As filed with the Securities and Exchange Commission on October 2, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CONSECO, INC.
(Exact name of Registrant as specified in its charter)
Indiana 6719
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
35-1468632
(I.R.S. Employer
Identification No.)
11825 N. Pennsylvania St., Carmel, Indiana 46032, (317) 817-6100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Lawrence W. Inlow
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
(317) 817-6163
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
John A. Powell Ramon R. Obod
American Travellers Corporation Fox, Rothschild, O'Brien & Frankel
3220 Tillman Drive 2000 Market Street, 10th Floor
Bensalem, Pennsylvania 19020 Philadelphia, Pennsylvania 19103-3291
(215) 244-1600 (215) 299-2000
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the merger (the "Merger") of American
Travellers Corporation ("ATC") with and into Conseco, Inc. ("Conseco") pursuant
to an Agreement and Plan of Merger described in the enclosed Joint Proxy
Statement/Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
--------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to to be Offering Price Per Aggregate Offering Amount of
be Registered Registered Unit Price Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par (1) Not Applicable 25,775,048 $293,857.77 (2)
value...................
===============================================================================================================================
<FN>
(1) Conseco is hereby registering the number of shares of Conseco common stock,
no par value ("Conseco Common Stock"), issuable to holders of common stock of
ATC, par value $.01 per share ("ATC Common Stock") and upon the exercise or
conversion of securities exercisable for or convertible into shares of ATC
Common Stock.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the ATC Common Stock to be exchanged in the Merger, computed
in accordance with Rule 457(c) on the basis of the average of the high and low
prices per share of such stock on the NASDAQ National Market on September 26,
1996.
</FN>
</TABLE>
---------------------
Conseco hereby amends this Registration Statement on such date or dates as may
be necessary to delay its effective date until Conseco 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 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
AMERICAN TRAVELLERS CORPORATION
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Dear Shareholder:
You are cordially invited to attend a Special Meeting of shareholders
of American Travellers Corporation ("ATC"), to be held on __________,
_________________, 1996 at ______________,
, Pennsylvania, at 10:00 a.m., local time (the "ATC Special Meeting").
At the ATC Special Meeting, shareholders of record of ATC at the close
of business on _____, 1996 will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger, dated as of August 25, 1996
(the "Merger Agreement"), by and between Conseco, Inc., an Indiana corporation
("Conseco"), and ATC, and the transactions contemplated thereby. Pursuant to the
terms of the Merger Agreement, among other things, (1) ATC will be merged with
and into Conseco, with Conseco being the surviving corporation (the "Merger"),
and (2) each outstanding share of the common stock, par value $.01 per share
("ATC Common Stock"), of ATC (other than Dissenting Shares (as defined in the
Merger Agreement)) will be canceled and converted into the right to receive the
Merger Consideration (as defined in the Merger Agreement).
Details of the Merger, including the terms of the Merger Consideration
and other important information concerning ATC and Conseco appear in the
accompanying Joint Proxy Statement/Prospectus. Please give this material your
careful attention. Details regarding the background of and reasons for the
Merger, among other things, may be found in the section of the Joint Proxy
Statement/Prospectus entitled "The Merger."
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ATC AND THE SHAREHOLDERS
OF ATC, HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF ATC VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors has received a written opinion of Donaldson,
Lufkin & Jenrette Securities Corporation, which has acted as financial advisor
to ATC in connection with the Merger, as to the fairness to ATC's shareholders,
from a financial point of view, of the Merger Consideration to be received by
ATC's shareholders pursuant to the Merger Agreement.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the ATC
Special Meeting, please complete, sign and date the accompanying proxy and
return it in the enclosed postage prepaid envelope as soon as possible so that
your shares will be represented at the ATC Special Meeting. If you attend the
ATC Special Meeting, you may vote in person even if you have previously returned
your proxy. If you have any questions regarding the proposed transaction, please
call Georgeson & Company, Inc., our proxy solicitation agent, toll free at (800)
223-2064.
<PAGE>
As a shareholder of ATC, you have dissenters' rights, described in the
accompanying Joint Proxy Statement/Prospectus. To exercise such rights, a
shareholder must not have voted his or her ATC Common Stock in favor of the
Merger and must have followed the procedure of Subchapter D of Chapter 15 of the
Pennsylvania Business Corporation Law. See "The Merger - Dissenters' Rights" and
Annex C in the Proxy Statement/Prospectus.
Sincerely,
John A. Powell
Chairman of the Board and President
__________, 1996
1
<PAGE>
[CONSECO LOGO]
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Conseco, Inc. ("Conseco") to be held on ______________, 1996 at 10:00 a.m.,
local time, at ________________________________________ (including any
adjournment or postponement thereof, the "Conseco Special Meeting").
At the Conseco Special Meeting, holders of shares of common stock, no
par value per share, of Conseco ("Conseco Common Stock") and holders of shares
of Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock, no par value per share, of Conseco ("Conseco
PRIDES") will be asked to consider and vote upon a proposal to approve and adopt
an Agreement and Plan of Merger, dated as of August 25, 1996 (the "Merger
Agreement"), by and between Conseco and American Travellers Corporation ("ATC").
Pursuant to the terms of the Merger Agreement, among other things, (1) ATC will
be merged with and into Conseco, with Conseco being the surviving corporation
(the "Merger"), and (2) each outstanding share of the common stock, par value
$.01 per share ("ATC Common Stock"), of ATC (other than Dissenting Shares (as
defined in the Merger Agreement)) will be canceled and converted into the right
to receive the Merger Consideration (as defined in the Merger Agreement).
Details of the proposed Merger including the terms of the Merger
Consideration and other important information concerning ATC and Conseco appear
in the accompanying Joint Proxy Statement/Prospectus. Please give this material
your careful attention. Details regarding the background of and reasons for the
proposed Merger, among other things, may be found in the section of the Joint
Proxy Statement/Prospectus entitled "The Merger."
Your Board of Directors believes that the terms of the proposed Merger
are fair to, and in the best interests of, the holders of Conseco Common Stock
and Conseco PRIDES and has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Conseco unanimously
recommends that shareholders vote FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
Only holders of record of shares of Conseco Common Stock and Conseco
PRIDES as of the close of business on ____________________, 1996 are entitled to
notice of, and to vote at, the Conseco Special Meeting.
YOUR VOTE IS IMPORTANT. Whether or not you are able to attend the
Conseco Special Meeting, please complete, sign, date and return the enclosed
proxy card as soon as possible. A postage-paid envelope is enclosed for your
convenience. If you attend the Conseco Special Meeting, you may revoke your
proxy and, if you wish, vote your shares of Conseco Common Stock and Conseco
PRIDES in person.
Sincerely,
Stephen C. Hilbert
Chairman of the Board
2
<PAGE>
AMERICAN TRAVELLERS CORPORATION
3220 Tillman Drive
Bensalem, Pennsylvania 19020
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of American Travellers Corporation:
Notice is hereby given that a special meeting (the "ATC Special
Meeting") of the shareholders of American Travellers Corporation ("ATC") will be
held on ______________, ______________, 1996 at ___________, , Pennsylvania, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of August 25, 1996 (the
"Merger Agreement"), by and between Conseco, Inc., an Indiana
corporation ("Conseco"), and ATC, and the transactions contemplated
thereby, pursuant to which, among other things, (i) ATC will be merged
with and into Conseco, with Conseco being the surviving corporation
(the "Merger"), and (ii) each outstanding share of the common stock,
par value $.01 per share (the "ATC Common Stock"), of ATC (other than
Dissenting Shares (as defined in the Merger Agreement)) will be
canceled and converted into the right to receive the Merger
Consideration (as defined in the Merger Agreement).
2. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The Merger is more completely described in the accompanying Joint Proxy
Statement/Prospectus and a copy of the Merger Agreement is attached as Annex A
thereto.
Your Board of Directors has unanimously determined that the terms of
the Merger are fair to, and in the best interests of, ATC and the shareholders
of ATC, has unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby and unanimously recommends that the
shareholders of ATC vote FOR the approval and adoption of the Merger Agreement
and the transactions contemplated thereby.
The Board of Directors of ATC has fixed the close of business on
___________, 1996, as the record date for determination of shareholders entitled
to notice of, and to vote at, the ATC Special Meeting and any adjournments and
postponements thereof.
By order of the Board of Directors
Susan T. Mankowski
Secretary
_______________, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE ATC SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND, WE URGE YOU TO COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE IN ORDER TO ASSURE THAT YOUR SHARES OF ATC COMMON STOCK
WILL BE REPRESENTED. IF YOU ATTEND THE ATC SPECIAL MEETING YOU MAY VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE>
IMPORTANT
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES REPRESENTING ATC COMMON
STOCK AT THIS TIME. IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
<PAGE>
[CONSECO LOGO]
11825 North Pennsylvania Street
Carmel, Indiana 46032
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held ___________, 1996
NOTICE IS HEREBY GIVEN THAT a special meeting of shareholders of
Conseco, Inc. ("Conseco"), will be held at
________________________________________________________ at 10:00 a.m., local
time, on ______________, 1996 (the "Conseco Special Meeting"), for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 25, 1996 (the
"Merger Agreement"), by and between Conseco and American
Travellers Corporation, a Pennsylvania corporation ("ATC"),
pursuant to which, among other things, (i) ATC will be merged with
and into Conseco, with Conseco being the surviving corporation
(the "Merger"), and (ii) each outstanding share of the common
stock, par value $.01 per share (the "ATC Common Stock"), of ATC
(other than Dissenting Shares (as defined in the Merger
Agreement)) will be canceled and converted into the right to
receive the Merger Consideration (as defined in the Merger
Agreement); and
2. To consider such other matters as may properly come before the
meeting.
Holders of record of outstanding shares of common stock, no par value
per share, of Conseco ("Conseco Common Stock") and Preferred Redeemable
Increased Dividend Equity Securities, 7% PRIDES, Convertible Preferred Stock, no
par value per share, of Conseco ("Conseco PRIDES") as of the close of business
on ___________, 1996, are entitled to notice of and to vote at the meeting.
Holders of Conseco Common Stock and Conseco PRIDES will vote together as a
single class at the Conseco Special Meeting. Holders of shares of Conseco Common
Stock have one vote for each share held of record, and holders of shares of
Conseco PRIDES have 4/5 of one vote for each share held of record.
Whether or not you plan to be present at the meeting, please complete,
sign and return the enclosed form of proxy. No postage is required to return the
form of proxy in the enclosed envelope. The proxies of shareholders who attend
the meeting in person may be withdrawn and such shareholders may vote personally
at the meeting.
By Order of The Board of Directors
[SIG]
Lawrence W. Inlow, Secretary
__________, 1996
Carmel, Indiana
<PAGE>
SUBJECT TO COMPLETION
Dated October 2, 1996
CONSECO, INC.
and
AMERICAN TRAVELLERS CORPORATION
------------------
JOINT PROXY STATEMENT
------------------
CONSECO, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of common stock, no par value per share ("Conseco Common Stock"), and to
holders of shares of Preferred Redeemable Increased Dividend Equity Securities,
7% PRIDES, Convertible Preferred Stock, no par value per share ("Conseco PRIDES"
and, together with the Conseco Common Stock, the "Conseco Stock") of Conseco,
Inc., an Indiana corporation ("Conseco"), in connection with the solicitation of
proxies by the Conseco Board of Directors for use at a special meeting of
Conseco shareholders to be held on _________, 1996, at
____________________________, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "Conseco Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to
holders of shares of Common Stock, par value $.01 per share ("ATC Common
Stock"), of American Travellers Corporation, a Pennsylvania corporation ("ATC"),
in connection with the solicitation of proxies by the ATC Board of Directors for
use at a Special Meeting of ATC shareholders to be held on __________, 1996 at
______________ _____________________________, commencing at 10:00 a.m., local
time, and at any adjournment or postponement thereof (the "ATC Special
Meeting"). The respective shareholder meetings are each being called to consider
and vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of August 25, 1996 (the "Merger Agreement"), by and between Conseco and
ATC pursuant to which ATC will be merged with and into Conseco with Conseco
being the surviving corporation (the "Merger").
This Joint Proxy Statement/Prospectus also constitutes the Prospectus
of Conseco, filed as part of a Registration Statement on Form S-4 (together with
all amendments, supplements, exhibits and schedules thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Conseco Common Stock issuable in connection with the Merger. All
information concerning Conseco contained in this Joint Proxy
Statement/Prospectus has been furnished by Conseco, and all information
concerning ATC contained in this Joint Proxy Statement/Prospectus has been
furnished by ATC.
The Conseco Common Stock is quoted on the New York Stock Exchange, Inc.
(the "NYSE") under the symbol "CNC". On _____________, 1996, the closing price
of the Conseco Common Stock as reported on the NYSE was $_________.
The ATC Common Stock is quoted on the NASDAQ National Market under the
symbol "ATVC". On _______, 1996, the closing price of the ATC Common Stock as
reported on NASDAQ was $___________.
This Joint Proxy Statement/Prospectus and the related forms of proxy
are first being mailed to shareholders of Conseco and ATC on or about
______________, 1996.
-------------------------
THE SHARES OF CONSECO COMMON STOCK ISSUABLE IN THE MERGER 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 JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Joint Proxy Statement/Prospectus is
______________, 1996.
<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.
<PAGE>
AVAILABLE INFORMATION
Conseco and ATC are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The periodic reports, proxy statements and
other information filed by Conseco and ATC with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained, at prescribed
rates, from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a web site
at http:\\www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including Conseco and ATC, that
file electronically with the Commission. The Conseco Common Stock is listed on
the NYSE and such reports and other information may also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Conseco has filed the Registration Statement with the Commission with
respect to the Conseco Common Stock to be issued pursuant to or as contemplated
by the Merger Agreement. This Joint Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above.
-------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY
SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS FOR SUCH DOCUMENTS
RELATING TO CONSECO, CAPITOL AMERICAN FINANCIAL CORPORATION, LIFE PARTNERS
GROUP, INC. AND TRANSPORT HOLDINGS INC. SHOULD BE DIRECTED TO JAMES W.
ROSENSTEELE, VICE PRESIDENT, INVESTOR RELATIONS, CONSECO, INC., 11825 NORTH
PENNSYLVANIA STREET, CARMEL, INDIANA 46032, AND TELEPHONE REQUESTS MAY BE
DIRECTED TO MR. ROSENSTEELE AT (317) 817-2893. WRITTEN REQUESTS FOR SUCH
DOCUMENTS RELATING TO ATC SHOULD BE DIRECTED TO BENEDICT J. IACOVETTI, CHIEF
FINANCIAL OFFICER, AMERICAN TRAVELLERS CORPORATION, 3220 TILLMAN DRIVE,
BENSALEM, PENNSYLVANIA 19020, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MR.
IACOVETTI AT (215) 244-1600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE _______________, 1996.
ii
<PAGE>
The following documents previously filed with the Commission pursuant
to the Exchange Act are incorporated herein by this reference:
1. Conseco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("Conseco's Annual Report"); Conseco's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996; Conseco's
Current Reports on Form 8-K dated January 17, 1996, March 11, 1996, April 10,
1996, August 2, 1996, August 25, 1996 and September 25, 1996; and the
description of Conseco Common Stock in Conseco's Registration Statements filed
pursuant to Section 12 of the Exchange Act and any amendment or report filed for
the purpose of updating any such description.
2. ATC's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 ("ATC's Annual Report"); ATC's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996; ATC's Current Report on Form
8-K dated August 25, 1996; and the description of ATC Common Stock in ATC's
Registration Statement filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating any such description.
3. Annual Report on Form 10-K of Capitol American Financial Corporation
("CAF") for the fiscal year ended December 31, 1995 ("CAF's Annual Report");
CAF's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996; and CAF's Current Report on Form 8- K dated August 25, 1996.
4. Annual Report on Form 10-K of Life Partners Group, Inc. ("LPG") for
the fiscal year ended December 31, 1995 ("LPG's Annual Report"); LPG's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996;
and LPG's Current Reports on Form 8-K dated March 11, 1996 and April 10, 1996.
5. Annual Report on Form 10-K of Transport Holdings Inc. ("THI") for
the fiscal year ended December 31, 1995 ("THI's Annual Report"); THI's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 and
THI's Current Report on Form 8-K dated September 25, 1996.
In addition, the Merger Agreement, a copy of which is attached hereto
as Annex A, is incorporated herein by reference.
All documents filed by Conseco, ATC, CAF, LPG or THI pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Conseco Special Meeting or the ATC Special
Meeting, as the case may be, shall be deemed to be incorporated by reference
herein and to be a part hereof from the date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall be deemed, except as so modified or superseded, to constitute a part
hereof. All information appearing in this Joint Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding statement.
iii
<PAGE>
State insurance holding company laws and regulations applicable to
Conseco and ATC generally provide that no person may acquire control of Conseco
or ATC, and thus indirect control of their respective insurance subsidiaries,
unless such person has provided certain required information to, and such
acquisition is approved (or not disapproved) by, the appropriate insurance
regulatory authorities. Generally, any person acquiring beneficial ownership of
10% or more of the Conseco Common Stock or ATC Common Stock, as the case may be,
would be presumed to have acquired such control, unless the appropriate
insurance regulatory authorities upon advance application determine otherwise.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CONSECO OR ATC. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF CONSECO OR ATC SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE
COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
iv
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
------
<S> <C>
AVAILABLE INFORMATION............................................................................................ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................ii
TABLE OF CONTENTS................................................................................................ v
SUMMARY.......................................................................................................... 1
GENERAL ............................................................................................... 1
THE COMPANIES........................................................................................... 1
SHAREHOLDER MEETINGS.................................................................................... 2
THE MERGER; THE MERGER AGREEMENT........................................................................ 6
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO....................................................15
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG........................................................18
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATC........................................................20
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAF........................................................22
SELECTED HISTORICAL FINANCIAL INFORMATION OF THI........................................................24
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION.............................................................................................26
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND ATC.................................................30
MARKET PRICE DATA.......................................................................................31
INFORMATION CONCERNING CONSECO ..................................................................................33
BACKGROUND..............................................................................................33
LIFE INSURANCE OPERATIONS...............................................................................33
FEE-BASED OPERATIONS....................................................................................34
OTHER PENDING ACQUISITIONS BY CONSECO...................................................................35
GENERAL INFORMATION CONCERNING CONSECO..................................................................36
INFORMATION CONCERNING ATC.......................................................................................36
v
<PAGE>
GENERAL.................................................................................................36
PRODUCT LINES...........................................................................................36
LONG TERM CARE INSURANCE................................................................................36
MARKETING...............................................................................................37
OTHER...................................................................................................37
SHAREHOLDER MEETINGS.............................................................................................38
GENERAL.................................................................................................38
MATTERS TO BE CONSIDERED AT THE MEETINGS................................................................38
VOTING AT THE MEETINGS; RECORD DATE; QUORUM.............................................................39
PROXIES.................................................................................................44
THE MERGER.......................................................................................................45
BACKGROUND OF THE MERGER................................................................................45
CONSECO'S REASONS FOR THE MERGER; RECOMMENDATION OF THE
CONSECO BOARD OF DIRECTORS.....................................................................47
ATC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ATC
BOARD OF DIRECTORS.............................................................................48
OPINION OF ATC'S FINANCIAL ADVISOR......................................................................50
CERTAIN CONSEQUENCES OF THE MERGER......................................................................57
CONDUCT OF THE BUSINESS OF CONSECO AND ATC AFTER THE MERGER.............................................57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................58
REGULATORY APPROVALS....................................................................................59
NYSE LISTING OF CONSECO COMMON STOCK....................................................................60
FEDERAL SECURITIES LAW CONSEQUENCES.....................................................................60
DISSENTERS RIGHTS.......................................................................................60
ACCOUNTING TREATMENT....................................................................................63
INTERESTS OF CERTAIN PERSONS IN THE MERGER..............................................................63
vi
<PAGE>
THE MERGER AGREEMENT.............................................................................................65
THE MERGER..............................................................................................66
EFFECTIVE TIME..........................................................................................66
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO
FRACTIONAL AMOUNTS.............................................................................66
TREATMENT OF ATC STOCK OPTIONS..........................................................................67
DISSENTING SHARES.......................................................................................68
REPRESENTATIONS AND WARRANTIES..........................................................................68
CERTAIN COVENANTS.......................................................................................68
CONDITIONS TO THE MERGER................................................................................70
TERMINATION.............................................................................................71
RIGHT OF ATC BOARD OF DIRECTORS TO WITHDRAW ITS
RECOMMENDATION.................................................................................72
FEES....................................................................................................72
EXPENSES ...............................................................................................73
MODIFICATION OR AMENDMENT...............................................................................73
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS............................................................74
COMPARISON OF SHAREHOLDERS' RIGHTS...............................................................................96
BYLAWS..................................................................................................96
DISTRIBUTIONS TO SHAREHOLDERS...........................................................................96
CLASS OF DIRECTORS......................................................................................97
REMOVAL OF DIRECTORS....................................................................................97
MEETINGS OF SHAREHOLDERS................................................................................97
ACTION BY SHAREHOLDERS WITHOUT MEETING..................................................................98
DISSENTERS RIGHTS.......................................................................................98
CERTAIN STATUTORY AND CHARTER PROVISIONS................................................................98
vii
<PAGE>
SHAREHOLDER RIGHTS AGREEMENT............................................................................98
INTERESTED SHAREHOLDER TRANSACTIONS.....................................................................99
FIDUCIARY DUTY AND LIMITATIONS OF LIABILITY.............................................................101
DERIVATIVE ACTIONS......................................................................................102
INDEMNIFICATION.........................................................................................102
MANAGEMENT OF CONSECO UPON CONSUMMATION OF THE MERGER........................................................... 103
LEGAL MATTERS................................................................................................... 103
EXPERTS..........................................................................................................103
INDEPENDENT ACCOUNTANTS .........................................................................................104
OTHER MATTERS................................................................................................... 104
Annex A - Agreement and Plan of Merger..........................................................................A-1
Annex B - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation .......................................B-1
Annex C - Pennsylvania Business Corporation Law, Chapter 15, Subchapter D. Dissenters
Rights.........................................................................................................C-1
</TABLE>
viii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information and financial statements, including the notes thereto, contained
elsewhere, or incorporated by reference, in this Joint Proxy
Statement/Prospectus and the Annexes hereto. Unless otherwise stated, all share
and per share information in this Joint Proxy Statement/Prospectus concerning
Conseco has been adjusted to reflect a two-for-one stock split of the Conseco
Common Stock effected April 1, 1996 and all share and per share information
concerning ATC has been adjusted to reflect a three-for-two stock split of the
ATC Common Stock effected April 10, 1996. Except as otherwise indicated, all
financial information in this Joint Proxy Statement/Prospectus is presented in
accordance with generally accepted accounting principles ("GAAP"). Shareholders
are urged to read this Joint Proxy Statement/Prospectus, the Annexes hereto and
the documents incorporated herein by reference in their entirety. Unless
otherwise defined herein, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Joint Proxy
Statement/Prospectus.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed Merger pursuant
to the Merger Agreement. See "The Merger."
THE COMPANIES
Conseco,Inc..........................Conseco is a financial services holding
company engaged primarily in the
development, marketing and
administration of annuity,
individual health insurance and
individual life insurance products.
Conseco's earnings result primarily
from operating life insurance
companies and providing investment
management, administrative and
other fee-based services to
affiliated businesses as well as
non-affiliates. Conseco's operating
strategy is to consolidate and
streamline management and
administrative functions, to
realize superior investment returns
through active asset management,
and to focus resources on the
development and expansion of
profitable products and strong
distribution channels.
On August 2, 1996, Conseco completed its
acquisition of Life Partners Group,
Inc. ("LPG"). Conseco and LPG
collected an aggregate of
approximately $3.6 billion of total
premiums and annuity deposits in
1995 from a diverse portfolio of
products. After giving pro forma
effect to the acquisition of LPG,
Conseco's total assets and
shareholders' equity at June 30,
1996 would have been approximately
$23 billion and $1.9 billion,
respectively.
1
<PAGE>
On September 30, 1996, Conseco acquired the
shares of American Life Holdings,
Inc. ("ALH") (of which Conseco
previously owned approximately 37
percent) which Conseco did not own
for approximately $165 million in
cash.
Conseco has also entered into (1) an
Agreement and Plan of Merger with
Capitol American Financial
Corporation ("CAF") pursuant to
which CAF will become a wholly-
owned subsidiary of Conseco, with
each share of the common stock of
CAF converted into the right to
receive $30.00 in cash and a
fraction of a share of Conseco
Common Stock having a value of
$6.50 and (2) an Agreement and Plan
of Merger with Transport Holdings
Inc. ("THI") pursuant to which THI
will be merged into Conseco, with
each share of common stock of THI
converted into between 1.40 and
1.83 shares of Conseco Common
Stock. Conseco has also announced
that it intends to acquire the
shares of Bankers Life Holding
Corporation ("BLH") (of which
Conseco currently owns
approximately 90.5 percent) which
Conseco does not own, in a merger
in which each share of BLH Common
Stock would be converted into the
right to receive a fraction of a
share of Conseco Common Stock
having a value of $25.00 per share.
Consummation of the Merger is not
conditioned upon consummation by
Conseco of any of the other pending
acquisitions. See "Information
Concerning Conseco - Other Pending
Acquisitions" and "Unaudited Pro
Forma Consolidated Financial
Statements of Conseco."
American Travellers
Corporation...........................ATC is an insurance holding company, the
operating subsidiaries of which
market and underwrite long term
care insurance products consisting
of both nursing home and home
health care policies and, to a
lesser extent, other supplemental
accident and health insurance
policies, as well as life
insurance. On June 30, 1996, ATC
had $393.3 million of annualized
premiums in force, approximately 90
percent of which, or $355 million,
were attributable to long term care
insurance. See "Information
Concerning ATC."
SHAREHOLDER MEETINGS
Time, Date and Place..................Conseco. The Conseco Special Meeting will
be held at 10:00 a.m., local time,
on _________, 1996, at
_______________ and at any
adjournment or postponement
thereof.
2
<PAGE>
ATC. The ATC Special Meeting will
be held at 10:00 a.m., local time,
on , 1996, at ___________________
and at any adjournment or
postponement thereof.
Purposes of the Meetings..............Conseco.The purpose of the Conseco Special
Meeting is to consider and vote
upon (1) a proposal to approve and
adopt the Merger Agreement and the
transactions contemplated thereby
and (2) such other business as may
properly come before the Conseco
Special Meeting or any adjournments
or postponements thereof. See
"Shareholder Meetings - Matters to
be Considered at the Meetings -
Conseco."
ATC. The purpose of the ATC Special
Meeting is to consider and vote
upon (1) a proposal to approve and
adopt the Merger Agreement and the
transactions contemplated thereby
and (2) such other business as may
properly come before the ATC
Special Meeting or any adjournments
or postponements thereof. See
"Shareholder Meetings - Matters to
be Considered at the Meetings -
ATC."
Record Date, Shares Entitled
to Vote, Quorum.........................Conseco. Holders of record of Conseco
Common Stock and Conseco PRIDES at
the close of business on
____________, 1996 (the "Conseco
Record Date"), are entitled to
notice of and to vote, together as
a single class, at the Conseco
Special Meeting. As of the Conseco
Record Date, there were ________
shares of Conseco Common Stock
outstanding and entitled to vote,
and _________ shares of Conseco
PRIDES outstanding and entitled to
vote. Each holder of record of
shares of Conseco Common Stock on
the Conseco Record Date is entitled
to cast, either in person or by
properly executed proxy, one vote
per share of Conseco Common Stock
on the Merger Agreement and such
other matters, if any, properly
submitted for the vote of the
Conseco shareholders at the Conseco
Special Meeting. Each holder of
record of shares of Conseco PRIDES
on the Conseco Record Date is
entitled to cast, either in person
or by properly executed proxy,
four- fifths (4/5) of one vote per
share of Conseco PRIDES on the
Merger Agreement and such other
matters, if any, properly submitted
for the vote of the Conseco
shareholders at the Conseco Special
Meeting. See "Shareholder
Meetings."
The presence, in person or by
properly executed proxy, of the
holders of Conseco Common Stock and
Conseco
3
<PAGE>
PRIDES representing a majority of
the voting power of all outstanding
Conseco Stock at the Conseco
Special Meeting is necessary to
constitute a quorum at the Conseco
Special Meeting. See "Shareholder
Meetings."
ATC. Holders of record of shares of
ATC Common Stock at the close of
business on _______, 1996 (the "ATC
Record Date"), are entitled to
notice of and to vote at the ATC
Special Meeting. As of the ATC
Record Date, there were _______
shares of ATC Common Stock
outstanding and entitled to vote.
Each holder of record of shares of
ATC Common Stock on the ATC Record
Date is entitled to cast, either in
person or by properly executed
proxy, one vote per share on the
Merger Agreement and the other
matters, if any, properly submitted
for the vote of the ATC
shareholders at the ATC Special
Meeting. See "Shareholder
Meetings."
The presence, in person or by
properly executed proxy, of the
holders of stock representing a
majority of the voting power of all
outstanding shares of the ATC
Common Stock at the ATC Special
Meeting is necessary to constitute
a quorum at the ATC Special
Meeting. See "Shareholder
Meetings."
Proxies, Revocation of Proxies.........The enclosed proxy cards permit each ATC
shareholder and Conseco shareholder
to specify that shares be voted
"FOR" or "AGAINST" (or "ABSTAIN")
the approval and adoption of the
Merger Agreement and the Merger. If
properly executed and returned,
shares represented by such proxy
will be voted in accordance with the
choice specified. Where a signed
proxy card is returned, but no
choice specified, the shares
represented by such proxy will be
voted for approval and adoption of
the Merger Agreement and the Merger.
A proxy relating to the ATC Special
Meeting or the Conseco Special
Meeting may be revoked by the
shareholder giving the proxy at any
time before it is exercised;
however, mere attendance at the
respective shareholder meeting will
not itself have the effect of
revoking the proxy. An ATC
shareholder or a Conseco
shareholder may revoke a proxy (i)
by notification of revocation in
writing sent (or given in person at
the respective shareholder meeting)
to the Secretary of ATC or Conseco,
as the case may be, (ii) by giving
to the Secretary of ATC or Conseco,
as the case may be, a
4
<PAGE>
later dated proxy, or (iii) by
attending the respective
shareholder meeting and voting in
person. See "Shareholder Meetings -
Proxies."
