reasonably be expected to offer terms and
advantages comparable to those of a business combination with Berkshire
(see "THE MERGER--Background of the Merger");
iv) that the Merger Agreement permits the FlightSafety Board, in the exercise
of its fiduciary duties, under certain conditions, to furnish information
to, or engage in negotiations with, third parties in response to
unsolicited acquisition proposals, and to terminate the Merger Agreement,
if the FlightSafety Board determines that a superior acquisition proposal
has been made, without payment of a break-up fee of any kind;
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v) FlightSafety's business, management, financial performance and condition,
strategic objectives, prospects and competitive position, including the
five-year management financial forecast. In this connection, the Special
Committee also considered the uncertainties in the airline and flight
training industry and effects of increasing competition from airlines and
other companies entering the training business, as well as new and
developing technology which could enable other companies to better compete
with FlightSafety, as well as the potentially negative effects these
factors could have in the long-term on FlightSafety's business, financial
performance, competitive position and prospects;
vi) the ability of FlightSafety shareholders who wish to do so to continue to
participate in FlightSafety's business as part of Berkshire after the
Merger and to benefit from the potential appreciation in Berkshire Common
Stock by electing to receive shares of Berkshire Common Stock, while
realizing an immediate premium for their FlightSafety Common Stock on a
tax-free basis to the extent they receive Berkshire Common Stock, and for
those shareholders receiving Berkshire Class A Stock, the ability to
designate certain charitable contributions;
vii) the fact that Mr. Ueltschi is 79 years old and, in this connection,
certain issues that could arise upon his death, including management
succession and the market overhang of his approximately 32% share
position, as well as Mr. Ueltschi's support for the proposed transaction
and his intention to exchange his shares for Berkshire Common Stock;
viii) that Berkshire's historical practice has been to retain management, and,
in this connection, the stated intention of Mr. Buffett to retain
FlightSafety management, and that consequently the Merger was not likely
to adversely affect FlightSafety's relationships with its employees or
customers;
ix) the terms and conditions of the Merger Agreement, including the
consideration in the Merger, which would not limit the amount of shares of
Berkshire Common Stock that FlightSafety shareholders could receive in the
aggregate; the parties' respective representations, warranties, covenants,
agreements and conditions to their respective obligations; and the review
by FlightSafety's legal and financial advisors of the terms of the Merger
Agreement, including the conditions to Berkshire's obligation to close the
Merger and the ability of the FlightSafety Board to consider unsolicited
alternative acquisition proposals;
x) information provided by Skadden, Arps with respect to the federal income
tax consequences of the Merger to FlightSafety shareholders, to the effect
that generally shareholders who exchange FlightSafety Common Stock solely
for Berkshire Common Stock would not recognize taxable gain or loss on the
exchange, certain shareholders who exchange FlightSafety Common Stock
solely for cash would be taxed on the difference between their tax basis
in FlightSafety Common Stock exchanged and cash received, and that
shareholders who exchange FlightSafety Common Stock for a combination of
cash and Berkshire Common Stock would recognize taxable gain in an amount
equal to the lesser of (a) the excess of the sum of the cash and the fair
market value of Berkshire Common Stock received over the tax basis in the
FlightSafety Common Stock exchanged and (b) the amount of cash received.
The Special Committee was also informed that FlightSafety shareholders who
elect cash could not ascertain their tax consequences at the time of
making an election due to possible proration, but that Mr. Ueltschi's
election to receive Berkshire Common Stock for his approximately 32%
ownership position would significantly reduce the possibility or extent of
proration. See "THE MERGER--Election Procedures" and "--Certain Federal
Income Tax Considerations." The Special Committee also considered that the
Merger Agreement would permit FlightSafety shareholders to elect to
receive the consideration to be issued to them in either Berkshire Common
Stock or cash (subject to proration), thereby generally permitting
shareholders to influence the tax consequences to them. In addition, the
Special Committee noted that the provisions of the Merger Agreement would
enable FlightSafety shareholders who elect cash to avoid the necessity of
selling Berkshire Common Stock they otherwise would have received if the
consideration was totally in Berkshire Common Stock. See "--Form of the
Merger", "--Merger Consideration," "--Election Procedures," and "--
Effective Time"; and
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xi) depending on their election decision, that FlightSafety shareholders will
not receive the full, or any, benefit of future growth in the value of
their equity that FlightSafety might achieve as an independent company,
and the disadvantage to FlightSafety shareholders who receive Berkshire
Common Stock in the event that Berkshire does not perform as well in the
future as FlightSafety may have as an independent company.
The foregoing discussion of the information and factors considered by the
Special Committee is not intended to be exhaustive. In view of the variety of
factors considered in its evaluation of the Merger, the Special Committee did
not quantify or assign any relative weights to the factors considered in
reaching its determination, although its individual members may have given
differing weights to different factors.
THE SPECIAL COMMITTEE AND FLIGHTSAFETY BOARD HAVE UNANIMOUSLY CONCLUDED THAT
THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF FLIGHTSAFETY'S SHAREHOLD-
ERS, AND UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOP-
TION OF THE MERGER AGREEMENT. SEE "THE MERGER--CONFLICTS OF INTEREST."
FLIGHTSAFETY FINANCIAL ADVISORS
The Special Committee retained Merrill Lynch and Morgan Lewis in connection
with its consideration of the Merger to provide investment banking services,
including, as applicable, analyzing, structuring, negotiating, and, if
recommended by the Special Committee, assisting in consummating a business
combination with Berkshire. The financial advisors were retained based upon
their qualifications, expertise and reputations, as well as, in the case of
Morgan Lewis, its prior investment banking relationship with FlightSafety.
FlightSafety agreed to pay Merrill Lynch a fee of $500,000 upon delivery of
its opinion as to whether or not the consideration to be paid in a business
combination (as defined) of FlightSafety with Berkshire is fair from a
financial point of view to FlightSafety shareholders, and a fee of $500,000
upon execution of a definitive agreement relating to such business
combination. An additional fee of $1,000,000 is payable to Merrill Lynch upon
consummation of the Merger or a business combination (or agreement resulting
therein) which is entered into with Berkshire within two years of Merrill
Lynch's engagement. FlightSafety agreed to pay Morgan Lewis a fee of $100,000
upon execution of a merger or acquisition agreement by FlightSafety. An
additional fee of $1,900,000 is payable to Morgan Lewis upon consummation of
the Merger or if FlightSafety merges with or is acquired by another entity
within one year after termination of Morgan Lewis' engagement. In addition,
FlightSafety agreed to reimburse the financial advisors for their reasonable
out-of-pocket expenses and to indemnify the financial advisors and their
respective affiliates from and against certain liabilities and expenses,
including certain liabilities under the federal securities laws.
OPINION OF MERRILL LYNCH
On October 14, 1996, Merrill Lynch delivered its oral opinion, which it
subsequently confirmed in a written opinion dated October 14, 1996 (the
"Merrill Lynch Opinion"), to the Special Committee to the effect that, as of
such date, and based upon the assumptions made, matters considered and limits
of review in connection with such opinion, the Merger Consideration to be
received by the holders of FlightSafety Common Stock (other than Berkshire and
its affiliates) in the Merger is fair to such holders from a financial point
of view.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN
BY MERRILL LYNCH, IS ATTACHED AS ANNEX II. FLIGHTSAFETY SHAREHOLDERS ARE URGED
TO READ THE MERRILL LYNCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION
IS ADDRESSED TO THE SPECIAL COMMITTEE, IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE MERGER CONSIDERATION TO BE RECEIVED BY
FLIGHTSAFETY SHAREHOLDERS IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY FLIGHTSAFETY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING OR AS TO WHETHER ANY SUCH SHAREHOLDER
SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION, THE CLASS A STOCK
CONSIDERATION OR THE CLASS B STOCK CONSIDERATION. THE SUMMARY OF THE MERRILL
LYNCH OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
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In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed FlightSafety's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
FlightSafety's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1996 and June 30, 1996; (ii) reviewed
Berkshire's Annual Reports, Forms 10-K and related financial information for
the three fiscal years ended December 31, 1995 and Berkshire's Forms 10-Q and
the related unaudited financial information for the quarterly periods ended
March 31, 1996 and June 30, 1996; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of FlightSafety furnished to Merrill Lynch by
FlightSafety; (iv) conducted discussions with members of senior management of
FlightSafety and Berkshire concerning their respective businesses and
prospects; (v) reviewed the historical market prices and trading activity for
FlightSafety Common Stock and compared it with that of certain publicly traded
companies which Merrill Lynch deemed to be similar to FlightSafety; (vi)
reviewed the historical market prices and trading activity for Berkshire Class
A Stock and Berkshire Class B Stock; (vii) compared the results of operations
of FlightSafety with that of certain companies which Merrill Lynch deemed to
be reasonably similar to FlightSafety; (viii) compared the proposed financial
terms of the Merger with the financial terms of certain other mergers and
acquisitions which Merrill Lynch deemed to be relevant; (ix) reviewed a draft
of the Merger Agreement dated October 13, 1996; and (x) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
Merrill Lynch neither received nor reviewed any financial projections
prepared by Berkshire pertaining to the future prospects of Berkshire. In
addition, Merrill Lynch understood that Mr. Ueltschi, who owns in the
aggregate approximately 32% of the outstanding shares of FlightSafety Common
Stock, had indicated his intention to elect to receive Berkshire Common Stock
in the Merger.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied upon the
accuracy and completeness of all information supplied or otherwise made
available to it by FlightSafety and Berkshire. Merrill Lynch did not
independently verify such information or undertake an independent appraisal or
evaluation of the assets or liabilities of FlightSafety or Berkshire. With
respect to the financial forecasts furnished to Merrill Lynch by FlightSafety,
Merrill Lynch assumed that they were reasonably prepared and reflected the
best currently available estimates and judgment of FlightSafety's management
as to the expected future financial performance of FlightSafety. Merrill Lynch
also assumed that the Merger will be free of federal tax to FlightSafety,
Berkshire and the FlightSafety shareholders (other than in respect of the Cash
Consideration and any cash paid in lieu of fractional shares).
Merrill Lynch was not authorized by FlightSafety to solicit, nor has it
solicited, third-party indications of interest for the acquisition of all or
any part of FlightSafety. In addition, Merrill Lynch expressed no opinion as
to what the value of Berkshire Class A Stock or Class B Stock will be when
issued to the FlightSafety shareholders upon consummation of the Merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
Historical Stock Trading Analysis--FlightSafety. Merrill Lynch reviewed the
historical trading prices and volumes for FlightSafety Common Stock for the
one-year period ending October 4, 1996, and compared such prices to the
performance of the Standard and Poor's Industrials Index (the "S&P 400")
during the same period. In addition, Merrill Lynch analyzed the consideration
to be received by holders of the FlightSafety Common Stock in the Merger in
relation to its closing price of $44.00 per share (the "Current Market Price")
on October 11, 1996, the last full trading day prior to the meeting of the
Special Committee at which the Special Committee recommended approval of the
Merger to the FlightSafety Board, and the average closing price of
FlightSafety Common Stock during the thirty consecutive trading days ending on
October 11, 1996 of $44.83 (the "30-Day Average Price"). Such analysis
indicated that the price per share of FlightSafety Common Stock
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to be paid in the Merger represented: (i) a 13.6% and 11.5% premium to the
Current Market Price and the 30-Day Average Price, respectively, for holders
of FlightSafety Common Stock who elect to receive the cash consideration of
$50.00 per share (assuming that the Total Cash Consideration to be paid to all
FlightSafety shareholders in the Merger (before giving effect to the proration
provisions contained in the Merger Agreement) does not exceed the Cash
Limitation); (ii) an 11.7% and 9.7% premium to the Current Market Price and
the 30-Day Average Price, respectively, for holders of FlightSafety Common
Stock based upon a blended price of $49.16 per share of FlightSafety Common
Stock (assuming that all FlightSafety shareholders elect to receive the Cash
Consideration of $50.00 per share (excluding any adjustments for fractional
shares)); and (iii) a 9.1% and 7.1% premium to the Current Market Price and
the 30-Day Average Price, respectively, assuming that all FlightSafety
shareholders elect to receive Berkshire Common Stock valued at $48.00 per
share of FlightSafety Common Stock. Merrill Lynch noted to the Special
Committee that it understood that Mr. Ueltschi, who owns in the aggregate
approximately 32% of the outstanding shares of FlightSafety Common Stock, had
indicated his intention to elect to receive Berkshire Common Stock in the
Merger, which would result in a blended price of $49.71 per share of
FlightSafety Common Stock for all other FlightSafety shareholders, assuming
that all such other shareholders elect to receive (subject to the Cash
Limitation) the Cash Consideration of $50.00 per share (excluding any
adjustments for fractional shares).
In connection with the historical stock trading analysis, Merrill Lynch also
reviewed publicly available research analysts' earnings estimates for
FlightSafety compiled by First Call Earnings Estimates ("First Call"), and
compared such estimates to FlightSafety's actual results for the third quarter
of 1996, which had not been publicly disclosed at the time of the meeting of
the Special Committee. Merrill Lynch observed that the First Call mean
earnings per share estimate of $0.69 was approximately 10% above
FlightSafety's actual results of $0.62 per share. Merrill Lynch noted that the
recent trading prices for the FlightSafety Common Stock did not reflect this
earnings shortfall due to the fact that such results were to be announced
concurrently with the announcement of the Merger.
Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for FlightSafety based upon the value of the sum of (i) the discounted
present value of the five-year stream of projected unlevered after-tax free
cash flows based upon FlightSafety management projections; (ii) the discounted
present value of the projected terminal value based on multiples ranging from
9.5x to 10.5x management projections of fiscal year 2001 earnings before
interest and taxes ("EBIT"); and (iii) an assumed cash value net of debt.
Merrill Lynch utilized discount rates ranging from 11% to 14%. The various
ranges for discount rates and terminal value multiples were chosen to reflect
theoretical analyses of the weighted average cost of capital and a range of
trading values for FlightSafety and selected comparable companies,
respectively. Based on such analyses, the implied per share values of
FlightSafety Common Stock were estimated ranging from $41.10 to $49.03.
Comparable Public Companies Analysis. Using publicly available information,
Merrill Lynch compared certain financial and operating information and ratios
(described below) for FlightSafety with corresponding financial and operating
information and ratios for a group of publicly traded companies that Merrill
Lynch deemed to be similar in certain respects to FlightSafety. The companies
included in the FlightSafety comparable public companies analysis were
separated into three groups: the simulator manufacturers group (the "Simulator
Manufacturers Group"), the commercial aerospace group (the "Commercial
Aerospace Group"), and the aircraft manufacturers group (the "Aircraft
Manufacturers Group"). The companies in the Simulator Manufacturers Group
were: CAE Inc.; Reflectone, Inc.; and United Industrial Corporation. The
companies in the Commercial Aerospace Group were: AAR Corp.; Aviall Inc.; Moog
Inc.; Precision Cast Parts Corp.; Rohr, Inc.; Sundstrand Corporation; and UNC
Incorporated. The companies in the Aircraft Manufacturers Group were: The
Boeing Company ("Boeing"); Bombardier Inc.; and Gulfstream Aerospace
Corporation ("Gulfstream").
Merrill Lynch compared (i) the closing price on October 11, 1996 of each
company in the Simulator Manufacturers Group, the Commercial Aerospace Group
and the Aircraft Manufacturers Group as a multiple of projected 1997 earnings
per share for each such company (based upon research analysts' projections
compiled
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by First Call), which resulted in a mean multiple of 14.1x, compared with (a)
a multiple of 12.9x for FlightSafety based upon the mean of research analysts'
projections of FlightSafety's 1997 earnings compiled by First Call, and (b) a
multiple of 13.7x for FlightSafety based upon FlightSafety management's
projections of FlightSafety's 1997 earnings; (ii) levered market
capitalization (defined as the market value of the common equity plus
preferred stock plus minority interests plus the face value of all debt less
cash) as a multiple of sales for the latest twelve months ("LTM"), which for
the Simulator Manufacturers Group ranged from 0.36x to 1.46x (with a mean of
0.88x and a median of 0.83x), for the Commercial Aerospace Group ranged from
0.63x to 1.87x (with a mean of 1.17x and a median of 0.99x), and for the
Aircraft Manufacturers Group ranged from 1.19x to 2.19x (with a mean of 1.66x
and a median of 1.58x), compared with a multiple of 3.46x for FlightSafety;
(iii) levered market capitalization as a multiple of LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA"), which for the
Simulator Manufacturers Group ranged from 5.6x to 11.2x (with a mean of 8.2x
and a median of 7.8x), for the Commercial Aerospace Group ranged from 6.8x to
14.1x (with a mean and a median of 10.7x), and for the Aircraft Manufacturers
Group (excluding Gulfstream) ranged from 11.4x to 15.5x (with a mean and a
median of 13.4x), compared with a multiple of 7.0x for FlightSafety; and (iv)
levered market capitalization as a multiple of LTM EBIT, which for the
Simulator Manufacturers Group ranged from 9.7x to 14.2x (with a mean of 12.2x
and a median of 12.7x), for the Commercial Aerospace Group ranged from 11.0x
to 21.8x (with a mean of 16.0x and a median of 15.1x), and for the Aircraft
Manufacturers Group (excluding Gulfstream) ranged from 14.4x to 30.8x (with a
mean and a median of 22.6x), compared with a multiple of 10.0x for
FlightSafety. Based on such analyses, the implied per share values of
FlightSafety Common Stock were estimated ranging from approximately $39.00 to
approximately $45.00.
Comparable Acquisition Analysis. Merrill Lynch reviewed certain publicly
available information regarding three selected business combinations since
December 1993 in the aerospace and defense industry and four selected business
combinations since February 1990 in the business aircraft manufacturing
industry (the "Acquisition Comparables"). The Acquisition Comparables and the
dates the transactions were announced were as follows: Litton Industries,
Inc.'s acquisition of PRC, Inc., a unit of The Black & Decker Corporation
(December 1995); Hughes Electronic Corporation's acquisition of CAE-Link Corp.
(December 1994); Loral Corporation's acquisition of the Federal Systems
division of International Business Machines Corporation (December 1993);
Raytheon Company's acquisition of Corporate Jets Inc. from British Aerospace
Inc. (May 1993); Textron Inc.'s acquisition of Cessna Aircraft Co. (January
1992); Bombardier Inc.'s acquisition of Learjet Inc. (April 1990); and
Forstmann Little & Co.'s acquisition of Gulfstream Aerospace Corporation
(February 1990).
Merrill Lynch compared the "offer value" (defined to be the offer price per
share multiplied by the sum of the number of shares outstanding and the number
of options outstanding) of each such transaction as a multiple of then
publicly available LTM net income, and the "transaction value" (defined to be
the offer value plus preferred stock, minority interests and face value of all
debt less cash and option proceeds) of each such transaction as a multiple of
LTM EBITDA, LTM EBIT and LTM sales, and compared such multiples to the implied
multiples for the Merger based upon a blended price of $49.16 per share of
FlightSafety Common Stock (assuming that all FlightSafety shareholders elect
to receive the Cash Consideration of $50.00 per share). The ranges of the
offer value as a multiple of net income and the transaction value as a
multiple of LTM EBITDA, LTM EBIT and LTM sales were as follows: (i) offer
value to LTM net income ranged from 14.3x to 19.0x (with a median of 14.6x and
a mean of 16.0x), compared with an implied multiple of 17.6x for the Merger;
(ii) transaction value to LTM EBITDA ranged from 6.1x to 10.0x (with a median
and a mean of 7.8x), compared with an implied multiple of 8.0x for the Merger;
(iii) transaction value to LTM EBIT ranged from 9.2x to 39.7x (with a median
of 11.0x and a mean of 11.3x), compared with an implied multiple of 11.4x for
the Merger; and (iv) transaction value to LTM sales ranged from 0.45x to 1.30x
(with a median of 0.70x and a mean of 0.74x), compared with an implied
multiple of 3.93x for the Merger. Based on such analyses, the implied per
share values of FlightSafety Common Stock were estimated ranging from
approximately $40.00 to approximately $52.00.
Historical Stock Trading Analysis--Berkshire. Merrill Lynch reviewed: (i)
the historical trading prices for the Berkshire Class A Stock for the one-
year, three-year and five-year periods ending October 4, 1996, and
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compared such prices to the price performance of the S&P 400 during the same
periods; and (ii) the ratio of the closing trading prices per share of the
Berkshire Class A Stock to the book value of Berkshire (the "Berkshire Book
Value Ratio") on October 11, 1996 and for the ninety-day, one-year and three-
year periods ending October 4, 1996. Such analyses indicated that (i) the S&P
400 had appreciated by 21.3%, 16.8% and 12.9% during the one-year, three-year
and five-year periods ending October 4, 1996, respectively, while the
Berkshire Class A Stock had appreciated by 7.9%, 23.6% and 30.3%,
respectively, during the same periods, and (ii) the Berkshire Book Value Ratio
was estimated at 1.94x on October 11, 1996, and 1.93x, 2.12x and 2.08x for the
ninety-day, one-year and three-year periods ending October 4, 1996,
respectively.
Pro Forma Analysis. Merrill Lynch analyzed certain pro forma effects
resulting from the Merger, including the potential impact of the Merger on
projected earnings per share ("EPS") and pro forma book value per share as of
June 30, 1996 for Berkshire Common Stock, based upon FlightSafety management
projections for FlightSafety, EPS forecasts for Berkshire estimated by
ValueLine, actual book value for Berkshire as of June 30, 1996, and the
conservative assumption which was made solely for illustrative purposes (and
which was not reviewed or confirmed with Berkshire) that Berkshire would
finance any portion of the Cash Consideration in excess of $150 million
through borrowings at a rate of 7% per annum. Such analyses indicated that the
Merger would be slightly accretive to 1997 EPS and approximately neutral to
pro forma book value per share as of June 30, 1996 for holders of Berkshire
Common Stock in the case assuming that all shareholders of FlightSafety elect
to receive the Berkshire Common Stock, and approximately neutral to 1997 EPS
and pro forma book value per share as of June 30, 1996 for holders of
Berkshire Common Stock in the case assuming that the Total Cash Consideration
to be paid to all FlightSafety shareholders in the Merger (before giving
effect to the proration provisions contained in the Merger Agreement) equals
the Cash Limitation.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch. Arriving at a fairness opinion is a
complex process not necessarily susceptible to partial or summary description.
Merrill Lynch believes that its analysis must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all such factors and analyses, could create a misleading
view of the process underlying its analyses set forth in the Merrill Lynch
Opinion. The matters considered by Merrill Lynch in its analyses are based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond FlightSafety's or Berkshire's control and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates. Estimated values
do not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. No public company utilized as a
comparison is identical to FlightSafety, and none of the Acquisition
Comparables utilized as a comparison is identical to the proposed Merger.
Accordingly, an analysis of publicly traded comparable companies and
comparable business combinations is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company
to which they are being compared.
The Special Committee selected Merrill Lynch to act as its financial advisor
on the basis of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial expertise in transactions similar to
the Merger. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Merrill Lynch has in the past provided financial advisory and financing
services to certain companies in which Berkshire has made investments and
Merrill Lynch has received fees for rendering such services.
FORM OF THE MERGER
If the approval of FlightSafety shareholders is obtained and all other
conditions to the Merger are satisfied or waived, FlightSafety will be merged
with and into Merger Sub, with Merger Sub being the surviving
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corporation after the Merger and a wholly owned subsidiary of Berkshire. The
name of the Surviving Corporation will be changed to FlightSafety
International, Inc. The date on which the closing of the Merger occurs is
referred to herein as the "Closing Date."
MERGER CONSIDERATION
Subject to the Cash Limitation and except as stated otherwise herein as to
(i) shares owned by FlightSafety, any subsidiary of FlightSafety, Berkshire,
Merger Sub or any other subsidiary of Berkshire, (ii) fractional shares and
(iii) Dissenting Shares, (a) each issued and outstanding share of FlightSafety
Common Stock with respect to which an election (a "Cash Election") to receive
cash has been made and not revoked in accordance with the Merger Agreement (a
"Cash Electing Share") will be converted into the right to receive in cash
from Berkshire an amount equal to $50.00 (the "Cash Election Price"), (b) each
issued and outstanding share of FlightSafety Common Stock with respect to
which an election (a "Class A Election") to receive Berkshire Class A Stock
has been made and not revoked in accordance with the Merger Agreement (a
"Class A Electing Share") will be converted into the right to receive from
Berkshire the portion of a fully paid and nonassessable share of Berkshire
Class A Stock determined by dividing $48.00 by the Average Class A Stock Price
and rounding to nine decimal places (the "Class A Exchange Ratio"), and (c)
each issued and outstanding share of FlightSafety Common Stock (other than
Cash Electing Shares and Class A Electing Shares) (the "Class B Electing
Shares") will be converted into the right to receive from Berkshire the
portion of a fully paid and nonassessable share of Berkshire Class B Stock
determined by dividing $48.00 by the quotient of the Average Class A Stock
Price divided by 30 and rounding to nine decimal places (the "Class B Exchange
Ratio"). See "--Cash Limitation" and "--Fractional Shares."
Any shares of FlightSafety Common Stock owned by FlightSafety or any
subsidiary, Berkshire, Merger Sub or any other subsidiary of Berkshire will
automatically be cancelled and retired at the Effective Time of the Merger and
will cease to exist, and no cash, Berkshire Common Stock or other
consideration will be delivered in exchange therefor.
If prior to the Effective Time the outstanding shares of Berkshire Class A
or Class B Stock have been changed into a different number of shares or a
different class, due to any stock dividend, reclassification,
recapitalization, split or similar transaction, the Merger Consideration will
be correspondingly adjusted to the extent appropriate to reflect such changes.
CASH LIMITATION
The Total Cash Consideration in the Merger may not be more than 58% of the
sum of (i) the Total Cash Consideration, (ii) the Total Class A Merger
Consideration, and (iii) the Total Class B Merger Consideration. Such amount
is referred to herein as the "Cash Limitation."
