<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1994
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONSECO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
INDIANA 35-1468632
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
(317) 573-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LAWRENCE W. INLOW, ESQ.
11825 N. PENNSYLVANIA STREET
CARMEL, INDIANA 46032
(317) 573-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JOHN J. SABL, ESQ.
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
CALCULATION OF REGISTRATION FEE CHART
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Provisionally Redeemable
Income Debt Exchangeable for
Stock due 1998 ("PRIDES")....... 24,947,500
PRIDES $13.00 $324,317,500 $64,864
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</TABLE>
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(1) Includes 2,947,500 PRIDES which may be purchased by the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (c) based upon the average of the high and low sales
price of Western National Corporation Common Stock as reported on the New
York Stock Exchange Composite Tape on October 6, 1994.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses, one to be
used in connection with a United States and Canadian offering, and one to be
used in connection with a concurrent offering outside of the United States and
Canada. The two prospectuses will be identical in all respects except for the
outside front cover page, the underwriting description and the back cover page.
The form of prospectus to be used in the United States and Canadian offering is
included herein and is followed by such alternative pages. Each of the pages of
the prospectus for the offering outside of the United States and Canada
included herein has been labeled "Alternative Page for International Offering."
The form of prospectus used in Canada will also contain the additional pages to
be included as Exhibit 99.1 of this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1994
PROSPECTUS
22,000,000 PRIDES/SM/
[LOGO OF CONSECO, INC. APPEARS HERE]
% PRIDES/SM/ DUE 1998
EXCHANGEABLE INTO SHARES OF COMMON STOCK OF
WESTERN NATIONAL CORPORATION
-----------
Of the 22,000,000 % Provisionally Redeemable Income Debt Exchangeable for
Stock/SM/ due 1998 ("PRIDES") of Conseco, Inc. ("Conseco") offered hereby,
18,700,000 PRIDES are being offered hereby in the United States and Canada by
the U.S. Underwriters and 3,300,000 PRIDES are being offered in a concurrent
international offering outside the United States and Canada by the
International Underwriters. The initial public offering price and the
underwriting discount per PRIDES will be identical for both offerings. See
"Underwriting."
The principal amount of each of the PRIDES being offered hereby will be
$ (the closing price of the common stock, par value $.001 per share
(the "WNC Common Stock"), of Western National Corporation ("WNC") on ,
1994, as reported on the New York Stock Exchange Composite Tape). The PRIDES
will mature on , 1998. Interest on the PRIDES, at the rate of % of the
principal amount per annum, is payable quarterly in arrears on March 1, June 1,
September 1 and December 1, beginning 1, 1995.
(Continued on following page)
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) CONSECO(1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per PRIDES................................. $ $ $
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Total(4)................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1994.
(2) Conseco and WNC have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by estimated to be
$ .
(4) Conseco has granted to the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to a
maximum of 2,947,500 additional PRIDES, on the same terms as set forth
above, to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Conseco will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The PRIDES are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the PRIDES will be
delivered in book-entry form only on or about , 1994 through the
facilities of The Depository Trust Company.
/SM/Service mark of Merrill Lynch & Co., Inc.
-----------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED
KEMPER SECURITIES, INC.
-----------
The date of this Prospectus is , 1994.
<PAGE>
(Continued from previous page)
Unless previously redeemed by Conseco, at Maturity (including as a result of
acceleration or otherwise), each PRIDES will be mandatorily exchanged by
Conseco into a number of shares of WNC Common Stock equal to the Common
Exchange Rate or, at the option of Conseco but only in the limited
circumstances permitted by the Standstill Agreement (as described herein),
Conseco may deliver cash in lieu of such shares as described herein. The Common
Exchange Rate is equal to, subject to certain adjustments, (i) if the Current
Market Price (as defined herein) of WNC Common Stock determined as of the
second trading day immediately prior to Maturity is greater than or equal to
$ per share of WNC Common Stock, of a share of WNC Common Stock per
PRIDES, (ii) if the Current Market Price of the WNC Common Stock determined as
of the second trading day immediately prior to Maturity is less than $ per
share of WNC Common Stock but is greater than the principal amount, a
fractional share of WNC Common Stock per PRIDES so that the Current Market
Price thereof, determined as of the second trading day immediately prior to
Maturity, is equal to the principal amount and (iii) if the Current Market
Price per share of the WNC Common Stock determined as of the second trading day
immediately prior to Maturity is less than or equal to the principal amount,
one share of WNC Common Stock per PRIDES. See "Description of the PRIDES--
Mandatory Exchange."
The PRIDES are not redeemable by Conseco prior to , 1997. At any time
and from time to time on and after that date until the close of business on the
day immediately prior to the Notice Date (as defined herein) relating to
Maturity, Conseco will have the right to redeem, in whole or from time to time
in part, the outstanding PRIDES. Upon any such redemption, Conseco will deliver
to the holder thereof, in exchange for each PRIDES subject to redemption, the
greater of: (i) the number of shares of WNC Common Stock equal to the
applicable Call Price (as described herein) divided by the Current Market Price
(as described herein) of the WNC Common Stock or (ii) of a share of WNC
Common Stock (subject to certain adjustments), in each case together with an
amount in cash equal to the accrued and unpaid interest thereon to but not
including the date fixed for redemption. Notwithstanding the foregoing, Conseco
may, at its option but only in the limited circumstances permitted by the
Standstill Agreement, deliver cash in lieu of such shares as described herein.
See "Description of the PRIDES--Optional Redemption by Conseco." The PRIDES are
not subject to redemption or exchange at the option of the holders thereof or
to any sinking fund.
Interest on the PRIDES will accrue at a higher rate than the rate at which
dividends have been paid on the WNC Common Stock. The opportunity for
investment appreciation afforded by an investment in the PRIDES is less than
that afforded by an investment in the WNC Common Stock because at Maturity or
upon any redemption by Conseco such holder of PRIDES may receive less than one
share of WNC Common Stock per PRIDES. The value of the shares of WNC Common
Stock that may be delivered in respect of the PRIDES at Maturity may be less
than the principal amount of the PRIDES, and therefore an investment in the
PRIDES may result in a loss.
Conseco and WNC will enter into an agreement (the "Standstill Agreement")
pursuant to which Conseco will agree, among other things, not to increase its
ownership interest in WNC for a period of seven years and will agree to vote
its shares of WNC Common Stock in proportion to the other stockholders of WNC,
except as set forth in the Standstill Agreement. In addition, the Standstill
Agreement provides that Conseco will not exercise its right to deliver cash in
lieu of such shares except in the limited circumstances permitted therein. See
"Relationships between Conseco and WNC."
Attached hereto as Appendix A and included as part of this Prospectus is a
prospectus of WNC (the "WNC Prospectus") covering the shares of WNC Common
Stock which may be received by a holder of PRIDES at Maturity or upon any
redemption. The WNC Prospectus relates to an aggregate of up to 24,947,500
shares of WNC Common Stock.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED UNDER "INVESTMENT CONSIDERATIONS RELATING TO PRIDES AND KEMPER
ACQUISITION" IN THIS PROSPECTUS AND UNDER "INVESTMENT CONSIDERATIONS" IN THE
WNC PROSPECTUS.
For a discussion of certain United States federal income tax consequences for
holders of PRIDES, see "Certain United States Federal Income Tax
Considerations."
The WNC Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "WNH." On October 6, 1994, the last reported sale price of the WNC
Common Stock was $12 7/8 per share.
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PRIDES AND THE
WNC COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
AVAILABLE INFORMATION
Conseco is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Conseco with the Commission pursuant
to the information requirements of the Exchange Act can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048 and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained upon written request
addressed to the Securities and Exchange Commission, Public Reference Section,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Copies of such reports, proxy statements and other information may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, on which exchange the Common Stock of Conseco is listed.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Conseco and the securities offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith, which may be obtained from the principal office of
the Commission in Washington, D.C., upon payment of the fees prescribed by the
Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Conseco with the Commission are incorporated
herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1993;
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended March 31
and June 30, 1994;
(c) Current Reports on Form 8-K dated February 15, June 26, September 29
(the "Statesman 8-K") and October , 1994 (the "Kemper 8-K").
All documents filed by Conseco pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and prior to the termination of the
offering of the PRIDES offered hereby will be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document, which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Conseco will furnish without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon written or oral request of
such person, a copy of any and all of the foregoing documents incorporated
herein by reference (other than exhibits to such reports, unless such exhibits
are specifically incorporated by reference therein). Requests should be
submitted in writing addressed to James W. Rosensteele, Vice President,
Investor Relations, 11825 N. Pennsylvania Street, Carmel, Indiana 46032 or by
telephone to Mr. Rosensteele at (317) 573-2893.
----------------
FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS SUCH
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
3
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Prospectus. Except as otherwise indicated, the information in this Prospectus
assumes that the Underwriters do not exercise their over-allotment option. All
financial information in this Prospectus or incorporated by reference herein is
presented in accordance with generally accepted accounting principles ("GAAP"),
unless otherwise specified. As used in this Prospectus, the term "Conseco"
refers to Conseco, Inc. and its wholly owned subsidiaries, unless the context
otherwise requires.
CONSECO
Conseco is a holding company which owns, operates and provides services to
companies in the financial services industry (primarily life insurance
companies, to date). Historically, Conseco's earnings have resulted from three
distinct activities: (i) operating life insurance companies and other financial
services businesses; (ii) providing investment management, administrative and
other fee-based services to affiliated businesses as well as non-affiliates;
and (iii) acquiring and restructuring life insurance companies in partnership
with other investors. Recently, Conseco has aggressively pursued a strategy to
expand its fee-based business, with special emphasis on increasing assets under
management. Conseco's operating strategy for acquired businesses is to
consolidate and streamline management and administrative functions, to realize
superior investment returns through active asset management, to eliminate
unprofitable products and distribution channels and to focus resources on the
development and expansion of profitable products and strong distribution
channels. The companies Conseco targets for acquisition have profitable niche
products, strong distribution systems and progressive management teams who can
work with Conseco to implement Conseco's operating and growth strategies. Since
Conseco commenced operations in 1982, it has completed twelve acquisitions of
insurance companies and related businesses, the first seven as wholly owned
subsidiaries and the last five through its acquisition partnerships.
Conseco and Kemper Corporation ("Kemper") have entered into an Agreement and
Plan of Merger dated as of June 26, 1994 (the "Merger Agreement") pursuant to
which a subsidiary of Conseco will merge with and into Kemper (the "Merger") in
a transaction in which Kemper will be the surviving corporation. Kemper is a
financial services holding company with principal operations in asset
management, securities brokerage and life insurance and real estate. Conseco
intends to change its name to "Kemper, Inc." upon consummation of the Merger.
See "Pending Acquisition of Kemper by Conseco."
WESTERN NATIONAL CORPORATION
WNC is the parent of Western National Life Insurance Company ("Western"),
which had $8.5 billion of assets as of June 30, 1994. Western develops, markets
and issues annuity products through niche distribution channels. Approximately
98% of the $563.0 million of direct premiums collected in the year ended
December 31, 1993, and approximately 99% of the $394.7 million of direct
premiums collected in the six months ended June 30, 1994, were from the sale of
annuity products. Western markets single premium deferred annuities to the
savings and retirement markets, flexible premium deferred annuities to the tax-
qualified retirement market, and single premium immediate annuities to the
structured settlement and retirement markets. Western distributes its annuity
products through financial institutions (principally banks and thrifts),
personal producing general agents ("PPGAs") and specialty brokers. Western
expects to supplement its annuity product line by introducing variable annuity
products in 1995.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
PRIDES offered hereby:
U.S. Offering............................................... 18,700,000 PRIDES
International Offering...................................... 3,300,000 PRIDES
----------
Total..................................................... 22,000,000 PRIDES
</TABLE>
Issue......................... 22,000,000 of % Provisionally Redeemable
Income Debt Exchangeable for Stock due 1998,
plus up to 2,947,500 PRIDES subject to an over-
allotment option granted to the Underwriters.
Principal Amount.............. $ per PRIDES.
Stated Maturity............... , 1998.
Interest Payment Dates........ March 1, June 1, September 1 and December 1,
commencing , 1995.
Mandatory Exchange at
Maturity...................... Unless previously redeemed by Conseco as
hereinafter described, at Maturity (as defined
herein) each PRIDES will be mandatorily
exchanged by Conseco into a number of shares of
WNC Common Stock equal to the Common Exchange
Rate, or, at the option of Conseco but only in
the limited circumstances permitted by the
Standstill Agreement, Conseco may deliver cash
in lieu of such shares as described herein. The
Common Exchange Rate is equal to, subject to
certain adjustments, (i) if the Current Market
Price (as defined herein) of WNC Common Stock,
determined as of the second trading day
immediately prior to Maturity, is greater than
or equal to $ per share of WNC Common Stock,
of a share of WNC Common Stock per PRIDES,
(ii) if the Current Market Price of the WNC
Common Stock, determined as of the second
trading day immediately prior to Maturity, is
less than $ per share of the WNC Common Stock
but is greater than the principal amount, a
fractional share of WNC Common Stock per PRIDES
so that the Current Market Price thereof,
determined as of the second trading day
immediately prior to Maturity, is equal to the
principal amount and (iii) if the Current
Market Price per share of the WNC Common Stock,
determined as of the second trading day
immediately prior to Maturity, is less than or
equal to the principal amount, one share of WNC
Common Stock per PRIDES. See "Description of
the PRIDES--Mandatory Exchange."
Optional Redemption by
Conseco....................... The PRIDES are not redeemable by Conseco prior
to , 1997. At any time and from time to
time on and after that date until the close of
business on the day immediately prior to the
Notice Date (as defined herein) relating to
Maturity, Conseco will have the right to
redeem, in whole or from time to time in part,
the outstanding PRIDES. Upon any such
redemption, Conseco will deliver to the holder
thereof, in exchange for each PRIDES subject to
redemption,
5
<PAGE>
the greater of: (i) the number of shares of WNC
Common Stock equal to the applicable Call Price
divided by the Current Market Price of the WNC
Common Stock, or (ii) of a share of WNC
Common Stock (subject to certain adjustments),
in each case together with an amount in cash
equal to the accrued and unpaid interest
thereon to but not including the date fixed for
redemption. Notwithstanding the foregoing,
Conseco may, at its option but only in the
limited circumstances permitted by the
Standstill Agreement, deliver cash in lieu of
such shares of WNC Common Stock as described
herein. "Call Price" means $ , declining as
set forth herein to $ on and after . See
"Description of the PRIDES--Optional Redemption
by Conseco."
Ranking....................... The PRIDES will be general unsecured
obligations and will rank pari passu with all
other unsecured and unsubordinated senior
indebtedness of Conseco. For information
concerning current and contemplated
indebtedness of Conseco, Inc. and indebtedness
and preferred stock of Conseco subsidiaries,
see "Investment Considerations Relating to
PRIDES and Kemper Acquisition--Acquisition
Indebtedness and Restrictions Imposed by the
Financing Agreements; Holding Company Status,"
"Pending Acquisition of Kemper by Conseco--Plan
of Financing" and "Description of the PRIDES--
Ranking."
Enhanced Income; Less
Investment Appreciation than
WNC Common Stock; No
Assurance of WNC Common
Stock........................
Interest on the PRIDES will accrue at a higher
rate than the rate at which dividends are
currently paid on the WNC Common Stock. The
opportunity for investment appreciation
afforded by an investment in the PRIDES is less
than that afforded by an investment in the WNC
Common Stock because at Maturity or upon
redemption such holder of PRIDES may receive
less than one share of WNC Common Stock for
each PRIDES. Conseco may redeem the PRIDES on
or after , 1997 and may be expected
to do so if, among other circumstances, the
Current Market Price of the WNC Common Stock
exceeds $ per share of WNC Common Stock, in
which case a holder would receive less than one
share of WNC Common Stock per PRIDES called for
redemption. The value of the shares of WNC
Common Stock delivered in respect of the PRIDES
at Maturity may be less than the principal
amount of the PRIDES, and therefore an
investment in the PRIDES may result in a loss.
In addition, Conseco may, at its option but
only in the limited circumstances permitted by
the Standstill Agreement, deliver cash in lieu
of shares of WNC Common Stock with respect to
some or all of the PRIDES at Maturity or upon
any redemption. See "Investment Considerations
Relating to PRIDES and Kemper Acquisition" and
"Description of the PRIDES--Enhanced Income;
Less
6
<PAGE>
Investment Appreciation than WNC Common Stock;
No Assurance of WNC Common Stock."
Standstill Agreement.......... Conseco and WNC will enter into the Standstill
Agreement which provides, among other things,
that (i) the shares of WNC Common Stock owned
by Conseco and its affiliates will be voted or
abstain from voting on all matters presented to
stockholders of WNC in the same proportion as
the votes or abstentions of all other
stockholders (other than persons who, along
with its affiliates and associates,
beneficially own more than 10% of the then
outstanding shares of WNC Common Stock (a "10%
Holder")), except that Conseco will retain the
right to vote its shares in favor of persons
nominated by Conseco for election to WNC's
board pursuant to the terms of the Stockholder
Agreement dated as of February 15, 1994 among
Conseco, a subsidiary of Conseco and WNC (the
"Stockholder Agreement"); (ii) Conseco will not
acquire any additional shares of WNC Common
Stock or engage in certain activities that
might otherwise influence or result in a change
of control of WNC for a period of seven years;
and (iii) Conseco will not, except in the
limited circumstances permitted by the
Standstill Agreement, exercise any of its
rights to deliver cash in lieu of shares of WNC
Common Stock as described herein at Maturity or
upon any redemption of the PRIDES. Conseco will
retain its rights with regard to the nomination
of directors and the right to vote its shares
in favor of such nominees. The Standstill
Agreement will be an agreement between Conseco
and WNC and its terms may be amended or waived
without the consent of the holders of the
PRIDES.
Covenants..................... The Indenture will contain a number of
covenants which limit, among other things, the
issuance, sale or other disposition of capital
stock of certain significant subsidiaries of
Conseco and the incurrence of certain liens by
Conseco or by certain significant subsidiaries
of Conseco. The Indenture will not contain any
other provision which will restrict Conseco
from incurring, assuming or becoming liable
with respect to any indebtedness or other
obligations, whether secured or unsecured, or
from paying dividends or making other
distributions on its capital stock or
purchasing or redeeming its capital stock or
making additional investments in its
subsidiaries. The Indenture will not contain
any financial ratios, or specified levels of
net worth or liquidity to which Conseco must
adhere. See "Description of the PRIDES--
Covenants."
Voting Rights; Change in
Control....................... The Indenture provides that in any special or
annual meeting of stockholders of WNC in which
the stockholders will vote on any proposal or
matter relating to a Change in Control (as
defined herein), Conseco will vote or abstain
from voting the shares of WNC Common Stock held
by it with respect to any
7
<PAGE>
such proposal or matter in proportion to the
votes (or abstentions) cast by all other
holders of WNC Common Stock (other than shares
held by a 10% Holder). In addition, Conseco
will agree with WNC under the Standstill
Agreement to vote or abstain from voting the
shares of WNC Common Stock held by it in
proportion to the votes cast or abstentions by
all such other holders of WNC Common Stock
(other than any 10% Holder), except with
respect to the election of the two nominees to
the WNC Board of Directors designated by
Conseco, as to which Conseco's vote is not
limited by the Standstill Agreement or the
Indenture. See "Relationships between Conseco
and WNC" and "Description of the PRIDES--Voting
Rights of Conseco."
Use of Proceeds............... To finance in part the Merger, to repay bank
indebtedness or for other general corporate
purposes. See "Use of Proceeds."
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INVESTMENT CONSIDERATIONS RELATING TO PRIDES
AND KEMPER ACQUISITION
In addition to other information contained in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
PRIDES offered hereby.
COMPARISON TO OTHER DEBT SECURITIES
PRIDES combine features of equity and debt instruments. Accordingly, the
manner in which the trading price of PRIDES will fluctuate, based on changes in
interest rates, equity prices and other factors, is subject to considerable
uncertainty. As described in more detail below, the trading price of PRIDES may
vary considerably prior to Maturity or to any redemption as a result of, among
other things, fluctuations in the price of the WNC Common Stock, changes in
interest rates, factors affecting Conseco and other events that are difficult
to predict and beyond Conseco's control.
The terms of the PRIDES differ from those of ordinary debt securities in that
the amount to be received at Maturity or upon any redemption is not fixed and
will not be repaid in cash (except to the limited extent permitted by the
Standstill Agreement) but is based on the price of the WNC Common Stock. There
can be no assurance that the value of the consideration to which a holder is
entitled at Maturity will be equal to or greater than the principal amount of
the PRIDES, and therefore an investment in the PRIDES may result in a loss.
RELATIONSHIP OF PRIDES AND THE WNC COMMON STOCK
The market price of PRIDES at any time is expected to be affected primarily
by changes in the price of the WNC Common Stock and by changes in interest
rates, as well as by factors affecting Conseco. It is impossible to predict
whether the price of the WNC Common Stock will rise or fall. Trading prices of
the WNC Common Stock will be influenced by WNC's operational results and by
complex and interrelated financial, economic, political and other factors that
can affect the capital markets generally, the stock exchange on which the WNC
Common Stock may be traded and the market segment of which WNC is a part.
ABSENCE OF PLEDGE OR ESCROW
The Indenture relating to the PRIDES permits, subject to certain conditions,
Conseco to sell, pledge or otherwise convey all or any portion of the WNC
Common Stock held by it, and no such shares of WNC Common Stock will be pledged
or otherwise held in escrow for use at Maturity or upon any redemption.
Consequently, in the event of a bankruptcy, insolvency or liquidation of
Conseco, holders of the PRIDES will not have any preferred claim to any shares
of WNC Common Stock that may then be held by Conseco.
