<PAGE> 1
================================================================================
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities and Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WASHINGTON NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $5.00 per share, of Washington National Corporation
("Washington National Shares") to be acquired by Conseco, Inc.
(2) Aggregate number of securities to which transaction applies:
12,077,122, being the maximum number of Washington National Shares to be
acquired by Conseco, Inc. in the transaction.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $33.25 (set forth the amount on which the
filing fee is calculated and state how is was determined)
(4) Proposed maximum aggregate value of transaction: $401,564,306.50.
(5) Total fee paid: $80,312.86.
[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.
================================================================================
<PAGE> 2
WASHINGTON NATIONAL CORPORATION
300 TOWER PARKWAY
LINCOLNSHIRE, ILLINOIS 60069
(847) 793-3000
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Washington National Corporation, a Delaware corporation ("Washington National"),
to be held on November 17, 1997 at 10:30 a.m., local time, in the Chaparral
Ballroom at Marriott's Lincolnshire Resort, 10 Marriott Drive, Lincolnshire,
Illinois (the "Special Meeting").
At the Special Meeting, stockholders of record of Washington National at
the close of business on October 1, 1997 will be asked to consider and vote upon
proposals to (i) adopt the Agreement and Plan of Merger, dated as of September
20, 1997 (the "Merger Agreement") by and among Washington National, Conseco,
Inc., an Indiana corporation ("Conseco"), and Granite Merger Corp., a Delaware
corporation and wholly owned subsidiary of Conseco ("Conseco Sub"), and the
transactions contemplated thereby (the "Merger") and (ii) authorize the
adjournment of the Special Meeting, if necessary, to permit further solicitation
of proxies in the event that there are insufficient votes at the time of the
Special Meeting to approve the foregoing proposal. If the Merger Agreement is
approved and the Merger is consummated, Conseco Sub will be merged with and into
Washington National, which will thereupon become a subsidiary of Conseco. Under
the Merger Agreement, each share of Washington National common stock, par value
$5.00 per share (other than treasury shares held by Washington National or
shares with respect to which appraisal rights are perfected under the Delaware
General Corporation Law), outstanding at the effective time of the Merger will
be converted into the right to receive $33.25 in cash, without interest.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF WASHINGTON NATIONAL AND ITS STOCKHOLDERS, AND RECOMMENDS THAT
YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT AND FOR THE ADJOURNMENT OF THE
SPECIAL MEETING, IF NECESSARY, TO PERMIT THE SOLICITATION OF ADDITIONAL PROXIES.
Your Board of Directors has received a written opinion from Morgan Stanley
and Co. Incorporated that, as of the date of such opinion and subject to the
considerations set forth therein, the consideration to be received by the
holders of shares of Washington National common stock in the Merger is fair,
from a financial point of view, to such holders. The written opinion of Morgan
Stanley and Co. Incorporated is included in the accompanying Proxy Statement and
should be read carefully by stockholders.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy and return it in the enclosed postage
prepaid envelope as soon as possible so that your shares will be represented at
the Special Meeting. If you attend the Special Meeting, you may revoke your
proxy and vote in person. If you have any questions regarding the proposed
transaction, please call D.F. King & Co., Inc., our proxy solicitation agent,
toll free at (800) 549-6746 or collect at (212) 269-5550.
Sincerely,
Robert W. Patin
Chairman of the Board, President
and Chief Executive Officer
October 15, 1997
<PAGE> 3
WASHINGTON NATIONAL CORPORATION
300 TOWER PARKWAY
LINCOLNSHIRE, ILLINOIS 60069
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 1997
---------------------
To the Stockholders of
Washington National Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Washington
National Corporation, a Delaware corporation ("Washington National"), will be
held on November 17, 1997 at 10:30 a.m. local time, in the Chaparral Ballroom at
Marriott's Lincolnshire Resort, 10 Marriott Drive, Lincolnshire, Illinois, for
the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of September 20, 1997 (the "Merger Agreement") by
and among Washington National, Conseco, Inc., an Indiana corporation
("Conseco"), and Granite Merger Corp., a Delaware corporation and wholly
owned subsidiary of Conseco ("Conseco Sub"), and the transactions
contemplated thereby, pursuant to which Conseco Sub will be merged with and
into Washington National (the "Merger"), and each share of Washington
National common stock, par value $5.00 per share (other than treasury
shares held by Washington National or shares with respect to which
appraisal rights are perfected under the Delaware General Corporation Law),
outstanding at the effective time of the Merger will be converted into the
right to receive $33.25 in cash, without interest.
2. To adjourn the Special Meeting, if necessary, to permit further
solicitation of proxies in the event that there are not sufficient votes at
the time of the Special Meeting to approve the foregoing proposal.
3. To transact such other business as may properly come before the
Special Meeting.
The close of business on October 1, 1997 has been fixed as the record date
for the determination of the stockholders entitled to notice of and to vote at
the Special Meeting.
Stockholders are invited to attend the Special Meeting. WHETHER OR NOT YOU
EXPECT TO ATTEND, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the Special
Meeting, you may vote your shares in person, which will revoke any previously
executed proxy.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Special Meeting, you must obtain a letter from the
broker, bank or other nominee confirming your beneficial ownership of the shares
and bring it to the Special Meeting. In order to vote your shares at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors
Craig R. Edwards
Corporate Secretary
October 15, 1997
<PAGE> 4
WASHINGTON NATIONAL CORPORATION
300 TOWER PARKWAY
LINCOLNSHIRE, ILLINOIS 60069-3665
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement ("Proxy Statement") is being furnished to the
stockholders of Washington National Corporation ("Washington National") in
connection with the solicitation of proxies by the Washington National Board of
Directors (the "Washington National Board") for use at a special meeting of
Washington National stockholders to be held at 10:30 a.m., local time, on
November 17, 1997 in the Chaparral Ballroom at Marriott's Lincolnshire Resort,
10 Marriott Drive, Lincolnshire, Illinois 60069, and at any adjournment or
postponement thereof (the "Special Meeting").
At the Special Meeting, Washington National stockholders will be asked to
consider and vote upon (i) the adoption of the Agreement and Plan of Merger,
dated as of September 20, 1997, by and among Washington National, Conseco and
Conseco Sub (the "Merger Agreement") and the consummation of the transactions
contemplated thereby, and (ii) the adjournment of the Special Meeting, if
necessary, to permit further solicitation of proxies in the event that there are
not sufficient votes at the time of the Special Meeting to approve the foregoing
proposal, and to transact such other business as may properly come before the
Special Meeting.
Under the Merger Agreement, Conseco Sub will be merged with and into
Washington National (the "Merger"), and each share of Washington National common
stock, par value $5.00 per share (the "Washington National Common Stock") (other
than treasury shares held by Washington National or shares with respect to which
appraisal rights are perfected under the Delaware General Corporation Law
("Dissenting Shares")), outstanding at the Effective Time (as defined) will be
converted into the right to receive $33.25 in cash, without interest (the
"Merger Consideration"). A copy of the Merger Agreement is attached to this
Proxy Statement as ANNEX A.
This Proxy Statement and the accompanying form of proxy are first being
sent to Washington National stockholders on or about October 15, 1997. Only
holders of record of Washington National Common Stock as of the close of
business on October 1, 1997 are entitled to vote at the Special Meeting. Holders
of Washington National Common Stock are entitled to one vote for each share held
of record. On October 1, 1997, Washington National had outstanding and entitled
to vote at the Special Meeting 12,050,480 shares of Washington National Common
Stock. A majority of the shares of Washington National Common Stock present in
person or by proxy at the Special Meeting will constitute a quorum to transact
business at the Special Meeting.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
The Merger................................................ 2
RISK FACTORS................................................ 5
Termination of Merger Agreement........................... 5
Failure to Approve and Consummate the Merger.............. 5
THE SPECIAL MEETING......................................... 5
General................................................... 5
Purpose of the Special Meeting............................ 5
Record Date; Shares Outstanding........................... 6
Voting at the Special Meeting............................. 6
Solicitation of Proxies................................... 7
Dissenters' Appraisal Rights.............................. 7
THE MERGER.................................................. 8
General................................................... 8
Background of the Merger.................................. 8
Recommendation of the Washington National Board of
Directors and Reasons for the Merger................... 11
Opinion of Financial Advisor.............................. 12
Interests of Certain Persons in the Merger and Possible
Conflicts of Interest.................................. 16
Indemnification........................................... 16
Conseco's Source and Amount of Funds...................... 17
Accounting Treatment...................................... 17
Certain Federal Income Tax Consequences of the Merger..... 17
Regulatory Approvals...................................... 18
Dissenters' Appraisal Rights.............................. 19
TERMS OF THE MERGER......................................... 20
The Merger; Effective Time................................ 20
Merger Consideration...................................... 20
Payment Procedures........................................ 20
Cancellation of Employee Options and Purchase of
Restricted Stock....................................... 21
Representations and Warranties............................ 21
Certain Covenants......................................... 21
Certain Agreements Regarding Conduct of Business Pending
the Merger............................................. 24
Conditions to the Merger.................................. 26
Termination............................................... 27
Termination Fee........................................... 27
Expenses.................................................. 28
Amendment, Extension and Waiver........................... 28
THE ADJOURNMENT PROPOSAL.................................... 28
SELECTED FINANCIAL INFORMATION.............................. 30
MARKET PRICE AND DIVIDENDS.................................. 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 32
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 33
OTHER MATTERS............................................... 34
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 34
ANNEX A -- AGREEMENT AND PLAN OF MERGER..................... A-1
ANNEX B -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW....................................................... B-1
ANNEX C -- FAIRNESS OPINION OF MORGAN STANLEY & CO.
INCORPORATED.............................................. C-1
</TABLE>
i
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement, including the Annexes hereto, which are a part of this
Proxy Statement. This summary is not, and is not intended to be, complete in
itself. Reference is made to, and this summary is qualified in its entirety by,
the more detailed information contained elsewhere in this Proxy Statement.
Stockholders are encouraged to read carefully all of the information contained
in the Proxy Statement, including the Annexes hereto. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Proxy Statement.
THE COMPANIES
Washington National. Washington National is an insurance holding company
with two principal subsidiaries: Washington National Insurance Company, which
provides employee-paid disability insurance and other specialty insurance
products to school employees, including teachers, administrative and custodial
personnel via payroll deduction programs, and United Presidential Life Insurance
Company ("United Presidential"), which primarily markets and sells universal
life and other interest-sensitive life insurance and annuity products to
individuals and small businesses. The principal executive office of Washington
National is located at 300 Tower Parkway, Lincolnshire, Illinois 60069-3665, and
its telephone number is (847) 793-3000.
Conseco. Conseco is a financial services organization headquartered in
Carmel, Indiana. Through its subsidiaries, Conseco is one of the nation's
leading providers of supplemental health insurance, retirement annuities and
universal life insurance. The principal executive office of Conseco is located
at 11825 North Pennsylvania Street, Carmel, Indiana 46032, and its telephone
number is (317) 817-6100.
Conseco Sub. Conseco Sub is a wholly owned subsidiary of Conseco formed by
Conseco to effect the Merger. Conseco intends to transfer ownership of Conseco
Sub to an indirect, wholly owned subsidiary of Conseco prior to consummation of
the Merger. Conseco Sub has had no prior business, and upon consummation of the
Merger, its separate corporate existence will cease.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held on November 17, 1997
at 10:30 a.m., local time, in the Chaparral Ballroom at Marriott's Lincolnshire
Resort, 10 Marriott Drive, Lincolnshire, Illinois 60069. See "THE SPECIAL
MEETING -- General."
Purpose of the Meeting. Holders of Washington National Common Stock will be
asked to consider and vote upon proposals to adopt the Merger Agreement and the
transactions contemplated thereby, and, if necessary, to adjourn the Special
Meeting to permit further solicitations of proxies in the event that there are
not sufficient votes at the time of the Special Meeting to approve the foregoing
proposal. The attorneys-in-fact named in the accompanying proxy also will have
discretionary authority to vote upon other business, if any, that properly comes
before the Special Meeting. See "THE SPECIAL MEETING -- Purpose of the Special
Meeting."
Record Date. The holders of record of shares of Washington National Common
Stock at the close of business on October 1, 1997 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. There were 12,050,480
shares of Washington National Common Stock outstanding and entitled to vote as
of the Record Date. As of that date, Washington National's directors and
executive officers, and their affiliates, owned 1,423,609 shares of Washington
National Common Stock (11.81% of the shares outstanding), all of which are
expected to be voted FOR the adoption of the Merger Agreement and the
adjournment proposal. See "THE SPECIAL MEETING -- Record Date; Shares
Outstanding."
Voting Rights. Each share of Washington National Common Stock is entitled
to one vote with respect to all matters presented at the Special Meeting. See
"THE SPECIAL MEETING -- Voting at the Special Meeting."
1
<PAGE> 7
Vote Required. The affirmative vote of the holders of at least a majority
of the outstanding shares of Washington National Common Stock is required to
adopt the Merger Agreement and the transactions contemplated thereby. The
approval of the adjournment proposal requires the affirmative vote of at least a
majority of the shares of Washington National Common Stock represented and
voting at the Special Meeting. The adjournment proposal relates only to an
adjournment occurring for the purpose of soliciting additional proxies for the
adoption of the Merger Agreement in the event that there are insufficient votes
to approve such proposal at the Special Meeting. Any other adjournment (e.g., an
adjournment occurring because a quorum is not present at the Special Meeting)
would be voted upon pursuant to the discretionary authority granted to the
attorneys in-fact named in the proxy.
Under the Delaware General Corporation Law ("Delaware Law"), holders of
Washington National Common Stock are entitled to appraisal rights in connection
with the Merger. See "THE SPECIAL MEETING -- Voting at the Special Meeting" and
"THE MERGER -- Dissenters' Appraisal Rights."
Revocability of Proxy. Any holder of Washington National Common Stock who
executes and returns a proxy may revoke that proxy at any time before it is
voted by (i) filing with the Corporate Secretary of Washington National, at or
before the Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a subsequent proxy relating to the same
shares of Washington National Common Stock and delivering it to the Corporate
Secretary of Washington National at or before the Special Meeting or (iii)
attending the Special Meeting and voting in person by ballot. Attendance at the
Special Meeting will not, in and of itself, constitute revocation of a proxy.
See "THE SPECIAL MEETING -- Voting at the Special Meeting."
THE MERGER
General. Upon the terms and subject to the conditions of the Merger
Agreement, Conseco Sub will be merged with and into Washington National, with
Washington National surviving as a wholly owned subsidiary of Conseco. See "THE
MERGER -- General."
Effective Time. It is presently expected that the Merger will become
effective immediately after approval of the Merger at the Special Meeting, which
is currently scheduled to take place on November 17, 1997, or as soon as
practicable thereafter. See "TERMS OF THE MERGER -- The Merger; Effective Time"
and "-- Conditions to the Merger."
Merger Consideration. Each outstanding share of Washington National Common
Stock (other than treasury shares and Dissenting Shares) at the Effective Time
of the Merger will be converted into the right to receive $33.25 in cash,
without interest (the "Merger Consideration.")
Upon consummation of the Merger, each holder of a certificate or
certificates representing shares of Washington National Common Stock
("Certificates") outstanding immediately prior to the Effective Time will, upon
the surrender thereof (duly endorsed, if required) to a designated exchange
agent (the "Payment Agent"), be entitled to receive the Merger Consideration.
After the Effective Time, the Payment Agent will mail a letter of transmittal
with instructions to all holders of record of Washington National Common Stock
as of the Effective Time for use in surrendering their Certificates in exchange
for the Merger Consideration. Certificates should not be surrendered until the
letter of transmittal and instructions are received. See "Terms of the
Merger -- Payment Procedures."
Dissenters' Appraisal Rights. Under Delaware Law, Washington National
stockholders who do not vote for the Merger and who comply with the other
statutory requirements of the Delaware Law may elect to receive, in cash, the
judicially determined appraised value of their shares of Washington National
Common Stock. See "THE MERGER -- Dissenters' Appraisal Rights" and "ANNEX B."
Recommendation of the Washington National Board and Reasons for the
Merger. The Washington National Board reviewed the terms and conditions of the
Merger Agreement and determined that the Merger is fair to and in the best
interests of Washington National and its stockholders. The Washington National
Board unanimously approved the Merger Agreement and the transactions
contemplated thereby and
2
<PAGE> 8
unanimously recommends that Washington National stockholders vote for the
adoption of the Merger Agreement. See "SUMMARY -- The Merger -- Interests of
Certain Persons in the Merger and Possible Conflicts of Interest" and "THE
MERGER -- Interests of Certain Persons in the Merger and Possible Conflicts of
Interest."
The determination of the Washington National Board to approve the Merger
Agreement was based upon consideration of a number of factors including the
following: (i) the business, operations, financial condition, competitive
position and prospects of Washington National and the nature of the industry in
which Washington National operates, both on an historical and prospective basis;
(ii) current and prospective industry, economic and market conditions; (iii) the
historical and prospective market prices of Washington National Common Stock
compared to the consideration to be received in the Merger; (iv) the strategic
alternatives available to Washington National; (v) the ongoing public disclosure
by Washington National of its exploration of strategic alternatives to maximize
shareholder value; (vi) the fact that such public disclosure and other
procedures to elicit proposals to acquire Washington National had been
implemented and that likely interested parties had conducted due diligence in
the context of a prolonged and comprehensive process to maximize value; (vii)
the fact that Washington National held exploratory talks with several companies
in 1994 through October 1996 which did not lead to any definitive proposals;
(viii) the Washington National Board's review of presentations by, and
discussion of the terms and conditions of the Merger Agreement with, senior
executive officers of the Company, representatives of its legal counsel and its
financial advisor, Morgan Stanley & Co. Incorporated ("Morgan Stanley"); (ix)
the improvement in various terms of the Merger Agreement over the terms of the
Agreement and Plan of Merger between Washington National and PennCorp Financial
Group, Inc. ("PennCorp") dated as of November 14, 1996, as amended (the
"PennCorp Merger Agreement") that was terminated on August 29, 1997, including,
in particular, the increase in the consideration to $33.25 to be received by
Washington National stockholders compared to the consideration that was to be
paid under the PennCorp Merger Agreement; (x) the fact that following the
termination of the PennCorp Merger Agreement, Morgan Stanley, Washington
National's financial advisor, held discussions about a possible transaction with
a number of likely acquirors; (xi) the fact that Conseco evidenced a strong
ability to finance the transaction and an ability to complete the transaction in
a relatively short time frame; (xii) the Washington National Board's receipt of
a written fairness opinion of Morgan Stanley; and (xiii) the Washington National
Board's consideration of the terms of the Merger Agreement, including the
absence of a financing condition and the inclusion of a "fiduciary out"
provision (subject to the payment of a breakup fee) in the event of an
Acquisition Proposal (as defined in the Merger Agreement) that is more
attractive than the Merger.
If the Merger is not consummated, Washington National will continue to
operate as an independent company and will review alternatives that may become
available to it from time to time. See "THE MERGER -- Recommendation of the
Washington National Board and Washington National's Reasons for the Merger."
Opinion of Morgan Stanley. Morgan Stanley delivered an oral opinion on
September 20, 1997 (which it subsequently confirmed in writing on that same
date) to the Washington National Board to the effect that, as of the date of
such opinion, the Merger Consideration to be received by the holders of
Washington National Common Stock pursuant to the Merger Agreement was fair from
a financial point of view to such holders. A copy of the written opinion of
Morgan Stanley dated September 20, 1997, setting forth the assumptions made, the
matters considered, the scope and limitations on the review undertaken and the
procedures followed by Morgan Stanley in rendering such opinion is attached as
ANNEX C to this Proxy Statement. The opinion of Morgan Stanley should be
carefully read in its entirety. See "THE MERGER -- Opinion of Financial Advisor
to Washington National."
Interests of Certain Persons in the Merger and Possible Conflicts of
Interest. Washington National stockholders should be aware that the directors
and certain members of management of Washington National may be deemed to have
an interest in the Merger in addition to their interests as Washington National
stockholders. Directors' and officers' liability insurance will be continued for
the directors and officers of Washington National for a three-year period
following the Merger. In addition, five members of Washington National's senior
management have employment and employment termination agreements, providing for,
3
<PAGE> 9
among other things, termination payments following a change in control such as
that which will result from the Merger that total approximately $7,983,000. The
Merger Agreement also requires Washington National to cash out all outstanding
stock options and shares of restricted stock. The estimated cost of cashing out
the outstanding stock options held by the five members of Washington National's
senior management and the Washington National Board totals $5,652,679. The
Washington National Board was aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby and in recommending the same for stockholder approval. See
"THE MERGER -- Interests of Certain Persons in the Merger and Possible Conflicts
of Interest" and "TERMS OF THE MERGER -- Cancellation of Employee Options."
Conditions to the Merger. The respective obligations of Conseco and
Washington National to effect the Merger are subject to the satisfaction or
waiver of certain conditions described elsewhere herein. Neither Washington
National nor Conseco has any present intention to waive any material condition
to the Merger. See "TERMS OF THE MERGER -- Conditions to the
Merger -- Conditions to Washington National's Obligation to Effect the Merger."
Termination and Termination Fee. The Merger Agreement may be terminated at
any time prior to the effective time of the Merger, whether before or after
stockholder approval, by the mutual consent of Conseco and Washington National
or by either Conseco or Washington National under certain circumstances as
described herein. Under certain circumstances, Washington National may be
obligated to pay a $10,000,000 termination fee to Conseco. See "TERMS OF THE
MERGER -- Termination" and "-- Termination Fee."
Certain Federal Income Tax Consequences of the Merger. The receipt by
Washington National stockholders of cash for shares of Washington National
Common Stock in the Merger or pursuant to the exercise of dissenters' appraisal
rights will be taxable transactions for federal income tax purposes and may also
be taxable transactions under applicable state, local, foreign and other laws.
See "THE MERGER -- Certain Federal Income Tax Consequences of the Merger to
Washington National Stockholders."
Risk Factors. The decision to vote for or against the adoption of the
Merger Agreement involves certain risks that Washington National stockholders
should consider carefully. Washington National stockholders face certain risks
and uncertainties if the Merger Agreement is terminated or if it is not approved
at the Special Meeting. See "RISK FACTORS -- Termination of Merger Agreement"
and "-- Failure to Approve and Consummate the Merger."
4
<PAGE> 10
RISK FACTORS
TERMINATION OF MERGER AGREEMENT
If the Merger Agreement is terminated by either Washington National or
Conseco because the Board of Directors of Washington National, under certain
circumstances, has (i) withdrawn or modified its approval or recommendation of
the Agreement or the Merger, (ii) approved or recommended an Acquisition
Proposal (as defined) or (iii) entered into any agreement with respect to an
Acquisition Proposal, Washington National is required to pay Conseco a
termination fee of $10,000,000 unless Conseco is in material breach of its
obligations under the Merger Agreement. In addition, Washington National is
required to pay the Termination Payment if all of the following occur: (i) the
Merger Agreement is terminated because the Merger failed to receive the
requisite vote for approval and adoption by the holders of Washington National
Common Stock at the Special Meeting; (ii) Washington National, within fifteen
months from the date of the Merger Agreement, enters into a written agreement or
arrangement to effect an Acquisition Proposal with a party other than Conseco or
any of its subsidiaries, which Acquisition Proposal provides consideration with
an economic value equal to or greater than the consideration that would have
been received in the Merger had it been consummated on the date on which the
Merger Agreement was terminated; and (iii) the holders of Washington National
Common Stock approve the Acquisition Proposal or the transaction which is the
subject of such Acquisition Proposal is consummated. The existence of this
Termination Payment may discourage third parties from making Acquisition
Proposals to Washington National.
FAILURE TO APPROVE AND CONSUMMATE THE MERGER
If the holders of Washington National Common Stock fail to approve the
Merger or it is not consummated for any reason, Washington National may be
subject to a number of material risks, including a potentially severe disruption
to its employee base and a possible decline in the market price of Washington
National Common Stock to the extent current market prices assume the
consummation of the Merger. In addition, Washington National may face increased
difficulty in attracting customers, agents and distributors and in maintaining
its business relationships and competitive position in the marketplace. In the
event that following the termination of the Merger Agreement the Washington
National Board determined to seek another merger or business combination
partner, there can be no assurance that it would be able to find such partner at
the same or equivalent price as would be provided by the Merger with Conseco.
The life insurance industry continues to experience consolidation, and
Washington National would continue to be faced with competition from a number of
larger, better capitalized companies with better ratings from the insurance
rating agencies.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Washington National
Common Stock in connection with the solicitation of proxies by the Washington
National Board for use at the Special Meeting. Each copy of this Proxy Statement
mailed to Washington National stockholders is accompanied by a form of proxy for
use at the Special Meeting. The Special Meeting is scheduled to be held on
November 17, 1997, at 10:30 a.m., local time, in the Chaparral Ballroom at
Marriott's Lincolnshire Resort, 10 Marriott Drive, Lincolnshire, Illinois 60069.
HOLDERS OF WASHINGTON NATIONAL COMMON STOCK ARE REQUESTED TO COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO WASHINGTON NATIONAL IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of Washington National Common Stock will be
asked to consider and vote upon proposals to (i) adopt the Merger Agreement and
the transactions contemplated thereby and (ii) to
5
<PAGE> 11
adjourn the Special Meeting, if necessary, to permit further solicitation of
proxies in the event that there are not sufficient votes at the time of the
Special Meeting to approve the Merger and the transactions contemplated thereby.
Holders of Washington National Common Stock will also be asked to transact such
other business as may properly come before the meeting.
The Washington National Board, based upon the factors described elsewhere
herein, including the fairness opinion of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), has concluded that the Merger is fair to and in the best
interests of the holders of Washington National Common Stock and has approved
the Merger Agreement. THE WASHINGTON NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF WASHINGTON NATIONAL COMMON STOCK VOTE IN FAVOR OF THE ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AT THE SPECIAL
MEETING. See "THE MERGER -- Recommendation of the Washington National Board and
Reasons for the Merger," "-- Opinion of Financial Advisor" and "-- Interests of
Certain Persons in the Merger and Possible Conflicts of Interest."