"Total Class A Merger Consideration" means the product of (i) the Class A
Exchange Ratio and (ii) the number of shares of FlightSafety Common Stock
converted into Berkshire Class A Stock, after the application of the
adjustment provisions for any fractional shares as described below and (iii)
the average of the high and low trading prices of Berkshire Class A Stock on
the NYSE Composite Tape on the date on which the Effective Time occurs. "Total
Class B Merger Consideration" means the product of (i) the Class B Exchange
Ratio and (ii) the number of shares of FlightSafety Common Stock converted
into Berkshire Class B Stock, after the application of the adjustment
provisions with respect to the Cash Limitation and for any fractional shares
as described below and (iii) the average of the high and low trading prices of
Berkshire Class B Stock on the NYSE Composite Tape on the date on which the
Effective Time occurs. "Total Cash Consideration" means the sum (after the
application of the adjustment provisions with respect to the Cash Limitation
and for any fractional shares as described below) of (i) cash paid in
connection with Cash Elections, (ii) cash paid in lieu of fractional shares of
Berkshire Class B Stock and (iii) cash paid for Dissenting Shares. See "--
Fractional Shares." For this purpose, cash paid for Dissenting Shares will be
computed as if holders of Dissenting Shares had made Cash Elections with
respect to all of their Dissenting Shares.
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If the Total Cash Consideration is more than the Cash Limitation, the number
of Cash Electing Shares will be reduced, and FlightSafety shareholders who
have made a Cash Election (a "Cash Electing Shareholder") will instead receive
one or more shares of Berkshire Class B Stock to the extent and in the order
set forth below until the Total Cash Consideration is equal to or less than
the Cash Limitation:
(i) Each Cash Electing Shareholder who holds a sufficient number of
FlightSafety shares covered by a Cash Election to receive as part of the
Merger Consideration at least one whole share of Berkshire Class B Stock
if such shares are treated as Class B Electing Shares, will receive such
share of Berkshire Class B Stock for such FlightSafety shares at the Class
B Exchange Ratio in lieu of receiving the Cash Election Price for such
shares, meaning that the shareholder will receive approximately $48 worth
of Berkshire Class B Stock, based on the Average Class A Stock Price, for
such FlightSafety shares in lieu of receiving $50 in cash for such shares
as requested by the Cash Election (provided, however, that if the
application of this procedure to fewer than all of such Cash Electing
Shareholders is sufficient to reduce the Total Cash Consideration to an
amount equal to or less than the Cash Limitation, the Exchange Agent will
select by lot the Cash Electing Shareholders whose Cash Elections will be
subject to the procedure);
(ii) If the application of (i) above is not sufficient to reduce the Total Cash
Consideration to an amount equal to or less than the Cash Limitation,
then, in addition to the application of clause (i) above, each Cash
Electing Shareholder who holds a sufficient number of shares of
FlightSafety Common Stock covered by a Cash Election to receive as part of
the Merger Consideration at least two shares of Berkshire Class B Stock if
such shares are treated as Class B Electing Shares will receive such two
whole shares of Berkshire Class B Stock for such shares of FlightSafety
Common Stock at the Class B Exchange Ratio in lieu of receiving the Cash
Election Price for such shares (provided, that, if appropriate, the
Exchange Agent will similarly select by lot such Cash Electing
Shareholders whose Cash Elections will be subject to this second step of
the procedure); and
(iii) If the application of (ii) above is not sufficient to reduce the Total
Cash Consideration to an amount equal to or less than the Cash
Limitation, under the principles of (i) and (ii) above, the Cash
Electing Shares will continue to be reduced, and each Cash Electing
Stockholder who holds a sufficient number of shares of FlightSafety
Common Stock covered by a Cash Election to receive as part of the Merger
Consideration at least three shares and, to the extent necessary,
greater than three shares, of Berkshire Class B Stock if such shares are
treated as Class B Electing Shares, will receive such three or more
shares of Berkshire Class B Stock for such shares of FlightSafety Common
Stock at the Class B Exchange Ratio in lieu of receiving the Cash
Election Price for such shares until the Total Cash Consideration is
equal to or less than the Cash Limitation.
In addition, if due to Dissenting Shares, the amount of cash paid in
cancellation of FlightSafety Stock Options (as defined), or any other
uncertainty in the calculation of the Cash Limitation, it reasonably appears
to Berkshire or FlightSafety that the Merger may potentially fail to satisfy
the continuity of interest requirements relating to reorganizations under
Section 368(a) of the Code, then the number of Cash Electing Shares will be
reduced, and Cash Electing Shareholders will instead receive one or more
shares of Berkshire Class B Stock in the order described above, to the extent
necessary to enable the Merger to satisfy such requirements.
DUE TO THE CASH LIMITATION, FLIGHTSAFETY SHAREHOLDERS WHO ELECT TO RECEIVE
CASH MAY RECEIVE SHARES OF BERKSHIRE CLASS B STOCK FOR THEIR FLIGHTSAFETY
COMMON STOCK DESPITE SUCH ELECTION.
ELECTION PROCEDURES; SURRENDER OF FLIGHTSAFETY COMMON STOCK CERTIFICATES
Record holders of FlightSafety Common Stock will be entitled to make a Cash
Election or Class A Election or elect to receive Berkshire Class B Stock (a
"Class B Election") with respect to all or any portion of their
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shares, on or prior to the Election Deadline (as defined), on the Form of
Election enclosed with this Proxy Statement/Prospectus. To the extent that
holders do not make a Cash Election, Class A Election or Class B Election on
the Form of Election, such holders will receive the Class B Stock
Consideration. Cash Elections are subject to the Cash Limitation and, pursuant
to the terms of the Merger Agreement, holders who make the Cash Election may
nonetheless receive shares of Berkshire Class B Stock for FlightSafety shares.
See "--Cash Limitation." Forms of Election will be made available by the
Exchange Agent and Information Agent as may be reasonably requested to all
persons who become holders (or beneficial owners) of FlightSafety Common Stock
between the Meeting Record Date and the close of business on the day prior to
the Election Date; such Forms of Election will be accompanied by a copy of
this Proxy Statement/Prospectus.
ALL ELECTIONS MUST BE MADE ON A FORM OF ELECTION AND FLIGHTSAFETY
SHAREHOLDERS MUST, IN ACCORDANCE WITH THE FORM OF ELECTION, (A) COMPLETE
PROPERLY AND RETURN THE FORM OF ELECTION TO THE EXCHANGE AGENT, (B) EITHER (I)
DELIVER THEREWITH THE HOLDER'S CERTIFICATES REPRESENTING SHARES OF
FLIGHTSAFETY COMMON STOCK (DULY ENDORSED IN BLANK OR OTHERWISE IN A FORM
ACCEPTABLE FOR TRANSFER ON THE BOOKS OF FLIGHTSAFETY) WITH RESPECT TO SUCH
SHARES (OR AN APPROPRIATE GUARANTEE OF DELIVERY THEREOF) OR (II) COMPLETE THE
PROCEDURE FOR DELIVERY BY BOOK-ENTRY TRANSFER OF SUCH SHARES ON A TIMELY
BASIS, AND (C) DELIVER THEREWITH ANY OTHER REQUIRED DOCUMENTS, PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE LAST BUSINESS DAY PRIOR TO THE DATE OF THE
SPECIAL MEETING (THE "ELECTION DEADLINE"). FLIGHTSAFETY SHAREHOLDERS ARE URGED
TO DELIVER A PROPERLY COMPLETED FORM OF ELECTION TO THE EXCHANGE AGENT,
ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00 P.M., NEW YORK CITY
TIME, ON DECEMBER 19, 1996, TO ENSURE THAT THEIR FORM OF ELECTION WILL BE
RECEIVED BY THE ELECTION DEADLINE.
IF BERKSHIRE OR THE EXCHANGE AGENT DETERMINES THAT ANY PURPORTED ELECTION IS
NOT PROPERLY MADE OR IS RECEIVED AFTER THE ELECTION DEADLINE, SUCH PURPORTED
ELECTION WILL BE DEEMED TO BE OF NO FORCE AND EFFECT AND THE SHAREHOLDER
MAKING SUCH PURPORTED ELECTION WILL BE DEEMED TO NOT HAVE MADE A CASH
ELECTION, CLASS A ELECTION OR CLASS B ELECTION.
Any FlightSafety shareholder may (i) change such holder's election by
submitting a revised Form of Election, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline, or (ii) revoke
the election and withdraw the certificates deposited with the Exchange Agent
by written notice to the Exchange Agent received prior to the Election
Deadline. The certificate(s) covered by any properly revoked Form of Election
will be returned to the person who submitted the Form of Election to the
Exchange Agent upon written request to that effect. The Exchange Agent and
Berkshire will have reasonable discretion to determine when any Election,
modification, or revocation is received and whether any such Election,
modification or revocation has been properly made, and such determination will
be final. If a Form of Election is revoked, the FlightSafety Common Stock to
which such Form of Election relates will be treated as shares as to which no
election has been made. The Form of Election will also constitute a letter of
transmittal for effecting the surrender of such certificates in exchange for
the Merger Consideration into which the shares represented by the certificates
so surrendered are exchangeable pursuant to the Merger Agreement. The
determination of the Exchange Agent will be binding as to whether or not a
Cash Election, Class A Election or Class B Election has been properly made or
revoked and as to the time when such election or revocation was received.
NONE OF BERKSHIRE, THE BERKSHIRE BOARD, FLIGHTSAFETY, THE FLIGHTSAFETY BOARD
NOR THE SPECIAL COMMITTEE MAKES ANY RECOMMENDATION AS TO WHETHER FLIGHTSAFETY
SHAREHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION, THE CLASS A STOCK
CONSIDERATION OR THE CLASS B STOCK CONSIDERATION IN THE MERGER.
Shareholders of record of Berkshire Class A Stock may designate charitable
contributions to be made by Berkshire. In 1996, shareholders of record as of
August 31, 1996 were entitled to designate $14 per share. It is anticipated
that this program will continue in the future for shareholders of record of
Berkshire Class A Stock. Shares of Berkshire Class B Stock do not participate
in this program. Accordingly, FlightSafety shareholders who receive the Class
B Stock Consideration will not be entitled to participate in this program with
respect to their shares of Berkshire Class B Stock.
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The Exchange Agent is the First National Bank of Boston, whose address is
150 Royall Street, Canton, Massachusetts 02021.
Copies of the Form of Election may also be obtained from the Information
Agent, D.F. King & Co., Inc., by calling 1-800-755-7250.
In order to receive the Merger Consideration, a FlightSafety shareholder
must surrender to the Exchange Agent the certificate or certificates which,
prior to the Effective Time, represented outstanding shares of FlightSafety
Common Stock. FlightSafety shareholders who submit a Form of Election should
surrender their certificates with the Form of Election (and should bear in
mind that the Exchange Agent must receive the Form of Election by the Election
Deadline for a Cash Election, Class A Election or Class B Election to be
effective; otherwise, the shares represented by such certificates will be
converted into Berkshire Class B Stock and cash in lieu of fractional shares
thereof). As soon as practicable after the Effective Time, the Exchange Agent
will send to each holder of a certificate or certificates previously
representing outstanding shares of FlightSafety Common Stock, other than
holders who have previously submitted their certificates to the Exchange Agent
with a Form of Election or holders of Dissenting Shares, a letter of
transmittal and instructions for use in effecting the surrender of
certificates. The Exchange Agent will accept such certificates upon compliance
with such reasonable terms and conditions as the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with normal exchange
practices.
After the Effective Time of the Merger, there will be no further transfer on
the records of FlightSafety or its transfer agent of certificates representing
shares of FlightSafety Common Stock and if such certificates are presented to
FlightSafety for transfer, they will be cancelled against delivery of the
Merger Consideration pursuant to the Merger Agreement. Until surrendered in
accordance with the Merger Agreement, each certificate for shares of
FlightSafety Common Stock will be deemed at any time after the Effective Time
of the Merger to represent only the right to receive upon such surrender the
Merger Consideration pursuant to the Merger Agreement. No interest will be
paid or will accrue on any cash payable as consideration in the Merger or in
lieu of any fractional shares of Berkshire Common Stock.
No dividends or other distributions with respect to Berkshire Common Stock
with a record date after the Effective Time of the Merger will be paid to the
holder of any unsurrendered certificate for shares of FlightSafety Common
Stock with respect to the shares of Berkshire Common Stock represented thereby
and no payment of cash or Berkshire Class B Stock in lieu of fractional shares
will be paid to any such holder until the surrender of such certificate in
accordance with the Merger Agreement. Subject to the effect of applicable
laws, following surrender of any such certificate, there will be paid to the
holder of the certificate representing whole shares of Berkshire Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender the amount of any cash payable in lieu of a fractional share of
Berkshire Common Stock to which such holder is entitled pursuant to the Merger
Agreement and the amount of dividends or other distributions with a record
date after the Effective Time of the Merger theretofore paid with respect to
such whole shares of Berkshire Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time of the Merger but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares of Berkshire Common Stock.
FLIGHTSAFETY SHAREHOLDERS MAY SURRENDER THEIR FLIGHTSAFETY COMMON STOCK
CERTIFICATES TO THE EXCHANGE AGENT WITH THE FORM OF ELECTION. ELECTIONS WILL
BE EFFECTIVE ONLY IF ACCOMPANIED BY SUCH CERTIFICATES (OR GUARANTEE OF
DELIVERY) AS DESCRIBED ABOVE. FLIGHTSAFETY SHAREHOLDERS WHO DO NOT SURRENDER
THEIR CERTIFICATES WITH THE FORM OF ELECTION SHOULD SURRENDER THEIR
FLIGHTSAFETY COMMON STOCK CERTIFICATES TO THE EXCHANGE AGENT WITH THE LETTER
OF TRANSMITTAL THAT WILL BE MAILED TO THOSE SHAREHOLDERS AFTER THE EFFECTIVE
TIME.
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FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Berkshire Common
Stock will be issued upon the surrender for exchange of certificates
representing shares of FlightSafety Common Stock, and such fractional share
interests will not entitle the owner thereof to vote or to any rights as a
stockholder of Berkshire.
Each holder of shares of FlightSafety Common Stock exchanged pursuant to the
Merger who would have otherwise been entitled to receive a fraction of a share
of Berkshire Class A Stock (after taking into account all Class A Electing
Shares delivered by such holder or, as to a holder of record who holds shares
of FlightSafety Common Stock as nominee or in a similar representative
capacity, after taking into account all Class A Electing Shares delivered by
such a representative holder on behalf of a particular beneficial owner) will
receive, in lieu thereof, the number of whole shares of Berkshire Class B
Stock determined by dividing (x) the product of such fraction and the Average
Class A Stock Price by (y) the quotient of the Average Class A Stock Price
divided by 30. After application of the procedure described in the previous
sentence, each holder of shares of FlightSafety Common Stock exchanged
pursuant to the Merger who would have otherwise been entitled to receive a
fraction of a share of Berkshire Class B Stock (after taking into account all
shares of FlightSafety Common Stock delivered by such holder, or by such a
representative holder on behalf of a particular beneficial owner, other than
Class A Electing Shares and Cash Electing Shares) will receive, in lieu
thereof, a cash payment (without interest) equal to the product of (x) such
fraction and (y) the quotient of the Average Class A Stock Price divided by
30.
EFFECTIVE TIME
On the Closing Date, the parties will file a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") and will
make all other filings or recordings required under the NYBCL. The Merger will
become effective at such time as the Certificate of Merger is duly filed with
the Department of State of the State of New York, or at such other time as
Berkshire and FlightSafety specify in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time"). Such filing will be made
as promptly as practicable after satisfaction or waiver of the conditions to
the Merger.
STOCK EXCHANGE LISTING
Berkshire will use its best efforts to cause the shares of Berkshire Common
Stock issued in the Merger to be approved for listing on the NYSE, subject to
notice of issuance, prior to the Closing Date.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain material U.S. federal
income tax consequences of the Merger to a shareholder of FlightSafety who
holds FlightSafety shares as a capital asset (a "Holder"). The discussion is
based on laws, regulations, rulings and decisions in effect on the date
hereof, all of which are subject to change, possibly with retroactive effect,
and to differing interpretation. This discussion is for general information
only, and does not address all aspects of federal income taxation that may be
applicable to a Holder subject to special treatment under the Code (including,
but not limited to, banks, tax-exempt organizations, insurance companies,
dealers in securities or foreign currency and holders who are not U.S. persons
(as defined in section 7701(a)(30) of the Code) or who acquired shares of
FlightSafety Common Stock pursuant to the exercise of an employee stock option
or otherwise as compensation). In addition, the discussion does not address
the state, local or foreign tax consequences of the Merger.
Consummation of the Merger is conditioned upon the receipt by FlightSafety
and Berkshire of the opinions of Skadden, Arps and Munger, Tolles, each dated
as of the Closing Date, substantially to the effect that, on the basis of
facts, representations, assumptions and agreements set forth or referred to in
such opinions, for federal income tax purposes, the Merger will be treated as
a reorganization within the meaning of Section 368 of the Code and that each
of Berkshire, Merger Sub and FlightSafety will be a party to the
reorganization within the
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meaning of Section 368(b) of the Code. If either or both of FlightSafety or
Berkshire are unable to obtain an opinion from their respective tax counsel
because of a concern that the Merger will not satisfy the "continuity of
interest" requirement for such reorganization treatment under the Code then,
generally, the number of Cash Electing Shares will be reduced, and Cash
Electing Shares will instead receive one or more shares of Berkshire Class B
Stock to the extent necessary to enable such opinion(s) to be issued.
If, in accordance with such opinions referred to above, the Merger is
treated as a reorganization within the meaning of Section 368 of the Code, and
Berkshire, Merger Sub and FlightSafety are each a party to the reorganization
under Section 368(b) of the Code, the following is a summary of the general
federal income tax consequences of the Merger to Holder:
Exchange of FlightSafety Common Stock. The federal income tax consequences
of the Merger to a Holder generally will depend on whether the Holder
exchanges FlightSafety Common Stock for cash, Berkshire Common Stock, or a
combination thereof, and may further depend on whether (i) the Holder is
deemed to own constructively shares of FlightSafety Common Stock and (ii) the
Holder actually or constructively owns any shares of Berkshire Common Stock.
For this purpose, shares are constructively owned under rules set forth in
Section 318 of the Code which generally deem a person to own stock owned by
certain family members or related entities or that is the subject of an option
or options owned or deemed owned by such person.
Exchange Solely for Cash. If pursuant to the Merger a Holder exchanges all
of the shares of FlightSafety Common Stock actually owned by the Holder solely
for cash (including pursuant to the exercise of its right to dissent and seek
an appraisal), such Holder will recognize gain or loss equal to the difference
between the amount of cash received and the Holder's adjusted tax basis in the
shares of FlightSafety Common Stock surrendered therefor, which gain or loss
generally will be long-term capital gain or loss if the Holder's holding
period with respect to the stock is more than one year, and otherwise will be
short-term capital gain or loss. If, however, any such Holder constructively
owns shares of FlightSafety Common Stock that are exchanged for shares of
Berkshire Common Stock in the Merger or owns shares of Berkshire Common Stock
actually or constructively after the Merger, the consequences to such Holder
may be similar to the consequences described below under the heading "Exchange
for Berkshire Common Stock and Cash," except that the amount of consideration,
if any, treated as a dividend may not be limited to the amount of such
Holder's gain.
Exchange Solely for Berkshire Common Stock. If pursuant to the Merger a
Holder exchanges all of the shares of FlightSafety Common Stock actually owned
by the Holder solely for shares of Berkshire Common Stock, such Holder will
not recognize any gain or loss except in respect of cash received in lieu of a
fractional share of Berkshire Class B Stock (as discussed below). The
aggregate adjusted tax basis of the shares of Berkshire Common Stock received
(including fractional shares) in that exchange will be equal to the aggregate
adjusted tax basis of the shares of FlightSafety Common Stock surrendered
therefor, and the holding period of such Berkshire Common Stock will include
the period during which such shares of FlightSafety Common Stock were held. If
the Holder has differing bases or holding periods in respect of its shares of
FlightSafety Common Stock, the Holder should consult its tax advisor prior to
the exchange with regard to identifying the bases or holding periods of the
particular shares of Berkshire Common Stock that it receives in the exchange.
Exchange for Berkshire Common Stock and Cash. If pursuant to the Merger a
Holder exchanges all of the shares of FlightSafety Common Stock actually owned
by the Holder for a combination of Berkshire Common Stock and cash, such
Holder will realize gain or loss equal to the difference between (i) the sum
of cash and the fair market value of Berkshire Common Stock received and (ii)
the Holder's adjusted tax basis in the shares of FlightSafety Common Stock
surrendered therefor. However, any such loss will not be recognized, and any
such gain will only be recognized to the extent of the cash received. For this
purpose, gain or loss must be calculated separately for each identifiable
block of shares surrendered in the exchange, and a loss realized on one block
of shares of FlightSafety Common Stock cannot be used to offset a gain
recognized on another block of shares of FlightSafety Common Stock. Any such
recognized gain will generally be long-term capital gain if the Holder's
holding period with respect to the stock is more than one year, and otherwise
will be short-term capital gain. If, however, the cash received has the effect
of the distribution of a dividend, the gain will be treated as a dividend
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<PAGE>
to the extent of the Holder's ratable share of FlightSafety's accumulated
earnings and profits (and, possibly, Berkshire's accumulated earnings and
profits). See "--Possible Treatment of Cash as a Dividend."
The aggregate tax basis of Berkshire Common Stock received by a Holder that
exchanges the Holder's shares of FlightSafety Common Stock for a combination
of Berkshire Common Stock and cash pursuant to the Merger will be equal to the
aggregate adjusted tax basis of the shares of FlightSafety Common Stock
surrendered therefor, decreased by the cash received and increased by any
recognized gain (whether capital gain or ordinary income). The holding period
of such Berkshire Common Stock will include the holding period of the shares
of FlightSafety Common Stock surrendered therefor. If a Holder has differing
bases or holding periods in respect of the Holder's shares of FlightSafety
Common Stock, the Holder should consult its tax advisor prior to the exchange
to identify the particular shares of FlightSafety Common Stock to be
surrendered in the exchange and the particular bases or holding periods of the
particular shares of Berkshire Common Stock that it receives in the exchange.
Possible Treatment of Cash as a Dividend. In general, the determination of
whether the gain recognized in the exchange will be treated as capital gain or
dividend income depends upon whether and to what extent the exchange reduces
the Holder's deemed percentage stock ownership interest in Berkshire. For
purposes of this determination, the Holder is treated as if it first exchanged
all of the Holder's shares of FlightSafety Common Stock solely for Berkshire
Common Stock and then Berkshire immediately redeemed (the "deemed redemption")
a portion of such Berkshire Common Stock in exchange for the cash that the
Holder actually received. The gain recognized in the exchange followed by a
deemed redemption will be treated as capital gain if the deemed redemption is
(i) "substantially disproportionate" with respect to the Holder or (ii) "not
essentially equivalent to a dividend."
The deemed redemption, generally, will be "substantially disproportionate"
with respect to a Holder if the percentage described in (ii) below is less
than 80 percent of the percentage described in (i) below. Whether the deemed
redemption is "not essentially equivalent to a dividend" with respect to a
Holder will depend upon the Holder's particular circumstances. At a minimum,
however, in order for the deemed redemption to be "not essentially equivalent
to a dividend," the deemed redemption must result in a "meaningful reduction"
in the Holder's deemed percentage stock ownership of Berkshire. In general,
that determination requires a comparison of (i) the percentage of the
outstanding stock of Berkshire that the Holder is deemed actually and
constructively to have owned immediately before the deemed redemption and (ii)
the percentage of the outstanding stock of Berkshire that is actually and
constructively owned by the Holder immediately after the deemed redemption. In
applying the foregoing tests, a shareholder is deemed to own stock owned and,
in some cases, constructively owned by certain family members, certain estates
and trusts of which the Holder is a beneficiary, certain affiliated entities,
and stock subject to an option actually or constructively owned by the
shareholder or such other persons. As these rules are complex, each Holder
that may be subject to these rules should consult its tax advisor. The
Internal Revenue Service has ruled that a relatively minor reduction in the
percentage stock ownership of a minority stockholder in a publicly held
corporation whose relative stock interest is minimal and who exercises no
control with respect to corporate affairs is a "meaningful reduction."
Accordingly, in most circumstances, gain recognized by a Holder that exchanges
the Holder's shares of FlightSafety Common Stock for a combination of
Berkshire Common Stock and cash generally will be long-term capital gain if
the Holder's holding period with respect to the stock is more than one year,
and otherwise will be short-term capital gain.
Cash Received in Lieu of a Fractional Share. Cash received in lieu of a
fractional share of Berkshire Class B Stock will be treated as received in
redemption of such fractional share and gain or loss will be recognized by a
Holder, equal to the difference between the amount of cash received and the
portion of the basis of the share of FlightSafety Common Stock allocable to
such fractional interest. Such gain or loss generally will be capital gain or
loss, and will be long-term capital gain or loss if the holding period for
such share of FlightSafety Common Stock was greater than one year as of the
date of the exchange.
Backup Withholding. Unless a Holder complies with certain reporting or
certification procedures or is an "exempt recipient" (i.e., in general,
corporations and certain other entities), the Holder may be subject to
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withholding tax of 31% with respect to any cash payments received pursuant to
the Merger. A foreign Holder should consult the Holder's tax advisor with
respect to the application of withholding rules to the Holder with respect to
any cash payments received pursuant to the Merger.
EACH FLIGHTSAFETY SHAREHOLDER IS URGED TO CONSULT THE HOLDER'S TAX ADVISOR
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER.
TREATMENT OF FLIGHTSAFETY EMPLOYEE STOCK OPTIONS
FlightSafety has issued and outstanding options ("Options") to purchase
shares of FlightSafety Common Stock under its 1979 Non-Qualified Stock Option
Plan, as amended, 1982 Incentive Stock Option Plan, as amended, and 1992 Stock
Option Plan, as amended (each a "Stock Option Plan"). Each holder of an
outstanding Option which is currently exercisable and has an exercise price of
less than $50 (an "Exercisable Option") will have the right to elect, by
written notice to Berkshire which is received at least 15 days prior to the
Effective Time, to have such Option cancelled in exchange for a cash payment
equal to the product of (a) the difference between $50 and the exercise price
of such Option and (b) the number of shares of FlightSafety Common Stock
subject to such Option. Each other outstanding Option (including each
Exercisable Option which is not cancelled as provided above) will be converted
into an option to acquire, under the same terms and conditions as applicable
to such Option (including any remaining vesting requirements), the number of
shares of Berkshire Class B Stock equal to the product of (a) the number of
shares of FlightSafety Common Stock subject to such Option and (b) the Class B
Exchange Ratio. The per share exercise price for each Option so converted will
equal the per share exercise price for the original Option divided by the
Class B Exchange Ratio.