LESS INVESTMENT APPRECIATION THAN WNC COMMON STOCK
The opportunity for investment appreciation afforded by an investment in the
PRIDES is less than that afforded by an investment in the WNC Common Stock
because, at Maturity or upon any redemption, a holder may receive less than one
share of WNC Common Stock per PRIDES. Conseco may, at its option, redeem the
PRIDES on or after , 1997, and may be expected to do so if, among other
circumstances, the Current Market Price of one share of WNC Common Stock at
that time exceeds $ , in which case a holder would receive less than one
share of WNC Common Stock per PRIDES called for redemption or, in the limited
circumstances permitted by the Standstill Agreement, cash in lieu of shares of
WNC Common Stock as described herein.
Because the market price of the WNC Common Stock is subject to market
fluctuations, the value of the WNC Common Stock received by a holder of PRIDES
at Maturity may be less than the principal amount of the PRIDES, and therefore
an investment in the PRIDES may result in a loss.
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As a result of these provisions, holders of the PRIDES would not be expected
to realize any investment appreciation from an increase in the value of the WNC
Common Stock if the Current Market Price per share of WNC Common Stock is below
$ , and less than all of such appreciation if the Current Market Price per
share of WNC Common Stock is above $ .
HOLDERS HAVE NO RIGHTS WITH RESPECT TO WNC COMMON STOCK
Holders of the PRIDES will not be entitled to any rights with respect to the
WNC Common Stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions in respect thereof) until such
time, if any, as shares of WNC Common Stock are received by holders of the
PRIDES at Maturity or upon any redemption. In addition, Conseco may, at its
option but only in the limited circumstances permitted by the Standstill
Agreement, deliver cash in lieu of shares of WNC Common Stock as described
herein.
DILUTION OF THE WNC COMMON STOCK
The number and value of the shares of WNC Common Stock to be received at
Maturity or upon any redemption of the PRIDES is subject to adjustment for
certain events arising from stock splits and combinations, stock dividends,
extraordinary cash dividends and certain other actions of WNC that modify its
capital structure. See "Description of the PRIDES--Adjustments in the Common
Exchange Rate and the Optional Redemption Rate." The number and value of the
WNC Common Stock to be received at Maturity or upon any redemption of the
PRIDES will not be adjusted for other events, such as offerings by WNC of
shares of WNC Common Stock or other equity for cash, that may adversely affect
the price of the WNC Common Stock and, because of the relationship of the
market price of the PRIDES to the price of the WNC Common Stock, may adversely
affect the market price of the PRIDES or the value of the consideration
deliverable at Maturity or upon any redemption. Conseco cannot predict to what
extent, if any, WNC will issue shares of WNC Common Stock or other equity
securities in the future. WNC has stated that it anticipates seeking additional
external capital within the next twelve months that would be used to support
Western's growth strategy. WNC has stated that it has not determined the amount
or form of the financing it expects to seek. See "Investment Considerations--
Holding Company Structure; Leverage" in the WNC Prospectus.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the PRIDES will trade in the secondary
market or whether such market will be liquid or illiquid. The representatives
of the Underwriters currently intend, but are not obligated to, make a market
in the PRIDES. There is currently no secondary market for the PRIDES. There can
be no assurance that a secondary market will develop or, if a secondary market
does develop, that it will provide the holders of the PRIDES with liquidity of
investment or that it will continue for the life of the PRIDES. If the PRIDES
are not listed or traded on any securities exchange or trading market, or if
trading of the PRIDES is suspended, pricing information for the PRIDES may be
more difficult to obtain, and the liquidity of the PRIDES may be adversely
affected.
NO OBLIGATION ON THE PART OF WNC WITH RESPECT TO THE PRIDES
WNC has no obligations with respect to the PRIDES or amounts to be paid to
holders thereof, including any obligation to take the needs of Conseco or of
holders of the PRIDES into consideration for any reason. WNC will not receive
any of the proceeds of the offering of the PRIDES made hereby.
RELATIONSHIPS BETWEEN CONSECO AND WNC
Conseco, which prior to February 1994 owned 100 percent of the outstanding
WNC Common Stock, presently owns approximately 40% (24,947,500 shares) of the
outstanding WNC Common Stock. Conseco and WNC have entered into various
intercompany transactions and arrangements. See "Relationships with Conseco and
its Affiliates" in the WNC Prospectus.
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Under the Standstill Agreement, Conseco will agree with WNC that (i) the
shares of WNC Common Stock owned by Conseco and its affiliates will be voted or
abstain from voting on all matters presented to stockholders of WNC in the same
proportion as the votes or abstentions of all other stockholders (other than
any 10% Holder), except that Conseco will retain the right to vote its shares
in favor of persons nominated by Conseco for election to WNC's board pursuant
to the terms of the Stockholder Agreement; (ii) Conseco will not acquire any
additional shares of WNC Common Stock or engage in certain activities that
might otherwise influence or result in a change of control of WNC for a period
of seven years; and (iii) Conseco will not, except in the limited circumstances
permitted by the Standstill Agreement, exercise any of its rights to deliver
cash in lieu of shares of WNC Common Stock as described herein at Maturity or
upon any redemption of the PRIDES. Conseco will retain its rights with regard
to the nomination of directors and the right to vote its shares in favor of
such nominees. The Standstill Agreement will be an agreement between Conseco
and WNC and its terms may be amended or waived without the consent of the
holders of the PRIDES.
Conseco is not required to retain its shares of WNC Common Stock pursuant to
the terms of the PRIDES or otherwise. Subject to certain conditions, Conseco
remains free to sell all or any portion of its WNC Common Stock in a public or
private offering intended to result in widespread distribution or pursuant to a
tender or exchange offer. See "Description of the PRIDES--Covenants."
REGULATORY CONSIDERATIONS ON OWNERSHIP
For information concerning insurance laws and regulations which may affect
the number of PRIDES which may be acquired without regulatory approval, see
"Business--Regulation" in the WNC Prospectus.
CHANGE IN NATURE OF CONSECO'S BUSINESS
On June 26, 1994, Conseco entered into the Merger Agreement with Kemper,
which provides for Kemper stockholders to receive an aggregate of approximately
$2.3 billion in cash and shares of Conseco Common Stock valued at approximately
$.4 billion. At the closing of the Merger, Conseco Capital Partners II, L.P.
("CCP II"), an acquisition partnership in which Conseco currently directly and
indirectly holds a 23% interest, will purchase Kemper's life insurance
subsidiaries and associated real estate assets for approximately $1.3 billion
in cash (the "Restructuring").
The acquisition of Kemper (which had total assets on a pro forma basis of
approximately $14.7 billion at June 30, 1994) and related transactions would
effect a significant change in the nature of Conseco's business. See "Pending
Acquisition of Kemper by Conseco." In acquiring Kemper, Conseco is acquiring a
large mutual fund management business and a substantial regional securities
brokerage business. Conseco has not previously owned a significant interest in
financial services businesses of that nature. There can be no assurance that
these businesses will operate profitably under the ownership and strategic
management of Conseco. Furthermore, Conseco has announced that it is exploring
the disposition of one or more of its large equity stakes in three publicly-
held insurance businesses previously acquired by Conseco directly or through
its first partnership acquisition vehicle: WNC, Bankers Life Holding
Corporation ("BLH") and CCP Insurance, Inc. ("CCP Insurance"). Consummation of
the offering of the PRIDES would be in lieu of a sale at this time by Conseco
of its WNC Common Stock. The disposition of one or more of these equity stakes,
coupled with the acquisition of Kemper, would increase the percentage of
Conseco's earnings that would be derived from the asset management and
securities brokerage businesses relative to the life insurance business.
Because agreements for the provision of asset management services are by law or
custom generally terminable on short notice, earnings from such agreements may
be less predictable than earnings from life insurance products.
In addition, the acquisition of Kemper's life insurance subsidiaries and
associated real estate assets by CCP II includes a significant amount of real
estate investments. See "Pending Acquisition of Kemper by Conseco--Business of
Kemper--Life Insurance and Real Estate." These real estate investments could
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continue to be adversely affected by weak economic conditions in certain real
estate markets and by restrictive lending practices by banks and other lenders.
Conseco has limited experience in managing problem real estate investments and
management's ability to realize value from such investments will be affected by
conditions which are beyond its control, including without limitation economic
and real estate market conditions in areas such as California and Illinois,
where much of the real estate is located.
Because of the inherent uncertainties associated with merging two large
companies, there can be no assurance that the combined company resulting from
the acquisition of Kemper by Conseco will be able to realize the cost savings
Conseco currently expects to realize as a result of the acquisition and the
consolidation of the operations of Conseco and Kemper or that such savings will
be realized at the times currently anticipated. Furthermore, there can be no
assurance that cost savings which are realized will not be offset by increases
in other expenses, operating losses, other charges to earnings or losses of
revenue, including losses due to problems in integrating the two companies.
CONDITIONS TO KEMPER MERGER
The obligations of Conseco and Kemper to consummate the Merger are subject to
various conditions, including obtaining requisite shareholder and regulatory
approvals, certain approvals with respect to the registered investment
companies for which certain Kemper subsidiaries act as investment advisor or
subadvisor, certain consents from the non-investment company advisory clients
of the asset management subsidiaries of Kemper, approval for listing on the New
York Stock Exchange of the additional shares of Conseco common stock to be
issued in connection with the acquisition and all financing necessary to pay
the aggregate consideration payable in connection with the acquisition. The
obligations of the parties are further subject to their respective
representations and warranties being true and correct in all material respects
and their having performed as of the closing date all of their covenants and
obligations set forth in the Merger Agreement. There can be no assurance that
all of these conditions will be satisfied and that the Merger will be
consummated or that the terms of the Merger Agreement will not be modified. It
is expected that the offering of PRIDES will close prior to the consummation of
the Merger, and it is not conditioned upon the consummation of the Merger.
ACQUISITION INDEBTEDNESS AND RESTRICTIONS IMPOSED BY THE FINANCING AGREEMENTS;
HOLDING COMPANY STATUS
Conseco, through Kemper and CCP II Holdings Corporation ("CCP II Holdings"),
a subsidiary of CCP II formed to acquire the life insurance operations and
associated real estate assets of Kemper, will incur substantial consolidated
indebtedness in connection with the Merger. See "Pending Acquisition of Kemper
by Conseco--Plan of Financing." After giving effect to the financing for the
acquisition of The Statesman Group, Inc. ("Statesman") by CCP II (the
"Statesman Acquisition"), the issuance of the PRIDES offered hereby, the
financing of the Merger and the Restructuring, Conseco's pro forma total
consolidated indebtedness (which includes indebtedness of BLH, Statesman and
CCP II for which Conseco is not directly liable) would have been 58% of total
capitalization as of June 30, 1994, compared to Conseco's actual total
consolidated indebtedness of 33% of total capitalization as of such date and
Kemper's actual total consolidated indebtedness of 23% of total capitalization
as of such date. As of June 30, 1994, on a pro forma basis after giving effect
to the Statesman Acquisition, the issuance of the PRIDES offered hereby and the
Merger and the Restructuring, Conseco's total long-term indebtedness (including
indebtedness of BLH, Statesman and CCP II for which Conseco is not directly
liable), minority interest (including preferred stock of subsidiaries totaling
$456.3 million) and shareholders' equity were $3,020.1 million, $919.1 million
and $1,297.2 million, respectively. For the year ended December 31, 1993 and
the six months ended June 30, 1994, after giving effect to the Statesman
Acquisition, the issuance of the PRIDES offered hereby and the Merger and the
Restructuring, Conseco's ratio of earnings to fixed charges, excluding interest
on annuities and financial products, would have been approximately 1.82x and
1.63x, respectively. See "Selected and Pro Forma Consolidated Financial Data."
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This degree of leverage could have material adverse consequences to Conseco
and the holders of the PRIDES, including the following: (i) the ability of
Conseco to obtain additional financing in the future may be impaired; (ii) a
substantial portion of Conseco's cash flow from operations will be required to
be dedicated to the payment of Conseco's interest expense obligations; (iii)
Conseco may be more highly leveraged than other companies with which it
competes, which may place it at a competitive disadvantage; (iv) Conseco's high
degree of leverage will make it more vulnerable to a downturn in its business;
and (v) Conseco's leverage may adversely affect the ratings of its insurance
companies, which in turn may adversely affect their competitive position and
ability to sell products.
In connection with the Merger, a Conseco subsidiary (which will be merged
into Kemper), as borrower, and Conseco, as guarantor, entered into a Credit
Agreement dated as of August 31, 1994 with a syndicate of banks for which
Citicorp USA, Inc. is acting as Administrative Agent (the "Kemper Credit
Agreement"). In addition, CCP II Holdings entered into a Credit Agreement dated
as of August 31, 1994 with a syndicate of banks for which Citicorp USA, Inc. is
acting as Administrative Agent (the "CCP II Holdings Credit Agreement";
together with the Kemper Credit Agreement, the "Credit Agreements"). The Credit
Agreements for Kemper and CCP II Holdings each contain a number of significant
covenants that, among other things, restrict the ability of Conseco and its
subsidiaries or CCP II Holdings and its subsidiaries, as the case may be, to
incur debt, pay dividends, create liens, make capital expenditures and make
certain investments or acquisitions and otherwise restrict corporate
activities. See "Pending Acquisition of Kemper by Conseco--Plan of Financing."
The obligations arising under the Kemper Credit Agreement and related
documentation are expected to be secured by, among other things, liens on
substantially all of the assets of Kemper, by the guarantee of Conseco, Inc.
and by a pledge of the stock of Kemper to be owned by Conseco. The obligations
under the CCP II Holdings Credit Agreement and related documentation are
expected to be secured by, among other things, a pledge of the stock of the
subsidiaries of CCP II Holdings. In addition, each of Conseco, Kemper and CCP
II Holdings will be required to maintain specified consolidated financial
ratios and tests, including minimum interest coverage ratios. The ability of
Conseco and its subsidiaries and CCP II Holdings and its subsidiaries to comply
with their respective obligations will be affected by certain events that are
beyond their control. There can be no assurance that Conseco and its
subsidiaries and CCP II Holdings and its subsidiaries will be able to achieve
results that comply with such provisions or that the terms of the respective
Credit Agreements or other aspects of the plan of financing for the Merger will
not change prior to consummation of the Merger. The breach of any of these
covenants by Conseco or Kemper could result in a default under the Conseco
Credit Agreement and the breach of any of these covenants by CCP II Holdings
could result in a default under the CCP II Holdings Credit Agreement. In the
event of any such default, the banks who are parties to such agreements could
elect to declare all amounts borrowed under the applicable Credit Agreement,
together with accrued interest, to be due and payable. Any such acceleration
under the Kemper Credit Agreement would also constitute a default under the
senior subordinated debentures to be issued by Kemper (the "Kemper Senior
Subordinated Debentures"), and any such acceleration under the CCP II Holdings
Credit Agreement would also constitute a default under the senior subordinated
debentures to be issued by CCP II Holdings (the "CCP II Holdings Senior
Subordinated Debentures."), but would not constitute a default under the PRIDES
or under the Kemper Credit Agreement.
The Indenture under which the CCP II Holdings Senior Subordinated Debentures
will be issued will also contain a number of significant covenants that, among
other things, will restrict the ability of CCP II Holdings and its subsidiaries
to incur debt, pay dividends, sell assets and take certain other corporate
actions.
Because Conseco and CCP II Holdings are holding companies, all of their
respective operating income is generated by their respective subsidiaries. Each
of Conseco and CCP II Holdings must rely on dividends or other payments from
its subsidiaries to generate the funds necessary to meet its obligations under
the indebtedness to be incurred, as well as other obligations. The ability of
such subsidiaries to pay such dividends or other amounts will be subject to,
among other things, applicable state laws, including, in the case of insurance
subsidiaries, state insurance laws.
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Because of Conseco's holding company structure, the rights of Conseco and its
creditors, including the holders of the PRIDES offered hereby, to participate
in the assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise will be subject to the prior claims of such
subsidiary's policyholders, creditors and holders of preferred stock, except to
the extent Conseco may itself be a creditor with recognized claims against the
subsidiary or a holder of such subsidiary's preferred stock. As of June 30,
1994 on a pro forma basis before adjusting for the Merger and Restructuring,
subsidiaries of Conseco had approximately $586.5 million of indebtedness and
$133.3 million of preferred stock (excluding Conseco's direct or indirect
interest in such preferred stock) as to which Conseco, Inc. is not directly
liable. In connection with the Merger and the Restructuring, it is expected
that (i) Kemper (which will be a wholly owned subsidiary of Conseco) will incur
or otherwise have on a pro forma basis approximately $1,194.1 million of
indebtedness and $123.9 million of preferred stock, as to which Conseco, Inc.
will guarantee on a senior basis approximately $517.3 million of secured
indebtedness under the Kemper Credit Agreement and guarantee on a subordinated
basis $339.5 million of the Kemper Senior Subordinated Debentures and (ii) CCP
II will incur or otherwise have on a pro forma basis an additional $760.0
million of indebtedness and $191.9 million of preferred stock (excluding
Conseco's direct or indirect interest in such preferred stock) as to which
Conseco, Inc. is not directly liable.
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CONSECO
Conseco is a holding company which owns, operates and provides services to
companies in the financial services industry (primarily life insurance
companies, to date). Historically, Conseco's earnings have resulted from three
distinct activities: (i) operating life insurance companies and other financial
services businesses; (ii) providing investment management, administrative and
other fee-based services to affiliated businesses as well as non-affiliates;
and (iii) acquiring and restructuring life insurance companies in partnership
with other investors. Recently, Conseco has aggressively pursued a strategy to
expand its fee-based business, with special emphasis on increasing assets under
management. Conseco's operating strategy for acquired businesses is to
consolidate and streamline management and administrative functions, to realize
superior investment returns through active asset management, to eliminate
unprofitable products and distribution channels and to focus resources on the
development and expansion of profitable products and strong distribution
channels. The companies Conseco targets for acquisition have profitable niche
products, strong distribution systems and progressive management teams who can
work with Conseco to implement Conseco's operating and growth strategies.
Since Conseco commenced operations in 1982, it has completed twelve
acquisitions of insurance companies and related businesses, the first seven as
wholly owned subsidiaries and the last five through its acquisition
partnerships. Conseco Capital Partners, L.P. ("CCP I"), Conseco's first
acquisition partnership, was dissolved in 1993 after distributing to its
partners the proceeds of the sale of, or the securities of, the companies it
had acquired. In early 1994, Conseco formed CCP II, its second acquisition
partnership, to invest in acquisitions of life insurance companies and related
businesses. A wholly owned subsidiary of Conseco is the sole general partner of
CCP II, as was the case with CCP I.
Conseco currently holds ownership interests in the following life insurance
businesses: (i) WNC, in which Conseco currently holds a 40% interest, (ii) BLH,
an NYSE listed company in which Conseco currently holds a 57% interest (and
which is the parent company of Bankers Life and Casualty Insurance Company
("Bankers Life"), one of the nation's largest writers of individual health
insurance policies and a leader in the market for Medicare supplement and long-
term care insurance products); (iii) CCP Insurance, an NYSE listed company
which Conseco manages and in which Conseco currently holds a 43% ownership
interest (and which is the parent company of Great American Reserve Insurance
Company, Beneficial Standard Life Insurance Company and Jefferson National Life
Insurance Company, which offer annuity, life and employee benefit related
insurance products); and (iv) Bankers National Life Insurance Company, National
Fidelity Life Insurance Company and Lincoln American Life Insurance Company,
all of which are wholly owned by Conseco and which have profitable blocks of
in-force life business, although new sales are currently not being pursued.
CCP II contemplates effecting acquisitions using partnership equity capital,
together with mezzanine and debt financing from various sources. CCP II has
equity capital commitments of $624 million ($45 million of which were called in
connection with the Statesman Acquisition and an additional $300 million of
which are expected to be called in connection with the Merger and the
Restructuring) from its partners, primarily large institutional investors.
Commitments to CCP II include $100 million from Conseco, $25 million from
Bankers Life, $25 million from CCP Insurance and $50 million from Western. In
addition, certain executive officers and directors of Conseco and its
affiliates have committed approximately $34 million to CCP II. Conseco, through
its direct investment and through its equity interests in the investments made
by Bankers Life, CCP Insurance and Western, is expected to have approximately a
23% ownership interest in CCP II (approximately 16% directly and 7% indirectly
through such equity interests). This ownership interest will vary with each
acquisition made by CCP II depending on the amount of direct equity investments
made in such acquisitions by Conseco and its affiliates. Conseco's percentage
interest in companies acquired by CCP II can be increased if certain targeted
returns to the partners of CCP II are achieved. As set forth above, Conseco has
announced its intention to explore the sale of its equity interests in one or
more of WNC, CCP Insurance and BLH. Any such sale would have the additional
effect of reducing Conseco's ownership interest
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in CCP II. Companies acquired by CCP II (including, as described below, the
life insurance subsidiaries of Kemper) will be included in Conseco's financial
statements on a consolidated basis because a wholly owned subsidiary of Conseco
serves as the sole general partner of CCP II. See "Selected Historical and Pro
Forma Consolidated Financial Data."
On September 29, 1994, CCP II consummated the Statesman Acquisition.
Statesman is a financial services holding company engaged primarily in the
development, marketing, underwriting, issuance and administration of life
insurance products through its subsidiaries, American Life and Casualty
Insurance Company and Vulcan Life Insurance Company. To consummate the
Statesman Acquisition, CCP II obtained approximately $452 million in debt and
equity financing. Conseco, through its direct investment and through its equity
interest in the investments made by BLH, CCP Insurance and WNC, has
approximately a 27% ownership interest in Statesman (approximately 13% directly
and 14% indirectly through such equity investments). Additional information
concerning Statesman and the Statesman Acquisition is contained in the
Statesman 8-K.