The Washington National Board has unanimously determined that, given the
fact that the proposal to approve the Merger represents the culmination of a
three-year review by the Washington National Board of the strategic alternatives
available to Washington National, it is advisable to vest in the
attorneys-in-fact named in the accompanying proxy the authority to vote for an
adjournment of the Special Meeting to permit the Washington National Board to
solicit further proxies if there are not sufficient votes as the Effective Time
of the Special Meeting to approve the Merger. THE WASHINGTON NATIONAL BOARD
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF WASHINGTON NATIONAL COMMON STOCK VOTE FOR
THE PROPOSAL TO CONFER AUTHORITY ON THE ATTORNEYS-IN-FACT TO VOTE FOR AN
ADJOURNMENT OF THE SPECIAL MEETING FOR THE PURPOSE SPECIFIED ABOVE.
RECORD DATE; SHARES OUTSTANDING
The close of business on October 1, 1997 has been fixed as the record date
for the determination of the holders of Washington National Common Stock
entitled to notice of and to vote at the Special Meeting. On the Record Date,
there were 12,050,480 shares of Washington National Common Stock issued and
outstanding and held by approximately 2,000 stockholders of record. All
directors and executive officers of Washington National are expected to vote, or
cause to be voted, all shares of Washington National Common Stock over which
they exercise voting control (an aggregate of 1,423,609 shares of Washington
National Common Stock or 11.81% of the outstanding shares of Washington National
Common Stock on the Record Date) FOR the adoption of each of the proposals being
submitted at the Special Meeting.
VOTING AT THE SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a majority of
the issued and outstanding shares of Washington National Common Stock at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
The adoption of the Merger Agreement requires the affirmative vote of at
least a majority of the outstanding shares of Washington National Common Stock.
The approval of the adjournment proposal requires the affirmative vote of at
least a majority of the shares of Washington National Common Stock represented
and voting at the Special Meeting. Votes may be cast for or against the
proposals or stockholders may abstain from voting.
At the Special Meeting, abstentions and broker non-votes will be counted
for purposes of determining the presence or absence of a quorum. An abstention
with respect to the adoption of the Merger Agreement or the approval of the
adjournment proposal will have the effect of a vote against that proposal. A
"broker non-vote" will occur when a broker holding shares of Washington National
Common Stock in street name (i.e., as nominee for the beneficial owner) returns
an executed proxy (or voting directions) indicating that the broker does not
have discretionary authority to vote on a proposal. Under the rules of the NYSE,
brokers who hold shares of Washington National Common Stock as nominees will not
have discretionary authority to vote such shares on the proposal to adopt the
Merger in the absence of specific instructions from the beneficial owners
6
<PAGE> 12
thereof. Under Delaware law, a broker non-vote is counted as present for quorum
purposes but is not considered to be entitled to vote on the specified matter.
Therefore, broker non-votes generally have no effect on the outcome of a vote on
a specific matter. However, because the adoption of the Merger Agreement
requires the affirmative vote of a specified minimum percentage of all of the
outstanding shares of Washington National Common Stock, rather than the vote of
a specified percentage of the shares present at the meeting and entitled to
vote, broker non-votes will have the effect of votes against the adoption of the
Merger Agreement and the transactions contemplated thereby.
Proxies will be voted as specified by the holders of Washington National
Common Stock. If a Washington National stockholder does not return a signed
proxy, such stockholder's shares will not be voted. Washington National
stockholders are urged to mark the appropriate box on the form of proxy enclosed
herewith to indicate how their shares are to be voted. Each Washington National
stockholder is entitled to cast one vote per share of Washington National Common
Stock held by such stockholder on each matter to be voted upon at the Special
Meeting. If a Washington National stockholder returns a signed proxy, but does
not indicate how such stockholder's shares are to be voted, the shares of
Washington National Common Stock represented by the proxy will be voted FOR the
adoption of each proposal. The proxy also confers discretionary authority on the
attorneys-in-fact named in the accompanying form of proxy to vote the shares of
Washington National Common Stock represented thereby on any other matter that
may properly arise at the Special Meeting, including consideration of a motion
to adjourn or postpone the Special Meeting to another time and/or place.
Returning a signed proxy will not affect a Washington National
stockholder's right to attend the Special Meeting and vote in person. Any
Washington National stockholder who executes and returns a proxy may revoke such
proxy at any time before it is voted by (i) filing with the Corporate Secretary
of Washington National, at or prior to the Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same shares of Washington National Common Stock and
delivering it to the Corporate Secretary of Washington National before the
Special Meeting with a subsequent date or (iii) attending and voting in person
at the Special Meeting and voting in person by ballot. Attendance at the Special
Meeting will not, in and of itself, constitute revocation of a proxy.
As of the date of this Proxy Statement, the Washington National Board does
not know of any other matters to be presented for action by Washington National
stockholders at the Special Meeting. If, however, any other matters not now
known are properly brought before the Special Meeting, the attorneys-in-fact
named in the accompanying proxy will vote the proxies upon such matters
according to their discretion and best judgment.
SOLICITATION OF PROXIES
Pursuant to the Merger Agreement, the entire cost of Washington National's
solicitation of proxies will be borne by Washington National, except that
Conseco and Washington National will share equally all printing, mailing and
distribution costs associated with this Proxy Statement. In addition to
solicitations by mail, solicitations may also be made by personal interview,
facsimile transmission, telegram and telephone. Washington National has retained
D.F. King & Co., Inc., a proxy solicitation firm, for assistance in connection
with the Special Meeting at an estimated expense of approximately $6,000 plus
reasonable out-of-pocket expenses. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to their principals, and Washington National will reimburse them for
their customary expenses in so doing.
DISSENTERS' APPRAISAL RIGHTS
Under Delaware Law, holders of Washington National Common Stock are
entitled to appraisal rights in connection with the Merger. See "THE
MERGER -- Dissenters' Appraisal Rights."
7
<PAGE> 13
THE MERGER
GENERAL
Upon the terms and subject to the conditions of the Merger Agreement,
Conseco will acquire Washington National in a business combination in which
Conseco Sub will merge with and into Washington National, which will thereupon
become a subsidiary of Conseco. The Merger will become effective (the "Effective
Time") upon the filing of a certificate of merger with the Delaware Secretary of
State, or at such later date or time specified in the certificate of merger.
Under the Merger Agreement, each outstanding share of Washington National Common
Stock (other than treasury shares and Dissenting Shares) will be converted into
the right to receive the Merger Consideration. See "TERMS OF THE
MERGER -- Merger Consideration." Following consummation of the Merger, the
Washington National Common Stock will be delisted from the NYSE, the
registration of Washington National Common Stock under the Exchange Act will be
terminated and Washington National will no longer be required to file periodic
reports with the Commission.
BACKGROUND OF THE MERGER
In late 1994, Washington National's management began a comprehensive
examination of the insurance industry and the possibility of structural and
strategic changes to Washington National which might better enable Washington
National to compete in the future. Although Washington National's earnings were
continuing to improve, management wanted to evaluate the likely effects of
conditions and trends both within and without the insurance industry, including
(i) competitive pressures, (ii) consolidation and reform in the insurance
industry generally and the health area in particular, (iii) negative attitudes
of investors and rating agencies toward Washington National's health insurance
business based principally upon the relatively small size of that business in
the context of an increasingly consolidated health insurance industry and
uncertainty with respect to the various health care reform initiatives at both
the federal and state levels, and (iv) a trend of increasing size and economies
of scale in many sectors of the insurance industry.
At the Washington National Board meeting in January 1995, Morgan Stanley,
which was serving as financial advisor to the Company, reported to the
Washington National Board on the life and health insurance industry operating
environment, recent stock market trading activity and recent merger and
acquisition activity in the life and health insurance industry. As part of
Washington National's strategic planning process, Morgan Stanley outlined
various strategic alternatives available to Washington National, including: (i)
a sale of selected segments of Washington National (ii) a sale of the entire
company, (iii) a merger of equals, (iv) a joint venture, or (v) continuing
Washington National's present businesses and trying to grow them by acquiring
other businesses. After discussion, the Washington National Board requested that
Morgan Stanley perform further analysis on Washington National and assist
management with an evaluation of the relative attractiveness of various
alternatives.
In May 1995, Washington National's management reported to the Washington
National Board its view that Washington National's combination of businesses was
complex and perhaps confusing both to investors and potential buyers because (i)
Washington National operated in two separate lines of business, life insurance
and health insurance, (ii) these lines of business had significantly different
distribution channels and operating characteristics and were likely to attract
different types of investors and potential buyers and (iii) the relatively
modest market capitalization of Washington National, coupled with the disparate
nature of its businesses, caused Washington National to be more difficult for
securities analysts to evaluate than other similarly sized companies, which in
turn caused some securities analysts to fail to follow Washington National.
Washington National's management further advised the Board that life insurance
and annuities were the core businesses of Washington National and that
Washington National's health business had the potential to be adversely affected
by changes in the health insurance industry and was considered a negative by the
investment community.
At its September 1995 meeting, the Washington National Board hired Morgan
Stanley to serve as its investment banker for the proposed sale of its health
businesses, and authorized management and Morgan Stanley to identify HMO's,
managed care and indemnity insurance entities that might be interested in
8
<PAGE> 14
acquiring Washington National's health insurance business and to make
preliminary contacts with such potential purchasers to determine their level of
interest. Management and Morgan Stanley were also authorized to explore options
regarding the merger or sale of Washington National as a whole and to identify
companies which might be interested in jointly evaluating the potential benefits
of a strategic merger with Washington National in the event the health
businesses were sold.
Washington National reached agreement in May 1996 with Pioneer Financial
Services, Inc. ("Pioneer") on the sale of its individual and group health
insurance business, subject in the latter case to Washington National's right to
sell its large group life and health insurance business to a third party.
Washington National subsequently entered into an agreement in July 1996 with
Trustmark Insurance Company ("Trustmark") for the sale of its large group life
and health insurance business. On August 2, 1996, Washington National closed the
sale of its individual and small group health insurance business to Pioneer in a
reinsurance transaction for a purchase price of $19 million, and on October 30,
1996, Washington National closed the sale of its large group life and health
insurance business to Trustmark in a reinsurance transaction that provides,
among other things, that Washington National will receive future consideration
based on persistency. As reflected in "Selected Financial Information," the
operating results of the health business are reported as discontinued
operations.
In June 1996, Robert W. Patin, Chairman of the Washington National Board,
reported on the strategic planning process, and Morgan Stanley updated the
Washington National Board on its analysis of the life and health insurance
industries and the potential interest in Washington National and its businesses.
After extensive discussion and a consideration of the strategic alternatives
available to Washington National following the sale of its health insurance
business, the Washington National Board concluded that it was in the best
interests of Washington National to request Morgan Stanley to work with
management in conducting a limited auction of Washington National as a whole as
a way to maximize stockholder value. The Washington National Board determined
that the other principal strategic alternatives -- the further sale of selected
segments or lines of business or continuation of Washington National's present
businesses -- were unlikely to be as beneficial to stockholders given then
current market conditions. Management and Morgan Stanley were further authorized
to conduct a limited auction/written bidding process with such companies to see
if that would produce an acceptable acquisition proposal. The Washington
National Board also authorized Mr. Patin to continue to receive, evaluate and
report to the Board regarding any inquiries from third parties regarding a
possible sale or business combination involving the company as whole or a line
of business or a subsidiary of Washington National.
In July 1996, Washington National's management and Morgan Stanley sought to
identify every insurance company that reasonably could be expected to be
interested in a business combination with Washington National. In the normal
course of business, Morgan Stanley compiles, maintains and updates information
relating to companies likely to be interested in and capable of a business
combination with a company in the insurance industry. In addition, Washington
National provided Morgan Stanley with the names of those companies that had
expressed an interest to Washington National in being considered should a formal
offering process evolve. From these sources, Morgan Stanley then prepared a list
of approximately 40 companies that it felt would have the financial and
operating capabilities to successfully engage in a business combination with
Washington National, as well as an interest in the businesses in which
Washington National was engaged. At the direction of Washington National's
management, Morgan Stanley proceeded to contact those companies, and distributed
a confidential offering memorandum to 28 of these companies which indicated an
interest in a business combination with Washington National. Five companies
conducted due diligence concerning Washington National as part of the auction
process, which ended without any offers deemed acceptable by Washington
National.
In September 1996, following the end of the auction process, Morgan Stanley
contacted a select group of eight potential buyers about a possible business
combination with Washington National using stock or part cash and part stock as
consideration. Morgan Stanley also contacted several additional financial buyers
who had expressed interest during the auction process. During the week of
September 30, 1996, Washington National and PennCorp held discussions about a
possible acquisition of Washington National. After consideration, PennCorp
preliminarily proposed, subject to due diligence, to purchase all the
outstanding Washington National Common Stock at a price of $29.50 per share (a
price which Washington National's
9
<PAGE> 15
management believed would be within a range of values acceptable to the
Washington National Board based upon information evaluated during the strategic
planning process and the limited auction period, including in particular the
advice of Morgan Stanley) in a combination of cash and PennCorp common stock,
par value $0.01 per share (the "PennCorp Common Stock"), in proportions to be
negotiated.
On November 14, 1996, following extensive due diligence and negotiations
between the parties, the Washington National Board approved an Agreement and
Plan of Merger dated as of November 14, 1996 (the "Initial PennCorp Merger
Agreement") providing for the merger of Washington National and PennCorp
pursuant to which, among other things, each share of Washington National Common
Stock would be converted into (i) $29.50 in cash, subject to a cash limitation,
(ii) a fraction of a share of PennCorp Common Stock, or (iii) a combination of
cash and shares of PennCorp Common Stock. Washington National and PennCorp
signed the Initial Penncorp Merger Agreement on November 14, 1996 and amended it
on November 25, 1996, January 20, 1997 and May 15, 1997 in certain technical
respects (as so amended, the "PennCorp Merger Agreement").
In connection with the transactions contemplated by the PennCorp Merger
Agreement, Washington National and PennCorp filed a Joint Proxy Statement and
Prospectus with the Securities and Exchange Commission ("SEC") on January 21,
1997. In its review of the Joint Proxy Statement and Prospectus, the SEC Staff
issued comment letters on March 5, 1997, April 8, 1997, April 25, 1997, May 6,
1997 and July 16, 1997. As a result of the extended review process and the fact
that significant issues raised by the SEC Staff regarding PennCorp remained
unresolved, Washington National and PennCorp discussed in July 1997 the
likelihood that the merger of Washington National into PennCorp would not be
consummated by the August 30, 1997 termination date set forth in the PennCorp
Merger Agreement. In addition to consideration of an extension of the
termination date, the parties discussed alternative merger structures, including
the possibility of an all-cash merger in lieu of the part-stock, part cash
consideration contemplated by the PennCorp Merger Agreement. In late July 1997
and throughout August 1997, the parties and their representatives held further
discussions regarding the terms and conditions of an all-cash merger between
Washington National and PennCorp. In August 1997, Washington National and its
financial advisor, Morgan Stanley, received unsolicited inquiries from two
parties (neither of which was Conseco), each indicating that it might be
interested in talking to Washington National about a business combination in the
event the PennCorp Merger Agreement was terminated. In accordance with the
provisions of the PennCorp Merger Agreement, Washington National reported these
inquiries to PennCorp, and the inquiring parties were advised that Washington
National was not able to discuss a possible transaction while the PennCorp
Merger Agreement remained in effect. Washington National and PennCorp ultimately
concluded that they would not be able to reach agreement on all terms and
conditions relating to an all-cash merger prior to August 30, 1997. On August
29, 1997 Washington National and PennCorp mutually agreed to terminate the
PennCorp Merger Agreement while continuing discussions regarding the possibility
of restructuring the transaction.
Following the mutual termination of the PennCorp Merger Agreement, during
the week of September 2, 1997, Morgan Stanley, at the direction of Washington
National's management, began having discussions with 22 parties regarding a
possible transaction with Washington National. A number of these companies
either had reviewed the offering memorandum previously distributed in 1996 or
conducted on-site due diligence of Washington National in 1996 during the
auction process. Three of the 22 parties contacted by Morgan Stanley in
September 1997, one of which was Conseco, emerged as the strongest candidates
for a transaction with Washington National. These three candidates indicated a
strong interest in acquiring Washington National at a price substantially higher
than that provided in the PennCorp Merger Agreement. Washington National and
Morgan Stanley believed that all three companies would be able to complete a
transaction with Washington National promptly, based primarily upon anticipated
price ranges, financing ability and a willingness to complete due diligence and
negotiate a definitive purchase agreement in an expeditious manner.
Conseco had conducted on-site due diligence of Washington National in 1996,
but at that time decided not to pursue a transaction with Washington National as
Conseco was then focusing on other acquisition transactions. On September 4,
1997, Conseco advised that it wanted a three-day period of exclusivity to
conduct due diligence and contract negotiations. However, on September 8, 1997,
it was informed by Morgan Stanley that Washington National had agreed to provide
one of the three companies (other than Conseco)
10
<PAGE> 16
with a period of exclusivity to conduct due diligence and negotiate a definitive
agreement. This company conducted due diligence and contract negotiations during
the week of September 8th, but ultimately did not make a final proposal to
Washington National by the end of the exclusivity period.
On Monday, September 15, 1997, Conseco indicated that it remained
interested in pursuing a transaction with Washington National at a price in the
range of $32.50 to $34.00 per share. Based on Conseco's expression of interest
and indicated price range and its statement that it could complete due diligence
and contract negotiations by Friday, September 19, 1997, Washington National
agreed that prior to the close of business on Friday, September 19, 1997, it
would not enter into a definitive purchase agreement with any other party.
Conseco proceeded to conduct due diligence (including on-site visits to
Washington National's facilities in Lincolnshire, Illinois and Kokomo, Indiana)
and contract negotiations with Washington National and on Thursday, September
18, 1997, proposed a cash price of $32.50 per share to Washington National.
During the period of September 17, 1997 through September 19, 1997
representatives of Washington National and Conseco negotiated substantially all
of the terms of a definitive purchase agreement. On September 19, 1997,
following a discussion by senior management of Washington National and Conseco
of certain final valuation and contract issues, Washington National and Conseco
agreed upon a cash price of $33.25 per share, subject to completion of the
definitive purchase agreement and approval of such agreement by their respective
boards of directors.
On September 20, 1997, the Washington National Board approved the Merger
Agreement providing for the merger of Washington National and Conseco pursuant
to which each share of Washington National would be converted into $33.25 in
cash. The Board of Directors of Conseco had authorized the transaction on
September 18, 1997. Following Washington National's Board approval, the Merger
Agreement was signed by the parties on September 20, 1997.
RECOMMENDATION OF THE WASHINGTON NATIONAL BOARD OF DIRECTORS AND REASONS FOR THE
MERGER
At its September 20, 1997 meeting, the Washington National Board determined
that the Merger was fair to and in the best interests of Washington National and
its stockholders. Accordingly, at such meeting the Washington National Board
unanimously approved the Merger Agreement and directed that the Merger Agreement
be submitted to the Washington National stockholders for approval.
The determination of the Washington National Board to approve the Merger
Agreement was based upon consideration of a number of factors, including the
following:
(i) The Washington National Board's familiarity with the business,
operations, financial condition, competitive position and prospects of
Washington National and the nature of the industry in which Washington
National operates, both on a historical and prospective basis;
(ii) The Washington National Board's consideration of, among other
things, information with respect to the financial condition, results of
operations and business of Washington National on both a historical and a
prospective basis, and the influence of current and prospective industry,
economic and market conditions, including increased competition and the
trend toward consolidation in the insurance industry;
(iii) The Washington National Board's review of the historical and
prospective market prices of Washington National Common Stock compared to
the consideration to be received in the Merger;
(iv) The Washington National Board's extensive study of strategic
alternatives that included actuarial analyses of Washington National's
insurance in force and its future business (none of the strategic
alternatives considered appeared to be as favorable to the holders of the
shares of Washington National's Common Stock);
(v) The fact that the Washington National Board had publicly
announced in 1994 that it was exploring strategic alternatives to maximize
shareholder value and continued to publicly disclose its ongoing strategic
planning;
11
<PAGE> 17
(vi) The fact that the foregoing public announcements and other
procedures to elicit proposals to acquire Washington National had been
implemented and that likely interested parties had conducted due diligence
in the context of a prolonged and comprehensive process to maximize value;
(vii) The fact that Washington National held exploratory talks with
several companies in 1994 through October 1996 which did not lead to any
definitive proposals;
(viii) The Washington National Board's review of presentations by, and
discussion of the terms and conditions of the Merger Agreement with, senior
executive officers of Washington National, representatives of its legal
counsel and Morgan Stanley;
(ix) The improvement in the terms of the Merger Agreement over the
terms of the PennCorp Merger Agreement, including in particular, the
increase in the consideration to $33.25 to be received by Washington
National stockholders compared to the consideration that was to be paid
under the PennCorp Merger Agreement;
(x) The fact that following the termination of the PennCorp Merger
Agreement, Washington National through Morgan Stanley, held discussions
about a possible transaction with a number of likely acquirors;
(xi) The fact that Conseco evidenced a strong ability to finance the
transaction and an ability to complete the transaction in a relatively
short time frame;
(xii) The Washington National Board's receipt of the written opinion
of Morgan Stanley to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration
to be received in the Merger was fair to the holders of Washington National
Common Stock from a financial point of view; and
(xiii) The Washington National Board's consideration of the terms of
the Merger Agreement, including the absence of financing condition and the
inclusion of a "fiduciary out" provision (subject to the payment of a
breakup fee) in the event of an Acquisition Proposal (as defined in the
Merger Agreement) that is more attractive than the Merger.
The foregoing list of factors considered by the Washington National Board
in its evaluation of the Merger is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
Merger, the Washington National Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Washington National Board may well have given different weights
to different factors.
THE WASHINGTON NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT THE WASHINGTON
NATIONAL STOCKHOLDERS VOTE IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AT THE SPECIAL MEETING.
OPINION OF FINANCIAL ADVISOR
The Washington National Board retained Morgan Stanley to act as its
financial advisor in connection with the Merger and related matters based upon
Morgan Stanley's qualifications, expertise and reputation. On September 20,
1997, Morgan Stanley delivered its oral opinion to the Washington National Board
that, as of such date and subject to certain considerations identified to the
Washington National Board and later set forth in the written opinion of Morgan
Stanley dated September 20, 1997, the consideration to be received by the
holders of the Washington National Common Stock pursuant to the Merger Agreement
was fair from a financial point of view to such holders.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED AS OF SEPTEMBER 20,
1997 WHICH SETS FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED, THE SCOPE
AND LIMITATIONS ON THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY MORGAN
STANLEY IN RENDERING SUCH OPINION IS ATTACHED AS ANNEX C TO THIS PROXY
12
<PAGE> 18
STATEMENT (THE "MORGAN STANLEY OPINION") AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF WASHINGTON NATIONAL COMMON STOCK ARE URGED TO, AND SHOULD,
READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN
STANLEY OPINION IS DIRECTED TO THE WASHINGTON NATIONAL BOARD AND THE FAIRNESS OF
THE CONSIDERATION, FROM A FINANCIAL POINT OF VIEW, TO BE RECEIVED BY THE HOLDERS
OF WASHINGTON NATIONAL COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND IT DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF WASHINGTON NATIONAL COMMON STOCK AS TO HOW TO
VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH
IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) reviewed certain publicly
available financial statements and other information of Washington National,
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Washington National prepared by the management of
Washington National, (iii) reviewed certain financial projections prepared by
the management of Washington National, (iv) discussed the past and current
operations and financial condition and the prospects of Washington National with
senior executives of Washington National, (v) reviewed the reported prices and
trading activity for the Washington National Common Stock, (vi) compared the
financial performance of Washington National and the prices and trading activity
of the Washington National Common Stock with that of certain other comparable
publicly traded companies and their securities, (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable acquisition
transactions, (viii) participated in discussions and negotiations among
representatives of Washington National, Conseco and their financial and legal
advisors, (ix) reviewed the Merger Agreement and certain related documents, (x)
reviewed certain appraisal analysis as prepared by Milliman & Robertson,
consultants to Washington National, regarding an appraisal of certain assets of
Washington National, and (xi) performed such other analyses and considered such
other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of the Morgan Stanley Opinion. With
respect to the financial projections, Morgan Stanley assumed that such
projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Washington National. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Washington National; however Morgan
Stanley reviewed the appraisal analysis prepared by Milliman & Robertson
regarding certain of Washington National's assets and relied without independent
verification upon such appraisal. The Morgan Stanley opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of the date of the opinion.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Washington National Board on September 20, 1997 in
connection with the preparation of the Morgan Stanley Opinion and with its oral
presentation to the Washington National Board on such date:
Washington National Common Stock Performance. Morgan Stanley's analysis of
Washington National Common Stock performance consisted of a historical analysis
of: closing prices from September 18, 1995 through September 18, 1997;
Washington National's indexed price performance from September 18, 1995 through
September 18, 1997, relative to the indexed price performance of (i) the
Standard and Poor's industrial average of 500 stocks (the "S&P 500"), (ii) a
comparable company index (the "Comparable Company Index") which was comprised of
Kansas City Life Insurance Company, Protective Life Corporation and Reliastar
Financial Corporation (the "Comparable Public Companies"), (iii) the Standard
and Poor's Insurance (Life/Health) Index (the "S&P Life & Health Index"), and
(iv) the high and low prices for the Washington National Common Stock in the
twelve months ended September 9, 1997. In the twelve months ended September 9,
1997, the Washington National Common Stock was at a high of $33.13 per share and
a low of $27.13 per share.
Comparable Public Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Washington National with corresponding
publicly available information of the Comparable Public Companies which were
publicly traded insurance companies that Morgan Stanley
13
<PAGE> 19
considered comparable with Washington National and its constituent businesses
(United Presidential and the Education Division of Washington National Insurance
Company (the "Education Division")) based principally upon the type of insurance
business conducted by such companies and/or the size of such businesses. In
performing its analysis, Morgan Stanley compared the market price per share as a
multiple of (i) Institutional Brokers Estimate System ("I/B/E/S") earnings
estimates for 1997, (ii) I/B/E/S earnings estimates for 1998, and (iii) adjusted
book value (excludes effects of Statement of Financial Accounting Standards No.