CONFLICTS OF INTEREST
Certain officers and directors of FlightSafety have interests in the Merger
in addition to their interests solely as shareholders. The FlightSafety Board
has considered these interests, among other matters, in approving and adopting
the Merger Agreement and the Merger.
The Merger Agreement provides that all Exercisable Options can either be
converted into cash or options to purchase Berkshire Class B Stock, and all
other options will be converted into options to purchase Berkshire Class B
Stock. See "THE MERGER--Treatment of FlightSafety Employee Stock Options." Set
forth below are the number and approximate weighted average exercise price of
FlightSafety stock options held by executive officers of FlightSafety:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
TOTAL EXERCISE
EXECUTIVE OFFICER OPTIONS PRICE
----------------- ------- --------
<S> <C> <C>
Bruce N. Whitman............................................ 48,109 $41.61
Dennis Gulasy............................................... 31,599 $32.01
Kenneth W. Motschwiller..................................... 34,039 $37.80
James S. Waugh.............................................. 33,453 $36.43
Mario D'Angelo.............................................. 16,545 $34.62
Thomas A. Eff............................................... 3,000 $50.88
</TABLE>
FlightSafety has severance agreements ("Severance Agreements") with Bruce N.
Whitman, Kenneth W. Motschwiller, James S. Waugh and Dennis Gulasy (each, a
"Covered Executive") which provide, if within one year following a "Change in
Control" of FlightSafety (such as the Merger), a Covered Executive is
terminated involuntarily other than "For Cause" or voluntarily terminates his
employment for "Good Reason" (as those terms are defined in the Severance
Agreements), for (i) a lump sum cash payment equal to the sum of three times
(a) the Covered Executive's annual base salary and (b) the amount of bonus
compensation paid to the Covered Executive for the year preceding the year in
which termination occurs; (ii) a cash payment for
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outstanding options equal to the higher of (a) the closing price for shares of
FlightSafety Common Stock on a specified date or (b) the price actually paid
in connection with any such Change in Control over the per share exercise
price of such option held by the Covered Executive (whether or not fully
exercisable) times the number of shares covered by each such option; (iii) a
lapse of restrictions on all restricted shares held by the Covered Executive
and (iv) life, disability, and health insurance benefits for 36 months.
Berkshire has agreed in the Merger Agreement that the Severance Agreements
will not be modified for at least three years following the Effective Time.
John A. Morgan, a director of FlightSafety, is a partner in Morgan Lewis, an
investment banking firm which has provided financial advice to FlightSafety in
the past and is a financial advisor to the Special Committee. Morgan Lewis has
received $100,000 in connection with its engagement and will receive an
additional fee of $1,900,000 if the Merger is consummated. See "THE MERGER--
FlightSafety Financial Advisors."
Mr. Ueltschi, the Chairman, President and largest shareholder of
FlightSafety, who owns 9,611,874 shares of FlightSafety Common Stock
(approximately 31.8% of the outstanding shares), has stated his intention to
vote for approval and adoption of the Merger and to elect to receive Berkshire
Class A Stock for his shares. Berkshire has stated that it expects that he
will continue to be the President of FlightSafety after the Merger. All of the
other executive officers and directors of FlightSafety, who own an aggregate
of 433,386 shares of FlightSafety Common Stock (approximately 1.4% of the
outstanding shares), have stated their intention to vote for approval and
adoption of the Merger Agreement.
The Merger Agreement also provides that (i) after the Effective Time,
Berkshire and FlightSafety will use their best efforts to agree on
compensation plans for officers and employees of FlightSafety and that such
compensation plans will include an incentive compensation component reasonably
comparable to the existing FlightSafety plans providing for the issuance of
FlightSafety Common Stock; and (ii) at the Effective Time, FlightSafety shares
held in escrow under FlightSafety's 1984 Restricted Stock Compensation Plan
will be released, all restrictions on such shares will lapse and such shares
will be converted into the Merger Consideration pursuant to the Merger
Agreement. Executive officers of FlightSafety hold the following number of
restricted shares: Bruce N. Whitman, 8,909 shares; Dennis Gulasy, 4,556
shares; Kenneth W. Motschwiller, 4,248 shares; James S. Waugh, 5,351 shares;
Mario D'Angelo, 2,882 shares; and Thomas A. Eff, 273 shares.
The FlightSafety retirement plan for non-employee directors provides for
retirement payments equal to their annual retainer fee for the lesser of the
years served as director or ten years. Upon a "Change in Control" of
FlightSafety (such as the Merger), a non-employee director is entitled to ten
years of payments under the plan even if such director has served for less
than ten years. Each director of FlightSafety has served as a non-employee
director for more than ten years, except for Mr. Hood.
The Merger Agreement also provides that the current officers of FlightSafety
will remain as officers of the Surviving Corporation.
The Merger Agreement also provides that from and after the Effective Time,
Berkshire and the Surviving Corporation will indemnify, defend and hold
harmless the present and former officers and directors of FlightSafety,
subject to certain limitations, for all claims arising as a result of their
service to FlightSafety or relating to the Merger Agreement and the
transactions contemplated thereby. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Indemnification."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information, as of September 30, 1996, concerning
the beneficial ownership of FlightSafety Common Stock by (i) each director,
(ii) each of the five most highly compensated executive officers, (iii) all
directors and executive officers as a group and, to the knowledge of
FlightSafety based on filings with the Commission, each person or group which
beneficially owns more than 5% of the outstanding FlightSafety Common Stock.
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<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------------ ------------------ ----------------------
<S> <C> <C>
Directors
Albert L. Ueltschi(1)............. 9,611,874(2) 31.8%
George B. Beitzel................. 3,292(3) *
Edward E. Hood, Jr................ 1,000 *
Charles R. Longsworth............. 1,025 *
John A. Morgan.................... 118,885 *
Bruce N. Whitman(4)............... 275,240(5) *
Executive Officers
Kenneth W. Motschwiller........... 31,214(5)(6) *
James S. Waugh.................... 37,009(5) *
Dennis Gulasy..................... 37,523(5)(7) *
Directors and Executive Officers as
a group (11 persons).............. 10,158,647(5) 33.6%
FMR Corp.(8)....................... 2,409,900(8) 8.0%
Putnam Investments, Inc.(9)........ 1,495,323(9) 5.0%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the shares of outstanding
FlightSafety Common Stock on such date.
(1) The address for Mr. Ueltschi is Marine Air Terminal, La Guardia Airport,
Flushing, NY 11371. Mr. Ueltschi is also the President of FlightSafety.
(2) Includes 9,611,374 shares held pursuant to a revocable trust for which Mr.
Ueltschi is the sole beneficiary during his lifetime and 500 shares held
pursuant to a partnership. Does not include approximately 1,639,385 shares
beneficially owned by various members of Mr. Ueltschi's family, as to
which Mr. Ueltschi disclaims beneficial ownership.
(3) Does not include 275 shares beneficially owned by Mr. Beitzel's spouse, as
to which Mr. Beitzel disclaims beneficial ownership.
(4) Mr. Whitman is also Executive Vice President of FlightSafety.
(5) Includes shares which the executive officer has the right to acquire
within 60 days through the exercise of stock options granted under
FlightSafety's stock option plans. These amounts are as follows: Mr.
Whitman, 29,598 shares; Mr. Motschwiller, 22,865 shares; Mr. Waugh, 22,270
shares; Mr. Gulasy, 25,741 shares; and all directors and executive
officers as a group, 113,387 shares.
(6) Includes 1,924 shares held by Mr. Motschwiller as custodian for his minor
children.
(7) Does not include 1,266 shares beneficially owned by Mr. Gulasy's spouse,
as to which Mr. Gulasy disclaims beneficial ownership.
(8) FMR Corp.'s address is 82 Devonshire Street, Boston, MA 02109. FMR Corp.
is a holding company and its subsidiary, Fidelity Management & Research
Company, is an investment advisor to investment companies. The number of
shares owned is as of June 30, 1996 as reported on Form 13F-E filed by FMR
Corp. with the Commission on August 14, 1996. FMR Corp. reported it has
neither sole nor shared voting power with respect to such shares and has
sole power to dispose of such shares.
(9) Putnam Investment, Inc.'s address is One Post Office Square, Boston, MA
02109. Putnam Investment, Inc. is a wholly owned subsidiary of Marsh and
McLennan. Putnam Investment, Inc.'s subsidiaries, Putnam Investment
Management, Inc., and the Putnam Advisory Company, Inc., are investment
advisors to investment companies. The number of shares owned is as of
March 31, 1996 as reported on a Schedule 13G filed by Putnam Investment,
Inc. with the Commission on April 8, 1996. Putnam Investment, Inc.
reported it has shared power to vote or to direct the vote for 3,053
shares and has shared power to dispose or to direct the disposition of
these shares.
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ACCOUNTING TREATMENT
The Merger will be accounted for by Berkshire under the purchase method of
accounting in accordance with Accounting Principles Opinion No. 16, "Business
Combinations," as amended. Under this method of accounting, the aggregate
consideration paid by Berkshire in connection with the Merger will be
allocated to FlightSafety's assets and liabilities based on their fair values
at the Effective Time, with any excess being treated as goodwill. The assets
and liabilities and results of operations of FlightSafety will be consolidated
into the assets and liabilities and the results of operations of Berkshire
commencing at the Effective Time.
APPROVALS AND CONSENTS
The Merger Agreement provides that FlightSafety, Berkshire and Merger Sub
will use their best efforts and cooperate with one another (i) in promptly
determining whether any filings are required to be made or consents,
approvals, waivers, permits or authorizations are required to be obtained
under any applicable law or regulation or from any governmental authorities or
third parties in connection with the transactions contemplated by the Merger
Agreement and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain
any such consents, approvals, waivers, permits or authorizations.
Under the HSR Act, certain acquisition transactions may not be consummated
unless notice has been given and certain information furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and specified waiting period requirements have been
satisfied, unless earlier termination has been granted. The FTC notified
FlightSafety on November 8, 1996 that early termination had been granted. At
any time before or after the Effective Time, and notwithstanding that the HSR
Act waiting period has expired, the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin consummation of the Merger or seeking
divestiture of substantial assets of Berkshire or FlightSafety. At any time
before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin consummation of the Merger or
divestiture of businesses of Berkshire or FlightSafety. Private parties also
may seek to take legal action under the antitrust laws under certain
circumstances.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Section 910 of the NYBCL, holders of FlightSafety Common Stock
who follow the procedures set forth in Section 623 of the NYBCL (the
"Appraisal Statute") will be entitled to have their FlightSafety Common Stock
appraised by a New York State Court and to receive payment of the "fair value"
of such shares as determined by such court. The Appraisal Statue is reprinted
in its entirety as Annex III to this Proxy Statement/Prospectus. The following
discussion is not a complete description of the law pertaining to appraisal
rights under the NYBCL and is qualified in its entirety by the full text of
the Appraisal Statute. Any FlightSafety shareholder who wishes to exercise
such appraisal rights or to preserve the right to do so, should review the
following discussion and Annex III carefully because failure to timely and
properly comply with the procedures specified will result in the loss of
dissenters' appraisal rights under the NYBCL.
All references in the Appraisal Statute and in this summary to a
"shareholder" are to the recordholder of FlightSafety Common Stock on the
Record Date. A person having a beneficial interest in shares of FlightSafety
Common Stock that are held of record by another person such as a broker or
nominee must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect whatever appraisal
rights the beneficial owner may have.
A shareholder wishing to exercise appraisal rights must (i) deliver to
FlightSafety, prior to or at the Special Meeting but before the vote is taken
on the Merger Agreement, a written objection to the Merger (the
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<PAGE>
"Notice of Election"), which must include a notice of his election to dissent,
the shareholder's name, residence address, the number of shares as to which
the shareholder dissents and a demand for payment of the fair value of such
shares (which Notice of Election must be in addition to and separate from any
proxy or vote against the Merger Agreement) and (ii) not vote for approval and
adoption of the Merger Agreement. BECAUSE A PROXY WHICH DOES NOT CONTAIN
VOTING INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED FOR APPROVAL OF THE MERGER
AGREEMENT, A SHAREHOLDER WHO VOTES BY PROXY AND WHO WISHES TO EXERCISE
APPRAISAL RIGHTS MUST (A) VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT OR (B) ABSTAIN FROM VOTING ON THE MERGER AGREEMENT. Neither a vote
against the Merger Agreement, in person or by proxy, nor a proxy directing
such vote for an abstention, will in and of itself constitute a written
objection to the Merger under the Appraisal Statute (shareholders who timely
file such Notice of Election and who do not vote in favor of the Merger
Agreement are referred to as "Dissenting Shareholders").
A shareholder may not dissent as to less than all of the shares, as to which
such shareholder has a right to dissent, held by such shareholder of record
and owned beneficially. A nominee or fiduciary may not dissent on behalf of
any beneficial owner as to less than all of the shares held of record by such
nominee or fiduciary on behalf of such owner and as to which such nominee or
fiduciary has a right to dissent. All Notices of Election should be addressed
to FlightSafety International, Inc., Marine Air Terminal, La Guardia Airport,
Flushing, New York 11371, Attention: Thomas A. Eff, Assistant Secretary.
Within 10 days after the date on which shareholders approve and adopt the
Merger Agreement, FlightSafety must send written notice by registered mail to
each Dissenting Shareholder to such effect. At the Effective Time, each
Dissenting Shareholder will cease to have any rights of a shareholder of
FlightSafety except the right to be paid the fair value of his shares and
rights under the Appraisal Statute.
A Notice of Election may be withdrawn by a Dissenting Shareholder prior to
his acceptance in writing of an offer made by FlightSafety to pay the value of
such Dissenting Shares, except that a Notice of Election may not be withdrawn
later than 60 days following the Effective Time unless FlightSafety fails to
make a timely offer to pay such value, in which case such Dissenting
Shareholder shall have 60 days from the date an offer is made to withdraw his
election. In either event, after such time, a Notice of Election may not be
withdrawn without the written consent of FlightSafety. In order to be
effective, withdrawal of a Notice of Election must be accompanied by a return
to FlightSafety of any advance payment made to the Dissenting Shareholder by
FlightSafety as described below.
If a Dissenting Shareholder effectively withdraws or loses such right to
appraisal after the Effective Time, such shareholder's Dissenting Shares will
be deemed to be converted as of the Effective Time into the right to receive
Berkshire Class B Stock in the Merger.
Upon filing the Notice of Election, or within one month thereafter,
Dissenting Shareholders must submit the certificates representing their
FlightSafety Common Stock to FlightSafety, attention: Thomas H. Eff, Assistant
Secretary, at the address set forth above or to FlightSafety's transfer agent,
American Stock Transfer & Trust Co., 40 Wall Street, New York, New York 10005,
and there will be noted thereon that a Notice of Election has been filed and
the certificates will be returned to the Dissenting Shareholders. Any
Dissenting Shareholders who fail to submit such certificates for such notation
will, at the option of FlightSafety exercised by written notice to such
Dissenting Shareholders within 45 days of the date of filing of such Notice of
Election, lose their appraisal rights unless a court, for good cause shown,
shall otherwise direct.
Within 15 days after the expiration of the period within which shareholders
may file their Notice of Election, or within 15 days after the Merger is
consummated, whichever is later (but in no case later than 90 days after the
shareholders' vote to approve and adopt the Merger Agreement), the Surviving
Corporation or any successor must make a written offer to pay for the
FlightSafety Common Stock held by Dissenting Shareholders at a
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<PAGE>
price which the Surviving Corporation or any successor considers to be their
fair value. This offer will be accompanied by a statement setting forth the
aggregate number of shares, which will be at the same price for all Dissenting
Shares, with respect to which Notices of Election to dissent have been
received and the aggregate number of holders of such shares.
If the Merger has been consummated at the time the offer is made, the offer
will be accompanied by (i) advance payment to each Dissenting Shareholder who
has submitted certificates for notation thereon of the election to dissent of
an amount equal to 80% of such offer or (ii) as to each Dissenting Shareholder
who has not yet submitted certificates for notation thereon of the election to
dissent, a statement that advance payment of an amount equal to 80% of the
amount of such offer will be made by FlightSafety promptly upon submission of
certificates. If the Merger has not been consummated at the time of the making
of such offer, such advance payment or statement as to advance payment will be
sent to each shareholder entitled thereto upon consummation of the Merger.
Acceptance of such advance payment by a Dissenting Shareholder will not
constitute a waiver of dissenter's rights. If the Merger is not consummated
within 90 days after approval of the Merger by shareholders, such offer may be
conditioned upon consummation of the Merger.
If within 30 days after making such offer, the Surviving Corporation or any
successor and any Dissenting Shareholder agree on the price to be paid for
such shareholder's Dissenting Shares, the Surviving Corporation or any
successor will pay the agreed price to such holder within 60 days after the
later of the date such offer was made or the Effective Time, upon surrender of
certificates representing such holder's FlightSafety Common Stock.
If the Surviving Corporation or any successor fails to make an offer within
the 15-day period described above, or if it makes an offer and any Dissenting
Shareholder fails to agree within 30 days of the making of such offer, the
Surviving Corporation or any successor must, within 20 days thereafter,
institute a special proceeding in an appropriate court to determine the rights
of Dissenting Shareholders and to fix the fair value of their shares. If the
Surviving Corporation or any successor does not institute such a proceeding
within such 20- day period, any Dissenting Shareholder may, within 30 days
after such 20-day period expires, institute a proceeding for the same purpose.
If such proceeding is not instituted by any Dissenting Shareholder within such
30-day period, all dissenters' rights will be extinguished unless the New York
Supreme Court, for good cause shown, otherwise directs. All Dissenting
Shareholders, other than those who agree with the Surviving Corporation or any
successor as to the price to be paid for their shares, will be made parties to
such proceeding.
With respect to Dissenting Shareholders entitled to payment, the court will
proceed to fix the value of the FlightSafety Common Stock which will be the
fair value as of the close of business on the day prior to the Special
Meeting. In fixing the fair value of the shares of FlightSafety Common Stock,
the court will consider the nature of the Merger and the effects on the
Surviving Corporation or any successor and its shareholders, the concepts and
methods then customary in relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court will determine the fair value of such shares without a jury and without
referral to an appraiser or referee. The final order by the court will include
an allowance for interest (unless the court finds the refusal of any
Dissenting Shareholder to accept the offer of the Surviving Corporation or any
successor thereof as arbitrary, vexatious, or otherwise not in good faith) of
such rate as the court finds to be equitable, accruing from the Effective Time
to the date of payment.
Each party in the appraisal proceeding will bear its own costs and expenses,
including the fees of counsel and any experts employed by it. The court may,
however, in its discretion, assess any of the costs, fees and expenses
incurred by the Surviving Corporation or any successor against Dissenting
Shareholders (including those who withdraw their Notice of Election) if the
court finds that their refusal to accept the offer of the Surviving
Corporation or any successor was arbitrary, vexatious or otherwise not in good
faith. Similarly, the costs, fees and expenses incurred by Dissenting
Shareholders may be assessed by the court in its discretion,
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<PAGE>
against the Surviving Corporation or any successor if the fair value of the
shares as determined by the court materially exceeds the amount which the
Surviving Corporation or any successor offered to pay, the Surviving
Corporation or any successor failed to follow certain procedures of the
Appraisal Statute or such corporation's manner of compliance with the
Appraisal Statue was arbitrary, vexatious or not otherwise in good faith.
Within 60 days after the final determination of the proceeding, the
Surviving Corporation or any successor will pay to each Dissenting Shareholder
the amount found in such proceeding to be due such shareholder, upon surrender
of certificates of FlightSafety Common Stock.
Any shareholder who duly demands, prior to the Special Meeting, an appraisal
in compliance with the Appraisal Statute will not, after the Effective Time,
be entitled to vote the shares subject to such demand for any purpose or to
the payment of dividends or other distributions on those shares, except
dividends or other distributions payable to shareholders of record as of a
date prior to the Effective Time.
Failure to follow the steps required by the Appraisal Statute for perfecting
appraisal rights may result in the loss of such rights. IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF THE APPRAISAL STATUTE, SHAREHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR LEGAL ADVISORS.
DELISTING AND DEREGISTRATION OF FLIGHTSAFETY COMMON STOCK
If the Merger is consummated, FlightSafety Common Stock will be delisted
from the NYSE and deregistered under the Exchange Act.
RESALES OF BERKSHIRE COMMON STOCK
All shares of Berkshire Class A Stock and Berkshire Class B Stock to be
issued in connection with the Merger will be registered under the Securities
Act. Such shares will be freely transferable, except that shares received by
any person who may be deemed to be an affiliate of FlightSafety within the
meaning of Rule 145 of the Securities Act (each such person being an
"Affiliate") may not be resold except in transactions permitted by such Rule
or as otherwise permitted under the Securities Act.
FlightSafety has agreed in the Merger Agreement to use its best efforts to
cause each person who may be deemed to be an Affiliate of FlightSafety to
deliver to Berkshire a written agreement intended to ensure compliance with
the Securities Act.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is annexed as Annex I to this Proxy Statement/Prospectus and
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Merger Agreement.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of FlightSafety
relating, among other things, with respect to FlightSafety and its
subsidiaries, to (i) their organization, good standing and corporate power;
(ii) ownership of subsidiaries by FlightSafety; (iii) FlightSafety's capital
structure; (iv) its corporate power to enter into, and its due authorization,
execution and delivery of the Merger Agreement and the Merger Agreement not
violating its Certificate of Incorporation or By-laws, applicable law and
certain material agreements; (v) documents filed by FlightSafety with the
Commission and the accuracy of information contained therein and the absence
of undisclosed liabilities; (vi) the accuracy of information supplied by
FlightSafety in connection with this Proxy Statement/Prospectus; (vii) the
absence of certain changes or events since the date of the most recent audited
financial statements filed with the Commission, including material adverse
changes with respect to FlightSafety; (viii) the absence of pending or
threatened litigation, certain labor matters and compliance with all
applicable laws; (ix) benefit plans and other matters relating to the Employee
Retirement Income Security Act of 1974, as amended, and employment matters;
(x) filing of tax returns and payment of taxes; (xi) the inapplicability of
any state takeover statute or similar statue or regulation of the State of New
York (and, to the knowledge of FlightSafety, of any other state or
jurisdiction) to the Merger Agreement and the transactions contemplated
thereby; (xii) environmental matters; (xiii) good title to properties and
assets free of liens; (xiv) brokers' fees and expenses; (xv) receipt of the
opinion of Merrill Lynch to the effect that the Merger Consideration to be
received in the Merger by FlightSafety shareholders is fair from a financial
point of view; (xvi) FlightSafety Board's recommendation and determinations
with respect to the Merger Agreement and the transactions contemplated
thereby, including the Merger; and (xvii) the required vote of FlightSafety's
shareholders necessary to approve the Merger Agreement, the Merger and the
other transactions contemplated thereby.
The Merger Agreement also contains representations and warranties of
Berkshire relating, among other things, with respect to Berkshire and its
subsidiaries, to (i) their organization, good standing, and corporate power;
(ii) ownership of subsidiaries by Berkshire; (iii) Berkshire's capital
structure; (iv) its corporate power to enter into, and its due authorization,
execution and delivery of the Merger Agreement and the Merger Agreement not
violating its Certificate of Incorporation or By-laws, applicable law and
certain material agreements; (v) documents filed by Berkshire with the
Commission and the accuracy of information contained therein and the absence
of undisclosed liabilities; (vi) the accuracy of information supplied by
Berkshire in connection with the Registration Statement and this Proxy
Statement/Prospectus; (vii) the absence of certain changes or events since the
most recent financial statements filed with the Commission, including material
adverse changes with respect to Berkshire; (viii) the interim operations of
Merger Sub; and (ix) brokers' fees and expenses.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, FlightSafety has agreed, among other
things, until the Effective Time (except as otherwise specifically required by
the terms of the Merger Agreement), that it will, and it will cause its
subsidiaries to, act and carry on their respective businesses in the usual,
regular and ordinary course of business consistent with past practice and, to
the extent consistent therewith, use its best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
business dealings with them so that their goodwill and ongoing businesses will
not be impaired at the Effective Time. Except for certain exceptions for
actions in the ordinary course of business consistent with past practice,
FlightSafety agreed to not, and not permit any of its subsidiaries to, without
prior consent of Berkshire,
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among other things, (i) declare or pay any dividend or distribution (other
than a regular quarterly dividend not exceeding $.16 per share), (ii)
reclassify or acquire any shares of its capital stock or certain other
securities, (iii) issue or encumber any shares of its capital stock and
certain other securities, (iv) amend its charter documents, (v) acquire a
substantial portion of the stock or assets of another business organization,
(vi) sell, lease, or encumber any of its material properties or assets, (vii)
incur any indebtedness or make any loans or capital contributions to, or
investments in, any other person (other than a FlightSafety subsidiary),
(viii) acquire any material asset or agree to make any capital expenditure,
(ix) pay or satisfy any claims or obligations (except as contemplated in
FlightSafety's most recent audited financial statements), (x) grant, transfer,
or modify any rights of material value, (xi) adopt or amend in any material
respect any employee or director benefit plan or arrangement, (xii) change any
material accounting principal, (xiii) take any action that would result in any
of its representations and warranties in the Merger Agreement becoming untrue,
or in any of the conditions to the Merger not being satisfied, (xiv) make any
tax election or settle or compromise any tax liability, or (xv) authorize or
commit to take any of the foregoing actions.