Conseco was organized in 1979 as an Indiana corporation. Its executive
offices are located at 11825 N. Pennsylvania Street, Carmel, Indiana, 46032,
and its telephone number is (317) 573-6100.
PENDING ACQUISITION OF KEMPER BY CONSECO
Conseco, KC Acquisition, Inc., a wholly owned subsidiary of Conseco ("KC
Acquisition"), and Kemper have entered into the Merger Agreement, pursuant to
which KC Acquisition will be merged with and into Kemper in a transaction in
which Kemper will be the surviving corporation. At the effective time of the
Merger (the "Effective Time"), Kemper will become a wholly owned subsidiary of
Conseco and will sell its life insurance subsidiaries and associated real
estate assets to CCP II. The implementation of the Restructuring is an integral
part of the plan of financing for the Merger. See "--Plan of Financing."
Additional information concerning the Merger and the Restructuring is contained
in the Kemper 8-K.
BACKGROUND OF THE MERGER
Conseco's principal strategic objective since it commenced operations in 1982
has been to acquire financial services companies and to increase their value by
implementing management strategies to reduce costs and improve administrative
efficiency, centralize asset management, improve marketing and distribution,
eliminate unprofitable products and focus resources on the development and
expansion of profitable products. Conseco has completed twelve previous
acquisitions of insurance companies and related businesses since it commenced
operations, in furtherance of this strategy. In addition, Conseco has, over the
past few years, pursued a strategy of increasing the amount of assets it has
under management with specific emphasis on fee-based businesses. In that
connection, Conseco had engaged in ongoing discussions with certain investment
banking firms about the possibility of acquiring an asset management (mutual
fund) firm and had from time to time evaluated specific acquisition
opportunities in this area. Such an acquisition would serve to increase the
percentage of Conseco's earnings derived from recurring fee income. In
addition, Conseco believes that it would benefit from the similarities and
synergies between the asset management business and the insurance business.
Accordingly, Conseco was interested in the possibility of an acquisition of
Kemper because, among other reasons, Kemper owns a large, successful mutual
fund asset manager with a nationally recognized brand name and experienced
management teams. Conseco believes that the mutual fund industry is
experiencing significant pressure for consolidation, and that the Kemper asset
management business is attractively positioned to succeed in this environment
because of its size, strong consumer name recognition and product and
distribution channel diversification. After the Merger, Conseco would manage
approximately $85 billion in assets, which is more than four times the
approximately $19 billion of assets that Conseco had under management at year-
end 1993. Conseco believes that Kemper's and Conseco's businesses complement
each
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other in several other significant areas such as insurance (where Kemper's
strong position in the annuity market would add critical mass to Conseco's
operations and Kemper's status as a leading provider of term insurance would
help to diversify Conseco's product offerings) and third party marketing (where
Kemper's subsidiary, INVEST Financial Corporation ("INVEST"), the nation's
largest distributor of securities and insurance products through financial
institutions, would complement Conseco's existing strategy of selling annuity
and mutual fund products in the financial institutions market through its
subsidiary, Marketing Distribution Systems Consulting Group, Inc.
("Bankmark")). In addition, the acquisition of Kemper represents an opportunity
to acquire Kemper Securities, Inc. ("KSI"), a substantial regional securities
brokerage firm.
THE MERGER
In the Merger, each share of common stock of Kemper ("Kemper Common Stock")
issued and outstanding immediately prior to the Effective Time (other than
shares of Kemper Common Stock held by stockholders of Kemper who exercise their
appraisal rights) would be converted into the right to receive (i) $56.00 per
share in cash (the "Cash Consideration"), and (ii) a fraction of a share of
common stock, without par value, of Conseco ("Conseco Common Stock") determined
by dividing $11.00 by the average closing price of Conseco Common Stock prior
to the Merger (such fraction to be not more than 0.2418 nor less than 0.1982).
In the Merger, Conseco would pay aggregate Cash Consideration of approximately
$2.3 billion and issue between 7.7 million and 9.4 million shares of Conseco
Common Stock. In conjunction with the Merger, $337.3 million of indebtedness
and $123.9 million of preferred stock of Kemper will be assumed. Conseco
intends to change its name to "Kemper, Inc." upon consummation of the Merger.
The closing of the Merger is subject to certain conditions set forth in the
Merger Agreement, including the approval of the Merger by the stockholders of
Kemper, the approval by the stockholders of Conseco of the issuance of shares
of Conseco Common Stock in the Merger, the receipt of all required governmental
and regulatory consents, the receipt of certain approvals with respect to the
registered investment companies for which Kemper or any subsidiary acts as
investment adviser or sub-adviser, the receipt of certain consents from the
noninvestment company advisory clients of the asset management subsidiaries of
Kemper and the obtaining by Conseco of all financing necessary to pay the
aggregate Cash Consideration payable in connection with the Merger.
CCP II Holdings was formed to acquire an existing life insurance company
("Life Insurance Holdings") and to organize one or more real estate acquisition
subsidiaries. Simultaneously with or immediately following the Effective Time,
it is anticipated that Kemper will effect the Restructuring under which Kemper
will sell each of the subsidiaries of Kemper engaged in the life insurance
business and activities related thereto to Life Insurance Holdings (the "Life
Company Dispositions") and associated real estate assets currently held by
subsidiaries of Kemper will be transferred, by merger or otherwise, to one or
more of the real estate acquisition subsidiaries of CCP II Holdings (the "Real
Estate Transfers").
PLAN OF FINANCING
It is estimated that the total funds required to pay the aggregate Cash
Consideration to be paid to stockholders of Kemper in the Merger and to pay
related transaction and restructuring costs will be approximately $2.5 billion
(the "Aggregate Acquisition Costs"). The Aggregate Acquisition Costs are
expected to be financed (subject to adjustments described below) from four
sources: (i) borrowings by Kemper, which will be guaranteed on a senior basis
by Conseco, Inc. and secured by a pledge of all of the stock and substantially
all of the assets of Kemper, under the Kemper Credit Agreement in an aggregate
amount of $823.5 million (the "Kemper Senior Loans") (consisting of (a) a
Senior Tranche A Term Loan in the amount of $523.5 million which will be
repayable in increasing annual installments beginning in 1995, with a final
maturity date in 2001; (b) a Senior Tranche B Term Loan in the amount of $200.0
million which will be repayable in increasing annual installments beginning in
1995, with a final maturity date in 2002; and
17
<PAGE>
(c) a Senior Bridge Loan in the amount of $100.0 million); (ii) the proceeds
from the sale by Kemper of the Kemper Senior Subordinated Debentures in the
aggregate principal amount of $350.0 million, which will be guaranteed on a
subordinated basis by Conseco, Inc.; (iii) the proceeds to Kemper of the Life
Company Dispositions and the Real Estate Transfers, which (together with
related transaction fees and expenses) are currently expected to aggregate
approximately $1.3 billion and to be financed as described below and (iv)
Kemper cash and Conseco cash available at the Effective Time. The portion of
the Aggregate Acquisition Costs which will be financed through each of these
sources is subject to change, and the consummation of each of the financing
transactions is subject to the satisfaction of certain conditions.
In connection with the Merger, Kemper will transfer all of the broker-dealer
businesses of KFS and all of the property and assets related thereto into a new
wholly owned subsidiary of KFS, as a result of which KFS will no longer be
subject to the net capital requirements applicable to broker-dealers (the "KFS
Broker-Dealer Transfer"). It is anticipated that the Senior Bridge Loan will be
repaid promptly following the Effective Time in part with funds to be made
available to Kemper out of assets no longer required to be maintained by KFS in
connection with its broker-dealer businesses as a result of the KFS Broker-
Dealer Transfer.
The plan of financing described above does not take into account the net
proceeds from the offering of the PRIDES or potential proceeds from any sale of
Conseco's equity stakes in BLH or CCP. It is contemplated that the net proceeds
from the sale of the PRIDES would reduce the amount of the Kemper Senior Loans
that would otherwise be incurred to finance the Merger. Any proceeds from the
sale of Conseco's stakes in BLH or CCP are expected to be used to reduce the
amount of the Kemper Senior Loans or the Kemper Senior Subordinated Debentures.
The total amount of funds required by CCP II Holdings to pay to Kemper the
purchase price for the Life Company Dispositions and the consideration for the
Real Estate Transfers (together with related transaction fees and expenses) is
currently anticipated to be approximately $1.3 billion and is expected to be
financed from four sources: (i) borrowings by CCP II Holdings under the CCP II
Holdings Credit Agreement in an aggregate amount of $400.0 million; (ii) the
proceeds from the sale by CCP II Holdings of CCP II Holdings Senior
Subordinated Debentures in the aggregate principal amount of $400.0 million;
(iii) the proceeds from the sale by CCP II Holdings in a private placement
(primarily to the partners of CCP II) of units consisting of its pay-in-kind
preferred stock with an aggregate stated value of $250.0 million (of which
approximately $50 million is assumed to be provided by Conseco and its
subsidiaries), together with common stock of CCP II Holdings (the "CCP II
Holdings PIK Preferred Stock") and (iv) additional equity capital (the "CCP II
Equity Contribution") to be contributed by the partners of CCP II in the
aggregate amount of $300.0 million (of which $60 million is expected to be
provided by Conseco and its subsidiaries).
The sources of the funds to pay the Aggregate Acquisition Costs are expected
to be as follows (in millions):
<TABLE>
<S> <C>
Kemper Senior Loans:
Senior Tranche A Term Loan................................. $ 523.5(1)
Senior Tranche B Term Loan................................. 200.0(1)
Senior Bridge Loan......................................... 100.0(2)
Kemper Senior Subordinated Debentures........................ 350.0
Restructuring(3):
CCP II Holdings Credit Agreement........................... 400.0
CCP II Holdings Senior Subordinated Debentures............. 400.0
CCP II Holdings PIK Preferred Stock........................ 250.0
CCP II Equity Contribution................................. 300.0
Kemper cash.................................................. 15.1
--------
Total.................................................... $2,538.6
========
</TABLE>
18
<PAGE>
- --------
(1) The net proceeds from this offering of PRIDES (after repayment of the
balance then outstanding under Conseco's revolving credit agreement) are
assumed to be used to pay a portion of the Aggregate Acquisition Costs. In
that event, Conseco intends to reduce the amounts to be borrowed under the
Senior Tranche A Term Loan and the Senior Tranche B Term Loan. In addition,
Conseco also intends to use available cash that it had previously planned
to use to repay the balance under the revolving credit agreement (which
instead will be repaid with the net proceeds of this offering of PRIDES) to
reduce the Kemper Senior Loans. As a result, Conseco expects to use an
amount equal to the net proceeds of this offering to of PRIDES reduce the
amounts to be borrowed under the Kemper Credit Agreement. See "Use of
Proceeds" and "Selected Historical and Pro Forma Consolidated Financial
Data."
(2) It is anticipated that the Senior Bridge Loan will be repaid promptly
following the Effective Time in part with funds to be made available to
Kemper out of assets no longer required to be maintained by Kemper
Financial Services, Inc., a subsidiary of Kemper ("KFS"), in connection
with its broker-dealer businesses.
(3) The debt and preferred stock to be issued by CCP II Holdings will not be
direct obligations of Conseco.
BUSINESS OF KEMPER
Kemper is a financial services holding company with principal operations in
asset management, securities brokerage, and life insurance and real estate.
After consummation of the Restructuring, Kemper will continue its asset
management and securities brokerage operations and CCP II Holdings will own the
Life Companies and associated real estate assets.
Asset Management. KFS, with $65.1 billion in assets under management at June
30, 1994, is one of the nation's largest asset managers. KFS offers 21 stock
and bond funds, and KFS' products include the 12th largest money market
portfolio in the country. KFS also offers investment management and advisory
services for individual and institutional investors. KFS distributes its
products and services primarily through securities brokerage firms, banks and
other financial institutions, independent brokers and agents, financial
planners and corporate pension and profit-sharing plans. INVEST, a registered
broker-dealer, is also an important distributor of Kemper products and is the
nation's largest distributor of securities and insurance products through
financial institutions.
Securities Brokerage. KSI is a full-service securities brokerage firm,
providing a wide array of investment vehicles and advisory services to
individual, business and institution investors. Although KSI's market focus is
primarily retail, the firm also provides investment banking services to
corporate and municipal clients. The firm is also the largest distributor of
KFS mutual funds and one of the largest distributors of KILICO annuity
products.
Life Insurance and Real Estate. Kemper markets life insurance products
through its two wholly owned subsidiaries, Federal Kemper Life Assurance
Company ("FKLA") and Kemper Investors Life Insurance Company ("KILICO")
(together, the "Life Companies"). FKLA is a leader in the term life insurance
market. FKLA's products are designed for individuals and small business owners
and include features such as premium guarantee levels and premium reduction
options. FKLA distributes its products through independent general agents and
various other channels. KILICO specializes in variable and fixed annuities.
KILICO has been offering products in the variable annuity marketplace for more
than 10 years. KILICO markets its products primarily through financial
institutions, securities brokerage firms, financial planners and other
specialty distributors of financial products. In 1992, the management,
operations and employees of KILICO were integrated with those of FKLA to
increase efficiencies and coordinate strategic directions of both companies.
As of June 30, 1994, Kemper held through the Life Companies and real estate
subsidiaries $1.4 billion of real estate investments (net of reserves and
write-downs), consisting of joint venture and third party mortgage loans and
other real estate related investments. See "Management's Discussion and
Analysis of
19
<PAGE>
Financial Condition and Results of Operations" for the year ended December 31,
1993, and the quarterly period ended June 30, 1994, in the Kemper 8-K.
Immediately following the Merger, the Life Company Dispositions and the Real
Estate Transfers will be effected, pursuant to which the Life Companies (which
also hold real estate loans and investments) will be acquired by Life Insurance
Holdings. Accordingly, following the Merger, the Kemper real estate investments
will be held by CCP II. However, Conseco is expected to continue to hold an
indirect 23% ownership interest in such investments through Conseco's direct
and indirect interest in CCP II (which may be higher or lower depending upon
the amount of CCP II Holdings PIK Preferred Stock purchased by Conseco and its
affiliates), and the financial statements of CCP II Holdings will be
consolidated with those of Conseco. In managing the real estate investments,
CCP II does not intend to make significant additions but intends to reduce its
aggregate amount of real estate investments over time based on market
conditions and opportunities.
As of June 30, 1994, the total future legal commitments relating to Kemper's
real estate investments were $570.2 million (the maximum amount that Kemper
could be required to fund under outstanding agreements related to real estate).
As of June 30, 1994, Kemper expected to fund approximately $268.7 million of
these commitments, along with providing working capital to existing projects.
As of June 30, 1994, before reserves and cumulative write-downs, Kemper had
$1.1 billion of troubled real estate investments, including $958.6 million of
nonaccrual loans, $69.4 million of real estate owned and $59.5 million of
performing restructured loans. As of June 30, 1994, total reserves and
cumulative write-downs (excluding fair value adjustments to real estate owned)
were 61.1% of total troubled real estate-related investments and 33.3% of
Kemper's total real estate investments before reserves and write-downs.
Through June 30, 1994, Kemper has caused its real estate subsidiaries to
acquire $804.1 million of real estate assets from the Life Companies. Such
acquisitions were made to reduce the real estate assets of the Life Companies.
Additionally, the indebtedness to be incurred by CCP II Holdings in connection
with the Restructuring could restrict the ability of CCP II Holdings to provide
future funding for development projects which are among the real estate
investments being acquired by CCP II Holdings. See the Kemper 8-K for
additional information regarding the Kemper real estate investments.
USE OF PROCEEDS
The net proceeds to Conseco from the sale of the PRIDES, after deducting
estimated underwriting discounts and offering expenses, are estimated to be
$ million. Conseco intends to use a portion of the net proceeds to repay any
amounts outstanding at such time under a revolving credit agreement (the
"Conseco Revolving Credit Agreement") which Conseco entered into in April 1994
to provide working capital. At June 30, 1994, the amount outstanding under such
credit agreement was $35 million. Amounts outstanding under the Conseco
Revolving Credit Agreement bear interest at a variable rate of interest
(currently 5.32%) and all amounts must be repaid on or before May 1, 1996.
Conseco intends to use the remaining net proceeds to finance in part the
Merger. See "Pending Acquisition of Kemper by Conseco--Plan of Financing." If
the Merger is not consummated, Conseco intends to use the remaining net
proceeds of this offering for general corporate purposes.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Conseco and its
consolidated subsidiaries as of June 30, 1994, as adjusted for: (i) the
issuance of notes payable by CCP II entities related to the Statesman
Acquisition; (ii) the issuance of preferred and common stock to minority
interests by CCP II entities related to the Statesman Acquisition and the
preferred stock of subsidiaries of CCP II entities which continues to be
outstanding after the Statesman Acquisition; (iii) debt of Statesman which
continues to be outstanding after the Statesman Acquisition; (iv) the PRIDES
offered hereby at an assumed price of $13 3/8 (the closing price of the WNC
Common Stock on September 30, 1994 per PRIDES), with net proceeds to Conseco of
$284.0 million after deducting estimated underwriting discounts and offering
expenses; (v) the repayment of the Conseco Revolving Credit Agreement; (vi) the
planned issuance of notes payable by Conseco related to the Merger and the
Restructuring; (vii) the planned issuance of notes payable by CCP II entities
related to the Merger and the Restructuring; (viii) the issuance of preferred
and common stock to minority interests by CCP II entities related to the Merger
and the Restructuring; (ix) preferred stock of subsidiaries of Kemper which
will continue to be outstanding after the Merger and the Restructuring; (x)
debt of Kemper which will continue to be outstanding after the Merger and
Restructuring and (xi) the issuance of the common stock of Conseco related to
the Merger and Restructuring.
<TABLE>
<CAPTION>
PRO FORMA
FURTHER PRO FORMA
PRO FORMA ADJUSTED FOR FURTHER ADJUSTED
FOR PRIDES FOR THE MERGER
TRANSACTIONS OFFERED AND THE
HISTORICAL COMPLETED(1) HEREBY(2) RESTRUCTURING(3)
---------- ------------ ------------ ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Long-term debt:
Direct obligations of
Conseco:
Outstanding notes
payable............ $ 230.5 $ 230.5 $ 195.5 $ 195.5
PRIDES offered
hereby............. -- -- 284.0 284.0
Notes payable issued
in conjunction with
the Merger:
Kemper Senior
Loans............ -- -- -- 517.3(4)
Kemper Senior
Subordinated
Debentures....... -- -- -- 339.5
Notes payable of
Kemper assumed in
conjunction with
the Merger....... -- -- -- 337.3
Indirect obligations
of Conseco:
Notes payable of
BLH................ 279.7 279.7 279.7 279.7
Notes payable issued
by CCP II entities
in conjunction with
the Statesman
Acquisition........ -- 305.2 305.2 305.2
Indebtedness of CCP
II entities assumed
in conjunction with
the Statesman
Acquisition........ -- 1.6 1.6 1.6
Notes payable issued
by CCP II entities
in conjunction with
the Restructuring.. -- -- -- 760.0
-------- -------- -------- --------
Total long-term
debt............. 510.2 817.0 1,066.0 3,020.1
Minority interest....... 185.9 354.4(5) 354.4 919.1(6)
Shareholders' equity:
Preferred stock....... 287.5 287.5 287.5 287.5
Common stock and
additional paid in
capital.............. 172.4 172.4 172.4 601.4
Unrealized
(depreciation)....... (118.5) (118.5) (118.5) (118.5)
Retained earnings..... 513.5 515.8 515.8 526.8
-------- -------- -------- --------
Total
shareholders'
equity........... 854.9 857.2 857.2 1,297.2
-------- -------- -------- --------
Total
capitalization... $1,551.0 $2,028.6 $2,277.6 $5,236.4
======== ======== ======== ========
</TABLE>
- --------
(1) The pro forma capitalization at June 30, 1994 for transactions completed
reflect the consolidated pro forma capitalization of Conseco as if the
acquisition of Statesman by CCP II had been completed on June 30, 1994.
21
<PAGE>
(2) The pro forma capitalization at June 30, 1994 are further adjusted to
reflect the issuance of the PRIDES offered hereby and the repayment of the
Conseco Revolving Credit Agreement as if such transactions had occurred on
June 30, 1994.
(3) The selected pro forma capitalization at June 30, 1994 are further adjusted
to reflect the Merger and the Restructuring, as if such acquisition and
related transactions had occurred on June 30, 1994.
(4) Assumes that the net proceeds from this offering of PRIDES are used to
reduce the amount borrowed under the Kemper Credit Agreement.
(5) Adjustments to pro forma minority interest for transactions completed
include: (i) the preferred stock of a subsidiary of Statesman which was
outstanding prior to the assumed date of the Statesman Acquisition ($101.4
million); (ii) the interests of investors other than Conseco and its
consolidated subsidiaries in the payment-in-kind preferred stock issued in
connection with the Statesman Acquisition ($31.1 million); and (iii) the
interests of entities other than Conseco and its consolidated subsidiaries
in the CCP II common equity investment in Statesman ($36.0 million).
(6) Further adjustments to pro forma minority interest for the Merger and the
Restructuring include: (i) the preferred stock of Kemper and its
subsidiaries which was outstanding prior to the assumed date of the Merger
($123.9 million); (ii) the assumed interests of investors other than
Conseco and its consolidated subsidiaries in the CCP II Holdings PIK
Preferred Stock ($199.9 million); and (iii) the assumed interests of
investors other than Conseco and its consolidated subsidiaries in the CCP
II investment in the Life Dispositions and Real Estate Transfers ($239.9
million).