115 ("FAS 115")) as of June 30, 1997. An analysis of the multiples for the
Comparable Public Companies yielded (i) multiples of the current market price
per common share to I/B/E/S earnings estimates for 1997 of 11.9x to 15.3x, with
a mean of 14.1x, (ii) multiples of the current market price per common share to
I/B/E/S earnings estimates for 1998 of 11.5x to 13.3x, with a mean of 12.7x, and
(iii) multiples of the current market price per common share to adjusted book
value per share (excluding effects of FAS 115) of 1.12x to 2.64x, with a mean of
2.08x. Applying (i) multiples of 11.5x to 12.5x 1997 estimated operating
earnings, (ii) multiples of 10.5x to 11.5x to 1998 estimated operating earnings,
and (iii) multiples of 1.00x to 1.25x to December 31, 1996 adjusted book value,
Morgan Stanley calculated ranges for implied values for United Presidential of
$192.0 to $209.0 million, $195.0 to $214.0 million, and $197.0 to $246.0
million, respectively, and an overall reference range of $195.0 million to
$215.0 million. In addition, an analysis of the multiples of the comparable
disability/educator companies (the "Comparable Disability/ Educator Companies")
which was comprised of Unum Corporation and Horace Mann Educators Corporation,
yielded (i) multiples of the current market price per common share to I/B/E/S
earnings estimates for 1997 of 15.3x to 17.6x, with a mean of 16.5x, (ii)
multiples of the current market price per common share to I/B/E/S earnings
estimates for 1998 of 13.4x to 15.2x, with a mean of 14.3x, and (iii) multiples
of the current market price per common share to adjusted book value per share
(excluding the effects of FAS 115) of 2.78x to 2.85x, with a mean of 2.82x.
Applying (i) multiples of 13.0x to 15.0x to 1997 estimated operating earnings,
(ii) multiples of 11.5x to 13.5x to 1998 estimated operating earnings, and (iii)
multiples of 1.50x to 1.75x to December 31, 1996 adjusted book value, Morgan
Stanley calculated ranges of implied values for the Education Division of $41.0
to $48.0 million, $70.0 to $82.0 million, and $55.0 to $64.0 million,
respectively, and an overall reference range of $45.0 to $60.0 million. Based on
judgments concerning the financial and operating characteristics of United
Presidential, the Education Division and the Comparable Public Companies, Morgan
Stanley applied a range of premiums to the overall reference range of both
United Presidential and the Education Division to obtain an overall mergers and
acquisitions market reference range.
No company utilized in the Comparable Public Company analysis as a
comparison is identical to Washington National. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning financial and operating characteristics of Washington
National and other factors that could affect the public trading value of the
Comparable Public Companies or company to which it is being compared.
Mathematical analysis (such as determining the average or the median) is not
itself a meaningful method of using comparable public company data.
Precedent Transaction Analysis. Using publicly available information,
Morgan Stanley performed an analysis of 24 precedent transactions in the life
("Life Transactions") insurance business segments that Morgan Stanley deemed
comparable to the Merger in order to calculate a valuation range for Washington
National's constituent businesses (United Presidential and the Education
Division) and the Washington National Common Stock. The Life Transactions
include the following transactions: Western National Corp. (remaining
55%)/American General Corp., WM Life Insurance Co./SAFECO Corp., Delta Life
Corp./ AmerUs Life Holdings Inc., Security First Group, Inc./Metropolitan Life
Insurance Co., CIGNA Corp. life business/Lincoln National Corp., Equitable of
Iowa Cos./ING Groep, Reliable Life Insurance Co./Unitrin Inc., Colonial Penn
Life Insurance Co./Conseco, Inc., Chubb Corp. life business/Jefferson-Pilot
Corp., Security-Connecticut Corp./Reliastar Financial Corp., USLife
Corp./American General Corp., Providian Corp./Aegon NV, Home Beneficial
Corp./American General Corp., Guarantee Reserve Life Insurance Co./ Irish Life
Plc., Pioneer Financial Services, Inc./Conseco, Inc., Transport Holdings
Inc./Conseco, Inc., American Life Holdings, Inc./Conseco, Inc., American
Travellers Corp./Conseco, Inc., Bankers Life Holding Corp./Conseco, Inc.,
Capitol American Financial Corp./Conseco, Inc., First Colony Corp./GE Capital
Corp., Paul Revere Corp./Provident Cos. Inc., Life Partners Group, Inc./Conseco,
Inc., MassMutual/ WellPoint Health Networks. Such analysis indicated that the
Life Transactions aggregate equity consideration
14
<PAGE> 20
as a multiple of (i) last twelve months net income ranged from 10.0x to 29.3x,
with a mean of 17.0x, and (ii) GAAP book value ranged from 0.86x to 3.89x, with
a mean of 1.65x. No transaction utilized in the precedent transaction analysis
is identical to the Merger.
The Comparable Public Company analysis, the Precedent Transaction analysis
and the actuarial valuation resulted in an implied valuation range of $200.0 to
$230.0 million for United Presidential and the Comparable Public Company
analysis and the Precedent Transaction analysis resulted in an implied valuation
range of $60.0 to $70.0 million for the Education Division. The combination of
the implied valuation ranges of United Presidential and the Education Division
adjusted for corporate charges and the value of a runoff block of business in
Washington National Insurance Company results in an implied valuation range for
the Washington National common stock of $31.30 to $35.43.
An analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating characteristics
of Washington National and other factors that could affect the acquisition value
of the companies to which it is being compared. Mathematical analysis (such as
determining the average or median) is not itself a meaningful method of using
comparable transaction data.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analysis as a whole and did not attribute any particular weight to any analysis
or factor considered by it. Morgan Stanley believes that selecting any portion
of Morgan Stanley's analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Washington National.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Washington National. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were performed solely as part of Morgan Stanley's
analysis of whether the consideration to be received by the holders of shares of
Washington National Common Stock pursuant to the Merger Agreement is fair from a
financial point of view to such holders, and were conducted in connection with
the delivery of the Morgan Stanley Opinion. The analyses do not purport to be
appraisals or to reflect the prices at which Washington National might actually
be sold.
As described above, the Morgan Stanley Opinion and the information provided
by Morgan Stanley to the Washington National Board were two of a number of
factors taken into consideration by the Washington National Board in making its
determination to recommend adoption of the Merger Agreement and the transactions
contemplated thereby. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the Washington National
Board or the view of the management with respect to the value of Washington
National.
The Merger Consideration to be received by the holders of Washington
National Common Stock pursuant to the Merger Agreement was determined through
negotiations between Conseco and Washington National and was approved by the
entire Washington National Board.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, financings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuation for estates, corporate and other purposes. In the
ordinary course of its business, Morgan Stanley and its affiliates may actively
trade the debt and equity securities or senior loans of Washington National and
Conseco for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short term position in such
securities. In the past, Morgan Stanley has provided financial advisory and
financing services to Washington National (including in connection with
Washington National's transactions with Pioneer and Trustmark) and Conseco and
its affiliates, for which services Morgan Stanley has received customary fees.
15
<PAGE> 21
Pursuant to a letter agreement dated April 29, 1996 between Washington
National and Morgan Stanley, Morgan Stanley is entitled to (i) an advisory fee
of between $200,000 and $250,000 or, if the transaction with Conseco is
consummated, a transaction fee, which is a percentage of the aggregate value of
the transaction between Washington National and Conseco, which is estimated to
be $3.52 million, and (ii) certain additional advisory fees and time and efforts
fees, as appropriate. Washington National has also agreed to reimburse Morgan
Stanley for its reasonable expenses, including the fees of its outside counsel
engaged with Washington National's consent. In addition, Washington National has
agreed to indemnify Morgan Stanley and its affiliates against certain
liabilities and expenses, including liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND POSSIBLE CONFLICTS OF INTEREST
Washington National stockholders should be aware that the directors and
certain members of management of Washington National may be deemed to have
certain interests in the Merger in addition to their interests as Washington
National stockholders. Conseco has agreed to indemnify the officers and
directors of Washington National for pre-closing matters and will provide
indemnification insurance with respect to this obligation. Directors' and
officers' liability insurance will be continued for the directors and officers
of Washington National by Conseco for a three-year period following the
Effective Time of the Merger. In addition, each member of Washington National's
senior management, Robert W. Patin, Wade G. Brown, James N. Plato, Thomas
Pontarelli and Thomas C. Scott, has an employment agreement with Washington
National or its wholly-owned subsidiaries, which provides for continued
employment during the two-year period following the dates of the agreements,
subject to automatic extensions of one day for each day served during the terms
of the agreements. The employment agreements provide base compensation plus any
bonus payable under the Washington National Annual Pay-At-Risk Plan. The
agreements further provide that the base compensation is subject to annual
review by the compensation committee of Washington National's Board but may not
be reduced in any year without the consent of the executive officer. Washington
National (or its successor) or the executive officer may terminate the agreement
for any reason; however, if Washington National (or its successor) terminates
the employment of the executive officer for other than "good cause," or if the
executive officer terminates his employment for "good reason," then Washington
National (or its successor) is required to make a lump sum payment to the
executive officer in an amount equal to two years' salary and bonuses for both
years under the Annual Pay-At-Risk Plan that is at least equal to the most
recent bonus or if greater the 1996 bonus. In addition, each member of
Washington National's senior management has an employment termination agreement
with Washington National, which provides certain benefits to him if his
employment is terminated under certain circumstances within twenty-four months
of a change in control of Washington National. Washington National (or its
successor) or the executive officer may terminate the agreement for any reason;
however, if Washington National (or its successor) terminates the employment of
the executive officer for other than "good cause," or if the executive officer
terminates his employment for "good reason," then Washington National (or its
successor) is required to make a lump sum payment to the executive officer in an
amount equal to one year's salary and bonuses under the Washington National
Annual Pay-At-Risk Plan. Based on current salary and bonus levels, Messrs.
Patin, Brown, Plato, Pontarelli and Scott would be entitled to respective
payments of $3,100,476, $926,763, $1,514,325, $1,258,236, and $1,183,539. In
addition, the officers and directors of Washington National will receive certain
severance payments and accelerated payments under certain of Washington
National's benefit plans and will have their options to acquire Washington
National Common Stock purchased for cash. The Conseco Board and the Washington
National Board were aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transaction contemplated
thereby and in recommending for stockholder approval the Merger Agreement and
the transactions contemplated thereby. See "-- Indemnification," and "THE TERMS
OF THE MERGER" and "-- Certain Covenants -- Severance," "-- Retiree Life and
Health Plan" and "-- Directors' Retirement and Income Plan."
INDEMNIFICATION
Conseco and Washington National have agreed that, from and after the
Effective Time, the Surviving Corporation will indemnify and hold harmless each
present and former director and officer of Washington National and its
subsidiaries, determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities
16
<PAGE> 22
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Washington National or such subsidiary would
have been permitted under applicable law and the Certificate of Incorporation or
Bylaws of Washington National (the "Washington National Certificate of
Incorporation" and "Washington National Bylaws," respectively) or such
subsidiary in effect on the date of the Merger Agreement to indemnify such
person (and the Surviving Corporation will also advance expenses as incurred to
the fullest extent permitted under applicable law provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification). In
addition, Conseco has agreed that all rights to indemnification and exculpation
existing in favor of the Indemnified Parties under the indemnification
agreements currently in place between Washington National and any such
Indemnified Party will survive and continue in full force and effect after the
Effective Time in accordance with their terms. Moreover, for a period of three
years after the Effective Time, Conseco has also agreed to maintain in effect
the current policies of directors' and officers' liability insurance maintained
by Washington National, the premiums on which insurance have been paid in full
by Washington National, (provided that Conseco may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions which
are no less advantageous in all material respects to the Indemnified Parties)
with respect to claims arising from facts or events which occurred before the
Effective Time.
CONSECO'S SOURCE AND AMOUNT OF FUNDS
It is expected that approximately $450 million will be paid by Conseco to
finance the payment of the Merger Consideration and the expenses and other
amounts relating to the Merger. Conseco is considering a number of alternatives
to finance these payments, including the incurrence of additional indebtedness,
the issuance of preferred securities, the sale of additional Conseco common
stock, or some combination thereof.
ACCOUNTING TREATMENT
Conseco will account for the Merger as a purchase for accounting and
financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the Merger to Washington National stockholders. The summary is
based upon the Internal Revenue Code of 1986, as amended, (the "Code"),
applicable Treasury Regulations thereunder and administrative rulings and
judicial authority as of the date hereof, including modifications made by the
Taxpayer Relief Act of 1997. All of the foregoing are subject to change, and any
such change could affect the continuing validity of the discussion. The
discussion assumes that holders of shares of Washington National Common Stock
hold such shares as a capital asset, and does not address the tax consequences
that may be relevant to a particular stockholder subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, corporate stockholders which are
collapsible corporations, non-United States persons and stockholders who
acquired shares of Washington National Common Stock pursuant to the exercise of
options or otherwise as compensation or through a tax-qualified retirement plan,
nor any consequences arising under the laws of any state, locality or foreign
jurisdiction.
The receipt of cash by a Washington National stockholder in the Merger or
pursuant to the exercise of dissenters' appraisal rights will be a taxable
transaction for federal income tax purposes under the Code and may also be a
taxable transaction under applicable state, local, foreign income or other tax
laws. Generally, a stockholder will recognize gain or loss in an amount equal to
the difference between the cash received by the stockholder pursuant to the
Merger and the stockholder's adjusted tax basis in the Washington National
Common Stock purchased pursuant to the Merger. For federal income tax purposes,
such gain or loss will be a capital gain or loss if the shares are a capital
asset in the hands of the stockholder, and a long-term capital gain or loss if
the stockholder meets one of the holding periods set forth below as of the
Effective Time. There are significant limitations on the deductibility of
capital losses by individuals or corporations. Capital losses can offset capital
gains on a dollar-for-dollar basis and, in the case of an individual
stockholder, capital losses in
17
<PAGE> 23
excess of capital gains can be deducted to the extent of $3,000 annually. An
individual can carry forward unused capital losses indefinitely. A corporation
can utilize capital losses only to offset capital gain income; a corporation's
unused capital losses can be carried back three years and forward five years.
Long-term capital gains recognized after July 28, 1997, on marketable
securities such as the shares of Washington National Common Stock will be
taxable at a maximum rate of 20% for individuals if the individual's holding
period is more than 18 months and 28% if the holding period is more than one
year but not more than 18 months, and 35% for corporations. Ordinary income is
taxable at a maximum rate of 39.6% for individuals and 35% for corporations.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
WASHINGTON NATIONAL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX
LAWS.
REGULATORY APPROVALS
Insurance. The consummation of the Merger will require the approval of the
Illinois Director of Insurance and the Indiana Commissioner of Insurance under
the insurance codes (the "Insurance Codes") of such states, which are the
domiciliary jurisdictions of the insurance companies owned by Washington
National. The Illinois and Indiana Insurance Codes contain provisions applicable
to the acquisition of control of a domestic insurer, including a presumption of
control that arises from the ownership of 10% or more of the voting securities
of a domestic insurer or of a person that controls a domestic insurer. The
filing of an application for acquisition of control of a domestic insurer gives
rise to a mandatory public hearing in Indiana and a discretionary public hearing
in Illinois. On or about October 15, 1997, Conseco filed its acquisition of
control applications with the Illinois and Indiana Departments of Insurance.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger cannot be consummated until requisite
pre-merger notifications have been filed and certain information has been
furnished to the Antitrust Division of the U.S. Department of Justice (the
"Antitrust Division") and the FTC, and a specified waiting period has expired or
been terminated. Washington National and Conseco each filed its pre-merger
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on or about October 15, 1997. At any time before or after the Effective
Time, the Antitrust Division, if it deems it to be necessary or desirable in the
public interest to do so, could act under the federal antitrust laws and seek to
enjoin consummation of the Merger or seek the divestiture of substantial assets
of Conseco or Washington National. At any time before or after the Effective
Time, and notwithstanding that the HSR Act waiting period has expired, any state
attorney general also could take action under its antitrust laws to seek to
enjoin consummation of the Merger or seeking divestiture of substantial assets
of Conseco or Washington National. Private parties also may take legal action
under federal and/or state antitrust laws under certain circumstances. Conseco
and Washington National believe that the Merger will comply with federal and
state antitrust laws. However, there can be no assurance that a challenge to
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, Conseco and Washington National would prevail or
would not be required to accept certain conditions, including certain
divestitures, in order to consummate the Merger.
Other than the expiration or early termination of the relevant waiting
periods under the HSR Act and the approval of the Illinois and Indiana insurance
regulators, there are no regulatory approvals required from any governmental
authorities to consummate the Merger.
18
<PAGE> 24
DISSENTERS' APPRAISAL RIGHTS
Delaware Law sets forth certain rights and remedies applicable to
stockholders of record of Washington National who may object to the Merger.
These rights are available only to stockholders holding shares of Washington
National Common Stock through the Effective Time (the "Dissenting Shares") and
who comply with the requirements of Section 262 of Delaware Law. Set forth below
is a summary of the rights provided to the holders of Washington National Common
Stock by Section 262 of Delaware Law. A copy of Section 262 of the Delaware Law
is attached to this Proxy Statement as ANNEX B. The following discussion is not
a complete statement of the law relating to appraisal rights and is qualified in
its entirety by reference to ANNEX B. This discussion and ANNEX B should be
reviewed carefully by any holder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, because the failure to
comply strictly with the procedures set forth herein or therein will result in
the loss of such appraisal rights. Any Washington National common stockholder
who contemplates the assertion of appraisal rights is urged to consult his or
her own counsel.
Under Section 262 of the Delaware Law, when a merger is to be submitted for
approval at a meeting of stockholders, not less than 20 days prior to the
meeting, a constituent corporation must notify each of the holders of its stock
for which appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262 of the Delaware
Law. This Proxy Statement constitutes such notice to Washington National
stockholders.
Washington National common stockholders who desire to exercise their
appraisal rights must satisfy all of the following conditions. Any such
Washington National stockholder must be a stockholder of record of Washington
National from the date he or she makes a written demand for appraisal (as
described below) through the Effective Time and must continuously hold his
Dissenting Shares throughout the period between such dates. A written demand for
appraisal of the Dissenting Shares must be delivered to the Corporate Secretary
of Washington National before the stockholder vote at the Special Meeting. The
demand will be sufficient if it reasonably informs Washington National of the
identity of the Washington National stockholder and that the Washington National
stockholder intends thereby to demand the appraisal of his Dissenting Shares.
Any written demand for appraisal of Dissenting Shares must be in addition to and
separate from any proxy or vote abstaining from or voting against the Merger
Agreement. Although a Washington National common stockholder must vote against,
abstain from voting or fail to vote on the Merger Agreement to preserve his or
her rights to appraisal, a vote against, a failure to vote or an abstention from
voting will not, in and of itself, constitute a demand for appraisal within the
meaning of Section 262 of Delaware Law.
Holders of Dissenting Shares electing to exercise their appraisal rights
under Section 262 of Delaware Law must neither vote for approval of the Merger
Agreement nor consent thereto in writing. A Washington National stockholder who
signs and returns a proxy card without expressly specifying a vote against
approval of the Merger Agreement or a direction to abstain, by checking the
applicable box on the proxy card enclosed herewith, effectively will waive
appraisal rights as to those shares because, in the absence of express
instructions to the contrary, such Dissenting Shares will be voted in favor of
the Merger Agreement. Accordingly, a Washington National stockholder who desires
to perfect his or her appraisal rights with respect to any Dissenting Shares
must, as one of the procedural steps involved in such perfection, either (i)
refrain from executing and returning a proxy card and from voting in person in
favor of the Merger Agreement or (ii) check either the "Against" or the
"Abstain" box next to the proposal on such card or affirmatively vote in person
at the Special Meeting against the Merger Agreement or register in person at the
Special Meeting an abstention with respect thereto.
A demand for appraisal must be executed by or for the Washington National
common stockholder, fully and correctly, exactly as such Washington National
stockholder's name appears on the certificate or certificates representing his
or her Dissenting Shares. If the Dissenting Shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for appraisal for a Washington
National common stockholder; however, the agent must identify the beneficial
owner and expressly disclose the fact that, in exercising the demand, such
person is acting as agent for the
19
<PAGE> 25
record owner. If a Washington National stockholder holds Dissenting Shares
through a broker who in turn holds the shares through a central securities
depository nominee, a demand for appraisal of such Dissenting Shares must be
made by or on behalf of the depository nominee and must identify the depository
nominee as the holder of record.
TERMS OF THE MERGER
The following is a summary of certain provisions of the Merger Agreement. A
copy of the Merger Agreement is attached as ANNEX A to this Proxy Statement and
is incorporated herein by reference. All capitalized terms not defined herein
shall have the meaning assigned to them in the Merger Agreement. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement.
THE MERGER; EFFECTIVE TIME
Upon the terms and subject to the conditions of the Merger Agreement, at
the Effective Time, Conseco Sub will merge with and into Washington National,
the separate corporate existence of Conseco Sub will cease, and Washington
National will survive as a wholly owned subsidiary of Conseco. The Merger will
become effective upon the execution and filing of a Certificate of Merger with
the Secretary of State of Delaware. Such filing will be made or otherwise become
effective on the Closing Date, which Closing Date will be no later than two
business days after satisfaction or waiver of the conditions to the Merger set
forth in the Merger Agreement. It is presently contemplated that the Closing
Date and the Effective Time will occur immediately after approval of the Merger
at the Special Meeting, which is currently scheduled to take place on November
17, 1997, or as soon as practicable thereafter.
MERGER CONSIDERATION
General. At the Effective Time, each outstanding share of Washington
National Common Stock (other than treasury shares and Dissenting Shares) will be
converted into the right to receive the Merger Consideration.
Treasury Shares. Each share of Washington National Common Stock issued and
outstanding immediately prior to the Effective Time which is then held as a
treasury share by Washington National immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Washington
National, be cancelled and cease to exist, without any conversion thereof.
PAYMENT PROCEDURES
Payment of the Merger Consideration. Promptly after the Effective Time, a
designated paying agent (the "Paying Agent") will mail to each person who was,
as of the Effective Time, a holder of record of shares of Washington National
Common Stock, a letter of transmittal to be used by such holders in forwarding
their Certificates, and instructions for effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender to the
Paying Agent of a Certificate for cancellation, together with such letter of
transmittal, the holder of such Certificate will be entitled to receive the
Merger Consideration which such holder has the right to receive in respect of
the Certificate surrendered (as described below), and the Certificate so
surrendered will be cancelled. WASHINGTON NATIONAL STOCKHOLDERS SHOULD NOT SEND
IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
On or after the Effective Time, there will be no transfers on the transfer
books of Washington National of shares of Washington National Common Stock which
were outstanding immediately prior to the Effective Time.
No interest will be paid or accrued on the Merger Consideration payable
upon surrender of Certificates.
In the event that any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by Conseco, the
20
<PAGE> 26
posting by such person of a bond in such reasonable amount as Conseco may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration payable in respect thereof.
CANCELLATION OF EMPLOYEE OPTIONS AND PURCHASE OF RESTRICTED STOCK
As of September 19, 1997, there were options (the "Employee Options") to
purchase 869,805 shares of Washington National Common Stock and 4,500 shares of
restricted Washington National Common Stock (the "Restricted Stock") outstanding
under the Washington National Corporation Stock Benefit Plan, as amended. Each
Employee Option outstanding immediately prior to the Effective Time will be
cancelled by Washington National in exchange for the right to receive from
Washington National an amount in cash (less applicable withholding taxes) equal
to the product of (i) the number of shares of Washington National Common Stock
subject to such Employee Option and (ii) the excess, if any, of the sum of the
Merger Consideration over the exercise price per share of Washington National
Common Stock subject to such Employee Option. Each share of Restricted Stock
outstanding immediately prior to the Effective Time will be purchased by
Washington National for $41.56 in cash (125% of the Merger Consideration, with
the 25% premium for associated income tax liabilities), less applicable
withholding taxes. The Employee Options and Restricted Stock will be retired at
an aggregate cost to Washington National of $9,147,504.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Washington National, regarding among other things: organization, standing and
corporate power to conduct business, capitalization, significant subsidiaries,
corporate power and authority to enter into the Merger Agreement, absence of
conflicting agreements, consents and approvals, filings with the Commission,
absence of certain changes or events, absence of undisclosed liabilities,
employee benefit plans, taxes and tax returns, compliance with all applicable
laws, insurance issued, rating agencies, opinion of financial advisor, brokerage
and finder's fees, environmental matters, litigation, labor relations, health
insurance transactions, and voting requirements. The Merger Agreement also
contains various representations and warranties of Conseco, regarding among
other things: organization, standing and corporate power to conduct business,
corporate power and authority to enter into the Merger Agreement, absence of
conflicting agreements, consents and approvals, filings with the Commission,
litigation, financing, brokerage and finder's fees, and voting requirements.
CERTAIN COVENANTS
Special Stockholders Meeting. In the Merger Agreement Washington National
agreed to take all action necessary in accordance with applicable law and its
certificate of incorporation and bylaws to convene a meeting of its stockholders
for the purpose of obtaining the requisite stockholder approval of the Merger.
Moreover, Washington National has also agreed, through its board of directors,
to recommend to its stockholders approval of the Merger.
No Solicitation. Washington National has agreed not to, nor to authorize or
permit any officer, director or employee of, or any investment banker, attorney
or other advisor or representative of, Washington National or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal (as defined) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that the Washington National
Board of Directors may furnish information to, or enter into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal after the date of the Merger Agreement, if, and only to the extent
that, (x) the Washington National Board, after consultation with and based upon
the advice of outside counsel, concludes in good faith that such action is
necessary for the Washington National Board to comply with its fiduciary duties
to stockholders under applicable law and (y) Washington National (a) provides
reasonable notice to Conseco to the effect that it is taking such action and (b)
receives from such person or entity an executed confidentiality agreement
substantially similar to the confidentiality agreement entered into between
Washington National and Conseco,
21
<PAGE> 27
except that such confidentiality agreement shall not prohibit such person or
entity from making an unsolicited proposal regarding a Acquisition Proposal to
the Washington National Board. Washington National is required to promptly
advise Conseco orally and in writing of the receipt by it after the date of the
Merger Agreement of any Acquisition Proposal, or any inquiry which could lead to
any Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person or entity making any such
Acquisition Proposal or inquiry, provided that Washington National has no
obligation to disclose the identity of such person or entity if such disclosure
would violate the terms of any agreement outstanding on the date of the Merger
Agreement with such person or entity, or the Washington National Board, after
consultation with and based upon the advice of outside counsel, concludes in
good faith that such disclosure would violate its fiduciary duties or would be
otherwise inconsistent with applicable law. An "Acquisition Proposal" means any
bona fide proposal with respect to a merger, consolidation, share exchange or
similar transaction involving Washington National or any significant subsidiary,
or any purchase (including without limitation by way of any reinsurance
transaction) of all or any significant portion of the assets of Washington
National or any significant subsidiary, or any other business combination
(including without limitation the acquisition of an equity interest therein)
involving Washington National or any significant subsidiary, other than the
transactions contemplated by the Merger Agreement.