Vote Required...........................Conseco. The affirmative vote of a
majority of the voting power of the
outstanding shares of voting stock
present and voting thereon (in
person or by proxy) is required for
the approval and adoption by
Conseco of the Merger Agreement.
See "Shareholder Meetings - Voting
at the Meetings; Record Date;
Quorum - Conseco."
ATC. The approval and adoption by ATC of
the Merger Agreement will require
the affirmative vote of a majority
of the votes cast by all holders of
ATC Common Stock entitled to vote
thereon. See "Shareholder
Meetings-- Voting at the Meetings;
Record Date; Quorum-- ATC."
Certain Voting Information..............Conseco. As of September 20, 1996,
the executive officers and
directors of Conseco were entitled
to vote 6,598,074 shares of Conseco
Common Stock and no shares of
Conseco PRIDES, representing
approximately 9.4 percent of the
outstanding votes of Conseco Stock
entitled to be cast as of such
date. The executive officers of
Conseco were entitled to vote
5,659,227 shares of Conseco Common
Stock and no shares of Conseco
PRIDES, representing approximately
8.1 percent of the outstanding
votes of Conseco Stock entitled to
be cast as of such date. The
executive officers are obligated,
pursuant to written agreements with
ATC, to vote such shares in favor
of the approval and adoption of the
Merger Agreement at the Conseco
Special Meeting.
ATC. As of September 20, 1996, the
executive officers and directors of
ATC and the trustees (the
"Trustees") of the Trust under Deed
of Trust of Francis E. Powell, Jr.,
Settlor, dated August 24, 1988 (the
"Trust") were entitled to vote
1,738,549 shares of ATC Common
Stock, or approximately 10.7
percent of the number of shares of
ATC Common Stock outstanding and
entitled to vote at the ATC Special
Meeting. As of September 20, 1996,
John A. Powell and the Trustees
were entitled to vote 1,556,733
shares of the ATC Common Stock, or
approximately 9.6 percent of the
number of shares of ATC Common
Stock outstanding and entitled to
vote at the ATC Special Meeting.
John A. Powell and the Trustees are
obligated, pursuant to written
agreements with Conseco, to vote
their shares in favor
5
<PAGE>
of the approval and adoption of the
Merger Agreement at the ATC Special
Meeting.
THE MERGER; THE MERGER AGREEMENT
Effect of Merger.........................Upon consummation of the Merger, (1)
ATC will be merged with and into
Conseco, with Conseco being the
surviving corporation (the
"Surviving Corporation"); and (2)
each outstanding share of ATC
Common Stock will be canceled, and
each holder of a certificate
representing shares of ATC Common
Stock will cease to have any rights
with respect thereto, except the
right to receive, upon the
surrender of such certificate, the
Merger Consideration (as defined
below). Fractional shares of
Conseco Common Stock will not be
issuable in connection with the
Merger. ATC shareholders otherwise
entitled to fractional shares of
Conseco Common Stock will receive
the value of such fractional shares
in cash, determined as described
herein under "The Merger Agreement
-- Conversion of Shares; Exchange
of Stock Certificates; No
Fractional Amounts."
A copy of the Merger Agreement is
attached as Annex A to this Joint
Proxy Statement/Prospectus and is
incorporated by reference herein.
See "The Merger Agreement."
Merger Consideration...................Upon the consummation of the Merger, each
outstanding share of ATC Common
Stock (other than shares of ATC
Common Stock held by ATC as
treasury stock or Dissenting Shares
(as hereinafter defined)) will be
canceled and converted into the
right to receive (1) if the Conseco
Share Price (as defined below) is
greater than or equal to $42.25 per
share and less than or equal to
$46.25 per share, .7574 of a share
of Conseco Common Stock, (2) if the
Conseco Share Price is less than
$42.25 per share, the fraction
(rounded to the nearest
ten-thousandth) of a share (or such
fraction and whole number, as the
case may be) of Conseco Common
Stock determined by dividing $32.00
by the Conseco Share Price or (3)
if the Conseco Share Price is
greater than $46.25 per share, the
fraction (rounded to the nearest
ten-thousandth) of a share of
Conseco Common Stock determined by
dividing $35.03 by the Conseco
Share Price (such fraction as set
forth in clauses (1), (2) and (3),
the "Exchange Ratio"). The "Conseco
Share Price" shall be equal to the
average of the closing prices of
the Conseco Common Stock on the
6
<PAGE>
NYSE Composite Transactions
Reporting System for the 10 trading
days immediately preceding the
second trading day prior to the
Effective Time. Thus, holders of
shares of ATC Common Stock will
receive Conseco Common Stock with a
value (based on the average closing
price during such 10 day period) of
not less than $32.00 per share and
up to $35.03 per share. The Conseco
Common Stock to be issued to
holders of shares of ATC Common
Stock pursuant to the Merger and
any cash to be paid in lieu of
fractional shares of Conseco Common
Stock are referred to collectively
as the "Merger Consideration." The
issuance of Conseco Common Stock in
the Merger is referred to as the
"Merger Consideration Stock
Issuance." Conseco will apply to
have the additional shares of
Conseco Common Stock issued
pursuant to the Merger listed on
the NYSE. See "The Merger Agreement
-- Conversion of Shares; Exchange
of Stock Certificates; No
Fractional Amounts."
No fractional shares of Conseco Common
Stock will be issued in the Merger.
Each ATC shareholder who otherwise
would have been entitled to a
fraction of a share of Conseco
Common Stock will receive in lieu
thereof cash in accordance with the
terms of the Merger Agreement. See
"The Merger Agreement -- Conversion
of Shares; Exchange of Stock
Certificates; No Fractional
Amounts."
As soon as reasonably practicable after
consummation of the Merger, a
letter of transmittal (including
instructions setting forth the
procedures for exchanging such
holder's certificates representing
ATC Common Stock ("Certificates")
for the Merger Consideration
payable to such holder pursuant to
the Merger Agreement) will be sent
to each holder of record, as of the
Effective Time (as hereinafter
defined), of shares of ATC Common
Stock. Upon surrender of such
Certificates to the designated
exchange agent together with a duly
completed and executed letter of
transmittal, such holder will
promptly receive the Merger
Consideration for each share of ATC
Common Stock previously represented
by the Certificates so surrendered.
See "The Merger Agreement -
Conversion of Shares; Exchange of
Stock Certificates; No Fractional
Amounts."
Treatment of Options....................Options to purchase ATC Common Stock
granted pursuant to any ATC Stock
Option Plan ("ATC Stock Options")
which remain outstanding
immediately prior to the
7
<PAGE>
Effective Time will be converted
automatically into options to
purchase, for the same aggregate
consideration payable to exercise
such ATC Stock Options, the number
of shares of Conseco Common Stock
which the holder would have been
entitled to receive at the
Effective Time if such ATC Stock
Options had been exercised for
shares of ATC Common Stock prior to
the Effective Time. Except for ATC
Stock Options held by non-employee
directors, each ATC Stock Option,
if not then vested, will vest in
full at the earlier of (1) the
expiration of three months after
the Effective Time or (2)
termination by Conseco of the
employment of the holder of such
option. Each ATC Stock Option held
by a non-employee director of ATC
will vest in full at the Effective
Time. See "The Merger Agreement --
Treatment of ATC Stock Options."
Reasons for the Merger;
Board Recommendations
Regarding the Merger..................Conseco. The Board of Directors of Conseco
approved the Merger Agreement and
the Merger Consideration Stock
Issuance based on a number of
factors including its belief that
(1) the addition of ATC's long term
care and supplemental health
insurance business would further
strengthen Conseco's sales of those
products; (2) the addition of ATC's
agents would further diversify
Conseco's current distribution
system; (3) ATC's distribution
system would provide Conseco
additional opportunities to
cross-sell its current products;
(4) the Merger offers Conseco and
ATC the opportunity to improve
their profitability through the
achievement of economies of scale,
the elimination of redundancies and
the enhancement of market position;
and (5) the issuance of additional
shares of Conseco Common Stock in
the Merger would result in a
substantial increase in Conseco's
equity.
The Board of Directors of Conseco
recommends that the shareholders of
Conseco approve and adopt the
Merger Agreement. In evaluating the
recommendation of the Conseco Board
of Directors, shareholders of
Conseco should carefully consider
the matters described under "The
Merger -- Conseco's Reasons for the
Merger; Recommendation of the
Conseco Board of Directors."
ATC. The ATC Board of Directors
determined to pursue the Merger
based upon many different factors,
including but not limited to: (1)
the substantial premium over the
then current market price of the
ATC Common Stock
8
<PAGE>
offered by Conseco; (2) the
financial condition and results of
operations of Conseco and the ATC
Board of Directors' perceptions of
the more favorable overall business
prospects of Conseco and ATC on a
combined basis as compared to the
prospects of ATC as a separate
entity; (3) the tax-deferred nature
of the transaction to the extent
that the ATC shareholders receive
shares of Conseco Common Stock in
exchange for their shares of ATC
Common Stock; (4) the potential
future performance of Conseco and
the Conseco Common Stock after the
Merger and Conseco's strength and
position in the insurance industry;
(5) the written opinion rendered to
the ATC Board of Directors by
Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") with
regard to the fairness to the
holders of ATC Common Stock, from a
financial point of view, of the
Exchange Ratio pursuant to the
terms of the Merger Agreement; and
(6) the likelihood of continued
employment, for the immediate
future, of a substantial number of
the employees of ATC.
The Board of Directors of ATC recommends
that the shareholders of ATC
approve and adopt the Merger and
the Merger Agreement. In evaluating
the recommendation of the ATC Board
of Directors, shareholders of ATC
should carefully consider the
matters described under "The Merger
- ATC's Reasons for the Merger;
Recommendation of the ATC Board of
Directors," and "- Interests of
Certain Persons in the Merger.
Opinion of ATC's Financial
Advisor................................DLJ has delivered its written opinion to
the Board of Directors of ATC that,
as of August 25, 1996 and based
upon and subject to the assumptions,
limitations and qualifications set
forth in such opinion, the Exchange
Ratio pursuant to the terms of the
Merger Agreement was fair, from a
financial point of view, to the
holders of ATC Common Stock.
The full text of the written opinion of
DLJ, which sets forth assumptions
made, procedures followed, other
matters considered and limits of
the review undertaken in connection
with the opinion, is attached
hereto as Annex B and is
incorporated herein by reference.
Holders of ATC Common Stock should
read such opinion in its entirety.
See "The Merger -- Opinion of ATC's
Financial Advisor."
9
<PAGE>
Certain Consequences
of the Merger............................Upon consummation of the Merger, the
ATC shareholders will become
shareholders of Conseco, and each
share of ATC Common Stock issued
and outstanding immediately prior
to the consummation of the Merger
(other than shares held as treasury
shares of ATC or Dissenting Shares)
shall be converted into the right
to receive the Merger
Consideration. See "- Merger
Consideration." In addition,
Conseco shall become the obligor
and assume all rights and
obligations under the Indenture and
all supplements thereto (the
"Indenture") governing ATC's
outstanding 6.5 percent Convertible
Subordinated Debentures due 2005
(the "Debentures", including the
supplemental indenture to be
entered into by Conseco in
connection with its assumption of
the rights and o bligations under
the Indenture and Debentures").
The Debentures that remain
outstanding immediately prior to
the Effective Time will be
converted automatically into
debentures of Conseco, the holders
of which will have the same
rights as they did under the
Debentures and the Indenture
including the right to receive
interest payments and the right to
convert the Debentures into the
number of shares of Conseco Common
Stock which the holder would have
been entitled to receive at the
Effective Time if such Debentures
had been converted into shares of
ATC Common Stock prior to the
Effective Time, subject to future
adjustments for, among other
things, changes in the
capitalization of Conseco, as
contemplated by the Indenture.
Further, holders of ATC Stock
Options will be entitled to
receive, upon the exercise of their
respective ATC Stock Options, a
number of shares of Conseco Common
Stock determined as described under
"The Merger Agreement -- Conversion
of Shares; Exchange of Stock
Certificates; No Fractional
Amounts;" and " -- Treatment of ATC
Stock Options."
After consummation of the Merger,
assuming conversion of the
Debentures but excluding the ATC
Stock Options, and assuming the
Conseco Share Price is equal to or
between $42.25 and $46.25 (without
giving effect to the proposed
acquisitions of CAF, BLH and THI),
the current Conseco shareholders
will own approximately 77 percent
of the then outstanding shares of
Conseco Common Stock, and the
current ATC shareholders will own
approximately 23 percent of such
shares.
See "The Merger -- Certain Consequences
of the Merger."
Conduct of the Business
of Conseco and ATC After
the Merger..............................Conseco plans to consolidate certain
operations of ATC with Conseco's
operations after consummation of
the
10
<PAGE>
Merger. See "The Merger - Conduct
of the Business of Conseco and ATC
After the Merger." Conseco's Board
of Directors and management will
not be affected by the Merger. See
"Management of Conseco Upon
Consummation of the Merger."
Interests of Certain
Persons in the Merger..................Pursuant to the Merger Agreement, the
Certificate of Incorporation and
By-laws of each of ATC's
subsidiaries shall contain the
provisions with respect to
indemnification set forth therein
on the date of the Merger
Agreement, and such provisions
shall not be amended, repealed or
otherwise modified for a period of
six years after the Effective Time
in any manner that would adversely
affect the rights thereunder of
individuals who at any time prior
to the Effective Time were
directors or officers of ATC or any
of its subsidiaries (the
"Indemnified Parties") in respect
of actions or omissions occurring
at or prior to the Effective Time
(including, without limitation, the
transactions contemplated by the
Merger Agreement), unless such
modification is required by law.
Conseco has agreed to indemnify the
Indemnified Parties, but only to
the extent that ATC would have been
obligated to do so had it been the
Surviving Corporation. See "The
Merger -- Interests of Certain
Persons in the Merger --
Indemnification of Officers and
Directors."
Pursuant to the Merger Agreement, Conseco
Services L.L.C., an Indiana limited
liability company wholly owned by
Conseco ("Conseco Services"), will
enter into employment agreements
with John A. Powell, Thomas Parry,
Kevin Shields and Denise Powell.
See "The Merger - Interests of
Certain Persons in the Merger."
Certain of the ATC executives are entitled
to severance payments pursuant to
their existing employment
agreements if their employment is
terminated within three years of
the Merger, subject to certain
conditions. The Merger Agreement
provides for a reimbursement of
excise taxes imposed on certain of
such individuals. See "The Merger
-- Interests of Certain Persons in
the Merger."
Effective Time of the
Merger................................The Merger will become effective on the
date Articles of Merger are filed
with the Secretary of State of
Indiana and the Secretary of State
of the Commonwealth of Pennsylvania
or at such time thereafter as is
provided in the Articles of Merger
(the "Effective Time"). See "The
Merger Agreement -- Effective
Time."
11
<PAGE>
Conditions to the Merger;
Termination of the
Merger Agreement........................The obligations of Conseco and ATC to
consummate the Merger are subject
to the satisfaction of certain
conditions, including obtaining
requisite Conseco and ATC
shareholder approvals, delivery to
ATC of a tax opinion and the
receipt of certain governmental
consents and approvals including,
without limitation, certain
consents and approvals required
under applicable state insurance
laws and the expiration (or earlier
termination) of the relevant
waiting period under the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as
amended (the "HSR Act"). Such
waiting period was terminated on
________, 1996. See "The Merger --
Regulatory Approvals" and "The
Merger Agreement -- Conditions to
the Merger."
The Merger Agreement is subject to
termination by Conseco or ATC
(provided that such party is not in
breach of the Merger Agreement) if
the Merger is not consummated by
December 31, 1996, and prior to
such time upon the occurrence of
certain events. See "The Merger
Agreement -- Termination."
Right of ATC Board of
Directors to Withdraw
its Recommendation; Fees................Under the Merger Agreement, the Board
of Directors of ATC shall not (1)
withdraw or modify, in a manner
materially adverse to Conseco, the
approval or recommendation by the
Board of Directors of the Merger
Agreement or the Merger, (2)
approve or recommend an Acquisition
Proposal (as defined in the Merger
Agreement) or (3) enter into any
agreement with respect to any
Acquisition Proposal, unless ATC
receives an Acquisition Proposal
and the Board of Directors of ATC
determines in good faith, following
consultation with outside counsel,
that in order to comply with its
fiduciary duties to shareholders
under applicable law it is
necessary for the Board of
Directors to withdraw or modify, in
a manner materially adverse to
Conseco, its approval or
recommendation of the Merger
Agreement or the Merger, approve or
recommend such Acquisition
Proposal, enter into an agreement
with respect to such Acquisition
Proposal or terminate the Merger
Agreement. In the event the Board
of Directors of ATC takes any of
the foregoing actions, ATC shall,
concurrently with the taking of any
such action, pay to Conseco upon
demand $20 million, payable in
same-day funds.
12
<PAGE>
In the absence of an Acquisition
Proposal, unless the other party is
materially in breach of the Merger
Agreement or is unable to satisfy
certain closing conditions in the
Merger Agreement, ATC and Conseco
have each agreed to pay to the
other party upon demand an amount
not to exceed $2 million, to
reimburse the other party for
out-of-pocket fees and expenses
incurred in connection with the
Merger, if its shareholders do not
approve the Merger and all other
closing conditions contained in the
Merger Agreement have been
satisfied or waived or, with
respect to any condition not then
satisfied, it is substantially
likely that such condition will be
satisfied on or before March 31,
1997.
Dissenters Rights.......................Conseco. Holders of Conseco Stock will
not be entitled to appraisal or
dissenters rights under the Indiana
Business Corporation Law (the
"IBCL").
ATC. A holder of ATC Common Stock may
assert dissenter's rights in
connection with the Merger under
Subchapter D of Chapter 15
("Subchapter 15D") of the
Pennsylvania Business Corporation
Law (the "PBCL"). Holders of ATC
Common Stock who follow the
procedures of Subchapter 15D will
be entitled to receive from ATC the
fair value of their shares of ATC
Common Stock immediately before the
Effective Time. See "The Merger--
Dissenters' Rights" and Annex C
attached hereto.
Certain Federal Income
Tax Consequences.......................The Merger is expected to qualify as a
reorganization within the meaning
of Section 368(a) of the Internal
Revenue Code of 1986, as amended
(the "Code"). The obligation of ATC
to consummate the Merger is subject
to the condition that it shall have
received an opinion of counsel to
the effect that the Merger will be
treated for tax purposes as a
reorganization with the meaning of
Section 368(a) of the Code. No gain
or loss will be recognized by ATC
shareholders upon their exchange of
ATC Common Stock for Conseco Common
Stock, except that any ATC
shareholder who receives cash
proceeds in lieu of a fractional
share interest in Conseco Common
Stock will recognize gain or loss
equal to the difference between
such proceeds and the tax basis
allocated to the fractional share
interest and such gain or loss will
constitute capital gain or loss if
such shareholder's ATC Common Stock
is held as a capital asset at the
Effective Time. See "The Merger --
Certain Federal Income Tax
Consequences."
13
<PAGE>
Accounting Treatment......................The Merger will be accounted for as a
"purchase" under GAAP. See "The
Merger -- Accounting Treatment."
Comparison of
Shareholders' Rights.......................Upon consummation of the Merger, the
ATC shareholders will become
shareholders of Conseco. See
"Comparison of Shareholders'
Rights" for a summary of the
material differences between the
rights of holders of Conseco Common
Stock and ATC Common Stock. These
differences arise from the
distinctions between the laws of
the jurisdictions in which Conseco
and ATC are incorporated (Indiana
and Pennsylvania, respectively) and
the distinctions between the
respective articles of
incorporation and bylaws of Conseco
and ATC.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO (a)
The selected historical financial information set forth below was derived
from the consolidated financial statements of Conseco. Conseco's consolidated
balance sheets at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in Conseco's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with Conseco's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of Conseco's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income................................ $280.8 $378.7 $1,293.8 $1,285.6 $1,465.0 $ 730.2 $ 741.4
Investment activity:
Net investment income............................. 921.4 888.6 896.2 385.7 1,142.6 556.9 561.9
Net trading income (losses) ...................... 50.7 35.9 93.1 (4.9) 2.5 6.0 (7.3)
Net realized gains (losses) ...................... 123.3 124.3 149.5 (25.6) 186.4 74.5 10.2
Total revenues......................................... 1,391.8 1,523.9 2,636.0 1,862.0 2,855.3 1,389.4 1,364.3
Interest expense on notes payable...................... 69.9 46.2 58.0 59.3 119.4 52.4 54.2
Total benefits and expenses............................ 1,168.6 1,193.9 2,025.8 1,537.6 2,436.8 1,187.1 1,142.8
Income before income taxes, minority interest and
extraordinary charge.............................. 223.2 330.0 610.2 324.4 418.5 202.3 221.5
Extraordinary charge on extinguishment of debt,
net of tax....................................... 5.0 5.3 11.9 4.0 2.1 - 17.4
Net income............................................. 116.0 169.5 297.0 150.4 220.4 124.3 96.4
Preferred dividends.................................... 6.8 5.5 20.6 18.6 18.4 9.2 17.2
Net income applicable to common stock.................. 109.2 164.0 276.4 131.8 202.0 115.1 79.2
PER SHARE DATA (b)
Net income, primary.................................... $2.05 $2.71 $4.73 $2.50 $4.69 $2.67 $1.71
Net income, fully diluted.............................. 2.01 2.70 4.39 2.44 4.22 2.39 1.59
Dividends declared per common share.................... .035 .043 .150 .250 .093 .073 .040
Book value per common share outstanding at period end.. 7.73 10.93 16.89 10.45 20.44 16.33 17.68
Shares outstanding at period end....................... 49.4 49.8 50.6 44.4 40.5 40.4 41.9
Average fully diluted shares outstanding............... 50.8 59.2 67.0 61.7 52.2 52.1 60.6
BALANCE SHEET DATA - PERIOD END
Total assets........................................... $11,832.4 $11,772.7 $13,749.3 $10,811.9 $17,297.5 $17,078.6 $17,426.3
Notes payable for which Conseco is directly liable..... 177.6 163.2 413.0 191.8 871.4 613.5 670.0
Notes payable of BLH, not direct obligations of Conseco - 392.0 290.3 280.0 301.5 272.2 297.9
Notes payable of Partnership entities, not
direct obligations of Conseco..................... 319.3 - - 331.1 283.2 308.0 281.6
Total liabilities...................................... 11,321.3 11,154.4 12,382.9 9,743.2 15,782.5 15,528.3 15,857.1
Minority interest...................................... 79.5 24.0 223.8 321.7 403.3 606.9 292.3
Shareholders' equity .................................. 431.6 594.3 1,142.6 747.0 1,111.7 943.4 1,276.9
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (c)
Premiums collected (d)................................. $1,648.7 $1,464.9 $2,140.1 $1,879.1 $3,106.4 $1,725.6 $1,501.6
Operating earnings (e)................................. 61.5 114.8 162.0 151.7 131.3 52.2 102.2
Operating earnings per fully diluted common share (b) (e) 1.05 1.80 2.39 2.46 2.52 1.00 1.69
Shareholders' equity excluding unrealized appreciation
(depreciation) of fixed maturity securities (f)... 431.6 560.3 1,055.2 884.7 999.1 910.1 1,332.9
Book value per common share outstanding, excluding
unrealized appreciation (depreciation) of fixed
maturity securities (b) (f)....................... 7.73 10.24 15.16 13.55 17.66 15.50 19.02
Ratio of debt (including debt of CCP guaranteed by
Conseco until its retirement in 1993) for which
Conseco is directly liable to total capital of
Conseco only (g):
As reported....................................... .29X .22X .27X .20X .44X .34X .34X
Excluding unrealized appreciation (depreciation) (f) .29X .23X .28X .18X .47X .34X .33X
Adjusted statutory capital (at period end) (h)......... $617.1 $603.1 $1,135.5 $509.0 $1,021.0 $901.2 $1,009.3
Adjusted statutory earnings (i)........................ 90.0 153.4 273.8 248.6 321.7 138.9 166.4
Ratio of adjusted statutory earnings to cash interest (j) 2.62X 5.75X 4.94X 5.06X 3.79X 3.97X 4.11X
<FN>
(a) Comparison of consolidated financial information in the above table is
significantly affected by the Conseco Capital Partners, L.P.
("Partnership I") and Conseco Capital Partners II, L.P. ("Partnership
II") acquisitions, the sale of Western National Corporation ("WNC") and
the transactions affecting Conseco's ownership interest in BLH and CCP
Insurance, Inc. ("CCP"). For periods beginning with their acquisitions
and ending June 30, 1992, Partnership I and its subsidiaries were
consolidated with the financial statements of Conseco. Following the
completion of the initial public offering by CCP in July 1992, the
Company did not have unilateral control to direct all of CCP's
activities and, therefore, did not consolidate the financial statements
of CCP with the financial statements of Conseco. As a result of the
purchase by Conseco of all the shares of common stock of CCP it did not
already own on August 31, 1995 (the "CCP Merger"), the financial
statements of CCP's subsidiaries are consolidated with the financial
statements of Conseco, effective January 1, 1995. Conseco has included
BLH in its financial statements since November 1, 1992. Through December
31, 1993, the financial statements of WNC were consolidated with the
financial statements of Conseco. Following the completion of the initial
public offering of WNC (and subsequent disposition of Conseco's
remaining equity interest in WNC), the financial statements of WNC were
no longer consolidated with the financial statements of Conseco. As of
September 29, 1994, Conseco began to include in its financial statements
the newly acquired Partnership II subsidiary, ALH. Refer to the notes to
the consolidated financial statements included in Conseco's Annual
Report, incorporated by reference herein, for a description of business
combinations.
(b) All share and per share amounts have been restated to reflect the April
1, 1996 two-for-one stock split.
(c) Amounts under this heading are included to assist the reader in
analyzing Conseco's financial position and results of operations. Such
amounts are not intended to, and do not, represent insurance policy
income, net income, net income per share, shareholders' equity or book
value per share prepared in accordance with GAAP.
(d) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(e) Represents income before extraordinary charge, excluding net trading
income (losses) (net of income taxes), net realized gains (losses) (less
that portion of change in future policy benefits, amortization of cost
of policies purchased and cost of policies produced and income taxes
relating to such gains (losses)) and restructuring activities (net of
income taxes).
(f) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component
of shareholders' equity, net of tax and other adjustments, which Conseco
began to do in 1992. Such adjustments are in accordance with Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), as described in
the notes to the consolidated financial statements included in Conseco's
Annual Report which is incorporated herein by reference.
(g) Represents the ratio of notes payable for which Conseco is directly
liable to the sum of shareholders' equity and notes payable for which
Conseco is directly liable.
(h) Includes: (1) statutory capital and surplus; (2) mandatory securities
valuation reserve ("MSVR") at periods ended prior to December 31, 1992;
(3) asset valuation reserve ("AVR") and interest maintenance reserve
("IMR") at periods ended on or after December 31, 1992; and (4) the
portion of surplus debentures carried by the life companies as a
liability to Conseco. Such statutory data reflect the combined data
derived from the annual statements of Conseco's and BLH's wholly owned
life insurance companies as filed with insurance regulatory agencies and
prepared in accordance with statutory accounting practices.
(i) Represents gains from operations before interest expense (except
interest on annuities and financial products) and income taxes of
Conseco's and BLH's wholly owned life insurance companies as reported
for statutory accounting purposes plus income before interest expense
and income taxes of all non-life companies.
16
<PAGE>
(j) Represents the ratio of adjusted statutory earnings to cash interest.
Cash interest includes interest, except interest on annuities and
financial products, of Conseco and BLH and their wholly owned
subsidiaries that is required to be paid in cash.