INDEMNIFICATION
The Merger Agreement provides that FlightSafety will, and from and after the
Effective Time, Berkshire and the Surviving Corporation will, indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date of the Merger Agreement or who becomes such prior to the Effective
Time, an officer, director or employee of FlightSafety or any of its
subsidiaries (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party (which approval will
not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director,
officer or employee of FlightSafety or any of its subsidiaries (the
"Indemnified Parties"), whether pertaining to any matter existing or occurring
at or prior to the Effective Time and whether asserted or claimed prior to, or
at or after, the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, arising in whole or in
part out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby. In the case of FlightSafety and the Surviving
Corporation, such indemnification will only be to the fullest extent a
corporation is permitted under the NYBCL to indemnify its own directors,
officers and employees; and in the case of Berkshire, such indemnification
will not be limited by the NYBCL but will not be applicable to any claims made
against the Indemnified Parties if a judgment or other final adjudication
establishes that their acts or omissions (A) were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so deliberated or (B) arose out of, were based upon or
attributable to the gaining of any financial profit or other advantage to
which they were not legally entitled. FlightSafety, Berkshire and the
Surviving Corporation, as the case may be, will pay all expenses of each
Indemnified Party in advance of the final disposition of any such action or
proceeding, which in the case of FlightSafety and the Surviving Corporation
will be only upon receipt of any undertaking contemplated by Section 723(c) of
the NYBCL.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligation of each party to consummate the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of various
conditions which include, in addition to certain other customary closing
conditions, the following:
(i) the Merger and the Merger Agreement having been approved by the vote of
two-thirds of the outstanding shares of FlightSafety Common Stock
entitled to vote thereon;
(ii) the shares of Berkshire Common Stock issuable to FlightSafety
shareholders pursuant to the Merger Agreement having been approved for
listing on the NYSE, subject to official notice of issuance;
(iii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act having terminated or expired (see "THE
MERGER--Approvals and Consents");
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(iv) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger being
in effect; and if such an injunction order, restraint or prohibition was
issued before the Effective Time, FlightSafety, Berkshire and Merger Sub
having used their best efforts to have any such injunction, order,
restraint or prohibition vacated;
(v) the Registration Statement having become effective under the Securities
Act and not being the subject of any stop order or proceedings seeking
a stop order, and any material "blue sky" and other state securities
laws applicable to the issuance of Berkshire Common Stock having been
complied with;
(vi) the representations and warranties of the other party in the Merger
Agreement being true and correct in all material respects, in each case as
of the date of the Merger Agreement and as of the Closing Date as though
made on and as of such date; and
(vii) each party having performed the obligations required to be performed by it
under the Merger Agreement at or prior to the Closing Date (except for
such failures to perform as have not had or could not reasonably be
expected, either individually or in the aggregate, to have a material
adverse effect with respect to the other party or adversely affect the
ability of the party to consummate the transactions therein contemplated
or perform its obligations thereunder).
Berkshire's and Merger Sub's obligation to consummate the Merger is subject
to the following additional conditions:
(i) Berkshire having received the opinion of Munger, Tolles, dated the
Closing Date, based on appropriate representations of FlightSafety, its
affiliates and Berkshire, and such other facts, representations,
assumptions and agreements as such counsel may reasonably deem
relevant, to the effect that for United States federal income tax
purposes the Merger will qualify as a reorganization within the meaning
of Section 368 of the Code and that each of Berkshire, Merger Sub and
FlightSafety will be a party to the reorganization within the meaning
of Section 368(b) of the Code;
(ii) Berkshire having received satisfactory evidence that such licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties as are necessary in
connection with the transactions contemplated by the Merger Agreement have
been obtained, except for those which are not, individually or in the
aggregate, material to Berkshire or FlightSafety or the failure of which
to have been received would not (as compared to any of those which had
been obtained) materially dilute the aggregate benefits to Berkshire of
the Merger;
(iii) Berkshire having received certain agreements from each such person
identified by FlightSafety to be an Affiliate of FlightSafety for purposes
of Rule 145 under the Securities Act; and
(iv) Mr. Ueltschi having executed and delivered, and used his best efforts to
cause certain members of his family to have executed and delivered, a
continuity of interest agreement pursuant to which such parties agree,
among other things, that for a period of two years after the Merger, they
will not dispose of any Berkshire Common Stock received in exchange for
shares of FlightSafety Common Stock pursuant to the Merger, except in
certain limited circumstances.
FlightSafety's obligation to consummate the Merger is subject to the
additional conditions of the receipt of an opinion of Skadden, Arps, dated the
Closing Date, based on appropriate representations of FlightSafety, its
affiliates and Berkshire and such other facts, representations, assumptions,
and agreements as counsel may reasonably deem relevant, that, for United
States federal income tax purposes, the Merger will qualify as a
reorganization within the meaning of Section 368 of the Code and that each of
Berkshire, Merger Sub and
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FlightSafety will be a party to a reorganization within the meaning of Section
368(b) of the Code. See "THE MERGER--Approvals and Consents."
NO SOLICITATION
The Merger Agreement provides that neither FlightSafety nor any of its
subsidiaries will, nor will FlightSafety or any of its subsidiaries authorize
or permit any of its or their officers, directors, agents, representatives,
advisors or subsidiaries to (i) solicit, initiate or encourage (including by
way of furnishing information), or take any other action to facilitate the
submission of inquiries, proposals or offers from any person relating to any
acquisition or purchase of a substantial amount of assets of FlightSafety or
any of its subsidiaries (other than in the ordinary course of business) or of
over 20% of any class of equity securities of FlightSafety or any of its
subsidiaries or any tender offer (including a self tender offer) or exchange
offer that if consummated would result in any person beneficially owning 20%
or more of any class of equity securities of FlightSafety or any of its
subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving FlightSafety or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement, or any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which would
or could reasonably be expected to materially dilute the benefits to Berkshire
of the transactions contemplated thereby (collectively, "Transaction
Proposals") or agree to or endorse any Transaction Proposal, or (ii) enter
into or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any other person any information with respect to its
business, properties or assets or any of the foregoing, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that the foregoing will not prohibit FlightSafety from (a)
furnishing information concerning FlightSafety and its businesses, properties
or assets pursuant to an appropriate confidentiality agreement substantially
similar to the confidentiality agreement entered into between FlightSafety and
Berkshire to a third party who has made an unsolicited Transaction Proposal,
(b) engaging in discussions or negotiations with a third party who has made an
unsolicited Transaction Proposal, (c) following receipt of an unsolicited
Transaction Proposal, taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) under the Exchange Act or otherwise making
disclosure to its shareholders and/or (d) following receipt of an unsolicited
Transaction Proposal, failing to make or withdrawing or modifying its
recommendation that FlightSafety shareholders approve and adopt the Merger
Agreement, but in each case referred to in the foregoing clauses (a) through
(d) only if and to the extent that the FlightSafety Board has concluded in
good faith, after consulting with and considering the advice of outside
counsel, that such action is required by the FlightSafety Board in the
exercise of its fiduciary duties; provided, further, that the FlightSafety
Board will not take any of the foregoing actions referred to in clauses (a)
through (d) until after giving at least one business day's notice to Berkshire
with respect to such actions. In addition, if the FlightSafety Board receives
a Transaction Proposal, FlightSafety will promptly inform Berkshire in writing
of the material terms of such proposal and the identity of the person (or
group) making it. FlightSafety also agreed to immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties as of the date of the Merger Agreement with respect to the foregoing.
FlightSafety also acknowledged that any violation of the restrictions set
forth above by any director or executive officer of FlightSafety or any of its
subsidiaries or by any investment banker, financial adviser, attorney,
accountant or other representative of FlightSafety or any of its subsidiaries
will be deemed to be a breach of the Merger Agreement by FlightSafety. For a
description of the effects that a Transaction Proposal prior to the Effective
Time could have on the Merger Agreement, see "--Termination" below.
BOARD OF DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The Merger Agreement provides that the directors of Merger Sub at the
Effective Time will be the directors of the Surviving Corporation and that the
officers of FlightSafety at the Effective Time of the Merger will be officers
of the Surviving Corporation.
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TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time:
(i) by mutual written consent of Berkshire and FlightSafety;
(ii) by either Berkshire or FlightSafety (a) if any Federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign, has issued an
order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action has become final and
nonappealable; or (b) if the Merger has not been consummated on or
before March 31, 1997 (other than due to the failure of the party
seeking to terminate the Merger Agreement to perform its obligations
under such agreement required to be performed at or prior to the
Effective Time);
(iii) by Berkshire, (a) if the required approval of the shareholders of
FlightSafety has not been obtained; (b) if the FlightSafety Board has
withdrawn, modified or amended in any respect adverse to Berkshire or
Merger Sub its approval or recommendation of the Merger Agreement or
the Merger, failed as soon as practicable to mail the Proxy
Statement/Prospectus to its shareholders or failed to include in such
statement such recommendation, recommended any Transaction Proposal
from a person other than Berkshire or resolved to do any of the
foregoing; (c) if (1) FlightSafety has exercised any of its rights
described under "--No Solicitations" above with respect to any
Transaction Proposal and has, directly or through agents or
representatives, continued discussions with any third party
concerning such Transaction Proposal for more than 10 business days
after receipt of such Transaction Proposal; or (2) (A) a Transaction
Proposal that is publicly disclosed which contains a proposal as to
price (without regard to whether such proposal specifies a specific
price or a range of potential prices) shall have been commenced,
publicly proposed or communicated to FlightSafety and (B)
FlightSafety has not rejected such proposal within the earlier of 10
business days of its receipt or the date its existence first becomes
publicly disclosed; or (iv) if FlightSafety fails to perform any of
its material obligations under the Merger Agreement; or
(iv) by FlightSafety, (a) if FlightSafety fails to make or withdraws or
modifies its recommendation that FlightSafety shareholders approve the
Merger as described under "--No Solicitations" above; or (b) if
Berkshire or Merger Sub fails to perform any of their respective
material obligations under the Merger Agreement.
In the event of termination of the Merger Agreement by either FlightSafety
or Berkshire, the Merger Agreement will become void and have no effect,
without any liability or obligation on the part of Berkshire, Merger Sub or
FlightSafety, other than under certain specified provisions of the Merger
Agreement relating to the payment of expenses, and for damages as a result of
the breach by a party of any of its representations, warranties, covenants or
agreements set forth in the Merger Agreement.
FEES AND EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses, except that expenses in
connection with the printing and mailing of this Proxy Statement/Prospectus,
the Registration Statement and filing fees with the Commission, will be shared
equally between Berkshire and FlightSafety.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after required approval of the Merger by FlightSafety shareholders; provided,
however, that after such approval, no amendment will be made
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that requires shareholder approval unless such approval is obtained. Prior to
the Effective Time, the parties may (i) extend the time for the performance of
any obligation or other act of any other party to the Merger Agreement, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto or (iii)
subject to any required shareholder approval, waive compliance with any of the
agreements or conditions contained in the Merger Agreement.
CAPITALIZATION
The table below sets forth the unaudited (i) consolidated capitalization of
Berkshire as of September 30, 1996, (ii) consolidated capitalization of
FlightSafety as of September 30, 1996 and (iii) pro forma combined
capitalization of Berkshire as of September 30, 1996 giving effect to the
Merger. The pro forma data gives effect to the Merger under the purchase
method of accounting. Because the relative amounts of Cash Consideration and
Stock Consideration in the Merger depend upon, among other things, the
elections of FlightSafety shareholders and the application of procedures to
ensure that the Cash Consideration does not exceed the Cash Limitation (see
"THE MERGER--Merger Consideration" and "--Cash Limitation"), two alternative
scenarios of unaudited pro forma comparative per share data are presented.
Scenario 1 assumes that 58% of the total consideration in the Merger is Cash
Consideration and 42% of the total consideration is Stock Consideration.
Scenario 2 assumes that 100% of the total consideration is Stock
Consideration. This information should be read in conjunction with the
financial statements, related notes and other financial information pertaining
to Berkshire and FlightSafety incorporated herein by reference.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
UNAUDITED UNAUDITED
----------------------- --------------------------
SCENARIO 1 SCENARIO 2
BERKSHIRE FLIGHTSAFETY MAXIMUM CASH MAXIMUM STOCK
--------- ------------- ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Borrowing under investment
agreements
and other debt:
Parent company........... $ 860.5 $ -- $ 860.5 $ 860.5
Finance subsidiaries..... 389.1 -- 389.1 389.1
Other subsidiaries....... 574.7 38.3 613.0 613.0
Minority shareholder
interests................. 311.8 -- 311.8 311.8
Shareholders' equity....... 21,188.7 619.0 21,811.7 22,637.5
--------- ------ --------- ---------
$23,324.8 $657.3 $23,986.1 $24,811.9
========= ====== ========= =========
</TABLE>
BUSINESS OF BERKSHIRE
Berkshire is a holding company owning subsidiaries engaged in a number of
diverse business activities. The most important of these is the property and
casualty insurance business, which Berkshire conducts through subsidiaries
referred to collectively as the Berkshire Hathaway Insurance Group. See "--
Berkshire Hathaway Insurance Group." The investment portfolios of the
insurance subsidiaries include meaningful equity ownership percentages of
other publicly-traded companies. See "--Common Stock Investments." In
addition, Berkshire publishes the Buffalo News, a daily and Sunday newspaper
in upstate New York, and its non-insurance subsidiaries engage in a variety of
manufacturing, publication, and retail businesses. See "--Non-Insurance
Businesses."
Operating decisions for the various insurance and non-insurance businesses
of Berkshire are made by the managers of the business units. Investment
decisions and all other capital allocation decisions are made for Berkshire
and its subsidiaries by Mr. Buffett, Berkshire's Chairman, in consultation
with Mr. Munger, its Vice-Chairman.
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Berkshire Hathaway Insurance Group
The Berkshire Hathaway Insurance Group (the "Group") operates a primary or
direct insurance business nationwide and a reinsurance business worldwide. The
largest subsidiary in the Group is National Indemnity Company ("National
Indemnity"). Also included in this Group is GEICO Corporation ("GEICO"), the
seventh largest auto insurer in the United States.
The Group maintains capital strength at high levels, significantly higher
than normal in the industry. This capital strength differentiates Group
members from their competitors. For example, in each of the five years from
1991 through 1996 the Group's ratio of net premiums written to year-end
statutory surplus was 10% or less; the addition of GEICO will cause the
Group's ratio to increase in 1996 to a presently estimated 15%-20%. The
industry average net premiums-to-surplus ratio from 1991 through 1995 ranged
from 113% to 141% (based on statistics published by A.M Best & Company).
Because it maintains large capital in relation to annual premiums written,
Berkshire can pay losses under the most adverse circumstances. This obvious
margin of safety is very attractive to the Group's insureds, and creates
opportunities for the Group to negotiate and enter into contracts of insurance
specially designed to meet unique needs of sophisticated insurance and
reinsurance buyers. Berkshire's capital base also allows the Group to issue
policies with limits larger than other insurance companies are typically
prepared to write. Finally, large capital combined with low overhead allows
the Group to respond to insurance opportunities with exceptional speed and be
selective about the business it writes. The Group can forbear from writing
policies when it perceives rates to be inadequate. Conversely, it can more
fully utilize its capital strength when better-than-industry-average results
may be expected.
Reinsurance. The Reinsurance Division of National Indemnity provides excess
of loss and quota share treaty reinsurance to other property/casualty insurers
and reinsurers. Minimal organizational resources, but huge financial
resources, are currently devoted to this business.
During 1990, management of the Group perceived declines in industry capacity
and competition for mega-catastrophe excess-of-loss reinsurance ("super-cat")
coverages. Consequently, National Indemnity has written coverages for a number
of such risks. Management believes that in recent years the Group has been the
largest provider in the world of this type of coverage. These coverages may
provide sizeable amounts of indemnification per contract, and a single event
may result in payments under a number of contracts. Berkshire's present
underwriting standards (which are subject to change) seek to limit Berkshire's
exposure to a loss from a single event to $1 billion in excess of the premiums
earned. This business can produce extreme volatility in reported periodic
results. Accounting consequences, however, do not influence decisions of
Berkshire's management with respect to this or any other business and this
fact, plus the Group's extraordinary financial strength, are believed to be
the primary reasons why the Group has become a major provider of these
coverages.
Since 1992, there has been a substantial increase in catastrophe reinsurance
capacity for the industry. Most of the additional capacity has arisen from
equity capital raised by newly formed entities. Berkshire management has
observed that, in some instances, catastrophe reinsurance prices have fallen
below the amounts that it considered adequate. The result was a decrease in
the level of business accepted in 1995. Management anticipates that the level
of business accepted in 1996, and possibly in subsequent years as well, may
also be reduced.
In recent years, the Group has entered into several non-traditional
reinsurance arrangements known as finite-risk contracts. These contracts have
become increasingly significant in the Group's business and the
property/casualty insurance marketplace. These reinsurance agreements provide
essentially traditional coverages but also contractually establish minimum and
maximum payouts by the reinsurer. Minimum payout requirements may call for
repayments to the reinsured, on specified dates, of sums not otherwise paid
out by the reinsurer as losses. The amount of risk transferred, while
significant, is limited. Because the period over which claims are expected to
be paid can be lengthy, the time value of money is an important element in
pricing and setting terms for these contracts. Transaction amounts and limits
of indemnification are likely to be large. In addition, a single contract may
relate to loss occurrences in a number of lines of business that span a number
of years.
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Providers of such non-traditional products need significant financial
strength. Increased competition for such business and new accounting standards
for ceding companies have limited the number of opportunities to write such
business, particularly with respect to retroactive reinsurance coverages of
past loss events. However, the occasional acceptance of such business
continues to produce considerable premium volume.
Primary or Direct Basis Insurance. The Group also writes insurance on a
primary or direct basis (policies issued in the name of and to the insured
party). The Group's primary or direct business was significantly expanded when
GEICO became a wholly owned subsidiary of Berkshire on January 2, 1996.
GEICO, through its own subsidiaries, is a multiple line property casualty
insurer, the principal business of which is writing private passenger
automobile insurance. GEICO markets its policies to individuals in 48 states
and the District of Columbia by direct response methods, which is a major
aspect of GEICO's strategy to be a low-cost provider of such coverages.
Other Group members engaged in primary or direct basis insurance underwrite
multiple lines of principally casualty coverages nationwide for primarily
commercial accounts. These members write business through insurance agents and
brokers. The traditional business of National Indemnity has been largely in
providing liability coverages for commercial truck and bus operators and
related commercial transportation activities that require specialized
underwriting knowledge and techniques. The Commercial Casualty Division and
Professional Liability and Special Risk Division of National Indemnity solicit
and underwrite especially large or unusual risks. Other member companies,
referred to as "homestate operations," market various commercial coverages for
standard risks to insureds in an increasing number of selected states. The
Group also insures the credit card debt of policyholders through Berkshire's
82%-owned Central States Indemnity Co. of Omaha, which markets to individuals
through credit card issuers nationwide, and provides workers' compensation
insurance primarily to employers in California through Cypress Insurance
Company.
Underwriting Results and "Float". The increases in reinsurance business in
recent years have produced an exceptional increase in the amount of "float"
generated by the Group. Float is an estimate of the net investable funds
provided by policyholders to the Group and held by it prior to payment of
claims and claims adjustment expenses. Float arises because of the time lapse
between the dates premiums are paid by policyholders and the dates policy
costs, primarily losses and loss adjustment expenses, are paid. Float equals
the sum of unpaid losses, unpaid loss adjustment expenses, unearned premiums
and other liabilities to policyholders less the aggregate of premium balances
receivable, amounts recoverable as reinsurance on paid and unpaid losses,
deferred policy acquisition costs, deferred charges applicable to assumed
reinsurance and prepaid income taxes. The Group generates float in exceptional
amounts relative to premium volume. Since 1967, when Berkshire entered the
insurance business, its float has grown at an annual compounded rate of 20.7%.
The "cost" of float in any year is the underwriting loss that occurs when
premiums earned by an insurer are less than losses and expenses incurred by
the insurer for the year. In years when an underwriting profit is achieved, as
the Group has in each of the past three years, the "cost" of float is
negative; that is, the Group has had access to money at no cost. The following
table shows the Group's pre-tax underwriting profit or loss (stated on the
basis of generally accepted accounting principles and not including GEICO),
average float, and approximate cost of float (compared to the year-end yield
on long-term U.S. Treasury bonds) for the past five years:
<TABLE>
<CAPTION>
(1) YEAR-END
UNDERWRITING (2) APPROXIMATE YIELD ON LONG-TERM
GAIN (LOSS) AVERAGE FLOAT COST OF FUNDS GOVERNMENT BONDS
--------------- --------------- ----------------- ------------------
(IN $ MILLIONS) (IN $ MILLIONS) (RATIO OF 1 TO 2)
<S> <C> <C> <C> <C>
1991.................... (119.6) 1,895.0 6.31% 7.40%
1992.................... (109.0) 2,290.4 4.76% 7.39%
1993.................... 30.0 2,624.7 less than zero 6.35%
1994.................... 129.0 3,056.6 less than zero 7.88%
1995.................... 19.6 3,607.2 less than zero 5.95%
</TABLE>
46
<PAGE>
Underwriting results from the last three years have benefitted from the
profitability of the super-cat business (see "CERTAIN RISK FACTORS AND
INVESTMENT CONSIDERATIONS").
Common Stock Investments
Berkshire's investment portfolio, held principally through insurance
subsidiaries, includes marketable equity securities valued at approximately
$25.6 billion as of September 30, 1996. Such investments include:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
OF CAPITAL STOCK
----------------------
<S> <C>
American Express Company.............................. 10%
The Coca-Cola Company................................. 8%
The Walt Disney Company............................... 3 1/2%
Federal Home Loan Mortgage Company.................... 9%
The Gillette Company.................................. 11%
Salomon Inc........................................... 18%*
The Washington Post Company........................... 16%
Wells Fargo & Company................................. 8%
</TABLE>
- --------
* Includes convertible preferred stock with a carrying value of $588 million
as of September 30, 1996 not included in the $25.6 billion stated above.
Much information about these publicly owned companies is available,
including that released from time to time by the companies themselves.
Mr. Buffett and Mr. Munger select marketable equity securities in much the
same way as they evaluate a business for acquisition in its entirety. They
seek businesses that they can understand, with favorable long-term prospects,
operated by honest and competent people, and available at an attractive price.
When pro-rata portions of outstanding businesses sell in the securities
markets at discounts from the prices they would command in negotiated
transactions involving entire companies, bargains in business ownership that
are not available through corporate acquisition can be obtained indirectly
through minority stock ownership.
Berkshire is willing to take very large positions in selected companies, not
with an intention of taking control, but with the expectation that excellent
business results by corporations will translate over the long term into
correspondingly excellent market value and dividend results for owners,
minority as well as majority. Large positions of the type reflected in the
table above may be less liquid than smaller positions, in that such large
positions often cannot be sold readily without causing a decline in market
value. However, Berkshire is willing to hold such positions for the very long
term.
Non-Insurance Businesses of Berkshire
Berkshire's non-insurance businesses engage in a variety of manufacturing,
publication, retail, and finance activities. Mr. Buffett and Mr. Munger apply
the same economic principles in acquiring whole businesses as in acquiring
marketable equity securities. They seek businesses they understand, with
demonstrated consistent earning power, good returns on equity while employing
little or no debt, and management in place. Applying these criteria, Berkshire
has accumulated over many years a collection of businesses operated by
managers, whom Mr. Buffett and Mr. Munger admire and trust, working with
extraordinary autonomy.
Berkshire's non-insurance businesses accounted for approximately 62% of
Berkshire's consolidated revenues and 26% of consolidated net earnings in 1995
and consisted primarily of the following:
<TABLE>
<CAPTION>
PRODUCT OR SERVICE
------------------
<S> <C>
See's Candies Manufacture and distribution of candy at retail and by catalog solicitation
World Book Publication and marketing of encyclopedias and other reference materials,
principally by the direct sales method
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PRODUCT OR SERVICE
------------------
<S> <C>
Kirby, Douglas and
Cleveland Wood
Divisions of The Scott
Fetzer Company Manufacture and sale of home cleaning systems, principally to distributors
Nebraska Furniture Mart
and R.C. Willey Home
Furnishings Retailing of home furnishings
Buffalo News Publication of a daily and Sunday newspaper
H. H. Brown Shoe Co.,
Lowell Shoe, Inc. and
Dexter Shoe Companies Manufacture, importing and distribution of shoes at wholesale and retail
Fechheimer Bros. Co. Manufacture and distribution of uniforms at wholesale and retail
Borsheim's and
Helzberg's Diamond
Shops Retailing of fine jewelry
Scott Fetzer Financial
Group and other finance
companies Consumer and commercial financing and annuities
Campbell Hausfeld and
other Scott Fetzer
Manufacturing Group
companies Manufacture and sale of diverse industrial and consumer products
</TABLE>
BUSINESS OF FLIGHTSAFETY
FlightSafety, a New York corporation, organized in 1951, is engaged in the
business of providing high technology training to operators of aircraft and
ships. FlightSafety owns and operates the largest civil aviation simulator
fleet in the world, consisting of more than 170 simulators and training
devices.
FlightSafety operates primarily in one industry segment, which is training.
FlightSafety is also engaged in the design, manufacture and sale of full-
motion flight simulators and other training equipment through its Simulation
Systems Division and visual displays and systems for flight simulators through
its Visual Simulation Systems Division. FlightSafety's Instructional Systems
Division develops classroom presentation systems, interactive computer-based
software, courseware and manuals primarily for FlightSafety's educational and
training activities.
The Company's training activities include (a) advanced pilot training in the
operation of aircraft and air traffic control procedures, (b) air crew
training for military and other government personnel, (c) aircraft maintenance
technician training, (d) ab-initio (primary) pilot training to qualify
individuals for private and commercial pilot licenses and (e) ship handling
and related training through the Company's wholly owned subsidiary,
MarineSafety International, Inc.
FlightSafety's training activities are conducted primarily in the United
States where 31 of its 35 training centers are located. FlightSafety also
maintains two learning centers in Canada, one learning center in Paris, France
and one learning and research center in Rotterdam, the Netherlands.
DESCRIPTION OF BERKSHIRE COMMON STOCK
The authorized capital stock of Berkshire consists of 1,500,000 shares of
Berkshire Class A Stock, 50,000,000 shares of Berkshire Class B Stock and
1,000,000 shares of preferred stock, no par value per share ("Berkshire
Preferred Stock").