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present selected historical consolidated financial data
for each of Conseco and Kemper and selected pro forma consolidated financial
data for Conseco and Kemper combined. The selected historical consolidated
financial data are derived from the historical consolidated financial
statements of Conseco and Kemper that are incorporated by reference herein. The
selected pro forma consolidated financial data are derived from the unaudited
pro forma condensed consolidated financial statements of Conseco and Kemper
incorporated by reference herein. The information set forth below should be
read in conjunction with such historical and pro forma financial statements and
the notes thereto, the historical financial statements of Statesman as of June
30, 1994 and for the six months then ended and as of December 31, 1993 and for
the year then ended contained in the Statesman 8-K and the unaudited pro forma
financial information of Conseco as of June 30, 1994 and for the six months
then ended and for the year ended December 31, 1993 contained in Exhibit 99.1
to Conseco's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1994. The historical consolidated financial statements of Conseco have been
audited by Coopers & Lybrand, independent certified public accountants, for
each of the five years in the period ended December 31, 1993. The historical
consolidated financial statements of Kemper have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the five
years in the period ended December 31, 1993. The historical consolidated
financial statements as of and for the six months ended June 30, 1994 and 1993
are unaudited but, in each of Conseco's, Statesman's, and Kemper's opinion
(with respect to its own statements), reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of its
financial position and results of operations for such periods. The results of
operations for the six months ended June 30, 1994 may not be indicative of
results of operations to be expected for a full year.
Conseco previously acquired certain insurance companies through CCP I, an
acquisition partnership (which has since been dissolved) for which a wholly
owned subsidiary of Conseco acted as sole general partner. Conseco expects to
effect certain future acquisitions through CCP II, an acquisition partnership
for which a wholly owned subsidiary of Conseco is acting as sole general
partner. On September 29, 1994, CCP II acquired Statesman. In conjunction with
the Merger and pursuant to the Restructuring, CCP II will also acquire the Life
Companies and the associated real estate assets currently held by subsidiaries
of Kemper. Because a subsidiary of Conseco was the sole general partner of CCP
I (prior to its dissolution), Conseco controlled CCP I and, because a
subsidiary of Conseco is the sole general partner of CCP II, Conseco controls
CCP II. Accordingly, the historical consolidated financial statements of
Conseco include all financial information of CCP I and the companies owned by
CCP I on a consolidated basis for all relevant periods. Similarly, Conseco's
consolidated financial statements will include (and the unaudited pro forma
consolidated financial information for Conseco and Kemper includes) all
financial information of CCP II and the companies owned by CCP II, including,
subsequent to the Statesman Acquisition on September 29, 1994, Statesman and,
following the Merger and the Restructuring, the Life Companies and the
associated real estate assets currently held by subsidiaries of Kemper. The
interests of other investors in CCP I and CCP II and the companies owned by
them are eliminated in the consolidated financial statements of Conseco through
a minority interest account. For purposes of the selected pro forma
consolidated financial data, such other investors are assumed to have a 73%
ownership interest in Statesman (such interest approximates the ownership
interests of other investors after the Statesman Acquisition) and a 77%
ownership interest in the Life Companies and associated real estate assets. See
"Unaudited Pro Forma Condensed Consolidated Financial Information" included in
the Statesman 8-K and the Kemper 8-K, which are incorporated by reference
herein.
Conseco, both directly and through CCP I, has effected several transactions
during the periods covered by the historical financial statements included and
incorporated herein that significantly affect the comparability of the
financial information presented. Such transactions include (i) the initial
public offering of WNC on February 15, 1994, which reduced Conseco's ownership
interest therein to 40% and caused WNC to be included in Conseco's financial
statements on the equity (rather than consolidated) basis since the first
23
<PAGE>
quarter of 1994, (ii) the acquisition of Bankers Life by CCP I as of November
1, 1992 (the "November 1992 BLH Acquisition"), the initial public offering of
BLH in March 1993 and the subsequent acquisition by Conseco of 13.3 million
additional shares of BLH common stock in September 1993 (the "September 1993
BLH Stock Purchase"), all of which resulted in the inclusion of BLH and its
subsidiaries in Conseco's financial statements on a consolidated basis since
November 1, 1992, (iii) the acquisitions of Great American Reserve Insurance
Company, Jefferson National Life Insurance Company and Beneficial Standard Life
Insurance Company by CCP I on June 27, 1990, November 27, 1990 and April 24,
1991, respectively, and (iv) the formation, as of June 30, 1992, of CCP
Insurance to act as the holding company for the insurance companies previously
acquired by CCP I, and CCP Insurance's initial public offering, which
transactions caused CCP Insurance to be included in Conseco's financial
statements on the equity (rather than the consolidated) basis since July 1,
1992, and the purchase by Conseco of 2.0 million additional shares of CCP
Insurance common stock in September 1993 (the "September 1993 CCP Insurance
Stock Purchase"), which increased Conseco's ownership interest therein to 40%.
See the notes to the consolidated financial statements included in Conseco's
Annual Report on Form 10-K for the year ended December 31, 1993, incorporated
by reference herein, and the pro forma financial information contained in
Exhibit 99.1 to Conseco's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994, incorporated by reference herein.
The selected pro forma consolidated financial data for the year ended
December 31, 1993 and the six months ended June 30, 1994 reflect the
consolidated operating results for Conseco as if the initial public offering of
WNC, the September 1993 CCP Insurance Stock Purchase, the initial public
offering of BLH, the September 1993 BLH Stock Purchase, the Statesman
Acquisition, the issuance of the PRIDES offered hereby, the Merger, the
Restructuring, the KFS Broker-Dealer Transfer and Kemper's pending disposition
of its investment in a 50% owned subsidiary (for which a definitive agreement
has been executed) had all occurred on January 1, 1993. The selected pro forma
consolidated balance sheet data give effect to the Statesman Acquisition, the
Merger, the Restructuring, the KFS Broker-Dealer Transfer and the disposition
of such 50% owned subsidiary as if they had all occurred on June 30, 1994. The
pro forma financial data are provided for informational purposes only and are
not necessarily indicative of the results of operations or financial condition
that would have been achieved had the transactions set forth above actually
occurred as of the dates indicated or of the future results of operations or
financial condition of Conseco. The Merger will be accounted for under the
purchase method of accounting. See "The Merger--Accounting Treatment" and
"Available Information" included in the Kemper 8-K, which is incorporated by
reference into this Prospectus.
24
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA--HISTORICAL
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......... $ 662.7 $ 753.3 $ 1,391.8 $ 1,523.9 $ 2,636.0 $ 1,370.6 $ 904.1
Earnings excluding
realized investment
gains (losses) and
extraordinary charge
(1)................... 32.1 39.0 84.0 162.7 301.9 187.9 123.6
Income before
extraordinary charge.. 47.2 41.7 121.0 174.8 308.9 193.8 116.7
Net income............. 47.2 41.7 116.0 169.5 297.0 182.9 114.3
Preferred dividends.... 8.3 5.6 6.8 5.5 20.6 10.8 9.3
Earnings applicable to
common stock.......... 38.9 36.1 109.2 164.0 276.4 172.1 105.0
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges......... 1.26x 1.17x 1.32x 1.54x 2.19x 2.43x 3.29x
Ratio of earnings to
fixed charges,
excluding interest on
annuities and
financial products.... 2.49x 1.97x 3.41x 6.24x 8.85x 10.77x 5.59x
Ratio of earnings to
fixed charges and
preferred dividends... 1.20x 1.14x 1.30x 1.50x 2.04x 2.25x 2.74x
Ratio of earnings to
fixed charges and
preferred dividends,
excluding interest on
annuities and
financial products.... 1.94x 1.74x 2.99x 5.09x 6.00x 6.99x 3.98x
BALANCE SHEET DATA:
Total assets........... $5,267.1 $8,371.1 $11,832.4 $11,772.7 $13,749.3 $13,392.4 $5,599.4
Long-term debt for
which Conseco is
directly liable....... 300.3 268.9 177.6 163.2 413.0 214.6 230.5
Notes payable of BLH,
not direct obligations
of Conseco............ -- -- -- 392.0 290.3 298.2 279.7
Notes payable related
to CCP Insurance, not
direct obligations of
Conseco............... -- 258.1 319.3 -- -- -- --
Shareholders' equity... 158.3 180.2 431.6 594.3 1,142.6 1,088.9 854.9
</TABLE>
- --------
(1) Represents net income excluding net realized gains (losses) and
extraordinary charge, less applicable amortization, changes in future
policy benefits, taxes and minority interest.
25
<PAGE>
KEMPER CORPORATION
SELECTED FINANCIAL DATA--HISTORICAL
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues........ $ 1,790.6 $ 1,829.3 $ 1,815.8 $ 1,503.7 $ 1,549.2 $ 804.2 $ 874.2
Net income (loss) from
continuing
operations........... 124.1 (69.9) 76.1 (214.7) (101.3) (41.5) 75.1
Net income (loss)
before discontinued
operations,
extraordinary charge
and cumulative effect
of change in
accounting principle. 124.1 (69.9) 76.1 (200.2) (89.4) (29.6) 75.1
Net income (loss)..... 307.4 11.9 204.5 (203.4) 235.5 (14.4) 77.6
Preferred dividends... -- -- -- -- 18.7 6.9 11.8
Earnings (loss)
applicable to common
stock................ 307.4 11.9 204.5 (203.4) 216.8 (21.3) 65.8
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges........ 1.33x (1) 1.17x (1) (1) (1) 1.54x
Ratio of earnings to
fixed charges,
excluding interest on
annuities and
financial products... 2.32x (1) 1.90x (1) (1) (1) 3.31x
Ratio of earnings to
fixed charges and
preferred dividends.. 1.33x (2) 1.17x (2) (2) (2) 1.43x
Ratio of earnings to
fixed charges and
preferred dividends,
excluding interest on
annuities and
financial products... 2.32x (2) 1.90x (2) (2) (2) 2.46x
BALANCE SHEET DATA:
Total assets.......... $11,295.7 $12,164.0 $13,104.6 $13,176.3 $14,038.1 $13,849.2 $13,349.7
Total long-term
obligations and
redeemable
securities........... 225.3 245.2 320.0 265.5 439.8 258.1 431.6
Shareholders' equity.. 1,724.3 1,625.9 1,838.5 1,766.1 1,619.0 2,112.8 1,324.2
</TABLE>
- --------
(1) The ratios for the years ended December 31, 1990, 1992 and 1993 and the six
months ended June 30, 1993, are not presented since fixed charges exceeded
available earnings by approximately $68.6 million, $274.0 million, $110.8
million and $42.0 million, respectively.
(2) The ratios for the years ended December 31, 1990, 1992, 1993 and six months
ended June 30, 1993, are not presented since fixed charges exceeded
available earnings by approximately $68.8 million, $274.1 million, $139.6
million and $52.5 million, respectively.
26
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA--PRO FORMA CONSOLIDATED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------
FURTHER FURTHER
PRO FORMA ADJUSTED FOR ADJUSTED FOR
CONSECO FOR PRIDES THE MERGER
CONSECO TRANSACTIONS OFFERED AND THE
HISTORICAL COMPLETED(1) HEREBY(3) RESTRUCTURING(5)
---------- --------------- ------------ -------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......... $2,636.0 $2,156.7 $2,156.7 $4,173.4
Net income before
extraordinary charge.. 308.9 162.5 144.8 162.9
Preferred dividends.... 20.6 30.3 30.3 64.9
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges......... 2.19x 1.69x 1.57x 1.30x
Ratio of earnings to
fixed charges,
excluding interest on
annuities and
financial products.... 8.85x 3.67x 2.85x 1.82x
Ratio of earnings to
fixed charges and
preferred dividends... 2.04x 1.50x 1.41x 1.19x
Ratio of earnings to
fixed charges and
preferred dividends,
excluding interest on
annuities and
financial products.... 6.00x 2.49x 2.08x 1.45x
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------------------
FURTHER FURTHER
PRO FORMA ADJUSTED FOR ADJUSTED FOR
CONSECO FOR PRIDES THE MERGER
CONSECO TRANSACTIONS OFFERED AND THE
HISTORICAL COMPLETED(1)(2) HEREBY(3)(4) RESTRUCTURING(5)(6)
---------- --------------- ------------ -------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......... $904.1 $1,022.2 $1,022.2 $1,942.2
Net income before
extraordinary charge.. 116.7 69.0 60.1 47.8
Preferred dividends.... 9.3 16.1 16.1 35.4
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges......... 3.29x 1.57x 1.46x 1.24x
Ratio of earnings to
fixed charges,
excluding interest on
annuities and
financial products.... 5.59x 3.23x 2.50x 1.63x
Ratio of earnings to
fixed charges and
preferred dividends... 2.74x 1.40x 1.31x 1.11x
Ratio of earnings to
fixed charges and
preferred dividends,
excluding interest on
annuities and
financial products.... 3.98x 2.16x 1.81x 1.25x
BALANCE SHEET DATA:
Total assets........... $5,599.4 $10,662.6 $10,911.6 $25,489.0
Total long-term debt
for which Conseco is
directly liable....... 230.5 230.5 479.5 1,673.6
Total long-term debt,
including debt for
which Conseco is not
directly liable....... 510.2 817.0 1,066.0 3,020.1
Minority interest...... 185.9 354.4 354.4 919.1
Shareholders' equity... 854.9 857.2 857.2 1,297.2
</TABLE>
- --------
(1) The selected pro forma consolidated operating data for the year ended
December 31, 1993 and the six month ended June 30, 1994 for transactions
completed reflect the consolidated pro forma operating results of Conseco
as if the following transactions had occurred on January 1, 1993: (i) the
acquisition of Statesman by CCP II; (ii) the initial public offering of
WNC; (iii) the purchase of additional shares of CCP Insurance in September
1993; (iv) the purchase of additional shares of BLH in September 1993 and
the initial public offering of BLH.
27
<PAGE>
(2) The selected pro forma consolidated balance sheet data at June 30, 1994 for
transactions completed reflect the consolidated pro forma financial
position of Conseco as if the acquisition of Statesman by CCP II had been
completed on June 30, 1994.
(3) The selected pro forma consolidated operating data for the year ended
December 31, 1993 and the six months ended June 30, 1994, are further
adjusted to reflect the issuance of the PRIDES offered hereby and the
repayment of the Conseco revolving credit agreement, as if such
transactions had occurred on January 1, 1993.
(4) The selected pro forma consolidated balance sheet data at June 30, 1994 are
further adjusted to reflect the issuance of the PRIDES offered hereby and
the repayment of the Conseco revolving credit agreement, as if such
transactions had occurred on June 30, 1994.
(5) The selected pro forma consolidated operating data for the year ended
December 31, 1993 and the six months ended June 30, 1994, are further
adjusted to reflect the acquisition of Kemper and related transactions, as
if such acquisitions and related transactions had occurred on January 1,
1993.
(6) The selected pro forma consolidated balance sheet data at June 30, 1994 are
further adjusted to reflect the acquisition of Kemper and related
transactions, as if such acquisition and related transactions had occurred
on June 30, 1994.
RELATIONSHIP BETWEEN CONSECO AND WNC
Conseco, which prior to February 1994 owned 100 percent of the outstanding
WNC Common Stock, presently owns approximately 40% (24,947,500 shares) of the
outstanding WNC Common Stock. Conseco and WNC have entered into various
intercompany transactions and arrangements. See "Relationships with Conseco and
its Affiliates" in the WNC Prospectus attached hereto as Appendix A.
Conseco is not required to retain its present holdings of shares of WNC
Common Stock pursuant to the terms of the PRIDES or otherwise. WNC has agreed
to file a Registration Statement pursuant to which WNC is registering under the
Securities Act (the "WNC Registration Statement") the WNC Common Stock
deliverable at Maturity or upon any redemption of the PRIDES. will pay all
of WNC's costs and expenses in respect of the WNC Registration Statement.
Subject to certain conditions, Conseco remains free to sell all or any portion
of its WNC Common Stock in a public or private offering intended to result in
widespread distribution or pursuant to a tender or exchange offer, but is
required to deliver shares of WNC Common Stock at Maturity or upon redemption,
or, at Conseco's option but only in the limited circumstances permitted by the
Standstill Agreement, cash in lieu of such shares as described herein.
WNC has no obligations with respect to the PRIDES or amounts to be paid to
holders thereof, including any obligation to take the needs of Conseco or of
holders of the PRIDES into consideration for any reason. WNC will not receive
any of the proceeds of the offering of the PRIDES made hereby and is not
responsible for the determination of the timing of, prices for or quantities of
the PRIDES to be issued or the determination or calculation of the amount to be
delivered at Maturity or upon any redemption.
Conseco and WNC are entering into the Standstill Agreement, which provides,
among other things, that (i) the shares of WNC Common Stock owned by Conseco
and its affiliates will be voted or abstained from voting on all matters
presented to stockholders of WNC in the same proportion as the votes or
abstentions cast by all other holders of WNC Common Stock (other than any 10%
Holders), except that Conseco will retain the right to vote its shares in favor
of up to two persons nominated by it to WNC's board to the extent provided in
the Stockholder Agreement; and (ii) Conseco will not acquire any additional
shares of WNC Common Stock or engage in certain activities that might otherwise
influence or result in a change of control (as defined therein) of WNC for a
period of seven years. Conseco will retain its rights with regard to the
nomination of up to two directors to WNC's board to the extent provided in the
Stockholder Agreement and the right to vote its shares of WNC Common Stock in
favor of such nominees but shall vote or abstain in the same proportion as
other stockholders (other than any 10% Holders) with regard to other nominees.
The
28
<PAGE>
Standstill Agreement further provides that Conseco will not, either upon
Maturity or any redemption of the PRIDES, use any consideration other than
shares of WNC Common Stock (or other than such other securities or property
into or for which such shares of WNC Common Stock may have been converted by
virtue of merger, consolidation, exchange, liquidation or other similar
transaction by or affecting WNC) in effecting such payment at Maturity or upon
any redemption; provided, however, that Conseco may use cash (x) to effect such
payment to the extent Conseco has an insufficient number of shares to make such
exchange at Maturity or upon any redemption entirely in stock (to the extent
that such shortfall does not result from any transfer of shares of WNC Common
Stock in violation of the terms of the Standstill Agreement) or (y) to make
payments in lieu of fractional shares. The Standstill Agreement permits Conseco
to dispose of all or any portion of the WNC Common Stock it owns (i) in a
public offering that results in widespread distribution; (ii) in a transaction
in accordance with Rule 144 under the Securities Act; (iii) in a transaction in
accordance with Rule 144A under the Securities Act that results in widespread
ownership by qualified institutional buyers; and (iv) in connection with
certain specified tender offers or other transactions.
The Standstill Agreement will be an agreement between Conseco and WNC and its
terms may be amended or waived without the consent of the holders of the
PRIDES. See "Relationships with Conseco and Its Affiliates--Stockholder
Agreement" in the WNC Prospectus.
WESTERN NATIONAL CORPORATION
Western, which had $8.5 billion of assets as of June 30, 1994, develops,
markets and issues annuity products through niche distribution channels.
Approximately 98% of the $563.0 million of direct premiums collected in the
year ended December 31, 1993, and approximately 99% of the $394.7 million of
direct premiums collected in the six months ended June 30, 1994, were from the
sale of annuity products. Western markets single premium deferred annuities to
the savings and retirement markets, flexible premium deferred annuities to the
tax-qualified retirement market, and single premium immediate annuities to the
structured settlement and retirement markets. Western distributes its annuity
products through financial institutions (principally banks and thrifts),
personal producing general agents ("PPGAs") and specialty brokers. Western
expects to supplement its annuity product line by introducing variable annuity
products in 1995.
Western is one of the largest writers of single premium deferred annuities
("SPDAs") distributed through financial institutions. Western's SPDAs are
distributed through approximately 240 financial institutions and the average
premium per policy for the six months ended June 30, 1994 was approximately
$15,000. WNC believes that banks and thrifts represent an attractive
distribution channel because of the (i) relatively low marketing and
administrative costs required to provide a broad distribution of Western's
products, (ii) strong persistency in this marketplace because products are
generally purchased for retirement rather than short-term investment purposes
and (iii) ability to develop strong relationships with these institutions based
on Western's product quality, efficient operating systems and high level of
customer and agent service. Western also markets SPDAs through its PPGA
network. Western had a $4.6 billion block of in-force SPDA business at June 30,
1994. SPDAs accounted for $404.3 million or 72% of Western's direct collected
premiums in 1993 and $325.9 million or 83% of direct collect premiums for the
six months ended June 30, 1994.
In the financial institutions market, Western historically has utilized
independent annuity marketing companies which develop new financial institution
relationships and license, train and supervise sales representatives on behalf
of Western. In addition, Western has expanded its marketing through direct
relationships with certain financial institutions, reflecting the desire of
such institutions to deal directly with annuity issuers. For the six months
ended June 30, 1994, 31% of financial institution sales were made through
direct relationships compared with 11% of such sales in 1993. Western is also
exploring proprietary annuity product relationships with certain financial
institutions.
29
<PAGE>
Western's total direct premiums collected in the first half of 1994 were
$394.7 million, up from $333.3 million in the first half of 1993, or an 18%
increase, reflecting increased SPDA sales from both the financial institution
and PPGA markets. Management believes the increase in sales reflects the
combined effects of increased management emphasis on sales, new production from
additional sales relationships added by WNC in late 1993, and the improved
competitiveness of fixed annuities as interest rates have risen.
Western also markets flexible premium deferred annuities ("FPDAs") to the
tax-qualified retirement market. Western's FPDAs are primarily 403(b)
annuities, a retirement savings vehicle through which educators and employees
of not-for-profit institutions are permitted to defer income through a salary
reduction program. FPDAs are marketed through PPGAs. Western has not emphasized
the FPDA market since 1987, but has renewed its efforts in this area by
increasing focus on not-for-profit institutions and introducing new products.