</FN>
</TABLE>
S:\ACCTING\SECRPT\S-4CAP.896\CNCSFD3.696
17
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG (a)
The selected historical financial information set forth below was derived
from the audited consolidated financial statements of LPG. LPG's consolidated
balance sheets at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in LPG's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with LPG's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of LPG's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income................................ $187.1 $187.3 $210.8 $217.9 $280.1 $129.4 $155.7
Investment activity:
Net investment income............................... 207.5 218.6 221.1 225.4 277.1 134.9 146.2
Net realized gains (losses) ........................ 18.6 23.1 18.4 (19.7) 15.8 2.4 2.3
Total revenues......................................... 420.6 436.5 455.7 428.2 576.1 268.6 306.9
Interest expense....................................... 43.4 35.3 26.0 20.7 27.9 12.0 11.8
Total benefits and expenses............................ 376.5 374.8 373.8 369.9 592.8 251.0 279.4
Income (loss) before income taxes, minority interest and
extraordinary charge................................ 44.1 61.7 81.9 58.5 (16.7) 17.6 27.5
Extraordinary charge, net of tax....................... - 5.6 4.8 2.6 - - -
Net income (loss)...................................... 22.8 32.1 47.2 34.6 (13.4) 11.3 15.9
Dividends in kind on preferred stock................... 13.4 15.4 4.0 - - - -
Net income (loss) applicable to common stock........... 9.4 16.7 43.2 34.6 (13.4) 11.3 15.9
PER SHARE DATA
Income (loss) before extraordinary charge, primary
and fully diluted................................... $(0.61) $ 1.08 $ 2.05 $ 1.43 $(0.49) $.42 $.56
Net income (loss), primary and fully diluted........... (0.61) 0.62 1.85 1.33 (0.49) .42 .56
Dividends declared per common share.................... - - 0.0375 .08 .11 .05 .06
Book value per common share outstanding at
period end.......................................... 13.92 15.98 12.25 11.50 14.35 14.20 12.47
Shares outstanding at period end....................... 8.0 14.4 25.4 25.5 27.9 27.8 28.2
Average fully diluted shares outstanding............... 9.0 12.1 23.4 26.1 27.1 26.8 28.4
BALANCE SHEET DATA - PERIOD END
Total assets........................................... $2,976.9 $3,292.7 $3,589.4 $3,748.8 $4,980.9 $5,035.7 $4,974.7
Notes payable.......................................... 335.5 314.3 210.1 210.5 246.1 239.3 238.9
Total liabilities...................................... 2,841.2 3,062.8 3,278.2 3,455.2 4,580.4 4,640.5 4,623.1
Minority interest...................................... 24.1 - - - - - -
Shareholders' equity .................................. 111.6 229.9 311.2 293.6 400.5 395.2 351.6
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
---------------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (b)
Premiums collected (c)................................. $508.2 $465.5 $470.2 $411.8 $497.3 $248.2 $280.1
Operating earnings (loss) (d).......................... 15.5 31.9 44.1 50.0 (28.9) 9.4 20.5
Operating earnings (loss) per primary and fully diluted
common share (d).................................... 1.72 2.63 1.88 1.91 (1.06) .35 .72
Shareholders' equity excluding unrealized appreciation
(depreciation) of fixed maturity securities (e)..... 111.6 229.9 291.7 325.0 344.3 376.8 361.8
Book value per common share outstanding, excluding
unrealized appreciation (depreciation) of fixed
maturity securities (e)............................. 13.92 15.98 11.48 12.73 12.34 13.54 12.83
Ratio of debt to total capital (f):
As reported......................................... .75X .58X .40X .42X .38X .38X .40X
Excluding unrealized appreciation (depreciation) (e) .75X .58X .42X .39X .42X .39X .40X
Adjusted statutory capital (at period end) (g)......... $149.4 $191.3 $169.8 $174.3 $209.8 $174.7 $219.3
Adjusted statutory earnings (h)........................ 75.7 76.4 83.4 75.8 78.1 28.9 46.4
Ratio of adjusted statutory earnings to cash interest (i) 1.83X 2.25X 3.46X 3.78X 3.46X 2.58X 4.06X
<FN>
(a) Comparison of consolidated financial information in the above table is
significantly affected by the acquisition of Lamar Financial Group,
Inc. ("Lamar") on April 28, 1995. Such acquisition was accounted for
using the purchase method, and the results of operations at Lamar are
included in the consolidated financial data from the date of
acquisition. Refer to the notes to the consolidated financial
statements included in LPG's Annual Report incorporated by reference
herein for a description of the acquisition.
(b) Amounts under this heading are included to assist the reader in
analyzing LPG's financial position and results of operations. Such
amounts are not intended to, and do not, represent insurance policy
income, net income, net income per share, shareholders' equity or book
value per share prepared in accordance with GAAP.
(c) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(d) Represents income before extraordinary charge, excluding net realized
gains (losses) (less that portion of amortization of cost of policies
purchased and the cost of policies produced and income taxes relating
to such gains (losses)).
(e) Excludes the effects of reporting available-for-sale fixed maturities
at fair value and recording the unrealized gain or loss on such
securities as a component of shareholders' equity, net of tax and other
adjustments, which LPG began to do with respect to a portion of its
portfolio effective December 31, 1993. Such adjustments are in
accordance with SFAS 115, as described in the notes to the consolidated
financial statements included in LPG's Annual Report which is
incorporated herein by reference.
(f) Represents the ratio of notes payable to the sum of shareholders'
equity and notes payable.
(g) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of LPG's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared
in accordance with statutory accounting practices.
(h) Represents gains from operations before interest expense (except
interest on annuities and financial products) and income taxes of LPG's
consolidated insurance subsidiaries as reported for statutory
accounting purposes plus income before interest expense and income
taxes of all non-life companies.
(i) Represents the ratio of adjusted statutory earnings to cash interest.
Cash interest includes interest, except interest on annuities and
financial products, of LPG and its consolidated subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
S:\ACCTING\SECRPT\S-4CAP.896\LPGSFD.696
19
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATC
The selected historical financial information set forth below was derived
from the consolidated financial statements of ATC. The consolidated balance
sheets of ATC at December 31, 1994 and 1995, and the consolidated statements of
income, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Arthur Andersen LLP,
independent public accountants, and are included in ATC's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with ATC's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of ATC's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......................... $117.0 $138.3 $166.4 $201.9 $274.0 $122.7 $186.9
Investment activity:
Net investment income......................... 8.1 8.7 9.4 11.0 23.2 8.1 21.3
Net realized gains............................ (.1) .4 .2 - .1 - 1.3
Total revenues................................... 125.0 147.4 176.0 212.9 297.3 130.8 209.5
Interest expense................................. .2 .2 - 1.0 3.3 .9 4.0
Total benefits and expenses...................... 108.3 131.2 152.7 185.9 262.6 115.2 184.6
Income before income taxes....................... 16.7 16.2 23.3 27.0 34.7 15.6 24.9
Net income....................................... 11.0 10.7 14.6 18.4 23.7 10.7 16.8
PER SHARE DATA (a)
Net income, primary.............................. $.71 $.68 $.92 $1.14 $1.45 $.66 $1.01
Net income, fully diluted........................ .71 .68 .92 1.14 1.36 .66 .81
Book value per common share outstanding
at period end................................. 5.95 6.66 7.51 8.65 10.77 9.32 10.50
Shares outstanding at period end................. 15.2 15.2 15.5 15.8 15.9 15.9 16.3
Average fully diluted shares outstanding......... 15.5 15.6 15.8 16.1 18.4 16.2 23.6
BALANCE SHEET DATA - PERIOD END
Total assets..................................... $219.7 $240.9 $299.0 $400.8 $836.1 $435.5 $867.4
Notes payable (including convertible
subordinated debentures) ..................... 8.4 - 12.0 20.0 103.5 20.0 103.5
Total liabilities................................ 129.3 139.7 182.8 264.5 665.3 287.8 696.4
Shareholders' equity............................. 90.4 101.2 116.2 136.3 170.8 147.7 171.0
OTHER FINANCIAL DATA (b)
Operating earnings (c)........................... $11.1 $10.4 $14.5 $18.4 $23.6 $10.7 $15.9
Operating earnings per fully diluted common
share (a), (c)................................ .71 .67 .91 1.14 1.35 .66 .77
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities (d)................................ 90.4 101.2 116.2 136.3 160.6 147.7 181.9
Book value per common share outstanding
excluding unrealized appreciation of fixed
maturity securities (a), (d).................. 5.95 6.66 7.51 8.65 10.13 9.32 11.17
Ratio of debt to total capital (e):
As reported................................... .08X - .09X .13X .38X .12X .38X
Excluding unrealized appreciation (d)......... .08X - .09X .13X .39X .12X .36X
Adjusted statutory capital (at period end) (f)... $29.9 $30.5 $47.0 $58.0 $74.3 $59.0 $87.7
Adjusted statutory earnings (loss) (g)........... (3.3) (1.1) 4.3 11.3 (29.6) 8.2 7.4
Ratio of adjusted statutory earnings to
cash interest (h)............................. (i) (i) (i) 11.3X (i) 9.1X 2.1X
20
<PAGE>
<FN>
(a) All share and per share amounts have been restated to reflect the April 10,
1996 three-for-two stock split.
(b) Amounts under this heading are included to assist the reader in analyzing
ATC's financial position and result of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(c) Represents net income excluding net realized gains (losses), net of income
taxes.
(d) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which ATC began to
do effective December 31, 1995. Such adjustments are in accordance with
SFAS 115, as described in the notes to the consolidated financial
statements included in ATC's Annual Report which is incorporated herein by
reference.
(e) Represents the ratio of notes payable (including the Debentures) to the sum
of shareholders' equity and notes payable (including the Debentures).
(f) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of ATC's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(g) Represents gains from operations before interest expense and income taxes
of ATC's consolidated insurance subsidiaries as reported for statutory
accounting purpose plus income before interest expense and income taxes of
all non-life companies.
(h) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of ATC and its consolidated subsidiaries that is
required to be paid in cash.
(i) Not meaningful or not applicable.
</FN>
</TABLE>
S:\ACCTING\SECRPT\S-4ATC.896\ATCSFD4.696
21
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAF
The selected historical financial information set forth below was derived
from the consolidated financial statements of CAF. The consolidated balance
sheets of CAF at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by KPMG Peat Marwick LLP,
independent accountants, and are included in CAF's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with CAF's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of CAF's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......................... $188.4 $219.5 $244.8 $263.3 $282.1 $139.0 $146.6
Investment activity:
Net investment income......................... 17.5 22.8 33.5 41.0 48.6 23.3 27.2
Net realized gains............................ - - .6 - - - .1
Total revenues................................... 206.4 242.8 279.4 304.4 330.8 162.4 174.0
Interest expense................................. 1.2 1.6 1.5 2.3 2.4 1.3 1.0
Total benefits and expenses...................... 162.2 189.8 210.8 235.7 259.2 126.3 132.4
Income before income taxes and cumulative effect
of change in accounting for income taxes...... 44.2 53.0 68.6 68.7 71.6 36.1 41.6
Income from cumulative effect of change in
accounting for income taxes................... 3.7 - - - - - -
Net income....................................... 32.6 35.0 43.5 44.8 46.0 23.0 27.1
PER SHARE DATA
Income before cumulative effect of change in
accounting for income taxes, primary
and fully diluted............................. $1.77 $2.19 $2.36 $2.50 $2.64 $1.31 $1.55
Net income, primary and fully diluted............ 2.00 2.19 2.36 2.50 2.64 1.31 1.55
Dividends declared per common share.............. .050 .255 .280 .320 .360 .180 .200
Book value per common share outstanding
at period end................................. 5.68 9.61 11.58 13.34 16.71 14.48 16.83
Shares outstanding at period end................. 16.0 18.5 18.2 17.5 17.5 17.5 17.5
Average fully diluted shares outstanding......... 16.3 16.0 18.5 17.9 17.5 17.5 17.5
BALANCE SHEET DATA - PERIOD END
Total assets..................................... $397.7 $556.8 $668.5 $793.1 $948.3 $850.6 $980.4
Notes payable.................................... 21.0 20.0 22.0 24.0 24.0 28.0 29.5
Total liabilities................................ 307.0 379.1 457.2 559.5 656.6 597.8 686.1
Shareholders' equity............................. 90.7 177.7 211.3 233.6 291.7 252.8 294.3
OTHER FINANCIAL DATA (a)
Operating earnings (b)........................... $28.9 $35.0 $43.1 $44.8 $46.0 $23.0 $27.0
Operating earnings per primary and fully diluted
common share (b).............................. 1.77 2.19 2.33 2.50 2.64 1.31 1.54
Shareholders' equity excluding unrealized
appreciation of fixed maturity securities (c). 90.7 177.7 211.3 233.6 272.9 252.8 297.1
Book value per common share outstanding,
excluding unrealized appreciation of fixed
maturity securities (c)....................... 5.68 9.61 11.58 13.34 15.63 14.48 16.99
Ratio of debt to total capital (d):
As reported................................... .19X .10X .09X .09X .08X .10X .09X
Excluding unrealized appreciation (c)......... .19X .10X .09X .09X .08X .10X .09X
Adjusted statutory capital (at period end) (e)... $48.3 $108.7 $108.0 $93.9 $88.5 $96.4 $99.5
Adjusted statutory earnings (f).................. 20.1 25.6 33.5 29.4 30.9 15.3 21.7
Ratio of adjusted statutory earnings to
cash interest (g)............................. 17.8X 16.9X 23.2X 13.0X 13.2X 12.5X 21.1X
22
<PAGE>
<FN>
(a) Amounts under this heading are included to assist the reader in analyzing
CAF's financial position and results of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(b) Represents net income before cumulative effect of change in accounting for
income taxes and net realized gains, net of income taxes.
(c) Excludes the effects of reporting available-for-sale fixed maturities at
fair value and recording the unrealized gain or loss on such securities as
a component of shareholders' equity, net of tax and other adjustments,
which CAF began to do with respect to a portion of its portfolio effective
December 31, 1995. Such adjustments are in accordance with SFAS 115, as
described in the notes to the consolidated financial statements included in
CAF's Annual Report which is incorporated herein by reference.
(d) Represents the ratio of notes payable to the sum of shareholders' equity
and notes payable.
(e) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of CAF's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(f) Represents gains from operations before interest expense and income taxes
of CAF's consolidated insurance subsidiaries as reported for statutory
accounting purposes plus income before interest expense and income taxes of
all non-life companies.
(g) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of CAF and its consolidated subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
S:\ACCTING\SECRPT\S-4CAP.896\CAPSFD2.696
23
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF THI
The selected historical financial information set forth below reflects a
series of transactions which occurred on September 29, 1995, pursuant to which
previously separate companies (all of which were wholly owned subsidiaries of
Travelers Group Inc.) were combined with THI and the outstanding common stock of
THI was distributed to the shareholders of Travelers Group Inc. The financial
statements of THI for periods prior to the September 29, 1995 transactions,
reflect the results of operations and the financial position of the previously
separate companies as if such companies had been combined at the beginning of
the periods presented using the pooling of interests method. The selected
historical financial information was derived from the consolidated financial
statements of THI. The consolidated balance sheets of THI at December 31, 1994
and 1995, and the consolidated statements of income, shareholders' equity and
cash flows for the years ended December 31, 1993, 1994 and 1995 and notes
thereto were audited by KPMG Peat Marwick LLP, independent public accountants,
and are included in THI's Annual Report which is incorporated by reference
herein. The consolidated financial information should be read in conjunction
with THI's Annual Report. The consolidated financial information as of December
31, 1992, and as of and for the year ended December 31, 1991, and the six months
ended June 30, 1995 and 1996, is unaudited; however, in the opinion of THI's
management, the accompanying financial information contains all adjustments,
consisting only of normal recurring items, necessary to present fairly the
financial information for such periods. The results of operations for the six
months ended June 30, 1996, may not be indicative of the results of operations
to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......................... $342.7 $289.0 $256.9 $227.7 $190.2 $108.6 $ 55.6
Investment activity:
Net investment income......................... 42.1 43.7 44.0 46.6 49.7 26.0 19.9
Net realized gains (losses)................... 2.8 19.7 26.8 (3.4) 6.7 .4 .3
Total revenues................................... 399.6 368.1 331.0 270.9 246.6 135.0 76.4
Interest expense................................. - - - - 2.3 - 4.5
Expenses of spin-off and related transactions.... - - - - 2.2 - -
Loss on sale of long term care business.......... - - - - 68.5 - -
Total benefits and expenses...................... 356.5 305.3 281.0 234.9 287.7 113.9 62.5
Income (loss) before income taxes and
cumulative effect of change in
accounting principle ......................... 43.1 62.8 50.0 36.0 (41.1) 21.1 13.9
Cumulative effect of change in accounting
principle..................................... - - (.3) - - - -
Net income (loss)................................ 30.3 42.7 32.6 23.0 (26.8) 14.0 9.0
PER SHARE DATA
Net income (loss), primary (a)................... $(17.75) $ 3.85
Net income (loss), fully diluted (a)............. (17.75) 2.42
Book value per fully diluted common share (b).... 66.59 61.60
Shares outstanding at period end................. 1.6 1.6
Average fully diluted shares outstanding......... 2.0 3.1
BALANCE SHEET DATA - PERIOD END
Total assets..................................... $740.0 $813.3 $890.7 $885.2 $950.5 $949.7 $924.5
Notes payable (including convertible
subordinated debentures) ..................... - - - - 110.3 - 108.3
Total liabilities................................ 502.1 548.3 587.6 595.8 746.4 619.9 756.4
Shareholders' equity ............................ 237.9 265.0 303.1 289.4 204.1 329.8 168.1
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (c)
Operating earnings (d)........................... $ 28.5 $ 29.7 $ 15.5 $25.2 $ 15.4 $ 13.8 $ 8.8
Operating earnings per fully diluted common
share (a), (d)................................ 7.50 2.35
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities (e)................................ 237.9 265.0 303.1 312.2 180.9 317.5 164.6
Book value per common share outstanding
excluding unrealized appreciation of fixed
maturity securities (e)....................... 58.80 60.30
Ratio of debt to total capital (f):
As reported................................... (j) (j) (j) (j) .35X (j) .39X
Excluding unrealized appreciation (e)......... (j) (j) (j) (j) .38X (j) .40X
Adjusted statutory capital (at period end) (g)... $96.9 $122.2 $132.0 $130.7 $163.5 $129.2 $146.7
Adjusted statutory earnings (loss) (h)........... 28.0 39.3 8.1 24.5 51.8 10.9 19.3
Ratio of adjusted statutory earnings to
cash interest (i)............................. (j) (j) (j) (j) 45.98X (j) 5.42X
<FN>
(a) Per share data for the year ended December 31, 1995, is presented as if the
1,590,461 shares outstanding after the September 29, 1995 distribution were
outstanding for the entire year. Operating earnings per fully diluted
share data for the year ended December 31, 1995, also include the dilutive
effect of the issuance of the subordinated convertible notes from the date
of issuance, September 29, 1995 (such equivalent shares were anti-dilutive
for purposes of computing net loss per fully diluted share for the year
ended December 31, 1995).
(b) Book value per common share reflects the dilution which would occur if the
subordinated convertible notes were converted to common stock and
outstanding options were exercised.
(c) Amounts under this heading are included to assist the reader in analyzing
THI's financial position and result of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(d) Represents income before cumulative effect of change in accounting
principle, excluding: (i) net realized gains (losses), net of income taxes;
(ii) the loss on the sale of long term care business, net of income taxes;
and (iii) expenses related to THI's September 29, 1995 spin-off and related
transactions, net of income taxes.
(e) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which THI began to
do effective January 1, 1994. Such adjustments are in accordance with SFAS
115, as described in the notes to the consolidated financial statements
included in THI's Annual Report which is incorporated herein by reference.
(f) Represents the ratio of notes payable (including convertible subordinated
debentures) to the sum of shareholders' equity and notes payable (including
convertible subordinated debentures).
(g) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of THI's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(h) Represents gains from operations before interest expense and income taxes
of THI's consolidated insurance subsidiaries as reported for statutory
accounting purpose plus income before interest expense, expenses related to
THI's September 29, 1995 spin-off, and income taxes of all non-life
companies.
(i) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of THI and its consolidated subsidiaries that is
required to be paid in cash.
(j) Not applicable.
</FN>
</TABLE>
25
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The summary unaudited pro forma consolidated financial information set
forth below was derived from the unaudited pro forma consolidated financial
statements of Conseco included elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Consolidated Financial Statements
of Conseco". The summary unaudited pro forma consolidated financial information
is based upon the historical and pro forma consolidated financial statements and
related notes thereto of Conseco, LPG, ATC, CAF and THI incorporated by
reference in this Joint Proxy Statement/Prospectus. This information should be
read in conjunction with such materials and the unaudited pro forma consolidated
financial statements appearing elsewhere in this Joint Proxy
Statement/Prospectus.
The summary unaudited pro forma consolidated statement of operations
information for the year ended December 31, 1995, and the six months ended June
30, 1996, in the columns headed "Pro forma Conseco before the Merger" reflects
the following transactions, all of which have already occurred, as if such
transactions had occurred on January 1, 1995: (1) the call of Conseco's Series D
Convertible Preferred Stock (the "Series D Call") completed September 29, 1996;
(2) the acquisition of all of the outstanding common stock of ALH, not
previously owned by Conseco, and related transactions (the "ALH Transaction")
completed September 30, 1996; (3) the acquisition and merger of LPG completed
effective June 30, 1996 (the "LPG Merger"); (4) the acquisition of all of the
outstanding common stock of CCP not previously owned by Conseco and related
transactions (including the repayment of the existing $250.0 million revolving
credit agreement); (5) the increase of Conseco's ownership in BLH to 90.5
percent, as a result of purchases of common shares of BLH by Conseco and BLH
during 1995 and the first three months of 1996; (6) the issuance of 4.37 million
shares of Conseco PRIDES in January 1996; (7) the BLH tender offer for and
repurchase of its 13 percent senior subordinated notes due 2002 and related
financing transactions completed in March 1996 (the "BLH Tender Offer"); and (8)
the debt restructuring of ALH in the fourth quarter of 1995. The summary
unaudited pro forma consolidated statement of operations information for the
year ended December 31, 1995, and the six months ended June 30, 1996, in the
columns headed "Pro forma for the Merger" reflects further adjustments to the
consolidated operating results for Conseco as if the Merger had occurred on
January 1, 1995. The summary unaudited pro forma consolidated statement of
operations information for the year ended December 31, 1995, and the six months
ended June 30, 1996, in the columns headed "Pro forma for the Merger and other
planned transactions" reflects further adjustments to the consolidated operating
results for Conseco as if the following additional planned transactions had
occurred on January 1, 1995:(1) the acquisition of all of the outstanding common
stock of BLH not previously owned by Conseco and related transactions (the "BLH
Transaction"); (2) the CAF Merger; (3) the planned issuance of $350.0 million of
9.25 percent tax deductible preferred securities ("Preferred Securities") and
the use of the proceeds to reduce outstanding debt (the "Preferred Securities
Offering"); and (4) the THI Merger.
The summary unaudited pro forma consolidated balance sheet information
at June 30, 1996, in the column headed "Pro forma Conseco before the Merger"
reflects the application of certain pro forma adjustments for the LPG Merger,
the Series D Call and the ALH Transaction, which have already occurred. The
summary unaudited pro forma consolidated balance sheet information at June 30,
1996, in the columns headed "Pro forma for the Merger" reflects further
adjustments to the financial position of Conseco as if the Merger had occurred
on June 30, 1996. The summary unaudited pro forma consolidated balance sheet
information at June 30, 1996, in the columns headed "Pro forma for the Merger
and other planned transactions" reflects further adjustments to the financial
position of Conseco as if the following additional planned transactions had
occurred on June 30, 1996: (1) the BLH Transaction; (2) the CAF Merger; (3) the
Preferred Securities Offering; and (4) the THI Merger.
26
<PAGE>
The summary unaudited pro forma financial information for the year
ended December 31, 1995, and as of and for the six months ended June 30, 1996,
is provided for informational purposes only and is 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 future results of operations or financial condition of Conseco. Conseco
anticipates cost savings and additional benefits as a result of completing the
transactions set forth above. Such benefits and any other changes that might
have resulted from management of the combined companies have not been included
as adjustments to the pro forma consolidated financial statements. The Merger,
the CAF Merger and the THI Merger will be accounted for under the purchase
method of accounting. The BLH Transaction will be accounted for using the step
acquisition method of accounting.
<TABLE>
<CAPTION>
Year ended December 31, 1995 Six months ended June 30, 1996
-------------------------------------- ---------------------------------------
Pro forma for Pro forma for
Pro forma the Merger Pro forma the Merger
Conseco Pro forma and other Conseco Pro forma and other
before the for the planned before the for the planned
Merger Merger transactions Merger Merger transactions
------ ------ ------------ ------ ------ ------------
(amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income........................ $1,752.8 $2,026.7 $2,498.7 $ 897.2 $1,084.1 $1,286.3
Investment activity:
Net investment income...................... 1,461.1 1,486.1 1,574.0 719.4 741.4 783.7
Net trading income (losses) ............... 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains ....................... 220.3 222.5 222.0 15.4 19.0 19.0
Total revenues................................. 3,498.4 3,799.5 4,358.9 1,685.4 1,897.9 2,143.0
Interest expense on notes payable.............. 143.5 145.5 161.9 67.6 70.1 78.5
Total benefits and expenses.................... 3,001.7 3,278.2 3,771.9 1,423.9 1,616.5 1,822.7
Income before income taxes, minority interest
and extraordinary charge................... 496.7 521.3 587.0 261.5 281.4 320.3
Income before extraordinary charge............. 283.1 295.2 348.6 148.9 159.9 191.9
PER SHARE DATA
Income before extraordinary charge, primary.... $3.74 $3.32 $3.33 $1.93 $1.77 $1.82
Income before extraordinary charge, fully
diluted.................................... 3.72 3.15 3.17 1.91 1.69 1.74
Book value per common share outstanding
at period end.............................. 24.29 28.17 30.11
Shares outstanding at period end............... 65.7 78.8 88.5 66.9 80.0 89.7
Average fully diluted shares outstanding....... 76.0 94.1 103.8 77.8 95.9 105.6
BALANCE SHEET DATA - PERIOD END
Total assets................................... $23,058.3 $24,540.6 $26,644.5
Notes payable for which Conseco is directly
liable..................................... 1,198.5 1,468.9 2,183.6
Notes payable of BLH, not direct obligations
of Conseco................................. 437.9 437.9 -
Total liabilities.............................. 21,015.7 21,869.2 23,233.3
Minority interest.............................. 150.7 150.7 93.2
Shareholders' equity .......................... 1,891.9 2,520.7 3,318.0
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1995 Six months ended June 30, 1996
--------------------------------------- ---------------------------------------
Pro forma for Pro forma for
Pro forma the Merger Pro forma the Merger
Conseco Pro forma and other Conseco Pro forma and other
before the for the planned before the for the planned
Merger Merger transactions Merger Merger transactions
------ ------ ------------ ------ ------ ------------
(amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (a)
Premiums collected (b)........................ $3,671.8 $3,945.8 $4,418.1 $1,781.7 $1,968.6 $2,170.8
Operating earnings (c)........................ 231.0 241.7 295.2 136.0 144.7 175.9
Operating earnings per fully diluted
common share (c).......................... 3.04 2.58 2.65 1.75 1.54 1.59
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities (d)................... 1,948.3 2,577.1 3,374.4
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities (d)............................ 25.13 28.87 30.74
Ratio of debt for which Conseco is directly
liable to total capital of Conseco only (e):
As reported............................ .39X .37X .39X
Excluding unrealized appreciation
(depreciation) (d)................... .38X .36X .39X
Excluding unrealized appreciation
(depreciation) and assuming conversion
of ATC's Convertible Subordinated
Debentures into Conseco Common
Stock (d)............................ .30X .34X
Adjusted statutory capital (at period end) (f) $1,508.6 $1,582.9 $1,834.9 $1,515.6 $1,603.3 $1,849.5
Adjusted statutory earnings (g)............... 440.7 411.1 493.8 231.6 239.0 279.4
Ratio of adjusted statutory earnings to cash
interest (h).............................. 3.08X 2.78X 3.02X 3.42X 3.31X 3.50X
<FN>
(a) Amounts under this heading are included to assist the reader in analyzing
Conseco's pro forma financial position and pro forma results of
operations. Such amounts are not intended to, and do not, represent pro
forma insurance policy income, pro forma net income, pro forma net income
per share, pro forma shareholders' equity or pro forma book value per
share prepared in accordance with GAAP.
(b) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(c) Represents pro forma income before extraordinary charge, excluding net
trading income (net of income taxes), net realized gains (less that
portion of change in future policy benefits, amortization of cost of
policies purchased and cost of policies produced and income taxes
relating to such gains) and restructuring activities (net of income
taxes).
(d) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component
of shareholders' equity, net of tax and other adjustments, which Conseco
began to do in 1992. Such adjustments are in accordance with SFAS 115, as
described in the notes to the consolidated financial statements included
in Conseco's Annual Report which is incorporated herein by reference.
(e) Represents the ratio of pro forma notes payable for which Conseco is
directly liable to the sum of pro forma shareholders' equity, pro forma
notes payable for which Conseco is directly liable and (in the case of
the column headed "Pro forma for the Merger and other planned
transactions") minority interest.
(f) Includes: (1) statutory capital and surplus; (2) AVR and IMR; and (3) the
portion of surplus debentures carried by the life companies as a
liability to Conseco. Such statutory data reflect the combined data
derived from the annual statements of Conseco's pro forma life insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(g) Represents gains from operations before interest expense (except interest
on annuities and financial products) and income taxes of Conseco's pro
forma life insurance subsidiaries as reported for statutory accounting
purposes plus income before interest expense and income taxes of
Conseco's pro forma non-life subsidiaries.
28
<PAGE>
(h) Represents the pro forma ratio of adjusted statutory earnings to cash
interest. Cash interest includes interest, except interest on annuities
and financial products, of Conseco and its pro forma subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
29
S:\ACCTING\SECRPT\S-4ATC.896\SUMMAR4.PRO
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND ATC
The following table sets forth selected historical per share data of
Conseco, LPG, ATC, CAF and THI and corresponding pro forma and pro forma
equivalent per share amounts for the year ended December 31, 1995, and as of and
for the six months ended June 30, 1996, giving effect to the LPG Merger, the
Series D Call, the ALH Transaction, the Merger, the CAF Merger, the BLH
Transaction, the Preferred Securities Offering and the THI Merger. Pro forma
equivalent amounts are presented assuming that the Conseco Share Price will be
$48.00, so that each share of ATC Common Stock is exchanged for .7298 shares of
Conseco Common Stock in the Merger. The information presented is derived from
the consolidated financial statements and related notes thereto included in
Conseco's Annual Report, LPG's Annual Report, ATC's Annual Report, CAF's Annual
Report, THI's Annual Report (all of which are incorporated by reference herein)
and the unaudited pro forma consolidated financial statements of Conseco
included elsewhere in this Joint Proxy Statement/Prospectus. The information
should be read in conjunction with such materials. See "Unaudited Pro Forma
Consolidated Financial Statements of Conseco." The pro forma financial
information is provided for informational purposes only and is not necessarily
indicative of the actual results that would have been achieved had the above
transactions been consummated at the beginning of the periods presented, or of
future results.