The following summary of certain provisions of the Berkshire Class A Stock,
Berkshire Class B Stock and Berkshire Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions
of applicable law and Berkshire's Restated Certificate of Incorporation.
48
<PAGE>
The holders of outstanding shares of Berkshire Class A Stock are entitled to
one vote, and the holders of outstanding shares of Berkshire Class B Stock are
entitled to one-two-hundredth (1/200th) of a vote, for each share held of
record on all matters submitted to a vote of stockholders. Unless otherwise
required by the Delaware General Corporation Law (the "DGCL"), the Berkshire
Class A Stock and Berkshire Class B Stock vote as a single class with respect
to all matters submitted to a vote of stockholders of Berkshire.
Mr. Buffett owns 39.8% of the Berkshire Class A Stock, and he shares voting
and investment power over another 3.1% of such stock, which is owned by his
wife, Susan T. Buffett, and 0.4% of such stock, which is owned by trusts of
which he is trustee but in which he has no economic interest. Mr. and Mrs.
Buffett have entered into a voting agreement with Berkshire providing that,
should the voting power of shares held by Mr. and Mrs. Buffett and the trust
exceed 49.9% of the total voting power of Berkshire voting securities, they
will vote their shares in excess of that percentage proportionally with the
votes of the other Berkshire stockholders.
Each share of Berkshire Class A Stock may be converted into thirty (30)
shares of Berkshire Class B Stock at the holder's option at any time. Shares
of Berkshire Class B Stock are not convertible into Berkshire Class A Stock or
any other security.
Holders of Berkshire Class A Stock are entitled to receive ratably such
dividends as may be declared by the Berkshire Board out of funds legally
available therefor. Holders of Berkshire Class B Stock will be entitled to
dividends equal to one-thirtieth (1/30th) of the amount per share declared by
Berkshire's Board for each share of Berkshire Class A Stock. Dividends with
respect to the Berkshire Class B Stock will be paid in the same form and at
the same time as dividends with respect to Berkshire Class A Stock, except
that, in the event of a stock split or stock dividend, holders of Berkshire
Class A Stock will receive shares of Berkshire Class A Stock and holders of
Berkshire Class B Stock will receive shares of Berkshire Class B Stock, unless
otherwise specifically designated by resolution of the Berkshire Board.
Berkshire has not declared a cash dividend since 1967 and has no present
intention to pay a dividend on Berkshire Class A Stock or on Berkshire Class B
Stock in the future.
In the event of the liquidation, dissolution or winding-up of Berkshire,
holders of Berkshire Class A Stock and Berkshire Class B Stock are entitled to
share ratably in all assets remaining after the payment of liabilities, with
holders of Berkshire Class B Stock entitled to receive per share one-thirtieth
(1/30th) of any amount per share received by holders of Berkshire Class A
Stock. Neither holders of Berkshire Class A Stock nor Berkshire Class B Stock
shall have preemptive rights to subscribe for additional shares of either
class. All shares of Berkshire Class A Stock and Berkshire Class B Stock
outstanding upon completion of this offering will be fully paid and
nonassessable.
No shares of Berkshire Preferred Stock are presently outstanding. In the
future, Berkshire may issue the Berkshire Preferred Stock in one or more
series. The Berkshire Board is authorized to determine, with respect to each
series of Berkshire Preferred Stock which may be issued, the powers,
designations, preferences, and rights of the shares of such series and the
qualifications, limitations, or restrictions thereof, including any dividend
rate, redemption rights, liquidation preferences, sinking fund terms,
conversion rights, voting rights and any other preferences or special rights
and qualifications. The effect of any issuance of the Berkshire Preferred
Stock upon the rights of holders of the Berkshire Class A Stock and Berkshire
Class B Stock depends upon the respective powers, designations, preferences,
rights, qualifications, limitations and restrictions of the shares of one or
more series of Berkshire Preferred Stock as determined by the Berkshire Board.
Such effects might include dilution of the voting power of the Berkshire Class
A Stock and Berkshire Class B Stock, the subordination of the rights of
holders of Berkshire Class A Stock and Berkshire Class B Stock to share in
Berkshire's assets upon liquidation, and a reduction in the amount otherwise
available for payment of dividends on Berkshire Class A Stock and Berkshire
Class B Stock.
49
<PAGE>
COMPARISON OF THE RIGHTS OF HOLDERS OF
BERKSHIRE AND FLIGHTSAFETY COMMON STOCK
Berkshire and FlightSafety are incorporated under the laws of the States of
Delaware and New York, respectively. If the Merger is consummated, certain
FlightSafety shareholders will become Berkshire shareholders. As shareholders
of a Delaware corporation, the rights of FlightSafety shareholders will differ
in certain respects from those of a New York corporation. In addition, as
shareholders of Berkshire, their rights will be governed by Berkshire's
Restated Certificate of Incorporation, as amended (the "Berkshire
Certificate"), and By-laws (the "Berkshire By-laws") rather than
FlightSafety's Restated Certificate of Incorporation, as amended (the
"FlightSafety Certificate"), and By-laws (the "FlightSafety By-laws").
Certain differences between the Berkshire Certificate and Berkshire By-laws
and the FlightSafety Certificate and FlightSafety By-laws and between certain
provisions of the DGCL and the NYBCL affecting shareholders' rights are
summarized below. The summaries do not purport to be complete and are
qualified in their entirety by reference to the DGCL, Berkshire Certificate,
Berkshire By-laws, NYBCL, FlightSafety Certificate and FlightSafety By-laws,
as applicable.
AMENDMENT OF GOVERNING DOCUMENTS
Amendment of Certificates. Under the NYBCL, except for certain specified
matters, an amendment or change to the FlightSafety Certificate must be
authorized by the FlightSafety Board and a majority of outstanding shares
entitled to vote at a meeting of shareholders. In addition, certain specified
amendments affecting the rights of holders of a class of securities must be
approved by vote of a majority of all outstanding shares of such class
entitled to vote, even though they ordinarily would not have voting rights.
Under the NYBCL, certain specified amendments to the certificate of
incorporation may be made by the board of directors without shareholder
approval.
Under the DGCL, the Berkshire Certificate generally may be amended by the
Berkshire Board and the vote of a majority of the outstanding shares entitled
to vote. In addition, amendments which make changes relating to the capital
stock by increasing or decreasing its par value or aggregate number of
authorized shares, or otherwise adversely affecting the rights of a class,
must be approved by the majority vote of each class or series of stock
affected, even if such stock would not otherwise have voting rights.
Amendment of By-laws. Under the NYBCL, by-laws may be adopted, amended or
repealed by a majority vote of shareholders entitled to vote in the election
of directors. When provided by the certificate of incorporation or a by-law
adopted by shareholders (as is the case with FlightSafety), a majority of the
FlightSafety Board may also adopt, amend or repeal by-laws, except that (i)
any action by the FlightSafety Board changing the number of directors requires
the vote of a majority of the entire FlightSafety Board and (ii) as provided
in the NYBCL, any by-law adopted by the FlightSafety Board without shareholder
approval may be amended or repealed by shareholders entitled to vote thereon.
The Berkshire By-laws may be amended or repealed by either a majority of
directors then in office or of the shares outstanding and entitled to vote.
DIRECTORS
Number. Under the NYBCL, the board of directors of a widely held corporation
must consist of at least three directors; the FlightSafety By-laws provide
that the number of directors be determined by the FlightSafety Board but there
must be at least three directors. Under the DGCL, the certificate of
incorporation or by-laws of a corporation may specify the number of directors;
the Berkshire By-laws provide that the number of Berkshire directors will be
determined by the Berkshire Board.
50
<PAGE>
Cumulative Voting. Neither the Berkshire nor the FlightSafety Certificate
provides for cumulative voting for directors.
Removal. Under the Berkshire By-laws, a director may be removed with or
without cause by holders of a majority of shares issued and outstanding and
entitled to vote in the election of directors.
The FlightSafety Certificate and FlightSafety By-laws do not provide for
removal of directors. Under the NYBCL, directors generally may be removed for
cause by a majority of shares entitled to vote; a director may be removed
without cause by a shareholder vote only if the certificate of incorporation
or by-laws so provide (the FlightSafety Certificate and By-laws do not so
provide). Additionally, the NYBCL allows an action to remove a director for
cause to be brought by the State Attorney General or holders of 10% of the
outstanding shares, whether or not entitled to vote.
Vacancies. Under the Berkshire By-laws, a vacancy on the Berkshire Board may
be filled by a vote of the shareholders at a meeting called for that purpose,
or by a majority of directors then in office, even though less than a quorum,
or by a sole remaining director. Under the FlightSafety By-laws, a vacancy on
the FlightSafety Board may be filled by a majority of directors then in
office, even though less than a quorum.
Quorum; Action. Under the FlightSafety By-laws, one-third of the
FlightSafety Board constitutes a quorum and the act of a majority of directors
at a meeting where there is a quorum constitutes the act of the FlightSafety
Board. A majority of the directors constitute a quorum at a meeting of the
Berkshire Board, and the act of the directors where there is a quorum
constitutes the act of the Berkshire Board.
ANNUAL AND SPECIAL SHAREHOLDER MEETINGS
Annual Meetings. The FlightSafety By-laws provide for an annual meeting of
shareholders to be held within 120 days after the close of its fiscal year on
a date fixed by the President. The Berkshire By-laws provide for an annual
meeting to be held generally on the last Monday in April.
Special Shareholder Meetings. The Berkshire By-laws provide that a special
meeting of shareholders may be called at any time by the Chairman of the Board
or the Berkshire Board. A special meeting may also be called by Berkshire's
Secretary, or in the case of his death, absence, incapacity or refusal, by an
assistant secretary or other officer, upon application of a majority of
directors or shareholders who hold at least 50% of Berkshire's issued and
outstanding capital stock.
The NYBCL provides that special meetings of shareholders may be called by a
corporation's board of directors or by such persons as the certificate of
incorporation or by-laws authorize. The FlightSafety By-laws provide that
special meetings may be called at any time by the President or any vice
president or by the FlightSafety Board. Under the NYBCL, shareholders holding
10% of shares entitled to vote may call a special meeting to elect directors
if there is a failure to elect a sufficient number of directors to conduct the
business of the corporation and the corporation's board has not called a
special meeting for such purpose.
Notices. Under the Berkshire By-laws, a written notice of each meeting of
shareholders stating the place, date and hour thereof and, in the case of a
special meeting, the purposes for which the meeting is called, must be given
not less than 10 nor more than 60 days before the date of such meeting.
Under the FlightSafety By-laws, written notice must state the place, date
and hour of the meeting and, unless it is an annual meeting, state that it is
being issued by or at the direction of persons calling the meeting, and state
the purposes for which the meeting is called. If at any meeting action is
proposed to be taken which would entitle shareholders fulfilling the
dissenters' rights requirements of the NYBCL to receive payment for their
shares, the notice of such meeting must include a statement to that effect.
Under the FlightSafety By-laws and the NYBCL, notice of any shareholder
meeting must be given, if personally or by first class mail, not fewer than 10
nor more than 50 days before the date of the meeting.
51
<PAGE>
Under the Berkshire By-laws and the DGCL, a proxy is valid for three years
from its date, unless it provides for a longer period, and is irrevocable if
so stated. Under the FlightSafety By-laws and the NYBCL, a proxy is valid for
11 months from its date, unless the proxy provides otherwise, and is revocable
unless stated otherwise or is held by certain specified persons, including a
purchaser of the shares as to which the proxy was granted.
Quorum. Under the FlightSafety By-laws, one-third of the shares entitled to
vote constitutes a quorum, except that when a specified item of business is
required to be voted on by a class or series, the holders of one-third of the
shares of such class or series constitute a quorum for such business. Under
the Berkshire By-laws, a majority of the shares entitled to vote constitutes a
quorum.
Action. The NYBCL provides that, except for certain specified corporate
actions (including a merger or consolidation), whenever any corporate action,
other than the election of directors (which is decided by a plurality of votes
cast), is to be taken by shareholders, a majority of the votes cast at a
meeting of the shareholders is required. Under the Berkshire By-laws, when a
quorum is present, a plurality of the votes cast for election of a director
will elect such director and a majority of the votes cast upon any other
action will authorize such action.
Shareholder Action Without a Meeting. Under the DGCL, unless otherwise
provided by a corporation's certificate of incorporation, any action which to
is be taken by shareholders may be taken without a meeting if such action is
authorized by written consents signed by shareholders having not less than the
minimum number of votes necessary to take such action at a meeting at which
all shares were present and voting. The Berkshire Certificate does not
otherwise provide.
Under the NYBCL, any required or permitted action taken by shareholders may
be taken without a meeting with the written consent of all outstanding shares,
unless the certificate of incorporation otherwise provides for a lesser
number. The FlightSafety Certificate does not otherwise provide.
MERGERS AND BUSINESS COMBINATIONS; SALES OF ASSETS
Approval. Under the DGCL, when shareholder approval is required for a merger
or consolidation or a sale, lease or exchange of all or substantially all of a
corporation's assets, such transaction must be approved by a majority of
outstanding shares entitled to vote. Under the NYBCL, whenever shareholder
approval is required for a merger or consolidation or sale, lease, exchange or
disposition of all or substantially all of a corporation's assets, such
transaction must be approved by two-thirds of the outstanding shares entitled
to vote.
Merger Without Shareholder Approval. Under the DGCL, unless required by a
corporation's certificate of incorporation (the Berkshire Certificate does not
contain such requirement), no vote of shareholders of the surviving
corporation in a merger is required (and no dissenters' rights are available
to such shareholders) if (i) the agreement of merger does not amend the
certificate of incorporation of the surviving corporation, (ii) each share of
stock of such surviving corporation outstanding immediately prior to the
effective date of the merger will be an identical outstanding or treasury
share of the surviving corporation after such effective date, (iii) either no
shares of common stock of the surviving corporation and no shares, securities
or obligations convertible into such stock are to be issued or delivered under
the plan of merger, or the authorized unissued shares or treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
securities or obligations to be issued or delivered under such plan, do not
exceed 20% of the issuer's common shares outstanding immediately prior to the
merger and (iv) certain other requirements are satisfied. The DGCL also
provides that a parent corporation which is the record holder of at least 90%
of each class of outstanding shares of a subsidiary may merge such subsidiary
into such parent without approval of such subsidiary's shareholders or board
of directors.
Under the NYBCL, a New York corporation owning at least 90% of each class of
outstanding shares of another New York corporation may merge such other
corporation into itself without authorization of the shareholders of any such
corporation.
52
<PAGE>
Business Combinations with Interested Shareholders. Under the DGCL, a
"business combination" with an "interested stockholder" (as defined in the
DGCL) of a publicly held Delaware corporation is subject to a three-year
moratorium unless specified conditions are met. Under the NYBCL, certain types
of a "business combination" with an "interested shareholder" (as defined in
the NYBCL) of a New York corporation are subject to a five-year moratorium
unless specified conditions are met.
DIVIDENDS AND DISTRIBUTIONS
Under the NYBCL, a corporation may generally pay dividends or make
distributions out of surplus and a board of directors is required to make
certain disclosures when paying dividends out of any account other than earned
surplus.
The DGCL permits a corporation, unless otherwise provided in its certificate
of incorporation (which Berkshire does not), to declare and pay dividends out
of surplus or, if it has no surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year,
so long as the amount of capital following the declaration and payment of the
dividend is not less than the aggregate amount of capital represented by all
issued and outstanding shares of all classes having a preference upon the
distribution of assets.
SHAREHOLDER LISTS; INSPECTION RIGHTS
Right to Examine Shareholder List. Under the DGCL and the Berkshire By-laws,
shareholders have a right during regular business hours and for at least ten
days prior to any shareholders meeting and during such meeting to examine a
list of shareholders of Berkshire for any purpose germane to such meeting.
Additionally, under the DGCL, any shareholder, following a written request,
also has the right to inspect the corporation's books and records, including
the shareholder list, during normal business hours for a proper purpose.
Under the FlightSafety By-laws, a list of shareholders as of the record date
must be produced at any shareholder meeting upon request made at the meeting
or prior thereto by a shareholder. Under the NYBCL, a person who has been a
shareholder for at least six months preceding his or her demand, or any person
holding, or authorized in writing by the holders of, at least 5% of any class
of outstanding shares, upon at least five days' prior written demand, has the
right to examine, during normal business hours, minutes of shareholder
meetings and the record of shareholders unless such inspection is for a
purpose which is in the interest of a business other than the corporation's
and such shareholder has within five years sold or offered for sale any list
of shareholders of any corporation.
DISSENTERS' RIGHTS
Under the DGCL, a shareholder of a corporation who does not vote in favor of
certain mergers or consolidations and demands appraisal of his or her shares,
under varying circumstances, may be entitled to dissenters' rights pursuant to
which such shareholder may receive cash for the "fair value" of his or her
shares (as determined by a Delaware court) in lieu of the consideration
otherwise receivable in the transaction. Unless the corporation's certificate
of incorporation provides otherwise (Berkshire's does not), such dissenters'
rights are not available in certain circumstances, including (a) the sale of
all or substantially all of the assets of a corporation, (b) the merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange (or designated as a national market security by
the National Association of Securities Dealers, Inc.) or held of record by
more than 2,000 holders, if a shareholder receives only shares of the
surviving corporation or of any other corporation which are either listed on a
national securities exchange (or so designated as stated above) or held of
record by more than 2,000 holders, or cash in lieu of fractional shares or any
combination of the foregoing or (c) to shareholders of a corporation surviving
a merger if no vote of shareholders of the surviving corporation is required
to approve the merger because the merger agreement does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding prior to the merger is to be an identical outstanding or treasury
share after the merger, and the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger, and certain other conditions are met.
53
<PAGE>
Under the NYBCL, holders of shares have the right, in certain circumstances,
to dissent from certain mergers, consolidations, sales and other dispositions
of assets requiring shareholder approval and share exchanges and to demand
payment in cash for their shares equal to the "fair value" of such shares in
an action timely brought by the dissenters. For a description of the NYBCL
regarding dissenters' rights, see "THE MERGER--Dissenting Shareholders' Rights
of Appraisal."
PREEMPTIVE RIGHTS
Neither Berkshire nor FlightSafety shareholders have preemptive rights with
respect to issuances of capital stock.
INDEMNIFICATION; LIMITATION OF LIABILITY
Delaware and New York both allow indemnification by a corporation of its
officers, directors, employees and other agents and permit, with certain
exceptions, corporations to provide in their certificates of incorporation
(which Berkshire and FlightSafety have done) for elimination of liability of
directors to the corporation or its shareholders for monetary damages for
breach of such directors' fiduciary duty of care.
The DGCL authorizes a Delaware corporation to indemnify any person who was,
is, or is threatened to be made, a party in any civil, criminal,
administrative or investigative pending or completed action, suit or
proceeding (other than an action by or in the right of a corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, for expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding. With respect to
actions by or in the right of a corporation, the DGCL authorizes
indemnification of such person for expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit. To be entitled to indemnification, a person
must have acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful with respect to actions taken by or in the right of the
corporation. With respect to actions by or in the right of the corporation,
court approval is required for indemnification relating to any claim as to
which a person has been adjudged liable to the corporation.
The DGCL requires indemnification for expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the DGCL. A director or officer must undertake to repay
such expenses if it is ultimately determined that he or she is not entitled to
indemnification. The disinterested members of the board (or independent legal
counsel or stockholders) must determine, in each instance where
indemnification is not required by the DGCL, that such director, officer,
employee or agent is entitled to indemnification. The DGCL provides that the
statutory indemnification is not exclusive.
The Berkshire By-laws provide that Berkshire will indemnify to the fullest
extent permitted by Delaware law each director and officer made, or threatened
to be made, a party to or who is involved in any action (civil, criminal or
otherwise) by reason of the fact that he or she, or the person of whom he or
she is the legal representative, is or was a director or officer of Berkshire
or is or was serving at the request of Berkshire as a director or officer of
another entity.
The Berkshire Certificate provides that a director will not have personal
liability to Berkshire or any shareholder for monetary damages for breach of
fiduciary duty as a director, but such provision does not eliminate or limit
the liability of a director (i) for any breach of duty of loyalty to Berkshire
or its shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) under
certain provisions of the DGCL regarding unlawful dividends, stock purchases
or redemptions or (iv) for any transaction from which the director derived an
improper personal benefit.
54
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Under the NYBCL, a corporation may indemnify any person made, or threatened
to be made, a party to any action or proceeding except for shareholder
derivative suits, by reason of the fact that he or she was a director or
officer of the corporation, provided such director or officer acted in good
faith for a purpose which he or she reasonably believed to be in the best
interests of the corporation and, in criminal proceedings, in addition, had no
reasonable cause to believe his or her conduct was unlawful. In the case of
shareholder derivative suits, the corporation may indemnify any person who was
a director or officer of the corporation if he or she acted in good faith for
a purpose which he or she reasonably believed to be in the best interests of
the corporation, except that no indemnification may be made for (i) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (ii) any claim, issue or matter as to which such person has been
adjudged to be liable to the corporation, unless and only to the extent that
the court in which the action was brought or, if no action was brought, any
court of competent jurisdiction, determines upon application that, in view of
all circumstances, the person is fairly and reasonably entitled to an
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
Indemnification under the NYBCL is not exclusive of other indemnification
rights to which a director or officer may be entitled, whether contained in
the certificate of incorporation or by-laws, or when authorized by (i) such
certificate of incorporation or by-laws, (ii) a resolution of shareholders or
directors or (iii) an agreement providing for such indemnification, provided
that no indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained a financial profit
or other advantage to which he or she was not legally entitled. The
FlightSafety By-laws provide that FlightSafety will indemnify to the maximum
extent permissible under New York law its officers and directors for liability
arising out of their actions in such capacity.
Under the NYBCL, any person to whom such provisions regarding
indemnification apply who has been successful on the merits or otherwise in
the defense of a civil or criminal action or proceeding is entitled to
indemnification. Except as provided in the preceding sentence, unless ordered
by a court pursuant to the NYBCL, indemnification under the NYBCL pursuant to
the above paragraphs may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct (i) by the board acting by a quorum of disinterested directors or (ii)
if such quorum is not available if so directed by either (A) the board upon
the written opinion of counsel or (B) by shareholders.
The FlightSafety Certificate provides that directors are not personally
liable to FlightSafety or any shareholder for monetary damages for breach of
duty as a director, except for liability if a judgment or other final adverse
adjudication establishes that the acts or omissions were taken in bad faith or
involved intentional misconduct or a knowing violation of law, or that the
director personally gained a financial profit or other advantage to which he
or she was not legally entitled or that his or her acts violated certain
provisions of the NYBCL regarding unlawful dividends, stock repurchases,
distribution of assets to shareholders after a dissolution or loans.
INTERESTED TRANSACTIONS
Generally, under the NYBCL and the DGCL, no contract or transaction between
a corporation and one or more of its directors or between a corporation and
another entity in which one or more of its directors are directors or officers
or in which one or more of its directors has a material financial interest is
void or voidable because of such relationship or interest, if (i) the material
facts of the transaction and the director's interest are disclosed or known to
the board of directors or a committee of the board of directors which
authorizes, approves or ratifies the transaction by the vote of a majority of
directors who have no direct or indirect interest in the transaction; (ii) the
material facts of the transaction and the director's interest are disclosed or
known to shareholders entitled to vote and they authorize, approve or ratify
the transaction; or (iii) the transaction is fair to the corporation. The
FlightSafety and Berkshire By-laws contain provisions to such effect.
55
<PAGE>
EXPERTS
The financial statement schedules incorporated in this Proxy
Statement/Prospectus by reference from Berkshire's Annual Report on Form 10-K
for the year ended December 31, 1995 and the restated financial statements
incorporated by reference from Berkshire's Current Report on Form 8-K dated
July 16, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of GEICO incorporated by reference in
Berkshire's Current Report on Form 8-K dated March 27, 1996, which is
incorporated in this Proxy Statement/Prospectus by reference, have been
audited by Coopers & Lybrand L.L.P., independent auditors, as stated in their
report which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of FlightSafety as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995, included in FlightSafety's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated by reference herein in reliance
on the report of Price Waterhouse LLP, independent auditors, which report is
incorporated by reference herein, and on the authority of that firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the Berkshire Common Stock offered hereby will be passed
upon for Berkshire by Munger, Tolles & Olson, Los Angeles, California, counsel
to Berkshire.
SHAREHOLDER PROPOSALS FOR 1997 FLIGHTSAFETY ANNUAL MEETING
If the Merger is not consummated, it is currently anticipated, subject to
postponement, that the 1997 Annual Meeting of Shareholders of FlightSafety
will be held on or about April 30, 1997. If such meeting is held, shareholder
proposals intended to be presented at such meeting must be received by
FlightSafety not later than November 30, 1996 for inclusion in the proxy
materials for such meeting.
56
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 14, 1996
AMONG
BERKSHIRE HATHAWAY INC.
NY ACQUISITION SUB INC.
AND
FLIGHTSAFETY INTERNATIONAL INC.