Washington National Board Action. The Washington National Board has agreed
not to (i) withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, (ii) approve or recommend an Acquisition Proposal, or
(iii) enter into any agreement with respect to any Acquisition Proposal, unless
Washington National receives a proposal regarding an Acquisition Proposal and
the Washington National Board concludes in good faith, after consultation with
and based upon the advice of outside counsel, that in order to comply with its
fiduciary duties to stockholders under applicable law it is necessary for the
Washington National Board to withdraw or modify its approval or recommendation
of the Agreement or the Merger, approve or recommend such an Acquisition
Proposal or enter into an agreement with respect to such an Acquisition
Proposal. Notwithstanding the foregoing, Washington National may take and
disclose to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or may make any disclosure to the Washington
National stockholders which, in the good faith judgment of the Washington
National Board based on advice of outside counsel, is required under applicable
law; provided that Washington National does not withdraw or modify its position
with respect to the Merger or approve or recommend an Acquisition Proposal,
except under the circumstances described in the preceding sentence.
Severance. During the twelve month period commencing on the Effective Time,
Conseco has agreed to provide coverage to individuals employed by Washington
National or a significant subsidiary on the Effective Time in accordance with
the terms of Washington National's Severance Pay Policy as in effect on the date
of the Merger Agreement.
Retiree Life and Health Plan. The Merger Agreement provides that Washington
National will continue to provide retiree life and health benefits to certain
employees (and to their eligible dependents) of Washington National or a
significant subsidiary who, upon their retirement before, at or after the
Effective Time are or would be entitled to benefits in accordance with the terms
of Washington National's retiree life and health benefits program included in
the Washington National Group Insurance Plan as in effect on the date of the
Merger Agreement, subject to Conseco's right to make reasonable adjustments to
the retiree health benefits, including, but not limited to, amounts deductible,
the extent of retirees' obligations to pay premiums, introduction of managed
care options or other adjustments permitted by law or regulation.
Directors' Retirement Income Plan. Washington National intends to terminate
its Directors' Retirement Income Plan prior to the Effective Time. If, however,
prior to the Effective Time, Washington National has not terminated and provided
for the funding of benefits under the Directors' Retirement Income Plan, from
and after the Effective Time, Conseco will honor, in accordance with its terms,
Washington National's Directors' Retirement Income Plan, as in effect on the
date of the Merger Agreement, and shall pay all benefits that become due under
such plan to any participant therein or to the beneficiary of a deceased
participant, provided that Conseco has the right after the Effective Time to
terminate such plan and provide for the funding of benefits thereunder.
22
<PAGE> 28
Certain Employee Benefit Payments. Washington National and Conseco have
agreed that during the period from the date of the Merger Agreement to the
Closing Date, Washington National, by action and at the discretion of its
compensation committee (the "Compensation Committee"), has the right but not the
obligation to make the following payments and allocations with respect to all
individuals employed by Washington National or any of its subsidiaries on July
1, 1996, including the employees identified in the Disclosure Schedule to the
Merger Agreement whose employment with Washington National or any of its
subsidiaries terminated with Washington National's approval prior to the date of
the Merger Agreement and any employee whose employment may be terminated by
Washington National with the consent of Conseco prior to the Closing Date
(collectively, the "Eligible Employees"): (i) Washington National's profit
sharing contribution to the Washington National Corporation Profit Sharing Plan
(the "Profit Sharing Plan") for calendar year 1997, in the amount of 5% of
compensation as defined in the Profit Sharing Plan (which Profit Sharing plan
shall be amended prior to the Closing Date to permit contributions to be made on
behalf of any Eligible Employee who is not a current employee of Washington
National or any of its subsidiaries), may, in the discretion of the Compensation
Committee and to the extent permitted by the Profit Sharing Plan, be allocated
to the accounts maintained under the Profit Sharing Plan for the Eligible
Employees on the earlier of the Closing Date and March 15, 1998; (ii) each
Eligible Employee may be paid a lump sum payment under the Annual Pay At Risk
Plan for the period that such Eligible Employee was employed by Washington
National or any of its subsidiaries in calendar year 1997 and calendar year
1998, (a), with such payments for calendar year 1997 to be made on the earlier
of the Closing Date, and March 15, 1998 provided that such payments shall not in
the aggregate exceed $310,000 per month for the entire 1997 calendar year,
regardless of the Closing Date, and (b) with such payments for calendar year
1998 to be made on the Closing Date provided that such amounts shall not in the
aggregate exceed $240,000 per month, including a prorated amount based upon the
number of days elapsed in the month in which the Closing Date occurs; (iii) each
Eligible Employee may be paid a lump sum payment under the Long Term Pay At Risk
Plan for the 1995-1997, 1996-1998 and 1997-1999 performance periods, for the
period that such Eligible Employee was employed by Washington National or any of
its subsidiaries during the 1995-1997 performance period, the 1996-1998
performance period and/or the 1997-1999 performance period, as applicable, (x)
with such payments for the 1995-1997 performance period to be made on the
earlier of the Closing Date or March 15, 1998 provided that such payment shall
not in the aggregate exceed $445,000 for the period through December 31, 1996
and $19,000 per month for each month in 1997, including a prorated amount for
the month in which the Closing Date occurs (if the Closing Date occurs in 1997),
(y) with such payments for the 1996-1998 performance period to be made on the
Closing Date provided that such payments shall not in the aggregate exceed
$235,000 for the period through December 31, 1996 and $19,500 per month for each
month in 1997 and 1998, including a prorated amount based upon the number of
days elapsed in the month in which the Closing Date occurs, and (z) with such
payments for the 1997-1999 performance period to be made on the Closing Date,
provided that such payments shall not in the aggregate exceed $19,000 per month
for each month in the period, including a prorated amount based upon the number
of days elapsed in the month in which the Closing Date occurs; (iv) Washington
National shall make all required contributions under the terms of the Washington
National Employee Savings Plan and the Washington National Pension Plan Plus
(which plans shall be amended prior to the Closing Date to permit contributions
to be made on behalf of any Eligible Employee who is not a current employee of
Washington National or any of its subsidiaries and to permit contributions to be
made on a date other than the end of the calendar quarter in the event the
Closing Date falls on such date) for the period commencing on the date of the
Merger Agreement and ending on the Closing Date, with contributions to be made
on the Closing Date; (v) Washington National shall continue to credit
participants under the terms of the Washington National Corporation Supplemental
Executive Retirement Plan ("SERP") (which shall be amended prior to the Closing
Date to permit credits to be determined on the earlier to occur of the Closing
Date and the participant's date of termination of employment) with respect to
all compensation (excluding severance, change of control or similar benefits)
earned by such participants through the Closing Date or their earlier date of
termination of employment. Washington National shall terminate the SERP
immediately prior to the Effective Time; and (vi) each Eligible Employee who
held any shares of Restricted Stock as of July 1, 1996 and whose Restricted
Stock has been forfeited as of the date of the Merger Agreement may be paid a
lump sum payment in consideration for such forfeited Restricted Stock in an
amount in cash equal to $41.56, less applicable withholding taxes, with
23
<PAGE> 29
such payments to be made on the earlier of the Closing Date and March 15, 1998,
provided that such payments do not in the aggregate exceed $322,109. In lieu of
granting stock options to certain Eligible Employees and the directors of
Washington National in 1997, Washington National may, by action and at the
discretion of its Compensation Committee, pay bonuses to such persons in an
amount not to exceed $565,950 in the aggregate, representing the difference
between the Merger Consideration and the price of the Common Shares on March 14,
1997 (the designated stock option grant date in 1997).
Office Property. Washington National and Conseco have agreed that
Washington National shall have a right but not an obligation to enter into a
contract providing for the lease or sublease of office property by Washington
National on commercially reasonable terms beginning October 1, 1997 for a term
not to exceed one year, provided, however, that no such lease or sublease shall
be entered into without Conseco's consent, which consent shall not be
unreasonably withheld.
Letter of the Company's Accountants. Washington National has agreed to use
commercially reasonable efforts to cause to be delivered to Conseco a letter of
Ernst & Young LLP, Washington National's independent public accountants, dated a
date within two business days before the Closing Date, addressed to Conseco, in
form and substance reasonably satisfactory to Conseco and customary in scope and
substance for letters delivered by independent public accountants in connection
with similar transactions.
Litigation. Washington National has agreed to give Conseco the opportunity
to participate in the defense or settlement of any pending litigation disclosed
in the Washington National's Filed SEC Documents (as defined) or any litigation
against Washington National and its directors relating to the transactions
contemplated by the Merger Agreement; provided, however, that no such settlement
shall be agreed to without Conseco's consent, which consent shall not be
unreasonably withheld.
Failure to Close. If the Merger Agreement is terminated for any reason,
other than for a breach by Washington National, Washington National and Conseco
have agreed that for a period of two years from the date of termination of the
Merger Agreement, Conseco will not, and will cause its subsidiaries not to,
solicit for employment any management employee or member of the sales force of
Washington National or its subsidiaries, it being understood that the term
"solicit" does not include advertising or other broad-based recruiting methods
or solicitation by an employee search firm so long as such search firm is not
encouraged or directed by Conseco or its subsidiaries to solicit such employees
of Washington National or its subsidiaries.
CERTAIN AGREEMENTS REGARDING CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by Washington National. Washington National has agreed,
from the date of the Merger Agreement through the Effective Time, to cause its
management and that of its significant subsidiaries to consult on a regular
basis and in good faith with the employees and representatives of Conseco
concerning the management of Washington National and its significant
subsidiaries' businesses, including without limitation the policies and
practices of Washington National and its significant subsidiaries with respect
to (i) the ceding or assumption of reinsurance or coinsurance or the termination
or modification of existing reinsurance or coinsurance agreements, (ii)
significant underwriting, actuarial, tax, accounting, legal and investment
issues (including matters related to tax audits or the establishment, review and
modification of insurance and other reserves), (iii) significant matters
relating to the conditions, forms and pricing of new kinds of insurance policies
and annuity contracts and (iv) significant matters relating to the agency force,
product distribution, commissions and similar matters. During the period from
the date of the Merger Agreement to the Effective Time, Washington National has
agreed to, and has agreed to cause its significant subsidiaries to, act and
carry on their respective businesses in the ordinary course of business and, to
the extent consistent therewith, use best efforts to preserve intact their
current business organizations, keep in full force and effect their insurance
licenses, permits and franchises, keep available the services of their current
key officers, employees, agents, and field representatives, and preserve the
goodwill of regulators, policyholders or those engaged in material business
relationships with them.
During the period from the date of the Merger Agreement to the Effective
Time, Washington National has agreed to not, and has agreed to not permit any of
its significant subsidiaries to, without the prior consent of Conseco: (i) adopt
or propose any change to the Washington National Certificate of Incorporation or
the
24
<PAGE> 30
Washington National By-Laws; (ii) (x) declare, set aside or pay any dividends
on, or make any other distributions with respect to, any of Washington
National's or its subsidiaries' outstanding capital stock (other than the
regular quarterly cash dividends not in excess of $.27 per share of Washington
National Common Stock so long as the Common Stock remains outstanding, with
usual record and payment dates and in accordance with Washington National's
present dividend policy), (y) split, combine or reclassify any of its
outstanding 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
outstanding capital stock or (z) purchase, redeem or otherwise acquire any
shares of capital stock or other securities of, or other ownership interests of
Washington National other than the Employee Options and Restricted Stock to be
cancelled and purchased, as the case may be; (iii) issue, sell, grant, pledge or
otherwise encumber any shares of its capital stock, 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 other than
upon the exercise of Employee Options outstanding on the date of the Merger
Agreement, or the issuance of shares of Washington National Common Stock under
Washington National's dividend reinvestment plan or issue or make any awards
under any phantom stock plan; (iv) acquire, form or commence the operations of
any business or any corporation, partnership, joint venture, association or
other business organization or division or block of in-force business thereof;
(v) take any action that, if taken prior to the date of the Merger Agreement,
would have been required to be disclosed in Washington National's Disclosure
Schedule to the Merger Agreement or that would otherwise cause any of its
representations and warranties contained in the Merger Agreement not to be true
and correct in all material respects; (vi) sell, mortgage or otherwise encumber
or subject to any lien or otherwise dispose of any of its properties or assets
that are material to Washington National or its significant subsidiaries taken
as a whole, except for the sale of investments in the ordinary course of
business consistent with past practice; (vii) (x) except for the dollar amount
required to cancel and cash out the Employee Options and the Restricted Stock,
incur any indebtedness for borrowed money (other than short-term indebtedness
for general corporate purposes not to exceed $5,000,000 at any time) or
guarantee any such indebtedness of another person, other than indebtedness owing
to or guarantees of indebtedness owing to Washington National or any direct or
indirect wholly-owned subsidiary of Washington National or (y) make any loans or
advances to any other person, other than to Washington National or to any direct
or indirect wholly-owned subsidiary of Washington National, and other than
routine advances in the ordinary course of business to employees or agents, or
policyholder loans; (viii) make any tax election or settle or compromise any
income tax liability that would reasonably be expected to be material to
Washington National and its significant subsidiaries taken as a whole; (ix) pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with the past practice or in accordance with their terms of
liabilities reflected or reserved against in, or contemplated by, the June 30,
1996 consolidated financial statements (or the notes thereto) of Washington
National filed with the Commission or incurred since the date of such financial
statements in the ordinary course of business consistent with past practice; (x)
except in the ordinary course of business, modify, amend or terminate, or waive,
release or assign any material rights or claims under or enter into or obtain
any material agreement, permit, concession, franchise, license or similar
instrument to which Washington National or its significant subsidiary is a
party, other than those contracts, agreements or licenses modified, amended or
terminated in accordance with the terms of the reinsurance agreement between
Washington National and Trustmark Insurance Company; (xi) invest its future cash
flow, any cash from matured and maturing investments, any cash proceeds from the
sale of its assets and properties, and any cash funds currently held by it, in
any investments other than cash equivalent assets or in short-term investments
(consisting of United States government issued or guaranteed securities, or
commercial paper rated A-1 or P-1), except (i) as otherwise required by law,
(ii) as required to provide cash (in the ordinary course of business and
consistent with past practice) to meet its actual or anticipated obligations or
(iii) publicly-traded corporate bonds that are rated investment grade by at
least two nationally recognized statistical rating organizations; (xii) except
as may be required by law, (i) make any representation or promise, oral or
written, to any employee or former director, officer or employee of Washington
National or any subsidiary which is inconsistent with the terms of any Benefit
Plan; (ii) make any change to, or amend in any way, the contracts, salaries,
wages, or other compensation of any employee or any agent or consultant of
Washington National or any subsidiary other than (a) changes or amendments that
are required under existing contracts, (b) changes after January 1, 1998 with
25
<PAGE> 31
respect to employees whose current annual salary is less than $50,000 that are
made in the ordinary course of business and consistent with past practice and
that do not exceed 5% for any such employee, or (c) changes with respect to
agents or consultants that are made in the ordinary course of business and
consistent with past practice; or (iii) adopt, enter into, amend, alter or
terminate, partially or completely, any Benefit Plan or any election made
pursuant to the provisions of any Benefit Plan, to accelerate any payments,
obligations or vesting schedules under any Benefit Plan; (xiii) fail to pay any
Taxes or file any Tax Return on a timely basis or fail to make any estimated
payment of Taxes on a timely basis; (xiv) lease or purchase any property, except
for such leases or purchases of property that do not in the aggregate exceed
$50,000, or enter into any transitional services agreement; or (xv) authorize
any of, or commit or agree to take any of the foregoing actions. In addition,
Washington National has agreed to allow representatives of Conseco to have
access to the management and other personnel of Washington National and its
subsidiaries so that Conseco can be fully informed at all times as to
significant executive, legal, financial, investment, marketing and other
operational matters involving Washington National, its subsidiaries and their
businesses. Moreover, Conseco and Washington National have agreed with respect
to employee and employee benefit matters that, between the date of the Merger
Agreement and the Effective Time, (i) Washington National shall not, and shall
not permit its subsidiaries to, enter into or modify the terms of any employment
agreement, severance agreement or similar agreement or any employee benefit
plan, or make any bonus payment (in each case except as otherwise provided in
certain sections of the Merger Agreement), without the prior written consent of
Conseco and (ii) Washington National shall in its reasonable judgment and after
consulting with Conseco continue to make all decisions with respect to
employees, including hiring and firing decisions, in the ordinary course of
business.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of Washington National and Conseco to consummate the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions: (i) Washington National stockholders shall have approved
the Merger Agreement and the transactions contemplated thereby, (ii) Washington
National, Conseco and Conseco Sub shall have obtained all required consents,
approvals, permits and authorizations required to consummate the transactions
contemplated by the Merger Agreement, in each case without any condition that
could reasonably be expected to have a Material Adverse Effect (as defined),
from (a) the Departments of Insurance of Illinois and Indiana, and (b) any other
Governmental Entity (as defined) whose consent, approval, permission or
authorization is required by reason of a change in law after the date of the
Merger Agreement, unless the failures to obtain such consent, approval,
permission or authorization would not reasonably be expected to have a Material
Adverse Effect nor materially and adversely affect the validity or
enforceability of the Merger Agreement (Washington National and Conseco have
agreed that no consent or approval of any proposed dividend payable by
Washington National or any of its Significant Subsidiaries shall be required as
a condition to Conseco's obligation to effect the Merger), (iii) the waiting
period (and any extension thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have otherwise expired, and (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 shall be in effect.
Conditions to Washington National's Obligation to Effect the Merger. The
obligation of Washington National to effect the Merger is further subject to the
following additional conditions unless waived by Washington National: (i) the
representations and warranties of Conseco contained in the Merger Agreement
shall be true and correct in all material respects (but as to any representation
qualified as to materiality disregarding for this purpose such materiality
qualification) on the date of the Merger Agreement and (except to the extent
specifically given as of an earlier date) and on and as of the Closing Date, and
(ii) Conseco shall have performed in all material respects all obligations
required to be performed by it at or prior to the Closing Date under the Merger
Agreement. Although Washington National has no present intention to waive any
material condition to the Merger, in the event that a material condition to the
Merger is waived, Washington National would distribute a supplement to this
Proxy Statement to disclose the waiver and all material related
26
<PAGE> 32
consequences, including risks to investors, and would resolicit its stockholders
with respect to a vote on the Merger Agreement.
Conditions to Conseco's Obligation to Effect the Merger. The obligations of
Conseco to effect the Merger are further subject to the following additional
conditions unless waived by Conseco: (i) the representations and warranties of
Washington National shall be true and correct in all material respects (but as
to any representation qualified as to materiality disregarding for this purpose
such materiality qualification) on the date of the Merger Agreement (except to
the extent specifically given as of an earlier date) and on and as of the
Closing Date as though made on the Closing Date, and (ii) Washington National
shall have performed in all material respects all obligations required to be
performed by it under the Merger Agreement at or prior to the Closing Date.
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time, whether before or after stockholder approval, (a) by mutual
written consent of Conseco and Washington National; (b) by either Conseco or
Washington National (i) if the Merger shall fail to receive the requisite vote
for adoption by the Washington National stockholders at the Special Meeting,
(ii) if the Merger is not consummated on or before January 31, 1998 (subject to
the right of Washington National or Conseco to extend such date by not more than
60 days if such party believes in good faith that all conditions to closing can
be satisfied within such 60 day period); provided that either party may
terminate the Agreement on or after such earlier date on which it can be
reasonably determined that it will be impossible to consummate the Merger by
January 31, 1998 (or by such later date to which it has been extended), unless
the failure to consummate the Merger is the result of a material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement, (iii)
if any government entity issues an order, decree or ruling or takes 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 (iv) if the Washington National Board (x) withdraws or
modifies its approval or recommendation of the Merger Agreement or the Merger,
(y) approves or recommends an Acquisition Proposal, or (z) enters into any
agreement with respect to any Acquisition Proposal, after Washington National
receives a proposal regarding an Acquisition Proposal and the Washington
National Board concludes in good faith, after consultation with and based upon
the advice of outside counsel, that in order to comply with its fiduciary duties
to stockholders under applicable law it is necessary for the Washington National
Board to withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend such Acquisition Proposal or enter
into an agreement with respect to such Acquisition Proposal; (c) by Washington
National, upon a material breach of any representation or warranty of Conseco or
Conseco fails to comply in any material respect with any of its covenants or
agreements, or if any representation or warranty of Conseco is or becomes untrue
in any material respect, in either case such that certain conditions would be
incapable of being satisfied by January 31, 1998 (unless extended as provided
above), provided that a wilful breach shall be deemed to cause such conditions
to be incapable of being satisfied by such date; or (d) by Conseco, upon a
material breach of any representation or warranty of Washington National or
Washington National fails to comply in any material respect with any of its
covenants or agreements, or if any representation or warranty of Washington
National is or becomes untrue in any material respect, in either case such that
certain conditions would be incapable of being satisfied by January 31, 1998
(unless extended as provided above), provided that a wilful breach shall be
deemed to cause such conditions to be incapable of being satisfied by such date.
TERMINATION FEE
In the event of termination of the Merger Agreement by either Washington
National or Conseco, except as provided below, the Merger Agreement will become
null and void and have no effect, without any liability or obligation on the
part of Conseco or Washington National, other than with respect to (i) the
confidentiality agreement between Conseco and Washington National, (ii) expenses
(as described below), and (ii) the Termination Payment (as defined). In the
event of termination of the Merger Agreement by either Washington National or
Conseco as a result of the Washington National Board (i) withdrawing or
modifying
27
<PAGE> 33
its approval or recommendation of the Merger Agreement or the Merger, (ii)
approving or recommending an Acquisition Proposal, or (iii) entering into any
agreement with respect to any Acquisition Proposal, after Washington National
receives a proposal regarding an Acquisition Proposal and the Washington
National Board concludes in good faith, after consultation with and based upon
the advice of outside counsel, that in order to comply with its fiduciary duties
to stockholders under applicable law it was necessary for the Washington
National Board to withdraw or modify its approval or recommendation of the
Merger Agreement or the Merger, approve or recommend such Acquisition Proposal
or enter into an agreement with respect to such Acquisition Proposal, Washington
National shall pay Conseco $10,000,000 in cash, as liquidated damages and not as
a penalty, immediately upon such termination, in same-day funds, provided that
Conseco shall not be in material breach of its obligations under the Merger
Agreement (the "Termination Payment"). Moreover, Washington National shall pay
the Termination Payment if all of the following occur: (i) the Merger Agreement
is terminated because the Merger failed to receive the requisite vote for
approval and adoption by the Washington National stockholders at the Special
Meeting; (ii) Washington National, within fifteen months of the date of the
Merger Agreement enters into a written agreement or arrangement to effect an
Acquisition Proposal with a party other than Conseco or any of its subsidiaries,
which Acquisition Proposal provides consideration with an economic value equal
to or greater than the consideration that would have been received in the Merger
had it been consummated on the date on which the Merger Agreement was terminated
and (iii) the stockholders of Washington National approve the Acquisition
Proposal or the transaction which is the subject of such Acquisition Proposal is
consummated. The Termination Payment contemplated by the prior sentence is to be
paid on the earlier of (i) the consummation of the Acquisition Proposal or (ii)
within 60 days after the meeting at which the Washington National stockholders
approve the Acquisition Proposal. The Termination Payment, if paid, will be paid
only once and is Conseco's sole and exclusive remedy under the Merger Agreement
for the termination thereof under the circumstances in which the Termination
Payment is paid (regardless of any breach of the Merger Agreement), and upon
such delivery of the Termination Payment to Conseco, no person will have any
further claim or rights against Washington National under the Merger Agreement.
EXPENSES
Washington National and Conseco will each pay its own costs and expenses
incident to preparing for, entering into and carrying out the Merger Agreement
and the consummation of the transactions contemplated thereby, except that the
filing fee in respect of the notification and report under the HSR Act and the
expenses incurred in connection with the printing, mailing and distribution of
this Proxy Statement will be borne equally by Conseco and Washington National.
AMENDMENT, EXTENSION AND WAIVER
The Merger Agreement may be amended by the parties thereto by written
agreement prior to the Effective Time, provided that after the approval of the
Merger by the Washington National stockholders, no amendment may be made which
reduces the Merger Consideration or adversely affects the rights of the
Washington National stockholders without the approval of such stockholders.
At any time prior to the Effective Time, Conseco and Washington National
may (i) extend the time for the performance of any of the obligations or other
acts of the other party, (ii) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions contained in the Merger Agreement, except the requirement that an
amendment to the Merger Agreement be in writing. Any agreement on the part of a
party thereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
THE ADJOURNMENT PROPOSAL
Washington National is submitting to its stockholders a proposal to
authorize the named attorneys-in-facts to vote in favor of the adjournment of
the Special Meeting, in the event that there are not sufficient votes
28
<PAGE> 34
to approve the Merger at the time of the Special Meeting. Even though a quorum
may be present at the Special Meeting, it is possible that Washington National
may not have received sufficient votes to approve the Merger at the time of the
Special Meeting. In that event, the Merger could not be approved unless the
Special Meeting were adjourned in order to permit further solicitation of
proxies.
In order to allow the proxies that have been received by Washington
National at the time of the Special Meeting to be voted for such adjournment, if
necessary, Washington National has submitted the question of adjournment under
such circumstances, and only under such circumstances, to its stockholders for
their consideration. A majority of the shares of Washington National Common
Stock represented and voting at the Special Meeting is required in order to
approve any such adjournment.
The Washington National Board unanimously recommends that its stockholders
vote their proxies in favor of the adjournment proposal so that their proxies
may be used for such purpose, should it become necessary. Properly executed
proxies will be voted in favor of such adjournment unless otherwise noted
thereon. If it is necessary to adjourn of the Special Meeting, no notice of the
time and place of the adjourned meeting is required to be given to stockholders
other than an announcement of such time and place at the Special Meeting. This
adjournment proposal relates only to an adjournment occurring for purposes of
soliciting additional proxies for approval of the Merger in the event that there
are insufficient votes to approve the Merger at the Special Meeting. Any other
adjournment (e.g., an adjournment required because of the absence of a quorum)
would be voted upon pursuant to the discretionary authority granted by the
proxy.
The Washington National Board retains full authority to postpone the
Special Meeting prior to such meeting being convened, without the consent of any
stockholder.