<TABLE>
<CAPTION>
Year ended Six months
December 31, ended June 30,
1995 1996
---- ----
<S> <C> <C>
Net income (loss) before extraordinary charge per fully diluted common share:
Historical:
Conseco.................................................................................. $ 4.26 $ 1.88
LPG...................................................................................... (.49) .56
ATC...................................................................................... 1.36 .81
CAF...................................................................................... 2.64 1.55
THI...................................................................................... (17.75) (a) 2.42
Pro forma:
Conseco before the Merger................................................................ $ 3.72 $ 1.91
Adjusted for the Merger.................................................................. 3.15 1.69
Further adjusted for the CAF Merger, the THI Merger and other planned transactions...... 3.17 1.74
Equivalent for one share of ATC Common Stock............................................. 2.31 1.27
Dividends per common share:
Historical:
Conseco.................................................................................. $ .093 $ .040
LPG...................................................................................... .110 .060
ATC...................................................................................... - -
CAF...................................................................................... .360 .200
THI...................................................................................... - -
Pro forma:
Conseco before the Merger................................................................ $ .093 $ .040
Adjusted for the Merger.................................................................. .093 .040
Further adjusted for the CAF Merger, the THI Merger and other planned transactions....... .093 .040
Equivalent for one share of ATC Common Stock............................................. .068 .029
Book value per common share:
Historical:
Conseco.................................................................................. $17.68
LPG...................................................................................... 12.47
ATC...................................................................................... 10.50
CAF ..................................................................................... 16.83
THI...................................................................................... 61.60 (b)
Pro forma:
Conseco before the Merger................................................................ $24.29
Adjusted for the Merger.................................................................. 28.17
Further adjusted for the CAF Merger, the THI Merger and other planned transactions...... 30.11
Equivalent for one share of ATC Common Stock............................................. 21.97
<FN>
(a) Per share data for the year ended December 31, 1995 is presented as if the
1,590,461 shares outstanding after the September 29, 1995 distribution were
outstanding for the entire year.
(b) Book value per common share reflects the dilution which would occur if
THI's subordinated convertible notes were converted into common stock and
outstanding options were exercised.
</FN>
</TABLE>
S:\ACCTING\SECRPT\S-4ATC.896\PERSHAR4.ATC
30
<PAGE>
MARKET PRICE DATA
Market prices for the shares of Conseco Common Stock are reported on
the NYSE, and market prices for the shares of ATC Common Stock are reported on
the NASDAQ National Market. The table below sets forth for the periods indicated
the high and low sale prices of Conseco Common Stock and ATC Common Stock and
the dividends paid per share of Conseco Common Stock. ATC has not paid dividends
on ATC Common Stock. For current price information with respect to the Conseco
Common Stock and ATC Common Stock, shareholders are urged to consult publicly
available sources.
<TABLE>
<CAPTION>
Conseco Common Stock ATC Common Stock
High Low Dividends High Low
------ --------- --------- ------- ------
1994
<S> <C> <C> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . $32.125 $26.563 $0.0625 $ 9.875 $ 7.25
Second Quarter. . . . . . . . . . . . . . 29.063 23.188 0.0625 9.375 7.313
Third Quarter . . . . . . . . . . . . . . 26.188 21.625 0.0625 11.75 8.75
Fourth Quarter. . . . . . . . . . . . . . 23.125 17.938 0.0625 12 8.875
1995
First Quarter . . . . . . . . . . . . . . 24.313 16.25 0.0625 13.625 $ 10.563
Second Quarter. . . . . . . . . . . . . . 23.313 19.563 0.0625 13.438 10.938
Third Quarter . . . . . . . . . . . . . . 26.625 22.75 0.01 12.875 10.563
Fourth Quarter. . . . . . . . . . . . . . 31.563 25.438 0.01 18.75 12.125
1996
First Quarter . . . . . . . . . . . . . . 36.313 29.875 0.01 20.917 $ 17.417
Second Quarter. . . . . . . . . . . . . . 40.75 34.75 0.02 23.875 17.25
Third Quarter . . . . . . . . . . . . . . 49.375 35.25 0.02 33.375 19.50
</TABLE>
The information set forth in the table below presents: (1) the closing
price for shares of Conseco Common Stock and ATC Common Stock on August 23,
1996, the last day on which trading occurred prior to the public announcement of
the Merger Agreement and on ________________, 1996, the last full trading day
for which information was available prior to the mailing of the Joint Proxy
Statement/Prospectus and (2) the "Equivalent Per Share Price" (as hereinafter
defined) of ATC Common Stock on August 23, 1996 and _____________, 1996. The
"Equivalent Per Share Price" of ATC Common Stock represents the closing price
per share of Conseco Common Stock reported on the NYSE, multiplied by .7574 and
_____ assuming consummation of the Merger had occurred on August 23, 1996 and
_________, 1996, respectively. The amount and value of the Merger Consideration
to be received by holders of the ATC Common Stock can be determined only at the
date the Merger is consummated. See "The Merger Agreement - Conversion of
Shares; Exchange of Stock Certificates; No Fractional Amounts."
<TABLE>
<CAPTION>
ATC
Conseco ATC Common Stock
Common Common Equivalent Per
Per Share Price Stock Stock Share Price
--------------- ----- ----- -----------
<S> <C> <C> <C>
August 23, 1996................................. $ 42.00 $ 28.38 $ 31.81
___________, 1996...............................
</TABLE>
31
<PAGE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger.
Conseco and ATC shareholders are urged to obtain a current market
quotation for the Conseco Common Stock and the ATC Common Stock. No assurance
can be given as to the future prices of, or markets for, Conseco Common Stock or
ATC Common Stock.
32
<PAGE>
INFORMATION CONCERNING CONSECO
Background
Conseco is a financial services holding company engaged primarily in
the development, marketing and administration of annuity, individual health
insurance and individual life insurance products. Conseco's earnings result
primarily from operating life insurance companies and other financial services
businesses and providing investment management, administrative and other
fee-based services to affiliated businesses as well as non-affiliates. Conseco's
operating strategy is to consolidate and streamline management and
administrative functions, to realize superior investment returns through active
asset management and to focus resources on the development and expansion of
profitable products and strong distribution channels.
On August 2, 1996, the Company completed the LPG Merger and LPG became
a wholly-owned subsidiary of Conseco. 16.3 million shares of Conseco Common
Stock were issued in connection with the LPG Merger, and Conseco assumed notes
payable of LPG of $249.5 million. The subsidiaries of LPG sell a diverse
portfolio of universal life insurance and, to a lesser extent, annuity products
to individuals.
On September 30, 1996, Conseco completed the acquisition of all of the
common shares of ALH not already owned by Conseco for approximately $165 million
in cash. ALH is a provider of retirement savings annuities.
Conseco currently holds major ownership interests in the following life
insurance businesses: (1) BLH, a NYSE-listed company in which Conseco currently
holds a 90.5 percent ownership interest (and which is the parent company of
Bankers Life and Casualty Company ("Bankers Life")); (2) ALH, formerly The
Statesman Group, Inc., in which Conseco holds a 59.2 percent ownership interest
and BLH holds the remaining 40.8 percent ownership interest; (3) Great American
Reserve Insurance Company ("Great American Reserve") and Beneficial Standard
Life Insurance Company ("Beneficial Standard"), in which Conseco has had an
ownership interest since their acquisition by Conseco Capital Partners, L.P. and
which became wholly-owned subsidiaries in August 1995; (4) the subsidiaries of
LPG, which are now wholly-owned subsidiaries of Conseco, including Philadelphia
Life Insurance Company ("Philadelphia Life"), Massachusetts General Life
Insurance Company ("Massachusetts General Life") and Lamar Life Insurance
Company ("Lamar Life"); and (5) Bankers National Life Insurance Company
("Bankers National"), National Fidelity Life Insurance Company ("National
Fidelity") and Lincoln American Life Insurance Company ("Lincoln American"), all
of which are wholly owned by Conseco and which have profitable blocks of
in-force business, although new product sales are currently not being pursued.
BLH and its subsidiaries are collectively referred to hereinafter as BLH.
Life Insurance Operations
Conseco's insurance operations are conducted through three segments:
(1) senior market operations, consisting of the activities of BLH; (2) annuity
operations, consisting of the activities of Great American Reserve and
Beneficial Standard; and (3) life insurance operations, consisting of the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life, as
well as National Fidelity, Bankers National and Lincoln American.
Senior Market Operations. BLH, with total assets of approximately $4.9
billion at June 30, 1996, markets health and life insurance and annuity products
primarily to senior citizens through
33
<PAGE>
approximately 200 branch offices and approximately 3,200 career agents. Most of
BLH's agents sell only BLH policies. Approximately 56 percent of the $1,513.8
million of total premiums and annuity deposits collected by BLH in 1995 (and
approximately 59 percent of $757.9 million of total premiums and annuity
deposits collected in the first six months of 1996) was from the sale of
individual health insurance products, principally Medicare supplement and
long-term care policies. BLH believes that its success in the individual health
insurance market is attributable in large part to its career agency force, which
permits one-on-one contacts with potential policyholders and builds loyalty to
BLH among existing policyholders. Its efficient and highly automated claims
processing system is designed to complement its personalized marketing strategy
by stressing prompt payment of claims and rapid response to policyholder
inquiries.
Annuity Operations. The annuity companies, with total assets of
approximately $5.5 billion at June 30, 1996, market, issue and administer
annuity, life and employee benefit-related insurance products through two
cost-effective distribution channels: (1) approximately 3,000 educator market
specialists, who sell tax-qualified annuities and certain employee
benefit-related insurance products primarily to school teachers and
administrators; and (2) approximately 9,000 professional independent producers,
who sell various annuity and life insurance products aimed primarily at the
retirement market. Approximately 87 percent of the $709.8 million of total
premiums collected by the annuity companies in 1995 (and approximately 88
percent of the $347.5 million of total premiums and annuity deposits collected
in the first six months of 1996) was from the sale of annuity products.
Effective September 30, 1996, this segment includes ALH after its acquisition by
Conseco. ALH, with total assets of approximately $6.1 billion at June 30, 1996,
is engaged primarily in the development, marketing, underwriting, issuance and
administration of annuity and life insurance products. ALH markets those
products through a general agency and insurance brokerage system comprised of
approximately 25,000 independent licensed agents. Approximately 91 percent of
the $825.6 million of total premiums and annuity deposits collected by ALH in
1995 (and approximately 91 percent of the $358.7 million of total premiums and
annuity deposits collected in the first six months of 1996) was from the sale of
deferred annuities. On September 30, 1996, Conseco completed the acquisition of
the shares of ALH common stock not already owned by Conseco for approximately
$165 million in cash.
Life Insurance Operations. Life insurance operations include the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life,
beginning with their acquisition in the third quarter of 1996. These companies
distribute universal life insurance products using two primary marketing
systems--the client company system and the regional director system--comprising
a total of approximately 25,000 professional independent producers.
Approximately 74 percent of the $497.3 million of total insurance premiums and
annuity deposits collected by LPG in 1995 (and approximately 72 percent of the
$280.1 million of total insurance premium and annuity deposits collected in the
first six months of 1996) was from the sale of life insurance products,
primarily universal life insurance. Segment activities also include Conseco's
other wholly owned life insurance subsidiaries--Bankers National Life, National
Fidelity Life and Lincoln American Life--which have profitable in-force blocks
of annuity and life products, but do not currently market their products to new
customers.
Fee-Based Operations
Conseco's subsidiaries provide various services to affiliated and
unaffiliated clients. Conseco Capital Management, Inc. manages approximately $28
billion of invested assets at June 30, 1996, including $17.2 billion of assets
of affiliated companies. Marketing Distribution Systems Consulting Group, Inc.
provides marketing services to financial institutions related to the
distribution of insurance and investment products. Conseco Risk Management, Inc.
distributes property and casualty insurance products as an independent agency.
Conseco Mortgage Capital, Inc. originates and services mortgages.
34
<PAGE>
Total fees from affiliates and nonaffiliates were $69.2 million and $54.3
million for 1995 and the first six months of 1996. To the extent that these
services are provided to entities that are included in the financial statements
on a consolidated basis, the intercompany fees are eliminated in consolidation.
Earnings in this segment increase when Conseco adds new clients (either
affiliated or unaffiliated) and when Conseco increases the fee-producing
activities conducted for clients. Effective January 1, 1996, Conseco's
subsidiaries entered into new service agreements with its service subsidiaries.
Such new agreements had the effect of increasing revenues from fee-based
operations by $21.9 million in the first six months of 1996, but had no effect
on consolidated net income.
In addition to Conseco's fee-based operations, Conseco Private Capital
Group, Inc. makes direct strategic investments in growing companies, providing
these firms with the capital or financing they need to continue their growth,
make acquisitions or realize the potential of their businesses.
Other Pending Acquisitions by Conseco
CAF. On August 25, 1996, Conseco and CAF entered into an Agreement and
Plan of Merger (the "CAF Merger Agreement") pursuant to which CAF will be merged
with and become a wholly-owned subsidiary of Conseco. Under the CAF Merger
Agreement, each of the approximately 17.8 million issued and outstanding shares
of common stock of CAF would be converted into the right to receive (1) $30.00
in cash plus the Time Factor (as defined below), if any, and (2) the fraction
(rounded to the nearest ten-thousandth) of a share of Conseco Common Stock
determined by dividing $6.50 by the Trading Value (as hereinafter defined). The
"Trading Value" shall be equal to the average of the closing prices of the
Conseco Common Stock on the NYSE Composite Transactions Reporting System for the
20 consecutive trading days immediately preceding the second trading day prior
to the date of the CAF Merger. The "Time Factor" will be equal to $0.25 if the
CAF Merger does not occur by December 10, 1996, which amount will increase by an
additional $0.25 on the tenth day of each month thereafter until the CAF Merger
is consummated.
THI. On September 25, 1996, Conseco and THI entered into an Agreement
and Plan of Merger (the "THI Merger Agreement") pursuant to which THI will be
merged with and into Conseco, with Conseco being the surviving corporation.
Under the THI Merger Agreement, each of the outstanding shares of common stock
of THI would be converted into the right to receive the whole number and
fraction (rounded to the nearest ten-thousandth) of a share of Conseco Common
Stock determined by dividing $70.00 by the Conseco/THI Share Price (as
hereinafter defined). The "Conseco/THI Share Price" shall be equal to the
Trading Average (as hereinafter defined); provided, however, that if the Trading
Average is less than $38.25, then the Conseco/THI Share Price shall be $38.25,
and if the Trading Average is greater than $50.00, then the Conseco/THI Share
Price shall be $50.00. The "Trading Average" shall be equal to the average of
the closing prices of the Conseco Common Stock on the NYSE Composite
Transactions Reporting System for the 10 consecutive trading days immediately
preceding the second trading day prior to the date of the THI Merger.
BLH. Conseco also announced on August 26, 1996 that it intends to merge
with BLH in a transaction in which each of the 4.7 million shares of BLH Common
Stock not already owned by Conseco would be converted into the right to receive
$25.00 in Conseco Common Stock.
Consummation of the Merger is not conditioned upon consummation by
Conseco of the other pending acquisitions. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco."
35
<PAGE>
General Information Concerning Conseco
Conseco's executive offices are located at 11825 North Pennsylvania
Street, Carmel, Indiana 46032 and the telephone number for Conseco is (317)
817-6100.
For a more detailed description of the business of Conseco, including
information concerning ALH and BLH, see the description set forth in Conseco's
Annual Report, which is incorporated herein by reference. For additional
information concerning CAF, see the description set forth in CAF's Annual
Report, which is incorporated herein by reference. For additional information
concerning LPG, see the description set forth in LPG's Annual Report, which is
incorporated herein by reference. For additional information concerning THI, see
the description set forth in THI's Annual Report, which is incorporated herein
by reference.
INFORMATION CONCERNING ATC
General
ATC is an insurance holding company, the operations of which are
conducted through its insurance subsidiaries, American Travellers Life Insurance
Company ("ATL"), United General Life Insurance ("UGL") and American Travellers
Insurance Company of New York ("ATICNY"), and through its insurance agency
subsidiary, American Travellers Insurance Services Company, Inc. ("ATIS"). ATC,
through its operating subsidiaries, is licensed to market its products in 46
states, the District of Columbia, and the U.S. and British Virgin Islands.
ATC is a leading marketer and underwriter of long term care insurance.
ATC's long term care products consist of both nursing home and home health care
policies which provide limited benefit payments primarily to senior citizens.
ATC also markets and underwrites other supplemental accident and health
insurance policies, as well as life insurance. As of June 30, 1996, ATC's long
term care products accounted for approximately 90 percent of its annualized
premiums in force of $393.3 million. ATC has experienced substantial growth in
both premiums and net income, which have increased from 1993 through 1995 at
compounded annual rates of 28.3 percent and 27.3 percent, respectively. Since
1988, ATC has completed eight acquisitions of existing books of business from
other companies.
Product Lines
ATC's primary focus has been, and continues to be, the sale of long
term care insurance. ATC's other lines of insurance include (1) Medicare
supplement, (2) hospital indemnity, (3) cancer, (4) disability income, (5)
various accident and health riders, and (6) life insurance. Coverages are
generally provided on an individual basis rather than on a group basis.
Long Term Care Insurance
ATC's long term care products generally fall into one of two
categories: (1) nursing home care coverage, and (2) home health care coverage.
Some of ATC's products provide for a combination of both nursing home and home
health care benefits. Nursing home care coverage primarily provides for a fixed
indemnity benefit during periods of covered nursing home confinement. Home
health care coverage primarily provides for benefit payments based on expenses
incurred, subject to maximum hourly or daily limits. In addition to basic
nursing home care or home health care benefits, some products also provide
benefits for such expenses as prescription drugs (prescribed for use while the
policyholder is confined in a nursing home or is receiving home health care),
ambulance service and
36
<PAGE>
homemaker services. In addition, some policies include a rider, known as the
"Alternative Plan of Care," that provides benefits for facilities or services
other than nursing home care to the extent the insured would otherwise have
required nursing home confinement.
Marketing
Policies are marketed primarily through a network of over 22,400
independent agents and, to a lesser extent, by sponsored agents through ATIS,
and by sponsored agents who market products to members of the Veterans of
Foreign Wars of Pennsylvania, an organization which endorses ATC's products.
Other
For a more detailed description of the business of ATC, see the
description set forth in ATC's Annual Report, which is incorporated herein by
reference.
ATC's executive offices are located at 3220 Tillman Drive, Bensalem,
Pennsylvania 19020 and its telephone number is (215) 244-1600.
37
<PAGE>
SHAREHOLDER MEETINGS
General
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of Conseco Stock in connection with the solicitation of proxies by the
Conseco Board of Directors for use at the Conseco Special Meeting to be held on
__________, 1996, at ________________________________ _____________________,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to
holders of ATC Common Stock in connection with the solicitation of proxies by
the ATC Board of Directors for use at the ATC Special Meeting to be held on
___________, 1996 at ____________, _____________, Pennsylvania, commencing at
10:00 a.m., local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus
of Conseco filed with the Commission as part of the Registration Statement under
the Securities Act relating to the shares of Conseco Common Stock issuable in
connection with the Merger. This Joint Proxy Statement/Prospectus and
accompanying forms of proxy are first being mailed to shareholders of Conseco
and ATC on or about _____________, 1996.
Matters to be Considered at the Meetings
Conseco. At the Conseco Special Meeting, holders of shares of Conseco
Stock will consider and vote upon (1) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (2) such other business
as may properly come before the Conseco Special Meeting or any adjournments or
postponements thereof.
The Conseco Board of Directors has unanimously approved the Merger
Agreement and recommends that Conseco shareholders vote FOR approval and
adoption of the Merger Agreement. See "The Merger -- Background of the Merger"
and "- Conseco's Reasons for the Merger; Recommendation of the Conseco Board of
Directors."
Holders of shares of Conseco Stock will not be entitled to appraisal or
dissenters rights as a result of the Merger.
ATC. At the ATC Special Meeting, holders of shares of ATC Common Stock
will consider and vote upon (1) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (2) such other business
as may properly come before the ATC Special Meeting or any adjournments or
postponements thereof.
The ATC Board of Directors has unanimously approved the Merger
Agreement and recommends that ATC shareholders vote FOR approval and adoption of
the Merger Agreement. See "The Merger -- Background of the Merger" and "- ATC's
Reasons for the Merger; Recommendation of the ATC Board of Directors."
Holders of shares of ATC Common Stock will be entitled to dissenters
rights under the PBCL as a result of the Merger. See "The Merger -- Dissenters'
Rights."
38
<PAGE>
Voting at the Meetings; Record Date; Quorum
Conseco. The Conseco Board of Directors has fixed ___________, 1996 as
the Conseco Record Date. Accordingly, only holders of record of shares of
Conseco Common Stock and Conseco PRIDES on the Conseco Record Date will be
entitled to notice of and to vote, together as a single class, at the Conseco
Special Meeting. As of the Conseco Record Date, there were ___________ shares of
Conseco Common Stock outstanding and entitled to vote, and ______________ shares
of Conseco PRIDES outstanding and entitled to vote. Each holder of record of
shares of Conseco Common Stock on the Conseco Record Date is entitled to cast,
either in person or by properly executed proxy, one vote per share of Conseco
Common Stock on the Merger Agreement and such other matters properly submitted
for the vote of the Conseco shareholders at the Conseco Special Meeting. Each
holder of record of shares of Conseco PRIDES on the Conseco Record Date is
entitled to cast, either in person or by properly executed proxy, four-fifths
(4/5) of one vote per share of Conseco PRIDES on the Merger Agreement and such
other matters properly submitted for the vote of the Conseco shareholders at the
Conseco Special Meeting. The presence at the Conseco Special Meeting, in person
or by properly executed proxy, of the holders of Conseco Common Stock and
Conseco PRIDES entitled to cast a majority of the votes at the Conseco Special
Meeting is necessary to constitute a quorum at the Conseco Special Meeting.
The approval by a majority of the votes entitled to be cast by holders
of Conseco Stock is required for approval of the Merger Agreement. Shares
subject to abstentions will be treated as shares that are present at the Conseco
Special Meeting for purposes of determining the presence of a quorum but as
unvoted for purposes of determining the number of shares voting on a particular
proposal. If a broker or other nominee holder indicates on the proxy card that
it does not have discretionary authority to vote the shares for which it is the
holder of record on a particular proposal, those shares will not be considered
as votes cast for purposes of determining the number of Conseco shareholders
that have voted for or against the proposal. Accordingly, abstentions and broker
non-votes will have the same practical effect as a vote against the approval and
adoption of the Merger Agreement or any other matter submitted to the Conseco
shareholders which requires a percentage of the total number of votes entitled
to be cast for approval.
As of September 20, 1996, the executive officers and directors of
Conseco (as a group, ten persons) were entitled to vote 6,598,074 shares of
Conseco Common Stock and no shares of Conseco PRIDES, representing approximately
9.4 percent of the outstanding votes of Conseco Stock entitled to be cast as of
such date. The executive officers of Conseco (as a group, five persons) were
entitled to vote 5,659,227 shares of Conseco Common Stock and no shares of
Conseco PRIDES, representing approximately 8.1 percent of the outstanding votes
of Conseco Stock entitled to be cast as of such date. The executive officers are
obligated pursuant to written agreements with ATC to vote such shares in favor
of the approval and adoption of the Merger Agreement at the Conseco Special
Meeting.
The following table sets forth information as of September 20, 1996,
regarding ownership of Conseco Common Stock (excluding shares held by
subsidiaries not entitled to vote) by the only persons known to own beneficially
more than five percent thereof, by the directors individually, by the executive
officers individually, and by all executive officers and directors of Conseco as
a group. Where any footnote indicates that shares included in the table are
owned by, or jointly with, family members or by an affiliate of such person, the
executive officer or director may be deemed to exercise shared voting and
investment power with respect to those shares, unless otherwise indicated. The
amounts shown below for each of the directors and executive officers do not
include (i) stock options which are not exercisable within 60 days of September
20, 1996 providing for the right to purchase an aggregate of 6,373,250 shares of
Conseco Common Stock and (ii) an aggregate of 1,449,517.6 units
39
<PAGE>
(each representing one share of Conseco Common Stock) under Conseco's Amended
and Restated Stock Bonus and Deferred Compensation Program and the Conseco 1994
Stock and Incentive Plan. The executive officers and directors do not own any
shares of any other class of equity securities of Conseco.
<TABLE>
<CAPTION>
Shares Owned and
Name and Address (1) Percentage of Ownership
------------------- -----------------------
Five- percent Owners:
<S> <C> <C>
Stephen C. Hilbert .................................................................... 3,430,614 (2) 5.0%
11825 North Pennsylvania Street
Carmel, Indiana 46032
Alex Brown Investment Management....................................................... 7,115,626 (3) 10.6%
135 East Baltimore Street
Baltimore, Maryland 21201
Directors and Executive Officers:
Ngaire E. Cuneo....................................................................... 480,546 (4) *
David R. Decatur, M.D.................................................................. 18,802 *
Rollin M. Dick........................................................................ 1,722,226 (5) 2.6%
Louis P. Ferrero........................................................................ 6,000 (6) *
Donald F. Gongaware................................................................... 1,721,150 (7) 2.6%
M. Phil Hathaway....................................................................... 54,128 (8) *
Stephen C. Hilbert.................................................................... 3,430,614 (2) 5.0%
Lawrence W. Inlow......................................................................1,455,009 (9) 2.2%
James D. Massey........................................................................ 54,993 (10) *
Dennis E. Murray, Sr.................................................................... 828,924 (11) 1.2%
All executive officers and directors
as a group (10 persons).............................................................. 9,772,392 (12) 14.0%
<FN>
* less than 1%
(1) Address given for five-percent owners only.
40
<PAGE>
(2) Of these shares, 620,254 are owned by irrovacable trusts as to which Mr.
Hilbert has sole voting and investment power, and 1,155,370 are subject to
options held by Mr. Hilbert which are exercisable within 60 days.
(3) According to a Schedule 13G dated February 21, 1996, filed with the
Securities and Exchange Commission, the holder is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. The holder
has indicated that it has sole voting power with respect to 2,141,356 of such
shares and sole dispositive power as to all of the shares.
(4) Of these shares, 358,998 are subject to options held by Ms. Cuneo which are
exercisable within 60 days.
(5) Of these shares, 293,360 are owned by Mr. Dick's wife, 197,662 are owned by
a charitable foundation as to which shares he shares voting and investment
power, 375,940 are owned by a limited partnership in which Mr. Dick and his wife
are the general partners, 418,650 are subject to options held by Mr. Dick which
are exercisable within 60 days and 590 are attributable to Mr. Dick's account
under the ConsecoSave Plan, a 401(k) savings plan. Mr. Dick expressly disclaims
beneficial ownership of all shares owned by his wife and the charitable
foundation.
(6) All of these shares are subject to options held by Mr. Ferrero which are
exercisable within 60 days.
(7) Of these shares, 62,000 are owned by Mr. Gongaware's wife, 140,000 are owned
by a charitable trust as to which shares he shares voting and investment power,
36,000 are owned by irrevocable trusts as to which Mr. Gongaware's wife has sole
voting and investment power, 558,650 are subject to options held by Mr.
Gongaware which are exercisable within 60 days and 460 are attributable to Mr.
Gongaware's account under the ConsecoSave Plan. Mr. Gongaware expressly
disclaims beneficial ownership for all shares owned by his wife and the trusts
as to which she has sole voting and investment power.
(8) Of these shares, 8,000 are owned by Mr. Hathaway's wife, and 6,000 are
subject to options held by Mr. Hathaway which are exercisable within 60 days.
Mr. Hathaway expressly disclaims beneficial ownership of all shares owned by his
wife.
(9) Of these shares, 187,985 are owned by irrevocable trusts as to which Mr.
Inlow has sole voting and investment power, 658,650 are subject to options held
by Mr. Inlow which are exercisable within 60 days and 508 are attributable to
Mr. Inlow's account under the ConsecoSave Plan.
(10) Of these shares, 6,000 are subject to options held by Mr. Massey which are
exercisable within 60 days.
(11) Of these shares, 592,000 are owned by retirement plan trusts as to which
Mr. Murray shares voting and investment pwer, and 6,000 are subject to options
held by Mr. Murray which are exercisable within 60 days.
(12) Includes 3,174,318 shares subject to outstanding stock options which are
exercisable within 60 days.
</FN>
</TABLE>
41
<PAGE>
ATC. The ATC Board of Directors has fixed ___________, 1996 as the ATC
Record Date. Accordingly, only holders of record of shares of ATC Common Stock
on the ATC Record Date will be entitled to notice of and to vote at the ATC
Special Meeting. As of the ATC Record Date, there were __________ shares of ATC
Common Stock outstanding and entitled to vote. Each holder of record of shares
of ATC Common Stock on the ATC Record Date is entitled to cast, either in person
or by properly executed proxy, one vote per share on the Merger Agreement and
the other matters, if any, properly submitted for the vote of the ATC
shareholders at the ATC Special Meeting. The presence at the ATC Special
Meeting, in person or by properly executed proxy, of the holders of stock
representing a majority of the voting power of all outstanding shares of ATC
Common Stock is necessary to constitute a quorum at the ATC Special Meeting.
The approval and adoption by ATC of the Merger Agreement will require the
affirmative vote of at least a majority of the votes cast by all holders of ATC
Common Stock entitled to vote thereon. Shares subject to abstentions and any
shares as to which a broker or nominee indicates that it does not have
discretionary authority to vote on a particular proposal will be treated as
shares that are present at the ATC Special Meeting for purposes of determining
the presence of a quorum but as unvoted for purposes of determining whether
approval of the shareholders has been obtained on a particular proposal.
Accordingly, abstentions and brokers non-votes will have the same practical
effect as a vote against the approval and adoption of the Merger Agreement or on
any other matter submitted to the ATC shareholders.
As of September 20, 1996, the executive officers and directors of ATC and
the Trustees were entitled to vote 1,738,549 shares of ATC Common Stock, or
approximately 10.7 percent of the number of shares of ATC Common Stock
outstanding and entitled to vote as of such date. John A. Powell and the
Trustees were entitled to vote 1,556,733 shares of ATC Common Stock, or
approximately 9.6 percent of the number of shares of ATC Common Stock
outstanding and entitled to vote as of such date and such persons are obligated,
pursuant to written agreements with Conseco, to vote their shares at the ATC
Special Meeting in favor of adoption of the Merger Agreement.
The following table sets forth information as of September 20, 1996
regarding ownership of ATC Common Stock by the only persons known to own
beneficially more than five percent thereof, by the directors individually, by
certain of the executive officers individually, and by all executive officers
and directors of ATC as a group. Unless otherwise indicated, each person has
sole voting and investment power over the shares deemed to be beneficially owned
by such person.