Western had a $1.2 billion block of in-force FPDA business at June 30, 1994.
FPDAs accounted for $90.3 million (principally renewal premiums) or 16% of
Western's direct collected premiums in 1993 and $42.7 million or 11% of direct
collected premiums for the six months ended June 30, 1994.
Western also offers single premium immediate annuities ("SPIAs"). SPIAs
guarantee a stream of payments beginning immediately and continuing over a
future period of years and, in some cases, for the life of the annuitant.
Structured settlement SPIAs provide an alternative to a lump sum settlement in
personal injury cases and are generally purchased by property and casualty
insurance companies through brokers for the benefit of an injured claimant.
Western was an early participant in this market and had a $1.5 billion block of
in-force business at June 30, 1994. Western's ability to compete effectively in
this market in recent years has been negatively impacted by the sensitivity of
the market to claims paying ratings. Western also issues SPIAs to policyholders
who elect such form of distribution from other annuity policies, in lieu of a
lump sum payout. SPIAs accounted for $57.0 million or 10% of Western's direct
collected premiums for 1993 and $23.8 million or 6% for the six months ended
June 30, 1994.
Western plans to introduce a variable annuity product with multiple portfolio
managers and investment options in 1995. Western intends to market variable
annuity products through new broker-dealer relationships, financial
institutions and PPGAs. To date, Western has received authority to sell
variable annuities in 42 of the 46 states in which it operates. Western
believes that the introduction of variable annuity products will assist its
efforts to diversify its annuity offerings as well as provide an opportunity to
enhance sales through its existing distribution channels.
WNC's operating income is primarily a function of its investment spread,
total invested assets and operating expenses. WNC generates a substantial
portion of its earnings from the investment spread on its $7.6 billion block of
annuity and other interest-sensitive reserves at June 30, 1994. The stability
of the in-force block is enhanced by policy restrictions on withdrawals of
funds. Western's SPDA and FPDA products include surrender charges for
withdrawals during an initial penalty period of five to ten years.
Substantially all of Western's SPIAs are not surrenderable. Western may change
interest crediting rates at least annually on virtually all of its SPDA and
FPDA products. These products accounted for 79% of Western's reserves at June
30, 1994. This ability to adjust interest crediting rates enables WNC to manage
its investment spread in a variety of interest rate environments.
Reflecting WNC's focus on efficient operations and low-cost distribution
channels, Western's statutory operating expenses were .40% and .35%
(annualized) of Western's weighted average admitted assets for 1993 and the
first six months of 1994, respectively. Western currently administers
approximately 300,000 annuity contracts at its administrative center in
Amarillo, Texas and employs approximately 220 people. Western believes it has
adequate capacity to administer significant growth in its business operations.
WNC believes that significant growth opportunities exist in markets for its
annuity products because of favorable economic and demographic trends.
According to the American Council of Life Insurance, annuity premiums have
grown at an average rate of more than 20% per year since 1970 and are the
fastest growing
30
<PAGE>
segment of the life insurance industry. In recent years the growth rate of
annuity sales in the financial institutions market has exceeded the overall
rate of annuity sales growth. The factors increasing the demand for annuity
products include an aging "baby boomer" segment of the population that is
increasingly concerned about retirement and lower public confidence that
government and employer-provided benefits at retirement will be sufficient. The
United States Census Bureau forecasts that between 1990 and 2000, the
retirement market, consisting of individuals aged 45 to 64, will grow by
approximately 15 million people, or roughly one-third, making it the fastest
growing segment of the United States population. Annuities also currently enjoy
an advantage over certain other savings mechanisms, because the annuity buyer
receives a tax-deferred accrual of interest on his or her investment during the
accumulation period. The attractiveness of this tax advantage is enhanced by
the recent increase in individual federal income tax rates.
Western's strategic emphasis is to leverage existing operating efficiencies
and distribution channels. In the financial institutions channel, WNC is
seeking to expand the number of financial institution relationships, as well as
to increase production from its active relationships. The tax-qualified
retirement market has been reemphasized through the introduction of new annuity
products and the development of a coordinated regional marketing system.
Western believes its new variable annuity products will complement its existing
products in the tax-qualified retirement and financial institutions markets. In
recent years, the market for structured settlement annuities has been dominated
by those insurers with the highest claims-paying ratings and, as a result,
Western has been relatively inactive in this market. However, should ratings or
market conditions change, Western has retained the infrastructure and expertise
required to compete in this market.
The investment portfolio of WNC, which had an aggregate carrying value of
$7.7 billion at June 30, 1994, consists principally of investment grade,
publicly-traded debt securities. Investments in mortgage loans and below
investment grade securities represented approximately 1.3% and 5.6%,
respectively, of the aggregate carrying value of investments at June 30, 1994.
Western is rated "A (Excellent)" by A.M. Best Company ("A.M. Best"), an
independent insurance industry rating organization. See "Business--Competition,
Ratings and Other Factors Affecting Business" in the WNC Prospectus.
PRICE RANGE FOR WNC COMMON STOCK AND DIVIDENDS
Prior to the initial public offering of WNC Common Stock in February 1994,
all of the WNC Common Stock was owned by a subsidiary of Conseco. The WNC
Common Stock began trading on the NYSE under the symbol "WNH" on February 9,
1994. The following table sets forth the range of high and low sale prices on
the NYSE for the WNC Common Stock and the dividends paid per share for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------- --------
<S> <C> <C> <C>
1994
First Quarter (beginning February 9).............. $14 3/8 $11 7/8 $ --
Second Quarter.................................... 13 3/4 10 7/8 .04
Third Quarter..................................... 16 11 7/8 .04
Fourth Quarter (through October 6)................ 13 5/8 12 7/8
</TABLE>
On October 6, 1994, the closing price of the WNC Common Stock on the NYSE was
$12 7/8 per share. As of September 30, 1994, there were approximately 12,000
holders of WNC Common Stock, including those known to be beneficial owners
through participation in securities position listings.
The payment of dividends by WNC in the future is subject to the discretion of
its Board of Directors and will depend upon general business conditions, legal
and regulatory restrictions on the payment of dividends and other factors the
Board of Directors deems relevant. WNC's general policy will be to retain most
of its earnings to finance the growth and development of its business. Future
borrowing agreements of WNC may contain certain limitations on the payment of
dividends.
31
<PAGE>
As a result of WNC's holding company structure, its ability to make required
debt service payments will depend upon the cash flow generated by Western's
operating activities and the ability of Western to pay dividends to its
immediate parent, which is a wholly owned subsidiary of WNC. Dividend payments
by an insurance company, such as Western, are subject to statutory limitations
and in certain cases to the approval of insurance regulatory authorities.
Generally, annual dividends in excess of maximum amounts prescribed by the
state statutes (so-called "extraordinary dividends") may not be paid without
the approval of the insurance commissioner of the insurance company's state of
domicile. Western is currently domiciled in Texas and at present may not,
without the prior approval of the Texas Department of Insurance, pay dividends
in any twelve-month period exceeding the greater of (i) statutory net gain from
operations (excluding realized gains on investments) for the preceding year or
(ii) 10% of statutory surplus at the end of the preceding year. In December
1993, Western paid a dividend to Conseco of $73.8 million. The dividend payment
by Western precludes it from paying a dividend to its immediate parent prior to
December 1994 without prior approval of the Texas Insurance Department. WNC
believes that its working capital is sufficient to meet its anticipated debt
service obligations, dividends on WNC Common Stock and operating expenses
during 1994.
Recently, the NAIC has proposed, and certain states have adopted, stricter
rules with respect to the payment of dividends that limit the amount of
dividends which can be paid without regulatory approval to the lesser of
statutory net gains from operations (excluding realized gains on investments)
for the preceding year or 10% of statutory surplus at the end of the preceding
year. WNC expects that legislation to adopt such stricter rules will be
proposed at the next session of the Texas legislature in 1995 in response to
concerns expressed by the NAIC. See "Business--Regulation" in the WNC
Prospectus.
DESCRIPTION OF THE PRIDES
The PRIDES are to be issued under an indenture (the "Indenture") to be
entered into by Conseco and as Trustee (the
"Trustee"). The following summaries of certain provisions of the Indenture, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Indenture, including the definitions therein of certain terms. Capitalized
terms used herein have the meanings attributed to them in the Indenture (unless
otherwise defined herein). Section references made herein refer to sections of
the Indenture.
GENERAL
The aggregate number of PRIDES to be issued under the Indenture will be
22,000,000, plus such additional number of PRIDES as may be issued pursuant to
the over-allotment option granted by Conseco to the Underwriters (see
"Underwriting"). The PRIDES will mature on , 1998.
In the Standstill Agreement, Conseco and WNC have agreed, among other things,
that Conseco will not, except in the limited circumstances permitted by the
Standstill Agreement, exercise any of Conseco's rights to deliver cash in lieu
of shares of WNC Common Stock under the terms of the PRIDES. See "Relationship
Between Conseco and WNC."
Each PRIDES, which will be issued with a principal amount of $ , will bear
interest at the annual rate of % of the principal amount per annum (or $
per annum) from 1994, or from the most recent interest payment date
to which interest has been paid or provided for until the PRIDES are exchanged
at Maturity or upon any redemption for shares of WNC Common Stock (or, in each
case, at the option of Conseco but only in the limited circumstances permitted
by the Standstill Agreement, cash in lieu of such shares as described below)
pursuant to the terms of the PRIDES. Interest will be paid quarterly in arrears
on March 1, June 1, September 1 and December 1 of each year, commencing
, 1995 (each, an "Interest Payment Date"), to the persons in whose
names the PRIDES are registered at the close of business on the day of the
calendar month immediately preceding such Interest Payment Date.
32
<PAGE>
Interest on the PRIDES will be computed on the basis of a 360-day year of
twelve 30-day months. If an Interest Payment Date falls on a day that is not a
business day, the interest payment to be made on such Interest Payment Date
will be made on the next succeeding business day with the same force and effect
as if made on such Interest Payment Date, and no additional interest will
accrue as a result of such delayed payment. All payments made with respect to
the PRIDES shall be in the currency of the United States.
Interest on the PRIDES will be payable, and delivery of shares of WNC Common
Stock in exchange for the PRIDES at Maturity or upon any redemption (or, in
each case, at the option of Conseco and but only in the limited circumstances
permitted by the Standstill Agreement, cash in lieu of such shares as described
below) will be made upon surrender of such PRIDES, at the office or agency of
Conseco maintained for such purposes (which initially is the Trustee);
provided, however, that payment of interest may also be made at the option of
Conseco by check mailed to the Person entitled thereto as shown on the security
register. No service charge will be made for any registration of transfer or
exchange of PRIDES, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith. (Sections 3.1,
3.2 and 3.5).
RANKING
The PRIDES will be general unsecured obligations and will rank pari passu
with all other unsecured and unsubordinated senior indebtedness of Conseco,
including Conseco's $200,000,000 principal amount 8 1/8% Senior Notes due 2003.
The Kemper Senior Loans will be secured by the common stock of Kemper and
substantially all of the assets of Kemper. See "Pending Acquisition of Kemper
by Conseco--Plan of Financing."
Conseco conducts its operations primarily through its subsidiaries. The
rights of Conseco and its creditors, including the holders of the PRIDES
offered hereby, to participate in the assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise will be subject to the
prior claims of the subsidiary's policyholders, creditors and holders of
preferred stock, except to the extent that Conseco may itself be a creditor
with recognized claims against the subsidiary or a holder of such subsidiary's
preferred stock.
As of June 30, 1994, on a pro forma basis before adjusting for the Merger and
the Restructuring, subsidiaries of Conseco had approximately $586.5 million of
indebtedness and $133.3 million of preferred stock (excluding Conseco's direct
or indirect interest in such preferred stock) as to which Conseco, Inc. is not
directly liable. In connection with the Merger and the Restructuring, it is
expected that (i) Kemper (which will be a wholly owned subsidiary of Conseco)
will incur or otherwise have on a pro forma basis approximately $1,194.1
million of indebtedness and preferred stock, as to which Conseco, Inc. will
guarantee on a senior basis approximately $517.3 million of secured
indebtedness under the Kemper Credit Agreement and guarantee on a subordinated
basis $339.5 million of the Kemper Senior Subordinated Debentures and (ii) CCP
II will incur or otherwise have on a pro forma basis an additional $760.0
million of indebtedness and $191.9 million of preferred stock (excluding
Conseco's direct or indirect interest in such preferred stock), as to which
Conseco, Inc. is not directly liable.
MANDATORY EXCHANGE
Unless previously redeemed by Conseco as hereinafter described, at Maturity
the PRIDES will be mandatorily exchanged by Conseco into a number of shares of
WNC Common Stock equal to the Common Exchange Rate (as defined herein) in
effect on such date, or, at the option of Conseco but only in the limited
circumstances permitted by the Standstill Agreement, cash in lieu of such
shares as described below. The Common Exchange Rate is equal to, subject to
certain adjustments described below, (i) if the Current Market Price (as
defined herein) per share of the WNC Common Stock, determined as of the second
trading day immediately prior to Maturity, is greater than or equal to $ per
share of the WNC Common Stock, of a share of WNC Common Stock per PRIDES,
(ii) if the Current Market Price per share of the
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WNC Common Stock, determined as of the second trading day immediately prior to
Maturity, is less than $ but greater than the principal amount of the
PRIDES, a fractional share of WNC Common Stock per PRIDES so that the Current
Market Price thereof, determined as of the second trading day immediately prior
to Maturity, is equal to the principal amount and (iii) if the Current Market
Price per share of the WNC Common Stock, determined as of the second trading
day immediately prior to Maturity, is less than or equal to the principal
amount, one share of WNC Common Stock per PRIDES. Accordingly, holders of the
PRIDES will not necessarily receive an amount equal to the principal amount
thereof.
If permitted by the Standstill Agreement, not less than 30 nor more than 60
days prior to the Stated Maturity or, if Maturity occurs prior to Stated
Maturity, on the business day immediately following Maturity, Conseco may
publish a public notice stating that, in lieu of shares of WNC Common Stock,
some or all of the PRIDES will be exchangeable for cash in the amount of the
Maturity Price (as defined below). Such notice will also state the Calculation
Period (as defined below) over which the Maturity Price will be determined.
"Maturity Price" means the product (rounded to the nearest one cent, or if
there shall not be a nearest one cent, then the next lower cent) of: (i) the
Common Exchange Rate in effect at Maturity multiplied by (ii) the average of
the per share Closing Prices of WNC Common Stock during the relevant
Calculation Period. "Calculation Period" means the five consecutive trading
days commencing on the trading day specified by Conseco; provided, that a
Calculation Period may not begin before the first trading day following the
Notice Date (as defined below) relating to Maturity or any redemption.
If some but less than all of the PRIDES will be exchanged at Maturity for
cash, the PRIDES to be exchanged for cash will be selected by the Trustee by
lot or pro rata (as nearly as may be) or by any other method determined by the
Trustee in its sole discretion to be equitable.
OPTIONAL REDEMPTION BY CONSECO
The PRIDES are not redeemable by Conseco before , 1997. At any time
and from time to time on or after that date until the close of business on the
day immediately prior to the Notice Date relating to Maturity, Conseco will
have the right to redeem, in whole or from time to time in part, the
outstanding PRIDES. Upon any such redemption, Conseco will deliver to the
holder thereof, in exchange for each PRIDES subject to redemption, the greater
of: (i) the number of shares of WNC Common Stock equal to the applicable Call
Price (as described below) in effect on the redemption date divided by the
Current Market Price of the WNC Common Stock, determined as of the second
trading day immediately preceding the Notice Date, or (ii) the Optional
Redemption Rate (as defined herein), in each case together with an amount in
cash equal to the accrued and unpaid interest thereon to but not including the
date fixed for redemption. The Optional Redemption Rate is initially of a
share of WNC Common Stock per each PRIDES and is subject to adjustment as
described below. Notwithstanding the foregoing, Conseco may, at its option but
only in the limited circumstances permitted by the Standstill Agreement, in
lieu of delivering shares of WNC Common Stock in respect of any or all of the
PRIDES called for redemption, deliver in exchange for any or all of the PRIDES
subject to redemption cash equal to the Redemption Price (as defined herein).
Redemption Price means the greater of: (i) the applicable Call Price in effect
on the redemption date or (ii) the product (rounded to the nearest one cent, or
if there shall not be a nearest one cent, then the next lower cent) of the
Optional Redemption Rate multiplied by the average of the per share Closing
Prices of WNC Common Stock during the relevant Calculation Period, in each case
together with an amount in cash equal to the accrued and unpaid interest
thereon to but not including the date fixed for redemption.
The Call Price of each PRIDES is $ on and after , 1997 to
and including , 1998; $ on and after , 1998, to and
including , 1998; $ on and after , 1998, to and
including , 1998; $ on and after , 1998, to and
including , 1998; or $ (being the price to the public of
each PRIDES appearing on the cover page of this Prospectus) on and after
, 1998, to and including , 1998.
The "Current Market Price" per share of any security on any date of
determination means the lesser of: (x) the average of the per share Closing
Prices of such security for the 15 consecutive trading days ending on
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and including such date of determination or (y) the per share Closing Price of
such security for such date of determination, in each case rounded to the
nearest one cent, or if there shall not be a nearest one cent, to the next
lower cent; provided, however, that, if any event resulting in an adjustment of
the Common Exchange Rate or Optional Redemption Rate occurs during the period
beginning on the first day of such 15-day period and ending at Maturity or on
the applicable redemption date, the Current Market Price as determined pursuant
to the foregoing will be appropriately adjusted to reflect the occurrence of
such event. "Closing Price" of a security means the last reported sale price of
such security (regular way) as shown on the Composite Tape of the NYSE (or, if
such security is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted to trading), or, in case no such sale takes place on such day, the
average of the closing bid and asked prices on the NYSE (or, if such security
is not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted to trading),
or, if it is not listed or admitted to trading on any national securities
exchange, the last reported sale price of such security as reported by the
National Association of Securities Dealers Automated Quotation System (NASDAQ),
or in case no such sale takes place on such day, the average of the closing bid
and asked prices as reported by NASDAQ, or if such security is not so reported,
the average of the closing bid and asked prices as furnished by any member of
the National Association of Securities Dealers, Inc., selected from time to
time by Conseco for that purpose. The "Notice Date" with respect to any notice
given by Conseco in connection with any redemption of PRIDES means the date on
which first occurs either the public announcement in connection with such
redemption or the commencement of mailing of such notice to the holders of
PRIDES.
If fewer than all the outstanding PRIDES are to be called for redemption,
PRIDES to be called will be selected by the Trustee from outstanding PRIDES not
previously called by lot or pro rata (as nearly as may be) or by any other
method determined by the Trustee in its sole discretion to be equitable.
If some but less than all of the PRIDES called for redemption are to be
exchanged for cash, the PRIDES to be exchanged for cash will be selected by the
Trustee from the PRIDES so called by lot or pro rata (as nearly as may be) or
by any other method determined by the Trustee in its sole discretion to be
equitable.
Conseco will provide notice of any redemption of PRIDES to holders of record
of PRIDES to be called for redemption not less than 30 nor more than 60 days
before the date fixed for redemption. Accordingly, the earliest Notice Date for
any call for redemption of PRIDES will be , 1997. Any such notice will
be provided by mail, sent to the holders of record of PRIDES to be called at
each such holder's address as it appears on the security register, first class
postage prepaid; provided, however, that failure to give such notice or any
defect therein will not affect the validity of the proceeding for redemption of
any PRIDES to be redeemed except as to the holder to whom Conseco has failed to
give such notice or whose notice is defective. Such notice shall state whether
the PRIDES will be exchangeable for shares of WNC Common Stock or cash and, if
the PRIDES will be exchanged for cash, the Calculation Period over which the
Redemption Price will be determined. On and after the redemption date, all
rights of the holders of PRIDES called for redemption will terminate except the
right to receive the redemption price (unless Conseco defaults on the payment
of the redemption price). On the relevant redemption date, interest will cease
to accrue on any PRIDES called for redemption. A public announcement of any
call for redemption will be made by Conseco before, or at the time of, the
mailing of such notice of redemption.
Each holder of PRIDES called for redemption must surrender the PRIDES to
Conseco at the place designated in the notice of redemption and will thereupon
be entitled to receive a certificate for shares of WNC Common Stock and cash
for any fractional share amount or any accrued and unpaid interest, if any, or,
at the option of Conseco but only in the limited circumstances permitted by the
Standstill Agreement, cash in lieu of such shares as described herein.
ADJUSTMENTS IN THE COMMON EXCHANGE RATE AND THE OPTIONAL REDEMPTION RATE
The Common Exchange Rate and the Optional Redemption Rate are subject to
adjustment as appropriate in certain circumstances, including if WNC (a) pays a
stock dividend or makes a distribution
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with respect to WNC Common Stock in shares of WNC Common Stock; (b) subdivides
or splits its outstanding WNC Common Stock; (c) combines its outstanding WNC
Common Stock into a smaller number of shares; (d) issues by reclassification of
its shares of WNC Common Stock any shares of WNC Common Stock; (e) issues
certain rights or warrants to all holders of its WNC Common Stock; or (f) pays
a dividend or distributes to all holders of WNC Common Stock evidences of its
indebtedness, cash or other assets (including capital stock of WNC other than
WNC Common Stock but excluding any cash dividends or distributions, other than
"Extraordinary Cash Distributions," and dividends referred to in clause (a)
above). "Extraordinary Cash Distribution" means, with respect to any
consecutive 12-month period, all cash dividends and cash distributions on WNC
Common Stock during such period (other than cash dividends and cash
distributions for which adjustments to the Common Exchange Rate and the
Optional Redemption Rate were previously made) to the extent such dividends and
distributions exceed, on a per share of WNC Common Stock basis, 10% of the
average daily closing price of WNC Common Stock over such period. All
adjustments to the Common Exchange Rate and the Optional Redemption Rate will
be calculated to the nearest 1/100th of a share of WNC Common Stock. No
adjustment in the Common Exchange Rate or the Optional Redemption Rate will be
required unless such adjustment would require an increase or decrease of at
least one percent therein; provided, however, that any adjustments which, by
reason of the foregoing, are not required to be made will be carried forward
and taken into account in any subsequent adjustment. All adjustments will be
made successively.