29
<PAGE> 35
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following selected financial information for the years ended December
31, 1992, 1993, 1994, 1995 and 1996 has been derived from the audited
consolidated financial statements of Washington National. The selected financial
information set forth below for the six-month period ended June 30, 1996 and
1997, has been derived from the unaudited consolidated quarterly financial
statements of Washington National. The selected financial information set forth
below should be read in conjunction with the historical financial statements and
related notes of Washington National incorporated by reference in this Proxy
Statement.
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION:(A)
Total revenues(b).................. $ 291,264 $ 300,174 $ 305,320 $ 317,116 $ 328,707 $ 162,028 $ 169,984
Operating income(c)
Pretax operating income from
continuing operations.......... $ 15,757 $ 24,835 $ 36,577 $ 40,024 $ 48,572 $ 21,796 $ 23,919
Net operating income from
continuing operations.......... $ 10,955 $ 15,506 $ 23,469 $ 26,060 $ 30,993 $ 14,008 $ 15,562
Income before discontinued
operations and cumulative effect
of changes in accounting
principles....................... $ 8,999 $ 18,665 $ 24,615 $ 26,706 $ 32,327 $ 14,426 $ 14,464
Income (loss) from discontinued
operations, net of tax (d)....... $ 7,853 $ 9,551 $ 6,686 $ 7,154 $ (25,999) $ (25,939) $ --
Net income (loss).................. $ (5,967) $ 26,666 $ 31,301 $ 33,860 $ 6,328 $ (11,513) $ 14,464
Average common shares and
equivalents outstanding(e)....... 9,989 10,755 12,225 12,250 12,438 12,241 12,572
PER SHARE INFORMATION:
Net operating income from
continuing operations............ $ 1.06 $ 1.41 $ 1.89 $ 2.10 $ 2.46 $ 1.12 $ 1.23
Income before discontinued
operations and cumulative effect
of changes in accounting
principles....................... $ 0.86 $ 1.70 $ 1.98 $ 2.15 $ 2.57 $ 1.16 $ 1.14
Net income (loss).................. $ (0.63) $ 2.45 $ 2.53 $ 2.73 $ .48 $ (.95) $ 1.14
Common share dividends............. $ 1.08 $ 1.08 $ 1.08 $ 1.08 $ 1.08 $ .54 $ .54
Book value......................... $ 27.93 $ 27.92 $ 24.51 $ 34.54 $ 31.60 $ 29.52 $ 31.95
Book value excluding net unrealized
investment gains (losses) on
securities available for sale.... $ 27.92 $ 27.92 $ 29.44 $ 30.61 $ 30.30 $ 29.53 $ 30.86
BALANCE SHEET INFORMATION:
Total assets....................... $2,712,783 $2,854,419 $2,810,568 $3,012,898 $2,869,196 $2,899,003 $2,795,057
Mortgage and long-term notes
payable.......................... $ 13,870 $ 2,434 $ 1,907 $ 1,309 $ 740 $ 1,170 $ --
Shareholders' equity............... $ 288,040 $ 348,945 $ 306,323 $ 437,919 $ 403,944 $ 373,741 $ 403,536
Shareholders' equity excluding net
unrealized investment gains and
losses........................... $ 287,929 $ 348,988 $ 367,679 $ 388,121 $ 387,336 $ 373,879 $ 389,741
</TABLE>
- ---------------
(a) Amounts related to the income statement reflect the 1996 sale of the health
business as discontinued operations.
(b) The six-month period ended June 30, 1997 includes $4.6 million of interest
on a federal income tax refund.
(c) Income from continuing operations before realized investment gains and
losses, divestitures, gains from curtailments of benefit plans, the
cumulative effect of accounting changes, charge for home office sublease,
and income tax refund.
(d) The year ended December 31, 1996, includes an after-tax loss on the sale of
the health business of $25.1 million.
(e) The increase in 1994 of average common shares and equivalents outstanding is
a result of the Company's public offering of 2.1 million newly issued
shares in the third quarter of 1993 at a price of $23.75 per share.
30
<PAGE> 36
MARKET PRICE AND DIVIDENDS
Washington National Common Stock is listed and traded on the NYSE under the
symbol "WNT." The following table sets forth for the calendar periods indicated
the high and low sales prices per share of common stock as reported by the NYSE
and the quarterly cash dividends declared on Washington National Common Stock
for each quarter since January 1, 1995. The prices reflected in the following
table do not include mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
WASHINGTON NATIONAL
-------------------------------
CASH
DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------
<S> <C> <C> <C>
1995:
First Quarter............................................. $20.125 $17.750 $0.27
Second Quarter............................................ 21.000 18.000 0.27
Third Quarter............................................. 25.000 20.500 0.27
Fourth Quarter............................................ 29.250 21.875 0.27
-----
$1.08
1996:
First Quarter............................................. $30.500 $25.750 $0.27
Second Quarter............................................ 28.000 25.125 0.27
Third Quarter............................................. 30.750 25.125 0.27
Fourth Quarter............................................ 29.875 27.125 0.27
-----
$1.08
1997:
First Quarter............................................. $29.000 $27.375 $0.27
Second Quarter............................................ $29.000 $27.125 $0.27
Third Quarter............................................. $33.125 $28.375 $0.27
Fourth Quarter (through October 10, 1997)................. $32.875 $32.438
</TABLE>
The last reported sales price per share of Washington National Common Stock
on September 19, 1997, the last trading day prior to the public announcement of
the execution of the Merger Agreement was $32.375, as reported on the NYSE
Composite Transactions Tape.
The last reported sales price per share of Washington National Common Stock
on October 10, 1997, was $32.75, as reported on the NYSE Composite Transactions
Tape. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
WASHINGTON NATIONAL COMMON STOCK PRIOR TO MAKING ANY DECISION WITH RESPECT TO
THE MERGER.
31
<PAGE> 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the stock ownership of all persons known by
WNC to be the beneficial owners of more than 5% of the outstanding shares of
common stock of WNC (exclusive of treasury stock) as of October 1, 1997 (unless
otherwise noted).
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED(1)
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ------------------------------------------------------ ------- ----------
<S> <C> <C>
George P. Kendall, Jr.(2)............................. 952,803 7.91%
300 Tower Parkway
Lincolnshire, IL 60069
First Chicago NBD Corporation(3)...................... 607,199 5.04%
One First National Plaza
Chicago, IL 60670
Shufro, Rose & Ehrman(4).............................. 696,945 5.78%
745 Fifth Avenue
New York, NY 10151
SunTrust Banks, Inc.(5)............................... 856,660 7.11%
25 Park Place, N.E.
Atlanta, GA 30303
</TABLE>
- -------------------------
(1) The table includes common stock which could be acquired within 60 days by
exercise of a stock option.
(2) George P. Kendall, Jr. beneficially owns 952,803 shares of common stock,
including 490,071 shares which are also reported under First Chicago NBD
Corporation's beneficial ownership total. The 490,071 shares are held by
various trusts (including 226,569 shares held by the G.R. Kendall Foundation
and Trust) with respect to which George P. Kendall, Jr. and First Chicago
NBD Corporation, as well as other members of the Kendall family, share
voting and investment power as co-trustees of such trusts. Excluding these
490,071 shares, George P. Kendall, Jr. beneficially owns 126,861 shares or
1.05% of the outstanding shares.
(3) As of September 30, 1997, First Chicago NBD Corporation beneficially owned
607,199 shares of common stock on such date. First Chicago NBD Corporation
indicated that it had sole voting power over 10,119 shares, shared voting
power over 567,016 shares, sole investment power over 43,670 shares and
shared investment power over 563,004 shares. Included in First Chicago NBD
Corporation's beneficial ownership total are 490,071 shares which are also
reported under George P. Kendall, Jr.'s beneficial ownership total
(including 226,569 shares held by the G.R. Kendall Foundation and Trust)
over which First Chicago NBD Corporation shares voting and investment power
in its capacity as co-trustee with, among others, George P. Kendall, Jr., a
director of WNC.
(4) According to its Schedule 13G filed with the Securities and Exchange
Commission on February 14, 1997, Shufro, Rose & Ehrman beneficially owned on
such date 696,945 shares of common stock. Shufro, Rose & Ehrman indicated
that it had sole voting power over 80,300 shares and sole investment power
over 696,945 shares.
(5) According to its Schedule 13G filed with the Securities and Exchange
Commission on January 31, 1997, SunTrust Banks, Inc. beneficially owned
856,660 shares of common stock on such date. SunTrust Banks, Inc. indicated
that it had sole voting power over 855,910 shares, sole investment power
over 27,860 shares and shared investment power over 750 shares.
32
<PAGE> 38
The following table sets forth the beneficial ownership of WNC common stock
by each director and each executive officer so indicated and all executive
officers and directors as a group as of October 1, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TITLE OF CLASS BENEFICIALLY OWNED(1) PERCENTAGE(2)
- ---- -------------- --------------------- -------------
<S> <C> <C> <C>
F. R. Blume.................................... common stock 6,950(3)
E. R. Bond..................................... common stock 9,150(3)
R. L. Bornhuetter.............................. common stock 15,250(3)
W. F. Brennan.................................. common stock 5,400(3)
W. G. Brown.................................... common stock 28,021(3)
L. A. Ellis.................................... common stock 13,304(3)
J. R. Haire.................................... common stock 13,400(3)
S. P. Hutchison................................ common stock 16,400(3)
G. P. Kendall, Jr. ............................ common stock 952,803(3)(4) 7.91%
F. L. Klapperich, Jr. ......................... common stock 11,750(3)
L. M. Mitchell................................. common stock 7,000(3)
R. W. Patin.................................... common stock 166,225(3) 1.38%
J. N. Plato.................................... common stock 46,670(3)
T. Pontarelli.................................. common stock 56,686(3)
R. Reade....................................... common stock 10,500(3)
T. C. Scott.................................... common stock 64,100(3)
All Executive Officers and Directors as a Group
(16 persons)................................. common stock 1,423,609(3)(5) 11.81%
</TABLE>
- ---------------
(1) Unless otherwise indicated by footnote, persons owning the indicated shares
are deemed to have sole voting and investment power over such shares.
(2) The percentage of ownership of the common stock includes common stock which
could be acquired within 60 days by exercise of a stock option. Unless
otherwise indicated, the percentage of ownership of each class of stock is
less than one percent.
(3) Number of shares beneficially owned includes shares of common stock issuable
pursuant to stock options exercisable within 60 days after October 1, 1997,
as follows: Mr. Blume, 6,000 shares; Ms. Bond, 8,000 shares; Mr.
Bornhuetter, 8,750 shares; Mr. Brennan, 4,000 shares; Mr. Brown, 28,000
shares; Mr. Ellis, 10,250 shares; Mr. Haire, 10,250 shares; Mr. Hutchison,
10,250 shares; Mr. Kendall, 8,750 shares; Mr. Klapperich, 8,750 shares; Mr.
Mitchell, 6,000 shares; Mr. Patin, 140,000 shares; Mr. Plato, 38,800 shares;
Mr. Pontarelli, 55,000 shares; Mr. Reade, 10,250 shares; and Mr. Scott,
54,000 shares.
(4) See footnote (2) on page 32 for information relating to Mr. Kendall's
beneficial ownership.
(5) The 1,423,609 shares of common stock shown include 490,071 shares
beneficially owned by George P. Kendall, Jr. that are reported above under
both George P. Kendall, Jr.'s and First Chicago NBD Corporation beneficial
ownership totals.
INDEPENDENT PUBLIC ACCOUNTANTS
It is anticipated that a representative from Ernst & Young LLP will be
present at the Special Meeting and will have the opportunity to make a statement
and to respond to appropriate questions.
33
<PAGE> 39
OTHER MATTERS
As of the date of this Proxy Statement the Washington National Board does
not intend to present, and has not been informed that any other person intends
to present, any matters for action at the Special Meeting other than as
discussed herein.
If the Merger is not consummated, or if it is not consummated within the
time period currently contemplated, Washington National will hold a 1997 Annual
Meeting of Stockholders. As described in Washington National's proxy statement
relating to its 1996 Annual Meeting of Stockholders, in order for proposals of
Washington National's stockholders to be considered for inclusion in the proxy
statement relating to its 1997 Annual Meeting of Stockholders, such proposals
must have been received at Washington National's executive office not later than
January 1, 1997. No such proposals were received by Washington National by such
date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST TO WASHINGTON NATIONAL, 300 TOWER PARKWAY, LINCOLNSHIRE, ILLINOIS
60069-3665, ATTENTION: CRAIG SIMUNDZA, VICE PRESIDENT, FINANCIAL REPORTING,
TELEPHONE NUMBER (847) 793-3053. IN ORDER TO ENSURE TIMELY DELIVERY OF
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 10, 1997.
The following document filed by Washington National with the Commission
pursuant to the Exchange Act is incorporated by reference into this Proxy
Statement: (i) Washington National's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996; (ii) Washington National's Quarterly Reports on
Form 10-Q for the fiscal quarter ended March 31, 1997 and June 30, 1997; and
(iii) Washington National's Current Reports on Form 8-K dated January 8, 1997,
September 3, 1997 and September 26, 1997.
All documents and reports filed by Washington National with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents and reports. Any statement incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document or report which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement.
34
<PAGE> 40
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 20, 1997
BY AND AMONG
CONSECO, INC.,
GRANITE MERGER CORP.
AND
WASHINGTON NATIONAL CORPORATION
A-1
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 THE MERGER....................................................... 1
SECTION 1.1 The Merger.................................................. 1
SECTION 1.2 Closing..................................................... 1
SECTION 1.3 Effective Time.............................................. 1
SECTION 1.4 Certificate of Incorporation................................ 1
SECTION 1.5 By-Laws..................................................... 1
SECTION 1.6 Directors................................................... 2
SECTION 1.7 Officers.................................................... 2
SECTION 1.8 Effect of Merger on Merger Sub Capital Stock................ 2
SECTION 1.9 Conversion of Common Shares................................. 2
sec. 1.9.1 Outstanding Common Shares................................... 2
sec. 1.9.2 Treasury Shares............................................. 2
SECTION 1.10 Exchange of Certificates and Related Matters................ 2
sec. 1.10.1 Paying Agent................................................ 2
sec. 1.10.2 Exchange Procedures......................................... 2
sec. 1.10.3 Letter of Transmittal....................................... 3
sec. 1.10.4 No Further Ownership Rights in Shares....................... 3
sec. 1.10.5 Termination of Payment Fund................................. 3
sec. 1.10.6 No Liability................................................ 3
SECTION 1.11 Stock Options and Restricted Stock.......................... 3
SECTION 1.12 Dissenting Shares........................................... 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 4
SECTION 2.1 Organization, Standing and Corporate Power.................. 4
SECTION 2.2 Capital Structure........................................... 4
SECTION 2.3 Subsidiaries................................................ 5
SECTION 2.4 Authority; Noncontravention................................. 5
SECTION 2.5 SEC Documents............................................... 6
SECTION 2.6 Absence of Certain Changes or Events........................ 7
SECTION 2.7 Absence of Undisclosed Liabilities.......................... 7
SECTION 2.8 Benefit Plans............................................... 8
SECTION 2.9 Taxes....................................................... 9
SECTION 2.10 Compliance with Applicable Laws............................. 10
SECTION 2.11 Insurance Issued............................................ 12
SECTION 2.12 Rating Agencies............................................. 13
SECTION 2.13 Opinion of Financial Advisor................................ 13
SECTION 2.14 Brokers..................................................... 13
SECTION 2.15 Environmental............................................... 13
SECTION 2.16 Litigation.................................................. 13
SECTION 2.17 Labor Relations............................................. 14
SECTION 2.18 Health Insurance Transaction................................ 14
SECTION 2.19 Voting Requirements......................................... 14
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND
MERGER SUB.................................................. 14
SECTION 3.1 Organization, Standing and Corporate Power.................. 14
SECTION 3.2 Authority; Noncontravention................................. 14
SECTION 3.3 Litigation.................................................. 15
SECTION 3.4 Financing................................................... 15
SECTION 3.5 Brokers..................................................... 15
SECTION 3.6 Voting Requirements......................................... 15
ARTICLE 4 ADDITIONAL AGREEMENTS............................................ 15
SECTION 4.1 Preparation of Proxy Statement; Information Supplied........ 15
sec. 4.1.1 Proxy Statement............................................. 15
sec. 4.1.2 Company Information......................................... 16
sec. 4.1.3 Acquiror Information........................................ 16
SECTION 4.2 Meeting of Stockholders..................................... 16
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
SECTION 4.3 Access to Information; Confidentiality...................... 16
SECTION 4.4 Reasonable Best Efforts..................................... 16
SECTION 4.5 Public Announcements........................................ 17
SECTION 4.6 Acquisition Proposals....................................... 17
SECTION 4.7 Fiduciary Duties............................................ 17
SECTION 4.8 Filings; Other Action....................................... 18
SECTION 4.9 Indemnification............................................. 18
SECTION 4.10 Employee Benefits........................................... 19
sec. 4.10.1 Severance................................................... 19
sec. 4.10.2 Retiree Life and Health Plan................................ 19
sec. 4.10.3 Directors' Retirement Income Plan........................... 19
sec. 4.10.4 Transition Plan............................................. 19
SECTION 4.11 Office Property............................................. 19
SECTION 4.12 Letter of the Company's Accountants......................... 20
SECTION 4.13 Litigation.................................................. 20
SECTION 4.14 Failure to Close............................................ 20
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER........
20
SECTION 5.1 Conduct of Business by the Company.......................... 20
SECTION 5.2 Management of the Company and Significant Subsidiaries...... 22
SECTION 5.3 Conduct of Business of Merger Sub........................... 22
SECTION 5.4 Other Actions............................................... 22
SECTION 5.5 Employee Benefit Payments................................... 22
SECTION 5.6 United Way Contribution..................................... 23
SECTION 5.7 Further Assurances.......................................... 24
ARTICLE 6 CONDITIONS PRECEDENT............................................. 24
SECTION 6.1 Conditions to Each Party's Obligation To Effect the
Merger...................................................... 24
sec. 6.1.1 Stockholder Approval........................................ 24
sec. 6.1.2 Governmental and Regulatory Consents........................ 24
sec. 6.1.3 HSR Act..................................................... 24
sec. 6.1.4 No Injunctions or Restraints................................ 24
SECTION 6.2 Conditions to Obligations of Acquiror and Merger Sub........ 24
sec. 6.2.1 Representations and Warranties.............................. 24
sec. 6.2.2 Performance of Obligations of the Company................... 24
SECTION 6.3 Conditions to Obligation of the Company..................... 25
sec. 6.3.1 Representations and Warranties.............................. 25
sec. 6.3.2 Performance of Obligations of Acquiror and Merger Sub....... 25
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER................................ 25
SECTION 7.1 Termination................................................. 25
SECTION 7.2 Effect of Termination....................................... 26
SECTION 7.3 Amendment................................................... 26
SECTION 7.4 Extension; Waiver........................................... 26
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver... 26
ARTICLE 8 SURVIVAL OF PROVISIONS........................................... 27
SECTION 8.1 Survival.................................................... 27
ARTICLE 9 NOTICES.......................................................... 27
SECTION 9.1 Notices..................................................... 27
ARTICLE 10 MISCELLANEOUS................................................... 28
SECTION 10.1 Entire Agreement............................................ 28
SECTION 10.2 Expenses.................................................... 28
SECTION 10.3 Counterparts................................................ 28
SECTION 10.4 No Third Party Beneficiary.................................. 28
SECTION 10.5 Governing Law............................................... 28
SECTION 10.6 Assignment; Binding Effect.................................. 28
SECTION 10.7 Headings, Gender, etc. ..................................... 28
SECTION 10.8 Invalid Provisions.......................................... 28
</TABLE>
ii
<PAGE> 43
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of September 20, 1997 by and among Conseco, Inc., an Indiana corporation
("Acquiror"), Granite Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Acquiror ("Merger Sub"), and Washington National Corporation, a
Delaware corporation (the "Company").
PREAMBLE
WHEREAS, the respective Boards of Directors of Acquiror and the Company
have determined that the Merger (as defined in Section 1.1) is in the best
interests of their respective stockholders and have approved the Merger, upon
the terms and subject to the conditions set forth herein;
WHEREAS, Acquiror, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with such
Merger; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as is defined in Section 1.3 hereof), Merger
Sub shall be merged with and into the Company (the "Merger"), in accordance with
the Delaware General Corporation Law (the "Delaware Code"), and the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation under the laws of the State of Delaware (the
"Surviving Corporation") with all the rights, privileges, immunities and powers,
and subject to all the duties and liabilities, of a corporation organized under
the Delaware Code. The Merger shall have the effects set forth in the Delaware
Code.
SECTION 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
9:00 a.m. on the second business day following the date on which the last of the
conditions set forth in Article 6 shall be fulfilled or waived in accordance
with this Agreement (the "Closing Date"), at the offices of Schiff Hardin &
Waite, 7200 Sears Tower, 233 Wacker Drive, Chicago, Illinois 60606, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. The parties hereto will file with the Secretary
of State of the State of Delaware (the "Delaware Secretary of State") on the
date of the Closing (or on such other date as Acquiror and the Company may
agree) a certificate of merger or other appropriate documents, mutually
satisfactory in form and substance to Acquiror and the Company and executed in
accordance with the relevant provisions of the Delaware Code, and make all other
filings or recordings required under the Delaware Code in connection with the
Merger. The Merger shall become effective upon the filing of the certificate of
merger with the Delaware Secretary of State, or at such later time as is
specified in the certificate of merger (the "Effective Time").
SECTION 1.4 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by applicable law.
SECTION 1.5 By-Laws. The By-Laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by law, the By-Laws or the Certificate of
Incorporation of the Surviving Corporation.
<PAGE> 44
SECTION 1.6 Directors. The directors of Merger Sub at the Effective Time
shall be the directors of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of Incorporation
or By-Laws of the Surviving Corporation, or as otherwise provided by law.
SECTION 1.7 Officers. The officers of Merger Sub at the Effective Time
shall be the officers of the Surviving Corporation and will hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualify in the manner provided in the Certificate of Incorporation or
By-Laws of the Surviving Corporation, or as otherwise provided by law.
SECTION 1.8 Effect of Merger on Merger Sub Capital Stock. Each share of
capital stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $.001 per share, of the Surviving
Corporation.
SECTION 1.9 Conversion of Common Shares.
sec. 1.9.1 Outstanding Common Shares. Subject to the other provisions
of this Section 1.9, each share of common stock, $5.00 par value, of the
Company (the "Common Shares") issued and outstanding immediately prior to
the Effective Time (other than shares held as treasury shares by the
Company and Dissenting Shares (as defined in Section 1.12 below)) shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive $33.25 in cash, without
interest (the "Merger Consideration").
sec. 1.9.2 Treasury Shares. Each Common Share issued and outstanding
immediately prior to the Effective Time which is then held as a treasury
share by the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the Company, be
cancelled and retired and cease to exist, without any conversion thereof.
SECTION 1.10 Exchange of Certificates and Related Matters.
sec. 1.10.1 Paying Agent. As of the Effective Time, Acquiror shall
deposit with its transfer agent and registrar or another bank selected by
Acquiror and reasonably acceptable to the Company (the "Paying Agent"), for
the benefit of the holders of Common Shares, cash in an aggregate amount
equal to the aggregate Merger Consideration (such amount being sometimes
hereinafter referred to as the "Payment Fund").
sec. 1.10.2 Exchange Procedures. Upon surrender to the Paying Agent of
a certificate representing Common Shares for cancellation, together with a
letter of transmittal and such other customary documents as may be required
by the instructions to the letter of transmittal (collectively, the
"Certificate") and acceptance thereof by the Paying Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the
amount of cash into which the number of Common Shares previously
represented by such Certificate shall have been converted pursuant to
Section 1.9.1. The Paying Agent shall accept such Certificate upon
compliance with such reasonable terms and conditions as the Paying Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. If the Merger Consideration (or any portion thereof) is
to be delivered to any person other than the person in whose name the
Certificate representing Common Shares surrendered in exchange therefor is
registered on the record books of the Company, it shall be a condition to
such exchange that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such exchange shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of such consideration to a
person other than the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax has
been paid or is not applicable. After the Effective Time, there shall be no
further transfer on the records of the Company or its transfer agent of any
Certificate representing Common Shares and if any such Certificate is
presented to the Company for transfer, it shall be cancelled against
delivery of the Merger Consideration as hereinabove provided. Until
surrendered as contemplated by this Section 1.10.2, each Certificate
representing Common Shares (other than a Certificate representing Common
Shares to be cancelled in
2
<PAGE> 45
accordance with Section 1.9.2), shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the Merger Consideration, without any interest thereon.
sec. 1.10.3 Letter of Transmittal. Promptly after the Effective Time
(but in no event more than five business days thereafter), Acquiror shall
require the Paying Agent to mail to each record holder of Certificates that
immediately prior to the Effective Time represented Common Shares which
have been converted pursuant to Section 1.9, a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
shall pass, only upon proper delivery of Certificates representing Common
Shares to the Paying Agent and shall be in such form and have such
provisions as Acquiror reasonably may specify) and instructions for use in
surrendering such Certificates and receiving the Merger Consideration to
which such holder shall be entitled therefor pursuant to Section 1.9.
sec. 1.10.4 No Further Ownership Rights in Shares. The Merger
Consideration paid upon the surrender for exchange of Certificates
representing Common Shares in accordance with the terms of this Article I
shall be deemed to have been issued and paid in full satisfaction of all
rights pertaining to the Common Shares theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation
(if any) to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared by the
Company on such Common Shares in accordance with the terms of this
Agreement or prior to the date of this Agreement and which remain unpaid at
the Effective Time.
sec. 1.10.5 Termination of Payment Fund. Any portion of the Payment
Fund which remains undistributed to the holders of the Certificates
representing Common Shares for 120 days after the Effective Time shall be
delivered to Acquiror, upon demand, and any holders of Common Shares who
have not theretofore complied with this Article I shall thereafter look
only to Acquiror and only as general creditors thereof for payment, without
interest, of their claim for any Merger Consideration with respect to their
Common Shares.
sec. 1.10.6 No Liability. None of Acquiror, Merger Sub, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of
any cash, shares, dividends or distributions payable from the Payment Fund
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates representing Common
Shares shall not have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date on which any
Merger Consideration in respect of such Certificate would otherwise escheat
to or become the property of any Governmental Entity (as defined in Section
2.4)), any such cash, shares, dividends or distributions payable 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.