<TABLE>
<CAPTION>
Shares Owned and
Name and Address (1) Percentage of Ownership
-------------------- ------------------------
Five- percent Owners:
<S> <C> <C>
John A. Powell......................................................................2,011,540 (2) 11.3%
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Brinson Partners, Inc...............................................................1,307,994 (3) 8.1%
209 South La Salle Street
Chicago, Illinois 60604-1295
42
<PAGE>
Trust under Deed of Trust of Francis E. Powell, Jr...................................1,062,693 (4) 6.5%
c/o Ramon R. Obod, Esquire
2000 Market Street, 10th Floor
Philadelphia, Pennsylvania 19103
Directors and Executive Officers:
Susan T. Mankowski.....................................................................174,250 (2) 1.1%
Walter E. Conrad........................................................................83,956 (2) *
Walter J. Diener........................................................................58,500 (5) *
Thomas J. Parry.........................................................................53,500 (2) *
Alice E. Powell.........................................................................53,500 (2)(4) *
Ramon R. Obod...........................................................................53,355 (2)(4) *
Arnold H. Keehn.........................................................................42,150 (2) *
Ronald J. Holmer........................................................................40,857 (2)(6) *
Benedict J. Iacovetti...................................................................21,750 (2) *
Ernest Iannucci.........................................................................13,250 (2) *
Henry G. Hager.......................................................................... 5,500 (2) *
Directors and officers as a group (15 persons).......................................2,790,813 (2) 15.2%
<FN>
* less than 1%
(1) Address given for five-percent owners only.
(2) John A. Powell, Susan T. Mankowski, Walter E. Conrad, Thomas J. Parry, Alice
E.Powell, Ramon R. Obod, Arnold H. Keehn, Ronald J. Holmer, Benedict J.
Iacovetti, Ernest Iannucci, Henry G. Hager and the directors and officers of ATC
as a group may acquire 1,517,500, 151,750, 22,000, 52,000, 52,000, 38,750,
40,500, 33,500, 21,750, 11,750, 4,000 and 2,113,375 shares, respectively,
pursuant to stock options which are currently exercisable or become exercisable
within sixty (60) days, which numbers of shares are included in the respective
numbers of shares beneficially owned.
43
<PAGE>
(3) Brinson Partners, Inc. ("BPI") has indicated in a Schedule 13-G dated
February 9, 1996 filed on behalf of itself, its wholly-owned subsidiary, Brinson
Trust Company ("BTC"), its parent company, Brinson Holdings, Inc. ("BHI"), BHI's
parent company, SBC Holding (USA), Inc. ("SBCUSA"), and SBCUSA's parent company,
Swiss Bank Corporation ("SBC"), that BPI owns directly 956,812 of the shares,
BTC owns directly 351,182 of the shares and that BHI, SBCUSA and SBC own the
shares indirectly through BPI and BTC.
(4) Alice E. Powell, Debra F. Powell and Ramon R. Obod are the Trustees. Shares
owned by the Trust are not included in the number of shares beneficially owned
by the Trustees.
(5) All shares held jointly by Mr. Diener and his wife.
(6) Includes 2,775 shares held by Mr. Holmer's wife and 1,582 shares obtainable
by Mr. Holmer's wife upon conversion of the Debentures owned by her.
</FN>
</TABLE>
Proxies
This Joint Proxy Statement/Prospectus is being furnished to holders of
Conseco Stock and ATC Common Stock in connection with the solicitation of
proxies by and on behalf of the respective Boards of Directors of Conseco and
ATC for use at the Conseco Special Meeting or the ATC Special Meeting, as the
case may be.
Conseco Stock and ATC Common Stock represented by properly executed proxies
received at or prior to the Conseco Special Meeting and the ATC Special Meeting,
respectively, that have not been revoked will be voted at the Conseco Special
Meeting and the ATC Special Meeting, respectively, in accordance with the
instructions contained therein. The stock represented by properly executed
proxies for which no instruction is given will be voted FOR approval and
adoption of the Merger Agreement. Shareholders are requested to complete, sign,
date and return promptly the enclosed proxy card in the postage-prepaid envelope
provided for this purpose to ensure that their shares are voted. A shareholder
of Conseco or ATC may revoke a proxy at any time prior to the vote on the Merger
Agreement by (i) submitting a later-dated proxy with respect to the same shares,
(ii) delivering written notice of revocation to the Secretary of Conseco or ATC,
as the case may be, at any time prior to such vote, or (iii) attending the
Conseco Special Meeting or the ATC Special Meeting, as the case may be, and
voting in person. Mere attendance at the Conseco Special Meeting or the ATC
Special Meeting will not, in and of itself, revoke a proxy.
If the Conseco Special Meeting or the ATC Special Meeting is postponed or
adjourned for any reason, at any subsequent reconvening of the Conseco Special
Meeting or the ATC Special Meeting all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Conseco
Special Meeting or the ATC Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
If any other matters are properly presented at the Conseco Special Meeting
or the ATC Special Meeting for consideration, including among other things,
consideration of a motion to adjourn the meeting to another time and/or place
(including, without limitation, for the purpose of soliciting
44
<PAGE>
additional proxies), the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
Conseco and ATC will each bear the cost of soliciting proxies from their
respective shareholders. Additionally, Conseco and ATC will each bear one-half
the cost of preparing and mailing this Joint Proxy Statement/Prospectus and the
preparation and filing of the Registration Statement. In addition to
solicitation by mail, directors, officers and employees of Conseco and ATC may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees of Conseco and ATC will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage firms, fiduciaries and other custodians who
forward soliciting material to the beneficial owners of shares of Conseco Stock
and shares of ATC Common Stock held of record by them will be reimbursed for
their reasonable expenses incurred in forwarding such material. In addition,
Conseco and ATC have retained Georgeson & Company, Inc. ("Georgeson") to assist
in soliciting proxies and to provide materials to banks, brokerage firms,
nominees, fiduciaries and other custodians. For such services, Conseco and ATC
will pay Georgeson a fee of $_________ plus reimbursement of reasonable
expenses.
ATC SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
Background of the Merger
In late July 1996, John A. Powell, the Chairman and Chief Executive Officer
of ATC consulted with representatives of DLJ to ascertain whether there existed
books of business that would be potential acquisition targets of ATC. During the
ensuing discussions, Mr. Powell suggested that DLJ contact Conseco to determine
if it would be interested in selling its book of long term care insurance
business to ATC. DLJ made the contact with Conseco and reported back to ATC that
Conseco was not interested in selling its long term care book of business but
that Conseco expressed a preliminary indication of interest in the possibility
of a merger with ATC. In following up on Conseco's expression of interest, on
August 1, 1996, Mr. Powell met with Stephen C. Hilbert, the Chairman of the
Board, President and Chief Executive Officer of Conseco, and Rollin M. Dick, the
Executive Vice President and Chief Financial Officer of Conseco, during which
meeting they preliminarily explored the advantages of combining the companies
and discussed operating philosophies and growth potential in the long term care
insurance business. In further pursuit of such preliminary discussions, Mr.
Powell and Ramon R. Obod, general counsel to ATC, met with DLJ representatives
on August 7, 1996 and Mr. Powell met again with Mr. Hilbert on that date.
As a result of those meetings, Conseco indicated a strong interest in
merging with ATC and proposed a tax free transaction pursuant to which Conseco
Common Stock would be issued in exchange for ATC Common Stock.
On August 8, 1996, at a meeting of the Board of Directors, the directors of
ATC were informed by Mr. Powell of the discussions regarding a possible merger
with Conseco. Mr. Powell reviewed the background events leading to the merger
discussions, the proposed transaction structure, the proposed principal terms
and conditions of the acquisition, the due diligence that had been accomplished
to date and the probable timing of the transaction. Mr. Powell also indicated
that Conseco had recently completed its acquisition of LPG and was in the
process of conducting merger (or acquisition) discussions with CAF. Mr. Powell
distributed to the Board a report dated August 7, 1996 prepared by
45
<PAGE>
DLJ which contained detailed financial information regarding Conseco, along with
a summary of the anticipated effects of the merger on the financial results of
Conseco and ATC. The initial proposed acquisition price and exchange ratio range
were discussed with the Board along with job security and severance issues and
the possibility of employment agreements for Mr. Powell and certain of ATC's
officers. With respect to severance, Mr. Powell summarized Conseco's severance
policy and indicated that the proposed merger agreement allowed for
approximately $2 million additional aggregate severance benefits. The provisions
of the proposed merger agreement allowing ATC to consider other offers if a
better proposal was made and the substantial "break up" fee payable to Conseco
if such alternative was exercised by ATC were discussed. Mr. Powell noted that
DLJ would be paid a fee for its services as financial advisor in connection with
the Merger and that DLJ would render a fairness opinion to the Board if the
transaction ensued. At the conclusion of the discussion, it was the unanimous
view of the Board that the transaction, within the structure described by Mr.
Powell, was in the best interest of ATC and its shareholders and that ATC was
authorized to proceed with negotiations with a view to developing a definitive
agreement at which time it would be considered in depth by the Board.
At the regular quarterly meeting of the Conseco Board of Directors held on
August 8, 1996, Mr. Hilbert and other members of Conseco's management reviewed
with the Board the discussions regarding a possible merger with ATC. Information
concerning ATC had been provided to the Directors prior to the meeting. After
the Board considered and discussed the proposed acquisition of ATC and the
proposed acquisitions of CAF, ALH and BLH, it was agreed that management of
Conseco would continue to pursue a possible acquisition of ATC, with the
understanding that final approval of any transaction would be considered at a
special meeting of the Conseco Board of Directors.
From August 12, 1996 through August 23, 1996 representatives of each
Company met with representatives of the other and conducted a due diligence
review of the business and financial condition of the other company. In
addition, ATC visited Conseco's facility.
Conseco furnished ATC with an initial draft of a form of merger agreement
on August 19, 1996 setting forth the terms of Conseco's offer to acquire ATC in
exchange for Conseco Common Stock. From that date through August 25, 1996,
members of the senior management of Conseco and ATC, together with their legal
advisors, negotiated the provisions of the Merger Agreement.
The Conseco Board of Directors met on August 23, 1996 to consider the
proposed merger. At the meeting, Conseco management reported on the due
diligence review undertaken by Conseco and its advisors and on the results of
the discussions to date with representatives of ATC and its legal and financial
advisors. The Conseco Board discussed the potential benefits to Conseco of an
acquisition of ATC. Management outlined for the Conseco Board the proposed terms
and conditions of the Merger Agreement. After reviewing and discussing the
merger proposal, the Conseco Board of Directors authorized management to execute
and deliver the Merger Agreement in the form presented at the meeting, with such
further changes as Conseco's management approved. See "-- Conseco's Reasons for
the Merger; Recommendation of the Conseco Board of Directors."
On August 24, 1996, ATC's Board of Directors held a special meeting. Prior
to the meeting each of the ATC directors received, among other documents, the
most recent draft of the Merger Agreement. At the meeting, ATC's senior
management and its legal and financial advisors reviewed the ongoing
discussions, negotiations and due diligence between ATC and Conseco. The terms
of the engagement letter with DLJ dated August 15, 1996 were reviewed and
unanimously approved. The ATC Board of Directors was informed by its legal
advisors with regard to the Board's fiduciary duties to the shareholders of ATC
in the context of considering the terms of the Merger Agreement. ATC's advisors
46
<PAGE>
also summarized, in detail, the material terms and conditions of the Merger
Agreement. Conseco management delivered a presentation of Conseco's business and
financial performance and plans and prospects for the future operation of the
combined enterprise and answered questions posed by the ATC Board of Directors.
DLJ's representatives made a presentation in which they summarized the terms of
the proposed transaction, explained the three other concurrent acquisitions of
Conseco, discussed the potential benefits of a merger and gave an overview of
Conseco and its other acquisitions. DLJ then presented its analysis of the
financial terms of the Merger Agreement and reviewed various public company
analyses and recent merger and acquisition transactions in the insurance
industry. DLJ then discussed various other financial considerations that it used
in its analyses and then answered questions of the ATC Board of Directors with
respect to its analyses. See "-- Opinion of ATC's Financial Advisor."
The Board of Directors of ATC held an additional meeting on August 25, 1996
after the completion of negotiations between the parties and their respective
representatives with regard to the definitive terms of the Merger Agreement.
After a full discussion of the proposed Merger and careful consideration by the
ATC Board of Directors of the terms of the Merger Agreement and the advice
rendered to the ATC Board of Directors by ATC's advisors, including the written
opinion delivered by DLJ to the effect, that, as of August 25, 1996 and based
upon and subject to the assumptions, limitations and qualifications set forth
in such opinion, the Exchange Ratio was fair, from a financial point of view, to
the holders of ATC Common Stock, the ATC Board of Directors voted unanimously to
approve the Merger Agreement in the form presented to it at the August 25, 1996
meeting. See "-- ATC's Reasons for the Merger; Recommendation of the ATC Board
of Directors" and "-- Opinion of ATC's Financial Advisor." The ATC Board of
Directors simultaneously (1) approved an amendment to ATC's Rights Agreement
(the "Rights Agreement") dated April 25, 1990 in order to clarify that the
Merger Agreement would not trigger the Rights Agreement; (2) confirmed the
termination of certain officers' employment agreements with ATC subject to the
consummation of the Merger and their entering new employment agreements with
Conseco; and (3) amended the ATC Stock Options in a manner consistent with
applicable sections of the Merger Agreement. See " -- Employment Agreements" and
"The Merger Agreement -- Treatment of ATC Stock Options."
Conseco's Reasons for the Merger; Recommendation of the Conseco Board of
Directors
The Board of Directors of Conseco approved the Merger Agreement by a
unanimous vote at its August 23, 1996 meeting. In reaching its decision, the
Conseco Board considered information provided at the Board meeting, including,
among other things, (1) information concerning the financial performance and
condition, business operations and prospects of ATC, including an analysis of
possible cost savings and synergies, and a qualitative overview of the
individual business segments, (2) the potential long-term and short-term effect
of the transaction on Conseco's earnings per share, (3) the structure of the
proposed transaction, (4) the terms of the Merger Agreement and (5) the
presentation and recommendation made by the management of Conseco.
A principal strategic objective of Conseco since it commenced operations in
1982 has been to acquire life and health insurance 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. In furtherance of this
strategy, Conseco has completed 13 acquisitions of insurance companies and
related businesses since it commenced operations. Conseco believes that the
value and profitability of its existing insurance subsidiaries can be enhanced
as a result of the cross- selling opportunities presented by a company which
complements Conseco's existing product lines and distribution channels.
47
<PAGE>
Conseco's operating strategy is to target selected markets which provide
significant growth potential and to focus its sales efforts on profitable
products which will provide predictable and diversified earnings regardless of
interest rate changes or other changes in the economic environment. Conseco also
seeks to be a major competitor in each of its targeted markets and to develop
strong, complementary distribution channels. Conseco intends to make strategic
acquisitions which are consistent with this strategy and which enable Conseco to
maintain its targeted ratio of debt to total capital.
The Conseco Board of Directors believe that the Merger and Conseco's other
pending acquisitions will enable Conseco to be a major competitor in the senior
market, with more than 90,000 agents selling long term care insurance, Medicare
supplement insurance, cancer insurance and other supplemental health insurance,
universal life insurance and retirement annuity products. After it consummates
the Merger and BLH Transaction, Conseco believes it will be the leading seller
of long term care insurance.
The Conseco Board of Directors also believes that the Merger offers Conseco
and ATC the opportunity to improve their profitability and capitalization
through the achievement of economies of scale, the elimination of redundancies
and the enhancement of market position. By consolidating certain operations and
eliminating expenses, Conseco expects to achieve, over time, significant savings
of operating costs. See " -- Conduct of the Business of Conseco and ATC After
the Merger." In addition, the issuance of additional shares of Conseco Common
Stock in the Merger would result in a substantial increase in Conseco's equity.
ACCORDINGLY, THE BOARD OF DIRECTORS OF CONSECO RECOMMENDS THAT THE
SHAREHOLDERS OF CONSECO VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT SET FORTH AS ITEM 1 ON THE CONSECO PROXY CARD.
ATC's Reasons for the Merger; Recommendation of the ATC Board of Directors
During the past few years, ATC recognized, and participated in, the trend
toward consolidation within the insurance industry where larger companies were
continuing to grow through the acquisition of smaller companies. A significant
portion of ATC's growth in premiums in force, revenues and earnings is
attributable to its historical acquisitions of books of business. However,
senior management of ATC noted recently that the number and quality of available
books of business for future acquisitions had diminished. Without a continuing
supply of such acquisitions, senior management believed that ATC may encounter
difficulty in sustaining its historical rate of growth to the satisfaction of
the investment community. Additionally, ATC's management was aware of the
probable need for additional capital required to consummate additional
acquisitions and maintain an appropriate statutory capitalization, and the
likely dilutive effect to ATC's shareholders of obtaining such capital.
ATC's senior management considered the acquisition proposal made by Conseco
in August 1996 in order to participate further in the industry consolidation
with the intention of enhancing shareholder value. After careful consideration
by the members of the ATC Board of Directors of the terms of the Merger
Agreement and the advice rendered to the ATC Board of Directors by ATC's
advisors, the ATC Board of Directors voted unanimously to approve the Merger
Agreement in the form presented to it at the Board of Directors meeting on
August 25, 1996. In voting to approve the Merger Agreement, the ATC Board of
Directors considered and relied upon many different factors including: (1) the
substantial premium over the market price of the ATC Common Stock at the time of
the commencement
48
<PAGE>
of the Merger negotiations offered by Conseco; (2) the financial condition and
results of operations of Conseco and the Board of Directors' perceptions of the
more favorable business prospects of Conseco and ATC on a combined basis as
compared to the prospect of ATC as a separate entity; (3) the tax deferred
nature of the transaction to the extent that the shareholders of ATC receive
shares of Conseco Common Stock in exchange for their shares of ATC Common Stock;
(4) the potential future performance of Conseco and the Conseco Common Stock,
including potential dividend payments, after the Merger and Conseco's strength
in the insurance industry; (5) the written opinion rendered by DLJ to the extent
that, as of August 25, 1996 and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the Exchange Ratio was
fair, from a financial point of view, to the holders of ATC Common Stock (See "
- -- Opinion of ATC's Financial Advisor") ; and (6) the likelihood of continued
employment for the immediate future of a substantial number of the employees of
ATC. Based on these factors, as well as the dilutive nature of issuing
additional equity, the ATC Board of Directors believed that the Conseco offer
represented the maximum value that could reasonably be expected to be achieved
for ATC's shareholders in the foreseeable future. After careful consideration of
these factors, as well as consideration of the terms of the offer of Conseco,
the ATC Board of Directors determined that it was in the best interests of ATC
and its shareholders to accept the Conseco offer.
THE BOARD OF DIRECTORS OF ATC UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS OF ATC VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT SET FORTH AS ITEM 1 ON THE ATC PROXY
CARD.
49
<PAGE>
Opinion of ATC's Financial Advisor
In its role as financial advisor to ATC, DLJ was asked by ATC to render
its opinion to the ATC Board as to the fairness, from a financial point of view,
to the holders of ATC Common Stock of the consideration to be received by the
shareholders of ATC pursuant to the terms of the Merger Agreement. On August 25,
1996, DLJ delivered its written opinion (the "DLJ Opinion") to the effect that
as of the date of such opinion and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the Merger
Consideration was fair, from a financial point of view, to the holders of ATC
Common Stock.
A copy of the DLJ Opinion is attached hereto as Annex B. ATC shareholders
are urged to read the opinion in its entirety for assumptions made, procedures
followed, other matters considered and limits of the review by DLJ.
The DLJ Opinion was prepared for the ATC Board and is directed only to
the fairness, from a financial point of view, to the holders of ATC Common
Stock, and does not constitute a recommendation to any shareholder as to how to
vote at the ATC Special Meeting.
The DLJ Opinion does not constitute an opinion as to the price at which
Conseco Common Stock will actually trade at any time. The Merger Consideration
was determined in arm's length negotiations between ATC and Conseco, in which
negotiations DLJ advised ATC. No restrictions or limitations were imposed by the
ATC Board upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering its opinion. DLJ was not requested to, nor did it,
solicit the interests of any other party in acquiring ATC.
In arriving at its opinion, DLJ reviewed the Merger Agreement and
exhibits thereto. DLJ also reviewed financial and other information that was
publicly available or furnished to it by ATC and Conseco, including information
provided during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of ATC for the years ending December 31, 1996 and
December 31, 1997 prepared by the management of ATC, and certain pro forma
financial statements of Conseco for the year ended December 31, 1995 and the six
months ended June 30, 1996 and certain financial projections of Conseco for the
years ending December 31, 1996 through December 31, 2005 and pro forma financial
projections for Conseco and ATC and other potential acquisitions being
considered by Conseco prepared by the management of Conseco. In addition, DLJ
compared certain financial and securities data of ATC and Conseco with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of ATC Common Stock and Conseco
Common Stock, reviewed prices and premiums paid in other business combinations
and conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, that was provided to it by ATC and Conseco
or its representatives, or that was otherwise reviewed by it. With respect to
the financial projections of ATC supplied to it, DLJ assumed that they have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of ATC as to the future operating and financial
performance of ATC. With respect to the pro forma financial statements and pro
forma financial projections of Conseco supplied to it, DLJ assumed that they
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Conseco as to the pro forma and
future operating and financial performance of ATC and Conseco. DLJ did not
assume any responsibility for making an independent evaluation of ATC's and
Conseco's assets or liabilities or for making any independent verification of
any of the information reviewed by it.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, August 25, 1996. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to update,
revise or reaffirm its opinion. However, the receipt of an update to the DLJ
Opinion as of the Mailing Date (as defined below) which does not materially
modify, rescind or revoke the DLJ Opinion is a condition to the obligation of
ATC to effect the merger. See "The Merger Agreement - Conditions to the Merger."
50
<PAGE>
DLJ assumed an Exchange Ratio such that each holder of ATC Common Stock
will receive $32.00 per share in its analysis based on the price of Conseco
Common Stock at the time DLJ performed its analysis. Such amount also
represented the lowest value per share that could be received by holders of ATC
Common Stock pursuant to the terms of the Merger Agreement. Such use should in
no way be viewed by ATC shareholders as an opinion as to the value of Conseco
Common Stock that may actually be received in the Merger. Such amount is merely
for illustrative and analytical purposes.
The following is a summary of the presentation made by DLJ to the ATC
Board at its August 25, 1996 meeting.
Transaction Analysis. DLJ reviewed publicly available information for
selected transactions involving the acquisition of life insurance and accident
and health insurance companies since January 1, 1993 (the "Selected Life and
Health Transactions") and for selected transactions involving the acquisition
only of accident and health insurance companies since January 1, 1993 (the
"Selected Health Transactions") (together, the "Selected Transactions"). In
reviewing these transactions, several factors were considered, including: (i)
the lack of publicly available information for subsidiary and private company
transactions which represent a significant portion of the merger and acquisition
activity; and (ii) the lack of directly comparable transactions. The Selected
Transactions were not intended to represent the complete list of life insurance
and accident and health insurance company transactions which have occurred.
Rather, such transactions included only selected recent transactions involving
life insurance and accident and health insurance companies. Such transactions
were used in this analysis because the companies involved were deemed by DLJ to
operate in similar businesses or have similar financial characteristics to ATC
and Conseco.
DLJ reviewed the consideration paid in such transactions in terms of the
price paid for the common stock plus the amount of debt and preferred stock
assumed repaid or redeemed in such transactions (the "Transaction Value") as a
multiple of statutory capital and surplus as of the end of the last fiscal
quarter ("LFQ") or last fiscal year ("LFY") ended prior to the announcement of
such transactions. In analyzing acquisitions of life insurance and accident and
health insurance companies, the purchase price paid may be described in terms of
multiples of the Transaction Value to statutory capital and surplus. Variances
in multiples for different transactions may reflect such considerations as the
consistency, quality and growth of earnings and the company's capitalization,
asset quality and return on surplus. Since statutory capital and surplus does
not reflect the cost of a company's debt or preferred stock financing, which are
usually at the holding company level rather than the insurance company level,
analysis of a multiple of statutory capital and surplus is usually based on a
Transaction Value which includes the cost of assuming, repaying or redeeming
such debt or preferred stock financing. Comparing the multiple of Transaction
Value to be paid for ATC by Conseco to the statutory capital and surplus of ATC
with the multiples paid in other transactions indicates whether the valuation
being placed on ATC is within the range of values paid for other life insurance
and accident and health insurance companies.
The low, average and high multiples of Transaction Value to statutory
capital and surplus as of the end of the LFQ or LFY ended prior to the
announcement of the transaction were 1.2x, 1.9x and 3.4x, respectively, for the
Selected Life and Health Companies and 1.3x, 2.1x and 5.3x, respectively, for
the Selected Health Companies. Based on the Merger Consideration, the implied
multiple of Transaction Value to ATC's statutory capital and surplus as of
December 31, 1995 was 10.8x. This multiple is greater than the high multiple of
both the Selected Life and Health Transactions and the Selected Health
Transactions.
Additionally, DLJ reviewed the consideration paid in the Selected
Transactions in terms of the price paid for the common stock in the Selected
Life and Health Transactions and the Selected Health Transactions as a multiple
of GAAP operating earnings for the latest twelve months ("LTM") ended prior to
the announcement of such transactions and as a multiple of shareholders' equity
as of the end of the LFQ ended prior to the announcement of such transactions.
In analyzing acquisitions of life insurance and accident and health insurance
companies, the purchase price paid may be described in terms of multiples of the
price paid for common stock to GAAP operating earnings and to shareholders'
equity. Variances in multiples for different transactions may reflect such
considerations as the consistency, quality and growth of earnings and the
company's capitalization, asset quality and return on capital. Since GAAP
operating earnings and shareholders' equity already reflect the
51
<PAGE>
cost of a company's debt or preferred stock financing, analyses of multiples of
GAAP operating earnings or shareholders' equity are usually based on the price
paid for the company's common stock, which excludes the cost of assuming,
repaying or redeeming such debt or preferred stock financing. Comparing the
multiples of the price offered to be paid for ATC Common Stock by Conseco to the
GAAP operating earnings and shareholders' equity of ATC with multiples paid by
acquirers in other transactions indicates whether the valuation being placed on
ATC is within the range of values paid for other life insurance and accident and
health insurance companies.
The low, average and high multiples of price paid for common stock to LTM
GAAP operating earnings were 5.2x, 16.0x and 35.1x, respectively, for the
Selected Life and Health Transactions and 10.8x, 13.0x and 16.9x, respectively,
for the Selected Health Transactions. Based on an offer price of $32.00 per
share, the implied multiple of price paid for common stock to ATC's GAAP
operating earnings for the LTM ended June 30, 1996 was 21.9x. This multiple is
greater than the average multiple of the Selected Life and Health Transactions
and greater than the high multiple of the Selected Health Transactions. The low,
average and high multiples of price paid for common stock to shareholders'
equity as of the end of the LFQ ended prior to the announcement of the
transaction were 0.8x, 1.4x and 2.8x, respectively, for the Selected Life and
Health Transactions and 1.8x, 2.1x and 2.8x, respectively, for the Selected
Health Transactions. Based on an offer price of $32.00 per share, the implied
multiple of price paid for common stock to ATC's shareholders' equity as of June
30, 1996 was 2.7x. This multiple is greater than the average multiples of both
the Selected Life and Health Transactions and the Selected Health Transactions.
DLJ also determined the percentage premium of the offer prices
(represented by the purchase price per share in cash transactions and the price
of the constituent securities times the Merger Consideration in the case of
stock-for-stock mergers) over the public market trading prices one day, one week
and one month prior to the announcement date of selected life, accident and
health insurance company transactions since January 1, 1993 where the acquired
company's stock was publicly traded (the "Selected Public Transactions"). The
average premiums of offer prices to public market trading prices one day, one
week and one month prior to the announcement date for the Selected Public
Transactions were 12.2%, 16.5% and 22.3%, respectively. An offer price of $32.00
per share represents premiums to the trading prices of ATC Common Stock one day,
one week and one month prior to August 20, 1996 of 18.3%, 21.3% and 53.4%,
respectively. These premiums are greater than the corresponding average premiums
of the Selected Public Transactions.
Public Company Analysis. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios of ATC
to the corresponding data and ratios of selected accident and health insurance
companies whose securities are publicly traded. Such companies included AFLAC,
Inc., BLH, CAF, Delphi Financial Group, Inc., Penn Treaty American Corp.,
Pioneer Financial Services, Inc. and UNUM Corp. (the "Selected Companies"). See
"Information Concerning Conseco - Other Pending Acquisitions by Conseco" for a
discussion of the relationships of BLH and CAF to Conseco.
Such analysis included, among other things, the ratios of stock price to
GAAP operating earnings per share ("EPS") for the LTM ended June 30, 1996,
estimated GAAP operating EPS for 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for the
Selected Companies and management's projections for ATC) and shareholders'
equity per share as of June 30, 1996, as well as the ratios of the aggregate
equity market capitalization plus the amount of debt and preferred stock
outstanding (the "Enterprise Value") to statutory operating earnings for the LTM
or LFY and statutory capital and surplus as of the end of the LFQ or LFY.
Closing prices as of August 20, 1996 were used in this analysis. The ratios
described in this paragraph have been designed to reflect the value attributable
in the public equity markets to various valuation measures of accident and
health insurance companies. Measures utilized in the public marketplace to value
the stock of publicly traded companies in the accident and health insurance
industry are based on, among other things, a company's historical and projected
GAAP operating earnings, historical statutory operating earnings, shareholders'
equity and statutory capital and surplus. The multiples of stock price to GAAP
operating EPS and Enterprise Value to statutory operating earnings reflect the
value attributed to a company by public equity market investors based on the
company's historical and projected earnings. The multiples of stock price to
shareholders' equity per share and Enterprise Value to statutory capital and
surplus reflect the values
52
<PAGE>
attributed to a company by public equity market investors based on the company's
net worth. Variances in multiples for different companies may reflect such
considerations as the consistency, quality and growth of earnings and the
company's capitalization, asset quality and return on capital. Since GAAP
operating earnings and shareholders' equity already reflect the cost of a
company's debt or preferred stock financing, analyses of multiples of GAAP
operating earnings or shareholders' equity are usually based on public stock
price, which excludes debt or preferred stock financing. Since statutory
operating earnings and statutory capital and surplus do not reflect the cost of
a company's debt or preferred stock financing, which are usually at the holding
company level rather than the insurance company level, analyses of multiples of
statutory operating earnings and statutory capital and surplus are usually based
on Enterprise Value, which includes debt or preferred stock financing. Comparing
the multiples of price offered to be paid by Conseco to the GAAP operating EPS,
shareholders' equity, statutory operating earnings and statutory capital and
surplus of ATC with the multiples at which the Selected Companies trade
indicates whether the valuation being placed on ATC is within the range of
values at which the Selected Companies trade.