- --------------------------------------------------------------------------------
Annex I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Annex Page I-
ARTICLE 1 THE MERGER..................................................... 5
1.1 The Merger..................................................... 5
1.2 Closing........................................................ 5
1.3 Effective Time of the Merger................................... 6
1.4 Effects of the Merger.......................................... 6
1.5 Certificate of Incorporation; Bylaws........................... 6
1.6 Directors...................................................... 6
1.7 Officers....................................................... 6
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS................................................... 6
2.1 Effect on Capital Stock........................................ 6
(a)Common Stock of Sub......................................... 6
(b)Cancellation of Treasury Stock and Parent-Owned Company
Common Stock................................................... 6
(c)Conversion of Company Common Stock.......................... 6
(d)Shares of Dissenting Stockholders........................... 7
(e)Cancellation and Retirement of Company Common Stock......... 7
2.2 Company Common Stock Elections................................. 7
Issuance of Stock Consideration and Payment of Cash Election
2.3 Price.......................................................... 8
2.4 Stock Plans.................................................... 10
2.5 Exchange of Certificates....................................... 11
(a)Exchange Agent.............................................. 11
(b)Exchange Procedures......................................... 11
(c)Distributions with Respect to Unexchanged Shares............ 11
(d)No Further Ownership Rights in Company Common Stock......... 12
(e)No Fractional Shares........................................ 12
(f)Termination of Exchange Fund................................ 12
(g)No Liability................................................ 12
(h)Investment of Exchange Fund................................. 13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES................................. 13
3.1 Representations and Warranties of the Company.................. 13
(a)Organization, Standing and Corporate Power.................. 13
(b)Subsidiaries................................................ 13
(c)Capital Structure........................................... 13
(d)Authority; Noncontravention................................. 14
(e)SEC Documents; Undisclosed Liabilities...................... 15
(f)Information Supplied........................................ 15
(g)Absence of Certain Changes or Events........................ 16
(h)Litigation; Labor Matters; Compliance with Laws............. 16
(i)Employee Matters............................................ 16
(j)Tax Returns and Tax Payments................................ 17
(k)State Antitakeover Laws Not Applicable...................... 17
(l)Environmental Matters....................................... 17
(m)Properties.................................................. 18
(n)Brokers..................................................... 18
(o)Opinion of Financial Advisor................................ 18
(p)Board Recommendation........................................ 18
(q)Required Company Vote....................................... 18
</TABLE>
Annex I-2
<PAGE>
<TABLE>
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Annex Page I-
3.2 Representations and Warranties of Parent....................... 19
(a)Organization, Standing and Corporate Power.................. 19
(b)Subsidiaries................................................ 19
(c)Capital Structure........................................... 19
(d)Authority; Noncontravention................................. 19
(e)SEC Documents; Undisclosed Liabilities...................... 20
(f)Information Supplied........................................ 21
(g)Absence of Certain Changes or Events........................ 21
(h)Interim Operations of Sub................................... 21
(i)Brokers..................................................... 21
ARTICLE 4 COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER...... 21
4.1 Conduct of Business of the Company............................. 21
ARTICLE 5 ADDITIONAL AGREEMENTS.......................................... 23
Preparation of Form S-4 and the Proxy Statement; Stockholder
5.1 Meetings....................................................... 23
5.2 Letter of the Company's Accountants............................ 24
5.3 Parent Access to Information................................... 24
5.4 Best Efforts................................................... 24
5.5 Employee Benefits.............................................. 24
5.6 Indemnification................................................ 25
5.7 Expenses....................................................... 26
5.8 Public Announcements........................................... 26
5.9 Affiliates..................................................... 26
5.10 Stock Exchange Listing......................................... 26
5.11 Takeover Statutes.............................................. 26
5.12 No Solicitation................................................ 26
5.13 Certain Agreements............................................. 27
5.14 Company Access to Information.................................. 27
ARTICLE 6 CONDITIONS PRECEDENT........................................... 28
6.1 Conditions to Each Party's Obligation To Effect the Merger..... 28
(a)Company Stockholder Approval................................ 28
(b)NYSE Listing................................................ 28
(c)HSR Act..................................................... 28
(d)No Injunctions or Restraints................................ 28
(e)Form S-4.................................................... 28
6.2 Conditions to Obligation of Parent and Sub..................... 28
(a)Representations and Warranties.............................. 28
(b)Performance of Obligations of the Company................... 28
(c)Tax Opinion................................................. 28
(d)Consents, etc............................................... 28
(e)Affiliate Letters........................................... 29
(f)Continuity of Interest Agreement............................ 29
6.3 Conditions to Obligation of the Company........................ 29
(a)Representations and Warranties.............................. 29
(b)Performance of Obligations of Parent and Sub................ 29
(c)Tax Opinion................................................. 29
</TABLE>
Annex I-3
<PAGE>
<TABLE>
<C> <S> <C>
Annex Page I-
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER............................... 29
7.1 Termination..................................................... 30
7.2 Effect of Termination........................................... 30
7.3 Amendment....................................................... 30
7.4 Extension; Waiver............................................... 30
ARTICLE 8 GENERAL PROVISIONS.............................................. 30
8.1 Nonsurvival of Representations and Warranties................... 31
8.2 Notices......................................................... 31
8.3 Definitions..................................................... 31
8.4 Interpretation.................................................. 32
8.5 Counterparts.................................................... 32
8.6 Entire Agreement; No Third-party Beneficiaries.................. 32
8.7 Governing Law................................................... 32
8.8 Assignment...................................................... 32
8.9 Enforcement..................................................... 32
8.10 Severability.................................................... 32
</TABLE>
Annex I-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into as of
October 14, 1996, by and among Berkshire Hathaway Inc., a Delaware corporation
("Parent"), NY Acquisition Sub Inc., a New York corporation and a direct
wholly owned subsidiary of Parent ("Sub"), and FlightSafety International
Inc., a New York corporation formed under the name Flight Safety, Inc. (the
"Company").
RECITALS
WHEREAS, the Boards of Directors of Parent and the Company have approved,
and deem it advisable and in the best interests of their respective companies
and stockholders to consummate, a merger of the Company with and into Sub (the
"Merger"), with Sub as the surviving corporation in the Merger, upon the terms
and subject to the conditions set forth in this Agreement, pursuant to which
(a) the shares of Common Stock, $.10 par value per share, of the Company
("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (as defined in Section 1.3) other than (i) shares of Company
Common Stock owned, directly or indirectly, by the Company or any subsidiary
(as defined in Section 8.3) of the Company or by Parent, Sub or any other
subsidiary of Parent and (ii) Dissenting Shares (as defined in Section
2.1(d)), will be converted into the right to receive, at the elections of the
holders of Company Common Stock, subject to the terms hereof, shares of Class
A Common Stock, $5.00 par value per share, of Parent ("Class A Stock"), or
shares of Class B Common Stock, $.1667 par value per share, of Parent ("Class
B Stock," and together with Class A Stock, "Parent Stock"), or cash;
WHEREAS, the Merger and this Agreement require the vote of two-thirds of the
outstanding shares of the Company Common Stock entitled to vote thereon for
the approval thereof (the "Company Stockholder Approval"); and
WHEREAS, for United States Federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization under the provisions of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code") and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the New York Business Corporation Law
(the "NYBCL"), the Company shall be merged with and into Sub at the Effective
Time. Upon the Effective Time, the separate existence of the Company shall
cease, and Sub shall continue as the surviving corporation (the "Surviving
Corporation") having the name FlightSafety International Inc.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article 6, the closing of the Merger (the "Closing") will take place at 10:00
a.m. Eastern time on the second business day after satisfaction of the
conditions set forth in Section 6.1 (or, if not satisfied or waived at that
time, as soon as practicable thereafter following satisfaction or waiver of
the conditions set forth in Sections 6.2 and 6.3) (the "Closing Date"), at the
offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York, unless another date, time or place is agreed to in writing by the
parties hereto.
Annex I-5
<PAGE>
1.3 Effective Time of the Merger. On the Closing Date, the parties shall
file a certificate of merger or other appropriate documents (in any such case,
the "Certificate of Merger") executed in accordance with the relevant
provisions of the NYBCL and shall make all other filings or recordings
required under the NYBCL. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Department of State of the
State of New York, or at such other time as is permissible in accordance with
the NYBCL and as Parent and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the NYBCL.
1.5 Certificate of Incorporation; Bylaws.
(a) The Certificate of Incorporation of Sub as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law; provided that it shall be amended by virtue
of the Merger to change the name of the Surviving Corporation to the name
stated in Section 1.1.
(b) The Bylaws of Sub as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
1.6 Directors. The directors of Sub at the Effective Time shall be the
directors of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.7 Officers. The officers of the Company at the Effective Time shall be the
officers of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly appointed and
qualified, as the case may be.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall remain
outstanding as a share of the Surviving Corporation and shall be the issued
and outstanding capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Company Common
Stock. Each share of the Company Common Stock that is owned by the Company
or by any subsidiary of the Company, and each share of Company Common Stock
that is owned by Parent, Sub or any other subsidiary of Parent shall
automatically be cancelled and retired and shall cease to exist, and no
cash, Parent Stock or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein and subject to Sections 2.3 and 2.5, each issued and outstanding
share of Company Common Stock shall be converted into the following (the
consideration described in (i), (ii), and (iii) below being the "Merger
Consideration" and the consideration described in (ii) and (iii) below
being the "Stock Consideration"):
(i) for each such share of Company Common Stock with respect to which
an election to receive cash has been effectively made and not revoked
pursuant to Sections 2.2(c), (d) and (e) ("Cash
Annex I-6
<PAGE>
Electing Shares"), the right to receive in cash from Parent an amount
equal to $50 (the "Cash Election Price"); or
(ii) for each share of Company Common Stock with respect to which an
election to receive Class A Stock has been effectively made and not
revoked pursuant to Sections 2.2(c), (d) and (e) ("Class A Electing
Shares"), the right to receive from Parent the portion of a fully paid
and nonassessable share of Class A Stock determined by dividing $48.00
by the Average Class A Stock Price (as defined below) and rounding to
nine decimal places (the "Class A Exchange Ratio"); or
(iii) for each such share of Company Common Stock other than Cash
Electing Shares and Class A Electing Shares, the right to receive from
Parent the portion of a fully paid and nonassessable share of Class B
Stock determined by dividing $48.00 by the quotient of the Average
Class A Stock Price divided by 30 and rounding to nine decimal places
(the "Class B Exchange Ratio").
The "Average Class A Stock Price" means the average of the high and low
trading prices of the Class A Stock on the New York Stock Exchange ("NYSE")
Composite Tape for each of the five consecutive trading days ending on the
trading day which is the last business day prior to the Stockholders
Meeting (as defined in Section 5.1(b)).
(d) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding shares of Company
Common Stock held by a person (a "Dissenting Stockholder") who duly demands
appraisal of his shares of Company Common Stock pursuant to Section 623 of
the NYBCL and complies with all the provisions of the NYBCL concerning the
right of holders of Company Common Stock to demand appraisal of their
shares in connection with the Merger ("Dissenting Shares") shall not be
converted as described in Section 2.1(c) but shall become the right to
receive such cash consideration as may be determined to be due to such
Dissenting Stockholder as provided in the NYBCL. If, however, such
Dissenting Stockholder withdraws his demand for appraisal or fails to
perfect or otherwise loses his right of appraisal, in any case pursuant to
the NYBCL, his shares shall be deemed to be converted as of the Effective
Time into the right to receive Class B Stock, without interest, pursuant to
Section 2.1(c)(iii). The Company shall give Parent (i) prompt notice of any
demands for appraisal of shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings
with respect to any such demands. The Company shall not, without the prior
written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
(e) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock (other than shares
referred to in Section 2.1(b)) issued and outstanding immediately prior to
the Effective Time, shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except (subject to Section
2.1(d)) the right to receive the applicable Merger Consideration in
accordance with Section 2.1(c) and any cash in lieu of fractional shares of
Parent Stock to be issued or paid in consideration therefor upon surrender
of such certificate in accordance with Section 2.5.
2.2 Company Common Stock Elections.
(a) Subject to Sections 2.3 and 2.5(e), each person who, on or prior to
the Election Date referred to in (c) below, is a record holder of shares of
Company Common Stock (and remains a record holder of such stock until the
Effective Time) will be entitled, with respect to all or any portion of his
shares, to make an unconditional election (a "Cash Election" or a "Class A
Election," as the case may be) on or prior to such Election Date to receive
the Cash Election Price or the Class A Exchange Ratio, on the basis
hereinafter set forth.
Annex I-7
<PAGE>
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.1(d)), Parent shall appoint a bank or trust company designated by Parent
and reasonably satisfactory to the Company to act as exchange agent (the
"Exchange Agent") for the payment of the Merger Consideration.
(c) Parent shall prepare and mail a form of election (the "Form of
Election") with the Proxy Statement to the record holders of Company Common
Stock as of the record date for the Stockholders Meeting (as defined in
Section 5.1(b)). The Form of Election shall be used by each record holder
of shares of Company Common Stock who wishes to elect to receive the Cash
Election Price or the Class A Exchange Ratio for any or all shares of
Company Common Stock held by such holder. On such Form of Election, such a
holder may indicate his election. The Company will use its best efforts to
make the Form of Election and the Proxy Statement available to all persons
who become holders of Company Common Stock during the period between such
record date and the Election Date referred to below. Any such holder's
election to receive the Cash Election Price or the Class A Exchange Ratio
shall have been properly made only if the Exchange Agent shall have
received at its designated office, by 5:00 p.m., New York City time on the
last business day (the "Election Date") prior to the date of the
Stockholders Meeting, a Form of Election properly completed and signed and
accompanied by certificates for the shares of Company Common Stock to which
such Form of Election relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of
Election from a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States, provided such certificates are in fact delivered to the
Exchange Agent within five NYSE trading days after the date of execution of
such guarantee of delivery).
(d) Any Form of Election may be revoked only by duly executed written
notice received by the Exchange Agent prior to 5:00 p.m., New York City
time on the Election Date. In addition, all Forms of Election shall
automatically be revoked if the Exchange Agent is notified in writing by
Parent and the Company that the Merger has been abandoned. If a Form of
Election is revoked, the shares of Company Common Stock to which such Form
of Election relates shall be treated as shares as to which no election has
been made.
(e) The determination of the Exchange Agent shall be binding as to
whether or not elections to receive the Cash Election Price or the Class A
Exchange Ratio have been properly made or revoked pursuant to this Section
2.2 with respect to shares of Company Common Stock, and as to the time when
elections and revocations were received by it. If the Exchange Agent
determines that any election to receive the Cash Election Price or the
Class A Exchange Ratio was not properly made with respect to shares of
Company Common Stock, such shares shall be treated by the Exchange Agent as
shares which were not Cash Electing Shares or Class A Electing Shares at
the Effective Time, and such shares shall be exchanged in the Merger for
shares of Class B Stock pursuant to Section 2.1(c)(iii). The Exchange Agent
shall also make all computations contemplated by Section 2.3, and any such
computation shall be conclusive and binding on the holders of shares of
Company Common Stock. Parent and the Company shall make such rules as are
consistent with this Section 2.2 and Section 2.3 for the implementation of
the elections and computations provided for herein and therein as shall be
necessary or desirable fully to effect such elections and computations.
2.3 Issuance of Stock Consideration and Payment of Cash Election Price. The
manner in which each share of Company Common Stock (other than shares of
Company Common Stock to be cancelled as set forth in Section 2.1(b) and
Dissenting Shares) shall be converted as of the Effective Time into the right
to receive the Stock Consideration or the Cash Election Price shall be as set
forth in this Section 2.3. All references to "outstanding shares of Company
Common Stock" in this Section 2.3 shall mean all shares of Company Common
Stock outstanding immediately prior to the Effective Time.
(a) In the event that, between the date of this Agreement and the
Effective Time, the issued and outstanding shares of Class A Stock or Class
B Stock, as the case may be, shall have been changed into a
Annex I-8
<PAGE>
different number or class of shares as a result of a stock split, reverse
stock split, stock dividend, spin-off, extraordinary dividend,
recapitalization, reclassification or other similar transaction with a
record date within such period, the Merger Consideration shall be
appropriately adjusted.
(b) As is more fully set forth below, the Total Cash Consideration (as
defined below) in the Merger pursuant to this Agreement shall not be more
than 58 percent of the sum of (i) the Total Cash Consideration, and (ii)
the Total Class A Merger Consideration, and (iii) the Total Class B Merger
Consideration; such amount is referred to herein as the "Cash Limitation".
"Total Class A Merger Consideration" means the product of (i) the Class A
Exchange Ratio and (ii) the number of shares of Company Common Stock
converted into Class A Stock, after the application, if and to the extent
necessary, of Section 2.5(e) and (iii) the average of the high and low
trading prices of the Class A Stock on the NYSE Composite Tape on the date
on which the Effective Time occurs. "Total Class B Merger Consideration"
means the product of (i) the Class B Exchange Ratio and (ii) the number of
shares of Company Common Stock converted into Class B Stock, after the
application, if and to the extent necessary, of Sections 2.3(e) and 2.5(e),
and (iii) the average of the high and low trading prices of the Class B
Stock on the NYSE Composite Tape on the date on which the Effective Time
occurs. "Total Cash Consideration" means the sum (after the application, if
and to the extent necessary, of Sections 2.3(e) and 2.5(e)) of (i) cash
paid in connection with Cash Elections, (ii) cash paid in lieu of
fractional shares, and (iii) cash paid for Dissenting Shares. For this
purpose, cash paid for Dissenting Shares shall be computed as if holders of
Dissenting Shares had made Cash Elections with respect to all of their
Dissenting Shares.
(c) Each share of Company Common Stock that is a Class A Electing Share
shall be converted into the right to receive Class A Stock pursuant to
Section 2.1(c)(ii) and each share of Company Common Stock that is neither a
Class A Electing Share nor a Cash Electing Share (a "Non-Electing Class B
Share") shall be converted into the right to receive Class B Stock pursuant
to Section 2.1(c)(iii).
(d) If the Total Cash Consideration is equal to or less than the Cash
Limitation, each share of Company Common Stock that is a Cash Electing
Share shall be converted into the right to receive the Cash Election Price
pursuant to Section 2.1(c)(i).
(e) If the Total Cash Consideration is more than the Cash Limitation, the
number of Cash Electing Shares shall be reduced, and the following
shareholders of the Company who have made a Cash Election (a "Cash Electing
Shareholder") shall instead receive one or more shares of Class B Stock to
the extent and in the order described below until the Total Cash
Consideration is equal to or less than the Cash Limitation:
(i) Each Cash Electing Shareholder who holds a sufficient number of
shares of Company Common Stock covered by a Cash Election to receive as
part of the Merger Consideration at least one whole share of Class B
Stock pursuant to Section 2.1(c)(iii) if such shares are treated as
Non-Electing Class B Shares, shall receive such one whole share of
Class B Stock for such shares of Company Common Stock, at the Class B
Exchange Ratio pursuant to Section 2.1(c)(iii), in lieu of receiving
the Cash Election Price for such shares pursuant to Section 2.1(c)(i);
(ii) If the application of Section 2.3(e)(i) is not sufficient to
reduce the Total Cash Consideration to an amount equal to or less than
the Cash Limitation, then, in addition to the application of Section
2.3(e)(i), each Cash Electing Shareholder who holds a sufficient number
of shares of Company Common Stock covered by a Cash Election to receive
as part of the Merger Consideration at least two whole shares of Class
B Stock pursuant to Section 2.1(c)(iii) if such shares are treated as
Non-Electing Class B Shares, shall receive such two whole shares of
Class B Stock for such shares of Company Common Stock, at the Class B
Exchange Ratio pursuant to Section 2.1(c)(iii), in lieu of receiving
the Cash Election Price for such shares pursuant to Section 2.1(c)(i);
and
(iii) If the application of Section 2.3(e)(ii) is not sufficient to
reduce the Total Cash Consideration to an amount equal to or less than
the Cash Limitation, under the principles of Section
Annex I-9
<PAGE>
2.3(e)(i) and (ii), the Cash Electing Shares shall continue to be
reduced, and each Cash Electing Shareholder who holds a sufficient
number of shares of Company Common Stock covered by a Cash Election to
receive as part of the Merger Consideration at least three whole shares
and, to the extent necessary, greater than three whole shares, of Class
B Stock pursuant to Section 2.1(c)(iii) if such shares are treated as
Non-Electing Class B Shares, shall receive such three or more whole
shares of Class B Stock for such shares of Company Common Stock, at the
Class B Exchange Ratio pursuant to Section 2.1(c)(iii), in lieu of
receiving the Cash Election Price for such shares pursuant to Section
2.1(c)(i), until the Total Cash Consideration is equal to or less than
the Cash Limitation.
(f) If the Exchange Agent shall determine that any Cash Election was not
effectively made or was revoked, the shares of Company Common Stock covered
by such Cash Election shall, for purposes hereof, be deemed to be Non-
Electing Class B Shares.
(g) If, due to the existence of Dissenting Shares, the amount of cash
paid in cancellation of Company Stock Options (as defined in Section
2.4(a)), or any other uncertainty in the calculation of the Cash
Limitation, it reasonably appears to Parent or Company that the Merger may
potentially fail to satisfy continuity of interest requirements under
applicable principles relating to reorganizations under Section 368(a) of
the Code, the number of Cash Electing Shares shall be reduced, and Cash
Electing Shareholders shall instead receive one or more shares of Class B
Stock in the order described in Section 2.3(e), to the extent necessary to
enable the Merger to satisfy such requirements.
2.4 Stock Plans. Prior to the mailing of the Proxy Statement, the Board of
Directors of Parent and the Board of Directors of the Company (or, if
appropriate, any committee administering the Stock Plans (as defined below))
shall adopt such resolutions or take such other actions as may be required to
effect the following:
(a) Adjust the terms of all outstanding employee stock options to
purchase shares of Company Common Stock ("Company Stock Options") granted
under any of the Company's 1979 Non-Qualified Stock Option Plan, as
amended, 1982 Incentive Stock Option Plan, as amended, and 1992 Stock
Option Plan (collectively, the "Option Plans"), to provide that, at the
Effective Time, each Company Stock Option outstanding immediately prior to
the Effective Time shall (except to the extent that Parent and the holder
of a Company Stock Option otherwise agree in writing prior to the Effective
Time): (i) if such Company Stock Option is vested before the Merger and
exercisable and has an exercise price of less than $50, and the holder of
such Company Stock Option shall have elected by written notice to Parent
prior to the date 15 business days prior to the Effective Time to receive
the payment contemplated by this clause (i), be cancelled in exchange for a
payment from the Surviving Corporation (subject to any applicable
withholding taxes) equal to the product of (1) the total number of shares
of Company Common Stock subject to such Company Stock Option and (2) the
excess of $50 over the exercise price per share of Company Common Stock
subject to such Company Stock Option, payable in cash immediately following
the Effective Time; provided, however, that, at the request of any person
subject to Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), any such amount to be paid shall be paid as soon as
practicable after the first date payment can be made without liability for
such person under Section 16(b) of the Exchange Act; or (ii) with respect
to any Company Stock Option not cancelled pursuant to clause (i) above, be
deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option, the number of shares of
Class B Stock equal to the product of (1) the number of shares of Company
Common Stock issuable upon exercise of such Option and (2) the Class B
Exchange Ratio, provided that any fractional shares of Class B Stock
resulting from such multiplication shall be rounded up or down to the
nearest whole share, at a price per share equal to (1) the exercise price
for the shares of Company Common Stock otherwise purchasable pursuant to
such Company Stock Option divided by (2) the Class B Exchange Ratio,
provided that such exercise price shall be rounded up or down to the
nearest cent.
(b) Adjust the terms of the Company's 1984 Restricted Stock Compensation
Plan, as amended (the "Restricted Stock Plan"), which (or a plan
substantially identical thereto) the Surviving Corporation shall
Annex I-10
<PAGE>
adopt, to provide (i) that, at the Effective Time, the Merger Consideration
into which each share of Company Common Stock subject at such time to the
Restricted Stock Plan is converted shall thereafter be free of the
requirement under the Restricted Stock Plan that such shares be held in
escrow for the periods set forth therein, and (ii) that, after the
Effective Time, no further grants of Company Common Stock or any other
interest in the capital stock of the Company shall be made under the
Restricted Stock Plan.
(c) Except as provided herein or as otherwise agreed to in writing by the
parties, the Option Plans, the Restricted Stock Plan, the Company's
Employee Stock Purchase Plan, as amended (the "Stock Purchase Plan") and
the Nonemployee Directors Stock Plan, and any other plan, program or
arrangement providing for the issuance or grant of any interest in respect
of the capital stock of the Company or any subsidiary (collectively, the
"Stock Plans") shall terminate as of the Effective Time, and the Company
shall ensure that following the Effective Time no holder of a Company Stock
Option nor any participant in any of the Stock Plans shall have any right
thereunder to acquire equity securities of the Company or the Surviving
Corporation.
2.5 Exchange of Certificates.
(a) Exchange Agent. As soon as reasonably practicable as of or after the
Effective Time of the Merger, Parent shall deposit with the Exchange Agent,
for the benefit of the holders of shares of Company Common Stock, for
exchange in accordance with this Article 2, the Merger Consideration.