Whenever the Common Exchange Rate or the Optional Redemption Rate is adjusted
as provided in the preceding paragraph, Conseco will file with the Trustee a
certificate with respect to such adjustment, make a prompt public announcement
thereof and mail a notice to holders of PRIDES providing specified information
with respect to such adjustment.
ADJUSTMENT FOR CERTAIN REORGANIZATION EVENTS OF WNC
In case of (i) any consolidation or merger to which WNC is a party (other
than a merger or consolidation in which WNC is the surviving or continuing
corporation and in which the shares of WNC Common Stock outstanding immediately
before the merger or consolidation remain unchanged), (ii) any sale or transfer
to another corporation of the property of WNC as an entirety or substantially
as entirety, (iii) any statutory exchange of securities with another
corporation (other than in connection with a merger or acquisition) or (iv) any
liquidation, dissolution or winding up of WNC (any such event a "Reorganization
Event"), each PRIDES will, after consummation of such Reorganization Event, be
subject to exchange at Maturity into the kind and amount of securities, cash or
other property receivable upon consummation of such Reorganization Event by a
holder of the number of shares of WNC Common Stock into which such PRIDES would
have been exchanged if the exchange at Maturity had occurred immediately before
the date of consummation of such Reorganization Event, and be subject to
redemption on any redemption date in exchange for the kind and amount of
securities, cash or other property receivable upon consummation of such
Reorganization Event by a holder of the number of shares of WNC Common Stock
that would have been issuable at the Call Price in effect on such redemption
date upon a redemption of such PRIDES immediately before consummation of such
Reorganization Event, assuming that, if the Notice Date for such redemption is
not before such Reorganization Event, the Notice Date had been the date of such
Reorganization Event; and assuming in each case that Conseco did not exercise
its option, in the limited circumstances permitted by the Standstill Agreement,
to deliver cash in lieu of shares of WNC Common Stock and that such holder of
shares of WNC Common Stock failed to exercise rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon
consummation of such Reorganization Event (provided that, if the kind or amount
of securities, cash or other property receivable upon consummation of such
Reorganization Event is not the same for each non-electing share, then the kind
and amount of securities, cash or other property receivable upon consummation
of such Reorganization Event for each non-electing share will be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). The kind and amount of securities into or for which PRIDES will be
exchanged or redeemable after consummation of such Reorganization Event will be
subject to adjustment as described
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above under the caption "Adjustments in the Common Exchange Rate and the
Optional Redemption Rate" following the date of consummation of such
Reorganization Event.
Notwithstanding the foregoing, Conseco, at its option, in lieu of delivering
the securities and other non-cash property described in the preceding sentence,
may deliver at Maturity and upon any redemption cash in the amount equal to the
Transaction Value (as defined herein) of the securities or other property
receivable upon consummation of such Reorganization Event. "Transaction Value"
means (i) for any property other than cash or securities that are listed on a
national securities exchange or authorized for quotation on NASDAQ received in
any such transaction, an amount equal to the market value at Maturity or as of
the second trading day immediately preceding the Notice Date for any
redemption, as the case may be, of such property received per share of WNC
Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by Conseco, and (ii) for any securities
that are listed on a national securities exchange or authorized for quotation
on NASDAQ received in any such transaction, an amount equal to the Current
Market Price determined as of the date that is immediately prior to Maturity or
as of the second trading day immediately preceding the Notice Date for any
redemption, as the case may be.
FRACTIONAL SHARES
No fractional shares of WNC Common Stock will be issued upon exchange or
redemption of PRIDES. In lieu of any fractional share otherwise issuable in
respect of the aggregate number of PRIDES of any holder that are exchanged or
redeemed at Maturity or on any redemption, such holder will be entitled to
receive an amount in cash equal to the same fraction of the (i) Current Market
Price of the WNC Common Stock, determined as of the second trading day
immediately preceding the Notice Date, in the case of redemption, or (ii) the
average of the per share Closing Prices of WNC Common Stock during the relevant
Calculation Period, in the case of Maturity.
ENHANCED INCOME; LESS INVESTMENT APPRECIATION THAN WNC COMMON STOCK; NO
ASSURANCE OF WNC COMMON STOCK
Interest on the PRIDES will accrue at a higher rate than the rate at which
dividends are currently paid on the WNC Common Stock. The opportunity for
investment appreciation afforded by an investment in the PRIDES is less than
that afforded by an investment in the WNC Common Stock because upon redemption
at the option of Conseco such holder may receive less than one share of WNC
Common Stock per each PRIDES. Conseco may, at its option, redeem the PRIDES on
or after , 1997, and may be expected to do so if, among other
circumstances, the Current Market Price per share of WNC Common Stock
determined as the second trading day preceding the date on which notice for
redemption is given exceeds $ , in which case a holder would receive less
than one share of WNC Common Stock per each PRIDES called for redemption.
The value of each share of WNC Common Stock received by a holder of the
PRIDES at Maturity may be less than the principal amount of the PRIDES offered
hereby, and therefore an investment in PRIDES may result in a loss.
The Indenture permits, subject to certain conditions, Conseco to sell, pledge
or otherwise convey all or any portion of the WNC Common Stock held by it, and
no such shares of WNC Common Stock will be pledged or otherwise held in escrow
for use at Maturity or upon any redemption of the PRIDES. Consequently, in the
event of a bankruptcy, insolvency or liquidation of Conseco, the WNC Common
Stock, if any, owned by Conseco will be subject to the claims of the creditors
of Conseco. In addition, as described herein, Conseco will have the option, but
only in the limited circumstances permitted by the Standstill Agreement, to
satisfy its obligations with respect to the exchange of any or all PRIDES at
Maturity or upon redemption by delivering to holders of such PRIDES either the
specified number of shares of WNC Common Stock or the cash in lieu of such
shares as described above. In the event of such a sale, pledge or conveyance of
WNC Common Stock by Conseco as permitted by the Standstill Agreement, a holder
of the PRIDES may
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be more likely to receive cash in lieu of WNC Common Stock. As a result, there
can be no assurance that at Maturity or upon redemption Conseco will deliver
WNC Common Stock or that it will use all or any portion of its current
holdings of WNC Common Stock to make such delivery. Consequently, holders of
the PRIDES will not be entitled to any rights with respect to the WNC Common
Stock (including, without limitation, voting rights and rights to receive any
dividends or other distributions in respect thereof) until such time, if any,
as Conseco shall have delivered shares of WNC Common Stock to holders of the
PRIDES at Maturity or upon redemption thereof.
VOTING RIGHTS OF CONSECO
The Indenture provides that in any special or annual meeting of the
stockholders of WNC in which the stockholders will vote on any proposal or
matter relating to a Change in Control (as defined herein), Conseco shall, and
shall cause its subsidiaries and affiliates to, vote or abstain from voting
the shares of WNC Common Stock held by it or its subsidiaries and affiliates
with respect to any such proposal or matter in proportion to the votes (or
abstentions) cast by all other holders of WNC Common Stock, excluding any 10%
Holder (as defined herein); provided, however, that Conseco, its subsidiaries
and affiliates may vote the shares of WNC Common Stock held by them for the
election to the Board of Directors of WNC of the number of directors entitled
to be designated by Conseco under the Stockholder Agreement, as such agreement
exists on the date of this Indenture. Based upon Conseco's current holding of
approximately 40% of the WNC Common Stock, Conseco is entitled to designate
two directors. On all other proposals or matters, Conseco and its subsidiaries
and affiliates, under the Indenture, will have the same voting rights as every
other stockholder of WNC. "Change in Control" means any transaction or event
by which (i) an Acquiring Person has or will become such or (ii) Continuing
Directors cease or will cease to comprise a majority of the members of the
Board of Directors of WNC. "Acquiring Person" means any person or group (as
defined in Section 13(d)(3) of the Exchange Act) who or which, together with
all affiliates and associates (as defined in Rule 12b-2 under the Exchange
Act), becomes the beneficial owner of shares of WNC Common Stock having 50% or
more of the total number of votes that may be cast for the election of
directors of WNC. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of WNC Common Stock by WNC
which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to more than
50% of the WNC Common Stock then outstanding; provided, however, that if a
person shall become the beneficial owner of more than 50% of the WNC Common
Stock then outstanding by reason of share purchases by WNC and shall, after
such share purchases by WNC, become the beneficial owner of any additional
shares of WNC Common Stock, then such person shall be deemed to be an
"Acquiring Person." "Continuing Directors" mean any member of the Board of
Directors of WNC, while such Person is a member of such Board of Directors,
who is not an Acquiring Person, or an affiliate or associate of an Acquiring
Person or a representative of an Acquiring Person or of any such affiliate or
associate and who (a) was a member of the Board of Directors prior to the date
of the Indenture, or (b) subsequently becomes a member of such Board of
Directors and whose nomination for election to such Board of Directors is
recommended or approved by resolution of a majority of the Continuing
Directors or who is included as a nominee in a proxy statement of WNC
distributed when a majority of such Board of Directors consists of Continuing
Directors. A "10% Holder" is defined in the Indenture to mean any person or
group (as defined in Section 13(d)(3) of the Exchange Act) who or which,
together with all affiliates and associates (as defined in Rule 12b-2 of the
Exchange Act), becomes the beneficial owner of shares of WNC Common Stock
having more than 10% of the total number of votes that may be cast for the
election of directors of WNC.
In addition, Conseco will agree with WNC under the Standstill Agreement to
further limit its voting rights. See "Relationship Between Conseco and WNC."
SINKING FUND
There will be no sinking fund payments for the PRIDES.
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COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Issuance or Disposition of Stock of Significant
Subsidiaries. Conseco will not, nor will it permit any Significant
Subsidiary to, issue, sell or otherwise dispose of any shares of Capital
Stock (other than nonvoting Preferred Stock) of any Significant Subsidiary,
except for (i) directors qualifying shares; (ii) sales or other
dispositions to Conseco or to one or more Significant Subsidiaries; (iii)
the disposition of all or any part of the Capital Stock of any Significant
Subsidiary for consideration which is at least equal to the fair value of
such Capital Stock as determined by Conseco's board of directors (acting in
good faith); or (iv) any issuance, sale, assignment, transfer or other
disposition made in compliance with an order of a court or regulatory
authority of competent jurisdiction, other than an order issued at the
request of Conseco or any Significant Subsidiary. (Section 10.6)
Limitation on Liens. Except as provided below, neither Conseco nor any
Significant Subsidiary may incur, issue, assume or guarantee any
Indebtedness secured by a Lien on any property or assets of Conseco or any
Significant Subsidiary, or any shares of Capital Stock of any Significant
Subsidiary, without effectively providing that the PRIDES (together with,
if Conseco shall so determine, any other Indebtedness which is not
subordinated to the PRIDES) shall be secured equally and ratably with (or
prior to) such Indebtedness, so long as such Indebtedness shall be so
secured; provided, however, that this covenant shall not apply to
Indebtedness secured by (i) Liens existing on the date of the Indenture;
(ii) Liens on property of, or any share of stock of, any corporation
existing at the time such corporation becomes a Significant Subsidiary or
merges into or consolidates with Conseco or a Significant Subsidiary; (iii)
Liens on property or on shares of stock existing at the time of acquisition
thereof by Conseco or any Significant Subsidiary; (iv) Liens to secure the
financing of the acquisition, construction or improvement of property, or
the acquisition of shares of stock by Conseco or any Significant
Subsidiary; provided that such Liens are created not later than one year
after such acquisition or, in the case of property, not later than one year
after completion of construction or commencement of commercial operation,
whichever is later (it being understood that such Liens may not extend to
property or securities other than the property being acquired, constructed
or improved or the shares of stock being acquired); (v) Liens in favor of
Conseco or any Subsidiary; (vi) Liens in favor of, or required by,
governmental authorities; and (vii) any extension, renewal or replacement
as a whole on in part, of any Lien referred to in the foregoing clauses (i)
to (vi) inclusive; provided, however, that (a) such extension, renewal or
replacement Lien shall be limited to all or a part of the same property or
shares of stock that secured the Lien extended, renewed or replaced and (b)
the Indebtedness secured by such Lien at such time is not so increased.
(Section 10.7)
The Indenture does not contain any provisions other than the foregoing which
will restrict Conseco from incurring, assuming or becoming liable with respect
to any indebtedness or other obligations, whether secured or unsecured, or from
paying dividends or making other distributions on its capital stock or
purchasing or redeeming its capital stock or making additional investments in
its subsidiaries. The Indenture does not contain any financial ratios, or
specified levels of net worth or liquidity to which Conseco must adhere. In
addition, the Indenture does not contain any provision which would require that
Conseco repurchase or redeem or otherwise modify the terms of any of the PRIDES
upon a change in control or other events involving Conseco which may adversely
affect the creditworthiness of the PRIDES.
CONSOLIDATION, MERGER AND SALE OF ASSETS BY CONSECO
Conseco may not consolidate with or merge with or into any other Person or
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person,
unless (i) either (a) Conseco shall be the continuing corporation or (b) the
Person (if other than Conseco) formed by such consolidation or into which
Conseco is merged or the Person that acquires, by sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of
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Conseco as an entirety shall be a corporation, partnership or trust organized
and validly existing under the laws of the United States or any State thereof
or the District of Columbia, and shall expressly assume by a supplemental
indenture, the due and punctual delivery of shares of WNC Common Stock, or, at
the option of such Person but only in the limited circumstances permitted by
the Standstill Agreement, cash in lieu of such shares as described above, the
due and punctual payment of the interest on all the PRIDES and the performance
and observance of every covenant of the Indenture on the part of Conseco to be
performed or observed; (ii) immediately before or immediately after giving pro
forma effect to such transaction (and treating any Indebtedness not previously
an obligation of Conseco or a Subsidiary which becomes the obligation of
Conseco or any of its Subsidiaries in connection with or as a result of such
transaction as having been incurred at the time of such transaction), no
Default shall have occurred and be continuing; and (iii) Conseco or such Person
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that the conditions specified in foregoing clauses (i)
and (ii) have been satisfied. (Section 8.1) Under the laws of the State of New
York, which govern the Indenture, there is no established meaning of the phrase
"all or substantially all" with regard to a company's assets or property, and
the interpretation of such phrase is quite fact sensitive. Due to such
uncertainty, it may be difficult for holders of the PRIDES to ascertain whether
a viable claim exists under the Indenture with respect to any given
transaction.
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which Conseco is
not the continuing corporation, the successor Person formed or remaining would
be substituted for Conseco and Conseco would be discharged from all obligations
and covenants under the Indenture and the PRIDES. (Section 8.2)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if (a) there shall be a
failure to deliver when due any shares of WNC Common Stock, or any payment of
cash in lieu of such shares as described above, as provided in the Indenture;
(b) there shall be a failure to pay an installment of interest on any of the
PRIDES for 30 days after the date when due; (c) Conseco shall fail to perform
or observe any other term, covenant or warranty contained in the PRIDES or the
Indenture for a period 60 days after written notice of such failure requiring
Conseco to remedy the same shall have been given to Conseco by the Trustee or
to Conseco and the Trustee by the holders of not less than 25% of the
outstanding PRIDES; (d) a default shall have occurred with respect to any
obligation of Conseco or of a Subsidiary whether as principal, guarantor,
surety or other obligor for the payment of any Indebtedness in excess of $10
million in the aggregate and (i) either (1) such default is upon the Stated
Maturity of such Indebtedness or (2) as a result of such default the maturity
of such Indebtedness has been accelerated prior to its Stated Maturity and (ii)
such Indebtedness has not been paid in full or such acceleration has not been
rescinded, annulled, or waived prior to the entry of a final judgment in favor
of the holders thereof; (e) one or more final and nonappealable judgments,
orders or decrees for the payment of money in excess of $10 million, either
individually or in the aggregate, shall be entered against Conseco or any
Subsidiary or any of their respective properties which is not adequately
covered by insurance or bond (subject to reasonable deductibles) and shall not
be discharged and there shall have been a period of 60 days during which a stay
of enforcement of such judgment or order, by reason or an appeal or otherwise,
shall not be in effect; or (f) certain events of bankruptcy, insolvency,
rehabilitation, liquidation, conservation or supervision with respect to
Conseco or any Significant Subsidiary shall have occurred. If an Event of
Default specified in clause (f) above occurs and is continuing, then the PRIDES
shall become immediately exchangeable for shares of WNC Common Stock at the
Common Exchange Rate then in effect together with accrued and unpaid interest,
if any, to the date of such mandatory exchange without any declaration or other
act on the part of the Trustee or any holder of PRIDES subject to the option of
Conseco in the limited circumstances permitted by the Standstill Agreement to
deliver cash equal to the Maturity Price with respect to some or all of the
PRIDES. (Section 5.1)
If an Event of Default shall occur and be continuing, the Trustee under the
Indenture or the holders of not less than 25% of the PRIDES then outstanding
may declare the PRIDES mandatorily exchanged for shares of WNC Common Stock at
the Common Exchange Rate then in effect together with accrued and
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<PAGE>
unpaid interest, if any, to the date of such mandatory exchanges subject to the
option of Conseco in the limited circumstances permitted by Standstill
Agreement to deliver cash equal to the Maturity Price with respect to some or
all of the PRIDES and thereupon the Trustee may, at its discretion, proceed to
protect and enforce the rights of the holders of PRIDES by appropriate judicial
proceeding. (Section 5.1)
The Indenture contains a provision entitling the Trustee, subject to the duty
of the Trustee during Default to act with the required standard of care, to be
indemnified by the holders of PRIDES before proceeding to exercise any right or
power under the Indenture at the request of such holders. The Indenture
provides that the holders of a majority of the PRIDES then outstanding through
their written consent or represented at a meeting at which a quorum is present
by a written resolution, may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred upon the Trustee. (Section 5.12) So long as the Depository
(as defined herein) or its nominee is the sole holder of the PRIDES under the
Indenture, the notice and declaration thresholds described above will operate
as set forth under "--Book-Entry, Delivery and Form."
BOOK-ENTRY, DELIVERY AND FORM
The PRIDES will be issued in the form of one or more fully registered global
notes (each, a "Global Note"). The Global Notes will be deposited with, or on
behalf of, The Depository Trust Company (the "Depository") and registered in
the name of the Depository's nominee. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to another nominee of
the Depository or to a successor of the Depository or its nominee.
The Depository has advised Conseco and the Underwriters as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depository was created to hold securities of its participants
(as described below) and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including
certain of the U.S. Underwriters), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own the Depository. Access to the Depository's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Upon the issuance of a Global Note, the Depository will credit on its book-
entry registration and transfer system the respective numbers of the PRIDES
represented by such Global Note to the accounts of institutions that have
accounts with the Depository ("participants"). The accounts to be credited
shall be designated by the Underwriters through which such PRIDES were sold.
Ownership of beneficial interests in such Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in such Global Note will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
Depository for such Global Note or by participants or persons that hold
interests through participants. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Note.
So long as the Depository for a Global Note, or its nominee, is the owner of
the Global Note, such Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the PRIDES represented by such Global
Note for all purposes under the Indenture. Except as set forth below, owners of
beneficial interests in a Global Note will not be entitled to have PRIDES
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of PRIDES in definitive form and will
not be considered the owners or holders thereof under the Indenture.
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<PAGE>
The Depository has advised Conseco that it will take any action permitted to
be taken by an owner or holder of PRIDES only at the direction of one or more
participants to whose account with the Depository such owner's PRIDES are
credited. Additionally, the Depository has advised Conseco that it will take
such actions with respect to any percentage of the beneficial interest of
owners who hold PRIDES through participants only at the direction of and on
behalf of participants whose account holders include undivided interests that
satisfy any such percentage. The Depository make take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of participants whose account holders include such undivided
interests.
Payments of interest on PRIDES registered in the name of or held by the
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner or the holder of the Global Note
representing such PRIDES. None of Conseco, the Underwriters, the Trustee, the
paying agent or the security registrar for the PRIDES will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note for
such PRIDES or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Conseco expects that the Depository, upon receipt of any delivery of
securities or payment of cash in respect of a Global Note, will credit
immediately participants' accounts with such delivery or payments in amounts
proportionate to their respective beneficial interests in such Global Note as
shown on the records of the Depository. Conseco also expects that such delivery
or payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name," and will
be the responsibility of such participants. Accordingly, although owners who
hold PRIDES through participants will not possess PRIDES, the participants
provide a mechanism by which holders of PRIDES will receive securities or
payments and will be able to transfer their interests.