The low, average and high multiples of public stock price to GAAP
operating EPS for the LTM ended June 30, 1996 were 7.8x, 10.6x and 28.8x,
respectively, for the Selected Companies. Based on an offer price of $32.00 per
share, the implied multiple of offer price to ATC's GAAP operating EPS for the
LTM ended June 30, 1996 was 21.9x. This multiple is greater than the average
multiple of the Selected Companies. The low, average and high multiples of
public stock price to estimated 1996 GAAP operating EPS were 7.5x, 10.2x and
15.1x, respectively, for the Selected Companies. Based on the same offer price,
the implied multiple of offer price to ATC's estimated 1996 GAAP operating EPS
was 19.3x. This multiple is greater than the high multiple of the Selected
Companies. The low, average and high multiples of public stock price to
estimated 1997 GAAP operating EPS were 6.1x, 8.9x and 12.9x, respectively, for
the Selected Companies. Based on the same offer price, the implied multiple of
offer price to ATC's estimated 1997 GAAP operating EPS was 16.3x. This multiple
is greater than the high multiple of the Selected Companies. The low, average
and high multiples of public stock price to shareholders' equity per share as of
June 30, 1996 were 1.1x, 1.5x and 2.4x, respectively, for the Selected
Companies. Based on the same offer price, the implied multiple of offer price to
ATC's shareholders' equity per share as of June 30, 1996 was 2.7x. This multiple
is greater than the high multiple of the Selected Companies. The low, average
and high multiples of Enterprise Value to statutory capital and surplus as of
the end of the LFQ or the LFY were 2.1x, 3.7x and 5.3x, respectively, for the
Selected Companies. Based on the same offer price, the implied multiple of
Transaction Value to ATC's statutory capital and surplus as of December 31, 1995
was 10.8x. This multiple is greater than the high multiple of the Selected
Companies.
Since the Merger Consideration will be in the form of Conseco Common
Stock, to provide comparative market information, DLJ compared selected
historical and projected operating and financial ratios of Conseco to the
corresponding data and ratios of Equitable of Iowa Cos., Liberty Financial
Companies, Inc., Presidential Life Corp., SunAmerica Inc. and Western National
Corp. (the "Selected Annuity Companies") and of AFLAC, Inc., PennCorp Financial
Group, Inc., Provident Companies and UNUM Corp. (the "Selected Large
Capitalization Companies").
Such analysis included, among other things, the multiples of stock price
to GAAP operating EPS for the LTM ended June 30, 1996, estimated GAAP operating
EPS for 1996 and 1997 (as estimated by research analysts and compiled by
Institutional Brokers Estimating Service for the Selected Annuity Companies and
the Selected Large Capitalization Companies and management's projections for
Conseco) and shareholders' equity per share as of June 30, 1996, as well as the
multiples of Enterprise Value to statutory operating earnings for the LTM or the
LFY and statutory capital and surplus as of the end of the LFQ or the LFY.
Closing prices as of August 20, 1996 were used in this analysis. Comparing the
multiples of Conseco's stock price to GAAP operating EPS, shareholders' equity
per share, statutory operating earnings and statutory capital and surplus with
the multiples at which the Selected Annuity Companies and the Selected Large
Capitalization Companies trade indicates whether Conseco's stock price is within
the range of values at which the Selected Annuity Companies and the Selected
Large Capitalization Companies trade. Conseco's GAAP operating EPS,
shareholders' equity per share, statutory operating earnings and statutory
capital and surplus used in this analysis were adjusted to give pro forma effect
to the LPG Merger and certain other matters.
53
<PAGE>
The low, average and high multiples of public stock price to GAAP
operating EPS for the LTM ended June 30, 1996 were 8.5x, 12.6x and 17.1x,
respectively, for the Selected Annuity Companies and 10.3x, 13.2x and 14.8x,
respectively, for the Selected Large Capitalization Companies. The multiple of
price to Conseco's GAAP operating EPS for the LTM ended June 30, 1996 was 13.6x.
This multiple is greater than the average multiples of both the Selected Annuity
Companies and the Selected Large Capitalization Companies. The low, average and
high multiples of public stock price to estimated 1996 GAAP operating EPS were
9.4x, 11.7x and 16.4x, respectively, for the Selected Annuity Companies and
10.4x, 13.1x and 15.1x, respectively, for the Selected Large Capitalization
Companies. The multiple of price to Conseco's estimated 1996 GAAP operating EPS
was 12.8x. This multiple is greater than the average multiple of the Selected
Annuity Companies and greater than the low multiple of the Selected Large
Capitalization Companies. The low, average and high multiples of public stock
price to estimated 1997 GAAP operating EPS were 8.4x, 10.5x and 14.3x,
respectively, for the Selected Annuity Companies and 9.0x, 11.2x and 12.9x,
respectively, for the Selected Large Capitalization Companies. The multiple of
price to Conseco's estimated 1997 GAAP operating EPS was 9.5x. This multiple is
greater than the low multiples of both the Selected Annuity Companies and the
Selected Large Capitalization Companies. The low, average and high multiples of
public stock price to shareholders' equity per share as of June 30, 1996 were
0.9x, 1.7x and 3.4x, respectively, for the Selected Annuity Companies and 1.2x,
1.9x and 2.8x, respectively, for the Selected Large Capitalization Companies.
The multiple of price to Conseco's shareholders' equity per share as of June 30,
1996 was 1.7x. This multiple is equal to the average multiple of the Selected
Annuity Companies and greater than the low multiple of the Selected Large
Capitalization Companies. The low, average and high multiples of Enterprise
Value to statutory operating earnings for the LTM or the LFY were 9.7x, 23.8x
and 42.9x, respectively, for the Selected Annuity Companies and 27.1x, 31.6x and
37.1x, respectively, for the Selected Large Capitalization Companies. The
multiple of Enterprise Value to Conseco's 1995 statutory operating earnings was
21.3x. This multiple is greater than the low multiple of the Selected Annuity
Companies and less than the low multiple of the Selected Large Capitalization
Companies. The low, average and high multiples of Enterprise Value to statutory
capital and surplus as of the end of the LFQ or the LFY were 1.2x, 1.8x and
2.2x, respectively, for the Selected Annuity Companies and 3.6x, 4.5x and 5.6x,
respectively, for the Selected Large Capitalization Companies. The multiple of
Enterprise Value to Conseco's statutory capital and surplus as of December 31,
1995 was 3.5x. This multiple is greater than the high multiple of the Selected
Annuity Companies and less than the low multiple of the Selected Large
Capitalization Companies.
No company or transaction used in the Transaction Analysis or the Public
Company Analysis described above was directly comparable to ATC, Conseco or the
proposed Merger. Accordingly, an analysis of the results of the foregoing was
not simply mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the transaction
values and trading prices. For example, many qualitative factors are involved in
valuing a company or analyzing a transaction in the life, accident and health
insurance and annuity industries, including assessments of the quality of
management, the attractiveness of the company's target market, the economics of
the products being sold and the company's market position relative to its
competitors. Other factors that could affect the transaction values or trading
prices include differences in distribution, products, geographic or demographic
customer concentration, size, accounting practices, asset portfolio quality,
interest rate sensitivity and other factors. These factors may affect the
transaction values or trading prices in each case by affecting in varying
degrees investors' expectations of such factors as the company's risk and future
operating profitability.
Stock Trading History. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices and their relative
relationships for both ATC Common Stock and Conseco Common Stock for various
periods ended August 20, 1996. DLJ also reviewed the daily closing prices of ATC
Common Stock and Conseco Common Stock and compared the ATC and Conseco closing
stock prices with the S&P 500 Index and indices of selected publicly traded
companies. DLJ reviewed the trading history since January 1, 1994 of the ATC
Common Stock and the Conseco Common Stock to determine whether trading levels
immediately prior to August 20, 1996 were reflective of longer term trading
levels or were affected by recent unusual or event specific trading activity. In
addition, DLJ reviewed the trading history of ATC Common Stock and Conseco
54
<PAGE>
Common Stock relative to indices of selected companies in order to assess the
relative stock price performance of ATC, Conseco and such indices.
Pro Forma Merger Analysis. DLJ analyzed certain pro forma financial
effects resulting from the Merger. In conducting its analysis, DLJ relied upon
certain assumptions described above and financial projections provided by the
management of ATC and pro forma financial statements and pro forma financial
projections provided by the management of Conseco. DLJ analyzed the pro forma
effect of the Merger and of completing the ALH Transaction and the BLH
Transaction on the EPS, stockholders' equity per share and leverage ratios of
the combined companies. Conseco's management has indicated that it believes that
the Merger will offer consolidation opportunities which will result in revenue
enhancements and expense savings relative to the stand-alone projected revenues
and expenses of ATC and Conseco. DLJ has incorporated estimates of such revenue
enhancements and expense savings, determined in conjunction with the managements
of ATC and Conseco, in its analysis, although DLJ does not express any opinion
as to the likelihood of such revenue enhancements or expense savings being
realized. The results of the pro forma merger analysis are not necessarily
indicative of future operating results or financial position. Based on this
analysis and assuming the Merger, the ALH Transaction and the BLH Transaction
are completed and that the cash portion of the consideration paid in such
transactions is financed with debt, Conseco's shareholders would realize EPS
dilution of 8.1%, 8.3% and 8.4%, respectively, in 1996, 1997 and 1998 versus
assuming only the ALH Transaction and the BLH Transaction are completed and that
the cash portion of the consideration paid in such transactions is financed with
debt. Based on this analysis and assuming the Merger, the ALH Transaction and
the BLH Transaction are completed and that the cash portion of the consideration
paid in such transactions is financed with debt, Conseco's ratios of debt to
total capitalization and debt and preferred stock to total capitalization as of
June 30, 1996 would be 33.5% and 35.8%, respectively, versus 40.9% and 43.8%,
respectively, assuming only the ALH Transaction and the BLH Transaction are
completed and that the cash portion of the consideration paid in such
transactions is financed with debt. There can be no assurance as to whether the
assumptions regarding financing sources set forth in this paragraph will occur,
and such assumptions are used only for purposes of illustration.
Contribution Analysis. DLJ analyzed ATC's and Conseco's relative
contributions to the combined company with respect to GAAP operating revenues,
GAAP operating earnings, shareholders' equity and total assets and compared this
with the relative ownership of ATC shareholders in the combined company after
the Merger. Such analysis was considered on a percentage contribution basis and
was made, where appropriate, (i) for 1995 and for the LTM ended June 30, 1996
based on Conseco's and ATC's historical and pro forma (in the case of Conseco,
pro forma for the acquisition of LPG and certain other matters) financial
results and (ii) with respect to estimated GAAP operating earnings for 1996 and
1997, as projected by ATC's and Conseco's managements.
ATC's relative contribution to the combined company with respect to 1995
GAAP operating revenues was 8.4% of the total. ATC's relative contribution to
the combined company with respect to GAAP operating earnings for 1995 and the
LTM ended June 30, 1996 were 12.0% and 11.3%, respectively, of the total. ATC's
relative contribution to the combined company with respect to estimated GAAP
operating earnings for 1996 and 1997 were 12.7% and 12.1%, respectively, of the
total. ATC's relative contribution to the combined company with respect to total
assets was 3.6% of the total. Including the PRIDES for Conseco as common equity,
ATC's relative contribution to shareholders' equity as of June 30, 1996 was
14.7% of the total.
Assuming a price for Conseco Common Stock of $41.25 (the closing market
price as of August 20, 1996), ATC shareholders would own approximately 19.5% of
the combined company after the Merger. The results of these contribution
analyses are not necessarily indicative of the contributions that the respective
businesses may actually make in the future.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ in rendering the DLJ Opinion. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the Merger and
55
<PAGE>
add to the total mix of information available. DLJ did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness, from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and did not place particular reliance or weight on any individual
analysis and ultimately reached its opinion based on the results of all analyses
taken as a whole. Accordingly, notwithstanding the separate factors summarized
above, DLJ believes that its analyses must be considered as a whole and that
selected portions of its analyses and the factors considered by it, without
considering all analyses and factors, may create an incomplete view of the
evaluation process underlying the DLJ Opinion. In performing its analyses, DLJ
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The ATC Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger and is familiar with ATC, its business and
the life, accident and health insurance and annuity industries. Pursuant to the
terms of an engagement letter dated August 15, 1996 between ATC and DLJ, ATC
paid DLJ a $50,000 retainer fee and an additional $350,000 upon rendering of the
DLJ Opinion. Pursuant to the terms of the engagement letter, ATC will pay DLJ,
on the Closing Date, cash compensation equal to five-eighths of one percent
(0.625%) of the Transaction Value, less the $400,000 paid to date. Based on an
assumed Transaction Value, ATC will pay DLJ, on the Closing Date, cash
consideration of approximately $4.9 million, less the $400,000 paid to date. ATC
also agreed to reimburse DLJ for all out-of-pocket expenses (including the
reasonable fees and out-of-pocket expenses of counsel) incurred by DLJ in
connection with its engagement and to indemnify DLJ and certain related persons
against certain liabilities in connection with its engagement, including
liabilities under the federal securities laws. The terms of the fee arrangement
with DLJ, which DLJ and ATC believe are customary in transactions of this
nature, were negotiated at arm's length between ATC and DLJ and the ATC Board
was aware of such arrangement, including the fact that a significant portion of
the aggregate fee payable to DLJ is contingent upon consummation of the Merger.
In the ordinary course of business, DLJ may actively trade the securities
of both ATC and Conseco for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. DLJ has performed investment banking and other services for ATC
and Conseco in the past and has received usual and customary compensation for
such services. In addition, DLJ acted as financial advisor to CAF in connection
with the CAF Merger.
S:\ACCTING\SECRPT\S-4ATC.896\DLJOPIN4.DOC
56
<PAGE>
Certain Consequences of the Merger
As a result of the Merger, the shareholders of ATC will become
shareholders of Conseco, and thereby will continue to have an interest in the
business of ATC through Conseco. See "Comparison of Shareholders' Rights." Upon
the consummation of the Merger, each outstanding share of ATC Common Stock
(other than shares of ATC Common Stock held by ATC as treasury stock or
Dissenting Shares) will be canceled and converted into the right to receive the
Merger Consideration. Conseco will apply to have the additional shares of
Conseco Common Stock issued pursuant to the Merger listed on the NYSE.
ATC Stock Options held at the Effective Time will be converted
automatically into options to purchase, for the same aggregate consideration
payable to exercise such ATC Stock Options, the number of shares of Conseco
Common Stock which the holder would have been entitled to receive at the
Effective Time if such ATC Stock Options had been exercised for shares of ATC
Common Stock prior to the Effective Time. Except for ATC Stock Options held by
non-employee directors, each ATC Stock Option, if not then vested, will vest in
full at the earlier of (1) the expiration of three months after the Effective
Time or (2) termination by Conseco of the employment of the holder of such
options. Each ATC Stock Option held by a non-employee director of ATC will vest
in full at the Effective Time. Conseco has agreed to take all corporate action
necessary to reserve for issuance a sufficient number of shares of Conseco
Common Stock for delivery upon exercise of ATC Stock Options assumed in
accordance with the Merger Agreement.
Upon consummation of the Merger pursuant to a supplemental indenture,
Conseco will be substituted for, and assume all of the rights and obligations
of, ATC under the Indenture and the Debentures. Conseco will become the obligor
with respect to the Debentures and holders of the Debentures will become
creditors of Conseco. All rights and obligations of ATC under the Indenture and
Debentures will cease.
The Debentures that remain outstanding immediately prior to the
Effective Time will be converted automatically into debentures of Conseco, the
holders of which will have the same rights as they did under the Debentures and
the Indenture including the right to receive interest payments and the right to
convert the Debentures into the number of shares of Conseco Common Stock which
the holder would have been entitled to receive at the Effective Time if such
Debentures had been converted into shares of ATC Common Stock prior to the
Effective Time, subject to future adjustments for, among other things, changes
in the capitalization of Conseco, as contemplated by the Indenture.
Conduct of the Business of Conseco and ATC After the Merger
Within two years following the Merger, Conseco expects to achieve
annual operating cost savings in the range of $7-$10 million through the
consolidation of certain Conseco and ATC operations and the elimination of
redundant expenses. Such savings would be realized, over time, primarily through
reductions in staff, the combination, elimination or relocation of certain
office facilities and the consolidation of certain data processing and
investment operations. There can be no assurance that such cost savings will be
realized or that they will be realized on the schedule indicated.
Conseco's Board of Directors and management will not be affected by the
Merger. See "Management of Conseco Upon Consummation of the Merger."
57
<PAGE>
Certain Federal Income Tax Consequences
The following is a summary description of the material United States
federal income tax consequences of the Merger to ATC and its shareholders. This
summary is not a complete description of all of the tax consequences of the
Merger and, in particular, does not address tax considerations which may affect
the treatment of certain special status taxpayers such as financial
institutions, broker-dealers, insurance companies, tax-exempt organizations,
investment companies, foreign persons, holders of options, warrants or similar
rights with respect to ATC Common Stock, or persons who acquired ATC Common
Stock pursuant to the exercise of stock options, warrants or similar rights. In
addition, no information is provided herein with respect to the tax consequences
of the Merger under any foreign, state or local tax laws.
The following discussion is based on the Code, as in effect on the date
of this Joint Proxy Statement/Prospectus, without consideration of the
particular facts or circumstances of any particular holder of ATC Common Stock.
Neither ATC nor Conseco has sought or will seek any rulings from the Internal
Revenue Service with respect to any of the matters discussed herein.
The obligation of ATC to effect the Merger is conditioned on delivery
to ATC of an opinion dated the Closing Date (as defined in the Merger Agreement)
from Fox, Rothschild, O'Brien & Frankel, counsel to ATC, based on certain
representations to be made by ATC, Conseco and certain shareholders of ATC and
on assumptions set forth in the opinion, that for federal income tax purposes
the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that no gain or loss will be recognized by the ATC
shareholders with respect to the shares of Conseco Common Stock received by the
ATC shareholders in the Merger.
Based on such opinion, the material federal income tax consequences of
the Merger to ATC and its shareholders will be as follows:
(i) No gain or loss will be recognized by ATC shareholders upon their
exchange of ATC Common Stock for Conseco Common Stock, except that: (A)
any ATC shareholder who receives cash proceeds in lieu of a fractional
share interest in Conseco Common Stock will recognize gain or loss
equal to the difference between such proceeds and the tax basis
allocated to the fractional share interest, and such gain or loss will
constitute capital gain or loss (short or long term, depending on such
shareholder's holding period for his ATC Common Stock) if such
shareholder's ATC Common Stock is held as a capital asset at the
Effective Time; and (B) similarly, any ATC shareholder who exercises
dissenters rights will recognize gain or loss with respect to the
disposition of his ATC Common Stock equal to the difference between
such shareholder's tax basis in his ATC Common Stock and the total cash
received upon exercise of his or her dissenters' rights;
(ii) No gain or loss will be recognized by ATC as a result of the
Merger;
(iii) The tax basis of the Conseco Common Stock (including any
fractional share interest deemed received and exchanged for a cash
payment) received by an ATC shareholder in exchange for ATC Common
Stock will be the same as such shareholder's tax basis in the ATC
Common Stock surrendered in exchange therefor; and
(iv) The holding period of the Conseco Common Stock (including any
fractional share interest deemed received and exchanged for a cash
payment) received by an ATC shareholder will include the period during
which the ATC Common Stock surrendered in exchange therefor was
58
<PAGE>
held (provided that such ATC Common Stock was held by such ATC
shareholder as a capital asset at the Effective Time).
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN POTENTIAL MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ATC AND ATC SHAREHOLDERS AND IS
INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE
INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OR TAX STATUS OR ATTRIBUTES
OF EACH ATC SHAREHOLDER. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH ATC SHAREHOLDER.
ACCORDINGLY, EACH ATC SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING, BUT NOT LIMITED TO, THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN SUCH LAWS.
Regulatory Approvals
Antitrust. Under the HSR Act and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Conseco and ATC filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on _____, 1996. The required waiting
period under the HSR Act was terminated on ___________, 1996. At any time before
or after the consummation of the Merger, and notwithstanding that the HSR Act
waiting period has been terminated, the Antitrust Division of the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Conseco and ATC. At any time before
or after the consummation of the Merger, and notwithstanding that the HSR Act
waiting period has been terminated, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of ATC or businesses of Conseco or ATC. Private parties may also
seek to take legal action under the antitrust laws under certain circumstances.
Conseco and ATC believe that the Merger can be effected in compliance
with federal and state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds will not be
made or that, if such a challenge were made, Conseco and ATC would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures, in order to consummate the Merger.
Insurance. The consummation of the Merger will require the approvals or
exemptive orders of the insurance commissioners, directors of insurance or
superintendents of insurance (the "Insurance Regulators") under the state
insurance codes (the "Insurance Codes") of New York, Pennsylvania and Texas,
which are jurisdictions in which insurance companies owned by ATC are domiciled.
The Insurance Codes generally contain provisions applicable to the acquisition
of control of a domestic insurer, including a presumption of control that arises
from the ownership of 10 percent or more of the voting securities of a domestic
insurer or a person that controls a domestic insurer. The filing of an
application for acquisition of control of a domestic insurer gives rise to
mandatory or, in some states, discretionary public hearing requirements and/or
statutory periods (ranging from 30 to 90 days, which may be extended in certain
circumstances) within which decisions must be rendered approving or
59
<PAGE>
disapproving the acquisition of control. Appropriate filings with the relevant
Insurance Regulators are being made and it is anticipated, although there can be
no assurance, that approvals of such Insurance Regulators will be obtained.
NYSE Listing of Conseco Common Stock
Pursuant to the Merger Agreement, Conseco is required to use its best
efforts to obtain listing on the NYSE of the shares of Conseco Common Stock to
be issued in connection with the Merger. Approval of the listing on the NYSE of
the shares of Conseco Common Stock to be issued in the Merger is a condition to
the respective obligations of ATC and Conseco to consummate the Merger.
Federal Securities Law Consequences
All shares of Conseco Common Stock issued in connection with the Merger
will be freely transferable, except that any shares of Conseco Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of ATC prior to the Merger which may be resold by them
only in transactions registered under the Securities Act, permitted by the
resale provisions of Rule 145 promulgated under the Securities Act (or Rule 144
if such persons are or become affiliates of Conseco), or otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of ATC
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal shareholders of such party.
Dissenters' Rights
ATC. Pursuant to the Merger Agreement and the PBCL, holders of ATC
Common Stock have dissenters rights in connection with the Merger under
Subchapter 15D of the PBCL, a copy of which is attached as Annex C to this Joint
Proxy Statement/Prospectus, and may object to the Merger Agreement and demand in
writing that ATC pay them the fair value of their ATC Common Stock.
Failure by any dissenting shareholder to comply with any procedure
required by Subchapter 15D may result in termination of such shareholders'
dissenters rights. ATC will not give any notice of the following requirements
other than as described in this Joint Proxy Statement/Prospectus and as required
by the PBCL.
A holder of record of ATC Common Stock may assert dissenters rights as
to fewer than all of the shares of ATC Common Stock registered in such holder's
name only if the holder dissents with respect to all of the ATC Common Stock
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder has
dissented and the other shares are registered in the names of different holders.
A beneficial owner of shares of ATC Common Stock who is not also the record
holder of such shares may assert dissenters rights with respect to shares held
on such owner's behalf and shall be treated as a dissenting shareholder under
the terms of Subchapter 15D if the beneficial owner submits to ATC, not later
than the time of filing the Notice of Intention to Dissent (as defined below), a
written consent of the record holder. Such beneficial owner may not dissent with
respect to less than all shares of ATC Common Stock beneficially owned by such
beneficial owner.
Holders of ATC Common Stock (or beneficial owners thereof as provided
above) who follow the procedures of Subchapter 15D as outlined below will be
entitled to receive from ATC the fair value
60
<PAGE>
of their shares of ATC Common Stock immediately before the Effective Time,
taking into account all relevant factors but excluding any appreciation or
depreciation in anticipation of the effectuation of the Merger Agreement.
Holders of ATC Common Stock (or beneficial owners thereof) who elect to exercise
their dissenters rights must comply with all of the following procedures to
reserve those rights.
Holders of ATC Common Stock (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand the
fair value of their shares of ATC Common Stock if the Merger is effectuated (the
"Notice of Intention to Dissent"). Such dissenters must file the Notice of
Intention to Dissent with the Secretary of ATC prior to the vote by ATC
shareholders on the Merger Agreement; they must make no change in their
beneficial ownership of ATC Common Stock from the date of filing until the
Effective Time; and they must refrain from voting their ATC Common Stock for the
approval and adoption of the Merger Agreement. The Notice of Intention to
Dissent must be in addition to and separate from any proxy or vote against the
Merger Agreement.
If the Merger Agreement is approved and adopted by the required vote at
the ATC Special Meeting, Conseco will mail a notice (the "Notice of Approval")
to all dissenters who filed a Notice of Intention to Dissent prior to the vote
on the Merger Agreement and who refrained from voting for the approval and
adoption of the Merger Agreement. Conseco expects to mail the Notice of Approval
promptly after effectuation of the Merger. The Notice of Approval will state
where and when (the "Demand Deadline") a demand for payment must be sent and
certificates for shares of ATC Common Stock must be deposited in order to obtain
payment; it will supply a form for demanding payment (the "Demand Form") which
includes a request for certification of the date on which the holder, or the
person on whose behalf the holder dissents, acquired beneficial ownership of the
shares of ATC Common Stock; and it will be accompanied by a copy of Subchapter
15D. Dissenters must ensure that the Demand Form and their certificates for
shares of ATC Common Stock are received by Conseco on or before the Demand
Deadline. All mailings to Conseco are at the risk of the dissenter. However, it
is recommended that the Notice of Intention to Dissent, the Demand Form and the
holder's share certificates by sent by certified mail.
Any holder (or beneficial owner) of ATC Common Stock who fails to file
a Notice of Intention to Dissent, fails to complete and return the Demand Form,
or fails to deposit share certificates with Conseco, each within the time
periods provided above, will lose the holder's (or beneficial owner's)
dissenters rights under Subchapter 15D. A dissenter will retain all rights of a
shareholder, or beneficial owner, as the case may be, until those rights are
modified by effectuation of the Merger.
Upon timely receipt of the completed Demand Form, Conseco is required
by the PBCL either to remit to dissenters who have returned the Notice of
Intention to Dissent and the completed Demand Form and have deposited their
certificates, the amount Conseco estimates to be the fair value for their shares
or to give written notice that no such remittance will be made. Conseco does not
intend to make payment of any part of the amounts payable to dissenters until
the fair value of the ATC Common Stock affected by the Merger has been finally
determined. The remittance or notice will be accompanied by:
(1) the closing balance sheet and statement of income of ATC for the
fiscal year ended December 31, 1995, together with the latest available
interim financial statements;
(2) a statement of Conseco's estimate of the fair value of the ATC
Common Stock ("Conseco's Estimate"); and
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case bay be, accompanied by a copy of
Subchapter 15D.
61
<PAGE>
If Conseco does not remit the amount of its estimate of fair value of
the ATC Common Stock, it will return any certificates that have been deposited,
and may make a notation on any such certificates that a demand for payment in
accordance with Subchapter 15D has been make. If shares carrying such notation
are thereafter transferred, each new certificate issued therefor may bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares will not acquire by such
transfer any rights in ATC other than those which the original dissenter had
after making demand for payment of their fair value.
After Conseco gives notice of Conseco's Estimate, without remitting
that amount, and if the dissenter believes that Conseco's Estimate is less than
the fair value of the shares, the dissenter may send to Conseco the dissenter's
own estimate (the "Holder's Estimate") of the fair value of the shares as
contemplated by PBCL Section 1578, which will be deemed a demand for payment of
the amount of the Holder's Estimate. If a dissenter does not file a Holder's
Estimate within 30 days after the mailing by Conseco of its remittance or
notice, the dissenter will be entitled to no more than Conseco's Estimate.
If, within 60 days after the Effective Time or after the timely receipt
by Conseco of any Holder's Estimate, whichever is later, any demands for payment
remain unsettled, Conseco may file in the Court of Common Pleas of Bucks County,
Pennsylvania an application for relief requesting that the fair value of the ATC
Common Stock be determined by the court. There is no assurance that Conseco will
file such an application. All dissenters, wherever residing, whose demands have
not been settled will be made parties to any such appraisal proceeding. The
court may appoint an appraiser to receive evidence and recommend a decision on
the issue of fair value. Each dissenter who is made a party will be entitled to
recover the amount by which the fair value of the dissenters' ATC Common Stock
is found to exceed the amount, if any, previously remitted, plus interest.
Interest shall be payable from the Effective Time until the date of payment at
such rate as is fair and equitable under all the circumstances, taking into
account all relevant factors, including the average rate currently paid by
Conseco on its principal line of credit. If Conseco fails to file an application
for relief, any dissenter who has made a demand and who has not already settled
the dissenter's claim against Conseco may do so in the name of Conseco at any
time within 30 days after the expiration of the 60-day period. If a dissenter
does not file an application within the 30-day period, each dissenter entitled
to file an application shall be paid Conseco's Estimate and no more, and may
bring an action to recover any amount thereof not previously remitted.