SECTION 1.11 Stock Options and Restricted Stock. The Company has advised
Acquiror and hereby confirms that the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee"), in administering the
"Washington National Corporation Stock Benefit Plan, as Amended" (the "Plan"),
shall, in accordance with the terms of the Plan and the agreements entered into
thereunder with respect to director and employee stock options to purchase
Common Shares ("Employee Options"), and Common Shares of restricted stock
("Restricted Stock"), provide for (i) the acceleration of the exercisability of
Employee Options immediately prior to the Effective Time, (ii) the ability of
certain retirees (all of whom are among the persons identified on Section 2.2 of
the Disclosure Schedule) who have Employee Options to exercise those Employee
Options up to the Effective Time, (iii) the ability of certain individuals whose
employment with the Company was terminated by the Company prior to the date of
this Agreement or whose employment is terminated by the Company with the consent
of the Acquiror between the date of this Agreement and the Effective Time to
exercise Employee Options for a period ending on the earlier of the Effective
Time and two years from the date of termination of employment with the Company,
and (iv) the acceleration of the date to immediately prior to the Effective Time
on which restrictions applicable to Restricted Stock shall lapse.
Notwithstanding anything in this Agreement to the contrary, the Company shall
take all actions necessary to cause each Employee Option outstanding immediately
prior to the Effective Time
3
<PAGE> 46
to be cancelled by the Company, and each holder of a cancelled Employee Option
shall receive from the Company in consideration for the cancellation of such
Employee Option an amount in cash (less applicable withholding taxes) equal to
the product of (i) the number of Common Shares previously subject to such
Employee Option and (ii) the excess, if any, of the Merger Consideration over
the exercise price per Common Share previously subject to such Employee Option.
The Company shall take all actions necessary to cause each share of Restricted
Stock outstanding immediately prior to the Effective Time to be cancelled by the
Company, and each holder of a cancelled share of Restricted Stock shall receive
from the Company in consideration for the cancellation of such Restricted Stock
an amount in cash equal to 125% of the Merger Consideration less applicable
withholding taxes.
SECTION 1.12 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, the Common Shares outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded properly in writing appraisal
for such Common Shares in accordance with Section 262 of the Delaware Code and
who shall not have withdrawn such demand or otherwise have forfeited appraisal
rights shall not be converted into or represent the right to receive the Merger
Consideration ("Dissenting Shares"). Such stockholders shall be entitled to
receive payment of the appraised value of such Common Shares held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such Common Shares
held by them under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger Consideration,
upon surrender, in the manner provided in Section 1.10.2, of the Certificate or
Certificates that formerly evidenced such Common Shares. The Company shall give
Acquiror prompt notice of any demands for appraisal received by the Company,
withdrawals of such demands, and any other instruments served pursuant to
Delaware law and received by the Company, and Acquiror shall have the right to
participate in all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, the Company shall not, except with the prior
written consent of Acquiror, make any payment with respect to any demands for
appraisal, or settle or offer to settle, any such demands.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger Sub as
follows:
SECTION 2.1 Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly qualified to
do business and is in good standing as a foreign corporation in the states of
Illinois and Indiana, which are the only jurisdictions in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary, except where the failures to be so qualified would not
individually or in the aggregate have a Material Adverse Effect. As used in this
Agreement, the term "Material Adverse Effect" means with respect to the Company
a material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company (including, immediately after
the Merger, the Surviving Corporation) and its subsidiaries taken as a whole, or
on the ability of the Company to consummate the transactions contemplated by
this Agreement. The Company has delivered to Acquiror complete and correct
copies of the Certificate of Incorporation and By-Laws of the Company and the
comparable documents of the Company's Significant Subsidiaries, as amended to
the date of this Agreement.
SECTION 2.2 Capital Structure. The authorized capital stock of the Company
consists of 60,000,000 Common Shares and 10,000,000 shares of preferred stock,
$5.00 par value. At the close of business on September 19, 1997, (i) 12,048,004
Common Shares were issued and outstanding; (ii) 3,799,037 Common Shares were
held as treasury stock; (iii) 0 Common Shares were held by Subsidiaries of the
Company; (iv) 869,805 Common Shares were reserved for issuance upon the exercise
of issued options to purchase Common Shares; (v) 29,118 Common Shares were
reserved for issuance in connection with the Company's
4
<PAGE> 47
dividend reinvestment plan; and (vi) no shares of preferred stock were issued or
outstanding. All outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other indebtedness 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 the stockholders of
the Company may vote are issued or outstanding. Section 2.2 of the Disclosure
Schedule sets forth the following information with respect to each Employee
Option and Restricted Stock award outstanding on the date hereof, and each
Restricted Stock award which has been forfeited by an Eligible Employee (as
defined in Section 5.5); (x) the name of the recipient, (y) the number of Common
Shares subject to such Employee Option and Restricted Stock award, and (z) the
applicable exercise price for each Employee Option. Except as set forth above or
in Section 2.2 of the Disclosure Schedule, the Company does not have any
outstanding option, warrant, subscription or other right, agreement or
commitment which either obligates the Company to issue, sell or transfer,
repurchase, redeem or otherwise issue, acquire or vote any shares of capital
stock of the Company, or which restricts the transfer of Common Shares.
SECTION 2.3 Subsidiaries. (i) Section 2.3 of the Disclosure Schedule sets
forth the name of each subsidiary of the Company (the "Subsidiaries") and the
state or jurisdiction of its incorporation and indicates which Subsidiaries are
insurance companies. Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority and all necessary
government approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority or
necessary governmental approvals would not individually or in the aggregate have
a Material Adverse Effect. Each Subsidiary is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
individually or in the aggregate have a Material Adverse Effect. For purposes of
this Agreement, a "Significant Subsidiary" of the Company means each of
Washington National Insurance Company ("WNIC"), United Presidential Corporation
and United Presidential Life Insurance Company ("UPLIC"), which are the only
Subsidiaries of the Company that would constitute "significant subsidiaries"
within the meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC"). Except as disclosed in Section 2.3 of the Disclosure
Schedule, each of the Subsidiaries that is an insurance company is (a) duly
licensed or authorized as an insurance company in its jurisdiction of
incorporation and (b) duly licensed or authorized as an insurance company and in
good standing in each other jurisdiction where it is required to be so licensed
or authorized as set forth in Schedule T to the most recent Annual Statement (as
defined in Section 2.10(iii). The Subsidiaries of the Company (other than the
Significant Subsidiaries), if considered as a whole, would not constitute a
"significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X.
(ii) Section 2.3 of the Disclosure Schedule sets forth, as to each
Significant Subsidiary, its authorized capital stock and the number of its
issued and outstanding shares of capital stock. The Company is, directly or
indirectly, the record and beneficial owner of all of the outstanding shares of
capital stock of each of the Subsidiaries, and no capital stock of any
Subsidiary is or may become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock of any Subsidiary, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may be bound to issue, redeem, purchase or sell
additional shares of capital stock of any Subsidiary or securities convertible
into or exchangeable or exercisable for any such shares. All of such shares so
owned by the Company are validly issued, fully paid and nonassessable and are
owned by it or by another wholly-owned Subsidiary thereof free and clear of all
liens, claims, encumbrances, restraints on alienation, or any other restrictions
with respect to the transferability or assignability thereof (other than
restrictions on transfer imposed by federal or state securities laws).
SECTION 2.4 Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
5
<PAGE> 48
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 approval of its
stockholders as set forth in Section 4.2. This Agreement has been duly executed
and delivered by the Company and, assuming this Agreement has been duly executed
and delivered by Acquiror and Merger Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as disclosed in Section 2.4 of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the Certificate of Incorporation or By-Laws of the Company or the comparable
documents of any of the Significant Subsidiaries, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach 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 any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their assets is bound or affected or result in the
creation or imposition of any lien, claim or encumbrance on any asset of the
Company or any of its Subsidiaries, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, contravene any law,
rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, subject, in the case of
clause (ii), to those conflicts, breaches, defaults and similar matters, which,
individually or in the aggregate, would not have a Material Adverse Effect nor
materially and adversely affect the Company's ability to consummate the
transactions contemplated hereby. No consent, approval or authorization of, or
declaration or filing with, or notice to, any governmental agency or regulatory
body, court, agency, commission, division, department, public body or other
authority (a "Governmental Entity") which has not been received or made, is
required by or with respect to the Company or any Significant Subsidiary 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 premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
with respect to the Merger, (ii) the filings and/or notices required under the
insurance laws of the jurisdictions set forth in Section 2.3 of the Disclosure
Schedule, (iii) the filing with the SEC of (x) a proxy statement relating to the
approval by the stockholders of the Company of the Merger (the "Proxy
Statement"), and (y) such reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iv) the filing
of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, and (v) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 2.4 of the
Disclosure Schedule.
SECTION 2.5 SEC Documents. The Company has timely filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1995 (such reports, schedules, forms, statements and other documents
are hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied with the requirements of the Securities Act of
1933, as amended (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 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 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 ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as
6
<PAGE> 49
permitted by Rule 10-01 of Regulation S-X) and fairly present, in all material
respects, 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 interim financial statements, to normal year-end audit
adjustments) in accordance with GAAP.
SECTION 2.6 Absence of Certain Changes or Events. Except as disclosed in
the SEC Documents filed and publicly available prior to September 3, 1997 (the
"Filed SEC Documents") or in Section 2.6 of the Disclosure Schedule or except as
otherwise provided in this Agreement, since December 31, 1996, the Company and
its Subsidiaries have conducted their business only in the ordinary course, and
except as otherwise expressly permitted by this Agreement, there has not been
(i) any change which has had or which could reasonably be expected to have a
Material Adverse Effect, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of the Company's outstanding capital stock (other than regular quarterly
cash dividends of $.27 per Common Share and $.62 1/2 per share of $2.50
Convertible Preferred Stock, $5.00 par value (the "Preferred Stock") in
accordance with usual record and payment dates and in accordance with the
Company's present dividend policy), (iii) any split, combination or
reclassification of any of its outstanding capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its outstanding capital stock, (iv) (x) any
granting by the Company or any of its Subsidiaries to any director, officer or
other employee of the Company or any of its Subsidiaries of any increase in
compensation, except in the case of employees in the ordinary course of business
consistent with prior practice, or as was required under employment agreements
in effect as of the date of the most recent audited financial statements
included in the Filed SEC Documents, (y) any granting by the Company or any of
its Subsidiaries to any such director, officer or other employee of any increase
in severance or termination pay, (z) any entry by the Company or any of its
Subsidiaries into any employment, severance, change of control, termination or
similar agreement with any officer, director or other employee, (v) any change
in the method of accounting or policy used by the Company or any of its
Subsidiaries and disclosed in the financial statements included in the Filed SEC
Documents or in the Annual Statement or the Quarterly Statement (as those terms
are defined in Section 2.10(iii)) most recently filed and publicly available
prior to the date hereof, other than changes which were required by GAAP or SAP
(as defined in Section 2.10(iii)) or Guideline 22 of the National Association of
Insurance Commissioners, (vi) any material amendment to the insurance policies
or annuity contracts in force of any Significant Subsidiary or any material
change in the methodology used in the determination of the Reserve Liabilities
(as defined in Section 2.10(iv)) of the Significant Subsidiaries or any reserves
contained in the financial statements included in the Filed SEC Documents or in
the Annual Statement or the Quarterly Statement most recently filed and publicly
available prior to the date hereof with respect to insurance policies and
annuity contracts, (vii) any termination, amendment, or entrance into as ceding
or assuming insurer any reinsurance, coinsurance or other similar agreement or
any trust agreement or security agreement relating thereto, other than renewals
on substantially the same terms, in the ordinary course of business, (viii) the
introduction of any insurance policy or annuity contract, (ix) any material
changes in their customary marketing, pricing, underwriting, investing or
actuarial practices and policies or (x) any adoption or amendment in any
material respect by the Company or any of its Subsidiaries of any collective
bargaining agreement or any Benefit Plan (as defined in Section 2.8). Except as
disclosed in Section 2.6 of the Disclosure Schedule, there exist no employment,
consulting, severance, termination or indemnification agreements between the
Company or any of its Subsidiaries and any current or former employee, officer
or director of the Company or any of its Subsidiaries.
SECTION 2.7 Absence of Undisclosed Liabilities. Except as disclosed in the
Filed SEC Documents or in Section 2.7 of the Disclosure Schedule or which were
incurred after June 30, 1997 in the ordinary course of business consistent with
past practice (and which, other than liabilities for policy benefits,
individually or in the aggregate, are immaterial in amount), the Company and its
Subsidiaries do not have any material liabilities or obligations of a nature
required by GAAP to be reflected in a consolidated balance sheet (or reflected
in the notes thereto) of the Company and its Subsidiaries.
7
<PAGE> 50
SECTION 2.8 Benefit Plans. Section 2.8 of the Disclosure Schedule sets
forth a complete and correct list of all Benefit Plans (as defined below).
Except as disclosed in Section 2.8 of the Disclosure Schedule:
(i) Each "employee pension benefit plan" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (hereinafter a "Pension Plan"), "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and
each other plan, program, arrangement or policy (written or oral) relating
to bonuses, deferred compensation, performance compensation, compensation,
stock purchases, stock options, stock appreciation, severance, salary
continuation, vacation, sick leave, holiday pay, fringe benefits, personnel
policies, reimbursement programs, incentives, insurance, welfare or other
employee benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by the Company and its Subsidiaries for
the benefit of any present or former officers, employees, agents, directors
or independent contractors of the Company or its Subsidiaries (all the
foregoing being herein called "Benefit Plans") has been administered in
accordance with its terms and all applicable laws and regulations. All
required contributions to the Benefit Plans have been made. The Company,
its Subsidiaries and all the Benefit Plans are in compliance with the
applicable provisions of ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), all other applicable laws and all applicable
collective bargaining agreements. Complete and correct copies of all
current and prior documents, including all amendments thereto, with respect
to each Benefit Plan have been delivered to Acquiror.
(ii) None of the Company or any other person or entity that together
with the Company is treated as a single employer under Section 414(b), (c),
(m) or (o) of the Code (each a "Commonly Controlled Entity") has incurred
any liability to a Pension Plan covered by Title IV of ERISA (other than
for contributions not yet due) or to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums not yet due) which
liability has not been fully paid as of the date hereof.
(iii) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted or
would result in any "withdrawal liability" (within the meaning of Section
4201 of ERISA) that has not been fully paid.
(iv) There are no pending or threatened claims (other than routine
benefit claims), lawsuits or arbitrations which have been asserted or
instituted against any Benefit Plan, any of the fiduciaries thereof or the
Company or its Subsidiaries with respect to their duties under the Benefit
Plans.
(v) Neither the Company nor a Commonly Controlled Entity, nor any of
their respective employees or directors, nor any fiduciary, has engaged in
any transaction, including the execution and delivery of this Agreement and
other agreements, instruments and documents for which execution and
delivery by the Company is contemplated herein, in violation of Section
406(a) or (b) of ERISA or which is a "prohibited transaction" (as defined
in Section 4975(c)(i) of the Code) for which no exemption exists under
Section 408(b) of ERISA or Section 4975(d) of the Code or for which no
administrative exemption has been granted under Section 408(a) of ERISA.
(vi) The Benefit Plans and their related trusts intended to qualify
under Sections 401 and 501(a) of the Code, respectively, received favorable
determination letters from the Internal Revenue Service and the Company
believes such Plans and their related trusts continue to qualify and
operate as designed. Any voluntary employee benefit association which
provides benefits to current or former employees of the Company and its
Subsidiaries, or their beneficiaries received a favorable determination
letter from the Internal Revenue Service and the Company believes such
associations continue to qualify and operate as designed.
(vii) The Company and its Subsidiaries have no liability (contingent
or otherwise) under Section 4069 of ERISA by reason of a transfer of any
underfunded pension plan.
(viii) Nothing has occurred or is reasonably expected to occur in
connection with the transactions contemplated by the Reinsurance Agreement
dated as of October 1, 1996, as amended, between WNIC and Trustmark
Insurance Company and the Reinsurance Agreement dated as of July 31, 1996,
as
8
<PAGE> 51
amended, between WNIC and Pioneer Life Insurance Company which would result
in material liabilities (contingent or otherwise) of the Company and its
Subsidiaries with respect to employees of such discontinued operations. The
amounts of severance pay, pay in lieu of notice under the Workers
Adjustment and Retraining Notification Act, and other severance benefits
incurred or reasonably expected to be incurred in connection with such
employees is set forth on Section 2.8(viii) of the Disclosure Schedule.
(ix) Complete and correct copies of the most recent actuarial reports
(including for purposes of Financial Accounting Standards Board report no.
87, 106 and 112) with respect to each Benefit Plan providing retiree
medical or life insurance coverage for employees of the Company and its
Subsidiaries have been provided to Acquiror. Except as disclosed in Section
2.8(ix) of the Disclosure Schedule, no current employee of the Company or
its Subsidiaries would be entitled if his or her employment with the
Company and its Subsidiaries is terminated to any retiree medical or
insurance coverage.
(x) Except as disclosed in Section 2.8(x) of the Disclosure Schedule
any amount that could be received as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of the
Company or any of its Subsidiaries under any employment, severance or
termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G of the Code).
(xi) Except as disclosed in Section 2.8(xi) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, as a result of
such transactions or any event occurring thereafter (i) result in any
payment becoming due to any employee (current, former or retired) of the
Company and its Subsidiaries, (ii) increase any benefits under any Benefit
Plan or (iii) result in the acceleration of the time of payment of, vesting
of or other rights with respect to any such benefits.
(xii) Section 2.8(xii) of the Disclosure Schedule sets forth the
amounts accrued in the financial statements of the Company for the amounts
payable by the Company to any person covered by the Benefit Plans as of
June 30, 1997 and an accurate computation based on the assumptions set
forth therein of the amounts that will be payable to any such person for
periods thereafter under the Benefit Plans. The financial statements of the
Company include or will include proper accruals for all applicable benefits
and taxes with respect to the foregoing amounts.
SECTION 2.9 Taxes. Except as disclosed in Section 2.9 of the Disclosure
Schedule:
(i) Each of the Company and its Subsidiaries has duly filed all tax
returns and reports required to be filed by it or requests for extensions
to file such returns or reports have been timely filed, granted and have
not expired, and all such tax returns are complete and accurate in all
material respects except to the extent that such failures to file or to
have extensions granted that remain in effect or to be complete and
accurate individually and in the aggregate would not have a Material
Adverse Effect. The Company and each of its Subsidiaries has paid (or the
Company has paid on the Subsidiaries' behalf) all taxes shown as due on
such returns, and the most recent financial statements contained in the
Filed SEC Documents and all SEC Documents filed prior to the Closing Date
reflect an adequate reserve for all taxes payable by the Company and the
Significant Subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that are not
adequately reserved for, except for deficiencies that individually and in
the aggregate would not have a Material Adverse Effect, and, except as set
forth on Section 2.9 of the Disclosure Schedule, no requests for waivers of
the time to assess any such taxes have been granted or are pending. The
Federal income tax returns of the Company and each of its Subsidiaries
consolidated in such returns have been examined by and settled with the
United States Internal Revenue Service, or the statute of limitations on
assessment or collection of any Federal income taxes due from the Company
or the any of its Subsidiaries has expired, through such taxable years as
are set forth in Section 2.9 of the Disclosure Schedule.
9
<PAGE> 52
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, premium, franchise, sales,
excise, employment, payroll, withholding and other taxes, tariffs or
governmental charges of any nature whatsoever and any interest, penalties
and additions to taxes relating thereto. As used in this Agreement, "tax
returns" shall include any return, report, information return, or other
document (including any related or supporting information) filed or
required to be filed with any governmental agency, department, commission,
board, bureau, or instrumentality in connection with the determination,
assessment, collection, or administration of any taxes.
(iv) Neither the Company nor any of its Subsidiaries has made, nor is
obligated to make, in connection with the transactions contemplated by this
Agreement or otherwise, any payments that will not be deductible because of
the application of Section 280G or Section 162(m) of the Code.
(v) Neither the Company nor any of its Subsidiaries has made any
election, filed any consent or entered into any agreement with respect to
taxes that is not reflected on the federal income tax returns of the
Company and its Subsidiaries for the three years ended December 31, 1996
(copies of which returns have been made available to Acquiror for review
prior to the date of this Agreement) and that could reasonably be expected
to be material to the Company and the Subsidiaries taken as a whole.
(vi) There will be no subtraction from the policyholder surplus
account of the Significant Subsidiaries under Section 815 of the Code from
December 31, 1996 up to and including the Effective Time.
(vii) WNIC and UPLIC qualify and will qualify until the Effective Time
as "life insurance companies" within the meaning of Section 816(a) of the
Code and the treasury regulations thereunder.
(viii) All life insurance contracts issued by any of the Significant
Subsidiaries that are subject to Section 7702 of the Code qualify as "life
insurance contracts" under Section 7702(a) of the Code. Any policies issued
by any of the Significant Subsidiaries that are deemed to be "modified
endowment contracts" under Section 7702(a) of the Code are being properly
monitored by such Significant Subsidiaries. All annuity contracts issued by
any of the Significant Subsidiaries that are subject to Section 72(s) of
the Code contain all of the necessary provisions of Section 72(s). All
insurance policies issued by any of the Significant Subsidiaries that were
represented to policyholders to meet the requirements of Section 401(a),
403(b), 408(b) or 457 of the Code are in compliance with such requirements.
(ix) All contracts issued by the Subsidiaries that are subject to
Section 817 of the Code, and the regulations thereunder, have met the
diversification requirements since the issuance of the contract and will
continuously meet these rules through the Closing Date.
SECTION 2.10 Compliance with Applicable Laws. Except as disclosed in
Section 2.10 of the Disclosure Schedule:
(i) The business of the Company and each of the Significant
Subsidiaries is being conducted in compliance in all material respects with
all applicable laws, including, without limitation, all insurance laws,
ordinances, rules and regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed and were in compliance in all material respects with such laws.
(ii) Each of the Company and the Significant Subsidiaries has in
effect all Federal, state, local and foreign government approvals, licenses
(including, without limitation, insurance licenses), permits, certificates,
notices, filings, authorizations, franchises, and rights ("Licenses") which
are necessary for it to own, lease or operate its properties and assets and
to conduct its business as now conducted. The business of each of the
Company and the Significant Subsidiaries has been and is being conducted in
compliance in all material respects with all such Licenses. All
restrictions and limitations on those Licenses requested or required by any
insurance regulator are disclosed in the Filed SEC Documents or in Section
2.10(ii) of the Disclosure Schedule. All such Licenses are in full force
and effect, and there is no proceeding or investigation pending or, to the
knowledge of the Company, threatened which could
10
<PAGE> 53
reasonably be expected to lead to the revocation, amendment, failure to
renew, limitation, suspension or restriction of any such License.
(iii) Each Annual Statement filed by any Significant Subsidiary of the
Company that is an insurance company with the insurance regulator in its
state of domicile (each, an "Annual Statement") (including without
limitation the Annual Statements of any separate accounts) for the year
ended December 31, 1996, together with all exhibits and schedules thereto,
and financial statements relating thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and each
Quarterly Statement so filed (each, a "Quarterly Statement") for the
quarterly periods ended after January 1, 1997, together with all exhibits
and schedules thereto, with respect to each Significant Subsidiary that is
an insurance company (including any separate accounts thereof) were
prepared in conformity with the statutory accounting practices ("SAP")
prescribed or permitted by the insurance regulatory authorities of the
applicable state of domicile applied on a consistent basis, except where
disclosed, present fairly, in all material respects, to the extent required
by and in conformity with SAP, the statutory financial condition of such
Significant Subsidiary (including any separate accounts thereof) at their
respective dates and the results of operations, changes in capital and
surplus and cash flow of such Significant Subsidiary (including any
separate accounts thereof) for each of the periods then ended, and were
correct in all material respects when filed and there were no material
omissions therefrom when filed. No deficiencies or violations material to
the financial condition or operations of any such Significant Subsidiary
(including any separate accounts thereof) have been asserted in writing by
any insurance regulator with respect to the foregoing financial statements
which have not been cured or otherwise resolved to the satisfaction of such
insurance regulator. No Significant Subsidiary that is an insurance company
is required to file different or supplemental Annual Statements or
Quarterly Statements with the insurance regulators of any other
jurisdiction.
(iv) All reserves and other liabilities reflected in lines 1, 2, 3 and
4 of page 3 of the 1996 Annual Statement of each Significant Subsidiary
that is an insurance company ("Reserve Liabilities") and all Reserve
Liabilities reflected in the Quarterly Statement or Annual Statement, as
the case may be, filed most recently prior to the Closing Date (i) were
determined in accordance with commonly accepted actuarial standards
consistently applied except as noted therein, (ii) were fairly stated in
accordance with sound actuarial principles, (iii) were based on actuarial
assumptions which were in accordance with or more conservative than those
appropriate for such insurance policies and annuity contracts, (iv) met the
requirements of the insurance laws (including laws with respect to cash
flow testing) of the state of domicile and met, in all material respects,
the requirements of the insurance laws (including laws with respect to cash
flow testing) of all other jurisdictions in which such Significant
Subsidiary is licensed to write insurance or issue annuities and (v)
reflected the related reinsurance, coinsurance and other similar agreements
of such Significant Subsidiary. Adequate provision for all such Reserve
Liabilities has been made (under commonly accepted actuarial principles
consistently applied) to cover the total amount of all reasonably
anticipated matured and unmatured benefits (including guaranteed and
non-guaranteed benefits), claims and other liabilities of each Significant
Subsidiary under all insurance policies and annuity contracts under which
any Significant Subsidiary has any liability (including without limitation,
any liability arising under or as a result of any reinsurance, coinsurance
or other similar agreement).