(b) Exchange Procedures. As soon as practicable after the Effective Time
of the Merger, the Exchange Agent shall mail to each holder of an
outstanding certificate or certificates which prior thereto represented
shares of Company Common Stock (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificates to such
Exchange Agent), and (ii) instructions for use in effecting the surrender
of the certificates for the Merger Consideration. Upon surrender to the
Exchange Agent of such certificate for cancellation, together with such
letter of transmittal, the holder of such certificate shall be entitled to
a certificate or certificates representing the number of full shares of
Parent Stock and the amount of cash, if any, into which the aggregate
number of shares of Company Common Stock previously represented by such
certificate or certificates surrendered shall have been converted pursuant
to this Agreement. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. After the Effective Time of the Merger, there shall be
no further transfer on the records of the Company or its transfer agent of
certificates representing shares of Company Common Stock and if such
certificates are presented to the Company for transfer, they shall be
cancelled against delivery of certificates for Parent Stock and cash as
hereinabove provided. If any certificate for such Parent Stock is to be
issued in, or if cash is to be remitted to, a name other than that in which
the certificate for Company Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate
so surrendered shall be properly endorsed, with signature guaranteed, or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to Parent or its transfer agent any transfer or other
taxes required by reason of the issuance of certificates for such Parent
Stock in a name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of Parent or its transfer
agent that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.5(b), each certificate for shares of
Company Common Stock shall be deemed at any time after the Effective Time
of the Merger to represent only the right to receive upon such surrender
the Merger Consideration. No interest will be paid or will accrue on any
cash payable as Merger Consideration or in lieu of any fractional shares of
Parent Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered certificate for shares of Company Common Stock with respect
to the shares of Parent Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder
Annex I-11
<PAGE>
pursuant to Section 2.5(e) until the surrender of such certificate in
accordance with this Article 2. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid to the
holder of the certificate representing whole shares of Parent Stock issued
in exchange therefor, without interest, (i) at the time of such surrender
the amount of any cash payable in lieu of a fractional share of Parent
Stock to which such holder is entitled pursuant to Section 2.5(e) and the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole
shares of Parent Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Stock issued and cash paid upon the surrender for exchange of
certificates representing shares of Company Common Stock in accordance with
the terms of this Article 2 (including any cash paid pursuant to Section
2.5(e)) shall be deemed to have been issued (and paid) in full satisfaction
of all rights pertaining to the shares of Company Common Stock theretofore
represented by such certificates.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Parent
Stock shall be issued upon the surrender for exchange of certificates
representing shares of Company Common Stock, and such fractional share
interests will not entitle the owner thereof to vote or to any rights
of a stockholder of Parent; and
(ii) Notwithstanding any other provision of this Agreement, (A) each
holder of shares of Company Common Stock exchanged pursuant to the
Merger who would have otherwise been entitled to receive a fraction of
a share of Class A Stock (after taking into account all Class A
Electing Shares delivered by such holder or, as to a holder of record
who holds shares of Company Common Stock as nominee or in a similar
representative capacity, after taking into account all Class A Electing
Shares delivered by such a representative holder on behalf of a
particular beneficial owner) shall receive, in lieu thereof, the number
of shares of Class B Stock determined by dividing (x) the product of
such fraction and the Average Class A Stock Price by (y) the quotient
of the Average Class A Stock Price divided by 30, and (B) after
application of Section 2.5(e)(ii)(A), each holder of shares of Company
Common Stock exchanged pursuant to the Merger who would have otherwise
been entitled to receive a fraction of a share of Class B Stock (after
taking into account all shares of Company Common Stock delivered by
such holder, or by such a representative holder on behalf of a
particular beneficial owner, other than Class A Electing Shares and
Cash Electing Shares) shall receive, in lieu thereof, a cash payment
(without interest) equal to the product of (x) such fraction and (y)
the quotient of the Average Class A Stock Price divided by 30.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.5 (the
"Exchange Fund") which remains undistributed to the holders of the
certificates representing shares of Company Common Stock for nine months
after the Effective Time of the Merger shall be delivered to Parent, upon
demand, and any holders of shares of Company Common Stock who have not
theretofore complied with this Article 2 shall thereafter look only to
Parent and only as general creditors thereof for payment of their claim for
cash, Parent Stock, any cash in lieu of fractional shares of Parent Stock
and any dividends or distributions with respect to Parent Stock to which
such holders may be entitled.
(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Stock (or
dividends or distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any certificates representing shares
of Company Common Stock shall not have been surrendered prior to five years
after the Effective Time of the Merger (or immediately prior to such
Annex I-12
<PAGE>
earlier date on which any cash, shares of Parent Stock, any cash in lieu of
fractional shares of Parent Stock or any dividends or distributions with
respect to Parent Stock in respect of such certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.1(d)), any such shares, cash dividends or distributions in
respect of such certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of
all claims or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and
each of its Subsidiaries (as defined in Section 3.1(b)) is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of the
Company and each of its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a material adverse effect (as defined in Section
8.3) with respect to the Company. Attached as Section 3.1(a) of the
disclosure schedule ("Disclosure Schedule") delivered to Parent by the
Company at the time of execution of this Agreement are complete and correct
copies of the Certificate of Incorporation and Bylaws of the Company. The
Company has delivered to Parent complete and correct copies of the
certificate or articles of incorporation (or other organizational
documents) and bylaws of each of its Subsidiaries, in each case as amended
to the date of this Agreement.
(b) Subsidiaries. The only direct or indirect subsidiaries of the Company
(other than subsidiaries of the Company that would not constitute in the
aggregate a "Significant Subsidiary" within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC")) (the
"Subsidiaries") and other ownership interests held by the Company in any
other person are those listed in Section 3.1(b) of the Disclosure Schedule.
Except as set forth in Section 3.1(b) of the Disclosure Schedule, all the
outstanding shares of capital stock of each such Subsidiary which is a
corporation have been validly issued and are fully paid and nonassessable
and are owned (of record and beneficially) by the Company, by another
Subsidiary (wholly owned) of the Company or by the Company and another such
Subsidiary (wholly owned), free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except as set forth in Section 3.1(b)
of the Disclosure Schedule, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any
corporation, partnership, business association, joint venture or other
entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock. Subject to any
Permitted Changes (as defined in Section 4.1(b)) following the date of this
Agreement, there are (i) 30,174,081 shares of Company Common Stock issued
and outstanding, (ii) 118,000 shares of Company Common Stock held in the
treasury of the Company or held by any subsidiary of the Company; (iii)
791,580 shares of Company Common Stock reserved for issuance upon exercise
of authorized but unissued Company Stock Options pursuant to the Option
Plans; (iv) 545,358 shares of Company Common Stock issuable upon exercise
of outstanding Company Stock Options,
Annex I-13
<PAGE>
(v) 99,510 shares of Company Common Stock issued and outstanding (and
included in the number stated in clause (i) above) subject to restrictions
under the Restricted Stock Plan, and (vi) an aggregate of 400 shares of
Company Common Stock issuable under the Nonemployee Directors Stock Plan.
As of September 30, 1996, there were $582,000 withheld from the Company's
employees' salaries to purchase shares of Company Common Stock pursuant to
and issuable under the Stock Purchase Plan. Except as set forth above, no
shares of capital stock or other equity securities of the Company are
issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of the Company are, and all shares which may be issued
pursuant to the Stock Plans will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no outstanding bonds, debentures, notes or other indebtedness or
other securities of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any
matters on which stockholders of the Company may vote. Except as set forth
above, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its subsidiaries is a party or by which any
of them is bound obligating the Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity or voting securities of
the Company or of any of its subsidiaries or obligating the Company or any
of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Other than the Company Stock Options, (i) there are no
outstanding contractual obligations, commitments, understandings or
arrangements of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire or make any payment in respect of or measured
or determined based on the value or market price of any shares of capital
stock of the Company or any of its subsidiaries and (ii) to the knowledge
of the Company, there are no irrevocable proxies with respect to shares of
capital stock of the Company or any subsidiary of the Company. There are no
agreements or arrangements pursuant to which the Company is or could be
required to register shares of Company Common Stock or other securities
under the Securities Act of 1933, as amended (the "Securities Act").
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to the
Company Stockholder Approval with respect to the consummation of the
Merger, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject, in
the case of the Merger, to the Company Stockholder Approval. This Agreement
has been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms. Except as disclosed in Section 3.1(d) of the
Disclosure Schedule, the execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, or result in any breach
or violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of
a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its subsidiaries under,
(i) the Certificate of Incorporation or Bylaws of the Company or the
comparable charter or organizational documents of any of its subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable
to the Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, breaches, violations, defaults, rights, losses or Liens that
individually or in the aggregate could not have a material adverse effect
with respect to the Company or could not prevent, hinder or materially
delay the ability of the Company to consummate the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice
to, any Federal, state or local government or any court, administrative
agency or
Annex I-14
<PAGE>
commission or other governmental authority or agency, domestic or foreign
(a "Governmental Entity"), is required by or with respect to the Company or
any of its subsidiaries in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing with the SEC of (y) a proxy statement relating to the Company
Stockholder Approval (such proxy statement as amended or supplemented from
time to time, the "Proxy Statement"), and (z) such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the
Certificate of Merger with the Department of State of the State of New
York, and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings or notices as are set forth in Section 3.1(d) of the Disclosure
Schedule.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1994, (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents (including any and all financial
statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The consolidated financial statements of the Company included in the SEC
Documents (the "SEC Financial Statements") comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments).
Since December 31, 1995, neither the Company nor any of its subsidiaries,
has incurred any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) except (i) as and to the extent set
forth on the audited balance sheet of the Company and its subsidiaries as
of December 31, 1995 (including the notes thereto), (ii) as incurred in
connection with the transactions contemplated by this Agreement, (iii) as
incurred after December 31, 1995 in the ordinary course of business and
consistent with past practice, (iv) as described in the SEC Documents filed
since December 31, 1995 (the "Recent SEC Documents"), or (v) as would not,
individually or in the aggregate, have a material adverse effect with
respect to the Company.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of Parent Stock in the Merger (the "Form S-
4") will, at the time the Form S-4 is filed with the SEC, and at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Proxy Statement will,
at the date it is first mailed to the Company's stockholders or at the time
of the Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent for inclusion or incorporation by reference
therein.
Annex I-15
<PAGE>
(g) Absence of Certain Changes or Events. Except as disclosed in the
Recent SEC Documents or in Section 3.1(g) of the Disclosure Schedule, since
the date of the most recent audited financial statements included in such
Recent SEC Documents, the Company has conducted its business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) any material adverse change with respect to the Company; (ii) any
condition, event or occurrence which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect or give rise
to a material adverse change with respect to the Company; (iii) any event
which, if it had taken place following the execution of this Agreement,
would not have been permitted by Section 4.1 without the prior consent of
Parent; or (iv) any condition, event or occurrence which would prevent,
hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement.
(h) Litigation; Labor Matters; Compliance with Laws.
(i) Except as disclosed in the Recent SEC Documents, there is no
suit, action or proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company
or any of its subsidiaries or any basis for any such suit, action,
proceeding or investigation that, individually or in the aggregate,
could reasonably be expected to have a material adverse effect with
respect to the Company or prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by
this Agreement, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the
Company or any of its subsidiaries having, or which, insofar as
reasonably could be foreseen by the Company, in the future could have,
any such effect.
(ii) Neither the Company nor any of its subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization,
nor is it or any of its subsidiaries the subject of any proceeding
asserting that it or any subsidiary has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization
as to wages or conditions of employment nor is there any strike, work
stoppage or other labor dispute involving it or any of its subsidiaries
pending or, to its knowledge, threatened, any of which could have a
material adverse effect with respect to the Company.
(iii) The conduct of the business of each of the Company and each of
its subsidiaries complies with all statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees or arbitration awards
applicable thereto, except for violations or failures so to comply, if
any, that, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect with respect to the Company.
(i) Employee Matters. The Company has delivered or made available to
Parent full and complete copies or descriptions of each material
employment, severance, bonus, profit sharing, compensation, termination,
stock option, stock appreciation right, restricted stock, phantom stock,
performance unit, pension, retirement, deferred compensation, welfare or
other employee benefit agreement, trust fund or other arrangement and any
union, guild or collective bargaining agreement maintained or contributed
to or required to be contributed to by the Company or any of its ERISA
Affiliates, for the benefit or welfare of any director, officer, employee
or former employee of the Company or any of its ERISA Affiliates (such
plans and arrangements being collectively the "Company Benefit Plans").
Each of the Company Benefit Plans is in material compliance with all
applicable laws including ERISA and the Code. The Internal Revenue Service
has determined that each Company Benefit Plan that is intended to be a
qualified plan under Section 401(a) of the Code is so qualified and the
Company is aware of no event occurring after the date of such determination
that would adversely affect such determination. The liabilities accrued
under each such plan are reflected on the latest balance sheet of the
Company included in the Recent SEC Reports in accordance with generally
accepted accounting principles applied on a consistent basis. No condition
exists that is reasonably likely to subject the Company or any of its
subsidiaries to any direct or indirect liability under Title IV of ERISA or
to a civil penalty under Section 502(j) of ERISA or liability under
Annex I-16
<PAGE>
Section 4069 of ERISA or 4975, 4976, or 4980B of the Code or the loss of a
federal tax deduction under Section 280G of the Code or other liability
with respect to the Company Benefit Plans that would have a material
adverse effect on the Company and that is not reflected on such balance
sheet. No Company Benefit Plan (other than any Company Benefit Plan that is
a "multiemployer plan" as such term is defined in Section 4001(a)(3) of
ERISA) is subject to Title IV of ERISA. There are no pending, threatened,
or anticipated claims (other than routine claims for benefits or immaterial
claims) by, on behalf of or against any of the Company Benefit Plans or any
trusts related thereto. "ERISA Affiliate" means, with respect to any
person, any trade or business, whether or not incorporated, that together
with such person would be deemed a "single employer" within the meaning of
Section 4001(a)(15) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
(j) Tax Returns and Tax Payments. The Company and each of its
subsidiaries has timely filed (or, as to subsidiaries, the Company has
filed on its behalf) all Tax Returns (as defined below) required to be
filed by it, has paid (or, as to subsidiaries, the Company has paid on its
behalf) all Taxes (as defined below) shown thereon to be due and has
provided (or, as to subsidiaries, the Company has made provision on its
behalf of) adequate reserves in its financial statements for any Taxes that
have not been paid, whether or not shown as being due on any Tax Returns.
Except as set forth in Section 3.1(j) of the Disclosure Schedule: (i) no
material claim for unpaid Taxes has been asserted by a Tax authority or has
become a lien (except for liens not yet due and payable) against the
property of the Company or any of its subsidiaries or is being asserted
against the Company or any of its subsidiaries, (ii) no audit of any Tax
Return of the Company or any of its subsidiaries is being conducted by a
Tax authority, and (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by the Company or any of its
subsidiaries and is currently in effect. Neither the Company nor any of its
Subsidiaries is or has been a member of any consolidated, combined, unitary
or aggregate group for Tax purposes except such a group consisting only of
the Company and its subsidiaries. As used herein, "Taxes" shall mean all
taxes of any kind, including, without limitation, those on or measured by
or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall
profits taxes, customs, duties or similar fees, assessments or charges of
any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental
authority, domestic or foreign. As used herein, "Tax Return" shall mean any
return, report or statement required to be filed with any governmental
authority with respect to Taxes.
(k) State Antitakeover Laws Not Applicable. No state takeover statute or
similar statute or regulation of the State of New York (and, to the
knowledge of the Company after due inquiry, of any other state or
jurisdiction) applies or purports to apply to this Agreement or the
transactions contemplated hereby and no provision of the Certificate of
Incorporation, Bylaws or other governing instruments of the Company or any
of its subsidiaries or the terms of any rights plan or agreement of the
Company would, directly or indirectly, restrict or impair the ability of
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, securities of the Company and its subsidiaries that may be
acquired or controlled by Parent or permit any stockholder to acquire
securities of the Company or of Parent or any of its subsidiaries on a
basis not available to Parent in the event that Parent were to acquire
securities of the Company.
(l) Environmental Matters. There are no legal, administrative, arbitral
or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could be
expected to result in the imposition, on the Company or any of its
subsidiaries of any liability or obligations arising under common law
standards relating to environmental protection, human health or safety, or
under any local, state, federal, national or supernational environmental
statute, regulation or ordinance, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (collectively,
"Environmental Laws"), pending or, to the knowledge of the Company,
threatened, against the Company or any of its subsidiaries, which liability
or obligation would have or would reasonably be expected to have
Annex I-17
<PAGE>
a material adverse effect on the Company or any of its subsidiaries. To the
knowledge of the Company or any of its subsidiaries, there is no reasonable
basis for any such proceeding, claim, action or governmental investigation
that would impose any liability or obligation that would have or would
reasonably be expected to have a material adverse effect on the Company or
any of its subsidiaries. To the knowledge of the Company, during or prior
to the period of (i) its or any of its subsidiaries' ownership or operation
of any of their respective current properties, (ii) its or any of its
subsidiaries' participation in the management of any property, or (iii) its
or any of its subsidiaries' holding of a security interest or other
interest in any property, there was no release or threatened release of
hazardous, toxic, radioactive or dangerous materials or other materials
regulated under Environmental Laws in, on, under or affecting any such
property which would reasonably be expected to have a material adverse
effect on the Company or any of its subsidiaries. Neither the Company nor
any of its subsidiaries is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any material liability or
obligations pursuant to or under any Environmental Law that would have or
would reasonably be expected to have a material adverse effect on the
Company or any of its subsidiaries.
(m) Properties. Except as disclosed in the Recent SEC Documents, each of
the Company and its subsidiaries (i) has good, clear and marketable title
to all the properties and assets reflected in the latest audited balance
sheet included in such Recent SEC Documents as being owned by the Company
or one of its subsidiaries or acquired after the date thereof which are,
individually or in the aggregate, material to the Company's business on a
consolidated basis (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business), free and clear of (A)
all Liens except (1) statutory liens securing payments not yet due and (2)
such imperfections or irregularities of title or other Liens (other than
real property mortgages or deeds of trust) as do not materially affect the
use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations at such properties, and (B)
all real property mortgages and deeds of trust and (ii) is the lessee of
all leasehold estates reflected in the latest audited financial statements
included in such Recent SEC Documents or acquired after the date thereof
which are material to its business on a consolidated basis and is in
possession of the properties purported to be leased thereunder, and each
such lease is valid without default thereunder by the lessee or, to the
Company's knowledge, the lessor.
(n) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Lewis Githens & Ahn, Inc., the fees and expenses of each of which
will be paid by the Company (pursuant to fee agreements, copies of which
have been provided to Parent), is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
(o) Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated the date of this
Agreement, to the effect that the Merger Consideration to be received in
the Merger by the Company's stockholders is fair to the holders of the
Company Common Stock from a financial point of view, a signed copy of which
opinion has been delivered to Parent.
(p) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by unanimous vote of those directors
present (who constituted 100% of the directors then in office) (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interests of the
stockholders of the Company, and (ii) resolved to recommend that the
holders of the shares of Company Common Stock approve this Agreement and
the transactions contemplated herein, including the Merger.
(q) Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of two-thirds of the outstanding shares of the Company
Common Stock voting separately as a class, is the only vote of the holders
of any class or series of the Company's securities necessary to approve
this Agreement, the Merger and the other transactions contemplated hereby.
Annex I-18
<PAGE>
3.2 Representations and Warranties of Parent. Parent represents and warrants
to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent, Sub and
the other Parent Subsidiaries (as defined in Section 3.2(b)) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each
of Parent, Sub and the other Parent Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect
with respect to Parent. Parent has delivered to the Company complete and
correct copies of its Restated Certificate of Incorporation and Bylaws and
the certificate of incorporation (or other organizational documents) and
bylaws of Sub, in each case as amended to the date hereof.
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent
(other than such subsidiaries that would not constitute in the aggregate a
Significant Subsidiary) are listed in Section 3.2(b) of the disclosure
schedule (the "Parent Disclosure Schedule") delivered to the Company by
Parent at the time of execution of this Agreement (together with Sub, the
"Parent Subsidiaries"). All the outstanding shares of capital stock of each
such Parent Subsidiary which is a corporation have been validly issued and
are fully paid and nonassessable and, except as set forth in Section 3.2(b)
of the Parent Disclosure Schedule, are owned (of record and beneficially)
by Parent, by another Parent Subsidiary (wholly owned) or by Parent and
another such Parent Subsidiary (wholly owned), free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of Parent consists of
1,500,000 shares of Class A Stock, 50,000,000 shares of Class B Stock, and
1,000,000 shares of preferred stock, no par value per share ("Parent
Preferred Stock"). Subject to such changes as may occur after September 30,
1996, and subject in the case of clauses (i) and (iii) to adjustment as a
result of conversions of Class A Stock into Class B Stock, there were, as
of September 30, 1996: (i) 1,189,074 shares of Class A Stock, 650,640
shares of Class B Stock, and no shares of Parent Preferred Stock issued and
outstanding; (ii) 187,796 shares of Class A Stock held by Parent in its
treasury; and (iii) 35,672,220 shares of Class B Stock reserved for
issuance upon conversion of Class A Stock. Except as set forth above, no
shares of capital stock or other equity securities of Parent are issued,
reserved for issuance or outstanding. All outstanding shares of capital
stock of Parent are, and all shares of Parent Stock which may be issued
pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
All shares of Parent Stock issued pursuant to this Agreement will, when so
issued, be registered under the Securities Act for such issuance and
registered under the Exchange Act, be registered or exempt from
registration under any applicable state securities laws, and be listed on
the NYSE, subject to official notice of issuance. There are no outstanding
bonds, debentures, notes or other indebtedness or other securities of
Parent having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of Parent may vote. Except as set forth above or as contemplated by Section
2.4, there are no outstanding securities, options, warrants, calls, or
rights obligating Parent or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity securities of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, or
right. The authorized capital stock of Sub consists of 100 shares of common
stock, $.01 par value per share, all of which have been validly issued, are
fully paid and nonassessable and are owned directly by Parent, free and
clear of any Lien.
(d) Authority; Noncontravention. Parent and Sub have all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate
Annex I-19
<PAGE>
action on the part of Parent and Sub. No vote or consent of the
stockholders of Parent or Sub, which has not been obtained, is required
under applicable law or rule of the NYSE to approve the Merger, this
Agreement or the transactions contemplated hereby. This Agreement has been
duly executed and delivered by and constitutes a valid and binding
obligation of each of Parent and Sub, enforceable against such party in
accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to
any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Parent or any
of its subsidiaries under, (i) the certificate of incorporation or by-laws
of Parent or Sub or the comparable charter or organizational documents of
any other subsidiary of Parent, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent, Sub or any other
subsidiary of Parent or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to Parent, Sub or any
other subsidiary of Parent or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually or in the
aggregate could not have a material adverse effect with respect to Parent
or could not prevent, hinder or materially delay the ability of Parent to
consummate the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity is required by or with respect
to Parent, Sub or any other subsidiary of Parent in connection with the
execution and delivery of this Agreement by Parent or Sub or the
consummation by Parent or Sub, as the case may be, of any of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form under the HSR Act, (ii) the filing
with the SEC of (y) the Form S-4 and (z) such reports under the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iii) the filing of the Certificate of
Merger with the Department of State of the State of New York and
appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings or notices as may be required under the "takeover" or "blue sky"
laws of various states.
(e) SEC Documents; Undisclosed Liabilities. Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC
since January 1, 1994 (collectively, and in each case, including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC Documents
(including any and all financial statements included therein) as of such
date contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Parent
included in the Parent SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries
as of the dates thereof and the consolidated results of operations and
changes in cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).
Since December 31, 1995, neither Parent nor any of its subsidiaries has
incurred any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) except (i) as and to the extent set
forth on the audited balance sheet of Parent and its subsidiaries as of
December 31, 1995 (including the notes thereto), (ii) as incurred in
connection with the transactions contemplated by this
Annex I-20
<PAGE>
Agreement, (iii) as incurred after December 31, 1995 in the ordinary course
of business and consistent with past practice, (iv) as described in the SEC
Documents filed since December 31, 1995 (the "Recent Parent SEC
Documents"), or (v) as would not, individually or in the aggregate, have a
material adverse effect with respect to Parent.
(f) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, and
at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(ii) the Proxy Statement will, at the date the Proxy Statement is first
mailed to the Company's stockholders or at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. The Form S-4 will comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations promulgated thereunder, except that no representation or
warranty is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the
Company for inclusion or incorporation by reference in the Form S-4.
(g) Absence of Certain Changes or Events. Except as disclosed in the
Recent Parent SEC Documents, since the date of the most recent financial
statements included in the Recent Parent SEC Documents, Parent has
conducted its business only in the ordinary course consistent with past
practice, and there is not and has not been (i) any material adverse change
with respect to Parent; (ii) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect or give rise to a material adverse change with
respect to Parent; or (iii) any condition, event or occurrence which could
reasonably be expected to prevent, hinder or materially delay the ability
of Parent to consummate the transactions contemplated by this Agreement.
(h) Interim Operations of Sub. Sub was formed on October 11, 1996 solely
for the purposes of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations
only as contemplated hereby.
(i) Brokers. No broker, investment banker, financial advisor or other
person, other than Salomon Brothers Inc, the fees and expenses of which
will be paid by Parent, and a certain Parent shareholder, is entitled to or
may be paid any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
4.1 Conduct of Business of the Company. From the date of this Agreement to
the Effective Time (except as otherwise specifically required by the terms of
this Agreement), the Company shall, and shall cause its subsidiaries to, act
and carry on their respective businesses in the usual, regular and ordinary
course of business consistent with past practice and, to the extent consistent
therewith, use its best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers,
licensors, licensees, advertisers, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
not be impaired in any material respect at the Effective Time. Without
limiting the generality of the foregoing, from the date of this Agreement to
the Effective Time, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior consent of the Parent:
Annex I-21
<PAGE>
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent and the declaration and payment by the Company of
regular quarterly cash dividends in an amount not in excess of $.16 per
share of Company Common Stock, with usual record and payment dates for such
dividends in accordance with the Company's past dividend practices, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except, in the case
of clause (iii), for the acquisition of shares of Company Common Stock from
holders of Company Stock Options in full or partial payment of the exercise
price payable by such holder or tax liability arising in connection
therewith, upon exercise of Company Stock Options outstanding on the date
of this Agreement in accordance with their present terms;
(b) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any of its
subsidiaries, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation
rights), or contractual obligation valued or measured by the value or
market price of Company Common Stock (other than the issuance of Company
Common Stock upon the exercise of Company Stock Options outstanding on the
date of this Agreement and in accordance with their present terms, such
issuance, together with the acquisitions of shares of Company Common Stock
permitted under clause (a) above, being referred to herein as "Permitted
Changes");
(c) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(e) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets that are
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole, except sales of inventory and equipment in
the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company;
(g) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, or make or agree to make any capital expenditures except in the
ordinary course of business consistent with past practice;
(h) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof, (ii) liabilities reflected or reserved
against in,
Annex I-22
<PAGE>
or contemplated by, the most recent consolidated audited financial
statements (or the notes thereof) of the Company included in the Recent SEC
Documents, or waive, release, grant, or transfer any rights of material
value or modify or change in any material respect any existing license,
lease, contract or other document, other than in the ordinary course of
business consistent with past practice;
(i) adopt or amend in any material respect (except as may be required by
law or by this Agreement) any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement
(including any Company Benefit Plan) for the benefit or welfare of any
employee, director or former director or employee or, other than increases
for individuals (other than officers and directors) in the ordinary course
of business consistent with past practice, increase the compensation or
fringe benefits of any director, employee or former director or employee;
pay any benefit not required by any existing plan, arrangement or
agreement, grant any new or modified severance or termination arrangement
or increase or accelerate any benefits payable under its severance or
termination pay policies in effect on the date hereof, other than any such
increase or acceleration provided for under such policies as in effect on
the date of this Agreement;
(j) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles or rules and
regulations of the SEC promulgated following the date hereof;
(k) take any action that would, or is reasonably likely to, result in any
of its representations and warranties in this Agreement becoming untrue, or
in any of the conditions to the Merger set forth in Article 6 not being
satisfied;
(l) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign income tax liability; and
(m) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and the Proxy Statement; Stockholder Meetings.