The costs and expenses of such court proceedings, including the
reasonable compensation and expenses of the appraiser appointed by the court,
will be determined by the court and assessed against Conseco, except that any
part of the costs and expenses may be apportioned and assessed as the court
deems appropriate against all or some of the dissenters who are parties and
whose action in demanding supplemental payment the court finds to be dilatory,
arbitrary or in bad faith. Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems appropriate against
Conseco, and in favor of any or all dissenters, if Conseco fails to comply
substantially with the requirements of subchapter 15D. Such fees and expenses
may be assessed against either Conseco or a dissenter, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith,
arbitrarily, or in a dilatory manner. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated and should not be assessed against Conseco, it may award such
counsel reasonable fees to be paid out of the amounts awarded to the dissenters
who were benefitted.
Under the PBCL, a shareholder of ATC has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Merger,
nor any right to valuation and payment of the fair value of the holder's shares
because of the Merger, except to the extent provided by the dissenters
62
<PAGE>
rights provisions of Subchapter 15D. The PBCL also provides that, absent fraud
or fundamental unfairness, the rights and remedies provided by Subchapter 15D
are exclusive.
The foregoing description of the rights of dissenters under Subchapter
15D is qualified in its entirety by the provision of Subchapter 15D and should
be read in conjunction with Annex C to this Joint Proxy Statement/Prospectus.
Conseco. Holders of Conseco Stock will not be entitled to appraisal or
dissenters rights under the Indiana Corporation Law in connection with the
Merger because the Conseco Common Stock is traded on the NYSE.
Accounting Treatment
Conseco intends to account for the Merger under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16. Under
this method of accounting, the cost of acquiring all outstanding shares of ATC
Common Stock and the assumption of all outstanding ATC Stock Options will be
determined by the cost of shares of ATC Common Stock currently owned by Conseco
and the value at the Effective Time of Conseco Common Stock (and cash in lieu of
fractional shares) to be issued to holders of ATC Common Stock and ATC Stock
Options, plus the direct costs associated with the Merger. Conseco will allocate
such cost in establishing new accounting and reporting bases for the underlying
acquired assets and liabilities based on their estimated fair values at the
Effective Time.
Conseco believes the Merger will not qualify for the pooling of
interest method of accounting in accordance with APB No. 16, because an
affiliate of ATC intends to sell a portion of the Conseco Common Stock it
receives in the Merger shortly after the Effective Time.
Interests of Certain Persons in the Merger
Indemnification of Directors and Officers. Pursuant to the Merger
Agreement, the Articles of Incorporation and Bylaws of ATC's subsidiaries shall
contain the provisions with respect to indemnification set forth therein on the
date of the Merger Agreement, and such provisions shall not be amended, repealed
or otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights of Indemnified Parties in respect
of actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modification is required by law. Conseco has agreed to indemnify the
Indemnified Parties, but only to the extent that ATC would have been obligated
to do so had it been the Surviving Corporation. The foregoing provisions are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party, his heirs and his personal representatives and shall be binding on all
successors and assigns of Conseco.
Severance Payments. The Merger Agreement provides for a payment to
Ronald J. Holmer, Benedict J. Iacovetti, Ernest Iannucci and Wayne G. Vosik up
to a maximum of $120,000 each, if necessary, intended to reimburse such
individuals for any excise tax imposed under section 4999 of the Code with
respect to any payment that such individuals may receive under their employment
agreements with ATC as described below.
Each of Ronald J. Holmer, Benedict J. Iacovetti, Ernest Iannucci, Susan
T. Mankowski and Wayne G. Vosik have "at-will" employment agreements with ATC
which have a change of control provision. The change of control provision
provides that upon the occurrence of the Merger, ATC is
63
<PAGE>
required to deposit in an escrow account an amount equal to 200 percent of the
executive's then current annual salary. If within three years of the Merger, the
executive's employment is terminated for a reason other than death, normal
retirement for age, disability or termination for cause, the executive may
demand that the escrowed funds be paid to him or her.
Employment Agreements. Conseco Services will enter into employment
agreements with John A. Powell, Thomas J. Parry, Kevin Shields and Denise
Powell, all of which will be effective as of the Effective Time. The legal fees
incurred by John A. Powell, Thomas J. Parry, Kevin Shields and Denise Powell in
connection with the employment agreements were paid for by ATC.
John A. Powell. John A. Powell's employment agreement with Conseco
Services provides for an employment term of five years and an initial position
of President of ATLIC. Mr. Powell will be entitled to an initial annual salary
of $1,000,000 plus such bonuses or incentive compensation as the boards of
directors of Conseco and its subsidiaries (the "Boards") shall deem appropriate.
In addition, Mr. Powell shall be entitled to a cash bonus in 1996 pursuant to
his current employment agreement with ATC and a minimum cash bonus of $250,000
in 1997. Mr. Powell may receive annual salary increases in the discretion of the
Boards.
Pursuant to his employment agreement, Mr. Powell is entitled to
participate in such employee benefit plans and insurance programs currently
offered by Conseco Services for its executive management or supervisory
personnel.
At the Effective Time, Mr. Powell will receive a grant of options to
purchase 100,000 shares of Conseco Common Stock at a purchase price per share
equal to the average sale price of Conseco Common Stock on the date of grant.
Twenty-five percent of such options will vest upon receipt and twenty-five
percent will vest on each of the first three anniversaries of the Effective
Time. In addition, Mr. Powell shall be eligible to receive such other stock
option grants in accordance with the policy of Conseco Services applicable to
similarly situated executives.
The employment agreement provides that Conseco Services shall assume
all rights and obligations of ATC to pay for a split-dollar life insurance
policy on the life of Mr. Powell. An insurance policy presently maintained by
ATC on the life of Mr. Powell to fund the payment of certain deferred
compensation benefits shall be transferred to Mr. Powell without any payment by
or other cost to Mr. Powell and the obligation to make such deferred
compensation benefits shall be terminated.
Mr. Powell's employment agreement with Conseco Services will prevent
him from disclosing confidential information obtained pursuant to his employment
by Conseco Services and contains limited non-solicitation and non-compete
provisions. The employment agreement provides that either Mr. Powell or Conseco
Services may terminate it any time for any reason. However, if the employment
agreement is terminated by Conseco Services for other than "just cause" (as
defined in the employment agreement) or by Mr. Powell for "good reason" (as
defined in the employment agreement) during the initial employment term, Mr.
Powell will be entitled to receive his base salary, for the greater of one year
from the date of notice of termination or the remainder of the initial
employment term, plus the pro rata share of any bonuses and all other unpaid
amounts accrued as of the date of termination to which he would otherwise be
entitled. In the event of termination resulting from a "change of control" (as
defined in the employment agreement), Mr. Powell may elect to be paid a lump sum
severance allowance in lieu of the termination payments provided in the
preceding sentence. If the term of employment is not renewed at the end of the
initial employment term, then, thereafter, upon Mr. Powell's termination of
employment by Conseco Services without just cause or Mr. Powell's termination of
employment with Conseco Services for good reason, Mr. Powell will be entitled to
64
<PAGE>
receive an amount equal to his base salary for a period of one year from the
earlier of the date Conseco Services gives Mr. Powell notice of its intent to
terminate his employment or the date of such termination of employment.
In the event of Mr. Powell's disability during the initial employment
term, he shall be entitled to his base salary for six months and, thereafter, 50
percent of his base salary and a pro rata share of his bonus. In the event of
Mr. Powell's death during the initial employment term, his beneficiary shall be
entitled to his pro rata share of his bonus and all other unpaid amounts accrued
as of the date of death.
Other Employment Agreements. The employment agreements with Thomas
Parry, Kevin Shields and Denise Powell each provide for a three-year initial
employment term and their respective positions and base salaries are: Vice
President - Marketing of ATLIC - $175,000; Vice President-Sales of ATLIC -
$125,000; and Vice President - Sales of ATLIC - $120,000.
Each of the executives will be entitled to (1) an annual cash bonus in
1996 as determined under the current ATC arrangement; (2) in 1997, a minimum
cash bonus of $20,000; and (3) such other bonus or incentive compensation as the
Boards may approve from time to time.
All of the executives are entitled to participate in such employee
benefit plans and insurance programs currently offered by Conseco Services. At
the Effective Time, each of the executives shall receive a grant of options to
purchase 20,000 shares of Conseco Common Stock at a purchase price per share
equal to the average sale price of stock on the date of grant. Such options
shall vest in equal annual installments over three years. In addition, such
executives shall be eligible to receive such other stock option grants in
accordance with the policy of Conseco Services applicable to similarly situated
executives.
The executives' employment agreements prevent them from disclosing
confidential information obtained pursuant to their employment by Conseco
Services and contain certain limited non-solicitation and non-compete
provisions. Each of the employment agreements provides that either the executive
or Conseco Services may terminate it any time for any reason. However, if the
employment agreement is terminated by Conseco Services for other than "just
cause" (as defined in the employment agreement) during the initial employment
term, the executive shall be entitled to receive his base salary for the greater
of two years from the termination or the remainder of the initial employment
term, plus the pro rata share of any bonuses he or she is otherwise entitled to
and all other unpaid amounts accrued as of the date of termination.
In the event of the executive's disability during the initial
employment term, the executive shall be entitled to his or her pro rata share of
bonus and all other unpaid amounts accrued as of the date of disability and such
benefits as are provided under Conseco Service's salary continuation and
disability plans. In the event of the executive's death during the initial
employment term, the executive's beneficiary shall be entitled to receive a pro
rata share of bonuses and all other unpaid amounts accrued as of the date of the
executive's death.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference.
65
<PAGE>
This summary is qualified in its entirety by reference to the Merger Agreement.
All shareholders are urged to read the Merger Agreement in its entirety.
The Merger
The Merger Agreement provides that, subject to satisfaction or waiver
of the terms and conditions contained in the Merger Agreement, including the
approval of the Merger Agreement and the transactions contemplated thereby by
the shareholders of ATC and approval of the Merger Consideration Stock Issuance
by the shareholders of Conseco, ATC will be merged with and into Conseco, with
Conseco being the Surviving Corporation.
Effective Time
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions and the requisite approval of the shareholders of
Conseco and ATC, the Merger will be consummated by, and will become effective on
the date of, the filing of a Certificate of Merger with the Secretary of State
of Indiana and the Secretary of State of Pennsylvania or at such time thereafter
as is provided in the Certificate of Merger. The Merger Agreement may be
terminated by either Conseco or ATC if, among other reasons, the Merger has not
been consummated on or before December 31, 1996; provided, however, such date
may be extended to March 31, 1997 if certain conditions are satisfied.
See "-- Conditions to the Merger" and " -- Termination."
Conversion of Shares; Exchange of Stock Certificates; No Fractional Amounts
At the Effective Time, pursuant to the Merger Agreement, each share of
ATC Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by ATC or Dissenting Shares), shall
be converted into the right to receive (i) if the Conseco Share Price is greater
than or equal to $42.25 per share, and less than or equal to $46.25 per share,
.7574 of a share of Conseco Common Stock; (ii) if the Conseco Share Price is
less than $42.25 per share, the fraction (rounded to the nearest ten-thousandth)
a share (or such fraction and whole number as the case may be) of Conseco Common
Stock determined by dividing $32.00 by the Conseco Share Price; or (iii) if the
Conseco Share Price is greater than $46.25 per share, the fraction (rounded to
the nearest ten-thousandth) of a share of Conseco Common Stock determined by
dividing $35.03 by the Conseco Share Price. The "Conseco Share Price" shall be
equal to the average of the closing prices of the Conseco Common Stock on the
NYSE Composite Transactions Reporting System for the 10 trading days immediately
preceding the second trading day prior to the Effective Time. Thus, holders of
shares of ATC Common Stock will receive Conseco Common Stock with a value (based
on the average closing price during such 10 day period) of not less than $32.00
per share and up to $35.03 per share. The Conseco Common Stock to be issued to
holders of ATC Common Stock pursuant to the Merger and any cash to be paid in
lieu of fractional shares of Conseco Common Stock are referred to collectively
as the "Merger Consideration."
In the event of any change in Conseco Common Stock between the date of
the Merger Agreement and the Effective Time of the Merger by reason of any stock
dividend, subdivision, reclassification, recapitalization, combination, exchange
of shares or the like, the number and class of shares of Conseco Common Stock to
be issued and delivered in the Merger in exchange for each outstanding share of
ATC Common Stock as provided in the Merger Agreement shall be proportionately
adjusted.
66
<PAGE>
The structure of the Merger was the result of arm's length negotiations
between ATC and Conseco and economic considerations and was intended to qualify
as a tax-free reorganization under Sections 368(a)(1)(A) of the Code. On
___________, 1996, the last full trading day for which information was available
prior to the mailing of this Joint Proxy Statement/Prospectus, the closing price
reported for shares of Conseco Common Stock on the NYSE was $___ per share and
the closing price reported for shares of ATC Common Stock on the NASDAQ National
Market was $___ per share. There can be no assurance or prediction, and neither
Conseco nor ATC hereby make any assurance or prediction, as to the future price
of the Conseco Common Stock or ATC Common Stock.
At the Effective Time, each share of ATC Common Stock issued and
outstanding immediately prior to the Effective Time which is then held as a
treasury share by ATC or any of its subsidiaries immediately prior to the
Effective Time, shall, by virtue of the Merger and without any action on the
part of ATC, be canceled and retired and cease to exist, without any conversion
thereof.
No fractional shares of Conseco Common Stock will be issued in
connection with the Merger. Each ATC shareholder who otherwise would have been
entitled to a fraction of a share of Conseco Common Stock (after taking into
account all certificates delivered by such holder) shall receive in lieu thereof
cash (without interest) in an amount equal to such fractional part of a share of
Conseco Common Stock multiplied by the Conseco Share Price.
Promptly after the Effective Time, the designated exchange agent will
mail to each record holder of Certificates a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the
consideration to which such holder shall be entitled. After receipt of such
transmittal form, each holder of Certificates should surrender such Certificates
to the exchange agent together with such letter of transmittal duly executed and
completed in accordance with the instructions thereto, and each such holder will
be entitled to receive in exchange therefor certificates for shares of Conseco
Common Stock and/or a check for any cash which may be payable in lieu of a
fractional share of Conseco Common Stock.
ATC SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER AND INSTRUCTIONS.
After the Effective Time, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number of shares of Conseco Common Stock that the holder of such
certificate is entitled to receive pursuant to the terms of the Merger Agreement
and the right to receive any cash payment in lieu of a fractional share of
Conseco Common Stock.
Treatment of ATC Stock Options
At the Effective Time, each ATC Stock Option shall be deemed disposed
to ATC and then converted automatically into an option to purchase, for the same
aggregate consideration payable to exercise such ATC Stock Options, the number
of shares of Conseco Common Stock which the holder would have been entitled to
receive at the Effective Time if such ATC Stock Options had been fully vested
and exercised for shares prior to the Effective Time, but otherwise on the same
terms and conditions as were applicable under the ATC stock option plan and the
underlying stock option agreement except as provided in the next two sentences.
Each ATC Stock Option held by anyone other than a non-employee director of ATC,
if not then vested, will vest in full at the earlier of (1) the expiration of
three months after the Effective Time or (2) the termination by Conseco of the
67
<PAGE>
employment of the holder of such ATC Stock Option. Each ATC Stock Option held by
a non-employee director of ATC, if not then vested, will vest in full at the
Effective Time.
Conseco has agreed to take all corporate action necessary to reserve
for issuance a sufficient number of shares of Conseco Common Stock for delivery
upon exercise of ATC Stock Options assumed in accordance with the Merger
Agreement and to register such shares of Conseco Common Stock with the
Commission pursuant to a Registration Statement on Form S-8.
Dissenting Shares
ATC Common Stock which is held by shareholders of ATC who shall have
effectively dissented from the Merger and perfected their dissenters rights in
accordance with the provisions of Subchapter 15D of the PBCL (the "Dissenting
Shares") shall not be converted into or be exchangeable for the right to receive
the Merger Consideration, but the holders thereof shall be entitled to payment
from Conseco of the appraised value of such Dissenting Shares in accordance with
the provisions of Subchapter 15D. See "The Merger -- Dissenters' Rights."
Representations and Warranties
The Merger Agreement contains certain customary representations and
warranties relating to, among other things, (1) each of Conseco's and ATC's
organization and similar corporate matters; (2) each of Conseco's and ATC's
capital structure; (3) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement with respect to Conseco and ATC and
related matters; (4) documents filed by each of Conseco and ATC with the
Commission and the accuracy of information contained therein; (5) the absence of
material changes with respect to the business of Conseco and ATC; and (6)
compliance with applicable laws.
Certain Covenants
The Merger Agreement contains certain customary covenants and
agreements, including, without limitation, the following:
Conduct of Business. Pursuant to the Merger Agreement, and except as
set forth in the disclosure schedules thereto, Conseco has agreed that during
the period from the date of the Merger Agreement to the Effective Time, Conseco
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course and will not, among other things,
(1)(A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than regular quarterly cash
dividends of $.0625 per share of Conseco Common Stock and regular cash dividends
on the Conseco Series D Preferred Stock and the Conseco PRIDES, in each case
with usual record and payment dates and in accordance with Conseco's Articles of
Incorporation and its present dividend policy) or (B) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Conseco's outstanding capital stock (other than under the Conseco
stock option plans); (2) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, in each case if any such
action could reasonably be expected to (A) delay materially the date of mailing
of this Joint Proxy Statement/Prospectus or, (B) if it were to occur after such
date of mailing, require an amendment of this Joint Proxy Statement/Prospectus;
or (3) acquire any business or any corporation, partnership, joint venture,
association or other business organization or
68
<PAGE>
division thereof, in each case if any such action could reasonably be expected
to (A) delay materially the date of mailing of this Joint Proxy
Statement/Prospectus or, (B) if it were to occur after such date of mailing,
require an amendment of this Joint Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, ATC has agreed that, during the
period from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement or as set forth on the disclosure schedules
thereto, ATC will, and will cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and will not (without
the prior consent of Conseco), among other things (1)(A) declare, set aside or
pay any dividends on, or make any other distributions (whether in cash, stock or
property) in respect of, any of ATC's outstanding capital stock, (B) split,
combine or reclassify any of ATC's outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of ATC's outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of ATC's outstanding capital stock or any
rights, warrants or options to acquire such shares; (2) issue, sell, grant,
pledge or otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities, other than upon the exercise of ATC Stock Options outstanding on the
date of the Merger Agreement; (3) amend its articles of incorporation or bylaws;
(4) acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof; (5) sell,
mortgage or otherwise encumber or dispose of any of its properties or assets
that are material to ATC and its subsidiaries taken as a whole, except in the
ordinary course of business; (6)(A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than certain specified
limitations, or (B) make any loans or advances to any other person,other than to
ATC or any wholly-owned subsidiary of ATC and other than routine advances to
employees; (7) make any tax election or settle or compromise any income tax
liability that would reasonably be expected to be material to ATC and its
subsidiaries taken as a whole; (8) pay, discharge, settle or satisfy any claims,
liabilities or obligations other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements of ATC or
incurred since the date of such financial statements in the ordinary course of
business consistent with past practice; (9) invest its future cash flow, any
cash from matured and maturing investments, any cash proceeds from the sale of
its assets and properties, and any cash funds currently held by it, in any
investments other than cash equivalent assets or in short-term investments,
except (A) as otherwise required by law, (B) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet its
actual or anticipated obligations, (C) in publicly traded corporate bonds that
are rated investment grade by at least two nationally recognized statistical
rating organizations, (D) as may be otherwise required in ATC's contractual
undertakings with Transport Life Insurance Company, or (E) as may be otherwise
provided in the investment guidelines contained in the investment advisory
agreements with Conseco Capital Management, Inc., a wholly-owned subsidiary of
Conseco ("CCM"); (10) except as may be required by law, (A) make any
representation or promise to any employee or former director, officer or
employee of ATC or any subsidiary which is inconsistent with the terms of any
existing ATC benefit plan, (B) make any change to the contracts, salaries,
wages, or other compensation of any employee or any agent or consultant of ATC
or any subsidiary other than (i) routine changes or amendments that are required
under existing contracts, or (ii) individual, routine changes or amendments that
are made in the ordinary course of business and consistent with past practice
and do not exceed 8 percent, (C) adopt, enter into, amend, alter or terminate
any benefit plan or any election made pursuant to the provisions of any existing
ATC benefit plan, to accelerate any payments, obligations or vesting schedules
under any existing ATC benefit plan, or (D) approve any general or company-wide
pay increases for employees; (11) except in the ordinary course of business,
modify, amend or terminate any material agreement, permit,
69
<PAGE>
concession, franchise, license or similar instrument to which ATC or any
subsidiary is a party or waive, release or assign any material rights or claims
thereunder; and (12) hold any meeting of the board of directors of ATC or any
subsidiary or any committee of any such board, or take any action by written
consent of any such board or committee, without providing (A) written notice
five days in advance of any such meeting or date of any proposed action by
written consent, and (B) an agenda of the specific matters intended to be
considered at such meeting or a copy of the proposed written consent.
CCM Advisory Agreement. Pursuant to the Merger Agreement, ATC has
agreed to enter into, and cause each of its subsidiaries to enter into, an
investment advisory agreement with CCM. The investment advisory agreements shall
be effective as of the date this Joint Proxy Statement/ Prospectus is first
mailed to ATC's shareholders (the "Mailing Date").
No Solicitation. Pursuant to the Merger Agreement, ATC shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, ATC or any of its subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage the submission of any bona fide
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving ATC, ATL or UGL (each a "Significant Subsidiary"), or any
purchase of all or any significant portion of the assets of ATC or any
Significant Subsidiary, or any equity interest in ATC or any Significant
Subsidiary, other than the transactions contemplated by the Merger Agreement
(each an "Acquisition Proposal") or (2) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal. The foregoing shall not prohibit the Board of Directors of
ATC from furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited Acquisition Proposal if,
and only to the extent that (1) the Board of Directors of ATC, after
consultation with and based upon the advice of outside counsel, determines in
good faith that such action is necessary for the Board of Directors of ATC to
comply with its fiduciary duties to shareholders under applicable law and (2)
prior to taking such action, ATC (A) provides reasonable notice to Conseco to
the effect that it is taking such action and (B) receives from such person or
entity an executed confidentiality agreement in reasonably customary form.
Indemnification of Directors and Officers. Pursuant to the Merger
Agreement, Conseco has agreed that the articles of incorporation and bylaws of
ATC's subsidiaries shall contain the provisions with respect to indemnification
set forth therein on the date of the Merger Agreement, and such provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights of
individuals who at anytime prior to the Effective Time were directors or
officers of ATC or any of its subsidiaries (the "Indemnified Parties") in
respect of actions or omissions occurring at or prior to the Effective Time
unless such modification is required by law. Conseco has agreed to indemnify the
Indemnified Parties, but only to the extent that ATC would have been obligated
to do so had it been the surviving corporation of the Merger.
Conditions to the Merger
The respective obligations of Conseco and ATC to effect the Merger are
subject to the following conditions, among others: (1) the Merger Agreement and
the Merger shall have been approved and adopted by the shareholders of ATC and
the holders of Conseco Stock shall have approved and adopted the Merger
Consideration Stock Issuance; (2) all required consents, approvals, permits and
authorizations to the consummation of the transactions contemplated hereby by
ATC and
70
<PAGE>
Conseco shall be obtained from (A) the Insurance Regulators in Pennsylvania, New
York and Texas, and (B) any other governmental entity whose consent, approval,
permission or authorization is required by reason of a change in law after the
date of the Merger Agreement, unless the failure to obtain such consent,
approval, permission or authorization (i) would not reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operations of ATC and its subsidiaries, taken as a whole, or on the validity
or enforceability of the Merger Agreement or (ii) is the failure to obtain the
approval of the Insurance Regulator of any life insurance subsidiary of ATC,
which does not constitute a "significant subsidiary" (within the meaning of Rule
1-02 of Regulation S-X of the Commission) of ATC (a "Non-Significant Life
Subsidiary") to the transfer of control of such Non- Significant Life
Subsidiary, then such non-approval can be waived at the option of Conseco if
certain specified actions are taken; (3) the waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have otherwise expired; (4) no temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; (5) the shares of Conseco Common Stock
issuable to ATC's shareholders pursuant to the Merger shall have been approved
for listing on the NYSE, subject to official notice of issuance; and (6) the
Registration Statement shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order.
The obligations of Conseco to effect the Merger are subject to, among
other things, the following additional conditions: (1) the representations and
warranties of ATC contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and as of the Mailing Date (except
to the extent that they expressly relate only to an earlier time, in which case
they shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of ATC and its subsidiaries taken
as a whole; (2) ATC shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; and (3) no more than 20 percent of the shares of ATC
Common Stock shall have become Dissenting Shares.
The obligation of ATC to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of Conseco contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and as of the Mailing Date (except
to the extent that they expressly relate only to an earlier time, in which case
they shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of Conseco and its subsidiaries
taken as a whole; (2) Conseco shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (3) ATC shall have received an opinion of counsel to
the effect that the Merger will be treated as a reorganization under Section
368(a)(1) of the Code and that shareholders of ATC will not be subject to
federal income tax on the receipt of shares of Conseco Common Stock in the
Merger; and (4) ATC shall have received from DLJ, immediately prior to or on the
Mailing Date, an update of its fairness opinion which was rendered as of the
date of the Merger Agreement.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (1) by the mutual written consent of Conseco
and ATC; (2) by Conseco or ATC at any time if, (A) upon a vote at a duly held
meeting of ATC or Conseco's shareholders or any adjournment
71
<PAGE>
thereof, any required approval of the holders of ATC Common Stock or Conseco
Stock shall not be obtained, (B) the Merger shall not have been consummated on
or before December 31, 1996, unless the failure to consummate the Merger is the
result of a willful and material breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; provided, however, that either party
may by notice to the other party extend such date to March 31, 1997 if the only
conditions to closing not satisfied as of December 31, 1996 are those relating
to stockholder approval, governmental and regulatory consents and HSR Act, (C)
any governmental entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable, or (D) the Board of Directors of ATC shall have exercised its
rights set forth in Section 4.9 of the Merger Agreement; (See "-- Right of ATC
Board of Directors to Withdraw its Recommendation"); (3) by Conseco if ATC does
not deliver a certificate signed by ATC's Chief Executive Officer and Chief
Financial Officer certifying that, as of the Mailing Date, the representations
and warranties of ATC in the Merger Agreement are true and correct, subject to
certain limitations; or (4) by ATC if Conseco does not deliver a certificate
signed by Conseco's Chief Executive Officer and Chief Financial Officer
certifying that, as of the Mailing Date, the representatives and warranties of
Conseco in the Merger Agreement are true and correct, subject to certain
limitations.
If the Merger Agreement is validly terminated as described above, the
Merger Agreement shall become void and have no effect, except for certain
covenants regarding confidentiality, brokers and, as described herein, payment
of certain fees and expenses, and except that no party thereto will be relieved
of any liability for damages that such party may have to the other party by
reason of such party's breach of the Merger Agreement.
Right of ATC Board of Directors to Withdraw its Recommendation
Under the Merger Agreement, the Board of Directors of ATC shall not (1)
withdraw or modify, in a manner materially adverse to Conseco, the approval or
recommendation by the Board of Directors of the Merger Agreement or the Merger,
(2) approve or recommend an Acquisition Proposal or (3) enter into any agreement
with respect to any Acquisition Proposal, unless ATC receives an Acquisition
Proposal and the Board of Directors of ATC determines in good faith, following
consultation with outside counsel, that in order to comply with its fiduciary
duties to shareholders under applicable law it is necessary for the Board of
Directors to withdraw or modify, in a manner materially adverse to Conseco, its
approval or recommendation of the Merger Agreement or the Merger, approve or
recommend such Acquisition Proposal, enter into an agreement with respect to
such Acquisition Proposal or terminate the Merger Agreement. In the event the
Board of Directors of ATC takes any of the foregoing actions, ATC shall,
concurrently with the taking of any such action, pay to Conseco the fee
described in "-- Fees -- Acquisition Proposal Fees."
Fees
Acquisition Proposal Fees. ATC has agreed to pay to Conseco upon demand
$20 million (an "Acquisition Proposal Fee"), payable in same-day funds, if a
bona fide Acquisition Proposal is commenced, publicly proposed, publicly
disclosed or communicated to ATC (or the willingness of any person to make such
an Acquisition Proposal is publicly disclosed or communicated to ATC) and the
Board of Directors of ATC, in accordance with its fiduciary duties, withdraws or
modifies in a manner materially adverse to Conseco its approval or
recommendation of the Merger Agreement or the Merger, approves or recommends
such Acquisition Proposal, enters into an agreement with respect to such
Acquisition Proposal, or terminates the Merger Agreement.
72
<PAGE>
Other Fees. In the absence of a requirement to pay an Acquisition
Proposal Fee, unless Conseco is materially in breach of the Merger Agreement or
is unable to satisfy certain closing conditions in the Merger Agreement, ATC has
agreed to pay to Conseco upon demand an amount not to exceed $2 million to
reimburse Conseco for its out-of-pocket fees and expenses in connection with the
Merger or the consummation of the transactions contemplated by the Merger
Agreement, payable in same-day funds, if the requisite approval of ATC's
shareholders for the Merger is not obtained and all other closing conditions
contained in the Merger Agreement have been satisfied or waived or, with respect
to any condition not then satisfied, it is substantially likely that such
condition will be satisfied on or before March 31, 1997, through the exercise of
best efforts to procure the satisfaction thereof.
In the absence of a requirement to pay an Acquisition Proposal Fee,
unless ATC is materially in breach of the Merger Agreement or is unable to
satisfy certain closing conditions in the Merger Agreement, Conseco has agreed
to pay to ATC upon demand an amount not to exceed $2 million to reimburse ATC
for its out-of-pocket fees and expenses in connection with the Merger or the
consummation of the transactions contemplated by the Merger, payable in same-day
funds, if the requisite approval of holders of Conseco Stock of the Merger
Consideration Stock Issuance is not obtained and all other closing conditions
contained in the Merger Agreement have been satisfied or waived or, with respect
to any condition not then satisfied, it is substantially likely that such
condition will be satisfied on or before March 31, 1997, through the exercise of
best efforts to procure the satisfaction thereof.