(v) Each Significant Subsidiary that has been or is required to do so
(each such Significant Subsidiary being so identified on Section 2.10 of
the Disclosure Schedule) has filed all forms, reports, statements and other
documents required by law to be filed by it with the SEC, including,
without limitation, all reports required under the Exchange Act and all
other reports and registration statements, including, without limitation,
in connection with sales of variable products, and all amendments and
supplements to all such reports and registration statements, and such
forms, reports, statements and other documents including without limitation
those filed after the date hereof, did not at the time they were filed (at
the time they became effective and remained effective in the case of
registration statements and amendments thereto) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each
of the separate accounts of the
11
<PAGE> 54
Significant Subsidiaries that is required to be registered as an investment
company under the Investment Company Act of 1940, as amended, is so
registered (each of which is listed in Section 2.10(v) of the Disclosure
Schedule). All forms, reports, statements and other documents required by
law to be filed by or on behalf of such separate accounts with the SEC,
including, without limitation, all registration statements and all
amendments or supplements to all such registration statements in connection
with sales of variable products, including without limitation those filed
after the date hereof, have been so filed and did not at the time they were
filed (at the time they became effective and remained effective in the case
of registration statements and amendments thereto) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(vi) Except as set forth in Section 2.10(vi) of the Disclosure
Schedule, (a) the Company and its Significant Subsidiaries (exclusive of
their agents) and, to the knowledge of the Company (without independent
inquiry), their agents have marketed, sold and issued Company products in
compliance, in all material respects, with all statutes, laws, ordinances,
rules, orders and regulations of any Governmental Entity applicable to the
business of the Company and its Significant Subsidiaries in the respective
jurisdictions in which such products have been sold (collectively,
"Insurance Laws"), except where the failures to do so, individually and in
the aggregate, have not had and could not reasonably be expected to have, a
Material Adverse Effect, (b) there are (x) to the knowledge of the Company,
no claims asserted, (y) no actions, suits, investigations or proceedings by
or before any court or other Governmental Entity or (z) no investigations
by or on behalf of the Company or any Significant Subsidiary (other than
routine investigations in connection with the hiring practices of the
Company or such Significant Subsidiary) ((x), (y) and (z) being
collectively referred to as "Actions") pending or, to the knowledge of the
Company, threatened, against or directly involving the Company, any of its
Significant Subsidiaries or, to the knowledge of the Company (without
independent inquiry), any of their agents that include allegations that the
Company, any of its Significant Subsidiaries or any of their agents were in
violation of or failed to comply with such Insurance Laws and, to the
knowledge of the Company, no facts exist which could reasonably be expected
to result in the filing or commencement of any such Action, which Actions,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect and (c) the Company and its Significant
Subsidiaries are in compliance, in all material respects, with and have
performed, in all material respects, all obligations required to be
performed by each of them under any cease-and-desist or other order issued
by any insurance regulator or other Governmental Entity to the Company or
any of its Significant Subsidiaries or under any written agreement, consent
agreement, memorandum of understanding or commitment letter or similar
undertaking entered into between any insurance regulator or other
Governmental Entity and the Company or any of its Significant Subsidiaries
("Regulatory Agreement"), which Regulatory Agreement remains in effect on
the date hereof, except where the failure to do so, individually or in the
aggregate, has not had and could not reasonably be expected to have, a
Material Adverse Effect.
SECTION 2.11 Insurance Issued. Except as set forth in Section 2.11 of the
Disclosure Schedule, with respect to all insurance issued:
(i) All insurance policies, annuity contracts and assumption
certificates issued by the Significant Subsidiaries have been issued, to
the extent required by applicable law, on forms approved by the insurance
regulatory authority of the jurisdiction where issued or have been filed
with and not objected to by such authority within the period prescribed for
such objection, and utilize premium rates which if required to be filed
with or approved by insurance regulatory authorities have been so filed or
approved and the premiums charged conform thereto.
(ii) All insurance policy and annuity contract benefits payable by any
Significant Subsidiary and, to the knowledge of the Company, by any another
Person that is a party to or bound by any reinsurance, coinsurance or other
similar agreement with any Significant Subsidiary, have in all material
respects been paid in accordance with the terms of the insurance policies,
annuity contracts and other contracts under which they arose, except for
such benefits for which there is a reasonable basis to contest payment.
12
<PAGE> 55
(iii) The Company has not received any information which would
reasonably cause it to believe that the financial condition of any other
party to any reinsurance, coinsurance or other similar agreement with any
Significant Subsidiary is so impaired as to result in a default thereunder.
(iv) To the knowledge of the Company, all advertising, promotional,
sales and solicitation materials and product illustrations used by the
Significant Subsidiaries or any agent of the Significant Subsidiaries have
complied and are in compliance, in all material respects, with all
applicable laws.
(v) To the knowledge of the Company, each insurance agent, at the time
such agent wrote, sold or produced business for any Significant Subsidiary
since January 1, 1993 was duly licensed as an insurance agent (for the type
of business written, sold or produced by such insurance agent) in the
particular jurisdiction in which such agent wrote, sold or produced such
business.
SECTION 2.12 Rating Agencies. Except as disclosed in Section 2.12 of the
Disclosure Schedule, since June 30, 1997, none of A.M. Best and Company,
Standard & Poor's Corporation or Moody's Investor Services, Inc. (collectively,
the "Rating Agencies") has, other than as a result of the announcement of the
Merger or the transactions contemplated hereby (a) imposed conditions (financial
or otherwise) on retaining any currently held rating assigned to any of the
Significant Subsidiaries that are insurance companies or (b) indicated to the
Company that it is considering the downgrade of any rating assigned to any of
the Significant Subsidiaries that are insurance companies.
SECTION 2.13 Opinion of Financial Advisor. The Company has received the
written opinion of Morgan Stanley and Co. Incorporated, dated the date hereof,
to the effect that, as of such date, the Merger Consideration to be received in
the Merger is fair to the Company's stockholders from a financial point of view.
SECTION 2.14 Brokers. Except for Morgan Stanley and Co. Incorporated, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by the Company directly with Acquiror, without the
intervention of any person on behalf of the Company in such manner as to give
rise to any valid claim by any person against Acquiror, the Company or any
Significant Subsidiary for a finder's fee, brokerage commission, or similar
payment. The Company has provided Acquiror with true and complete copies of the
agreement between the Company and Morgan Stanley and Co. Incorporated, and the
Company has no other agreements or understandings (written or oral) with respect
to such services.
SECTION 2.15 Environmental. Except as set forth in Section 2.15 of the
Disclosure Schedule:
(i) The operations of the Company and the Significant Subsidiaries are
in compliance in all material respects with all applicable Environmental
Laws (as defined).
(ii) There are no actions, investigations or proceedings pending or,
to the knowledge of the Company, threatened against the Company or the
Significant Subsidiaries alleging the violation of or seeking to impose
liability pursuant to any Environmental Law or Environmental Permit (as
defined);
(iii) The Company has provided Acquiror with copies of all
environmental audits, assessments, studies, reports, analyses,
investigation results or similar environmentally-related documents of any
real property currently or formerly owned, operated or leased by the
Company or any of its Subsidiaries that are in the possession, custody or
control of the Company or its Subsidiaries.
(iv) As used in this Section 2.15, each of the following terms shall
have the following meanings: (A) "Environmental Law" means any federal,
state, local, or foreign law, statute, code, ordinance, rule, regulation or
other requirement relating to the environment, natural resources, or public
or employee health and safety; and (B) "Environmental Permit" means any
permit, approval, authorization, license, variance, registration, or
permission required under any applicable Environmental Law or order, writ,
injunction or decree.
SECTION 2.16 Litigation. Except as set forth in the Filed SEC Documents or
Section 2.16 of the Disclosure Schedule, there are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries which, individually or
13
<PAGE> 56
in the aggregate, could reasonably be expected to have a Material Adverse Effect
or could reasonably be expected to impose any material liability or restriction
on the Surviving Corporation or any affiliate thereof. Neither the Company nor
any of its Subsidiaries are subject to any outstanding orders, writs,
injunctions or decrees which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
SECTION 2.17 Labor Relations. Except as set forth in Section 2.17 of the
Disclosure Schedule:
(i) Neither the Company nor any Significant Subsidiary is a party to
any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or Significant Subsidiaries
and there are no known organizational campaigns, petitions or other
unionization activities seeking recognition of a collective bargaining
unit.
(ii) There are no strikes, slowdowns, work stoppages or material labor
relations controversies pending or, to the knowledge of the Company,
threatened between the Company or any Significant Subsidiary and any of
their respective employees, and neither the Company nor any Significant
Subsidiary has experienced any such strike, slowdown, work stoppage or
material controversy within the past three years.
SECTION 2.18 Health Insurance Transaction. The Company's wholly-owned
Subsidiary, WNIC, has entered into a Reinsurance Agreement dated October 1,
1996, as amended, with Trustmark Insurance Company ("Trustmark") and has
complied in all material respects with its obligations thereunder.
SECTION 2.19 Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding Common Shares entitled to vote at the Stockholders
Meeting (as defined below in Section 4.2) is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 3.1 Organization, Standing and Corporate Power. Each of Acquiror
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of Acquiror and Merger Sub 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 except where the failure to be so qualified would not
individually or in the aggregate have a material adverse effect on the ability
of Acquiror or Merger Sub to consummate the transactions contemplated hereby.
Merger Sub has not engaged in any business since it was incorporated other than
in connection with its organization and the transactions contemplated by this
Agreement.
SECTION 3.2 Authority; Noncontravention. Acquiror and Merger Sub have all
requisite corporate power and authority to enter into this Agreement and to
carry out their obligations hereunder. The execution and delivery of this
Agreement by Acquiror and Merger Sub and the consummation by Acquiror and Merger
Sub of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Acquiror and Merger Sub and by the
sole stockholder of Merger Sub. This Agreement has been duly executed and
delivered by and, assuming this Agreement has been duly executed and delivered
by the Company, constitutes a valid and binding obligation of each of Acquiror
and Merger Sub, enforceable against each of them in accordance with its terms
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). 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
14
<PAGE> 57
Agreement will not (i) conflict with any of the provisions of the Certificate of
Incorporation or By-Laws of Acquiror or Merger Sub, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach 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 any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture, or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Acquiror or any of its subsidiaries is a party or by which Acquiror or any of
its subsidiaries or any of their assets is bound or affected or result in the
creation or imposition of any lien, claim or encumbrance on any asset of
Acquiror or any of its subsidiaries, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, contravene any
law, rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, subject, in the case of
clauses (ii) and (iii), to those conflicts, breaches, defaults and similar
matters, which, individually or in the aggregate, would not materially and
adversely affect Acquiror's or Merger Sub's ability to consummate the
transactions contemplated hereby. No consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity which has not
been received or made is required by or with respect to Acquiror or Merger Sub
in connection with the execution and delivery of this Agreement by Acquiror and
Merger Sub or the consummation by Acquiror or Merger Sub of any of the
transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the HSR Act with respect to the Merger, (ii)
the filings and/or notices required under the insurance laws of the
jurisdictions set forth in Section 2.3 of the Disclosure Schedule, (iii) the
filing with the SEC of such reports under the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iv) the filing of the certificate of merger with the Delaware
Secretary of State, and appropriate documents with the relevant authorities of
the other states in which the Company is qualified to do business, and (v) such
other consents, approvals, authorizations, filings or notices as are set forth
in Section 2.4 of the Disclosure Schedule.
SECTION 3.3 Litigation. Except as set forth in Section 3.3 of the
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Acquiror, threatened against
Acquiror or any of its subsidiaries which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the ability of
Acquiror or Merger Sub to consummate the transactions contemplated hereby.
Neither Acquiror nor any its subsidiaries is subject to any outstanding order,
writ, injunction or decree which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the ability of
Acquiror or Merger Sub to consummate the transactions contemplated hereby.
SECTION 3.4 Financing. Acquiror will have available at the Closing all
funds necessary to pay the Merger Consideration on the terms and subject to the
conditions contemplated by this Agreement.
SECTION 3.5 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Acquiror directly with
the Company, without the intervention of any person on behalf of Acquiror in
such manner as to give rise to any valid claim by any person against the Company
or any Significant Subsidiary for a finder's fee, brokerage commission, or
similar payment.
SECTION 3.6 Voting Requirements. No vote of any class or series of Acquiror
capital stock is necessary to approve this Agreement and to consummate the
transactions contemplated by this Agreement.
ARTICLE 4
ADDITIONAL AGREEMENTS
SECTION 4.1 Preparation of Proxy Statement; Information Supplied.
sec. 4.1.1 Proxy Statement. As soon as practicable following the date
of this Agreement, the Company shall prepare and file with the SEC the
Proxy Statement. 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.
15
<PAGE> 58
sec. 4.1.2 Company Information. The Company agrees that none of the
information supplied or to be supplied by the Company specifically for
inclusion in 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 respect with the requirements of the Exchange Act and the rules
and regulations thereunder.
sec. 4.1.3 Acquiror Information. Acquiror agrees that none of the
information supplied or to be supplied by Acquiror specifically for
inclusion in 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.
SECTION 4.2 Meeting of Stockholders. The Company will take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and By-laws to convene a meeting of its stockholders (the "Stockholders
Meeting") to consider and vote upon the approval of this Agreement and the
Merger. Subject to Section 4.7 hereof, the Company will, through its Board of
Directors, recommend to its stockholders approval of this Agreement and the
Merger. Without limiting the generality of the foregoing, the Company agrees
that, subject to its right to terminate this Agreement pursuant to Section 4.7,
its obligations pursuant to the first sentence of this Section 4.2 shall not be
affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal (as defined in Section
4.6) or (ii) the withdrawal or modification by the Board of Directors of the
Company of its approval or recommendation of this Agreement or the Merger. The
Company will use its reasonable best efforts to hold the Stockholders Meeting as
soon as practicable after the date hereof.
SECTION 4.3 Access to Information; Confidentiality. Upon reasonable notice,
the Company shall, and shall cause its Subsidiaries to, afford to Acquiror and
to the officers, employees, accountants, auditors, actuaries, counsel, financial
advisors and other representatives of the Company, reasonable access during
normal business hours during the period prior to the Effective Time to all its
properties, books, contracts, commitments, personnel and records. During such
period, the Company will, and will cause its Significant Subsidiaries to, make a
reasonable amount of office space (including standard office equipment) at its
offices in Lincolnshire, Illinois and Kokomo, Indiana, available to such agents,
employees, advisers and other representatives of Acquiror as Acquiror shall
designate. During such period, the Company shall furnish promptly to Acquiror,
upon request, a copy of (i) each SAP Annual Statement and SAP Quarterly
Statement filed by its Subsidiaries (including any separate account) during such
period pursuant to the requirements of any applicable law, (ii) each SEC
Document filed by it (including any separate account) during such period, and
(iii) all correspondence or written communication with A.M. Best and Company,
Standard & Poor's Corporation, Moody's Investor Services, Inc., and with any
Governmental Entity or insurance regulatory authorities which relates to the
transactions contemplated hereby or which is otherwise material to the financial
condition or operations of the Company and its Subsidiaries taken as a whole.
During such period, the Company shall furnish to Acquiror such other financial,
operating and other data as may be reasonably requested by Acquiror in order to
perform its investigation regarding the representations and warranties made by
the other party pursuant to this Agreement. Except as required by law, each of
the Company and Acquiror will hold, and will cause its respective directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information obtained
from the other party in confidence to the extent required by, and in accordance
with, the provisions of the letter dated July 22, 1996 between Acquiror and the
Company (the "Confidentiality Agreement") (in the case of the Company as though
it were the party receiving information thereunder).
SECTION 4.4 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use its reasonable 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.
16
<PAGE> 59
SECTION 4.5 Public Announcements. Acquiror and the Company will consult
with each other before issuing, and shall provide each other a reasonable
opportunity to review and comment upon, any press release or public statement
with respect to this Agreement or the transactions contemplated hereby, except
to the extent disclosure prior to such consultation, review and comment may be
required by applicable law, court process or obligations pursuant to any listing
agreement with any national securities exchange. The parties shall also consult
with each other before engaging in any communications with A.M. Best and Company
with respect to this Agreement or the transactions contemplated hereby.
SECTION 4.6 Acquisition Proposals. The Company shall not, nor shall it
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, the Company or any of
its Subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Acquisition Proposal (as defined) or (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; provided, however, that nothing
contained in this Section 4.6 shall prohibit the Board of Directors of the
Company from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal after the date hereof if, and only to the extent that, (A) the Board of
Directors of the Company, after consultation with and based upon the advice of
outside counsel, concludes in good faith that such action is necessary for the
Board of Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law and (B) the Company (x) provides reasonable
notice to Acquiror to the effect that it is taking such action and (y) receives
from such person or entity an executed confidentiality agreement substantially
similar to the Confidentiality Agreement, except that such confidentiality
agreement need not prohibit such person or entity from making an unsolicited
Acquisition Proposal to the Board of Directors of the Company. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Acquiror orally and in writing of the receipt by it (or by any of the other
entities or persons referred to above) after the date hereof of any Acquisition
Proposal, or any inquiry which could lead to any Acquisition Proposal, the
material terms and conditions of such Acquisition Proposal or inquiry, and the
identity of the person or entity making any such Acquisition Proposal or
inquiry, provided that the Company shall have no obligation to disclose the
identity of such person or entity if such disclosure would violate the terms of
any agreement outstanding on the date hereof with such person or entity, or the
Board of Directors, after consultation with and based upon the advice of outside
counsel, concludes in good faith that such disclosure would violate its
fiduciary duties or would be otherwise inconsistent with applicable law. For
purposes of this Agreement, "Acquisition Proposal" means any bona fide proposal
with respect to a merger, consolidation, share exchange or similar transaction
involving the Company or any Significant Subsidiary, or any purchase (including
without limitation by way of any reinsurance transaction) of all or any
significant portion of the assets of the Company or any Significant Subsidiary,
or any other business combination (including without limitation the acquisition
of an equity interest therein) involving the Company or any Significant
Subsidiary, other than the transactions contemplated hereby.
SECTION 4.7 Fiduciary Duties. The Board of Directors of the Company shall
not (i) withdraw or modify the approval or recommendation by such Board of
Directors of this Agreement or the Merger, (ii) approve or recommend an
Acquisition Proposal or (iii) enter into any agreement with respect to any
Acquisition Proposal, unless the Company receives an Acquisition Proposal and
the Board of Directors of the Company concludes in good faith, after
consultation with and based upon the advice of outside counsel, that in order to
comply with its fiduciary duties to stockholders under applicable law it is
necessary for the Board of Directors to withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend such
Acquisition Proposal or enter into an agreement with respect to such Acquisition
Proposal. Nothing contained in this Section 4.7 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders which, in the good faith judgment of the Board of
Directors of the Company based on advice of outside counsel, is required under
applicable law; provided that the Company does not withdraw or modify its
position with respect to the Merger or approve, recommend or otherwise support
an Acquisition Proposal, except under the circumstances described in the
immediately preceding
17
<PAGE> 60
sentence. Notwithstanding anything contained in this Agreement to the contrary,
any action by the Board of Directors permitted by this Section 4.7 shall not
constitute a breach of this Agreement by the Company.
SECTION 4.8 Filings; Other Action. As promptly as practicable, (i) the
Company and Acquiror shall make all filings and submissions under the HSR Act,
(ii) Acquiror shall make all filings required by the insurance regulatory
authorities in Illinois and in Indiana and deliver notices and consents to
jurisdiction to such state insurance departments, each as reasonably may be
required to be made in connection with this Agreement and the transactions
contemplated hereby, and (iii) the Company and Acquiror shall cooperate in all
reasonable respects with each other in (A) determining if other filings are
required to be made prior to the Effective Time with, or if other material
consents, approvals, permits, notices or authorizations are required to be
obtained prior to the Effective Time from any Governmental Entity in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (B) timely making all such filings and
timely seeking all such consents, approvals, permits, notices or authorizations.
In connection with the foregoing, the Company will provide Acquiror, and
Acquiror will provide the Company, with copies of correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
party or any of its representatives, on the one hand, and any Governmental
Entity or members of their respective staffs, on the other hand, with respect to
this Agreement and the transactions contemplated hereby. Each of Acquiror and
the Company acknowledge that certain actions may be necessary with respect to
the foregoing in making notifications and obtaining clearances, consents,
approvals, waivers or similar third party actions which are material to the
consummation of the transactions contemplated hereby, and each of Acquiror and
the Company agree to take such action as is reasonably necessary to complete
such notifications and obtain such clearances, approvals, waivers or third party
actions.
SECTION 4.9 Indemnification. (i) From and after the Effective Time,
Acquiror and the Company agree that the Surviving Corporation will indemnify and
hold harmless each present and former director and officer of the Company and
its Subsidiaries, determined as of the Effective Time (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company or such Subsidiary would have been
permitted under applicable law and the Certificate of Incorporation or By-Laws
of the Company or such Subsidiary in effect on the date hereof to indemnify such
person (and the Surviving Corporation shall also advance expenses as incurred to
the fullest extent permitted under applicable law provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification).
Acquiror agrees that all rights to indemnification and exculpation existing in
favor of the Indemnified Parties under the indemnification agreements currently
in place between the Company and any such Indemnified Party and identified in
Section 4.9 of the Disclosure Schedule shall survive and continue in full force
and effect after the Effective Time.
(ii) Any Indemnified Party wishing to claim indemnification under Section
4.9(i) or (ii), upon learning of such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but the
failure to so notify shall not relieve the Surviving Corporation of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the Surviving Corporation. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), the Surviving Corporation shall have the right to assume the
defense thereof and the Surviving Corporation shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if the Surviving Corporation elects not to
assume such defense, or counsel for the Indemnified Parties advises that there
are substantial issues which raise conflicts of interest under applicable legal
codes of ethics between the Surviving Corporation and the Indemnified Parties,
the Indemnified Parties may retain one firm of counsel reasonably satisfactory
to the Surviving Corporation, and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received.
18
<PAGE> 61
The Surviving Corporation shall not be liable for any settlement of such action
effected without its prior written consent, which shall not be unreasonably
withheld.
(iii) For a period of three years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the Company's current
policies of directors' and officers' liability insurance, the premiums on which
insurance have been paid in full by the Company, (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous in all
material respects to the Indemnified Parties) with respect to claims arising
from facts or events which occurred before the Effective Time.
(iv) The provisions of this Section 4.9 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
the Surviving Corporation.
SECTION 4.10 Employee Benefits.
sec. 4.10.1 Severance. During the 12-month period commencing on the
Effective Time, the Surviving Corporation shall provide coverage to
individuals employed by the Company or a Significant Subsidiary at the
Effective Time in accordance with the terms of the Company's Severance Pay
Policy (including outplacement services consistent with the Company's
current practices) disclosed in Section 4.10.1 of the Disclosure Schedule
as in effect on the date hereof.
sec. 4.10.2 Retiree Life and Health Plan. The Surviving Corporation
shall provide retiree life and health benefits to those employees (and to
their eligible dependents) of the Company or a Significant Subsidiary named
in Section 4.10.2 of the Disclosure Schedule who, upon their retirement
before, at or after the Effective Time are or would be entitled to benefits
in accordance with the terms of the Company's retiree life and health
benefits program included in the Washington National Group Insurance Plan
as in effect on the date hereof, subject to the right of the Surviving
Corporation to make reasonable adjustments to the retiree health benefits,
including, but not limited to, amounts of deductible, extent of retirees'
obligations to pay premiums, introduction of managed care options or other
adjustments permitted by law or regulation.
sec. 4.10.3 Directors' Retirement Income Plan. The Company intends to
terminate the Directors' Retirement Income Plan prior to the Effective
Time. If, however, prior to the Effective Time, the Company has not
terminated and provided for the funding of benefits under the Directors'
Retirement Income Plan, from and after the Effective Time, the Surviving
Corporation will honor, in accordance with its terms, the Company's
Directors' Retirement Income Plan, revised as set forth in Section 4.10.3
of the Disclosure Schedule, and shall pay all benefits that become due
under such Plan to any participant therein or to the beneficiary of a
deceased participant, provided nothing herein shall limit the Surviving
Corporation's right after the Effective Time to terminate such plan and
provide for the funding of benefits thereunder.
sec. 4.10.4 Transition Plan. The parties agree with respect to
employee and employee benefit matters that, between the date of this
Agreement and the Effective Time, (i) except as otherwise provided in
Sections 1.11 and 5.5 of this Agreement, the Company shall not, and shall
not permit its Subsidiaries to, enter into, or modify the terms of any
employment agreement, severance agreement or similar agreement or any
Benefit Plan, or make any bonus payment, without the prior written consent
of Acquiror; and (ii) the Company shall in its reasonable judgment and
after consulting with Acquiror continue to make all decisions with respect
to employees, including hiring and firing decisions, in the ordinary course
of business, consistent with past practice.
SECTION 4.11 Office Property. Notwithstanding anything in this Agreement to
the contrary, the parties agree that the Company shall have the right but not
the obligation to enter into a contract providing for the lease or sublease of
office property by the Company on commercially reasonable terms beginning
October 1, 1997 for a term not to exceed one year, provided, however, that no
such lease or sublease shall be entered into without Acquiror's consent, which
consent shall not be unreasonably withheld.
19
<PAGE> 62
SECTION 4.12 Letter of the Company's Accountants. The Company shall use
commercially reasonable efforts to cause to be delivered to Acquiror a letter of
Ernst & Young LLP, the Company's independent public accountants, dated a date
within two business days before the Closing Date, addressed to Acquiror, in form
and substance reasonably satisfactory to Acquiror and customary in scope and
substance for letters delivered by independent public accountants in connection
with similar transactions.
SECTION 4.13 Litigation. The Company shall give Acquiror the opportunity to
participate in the defense or settlement of any pending litigation disclosed in
the Filed SEC Documents or any litigation against the Company and its directors
relating to the transactions contemplated by this Agreement; provided, however,
that no such settlement shall be agreed to without Acquiror's consent, which
consent shall not be unreasonably withheld.