If a Depository is at any time unwilling or unable to continue as depository
of the Global Notes and a successor depository is not appointed by Conseco
within ninety days, Conseco will issue PRIDES in definitive form in exchange
for the Global Note or Notes representing such PRIDES. In addition, Conseco may
at any time determine not to have the PRIDES represented by the Global Notes
and, in such event, will issue PRIDES in definitive form in exchange for the
Global Notes. In either instance, an owner of a beneficial interest in a Global
Note will be entitled to have PRIDES equal in number to such beneficial
interest registered in its name and will be entitled to physical delivery of
such PRIDES in definitive form. (Section 3.5)
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by Conseco and the
Trustee with the consent of the holders of not less than a majority in number
of the outstanding PRIDES; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding PRIDES:
(1) change the Stated Maturity of, or any installment of interest on, any
PRIDES or reduce the Common Exchange Rate or the Optional Redemption Rate,
except as provided in the Indenture, or reduce the rate of interest thereon, or
change the coin or currency in which any PRIDES or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof; (2) reduce the number of outstanding
PRIDES necessary to waive compliance with certain provisions of the Indenture
or to waive certain Defaults; or (3) modify any of the provisions relating to
supplemental indentures requiring the consent of holders or relating to the
waiver of past Defaults, except to increase the number of outstanding PRIDES
required for such actions or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of
each PRIDES affected thereby. (Section 9.2)
Modification and amendments of the Indenture may be made by Conseco and the
Trustee without the consent of any holders of PRIDES; (i) to evidence the
succession of another Person to Conseco, and the
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<PAGE>
assumption by any such successor of the covenants of Conseco in the Indenture
and in the PRIDES; (ii) to add to the covenants of Conseco for the benefit of
the holders of the PRIDES, or to surrender any right or power conferred in the
Indenture upon Conseco; (iii) to cure any ambiguity, to correct or supplement
any provision in the Indenture which may be defective or inconsistent with any
other provision therein, or to make any other provisions with respect to
matters arising under the Indenture; provided, that, in each such case, such
provisions shall not adversely affect the interest of the holders of the
PRIDES; or (iv) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act of 1939, as amended. (Section 9.1)
The holders of a majority in number of the outstanding PRIDES may waive
compliance with certain provisions of the Indenture.
CONCERNING THE TRUSTEE
is to
be the Trustee under the Indenture and has been appointed by Conseco as
Registrar and Paying Agent with respect to the PRIDES.
GOVERNING LAWS
The Indenture provides that both it and the PRIDES will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
(Section 1.12)
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms.
(Section 1.1)
"Capital Lease Obligations" of a Person means any obligation that is required
to be classified and accounted for as a capital lease on the face of a balance
sheet of such person prepared in accordance with generally accepted accounting
principles; the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) capital stock, including any Preferred Stock.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Indebtedness" means (i) any liability of any Person (1) for borrowed money,
or under any reimbursement obligation relating to a letter of credit (other
than letters of credit obtained in the ordinary course of business), or (2)
evidenced by a bond, note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of any
businesses, properties or assets of any kind or with services incurred in
connection with capital expenditures (other than accounts payable or other
indebtedness to trade creditors arising in the ordinary course of business), or
(3) for the payment of money relating to a Capital Lease Obligation; (ii) any
liability of others described in the preceding clause (i) that the Person has
guaranteed or that is otherwise its legal liability; and (iii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) and (ii) above.
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"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).
"Maturity" means (i) Stated Maturity or (ii) the date on which the PRIDES
become manditorily exchangeable for WNC Common Stock as a result of a
declaration of exchange upon the occurrence of an Event of Default.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Significant Subsidiary" means any Subsidiary with (i) assets which
constituted at least 10% of Conseco's consolidated total assets, or (ii)
revenues which constituted at least 10% of Conseco's consolidated total
revenues, or (iii) net earnings which constituted at least 10% of Conseco's
consolidated total net earnings, all as determined as of the date of Conseco's
most recently prepared quarterly financial statements for the 12-month period
then ended.
"Stated Maturity," (i) when used with respect to the PRIDES, means , 1998,
and (ii) when used with respect to any other security or any installment of
interest on any other security, means the date specified in such security as
the fixed date on which the principal of such security or such installment of
interest, respectively, is finally due and payable, except as otherwise
provided in the case of Capital Lease Obligations.
"Subsidiary" means a corporation of which a majority of the Capital Stock
having voting power under ordinary circumstances to elect a majority of the
board of directors is owned or controlled by Conseco or by one or more
Subsidiaries, or by Conseco and one or more Subsidiaries.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences relating to ownership of the PRIDES. No information is provided
herein with respect to foreign, state or local tax laws. This summary is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so
as to result in United States federal income tax consequences different from
those discussed below. This summary is based on the advice of Sidley & Austin.
This summary deals only with holders who are initial holders of the PRIDES
and who will hold the PRIDES as capital assets. It does not address all aspects
of United States federal income taxation and does not deal with tax
considerations applicable to investors that may be subject to special United
States federal income tax treatment, such as dealers in securities or persons
holding the PRIDES as a position in a "straddle," as part of a "conversion
transaction" for or as part of a "synthetic security" or other integrated
investment.
As used herein, a "United States Holder" of the PRIDES means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the United States or any political
subdivision thereof, an estate or trust the income of which is subject to
United States federal income taxation regardless of its source who is the
beneficial owner of the PRIDES. A "Non-United States Holder" is a holder who is
not a United States Holder. All references to "holders" (including United
States Holders and Non-United States Holders) are to beneficial owners of the
PRIDES.
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No statutory, judicial or administrative authority directly addresses the
characterization of the PRIDES or instruments similar to the PRIDES for United
States federal income tax purposes. As a result, significant aspects of the
United States federal income tax consequences of an investment in the PRIDES
are not certain. No ruling is being requested from the Internal Revenue Service
(the "IRS") with respect to the PRIDES and no assurance can be given that the
IRS will agree with the conclusions expressed herein. ACCORDINGLY, PROSPECTIVE
INVESTORS (INCLUDING TAX-EXEMPT INVESTORS) IN THE PRIDES SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF THE PRIDES, INCLUDING THE TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS
Pursuant to the terms of the Indenture, Conseco and all holders of the PRIDES
will be obligated to treat the PRIDES as a unit (the "Unit") consisting of (i)
a debt obligation ("Note") with a fixed principal amount unconditionally
payable at maturity equal to the principal amount of the PRIDES (or upon
redemption at the option of Conseco, equal to the Call Price of the PRIDES),
bearing interest at the stated interest rate on the PRIDES, and (ii) a forward
purchase contract (the "Purchase Contract") pursuant to which the holder agrees
to use the principal payment due on the Note to purchase at maturity (or to use
the Call Price to purchase upon redemption at the option of the Company) the
WNC Common Stock which the holder is entitled to receive at that time (subject
to Conseco's option to deliver cash in lieu of the WNC Common Stock in certain
circumstances). The Indenture will require each United States Holder to include
currently in income when received or accrued payments denominated as interest
that are made with respect to the PRIDES in accordance with such Holder's
regular method of tax accounting.
Pursuant to the agreement to treat the PRIDES as a Unit, a holder will be
required to allocate the purchase price of the PRIDES between the two
components of the Unit (the Note and the Purchase Contract) on the basis of
their relative fair market values. The purchase price so allocated will
generally constitute the tax basis for each component. Pursuant to the terms of
the Indenture, Conseco and the holders agree to allocate the entire purchase
price of the PRIDES to the Note. Upon the sale or other disposition of the
PRIDES, a United States Holder generally will be required to allocate the
amount realized between the two components of the PRIDES on the basis of their
then relative fair market values. A United States Holder will recognize gain or
loss with respect to each component equal to the difference between the amount
realized on the sale or other disposition for each such component and the
United States Holder's tax basis in such component. Such gain or loss generally
will be long-term capital gain or loss if the United States Holder has held the
PRIDES for more than one year at the time of disposition.
The distinction between capital gain or loss and ordinary income or loss is
important for purposes of the limitations on a United States Holder's ability
to offset capital losses against ordinary income. In addition, certain
individuals are subject to tax at a reduced rate on net capital gains.
At maturity (or upon redemption at the option of Conseco), pursuant to the
agreement to treat the PRIDES as a Unit, (i) on the repayment of the Note, a
United States Holder will realize long-term capital gain or loss equal to any
difference between such Holder's tax basis and the principal amount of the Note
if repaid at maturity (or the Call Price if repaid upon redemption at the
option of Conseco), (ii) if Conseco delivers WNC Common Stock, a United States
Holder will realize no additional gain or loss on the exchange, pursuant to the
Purchase Contract, of the principal amount (or Call Price) due on the Note for
the WNC Common Stock, will have a tax basis in such stock equal to the fair
market value of the WNC Common Stock paid in respect of the Note, and will
realize capital gain or loss upon the sale or disposition of such stock, and
(iii) if Conseco pays the PRIDES in cash, a United States Holder will have gain
or loss (which might be ordinary income or loss rather than long-term capital
gain or loss) equal to the difference between the United States Holder's tax
basis in the Note and the amount of cash received from Conseco.
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<PAGE>
Due to the absence of authority as to the proper characterization of the
PRIDES, no assurance can be given that the IRS will accept or that a court will
uphold the characterization described above. Under alternative tax
characterizations of the PRIDES, it is possible, for example, that (i) gain may
be treated as ordinary income, instead of capital gain, (ii) a United States
Holder may be taxable upon the receipt of WNC Common Stock with a value in
excess of the principal amount of the Note, rather than upon the sale of such
stock, (iii) all or part of the interest income on the Note may be treated as
nontaxable, increasing the gain (or decreasing the loss) at maturity or
disposition of the PRIDES (or disposition of the WNC Common Stock) or (iv) the
Notes could be considered as issued at a premium which, if amortized, would
reduce the amount of interest income currently includible in income by a holder
and would increase the taxable gain (or decrease the loss) realized at Maturity
or disposition of the PRIDES (or disposition of the WNC Common Stock).
It is possible that the IRS may contend that the PRIDES should be subject to
certain proposed Treasury regulations dealing with "contingent payment" debt
instruments (the "Proposed Regulations"). Under the Proposed Regulations,
payments made in respect of the PRIDES (including the value of the WNC Common
Stock received at Maturity) would be treated first as a nontaxable return of
the holder's investment in the PRIDES and thereafter would be taxable as
interest income to the holder.
The IRS has indicated that it is considering withdrawing the Proposed
Regulations, and may replace them with a rule that requires some minimum amount
of interest income to be accrued on all contingent payment debt instruments. It
is impossible to predict whether, or in what manner, the Proposed Regulations
may be modified and whether any modifications would apply to the PRIDES. In
addition, the IRS has announced that it intends to promulgate regulations
addressing the tax consequences of complex financial instruments which could
affect the tax treatment of the PRIDES.
NON-UNITED STATES HOLDERS
Based on the treatment of the PRIDES described above, in the case of a Non-
United States Holder of the PRIDES, payments made with respect to the PRIDES
should not be subject to United States withholding tax, provided that such
holder complies with applicable certification requirements. Any capital gain
realized upon the sale or other disposition of the PRIDES by a Non-United
States Holder will generally not be subject to United States federal income tax
unless (i) such gain is effectively connected with a United States trade or
business of such holder; (ii) such gain is treated as effectively connected
with a trade or business in the United States because WNC is or has been a
"United States real property holding corporation" for United States federal
income tax purposes and the Non-United States Holder held, directly or
indirectly, at any time during the five-year period ending on the date of
disposition, more than five percent of the PRIDES (in which case withholding of
such tax may also apply); or (iii) in the case of an individual, such
individual is present in the United States for 183 days or more in the taxable
year of the sale or other disposition or the gain is attributable to a fixed
place of business maintained by such individual in the United States.
As discussed above, alternative characterizations of the PRIDES for United
States federal income tax purposes are possible. Should an alternative
characterization cause payments with respect to the PRIDES to become subject to
withholding tax, Conseco will withhold tax at the statutory rate. However,
until the IRS provides further guidance, no tax will be withheld. Non-United
States Holders should consult their own tax advisors.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of the PRIDES may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder
unless such holder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules will be
refunded or credited against such holder's United States federal income tax
liability, provided that required information is furnished to the IRS.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Purchase Agreement
(the "U.S. Purchase Agreement") among Conseco, WNC and each of the U.S.
Underwriters named below (the "U.S. Underwriters"), Conseco has agreed to sell
to each of the U.S. Underwriters, and each of the U.S. Underwriters, for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Dean
Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and Kemper Securities,
Inc. are acting as representatives (the "Representatives"), has severally
agreed to purchase, the number of PRIDES set forth below opposite its name. The
U.S. Underwriters are committed to purchase all of such PRIDES if any are
purchased. Under certain circumstances, the commitments of non-defaulting U.S.
Underwriters may be increased as set forth in the U.S. Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF PRIDES
---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Dean Witter Reynolds Inc..................................
Morgan Stanley & Co. Incorporated.........................
Kemper Securities, Inc. ..................................
----------
Total................................................. 18,700,000
==========
</TABLE>
Conseco and WNC have also entered into a purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States (the "International Underwriters"), for whom Merrill Lynch
International Limited, Dean Witter International Ltd., Morgan Stanley & Co.
International and Kemper Securities, Inc., are acting as representatives (the
"International Representatives"). Subject to the terms and conditions set forth
in the International Purchase Agreement, and concurrently with the sale of
PRIDES to the U.S. Underwriters, Conseco has agreed to sell to the
International Underwriters, and the International Underwriters have severally
agreed to purchase, an aggregate of 3,300,000 PRIDES. Under certain
circumstances as set forth in the International Purchase Agreement, the
commitments of non-defaulting International Underwriters may be increased. The
initial public offering price per PRIDES and the underwriting discount per
PRIDES are identical under the U.S. Purchase Agreement and the International
Purchase Agreement.
In the U.S. Purchase Agreement and International Purchase Agreement, the
several U.S. Underwriters and the several International Underwriters
(collectively, the "Underwriters"), respectively, have agreed, subject to the
terms and conditions set forth therein, to purchase all of the PRIDES being
sold pursuant to each such Purchase Agreement if any of the PRIDES being sold
pursuant to each such Purchase Agreement are purchased. The closing with
respect to the sale of PRIDES sold pursuant to each Purchase Agreement is a
condition to the closing with respect to the sale of PRIDES sold pursuant to
the other Purchase Agreement.
The U.S. Underwriters and International Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which provides for
the coordination of their activities. Under the terms of the Intersyndicate
Agreement, the Underwriters are permitted to sell PRIDES to each other for
purposes of resale.
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<PAGE>
The Representatives have advised that the U.S. Underwriters propose to offer
the PRIDES to the public initially at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per PRIDES. The U.S. Underwriters may allow,
and such dealers may re-allow, a discount not in excess of $ per PRIDES on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
Conseco has granted the Underwriters an option, exercisable by the U.S.
Underwriters, to purchase up to 2,947,500 additional PRIDES from Conseco at the
initial public offering price, less the underwriting discount. Such option,
which expires 30 days after the date of this Prospectus, may be exercised
solely to cover over-allotments. To the extent that the U.S. Underwriters
exercise such option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
the option PRIDES that the number of PRIDES to be purchased initially by that
Underwriter bears to the total number of PRIDES to be purchased initially by
the Underwriters.
Certain of the Underwriters perform brokerage and investment banking services
for Conseco and its affiliates from time to time, for which they receive
customary compensation.
Morgan Stanley & Co. Incorporated, one of the Representatives, has advised
Conseco with respect to the Merger and certain related matters. In addition,
Conseco has agreed to appoint Morgan Stanley & Co. Incorporated as lead
managing underwriter or exclusive placement agent in connection with certain
other portions of the financing of the Merger. Kemper Securities, Inc., one of
the Representatives, is a subsidiary of Kemper.
Conseco and WNC have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
WNC, its directors and executive officers and Conseco have agreed that they
will not, without the prior written consent of Merrill Lynch, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of or enter into
any agreement to sell any shares of WNC Common Stock or similar securities or
securities convertible into or exchangeable or exercisable for shares of WNC
Common Stock or, in the case of WNC, file with the Commission a registration
statement under the Securities Act to register any WNC Common Stock or similar
securities or any securities convertible into or exchangeable or exercisable
for WNC Common Stock other than the sale to the Underwriters of the PRIDES
offered hereby, for a period of 120 days after the date of this Prospectus,
except that WNC may, without such consent, grant options pursuant to its 1993
Stock and Incentive Plan and make matching contributions under its Savings
Plan.
Conseco has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell PRIDES will
not offer to sell or sell PRIDES to persons who are non-United States or non-
Canadian persons or to persons they believe intend to re-sell to persons who
are non-United States or non-Canadian persons, and the International
Underwriters and any dealer to whom they sell PRIDES will not offer to sell or
sell PRIDES to United States persons or Canadian persons or to persons they
believe intend to re-sell to United States persons or Canadian persons, except
in each case for transactions pursuant to the Intersyndicate Agreement which,
among other things, permits the Underwriters to purchase from each other and
offer for resale such number of PRIDES as the selling Underwriter or
Underwriters and the purchasing Underwriter or Underwriters may agree.
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<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the PRIDES offered hereby will be
passed upon for Conseco by Lawrence W. Inlow, Executive Vice President,
Secretary and General Counsel of Conseco, and for the Underwriters by Sidley &
Austin, Chicago, Illinois. Certain tax matters with respect thereto also will
be passed upon by Sidley & Austin. Mr. Inlow is a full-time employee and an
officer of Conseco and owns 247,076 shares and holds options to purchase
662,000 shares of Common Stock of Conseco. Mr. Inlow also owns 15,000 shares of
WNC Common Stock, and he is a limited partner of CCP II with a capital
commitment of $4 million. Sidley & Austin provides legal services to Conseco
and its affiliates from time to time.
EXPERTS
The consolidated financial statements and schedules of Conseco as of December
31, 1992 and 1993 and for each of the three years in the period ended December
31, 1993, incorporated by reference in this Prospectus, have been incorporated
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants given on the authority of that firm as experts in accounting and
auditing.
49
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY CONSECO OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE PRIDES IN ANY JURIS-
DICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE AFFAIRS OF CONSECO SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Documents Incorporated by Reference........................................ 3
Prospectus Summary......................................................... 4
Investment Considerations Relating to PRIDES and Kemper Acquisition........ 9
Conseco.................................................................... 15
Pending Acquisition of Kemper by Conseco................................... 16
Use of Proceeds............................................................ 20
Capitalization............................................................. 21
Selected Historical and Pro Forma Consolidated Financial Data.............. 23
Relationship Between Conseco and WNC....................................... 28
Western National Corporation............................................... 29
Price Range for WNC Common Stock and Dividends............................. 31
Description of the PRIDES.................................................. 32
Certain United States Federal Income Tax Considerations.................... 44
Underwriting............................................................... 47
Legal Matters.............................................................. 49
Experts.................................................................... 49
Prospectus Relating to Common Stock of Western National
Corporation........................................................ Appendix A
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
22,000,000 PRIDES/SM/
[LOGO OF CONSECO APPEARS HERE]
% PRIDES DUE 1998
EXCHANGEABLE INTO SHARES
OF COMMON STOCK OF
WESTERN NATIONAL CORPORATION
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED
KEMPER SECURITIES, INC.
, 1994
/SM/SERVICE MARK OF MERRILL LYNCH & CO., INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATIVE PAGE FOR INTERNATIONAL OFFERING]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1994
PROSPECTUS
22,000,000 PRIDES/SM/
[LOGO OF CONSECO APPEARS HERE]
% PRIDES/SM/ DUE 1998
EXCHANGEABLE INTO SHARES OF COMMON STOCK OF
WESTERN NATIONAL CORPORATION
-----------
Of the 22,000,000 % Provisionally Redeemable Income Debt Exchangeable for
StockSM due 1998 ("PRIDES") of Conseco, Inc. ("Conseco") offered hereby,
3,300,000 PRIDES are being offered outside the United States and Canada by the
International Underwriters and 18,700,000 PRIDES are being offered in a
concurrent offering in the United States and Canada by the U.S. Underwriters.
The initial public offering price and the underwriting discount per PRIDES will
be identical for both offerings. See "Underwriting."
The principal amount of each of the PRIDES being offered hereby will be
$ (the closing price of the common stock, par value $.001 per share
(the "WNC Common Stock"), of Western National Corporation ("WNC") on ,
1994, as reported on the New York Stock Exchange Composite Tape). The PRIDES
will mature on , 1998. Interest on the PRIDES, at the rate of % of the
principal amount per annum, is payable quarterly in arrears on March 1, June 1,
September 1 and December 1, beginning 1, 1995.
(Continued on following page)
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) CONSECO(1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per PRIDES................................. $ $ $
- --------------------------------------------------------------------------------
Total(4)................................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1994.
(2) Conseco and WNC have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by estimated to be
$ .
(4) Conseco has granted to the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to a
maximum of 2,947,500 additional PRIDES, on the same terms as set forth
above, to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Conseco will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The PRIDES are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the PRIDES will be
delivered in book-entry form only on or about , 1994 through the
facilities of The Depository Trust Company.
/SM/Service mark of Merrill Lynch & Co., Inc.
-----------
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
MORGAN STANLEY & CO.
INTERNATIONAL
KEMPER SECURITIES, INC.
-----------
The date of this Prospectus is , 1994.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL OFFERING]
UNDERWRITING
Subject to the terms and conditions set forth in the International Purchase
Agreement (the "International Agreement") among Conseco, WNC and each of the
International Underwriters named below (the "International Underwriters"),
Conseco has agreed to sell to each of the International Underwriters, and each
of the International Underwriters, for whom Merrill Lynch International
Limited, Dean Witter International Ltd., Morgan Stanley & Co. International and
Kemper Securities, Inc. are acting as representatives (the "International
Representatives"), has severally agreed to purchase, the number of PRIDES set
forth below opposite its name. The International Underwriters are committed to
purchase all of such PRIDES if any are purchased. Under certain circumstances,
the commitments of non-defaulting International Underwriters may be increased
as set forth in the International Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITER OF PRIDES
------------------------- ---------
<S> <C>
Merrill Lynch International Limited.......................
Dean Witter International Ltd.............................
Morgan Stanley & Co. International .......................
Kemper Securities, Inc. ..................................
---------
Total.................................................. 3,300,000
=========
</TABLE>
Conseco and WNC have also entered into a purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States (the "U.S.