(a) Promptly following the date of this Agreement, the Company shall
prepare and file with the SEC the Proxy Statement, and Parent shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Parent shall use its
reasonable best efforts as promptly as practicable to have the Form S-4
declared effective under the Securities Act as promptly as practicable
after such filing. The Company will use its reasonable best efforts to
cause the Proxy Statement to be mailed to the Company's stockholders as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Parent shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified)
required to be taken under any applicable state securities laws in
connection with the issuance of Parent Stock in the Merger, and the Company
shall furnish all information concerning the Company and the holders of the
Company Common Stock and rights to acquire Company Common Stock pursuant to
the Stock Plans as may be reasonably requested in connection with any such
action.
(b) The Company will, as promptly as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Stockholders Meeting") for the purpose of approving
this Agreement and the transactions contemplated by this Agreement. The
Company will, through its Board of Directors, recommend to its stockholders
approval of the foregoing matters, as set forth in Section 3.1(p). Such
recommendation, together with a copy of the opinion referred to in Section
Annex I-23
<PAGE>
3.1(o), shall be included in the Proxy Statement. The Company will use
reasonable efforts to hold such meeting as soon as practicable after the
date hereof.
(c) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably
necessary to effectuate the intent of this Agreement.
5.2 Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to Parent a letter of Price Waterhouse LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent
and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
5.3 Parent Access to Information.
(a) The Company shall, and shall cause its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford
to Parent and its representatives reasonable access during normal business
hours during the period prior to the Effective Time to its properties,
books, contracts, commitments, personnel and records and, during such
period, shall, and shall cause its subsidiaries, officers, employees and
representatives to, furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and
(ii) all other information concerning its business, properties, financial
condition, operations and personnel as Parent may from time to time
reasonably request. No investigation pursuant to this Section 5.3 shall
affect any representations or warranties of the Company herein or the
conditions to the obligations of the parties hereto.
(b) The Company shall report on operational matters and promptly advise
Parent orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a material adverse
effect on the Company and its Subsidiaries taken as a whole.
5.4 Best Efforts. Each of the parties agrees to use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement. Parent, Sub and the Company will use their best efforts and
cooperate with one another (i) in promptly determining whether any filings are
required to be made or consents, approvals, waivers, permits or authorizations
are required to be obtained under any applicable law or regulation or from any
governmental authorities or third parties in connection with the transactions
contemplated by this Agreement and (ii) in promptly making any such filings,
in furnishing information required in connection therewith and in timely
seeking to obtain any such consents, approvals, waivers, permits or
authorizations.
5.5 Employee Benefits.
(a) Parent and the Company agree that the Company Benefit Plans shall, to
the extent practicable and except as otherwise provided in Section 2.4
hereof, remain in effect without amendment until the Effective Time and
that thereafter the Surviving Corporation will maintain, subject to such
changes and modifications as may be necessary or desirable to facilitate
compliance by Parent and its subsidiaries (including the Surviving
Corporation) with applicable statutory and regulatory requirements, for a
period of at least three years after the Effective Time, the Company
Benefit Plans (other than the Stock Plans).
(b) Parent will, and will cause the Surviving Corporation to, honor
without modification for a period of at least three years after the
Effective Time all employee severance plans (or policies) and employment
and severance agreements of the Company or any of its subsidiaries in
existence on the date hereof as such plans, policies and agreements shall
be in effect in accordance with the terms of this Agreement at the
Effective Time.
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(c) Parent and Company will use their best efforts to agree on
compensation plans for the officers and employees of the Company after the
Effective Time to provide them incentive compensation that in the aggregate
is reasonably comparable (without giving effect to any payments to them
resulting from the Merger) to that historically provided by the Stock
Plans, except that neither Parent nor the Surviving Corporation shall be
required to issue any shares of its equity securities in connection with
such compensation plans.
5.6 Indemnification.
(a) The Company shall, and from and after the Effective Time Parent and
the Surviving Corporation shall, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of this
Agreement or who becomes such prior to the Effective Time, an officer,
director or employee of the Company or any of its subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director,
officer or employee of the Company or any of its subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director,
officer or employee of the Company or any of its subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective
Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities") and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part
out of, or pertaining to this Agreement or the transactions contemplated
hereby; provided, however, that, in the case of the Company and the
Surviving Corporation such indemnification shall only be to the fullest
extent a corporation is permitted under the NYBCL to indemnify its own
directors, officers and employees, and in the case of Parent, such
indemnification shall not be limited by the NYBCL but such indemnification
shall not be applicable to any claims made against the Indemnified Parties
if a judgment or other final adjudication established that (A) their acts
or omissions were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so
deliberated or (B) arising out of, based upon or attributable to the
gaining in fact of any financial profit or other advantage to which they
were not legally entitled; and the Company, Parent and the Surviving
Corporation, as the case may be, will pay all expenses of each Indemnified
Party in advance of the final disposition of any such action or proceeding,
in the case of the Company and the Surviving Corporation only to the
fullest extent permitted by law upon receipt of any undertaking
contemplated by Section 723(c) of the NYBCL. Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising
before or after the Effective Time), (i) the Indemnified Parties may retain
counsel satisfactory to them and the Company (or them and Parent and the
Surviving Corporation after the Effective Time), (ii) the Company (or after
the Effective Time, the Surviving Corporation) shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received, and (iii) the Company (or after the
Effective Time, Parent and the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of the Company, Parent or the Surviving Corporation
shall be liable for any settlement of any claim effected without its
written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 5.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Company, Parent or the Surviving
Corporation (but the failure so to notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 5.6
except to the extent such failure prejudices such party), and shall deliver
to the Company (or after the Effective Time, the Surviving Corporation (but
not Parent)) the undertaking contemplated by Section 723(c) of the NYBCL.
The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable
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standards of professional conduct, a conflict on any significant issue
between the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 5.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs
and representatives.
5.7 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that the expenses in connection with printing and mailing the Proxy Statement
and the Form S-4, as well as all SEC filing fees relating to the transactions
contemplated herein, shall be shared equally between Parent and the Company.
5.8 Public Announcements. Parent and Sub, on the one hand, and the Company,
on the other hand, will consult with each other before issuing, and provide
each other the opportunity to review and comment upon, any press release or
other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree
that the initial press release or releases to be issued with respect to the
transactions contemplated by this Agreement shall be mutually agreed upon
prior to the issuance thereof.
5.9 Affiliates. Prior to the Closing Date, the Company shall deliver to
Parent a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall
use its best efforts to cause each such person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form
attached as Exhibit A hereto.
5.10 Stock Exchange Listing. Parent shall use its best efforts to cause the
shares of Parent Stock to be issued in the Merger and under the Stock Plans to
be approved for listing on the New York Stock Exchange, subject to notice of
issuance, prior to the Closing Date.
5.11 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the
members of the Board of Directors of the Company shall grant such approvals
and take such actions as are reasonably necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby.
5.12 No Solicitation. Neither the Company nor any of its subsidiaries shall,
nor shall the Company or any of its subsidiaries authorize or permit any of
its or their officers, directors, agents, representatives, advisors or
subsidiaries to, (a) solicit, initiate or encourage (including by way of
furnishing information), or take any other action to facilitate the submission
of inquiries, proposals or offers from any person relating to any acquisition
or purchase of a substantial amount of assets of the Company or any of its
subsidiaries (other than in the ordinary course of business) or of over 20% of
any class of equity securities of the Company or any of its subsidiaries or
any tender offer (including a self tender offer) or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company or any of its subsidiaries, or any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any of its subsidiaries, other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would or could reasonably be expected to impede, interfere with, prevent
or materially delay the Merger or which would or could reasonably be expected
to materially dilute the benefits to Parent of the transactions contemplated
hereby (collectively, "Transaction Proposals") or agree to or endorse any
Transaction Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person
any information with
Annex I-26
<PAGE>
respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person to do or seek any of
the foregoing; provided, however, that the foregoing shall not prohibit the
Company from (i) furnishing information concerning the Company and its
businesses, properties or assets pursuant to an appropriate confidentiality
agreement substantially similar to the Confidentiality Agreement dated October
4, 1996 between the Company and Parent to a third party who has made an
unsolicited Transaction Proposal, (ii) engaging in discussions or negotiations
with a third party who has made an unsolicited Transaction Proposal, (iii)
following receipt of an unsolicited Transaction Proposal, taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its stockholders, and/or
(iv) following receipt of an unsolicited Transaction Proposal, failing to make
or withdrawing or modifying its recommendation referred to in Section 3.1(p),
but in each case referred to in the foregoing clauses (i) through (iv) only if
and to the extent that the Board of Directors of the Company shall have
concluded in good faith, after consulting with and considering the advice of
outside counsel, that such action is required by the Board of Directors of the
Company in the exercise of its fiduciary duties to the stockholders of the
Company; provided, further, that the Board of Directors of the Company shall
not take any of the foregoing actions referred to in clauses (i) through (iv)
until after giving at least one business day's advance notice to Parent with
respect to the actions specified in the foregoing clauses (i) through (iv)
that it shall take. In addition, if the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall promptly inform Parent
in writing of the material terms of such proposal and the identity of the
person (or group) making it. The Company will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in this Section by any director or executive officer of
the Company or any of its subsidiaries or by any investment banker, financial
adviser, attorney, accountant, or other representative of the Company or any
of its subsidiaries shall be deemed to be a breach of this Section by the
Company.
5.13 Certain Agreements. Neither the Company nor any subsidiary of the
Company will waive or fail to enforce any provision of any confidentiality or
standstill or similar agreement to which it is a party without the prior
written consent of Parent.
5.14 Company Access to Information.
(a) The Parent shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to the Company and
its representatives reasonable access during normal business hours during
the period prior to the Effective Time to its books, personnel and records
and, during such period, shall, and shall cause its subsidiaries, officers,
employees and representatives to, furnish promptly to the Company (i) a
copy of each report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of Federal or
state securities laws and (ii) all other information concerning its
business, financial condition and operations as the Company may from time
to time reasonably request; provided, however, that the foregoing shall not
create any obligation to disclose to any person any nonpublic information
respecting securities holdings of Parent or any of its subsidiaries. No
investigation pursuant to this Section 5.14 shall affect any
representations or warranties of the Parent herein or the conditions to the
obligations of the parties hereto.
(b) Parent shall promptly advise the Company orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen,
could have, a material adverse effect on the Parent and its Subsidiaries
taken as a whole.
Annex I-27
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) NYSE Listing. The shares of Parent Stock issuable to the Company's
stockholders pursuant to this Agreement shall have been approved for
listing on the NYSE, subject to notice of issuance.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the issuance of the Parent Stock shall
have been complied with.
6.2 Conditions to Obligation of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date. Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such
effect.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date (except for such failures to
perform as have not had or could not reasonably be expected, either
individually or in the aggregate, to have a material adverse effect with
respect to the Company or adversely affect the ability of the Company to
consummate the transactions herein contemplated or perform its obligations
hereunder), and Parent shall have received a certificate signed on behalf
of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.
(c) Tax Opinion. Parent shall have received the opinion of Munger, Tolles
& Olson, counsel to Parent, dated the Closing Date, based on appropriate
representations of the Company, its affiliates, and Parent, and such other
facts, representations, assumptions, and agreements as counsel may
reasonably deem relevant, to the effect that for United States Federal
income tax purposes the Merger will qualify as a reorganization within the
meaning of Section 368 of the Code and that each of Parent, Sub and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code.
(d) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to Parent or the Company
Annex I-28
<PAGE>
or the failure of which to have been received would not (as compared to the
situation in which such license, permit, consent, approval, authorization,
qualification or order had been obtained) materially dilute the aggregate
benefits to Parent of the Merger.
(e) Affiliate Letters. Parent shall have received the agreements referred
to in Section 5.9.
(f) Continuity of Interest Agreement. Mr. Albert L. Ueltschi shall have
executed and delivered, and shall have used his best efforts to cause the
specified members of his family to have executed and delivered, a
Continuity of Interest Agreement in substantially the form attached as
Exhibit B hereto.
6.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subjected to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date. The Company
shall have received a certificate signed on behalf of Parent by the chief
executive officer and the chief financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed the obligations required to be performed by them under this
Agreement at or prior to the Closing Date (except for such failures to
perform as have not had or could not reasonably be expected, either
individually or in the aggregate, to have a material adverse effect with
respect to Parent or adversely affect the ability of Parent to consummate
the transactions herein contemplated or perform its obligations hereunder),
and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer and the chief financial officer of
Parent to such effect.
(c) Tax Opinion. The Company shall have received the opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel to the Company, dated the Closing
Date, based on appropriate representations of the Company, its affiliates,
and Parent and such other facts, representations, assumptions, and
agreements as counsel may reasonably deem relevant, to the effect that for
United States Federal income tax purposes the Merger will qualify as a
reorganization within the meaning of Section 368 of the Code and that each
of Parent, Sub and the Company will be a party to the reorganization within
the meaning of Section 368(b) of the Code.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time of the Merger, whether before or after approval of
the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before March 31, 1997 (other than due to the failure of
the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time of the Merger); or
Annex I-29
<PAGE>
(d) by Parent, if any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof; or
(e) by Parent, (1) if the Company shall have (i) withdrawn, modified or
amended in any respect adverse to Parent or Sub its approval or
recommendation of this Agreement or the Merger, (ii) failed as soon as
practicable to mail the Proxy Statement to its stockholders or failed to
include in such statement such recommendation, (iii) recommended any
Transaction Proposal from a person other than Parent or (iv) resolved to do
any of the foregoing, or (2) if (i) the Company shall have exercised a
right specified in the first proviso to Section 5.12 with respect to any
Transaction Proposal and shall, directly or through agents or
representatives, continue discussions with any third party concerning such
Transaction Proposal for more than 10 business days after the date of
receipt of such Transaction Proposal; or (ii) (A) a Transaction Proposal
that is publicly disclosed shall have been commenced, publicly proposed or
communicated to the Company which contains a proposal as to price (without
regard to whether such proposal specifies a specific price or a range of
potential prices) and (B) the Company shall not have rejected such proposal
within 10 business days of its receipt or, if sooner, the date its
existence first becomes publicly disclosed; or
(f) by the Company, if the Company exercises, pursuant to Section 5.12,
the right specified in clause (iv) of the first proviso to Section 5.12; or
(g) by Parent, if the Company fails to perform any of its material
obligations under this Agreement; or
(h) by the Company, if Parent or Sub fails to perform any of their
respective material obligations under this Agreement.
7.2 Effect of Termination. In the event of termination of this Agreement by
either the Company or Parent as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation
on the part of Parent, Sub or the Company, other than pursuant to the
provisions of Section 5.7 and this Section 7.2. Nothing contained in this
Section shall relieve any party for any breach of the representations,
warranties, covenants or agreements set forth in this Agreement.
7.3 Amendment. This Agreement may be amended by the parties at any time
before or after required approval of the Merger by the stockholders of the
Company; provided, however, that after such approval, there shall be made no
amendment that by law requires further approval by such stockholders without
the further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in this Agreement or in any document delivered
pursuant to this Agreement or (c) subject to the proviso of Section 7.3, waive
compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver
of such rights.
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
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<PAGE>
Section 8.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
8.2 Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Berkshire Hathaway Inc. 1440 Kiewit Plaza Omaha, Nebraska 68131
Attention: Chairman of the Board
with a copy to:
Munger, Tolles & Olson 355 South Grand Avenue, 35th Floor Los Angeles,
California 90071-1560 Attention: R. Gregory Morgan
(b) if to the Company, to:
FlightSafety International Inc. Marina Air Terminal LaGuardia Airport
Flushing, New York 11371 Attention: Chairman of the Board
with a copy to:
Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New
York 10022 Attention: Peter P. Mullen
8.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect that
either individually or in the aggregate with all other such changes or
effects is materially adverse to the business, assets, properties,
condition (financial or otherwise) or results of operations of such party
and its subsidiaries taken as a whole; provided, however, that, (i) a
decline in general economic conditions affecting the Company or Parent
shall not be deemed to be a "material adverse change" or to have a
"material adverse effect" with respect to either such party or its
subsidiaries; and (ii) for purposes of Sections 3.2(g) and 6.3(a), in no
event shall changes in the market prices of portfolio securities owned by
Parent or its subsidiaries be deemed to be a "material adverse change" or
to have a "material adverse effect" with respect to Parent or its
subsidiaries;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
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<PAGE>
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its board of
directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interest of which) is owned directly
or indirectly by such first person.
8.4 Interpretation. A reference made in this Agreement to a Section, Exhibit
or Schedule, shall be to a Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
8.6 Entire Agreement; No Third-party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, other than the Confidentiality Agreement
dated October 4, 1996 between Parent and the Company. Except as provided in
Section 5.6(b), this Agreement is not intended to confer upon any person other
than the parties any rights or remedies.
8.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.9 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of
Delaware or of the United States located in the State of Delaware in the event
any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, and each party (a) it will not attempt to deny
or defeat personal jurisdiction or venue in any such court by motion or other
request for leave from any such court and (b) it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than any such court.
8.10 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein, so long as the economic and legal substance
of the transactions contemplated hereby are not affected in a manner
materially adverse to any party hereto.
Annex I-32
<PAGE>
IN WITNESS WHEREOF, Parent, Sub, and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
Berkshire Hathaway Inc.
By: /s/ Warren E. Buffett
----------------------------------
Its: Chairman of the Board
---------------------------------
NY Acquisition Sub Inc.
By: /s/ Warren E. Buffett
----------------------------------
Its: Chairman of the Board
---------------------------------
FlightSafety International Inc.
By: /s/ Albert L. Ueltschi
----------------------------------
Its: President and Chairman of the
Board
---------------------------------
Annex I-33
<PAGE>
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
ANNEX II
October 14, 1996
FlightSafety International, Inc.
Marine Air Terminal, La Guardia Airport
Flushing, New York 11371
Attention: Special Committee of the
Board of Directors
Dear Members of the Special Committee:
FlightSafety International, Inc. (the "Company"), Berkshire Hathaway Inc.
("Parent") and NY Acquisition Sub Inc., a wholly-owned subsidiary of Parent
("Acquisition Sub"), propose to enter into an agreement and plan of merger (the
"Merger Agreement") pursuant to which the Company will be merged with and into
Acquisition Sub (the "Merger"). Under the terms of the Merger Agreement, at the
effective time of the Merger, each issued and outstanding share of common
stock, par value $.10 per share, of the Company (the "Shares") (other than
Shares held by the Company, Parent, Acquisition Sub or any of their respective
subsidiaries, all of which Shares shall be canceled and retired, and Dissenting
Shares (as defined in the Merger Agreement)) will be converted into the right
to receive, at the election of the holder thereof and subject to certain
proration provisions, either: (i) $50.00 in cash (the "Cash Consideration"),
(ii) the portion of a share of Class A common stock, par value $5.00 per share,
of Parent (the "Parent Class A Stock") determined by dividing $48.00 by the
Average Class A Stock Price (as hereinafter defined), or (iii) the portion of a
share of Class B common stock, par value $.1667 per share, of Parent (the
"Parent Class B Stock", and collectively with the Parent Class A Stock, the
"Parent Stock") determined by dividing $48.00 by the quotient of the Average
Class A Stock Price divided by 30, where the term "Average Class A Stock Price"
means the average of the high and low trading prices of the Parent Class A
Stock on the New York Stock Exchange Composite Tape for each of the five
consecutive trading days ending on the trading day which is the last business
day prior to the date on which the meeting of the shareholders of the Company
is to be held to consider the Merger. For purposes of our opinion, the term
"Consideration" means the aggregate amount of the Cash Consideration and the
Parent Stock to be received by the holders of the Shares in the Merger as set
forth in clauses (i), (ii) and (iii) in the immediately preceding sentence. The
terms and conditions of the Merger, including the terms limiting the aggregate
amount of the Cash Consideration and the cash to be paid in respect of
fractional shares and Dissenting Shares, are more fully set forth in the Merger
Agreement.
You have asked us whether, in our opinion, the proposed Consideration to be
received by the holders of the Shares (other than Parent and its affiliates) in
the Merger is fair to such holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and the
Company's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1996 and June 30, 1996;
2. Reviewed Parent's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Parent's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1996 and June 30, 1996;
Annex II-1
<PAGE>
3. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
furnished to us by the Company;
4. Conducted discussions with members of senior management of the Company
and Parent concerning their respective businesses and prospects;
5. Reviewed the historical market prices and trading activity for the
Shares and compared it with that of certain publicly traded companies
which we deemed to be similar to the Company;
6. Reviewed the historical market prices and trading activity for the
Parent Class A Stock and the Parent Class B Stock;
7. Compared the results of operations of the Company with that of certain
companies which we deemed to be reasonably similar to the Company;
8. Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
9. Reviewed a draft of the Merger Agreement dated October 13, 1996; and
10. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary including our assessment of general economic, market
and monetary conditions.
We have neither received nor reviewed any financial projections prepared by
Parent pertaining to the future prospects of Parent.
We understand that shareholders who own in the aggregate approximately 32%
of the outstanding Shares have indicated their intention to elect to receive
the Parent Stock in the Merger.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
Parent, and we have not independently verified such information or undertaken
an independent appraisal or evaluation of the assets or liabilities of the
Company or Parent. With respect to the financial forecasts furnished to us by
the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company. We
have also assumed that the Merger will be free of Federal tax to the Company,
Parent and the holders of Shares (other than in respect of the Cash
Consideration and any cash paid in lieu of fractional shares). Our opinion is
based upon general economic, market, monetary and other conditions as they
exist and can be evaluated, and the information made available to us, as of
the date hereof. We express no opinion as to what the value of the Parent
Class A Stock or the Parent Class B Stock actually will be when issued to the
holders of the Shares upon consummation of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company to solicit, nor have we solicited, third-party
indications of interest for the acquisition of all or any part of the Company.
This opinion is addressed to the Special Committee of the Board of Directors
of the Company and does not constitute a recommendation to any shareholders as
to how such shareholders should vote on the proposed Merger. We also express
no opinion and make no recommendation as to whether the holders of the Shares
should elect to receive the Cash Consideration, the Parent Class A Stock or
the Parent Class B Stock.
We have acted as financial advisor to the Company in connection with this
opinion and will receive a fee for our services, a significant portion of
which is contingent upon consummation of the Merger. We have, in the past,
provided certain financial advisory and financing services to certain
companies in which Parent has made investments and have received fees for the
rendering of such services. In the ordinary course of our business, we may
actively trade the Shares, the Parent Class A Stock and the Parent Class B
Stock for our own account and the accounts of our customers, and we therefore
may from time to time hold a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Consideration to be received by the holders of the Shares (other
than Parent and its affiliates) in the Merger is fair to such holders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Annex II-2
<PAGE>
ANNEX III
NEW YORK BUSINESS CORPORATION LAW
SECTION 623
PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT
TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair
Annex III-1
<PAGE>
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
Annex III-2
<PAGE>
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept
the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion,
Annex III-3
<PAGE>
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious
or otherwise not in good faith. In making any determination as provided in
clause (A), the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds the
corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is
not liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by Ch. 117, L. '86, eff. 9-1-86.)
Annex III-4
<PAGE>
DETACH HERE
P FLIGHTSAFETY INTERNATIONAL, INC.
R SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
O SPECIAL MEETING OF SHAREHOLDERS
X ON DECEMBER 23, 1996
Y
The undersigned shareholder of FlightSafety International, Inc.
("FlightSafety") hereby appoints A.L. Ueltschi and Peter P. Mullen, and each of
them individually, with full power of substitution, the proxy of the
undersigned, to vote all shares of Common Stock, par value $.10 per share, of
FlightSafety which the undersigned is entitled, in any capacity, to vote at
the Special Meeting of shareholders to be held on December 23, 1996 and any and
all adjournments or postponements thereof (the "Special Meeting"), with all
powers the undersigned would possess if personally present, as follows on the
reverse side, and, in their discretion, upon all matters incident to the conduct
of the Special Meeting and such other matters as may properly come before the
Special Meeting.
THE BOARD OF DIRECTORS OF FLIGHTSAFETY RECOMMENDS A VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
-----------
SEE REVERSE
(CONTINUED, AND TO BE SIGNED AND DATED ON REVERSE SIDE) SIDE
-----------
<PAGE>
DETACH HERE
Please mark
[X] votes as in
this example.
This proxy, if properly executed and returned, will be voted in accordance
with the instructions appearing on the proxy and at the discretion of the
proxy holders as to any other matters that may properly come before the
Special Meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND AT THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE SPECIAL MEETING.
1. To approve and adopt the Agreement and FOR AGAINST ABSTAIN
Plan of Merger, dated as of October 14, [ ] [ ] [ ]
1996 (the "Merger Agreement"), by and
among FlightSafety, Berkshire Hathaway
Inc., a Delaware corporation ("Berkshire"),
and NY Acquisition Sub Inc., a New York
corporation and wholly owned subsidiary of
Berkshire ("Merger Sub"), and to approve
the transactions contemplated thereby,
including the merger of FlightSafety with
and into Merger Sub.
MARK HERE
FOR ADDRESS
CHANGE AND [_]
NOTE AT LEFT
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
SPECIAL MEETING AND THE PROXY STATEMENT/PROSPECTUS DATED
November __, 1996, RELATING TO THE SPECIAL MEETING.
PLEASE SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE RETURN
ENVELOPE whether or not you expect to attend the Special
Meeting. You may nevertheless vote in person if you do
attend.
Note: Please sign this proxy exactly as name appears hereon.
If shares are held as joint tenants, both joint tenants
should sign. Attorneys-in-fact, executors, administrators,
trustees, guardians, corporation officers or others signing
in a representative capacity should indicate the capacity in
which they are signing.
Signature: _____________ Date: ______ Signature: _______________ Date: ______