SECTION 4.14 Failure to Close. If this Agreement is terminated for any
reason (other than a termination pursuant to Section 7.1(d)), for two years
after the date of this Agreement, Acquiror will not, and will cause its
subsidiaries not to, solicit for employment any management employee or member of
the sales force of the Company or its Subsidiaries, it being understood that the
term "solicit" for this purpose shall not include advertising or other
broad-based recruiting methods or solicitation by an employee search firm so
long as such search firm is not encouraged or directed by Acquiror or its
subsidiaries to solicit such employees of the Company or its Subsidiaries.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 5.1 Conduct of Business by the Company. Except as contemplated by
this Agreement or as set forth in Section 5.1 of the Disclosure Schedule, during
the period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause its Subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use reasonable best efforts to preserve intact their current business
organizations, keep in full force and effect their insurance licenses, permits
and franchises, keep available the services of their current key officers,
employees, agents, and field representatives, and preserve the goodwill of
regulators, policyholders or those engaged in material business relationships
with them. In addition, the Company agrees to allow representatives of Acquiror
to have access to the management and other personnel of the Company and its
Subsidiaries so that Acquiror can be fully informed at all times as to
significant executive, legal, financial, investment, marketing and other
operational matters involving the Company, its Subsidiaries and their
businesses. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, the Company shall not,
and shall not permit any of the Subsidiaries to, without the prior consent of
Acquiror:
(i) adopt or propose any change to its Certificate of Incorporation or
By-Laws;
(ii) (x) declare, set aside or pay any dividends on, or make any other
distributions with respect to, any of the Company's or its Subsidiaries'
outstanding capital stock, other than regular quarterly cash dividends by
the Company and such Subsidiaries, and, in the case of the Company's
regular quarterly cash dividends not in excess of $.27 per Common Share so
long as the Common Shares remain outstanding, in accordance with usual
record and payment dates and in accordance with the Company's present
dividend policy, (y) split, combine or reclassify any of its outstanding
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 outstanding
capital stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock or other securities of, or other ownership interests of the
Company other than the Employee Options and Restricted Stock to be
purchased as contemplated by Section 1.11 above;
(iii) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, 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 other than upon the
exercise of Employee Options outstanding on the date of this Agreement or
the issuance of shares under the Company's dividend reinvestment plan or
issue or make any awards under any phantom stock plan;
20
<PAGE> 63
(iv) acquire, form or commence the operations of any business or any
corporation, partnership, joint venture, association or other business
organization or division or block of in-force business thereof;
(v) take any action that, if taken prior to the date of this
Agreement, would have been required to be disclosed in Section 2.6 of the
Disclosure Schedule or that would otherwise cause any of the
representations and warranties contained in Article 2 not to be true and
correct in all material respects;
(vi) sell, mortgage or otherwise encumber or subject to any lien or
otherwise dispose of any of its properties or assets that are material to
the Company and the Significant Subsidiaries taken as a whole, except for
the sale of investments in the ordinary course of business consistent with
past practice;
(vii) (x) except for the dollar amount required to cancel and cash out
the Employee Options and the Restricted Stock as contemplated by Section
1.11 above, incur any indebtedness for borrowed money (other than
short-term indebtedness for general corporate purposes not to exceed
$5,000,000 at any time) or guarantee any such indebtedness of another
person, other than indebtedness owing to or guarantees of indebtedness
owing to the Company or any direct or indirect wholly-owned Subsidiary of
the Company or (y) make any loans or advances to any other person, other
than to the Company, or to any direct or indirect wholly-owned Subsidiary
of the Company and other than routine advances in the ordinary course of
business to employees or agents, or policyholder loans;
(viii) make any tax election or settle or compromise any income tax
liability that would reasonably be expected to be material to the Company
and the Significant Subsidiaries taken as a whole;
(ix) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice;
(x) except in the ordinary course of business, modify, amend or
terminate, or waive, release or assign any material rights or claims under
or enter into or obtain any material agreement, permit, concession,
franchise, license or similar instrument to which the Company or any
Significant Subsidiary is a party, other than those contracts, agreements
or licenses modified, amended or terminated in accordance with the terms of
the Reinsurance Agreement between WNIC and Trustmark;
(xi) invest its future cash flow, any cash from matured and maturing
investments, any cash proceeds from the sale of its assets and properties,
and any cash funds currently held by it, in any investments other than cash
equivalent assets or in short-term investments (consisting of United States
government issued or guaranteed securities, or commercial paper rated A-1
or P-1), except (i) as otherwise required by law, (ii) as required to
provide cash (in the ordinary course of business and consistent with past
practice) to meet its actual or anticipated obligations or (iii)
publicly-traded corporate bonds that are rated investment grade by at least
two nationally recognized statistical rating organizations;
(xii) except as may be required by law,
(i) make any representation or promise, oral or written, to any
employee or former director, officer or employee of the Company or any
Subsidiary which is inconsistent with the terms of any Benefit Plan;
(ii) make any change to, or amend in any way, the contracts,
salaries, wages, or other compensation of any employee or any agent or
consultant of the Company or any Subsidiary other than (a) changes or
amendments that are required under existing contracts, (b) changes after
January 1, 1998 with respect to employees whose current annual salary is
less than $50,000 that are made in the ordinary course of business and
consistent with past practice and that do not exceed 5% for any such
employee, or (c) changes with respect to agents or consultants that are
made in the ordinary course of business and consistent with past
practice; or
21
<PAGE> 64
(iii) adopt, enter into, amend, alter or terminate, partially or
completely, any Benefit Plan or any election made pursuant to the
provisions of any Benefit Plan, to accelerate any payments, obligations
or vesting schedules under any Benefit Plan;
(xiii) fail to pay any Taxes or file any Tax Return on a timely basis
or fail to make any estimated payment of Taxes on a timely basis;
(xiv) lease or purchase any property, except for such leases or
purchases of property that do not in the aggregate exceed $50,000, or enter
into any transitional services agreement; or
(xv) authorize any of, or commit or agree to take any of the foregoing
actions.
SECTION 5.2 Management of the Company and Significant Subsidiaries. The
Company shall, from the date of this Agreement through the Effective Time, cause
its management and that of the Significant Subsidiaries to consult on a regular
basis and in good faith with the employees and representatives of Acquiror
concerning the management of the Company and its Significant Subsidiaries'
businesses, including without limitation the policies and practices of the
Company and its Significant Subsidiaries with respect to (i) the ceding or
assumption of reinsurance or coinsurance or the termination or modification of
existing reinsurance or coinsurance agreements, (ii) significant underwriting,
actuarial, tax, accounting, legal and investment issues (including matters
related to tax audits or the establishment, review and modification of insurance
and other reserves), (iii) significant matters relating to the conditions, forms
and pricing of new kinds of insurance policies and annuity contracts and (iv)
significant matters relating to the agency force, product distribution,
commissions and similar matters.
SECTION 5.3 Conduct of Business of Merger Sub. Except as contemplated by
this Agreement, during the period from the date of this Agreement to the
Effective Time, Merger Sub shall not engage in any activities of any nature.
SECTION 5.4 Other Actions. The Company and Acquiror shall not, and shall
not permit any of their respective subsidiaries to, take any action that would,
or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement
becoming untrue in any material respect or (ii) any of the conditions of the
Merger set forth in Article VI not being satisfied.
SECTION 5.5 Employee Benefit Payments. During the period from the date of
this Agreement to the Closing Date, the Company, by action and at the discretion
of its Compensation Committee, shall have the right but not the obligation to
make the following payments and allocations with respect to all individuals
employed by the Company or any of its Subsidiaries on or after July 1, 1996,
including the employees identified on Section 5.5 of the Disclosure Schedule
whose employment with the Company or any of its Subsidiaries terminated with the
Company's approval prior to the date of this Agreement and any employee whose
employment may be terminated by the Company with the consent of the Acquiror
prior to the Closing Date (collectively, the "Eligible Employees"):
(i) The Company's profit sharing contribution to the Washington
National Corporation Profit Sharing Plan for calendar year 1997, in the
amount of 5% of compensation as defined in the Plan (which Plan shall be
amended prior to the Closing Date to permit contributions to be made on
behalf of any Eligible Employee who is not a current employee of the
Company or any of its Subsidiaries), may, in the discretion of the
Compensation Committee and to the extent permitted by such Plan, be
allocated to the accounts maintained under such Plan for the Eligible
Employees on the earlier of the Closing Date and March 15, 1998.
(ii) Each Eligible Employee may be paid lump sum payments under the
Washington National Corporation Annual Pay At Risk Plan for the periods
that such Eligible Employee was employed by the Company or any of its
Subsidiaries in calendar year 1997 and calendar year 1998, (i) with such
payments for calendar year 1997 to be made on the earlier of the Closing
Date and March 15, 1998 in an aggregate amount not in excess of $310,000
per month for the entire 1997 calendar year, regardless of the Closing
Date, and (ii) with such payments for calendar year 1998 to be made on the
Closing Date in an aggregate
22
<PAGE> 65
amount not in excess of $240,000 per month, including a prorated amount
based upon the number of days elapsed in the month in which the Closing
Date occurs.
(iii) Each Eligible Employee may be paid lump sum payments under the
Washington National Corporation Long Term Pay At Risk Plan for the
1995-1997, 1996-1998 and 1997-1999 performance periods, for the period that
such Eligible Employee was employed by the Company or any of its
Subsidiaries during the 1995-1997 performance period, the 1996-1998
performance period and/or the 1997-1999 performance period, as applicable
(i) with such payments for the 1995-1997 performance period to be made on
the earlier of the Closing Date and March 15, 1998 in an aggregate amount
not in excess of $445,000 for the period through December 31, 1996 and
$19,000 per month for each month in 1997, including a prorated amount based
upon the number of days elapsed in the month in which the Closing Date
occurs (if the Closing Date occurs in 1997), (ii) with such payments for
the 1996-1998 performance period to be made on the Closing Date in an
aggregate amount not in excess of $235,000 for the period through December
31, 1996 and $19,500 per month for each month in 1997 and 1998, including a
prorated amount based upon the number of days elapsed in the month in which
the Closing Date occurs, and (iii) with such payments for the 1997-1999
performance period to be made on the Closing Date in an aggregate amount
not in excess of $19,000 per month for each month in the period, including
a prorated amount based upon the number of days elapsed in the month in
which the Closing Date occurs.
(iv) The Company shall make all required contributions under the terms
of the Washington National Employee Savings Plan and the Washington
National Pension Plan Plus (which Plans shall be amended prior to the
Closing Date to permit contributions to be made on behalf of any Eligible
Employee who is not a current employee of the Company or any of its
Subsidiaries and to permit contributions to be made on a date other than
the end of the calendar quarter in the event the Closing Date falls on such
date) for the period commencing on the date hereof and ending on the
Closing Date, with contributions to be made on the Closing Date.
(v) The Company shall continue to credit participants under the terms
of the Washington National Corporation Supplemental Executive Retirement
Plan ("SERP") (which shall be amended prior to the Closing Date to permit
credits to be determined on the earlier to occur of the Closing Date and
the participant's date of termination of employment) with respect to all
compensation (excluding severance, change of control or similar benefits)
earned by such participants through the Closing Date or their earlier date
of termination of employment. The Company shall terminate the SERP
immediately prior to the Effective Time.
(vi) Each Eligible Employee who held any shares of Restricted Stock as
of July 1, 1996 and whose Restricted Stock has been forfeited as of the
date of this Agreement, may be paid a lump sum payment in consideration for
such forfeited Restricted Stock in an amount in cash equal to 125% of the
Merger Consideration less applicable withholding taxes, with such payments
to be made on the earlier of the Closing Date and March 15, 1998, provided
that such payments shall not in the aggregate exceed $322,109.
(vii) In lieu of granting stock options to certain Eligible Employees
and the directors of the Company in 1997, the Company may, by action and at
the discretion of its Compensation Committee, pay a bonus to such persons
in an aggregate amount not in excess of $565,950 representing the
difference between the Merger Consideration and the price of the Common
Shares on March 14, 1997 (the designated stock option grant date in 1997).
SECTION 5.6 United Way Contribution. Prior to the Effective Time, the
Company shall make a corporate contribution to the United Way in an amount not
greater than $50,000. In addition, the Company shall, in connection with its
employee matching contribution program, make a corporate matching contribution
in the same manner and in accordance with the same procedures followed during
the 1995 United Way campaign to United Way in an amount not to exceed $150,000.
23
<PAGE> 66
SECTION 5.7 Further Assurances. The Company and Acquiror, at the reasonable
request of the other, will execute and deliver, or cause to be executed and
delivered, such other instruments and do and perform, or cause to be done and
performed, such other acts and things as may be necessary or desirable to effect
the consummation of the transactions contemplated hereby.
ARTICLE 6
CONDITIONS PRECEDENT
SECTION 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:
sec. 6.1.1 Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by an affirmative vote of the holders of the
requisite number of shares present, in person or by proxy, and entitled to
vote on the Merger at the Stockholders Meeting.
sec. 6.1.2 Governmental and Regulatory Consents. All required
consents, approvals, permits and authorizations to the consummation of the
transactions contemplated hereby by the Company, Acquiror and Merger Sub
shall be obtained, in each case without any condition that could reasonably
be expected to have a Material Adverse Effect, from (i) the insurance
regulators in the jurisdictions set forth in Section 2.4 of the Disclosure
Schedule, and (ii) any other Governmental Entity whose consent, approval,
permission or authorization is required by reason of a change in law after
the date of this Agreement, unless the failures to obtain such consent,
approval, permission or authorization would not reasonably be expected to
have a Material Adverse Effect nor materially and adversely affect the
validity or enforceability of this Agreement. Notwithstanding anything to
the contrary in this Agreement, the parties agree that no consent or
approval of any proposed dividend payable by the Company or any of its
Significant Subsidiaries shall be required as a condition to Acquiror's
obligation to effect the Merger.
sec. 6.1.3 HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have otherwise expired.
sec. 6.1.4 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 party invoking this condition shall use its reasonable
best efforts to have any such order or injunction vacated.
SECTION 6.2 Conditions to Obligations of Acquiror and Merger Sub. The
obligations of Acquiror and Merger Sub to effect the Merger are further subject
to the following conditions:
sec. 6.2.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects (but as to any representation qualified as
to materiality disregarding for this purpose such materiality
qualification) on the date hereof and (except to the extent specifically
given as of an earlier date) on and as of the Closing Date as though made
on the Closing Date, and the Company shall have delivered to Acquiror and
Merger Sub a certificate dated as of the Closing Date signed by an
executive officer to the effect set forth in this Section 6.2.1.
sec. 6.2.2 Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date,
and the Company shall have delivered to Acquiror and Merger Sub a
certificate dated as of the Closing Date signed by an executive officer to
the effect set forth in this Section 6.2.2.
24
<PAGE> 67
SECTION 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
sec. 6.3.1 Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub contained in this Agreement shall be
true and correct in all material respects (but as to any representation
qualified as to materiality disregarding for this purpose such materiality
qualification) on the date hereof and (except to the extent specifically
given as of an earlier date) on and as of the Closing Date as though made
on the Closing Date, and Acquiror and Merger Sub shall have delivered to
the Company a certificate dated as of the Closing Date, signed by an
executive officer and to the effect set forth in this Section 6.3.1.
sec. 6.3.2 Performance of Obligations of Acquiror and Merger
Sub. Acquiror and Merger Sub shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and Acquiror and Merger Sub shall have delivered
to the Company a certificate dated as of the Closing Date, signed by an
executive officer and to the effect set forth in this Section 6.3.2.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Acquiror and the Company; or
(b) by either Acquiror or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting, this
Agreement and the Merger shall fail to receive the requisite vote for
approval and adoption by the stockholders of the Company at the
Stockholders Meeting;
(ii) if the Merger shall not have been consummated on or before
January 31, 1998 (subject to the right of the Company or Acquiror to
extend such date by not more than 60 days if such party believes in good
faith that all conditions to Closing can be satisfied within such 60-day
period); provided, that either party may terminate this Agreement on or
after such earlier date on which it can be reasonably determined that it
will be impossible to consummate the Merger by January 31, 1998 (or by
such later date to which it has been extended); and provided, further,
that the party seeking to terminate this Agreement pursuant to this
Section 7.1(b)(ii) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have
proximately contributed in a material way to the failure to consummate
the Merger by January 31, 1998;
(iii) 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;
(iv) if the Board of Directors of the Company shall have exercised
any of its rights set forth in Section 4.7 of this Agreement; or
(c) by the Company upon a material breach of any representation or
warranty of Acquiror or Merger Sub or Acquiror or Merger Sub fails to
comply in any material respect with any of its covenants or agreements, or
if any representation or warranty of Acquiror or Merger Sub shall be or
become untrue in any material respect, in either case such that the
conditions set forth in Sections 6.3.1 and 6.3.2 would be incapable of
being satisfied by January 31, 1998 (or by such later date to which it has
been extended pursuant to Section 7.1(b)(ii)), provided that a willful
breach shall be deemed to cause such conditions to be incapable of being
satisfied by such date; or
25
<PAGE> 68
(d) by Acquiror, upon a material breach of any representation, or
warranty of the Company or the Company fails to comply in any material
respect with any of its covenants or agreements, or if any representation
or warranty of the Company shall be or become untrue in any material
respect, in either case such that the conditions set forth in Sections
6.2.1 and 6.2.2 would be incapable of being satisfied by January 31, 1998
(or as otherwise extended pursuant to Section 7.1(b)(ii), provided that a
willful breach shall be deemed to cause such conditions to be incapable of
being satisfied by such date.
SECTION 7.2 Effect of Termination. (a) In the event of termination of this
Agreement by either the Company or Acquiror as provided in Section 7.1, except
as provided below in Section 7.2(b), this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of Acquiror
or the Company, other than the last sentence of Section 4.3 and Sections 7.2 and
10.2. Nothing contained in this Section shall relieve any party from any
liability resulting from any material breach of the representations, warranties,
covenants or agreements set forth in this Agreement.
(b) In the event of termination of this Agreement by either the Company or
Acquiror pursuant to Section 7.1(b)(iv), the Company shall pay Acquiror
$10,000,000 in cash, as liquidated damages and not as a penalty, immediately
upon such termination, in same-day funds, provided that Acquiror shall not be in
material breach of its obligations under this Agreement (the "Termination
Payment"). Moreover, the Company shall pay the Termination Payment if all of the
following shall occur: (i) this Agreement is terminated pursuant to Section
7.1(b)(i), and (ii) the Company, within fifteen (15) months from the date of
this Agreement, enters into a written agreement or arrangement to effect an
Acquisition Proposal with a party other than Acquiror or any of its
subsidiaries, which Acquisition Proposal provides consideration with an economic
value equal to or greater than the consideration that would have been received
in the Merger had it been consummated on the date on which the Agreement was
terminated, and (iii) the stockholders of the Company approve such Acquisition
Proposal or the transaction which is the subject of such Acquisition Proposal is
consummated. The Termination Payment contemplated by the prior sentence shall be
paid on the earlier of (x) the consummation of such Acquisition Proposal or (y)
within sixty (60) days after the meeting at which the stockholders of the
Company approve such Acquisition Proposal. Notwithstanding anything in this
Agreement to the contrary, the Termination Payment, if payable, shall be paid
only once and shall be Acquiror's sole and exclusive remedy hereunder for the
termination of the Agreement under the circumstances in which the Termination
Payment is paid (regardless of any breach of this Agreement), and upon such
delivery of the Termination Payment to Acquiror, no person shall have any
further claim or rights against the Company under this Agreement.
SECTION 7.3 Amendment. Subject to the applicable provisions of the Delaware
Code, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of the Merger by the stockholders of the Company, no amendment shall be
made which reduces the amount of the Merger Consideration payable in the Merger
or adversely affects the rights of the Company's stockholders hereunder without
the approval of such stockholders. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties.
SECTION 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 of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to
Section 7.3, waive compliance with any of the agreements or conditions of the
other parties 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.
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Acquiror or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
26
<PAGE> 69
ARTICLE 8
SURVIVAL OF PROVISIONS
SECTION 8.1 Survival. The representations and warranties respectively made
by the Company, Acquiror and Merger Sub in this Agreement, or in any
certificate, respectively, delivered by the Company, Acquiror or Merger Sub
pursuant to Section 6.2 or Section 6.3 hereof will terminate upon the Closing
and be of no further force or effect.
ARTICLE 9
NOTICES
SECTION 9.1 Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), or, if transmitted by facsimile, or if delivered by courier, as
follows:
If to the Company, to:
Washington National Corporation
300 Tower Parkway
Lincolnshire, Illinois 60069-3665
Attention: Craig R. Edwards, Esq.
Telephone: (847) 793-3273
Telecopy: (847) 793-3511
with a copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attention: Stuart L. Goodman, Esq.
Telephone: (312) 258-5711
Telecopy: (312) 258-5600
If to Acquiror, to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: John J. Sabl, Executive
Vice President and General Counsel
Telephone: (317) 817-6163
Telecopy: (317) 817-6327
All notices and other communications required or permitted under this agreement
that are addressed as provided in this Section 9.1 will, whether sent by mail,
facsimile, or courier, be deemed given upon the first Business Day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by facsimile confirmation). Any party from time to time may
change its address for the purpose of notices to that party by giving a similar
notice specifying a new address, but no such notice will be deemed to have been
given until it is actually received by the party sought to be charged with the
contents thereof. For purposes of this Section 9.1, "Business Day" shall mean a
day other than Saturday, Sunday or any day on which the principal commercial
banks located in Chicago, Illinois are authorized or obligated to close under
the laws of Illinois.
27
<PAGE> 70
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior communications,
agreements, understandings, representations, and warranties whether oral or
written between the parties hereto. There are no oral or written agreements,
understandings, representations, or warranties between the parties hereto with
respect to the subject hereof other than those set forth in this Agreement and
the Confidentiality Agreement. In the event of any conflict between the terms of
this Agreement and the terms of the Confidentiality Agreement, the terms of this
Agreement shall control.
SECTION 10.2 Expenses. The Company and Acquiror each will pay its own costs
and expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby except
that (i) the filing fee in respect of the notification and report under the HSR
Act and (ii) the expenses incurred in connection with the printing, mailing and
distribution of the Proxy Statement shall be borne equally by the Company and
Acquiror.
SECTION 10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
SECTION 10.4 No Third Party Beneficiary. Except as otherwise specifically
provided in Section 4.9, this Agreement is not intended and may not be construed
to create any rights in any parties other than the Company and Acquiror and
their respective successors or assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other person.
SECTION 10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without regard
to the principles of conflicts of law) applicable to a contract executed and to
be performed in such State.
SECTION 10.6 Assignment; Binding Effect. 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, such consent not to be
unreasonably withheld and any such assignment that is not consented to shall be
null and void. 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.
SECTION 10.7 Headings, Gender, etc. The headings used in this Agreement
have been inserted for convenience and do not constitute matter to be construed
or interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is disjunctive but not necessarily
exclusive.
SECTION 10.8 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of the Company or Acquiror under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
28
<PAGE> 71
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the Company, Merger Sub and Acquiror effective
as of the date first written above.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
------------------------------------
Name: Stephen C. Hilbert
----------------------------------
Its: Chairman, President and Chief
Executive Officer
------------------------------------
GRANITE MERGER CORP.
By: /s/ STEPHEN C. HILBERT
------------------------------------
Name: Stephen C. Hilbert
----------------------------------
Its: President
------------------------------------
WASHINGTON NATIONAL CORPORATION
By: /s/ ROBERT W. PATIN
------------------------------------
Name: Robert W. Patin
----------------------------------
Its: Chairman of the Board, President
and Chief
Executive Officer
------------------------------------
29
<PAGE> 72
ANNEX B
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
B-1
<PAGE> 73
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
<PAGE> 74
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
<PAGE> 75
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE> 76
ANNEX C
MORGAN STANLEY LETTERHEAD
September 20, 1997
Board of Directors
Washington National Corporation
300 Tower Parkway
Lincolnshire, IL 60069
Gentlemen and Lady:
We understand that Washington National Corporation ("Washington National"
or the "Company"), Conseco, Inc. ("Conseco") and Granite Merger Corp., a wholly
owned subsidiary of Conseco ("Merger Sub") have entered into an Agreement and
Plan of Merger dated as of September 20, 1997 (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of Merger Sub with
and into the Company. Pursuant to the Merger, the Company will become a wholly
owned subsidiary of Conseco and each issued and outstanding share of common
stock, par value $5.00 per share, of the Company (the "Company Common Stock"),
other than shares held in treasury, or as to which dissenters' rights have been
perfected, shall be converted into the right to receive $33.25 in cash. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Company Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
conditions and the prospects of the Company with senior executives of the
Company;
(v) reviewed the reported prices and trading activity for the Company
Common Stock;
(vi) compared the financial performance of the Company and the prices
and trading activity of the Company Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of the Company, Conseco and their financial and legal
advisors;
(ix) reviewed the Merger Agreement and certain related documents;
C-1
<PAGE> 77
(x) reviewed certain appraisal analysis as prepared by Milliman &
Robertson, consultants to the Company, regarding an appraisal of certain
assets of the Company; and
(xi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company; however, we have received the appraisal analysis
prepared by Milliman & Robertson regarding certain of the Company's assets and
have relied without independent verification upon such appraisal for purposes of
this opinion. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley and its affiliates have provided financial advisory and
financing services for the Company and Conseco and its affiliates and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission in
connection with the Merger. In addition, we express no opinion or recommendation
as to how the holders of Company Common Stock should vote at the stockholders'
meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Company Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Gary W. Parr
-------------------------------------------------------
Gary W. Parr
Managing Director
<PAGE> 78
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. 3092
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, the proxy will be voted FOR Proposals 1 and 2.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Adoption of the Merger Agreement (see reverse) / / / / / /
2. Approval of the adjournment of the Special Meeting to permit / / / / / /
further solicitation (see reverse)
</TABLE>
Please check the box if you plan to attend the Special Meeting on
November 17, 1997. Proper identification will be required. / /
The bearer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof.
Please mark, sign, date and return the proxy card promptly using the enclosed
envelope.
Please sign exactly as your name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such.
_________________________________________________
SIGNATURE DATE
_________________________________________________
SIGNATURE (IF JOINTLY HELD) DATE
<PAGE> 79
WASHINGTON NATIONAL CORPORATION
300 TOWER PARKWAY
LINCOLNSHIRE, ILLINOIS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
R
O The undersigned hereby appoints R.W. Patin, F.R. Blume and E.R. Bond as
X Proxies, each with the power to appoint his substitute, and hereby
Y authorizes them or any of them to represent and vote, as designated
below, all shares of common stock of Washington National Corpo-
ration held of record by the undersigned as of the close of business on
October 1, 1997, at the Special Meeting of stockholders to be held
on November 17, 1997 or any adjournment thereof.
1. Adoption of the Agreement and Plan of Merger (the "Merger
Agreement") by and between Washington National Corporation and
Conseco, Inc. and the transactions contemplated thereby.
2. Approval of adjournment of the Special Meeting, if necessary,
to permit further solicitations of proxies in the event that
there are not sufficient votes at the time of the Special Meeting
to adopt the Merger Agreement.
You are encouraged to specify your choices by marking the
appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes
if you wish to vote in accordance with the Board of Directors'
recommendations. Your shares cannot be voted unless you sign and
return this card. This proxy confers discretionary authority on the
agents and proxies named above to vote on matters not presently
known that may be presented at the Special Meeting, including
proposals to adjourn or postpone the meeting.
-------------
SEE REVERSE
SIDE
-------------