Underwriters"), for whom Merrill Lynch Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Dean Witter Reynolds Inc., Morgan Stanley & Co. Incorporated
and Kemper Securities, Inc., are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of PRIDES to the
International Underwriters, Conseco has agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters have severally agreed to purchase, an
aggregate of 18,700,000 PRIDES. Under certain circumstances as set forth in the
U.S. Purchase Agreement, the commitments of non-defaulting U.S. Underwriters
may be increased. The initial public offering price per PRIDES and the
underwriting discount per PRIDES are identical under the International Purchase
Agreement and the U.S. Purchase Agreement.
In the U.S. Purchase Agreement and International Purchase Agreement, the
several U.S. Underwriters and the several International Underwriters
(collectively, the "Underwriters"), respectively, have agreed, subject to the
terms and conditions set forth therein, to purchase all of the PRIDES being
sold pursuant to each such Purchase Agreement if any of the PRIDES being sold
pursuant to each such Purchase Agreement are purchased. The closing with
respect to the sale of PRIDES sold pursuant to each Purchase Agreement is a
condition to the closing with respect to the sale of PRIDES sold pursuant to
the other Purchase Agreement.
The U.S. Underwriters and International Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which provides for
the coordination of their activities. Under the terms of the Intersyndicate
Agreement, the Underwriters are permitted to sell PRIDES to each other for
purposes of resale.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL OFFERING]
The International Representatives have advised Conseco that the International
Underwriters propose to offer the PRIDES to the public initially at the public
offering price set forth on the cover page of this Prospectus, and to certain
banks, brokers and dealers (the "Selling Group") at such price less a
concession not in excess of $ per PRIDES. The International Underwriters may
allow, and such dealers may re-allow, a discount not in excess of $ per
PRIDES on sales to other International Underwriters or to other members of the
Selling Group. After the initial public offering, the public offering price,
concession and discount may be changed.
Conseco has granted the Underwriters an option, exercisable by the U.S.
Underwriters, to purchase up to 2,947,500 additional PRIDES from Conseco at the
initial public offering price, less the underwriting discount. Such option,
which expires 30 days after the date of this Prospectus, may be exercised
solely to cover over-allotments. To the extent that the U.S. Underwriters
exercise such option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
the option PRIDES that the number of PRIDES to be purchased initially by that
Underwriter bears to the total number of PRIDES to be purchased initially by
the Underwriters.
Certain of the Underwriters perform brokerage and investment banking services
for Conseco and its affiliates from time to time, for which they receive
customary compensation.
Morgan Stanley & Co. Incorporated, one of the Representatives, has advised
Conseco with respect to the Merger and certain related matters. In addition,
Conseco has agreed to appoint Morgan Stanley & Co. Incorporated as lead
managing underwriter or exclusive placement agent in connection with certain
other portions of the financing of the Merger. Kemper Securities, Inc., one of
the Representatives, is a subsidiary of Kemper.
Conseco and WNC have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
WNC, its directors and executive officers and Conseco have agreed that they
will not, without the prior written consent of Merrill Lynch, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of or enter into
any agreement to sell any shares of WNC Common Stock or similar securities or
securities convertible into or exchangeable or exercisable for shares of WNC
Common Stock or, in the case of WNC, file with the Commission a registration
statement under the Securities Act to register any WNC Common Stock or similar
securities or any securities convertible into or exchangeable or exercisable
for WNC Common Stock other than the sale to the Underwriters of the PRIDES
offered hereby, for a period of 120 days after the date of this Prospectus,
except that WNC may, without such consent, grant options pursuant to its 1993
Stock and Incentive Plan and make matching contributions under its Savings
Plan.
Each International Underwriter has agreed that (i) it has not offered or
sold, and it will not offer or sell, directly or indirectly, any PRIDES offered
hereby in the United Kingdom by means of any document except in circumstances
which do not constitute an offer to the public within the meaning of the
Companies Act 1985, (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the PRIDES in, from or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issuance of PRIDES to a person who is of a kind described in Article 9(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988 or is a person to whom the document may otherwise lawfully be issued or
passed on.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL OFFERING]
Purchasers of the PRIDES offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page hereof.
Conseco has been informed that, under the terms of the Intersyndicate
Agreement, the International Underwriters and any dealer to whom they sell
PRIDES will not offer to sell or sell PRIDES to persons who are United States
or Canadian persons or to persons they believe intend to re-sell to persons who
are United States or Canadian persons, and the U.S. Underwriters and any dealer
to whom they sell PRIDES will not offer to sell or sell PRIDES to non-United
States persons or non-Canadian persons or to persons they believe intend to re-
sell to non-United States persons or non-Canadian persons, except in each case
for transactions pursuant to the Intersyndicate Agreement which, among other
things, permits the Underwriters to purchase from each other and offer for
resale such number of PRIDES as the selling Underwriter or Underwriters and the
purchasing Underwriter or Underwriters may agree.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL OFFERING]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNEC-
TION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CONSECO OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE PRIDES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF CONSECO SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Documents Incorporated by Reference........................................ 3
Prospectus Summary......................................................... 4
Investment Considerations Relating to PRIDES and Kemper Acquisition........ 9
Conseco.................................................................... 15
Pending Acquisition of Kemper by Conseco................................... 16
Use of Proceeds............................................................ 20
Capitalization............................................................. 21
Selected Historical and Pro Forma Consolidated Financial Data.............. 23
Relationship Between Conseco and WNC....................................... 28
Western National Corporation............................................... 29
Price Range for WNC Common Stock and Dividends............................. 31
Description of the PRIDES.................................................. 32
Certain United States Federal Income Tax Considerations.................... 44
Underwriting............................................................... 47
Legal Matters.............................................................. 49
Experts.................................................................... 49
Prospectus Relating to Common Stock of Western National
Corporation........................................................ Appendix A
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22,000,000 PRIDES/SM/
[LOGO OF CONSECO APPEARS HERE]
% PRIDES DUE 1998
EXCHANGEABLE INTO SHARES
OF COMMON STOCK OF
WESTERN NATIONAL CORPORATION
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
MORGAN STANLEY & CO.
INTERNATIONAL
KEMPER SECURITIES, INC.
, 1994
/SM/SERVICE MARK OF MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are:
<TABLE>
<S> <C>
SEC registration fee............................................. $64,864
NASD filing fee.................................................. 30,500
Rating agency fees............................................... *
Printing and engraving........................................... *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Trustee fees and expenses........................................ *
Blue sky fees and expenses....................................... *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
*To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law grants authorization to Indiana
corporations to indemnify officers and directors for their conduct if such
conduct was in good faith and was in the corporation's best interests or, in
the case of directors, was not opposed to such best interests, and permits the
purchase of insurance in this regard. In addition, the shareholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation and by-laws.
The Code of By-laws of Conseco provides for the indemnification of any person
made a party to any action, suit or proceeding by reason of the fact that he is
a director, officer or employee of the Registrant, unless it is adjudged in
such action, suit or proceeding that such person is liable for negligence or
misconduct in the performance of his duties. Such indemnification shall be
against the reasonable expenses, including attorneys' fees, incurred by such
person in connection with the defense of such action, suit or proceeding. In
some circumstances, Conseco may reimburse any such person for the reasonable
costs of settlement of any such action, suit or proceeding if a majority of the
members of the Board of Directors not involved in the controversy shall
determine that it was in the interests of Conseco that such settlement be made
and that such person was not guilty of negligence or misconduct.
Reference is made to Section 6 of the form of the U.S. Purchase Agreement
filed as Exhibit 1.1 hereto and Section 6 of the form of International Purchase
Agreement filed as Exhibit 1.2 hereto, which contain indemnification provisions
between the Registrant and the U.S. Underwriters and the International
Underwriters, respectively.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement (filed as Exhibit 1.1 to
the Registration Statement on Form S-1 of Western National
Corporation filed with the Commission on October 7, 1994
(the "WNC Registration Statement") and incorporated herein
by reference).
1.2 Form of International Purchase Agreement (filed as Exhibit
1.2 to the WNC Registration Statement and incorporated
herein by reference).
4.1 Form of Indenture (including form of PRIDES), dated as of
, 1994, between Conseco, Inc. and
, as Trustee.*
5.1 Opinion of Lawrence W. Inlow with respect to legality of
the PRIDES.*
8.1 Opinion of Sidley & Austin with respect to certain tax
matters.*
10.1 Standstill Agreement among WNC, Conseco and Conseco In-
vestment Holding Company.*
12.1 Computation of Ratio of Earnings to Fixed Charges and Pre-
ferred Dividends for Conseco, Inc. and Subsidiaries.
12.2 Computation of Ratio of Earnings to Fixed Charges and Pre-
ferred Dividends for
Kemper.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S> <C>
12.3 Pro Forma Computation of Ratio of Earnings to Fixed
Charges and Preferred Dividends.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Lawrence W. Inlow (included in Exhibit 5.1).*
23.3 Consent of Sidley & Austin (included in Exhibit 8.1).*
24.1 Power of Attorney of Michael G. Browning.
25.1 Statement of Eligibility on Form T-1 of
, as Trustee (bound separately).*
99.1 Additional pages to be included with form of Prospectus to
be used in Canada.*
</TABLE>
- --------
*To be supplied by amendment.
ITEM 17. UNDERTAKINGS.
(a) Filings Incorporating Subsequent Exchange Act Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Conseco's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Rule 430A Offering.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) Acceleration of Effectiveness.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions or otherwise the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CONSECO, INC.,
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CARMEL, STATE OF INDIANA, ON THE 6TH DAY OF OCTOBER,
1994.
Conseco, Inc.
/s/ Rollin M. Dick
By___________________________________
Rollin M. Dick
Executive Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON OCTOBER 6, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE (CAPACITY)
--------- ----------------
<S> <C>
/s/ Stephen C. Hilbert Chairman of the Board, President and Chief
___________________________________________ Executive Officer (Principal Executive
Stephen C. Hilbert Officer)
/s/ Rollin M. Dick Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Rollin M. Dick Officer and Principal Accounting Officer)
and Director
* Director
___________________________________________
Michael G. Browning
/s/ Ngaire E. Cuneo Director
___________________________________________
Ngaire E. Cuneo
Director
___________________________________________
Louis P. Ferrero
/s/ Donald F. Gongaware Director
___________________________________________
Donald F. Gongaware
Director
___________________________________________
M. Phil Hathaway
Director
___________________________________________
James D. Massey
Director
___________________________________________
Dennis E. Murray, Sr.
</TABLE>
/s/ Karl W. Kindig
*By: ________________________________
Karl W. Kindig
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT 12.1
CONSECO, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------------- --------------
1989 1990 1991 1992 1993 1993 1994
------ ------ ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax income from
operations:
Net income............ $ 47.2 $ 41.7 $116.0 $169.5 $ 297.0 $182.9 $114.3
Add income tax
expense.............. 23.0 22.2 78.2 124.6 223.1 132.0 58.3
Add extraordinary
charge on
extinguishment of
debt................. -- -- 5.0 5.3 11.9 10.8 2.4
Add minority interest. -- 1.4 24.0 30.6 78.2 38.1 22.6
Less equity in
undistributed
earnings of CCP
Insurance, Inc....... -- -- -- (15.8) (36.6) (16.9) (16.7)
Less equity in
undistributed
earnings of Western
National Corporation. -- -- -- -- -- -- (30.4)
Less equity in
undistributed
earnings of Life Re.. (4.2) (2.7) (9.3) (11.3) -- -- --
------ ------ ------ ------ -------- ------ ------
Pretax income....... 66.0 62.6 213.9 302.9 573.6 346.9 150.5
------ ------ ------ ------ -------- ------ ------
Add fixed charges:
Interest expense on
annuities and
financial products... 213.6 314.7 576.7 506.8 408.5 207.8 32.8
Interest expense on
long-term debt,
including
amortization......... 41.3 51.6 69.9 46.2 58.0 29.6 25.2
Interest expense on
investment
borrowings........... 2.1 11.0 17.1 8.8 10.6 3.5 4.9
Other................. -- .7 .4 .8 .6 .4 .3
Portion of rental..... .9 1.2 1.2 2.0 3.9 2.0 2.4
------ ------ ------ ------ -------- ------ ------
Fixed charges....... 257.9 379.2 665.3 564.6 481.6 243.3 65.6
------ ------ ------ ------ -------- ------ ------
Adjusted earnings... $323.9 $441.8 $879.2 $867.5 $1,055.2 $590.2 $216.1
====== ====== ====== ====== ======== ====== ======
Ratio of earnings to
fixed charges...... 1.26x 1.17x 1.32x 1.54x 2.19x 2.43x 3.29x
====== ====== ====== ====== ======== ====== ======
Ratio of earnings to
fixed charges,
excluding interest
on annuities and
financial products. 2.49x 1.97x 3.41x 6.24x 8.85x 10.77x 5.59x
====== ====== ====== ====== ======== ====== ======
Fixed charges........... $257.9 $379.2 $665.3 $564.6 $ 481.6 $243.3 $ 65.6
Add dividends on
preferred stock
(multiplied by the rate
of pretax income to
income before minority
interest and
extraordinary charge).. 12.6 8.6 12.7 13.1 34.6 19.2 13.2
------ ------ ------ ------ -------- ------ ------
Adjusted fixed
charges............ $270.5 $387.8 $678.0 $577.7 $ 516.2 $262.5 $ 78.8
====== ====== ====== ====== ======== ====== ======
Adjusted earnings... $323.9 $441.8 $879.2 $867.5 $1,055.2 $590.2 $216.1
====== ====== ====== ====== ======== ====== ======
Ratio of earnings to
fixed charges and
preferred
dividends.......... 1.20x 1.14x 1.30x 1.50x 2.04x 2.25x 2.74x
====== ====== ====== ====== ======== ====== ======
Ratio of earnings to
fixed charges and
preferred
dividends,
excluding interest
on annuities and
financial products. 1.94x 1.74x 2.99x 5.09x 6.00x 6.99x 3.98x
====== ====== ====== ====== ======== ====== ======
</TABLE>
<PAGE>
EXHIBIT 12.2
KEMPER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
------ ------ ------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income tax............. $191.2 $(58.3) $112.4 $(274.9) $(109.1) $ (40.4) $ 119.0
Add (deduct):
Fixed charges.......... 574.7 664.0 649.5 586.8 488.9 248.0 224.7
Other.................. (3.0) (10.3) (3.6) .9 (1.7) (1.6) 3.1
------ ------ ------ ------- -------- -------- --------
Earnings (loss)
before income tax,
as adjusted......... $762.9 $595.4 $758.3 $ 312.8 $ 378.1 $ 206.0 $ 346.8
====== ====== ====== ======= ======== ======== ========
Fixed charges:
Interest and
amortization of debt
expense............... $119.7 $142.3 $102.1 $ 93.0 $ 84.0 $ 42.6 $ 42.7
Interest expense on
annuities and
financial products.... 432.2 502.5 528.6 476.0 383.9 195.2 171.9
Increase in redemption
value of subsidiary's
redeemable
securities............ 6.8 -- -- -- -- -- --
Preferred stock
dividend requirements
of subsidiary......... 1.9 1.5 .5 .3 -- .2 --
Portion of rents
representative of
interest factor....... 14.1 17.7 18.3 17.5 21.0 10.0 10.1
------ ------ ------ ------- -------- -------- --------
Fixed charges........ $574.7 $664.0 $649.5 $ 586.8 $ 488.9 $ 248.0 $ 224.7
====== ====== ====== ======= ======== ======== ========
Ratio of earnings to
fixed charges....... 1.33x .90x 1.17x .53x .77x .83x 1.54x
====== ====== ====== ======= ======== ======== ========
Ratio of earnings to
fixed charges,
excluding interest
on annuities and
financial products.. 2.32x .58x 1.90x (1.47)x (.06)x .20x 3.31x
====== ====== ====== ======= ======== ======== ========
Fixed charges........... $574.7 $664.0 $649.5 $ 586.8 $ 488.9 $ 248.0 $ 224.7
Add dividends on
preferred stock
(multiplied by the
rate of pretax income
to income before
discontinued
operations,
extraordinary charge
and cumulative effect
of change in
accounting principle). .3 .2 .1 .1 28.8 10.5 18.2
------ ------ ------ ------- -------- -------- --------
Adjusted fixed
charges............. $575.0 $664.2 $649.6 $ 586.9 $ 517.7 $ 258.5 $ 242.9
====== ====== ====== ======= ======== ======== ========
Adjusted earnings.... $762.9 $595.4 $758.3 $ 312.8 $ 378.1 $ 206.0 $ 346.8
====== ====== ====== ======= ======== ======== ========
Ratio of earnings to
fixed charges and
preferred dividends. 1.33x .90x 1.17x .53x .73x .80x 1.43x
====== ====== ====== ======= ======== ======== ========
Ratio of earnings to
fixed charges and
preferred dividends,
excluding interest
on annuities and
financial products.. 2.32x .57x 1.90x (1.47)x (.04)x .17x 2.46x
====== ====== ====== ======= ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12.3
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 SIX MONTHS ENDED JUNE 30, 1994
------------------------------------- ------------------------------------
FURTHER FURTHER
PRO FORMA FURTHER ADJUSTED PRO FORMA FURTHER ADJUSTED
CONSECO ADJUSTED FOR THE CONSECO ADJUSTED FOR THE
FOR FOR MERGER FOR FOR MERGER
CONSECO TRANS- PRIDES AND THE CONSECO TRANS- PRIDES AND THE
HISTOR- ACTIONS OFFERED RESTRUC- HISTOR- ACTIONS OFFERED RESTRUC-
ICAL COMPLETED HEREBY TURING ICAL COMPLETED HEREBY TURING
-------- --------- -------- -------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pretax income from
operations:
Net income before
extraordinary charge. $ 308.9 $162.5 $144.8 $ 162.9 $116.7 $ 69.0 $ 60.1 $ 47.8
Add income tax
expense.............. 223.1 108.4 98.9 124.9 58.3 42.5 37.7 58.2
Add minority interest. 78.2 66.1 66.1 105.9 22.6 29.0 29.0 46.5
Less equity in
undistributed
earnings of CCP
Insurance, Inc....... (36.6) (39.1) (39.1) (38.9) (16.7) (16.6) (16.6) (16.5)
Less equity in
undistributed
earnings of Western
National Corporation. -- (47.4) (47.4) (47.0) (30.4) (19.3) (19.3) (19.1)
Other................. -- -- -- (1.7) -- -- -- 3.1
-------- ------ ------ -------- ------ ------ ------ ------
Pretax income....... 573.6 250.5 223.3 306.1 150.5 104.6 90.9 120.0
-------- ------ ------ -------- ------ ------ ------ ------
Add fixed charges:
Interest expense on
annuities and
financial products... 408.5 271.3 271.3 655.2 32.8 135.6 135.6 307.5
Interest expense on
long-term debt,
including
amortization......... 58.0 84.9 112.1 309.4 25.2 39.4 53.1 151.6
Interest expense on
short-term debt...... 10.6 4.4 4.4 39.8 4.9 4.9 4.9 24.7
Portion of rental..... 3.9 3.9 3.9 24.9 2.4 2.4 2.4 12.5
Other................. .6 .6 .6 .6 .3 .3 .3 .3
-------- ------ ------ -------- ------ ------ ------ ------
Fixed charges....... 481.6 365.1 392.3 1,029.9 65.6 182.6 196.3 496.6
-------- ------ ------ -------- ------ ------ ------ ------
Adjusted earnings... $1,055.2 $615.6 $615.6 $1,336.0 $216.1 $287.2 $287.2 $616.6
======== ====== ====== ======== ====== ====== ====== ======
Ratio of earnings to
fixed charges...... 2.19x 1.69x 1.57x 1.30x 3.29x 1.57x 1.46x 1.24x
======== ====== ====== ======== ====== ====== ====== ======
Ratio of earnings to
fixed charges,
excluding interest
on annuities and
financial products. 8.85x 3.67x 2.85x 1.82x 5.59x 3.23x 2.50x 1.63x
======== ====== ====== ======== ====== ====== ====== ======
Fixed charges........... $ 481.6 $365.1 $392.3 $1,029.9 $ 65.6 $182.6 $196.3 $496.6
Add dividends on
preferred stock
(multiplied by the rate
of pretax income to
income before minority
interest).............. 34.6 44.7 44.5 95.1 13.2 23.1 22.9 57.2
-------- ------ ------ -------- ------ ------ ------ ------
Adjusted fixed
charges............ $ 516.2 $409.8 $436.8 $1,125.0 $ 78.8 $205.7 $219.2 $553.8
======== ====== ====== ======== ====== ====== ====== ======
Adjusted earnings... $1,055.2 $615.6 $615.6 $1,336.0 $216.1 $287.2 $287.2 $616.6
======== ====== ====== ======== ====== ====== ====== ======
Ratio of earnings to
fixed charges and
preferred
dividends.......... 2.04x 1.50x 1.41x 1.19x 2.74x 1.40x 1.31x 1.11x
======== ====== ====== ======== ====== ====== ====== ======
Ratio of earnings to
fixed charges and
preferred
dividends,
excluding interest
on annuities and
financial products. 6.00x 2.49x 2.08x 1.45x 3.98x 2.16x 1.81x 1.25x
======== ====== ====== ======== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and the related Prospectus for the
registration of Provisionally Redeemable Income Debt Exchangeable for Stock
("PRIDES") of Conseco, Inc. and to the incorporation by reference therein of
our report dated March 24, 1994 with respect to the consolidated financial
statements of Conseco, Inc. included in its Annual Report on Form 10-K for the
year ended December 31, 1993, filed with the Securities and Exchange
Commission.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
October 7, 1994
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Lawrence W. Inlow, James S.
Adams and Karl W. Kindig, jointly and severally, as his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement on Form S-3 of Conseco, Inc., and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute lawfully
does or causes to be done by virtue hereof.
/s/ Michael G. Browning
--------------------------------------
Michael G. Browning
Dated: October 6, 1994