Expenses
Except as otherwise expressly provided in the Merger Agreement, whether
or not the Merger is consummated, each of ATC and Conseco will pay its own costs
and expenses incident to preparing for, entering into and carrying out the
Merger Agreement and the consummation of the transactions contemplated thereby
except that the expenses incurred in connection with the printing, mailing and
distribution of this Joint Proxy Statement/Prospectus and the preparation and
filing of the Registration Statement shall be borne equally by Conseco and ATC.
Modification or Amendment
Subject to the applicable provisions of the IBCL and the PBCL, at any
time prior to the Effective Time, ATC and Conseco may modify or amend the Merger
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
the Merger by the shareholders of ATC, no amendment may be made which reduces
the consideration payable in the Merger or adversely affects the rights of the
ATC's shareholders under the Merger Agreement without the approval of such
shareholders.
73
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO
The unaudited pro forma consolidated statements of operations of Conseco
for the year ended December 31, 1995, and for the six months ended June 30,
1996, present the consolidated operating results for Conseco as if the following
planned transactions had occurred on January 1, 1995: (1) the Merger; (2) the
BLH Transaction; (3) the CAF Merger; (4) the Preferred Securities Offering; and
(5) the THI Merger.
The pro forma consolidated statement of operations data for Conseco for the
year ended December 31, 1995, set forth in the unaudited pro forma consolidated
statement of operations under the column "Pro forma Conseco before the Merger"
reflect the prior application of certain pro forma adjustments for the following
transactions, all of which have already occurred, as if such transactions had
occurred on January 1, 1995: (1) the Series D Call; (2) the ALH Transaction; (3)
the LPG Merger; (4) the acquisition of all of the outstanding common stock of
CCP not previously owned by Conseco and related transactions (including the
repayment of the existing $250.0 million revolving credit agreement); (5) the
increase of Conseco's ownership in BLH to 90.5 percent, as a result of purchases
of common shares of BLH by Conseco and BLH during 1995 and the first three
months of 1996; (6) the issuance of 4.37 million shares of Conseco PRIDES in
January 1996; (7) the BLH Tender Offer; and (8) the debt restructuring of ALH in
the fourth quarter of 1995. Such pro forma adjustments are set forth in: (1)
Exhibit 99.2 included in Conseco's Current Report on Form 8-K dated September
25, 1996; (2) Conseco's Current Report on Form 8-K dated August 2, 1996; and (3)
Exhibit 99.1 included in Conseco's Current Report on Form 8-K dated April 10,
1996.
The pro forma consolidated statement of operations data for Conseco for the
six months ended June 30, 1996, set forth in the unaudited pro forma
consolidated statement of operations under the column "Pro forma Conseco before
the Merger" reflect the prior application of certain pro forma adjustments for
the following transactions, all of which have already occurred, as if such
transactions had occurred on January 1, 1995: (1) the Series D Call; (2) the ALH
Transaction; (3) the LPG Merger; (4) the issuance of 4.37 million shares of
Conseco PRIDES in January 1996; and (5) the BLH Tender Offer. Such pro forma
adjustments are set forth in: (1) Exhibit 99.2 included in Conseco's Current
Report on Form 8-K dated September 25, 1996; (2) Conseco's Current Report on
Form 8-K dated August 2, 1996; and (3) Exhibit 99.1 included in Conseco's Form
10-Q for the quarterly period ended June 30, 1996.
The unaudited pro forma consolidated balance sheet as of June 30, 1996,
gives effect to the following planned transactions as if each had occurred on
June 30, 1996: (1) the Merger; (2) the BLH Transaction; (3) the CAF Merger; (4)
the Preferred Securities Offering; and (5) the THI Merger.
The unaudited pro forma consolidated balance sheet data as of June 30,
1996, set forth in the unaudited pro forma consolidated balance under the column
"Pro forma Conseco before the Merger" reflect the prior application of certain
pro forma adjustments for the following transactions, all of which have already
occurred, as if such transactions had occurred on June 30, 1996: (1) the Series
D Call; (2) the ALH Transaction; and (3) the LPG Merger. Such pro forma
adjustments are set forth in: (1) Exhibit 99.2 included in Conseco's Current
Report on Form 8-K dated September 25, 1996; and (2) Conseco's Current Report on
Form 8-K dated August 2, 1996.
The pro forma consolidated financial statements are based on the historical
financial statements of Conseco, LPG, ATC, CAF and THI and should be read in
conjunction with their respective financial statements and notes. The pro forma
data are not necessarily indicative of the results of operations or financial
condition of Conseco had these transactions occurred on January 1, 1995, nor the
results of future operations. Conseco anticipates cost savings and additional
benefits as a result of certain of the transactions contemplated in the pro
forma financial statements. Such benefits and any other changes that might have
resulted from management of the combined companies have not been included as
adjustments to the pro forma consolidated financial statements. Certain amounts
from the prior periods have been reclassified to conform to the current
presentation.
The unaudited pro forma consolidated financial statements reflect cost
allocations for the LPG Merger, the Merger, the ALH Transaction, the BLH
Transaction, the CAF Merger and the THI Merger using estimated values of the
assets and liabilities of LPG, ATC, ALH, BLH, CAF and THI as of the assumed
merger dates based on appraisals and other studies, which are not yet complete.
Accordingly, the final allocations will be different than the amounts included
in the accompanying pro forma consolidated financial statements. Although the
final allocations will differ, the pro forma consolidated financial statements
reflect management's best estimate based on currently available information as
if the LPG Merger, the Merger, the ALH Transaction, the BLH Transaction, the CAF
Merger and the THI Merger had occurred on the assumed merger dates.
74
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the ATC relating to the for the BLH Conseco
Merger historical Merger Merger Transaction subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 897.2 $ 186.9 $ - $1,084.1 $ - $ 1,084.1
Investment activity:
Net investment income 719.4 21.3 0.7 (1) 741.4 0.1 (16) 741.5
Net trading losses (7.3) (7.3) (7.3)
Net realized gains 15.4 1.3 2.3 (1) 19.0 19.0
Fee revenue 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4
Other income 10.2 10.2 10.2
------- ------- ------- ---------- ----- ---------
Total revenues 1,685.4 209.5 3.0 1,897.9 0.1 1,898.0
------- ------- ------- ---------- ----- ---------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits 626.0 127.3 753.3 (1.0)(16) 752.3
Interest expense on annuities
and financial products 378.3 378.3 378.3
Interest expense on notes payable 67.6 4.0 1.0 (2) 70.1 70.1
(2.5)(3)
Interest expense on investment borrowings 10.7 10.7 10.7
Amortization related to operations 168.3 10.9 (10.9)(4) 188.7 0.1 (16) 188.8
13.2 (4)
7.2 (5)
Amortization related to realized gains 15.1 15.1 0.1 (16) 15.2
Other operating costs and expenses 157.9 42.4 200.3 1.1 (16) 201.4
------- ------- ------- ---------- ----- ---------
Total benefits and expenses 1,423.9 184.6 8.0 1,616.5 0.3 1,616.8
------- ------- ------- ---------- ----- ---------
Income (loss) before income
taxes, minority interest
and extraordinary charge 261.5 24.9 (5.0) 281.4 (0.2) 281.2
Income tax expense (benefit) 100.3 8.1 0.8 (6) 109.2 0.1 (17) 109.3
------- ------- ------- ---------- ----- ---------
Income (loss) before minority
interest and
extraordinary charge 161.2 16.8 (5.8) 172.2 (0.3) 171.9
Minority interest 12.3 12.3 (7.9)(18) 4.4
------- ------- ------- ---------- ------ ---------
Income (loss) before
extraordinary charge $ 148.9 $ 16.8 $ (5.8) $ 159.9 $7.6 $ 167.5
======= ======= ======= ========= ===== =========
Earnings per common share and
common equivalent share:
Primary:
Weighted average shares outstanding 77.0 13.1(7) 90.1 2.6 (19) 92.7
======= ======= ========= ==== ========
Income before extraordinary charge $1.93 $1.77 $1.81
======= ========= =======
Fully diluted:
Weighted average shares outstanding 77.8 18.1(7) 95.9 2.6 (19) 98.5
======= ======= ========= ==== ========
Income before extraordinary charge $1.91 $1.69 $1.73
======= ========= ========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 76.
</FN>
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (continued)
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
relating
Pro forma to the
Pro forma adjustments Pro forma Preferred Pro forma
Conseco CAF relating to Conseco Securities Conseco
subtotal (a) historical the CAF Merger subtotal Offering subtotal (b)
------------ ----------- --------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 1,084.1 $146.6 $ - $1,230.7 $ - $ 1,230.7
Investment activity:
Net investment income 741.5 27.3 (1.7)(22) 767.1 767.1
Net trading losses (7.3) (7.3) (7.3)
Net realized gains 19.0 0.1 (0.1)(22) 19.0 19.0
Fee revenue 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4
Other income 10.2 10.2 10.2
------ --------- --------- --------- -------- --------
Total revenues 1,898.0 174.0 (1.8) 2,070.2 2,070.2
------- --------- --------- --------- -------- --------
Benefits and expenses:
Insurance policy benefits and
change in future policy benefits 752.3 80.9 (1.5)(23) 831.7 831.7
Interest expense on annuities and
financial products 378.3 378.3 378.3
Interest expense on notes payable 70.1 1.0 (1.0)(24) 88.7 (10.8)(41) 77.9
18.6 (25)
Interest expense on investment borrowings 10.7 10.7 10.7
Amortization related to operations 188.8 12.3 (12.3)(26) 207.9 207.9
16.2 (26)
2.9 (27)
Amortization related to realized gains 15.2 15.2 15.2
Other operating costs and expenses 201.4 38.2 239.6 239.6
------ --------- --------- --------- -------- -------
Total benefits and expenses 1,616.8 132.4 22.9 1,772.1 (10.8) 1,761.3
------- -------- --------- --------- -------- -------
Income (loss) before income
taxes, minority interest
and extraordinary charge 281.2 41.6 (24.7) 298.1 10.8 308.9
Income tax expense (benefit) 109.3 14.5 (7.6)(28) 116.2 3.8 (42) 120.0
------ -------- --------- --------- ------- ------
Income (loss) before minority
interest and
extraordinary charge 171.9 27.1 (17.1) 181.9 7.0 188.9
Minority interest 4.4 4.4 4.4
------ --------- --------- --------- ------- ------
Income (loss) before extraordinary
charge $167.5 $ 27.1 $ (17.1) $ 177.5 $ 7.0 $ 184.5
====== ========= ========= ========= ======= ======
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding 92.7 2.4(29) 95.1 95.1
====== ========= ========= =====
Income before extraordinary charge $1.81 $1.87 $1.83 (43)
====== ========= =====
Fully diluted:
Weighted average shares outstanding 98.5 2.4(29) 100.9 100.9
====== ========= ========= =====
Income before extraordinary charge $1.73 $1.78 $1.75 (43)
====== ========= =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 75.
(b) Amounts have been carried forward to page 77.
</FN>
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (continued)
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
for the
Pro forma Merger
Pro forma adjustments and other
Conseco THI relating to planned
subtotal (a) historical the THI Merger transactions
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 1,230.7 $ 55.6 $ - $ 1,286.3
Net investment income 767.1 19.9 (3.3) (46) 783.7
Net trading losses (7.3) (7.3)
Net realized gains 19.0 0.3 (0.3) (46) 19.0
Fee revenue 20.1 20.1
Restructuring income 30.4 30.4
Other income 10.2 0.6 10.8
------- ------- -------- -----------
Total revenues 2,070.2 76.4 (3.6) 2,143.0
------- ------- -------- -----------
Benefits and expenses:
Insurance policy benefits and
change in future policy benefits 831.7 37.1 868.8
Interest expense on annuities and
financial products 378.3 378.3
Interest expense on notes payable 77.9 4.5 (4.5) (47) 78.5
0.6 (47)
Interest expense on investment borrowings 10.7 10.7
Amortization related to operations 207.9 4.2 (4.2) (48) 214.9
7.0 (48)
Amortization related to realized gains 15.2 15.2
Other operating costs and expenses 239.6 16.7 256.3
------- ------- -------- ------------
Total benefits and expenses 1,761.3 62.5 (1.1) 1,822.7
------- ------- -------- -------------
Income (loss) before income taxes,
minority interest
and extraordinary charge 308.9 13.9 (2.5) 320.3
Income tax expense (benefit) 120.0 4.9 (0.9)(49) 124.0
------- ------- ------- ------------
Income (loss) before minority
interest and
extraordinary charge 188.9 9.0 (1.6) 196.3
Minority interest 4.4 4.4
------- ------- -------- --------
Income (loss) before extraordinary
charge $ 184.5 $ 9.0 $ (1.6) $ 191.9
======= ======= ======== ========
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding 95.1 4.7 (50) 99.8
======= ====== ========
Income before extraordinary charge $1.83 (43) $1.82
======= ========
Fully diluted:
Weighted average shares outstanding 100.9 4.7 (50) 105.6
======= ====== ========
Income before extraordinary charge $1.75 (43) $1.74
======= ========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 76.
</FN>
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the ATC relating to the for the BLH Conseco
Merger historical Merger Merger Transaction subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 1,752.8 $ 273.9 $ - $2,026.7 $ (0.3)(16) $ 2,026.4
Investment activity:
Net investment income 1,461.1 23.2 1.8 (1) 1,486.1 (0.1)(16) 1,486.0
Net trading income 2.5 2.5 2.5
Net realized gains 220.3 0.2 2.0 (1) 222.5 (0.4)(16) 222.1
Fee revenue 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2
Other income 12.6 12.6 (0.1)(16) 12.5
-------- ------ ------ -------- ----- ---------
Total revenues 3,498.4 297.3 3.8 3,799.5 (0.9) 3,798.6
-------- ------ ------ -------- ----- ---------
Benefits and expenses:
Insurance policy benefits
and change in future policy benefits 1,261.4 172.9 1,434.3 (1.7)(16) 1,432.6
Interest expense on annuities an
financial products 758.5 758.5 0.3 (16) 758.8
Interest expense on notes payable 143.5 3.3 1.9 (2) 145.5 (0.4)(16) 145.1
(3.2)(3)
Interest expense on investment borrowings 30.2 30.2 30.2
Amortization related to operations 307.3 22.7 (22.7)(4) 345.2 (2.8)(16) 342.4
23.5 (4)
14.4 (5)
Amortization related to realized gains 144.4 144.4 (0.6)(16) 143.8
Loss on sale of long-term care business -
Expenses of spin-off and related transactions -
Other operating costs and expenses 356.4 63.7 420.1 5.9 (16) 426.0
-------- ------ --------- -------- ----- -------
Total benefits and expenses 3,001.7 262.6 13.9 3,278.2 0.7 3,278.9
-------- ------ --------- -------- ----- -------
Income (loss) before income taxes,
minority interest
and extraordinary charge 496.7 34.7 (10.1) 521.3 (1.6) 519.7
Income tax expense (benefit) 192.3 11.0 1.5 (6) 204.8 (0.6)(17) 204.2
-------- ------ --------- -------- ----- ------
Income (loss) before minority
interest and
extraordinary charge 304.4 23.7 (11.6) 316.5 (1.0) 315.5
Minority interest 21.3 21.3 (12.6)(18) 8.7
-------- ------ --------- -------- ----- ------
Income (loss) before extraordinary charge $ 283.1 $ 23.7 $ (11.6) $ 295.2 $ 11.6 $ 306.8
======== ====== ========= ======== ===== =======
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 75.7 13.1 (7) 88.8 2.6 (19) 91.4
======== ======= ======== ===== ======
Income before extraordinary charge $3.74 $3.32 $3.36
======== ======== ======
Fully diluted:
Weighted average shares outstanding 76.0 18.1(7) 94.1 2.6 (19) 96.7
======== ======= ======== ===== ======
Income before extraordinary charge $3.72 $3.15 $3.19
======== ======== ======
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 79.
</FN>
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (continued)
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
relating
Pro forma to the
Pro forma adjustments Pro forma Preferred Pro forma
Conseco CAF relating to Conseco Securities Conseco
subtotal (a) historical the CAF Merger subtotal Offering subtotal (b)
------------ ----------- --------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 2,026.4 $ 282.1 $ - $ 2,308.5 $ - $ 2,308.5
Investment activity:
Net investment income 1,486.0 48.6 (3.4) (22) 1,531.2 1,531.2
Net trading income 2.5 2.5 2.5
Net realized gains 222.1 (0.1) (22) 222.0 222.0
Fee revenue 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2
Other income 12.5 0.1 12.6 12.6
------- --------- --------- ----------- ------ --------
Total revenues 3,798.6 330.8 (3.5) 4,125.9 4,125.9
------- --------- --------- ----------- ------ --------
Benefits and expenses:
Insurance policy benefits
and change in future policy benefits 1,432.6 155.3 (3.0) (23) 1,584.9 1,584.9
Interest expense on annuities
and financial products 758.8 758.8 758.8
Interest expense on notes payable 145.1 2.4 (2.4) (24) 182.2 (21.5)(41) 160.7
37.1 (25)
Interest expense on investment borrowings 30.2 30.2 30.2
Amortization related to operations 342.4 21.5 (21.5) (26) 380.2 380.2
32.0 (26)
5.8 (27)
Amortization related to realized gains 143.8 143.8 143.8
Loss on sale of long-term care business
Expenses of spin-off and related transactions
Other operating costs and expenses 426.0 80.0 506.0 506.0
------- --------- --------- ----------- ------- -------
Total benefits and expenses 3,278.9 259.2 48.0 3,586.1 (21.5) 3,564.6
------- --------- --------- ----------- ------ -------
Income (loss) before income taxes,
minority interest
and extraordinary charge 519.7 71.6 (51.5) 539.8 21.5 561.3
Income tax expense (benefit) 204.2 25.6 (16.0) (28) 213.8 7.5 (42) 221.3
------- --------- --------- ----------- ------ -------
Income (loss) before minority
interest and
extraordinary charge 315.5 46.0 (35.5) 326.0 14.0 340.0
Minority interest 8.7 8.7 8.7
------- --------- --------- ---------- ------ -------
Income (loss) before extraordinary
charge $ 306.8 $ 46.0 $ (35.5) $ 317.3 $ 14.0 $ 331.3
======= ========= ========= ========== ====== =======
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding 91.4 2.4 (29) 93.8 93.8
====== ======= ========== =====
Income before extraordinary charge $3.36 $3.38 $3.31(43)
====== ========== =====
Fully diluted:
Weighted average shares outstanding 96.7 2.4 (29) 99.1 99.1
====== ======= ========== ======
Income before extraordinary charge $3.19 $3.22 $3.14(43)
====== ========== ======
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 78.
(b) Amounts have been carried forward to page 80.
</FN>
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (continued)
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
for the
Pro forma Merger
Pro forma adjustments and other
Conseco THI relating to planned
subtotal (a) historical the THI Merger transactions
------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 2,308.5 $ 190.2 $ - $ 2,498.7
Investment activity:
Net investment income 1,531.2 49.7 (6.9) (46) 1,574.0
Net trading income 2.5 2.5
Net realized gains 222.0 6.7 (6.7) (46) 222.0
Fee revenue 33.9 33.9
Restructuring income 15.2 15.2
Other income 12.6 12.6
------ -------- --------- -----------
Total revenues 4,125.9 246.6 (13.6) 4,358.9
------- -------- --------- -----------
Benefits and expenses:
Insurance policy benefits
and change in future policy benefits 1,584.9 131.9 1,716.8
Interest expense on annuities
and financial products 758.8 758.8
Interest expense on notes payable 160.7 2.3 (2.3) (47) 161.9
1.2 (47)
Interest expense on investment borrowings 30.2 30.2
Amortization related to operations 380.2 24.5 (24.5) (48) 396.1
15.9 (48)
Amortization related to realized gains 143.8 143.8
Loss on sale of long-term care business 68.5 (68.5) (51) -
Expenses of spin-off and related transactions 2.2 (2.2) (51) -
Other operating costs and expenses 506.0 58.3 564.3
------ -------- --------- -----------
Total benefits and expenses 3,564.6 287.7 (80.4) 3,771.9
------- -------- --------- -----------
Income (loss) before income taxes,
minority interest
and extraordinary charge 561.3 (41.1) 66.8 587.0
Income tax expense (benefit) 221.3 (14.3) 22.7 (49) 229.7
------ -------- --------- -----------
Income (loss) before minority
interest and
extraordinary charge 340.0 (26.8) 44.1 357.3
Minority interest 8.7 8.7
------ -------- --------- -----------
Income (loss) before extraordinary
charge $ 331.3 $ (26.8) $ 44.1 $ 348.6
====== ======== ========= ==========
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 93.8 4.7(50) 98.5
====== ======= ========
Income before extraordinary charge $3.31 (43) $3.33
====== ========
Fully diluted:
Weighted average shares outstanding 99.1 4.7(50) 103.8
====== ======= ========
Income before extraordinary charge $3.14 (43) $3.17
====== ========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 79.
</FN>
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the ATC relating to the for the BLH Conseco
Merger historical Merger Merger Transaction subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $15,872.3 $ 651.8 $16,524.1 $ - $16,524.1
Held-to-maturity fixed maturity securities - - -
Equity securities at fair value 99.6 - 99.6 99.6
Mortgage loans 404.2 0.4 404.6 404.6
Credit-tenant loans 309.7 - 309.7 309.7
Policy loans 528.7 - 528.7 528.7
Other invested assets 191.0 - 191.0 191.0
Trading account securities 0.7 - 0.7 0.7
Short-term investments 204.6 17.5 (30.4) (8) 222.1 222.1
30.4 (9)
Assets held in separate accounts 271.6 - 271.6 271.6
--------- -------- -------- --------- ------ --------
Total investments 17,882.4 669.7 - 18,552.1 - 18,552.1
Accrued investment income 284.1 7.4 291.5 291.5
Cost of policies purchased 1,893.6 11.2 256.2 (10) 2,149.8 65.0 (16) 2,214.8
(11.2) (10)
Cost of policies produced 483.2 160.8 (160.8) (11) 483.2 (50.0)(16) 433.2
Reinsurance receivables 374.6 - 374.6 374.6
Income taxes 209.7 - (25.6) (12) 163.1 (5.3)(17) 157.8
(21.0) (12)
Goodwill 1,566.8 - 577.3 (13) 2,144.1 55.3 (16) 2,199.4
Property and equipment 89.0 4.0 93.0 93.0
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 - 40.7 40.7
Other assets 234.2 14.3 248.5 248.5
--------- -------- --------- ---------- ------ ---------
Total assets $23,058.3 $ 867.4 $ 614.9 $ 24,540.6 $ 65.0 $24,605.6
========= ======== ========= ========== ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 82.
</FN>
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
relating
Pro forma to the
Pro forma adjustments Pro forma Preferred Pro forma
Conseco CAF relating to Conseco Securities Conseco
subtotal (a) historical the CAF Merger subtotal Offering subtotal (b)
------------ ----------- --------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $ 16,524.1 $ 318.1 $ 351.8 (30) $17,291.1 $ - $17,291.1
97.1 (31)
Held-to-maturity fixed maturity securities 0.0 351.8 (351.8)(30) 0.0 0.0
Equity securities at fair value 99.6 - 99.6 99.6
Mortgage loans 404.6 - 404.6 404.6
Credit-tenant loans 309.7 - 309.7 309.7
Policy loans 528.7 - 528.7 528.7
Other invested assets 191.0 - 191.0 191.0
Trading account securities 0.7 - 0.7 0.7
Short-term investments 222.1 2.2 (534.0)(32) 224.3 331.2 (44) 224.3
(26.0)(32) (331.2)(44)
(29.5)(32)
589.5 (33)
Assets held in separate accounts 271.6 - 271.6 271.6
----------- ------- -------- -------- -------- ---------
Total investments 18,552.1 672.1 97.1 19,321.3 0.0 19,321.3
Accrued investment income 291.5 8.3 299.8 299.8
Cost of policies purchased 2,214.8 483.3 (34) 2,698.1 2,698.1
Cost of policies produced 433.2 266.4 (266.4)(35) 433.2 433.2
Reinsurance receivables 374.6 - 374.6 374.6
Income taxes 157.8 - (80.1)(36) 25.9 25.9
(51.8)(36)
Goodwill 2,199.4 - 232.5 (37) 2,431.9 2,431.9
Property and equipment 93.0 4.8 97.8 97.8
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 - 40.7 40.7
Other assets 248.5 28.8 277.3 277.3
--------- ------- -------- ---------- ------ ---------
Total assets $24,605.6 $ 980.4 $ 414.6 $ 26,000.6 $- $26,000.6
========= ======= ======== ========== ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 81.
(b) Amounts have been carried forward to page 83.
</FN>
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
for the
Pro forma Merger
Pro forma adjustments and other
Conseco THI relating to planned
subtotal (a) historical the THI Merger transactions
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $ 17,291.1 $ 480.5 $ (83.1)(52) $ 17,688.5
Held-to-maturity fixed maturity securities 0.0 0.0
Equity securities at fair value 99.6 0.9 100.5
Mortgage loans 404.6 8.6 413.2
Credit-tenant loans 309.7 309.7
Policy loans 528.7 17.8 546.5
Other invested assets 191.0 5.1 196.1
Trading account securities 0.7 0.7
Short-term investments 224.3 21.0 83.1 (52) 245.3
18.5 (53)
(18.5)(53)
(58.3)(53)
(24.8)(53)
Assets held in separate accounts 271.6 271.6
--------- ------ ------- ---------
Total investments 19,321.3 533.9 (83.1) 19,772.1
Accrued investment income 299.8 6.4 306.2
Cost of policies purchased 2,698.1 11.3 121.9 (54) 2,820.0
(11.3)(54)
Cost of policies produced 433.2 28.8 (28.8)(55) 433.2
Reinsurance receivables 374.6 319.7 (253.4)(57) 440.9
Income taxes 25.9 (25.9)(56) -
Goodwill 2,431.9 2,431.9
Property and equipment 97.8 97.8
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 40.7
Other assets 277.3 24.4 301.7
--------- ------ ------- ---------
Total assets $26,000.6 $924.5 $ (280.6) $26,644.5
========= ====== ======= =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 82.
</FN>
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the ATC relating to the for the BLH Conseco
Merger historical Merger Merger Transaction subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $18,133.2 $ 563.9 $ - $ 18,697.1 $ - $ 18,697.1
Income tax liabilities - 21.0 (21.0)(12) 0.0 -
Investment borrowings 516.6 - 516.6 516.6
Other liabilities 457.9 8.0 11.2 (14) 477.1 477.1
Liabilities related to separate accounts 271.6 - 271.6 271.6
Notes payable of Conseco 1,198.5 103.5 30.4 (9) 1,468.9 437.9 (20) 1,906.8
136.5 (14)
Notes payable of Bankers Life Holding
Corporation, not direct obligations
of Conseco 437.9 - 437.9 (437.9)(20) -
--------- ------- ------ --------- ------ ---------
Total liabilities 21,015.7 696.4 157.1 21,869.2 - 21,869.2
--------- ------- ------ --------- ------ ---------
Minority interest 150.7 - - 150.7 (57.5)(18) 93.2
--------- ------- ------ ---------- ----- -------
Shareholders' equity:
Preferred stock 267.1 - 267.1 267.1
Monthly income preferred stock - - -
Common stock and additional paid-in capital 1,040.9 63.8 (63.8)(15) 1,669.7 122.5 (21) 1,792.2
628.8 (15)
Unrealized appreciation (depreciation)
of securities (56.1) (10.8) 10.8 (15) (56.1) (56.1)
Retained earnings 640.0 118.0 (118.0)(15) 640.0 640.0
--------- ------ ------ --------- ------ --------
Total shareholders' equity 1,891.9 171.0 457.8 2,520.7 122.5 2,643.2
--------- ------ ------ --------- ------ ---------
Total liabilities and shareholders' equity $23,058.3 $867.4 $614.9 $24,540.6 $ 65.0 $24,605.6
========= ====== ====== ========= ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 85.
</FN>
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
relating
Pro forma to the
Pro forma adjustments Pro forma Preferred Pro forma
Conseco CAF relating to Conseco Securities Conseco
subtotal (a) historical the CAF Merger subtotal Offering subtotal (b)
------------ ----------- --------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $ 18,697.1 $ 587.9 $ 85.0 (38) $19,370.0 $ - $ 19,370.0
Income tax liabilities 0.0 51.8 (51.8)(36) - -
Investment borrowings 516.6 - 516.6 516.6
Other liabilities 477.1 16.9 494.0 494.0
Liabilities related to separate accounts 271.6 - 271.6 271.6
Notes payable of Conseco 1,906.8 29.5 (29.5)(39) 2,496.3 (331.2)(44) 2,165.1
589.5 (33)
Notes payable of Bankers Life Holding
Corporation, not direct obligations
of Conseco - - - -
------- -------- ------- ------------- ------- ---------
Total liabilities 21,869.2 686.1 593.2 23,148.5 (331.2) 22,817.3
------- -------- ------- ------------- ------- ---------
Minority interest 93.2 - - 93.2 93.2
------- -------- ------- ------------- ------- ---------
Shareholders' equity:
Preferred stock 267.1 - 267.1 267.1
Monthly income preferred stock - - - 350.0 (45) 350.0
Common stock and additional paid-in capital 1,792.2 35.5 (35.5)(40) 1,907.9 (18.8)(45) 1,889.1
115.7 (40)
Unrealized appreciation (depreciation) of
securities (56.1) (2.1) 2.1 (40) (56.1) (56.1)
Retained earnings 640.0 260.9 (260.9)(40) 640.0 640.0
-------- -------- ------- -------- ------- --------
Total shareholders' equity 2,643.2 294.3 (178.6) 2,758.9 331.2 3,090.1
-------- -------- ------- -------- ------ --------
Total liabilities and shareholders' equity $24,605.6 $ 980.4 $ 414.6 $ 26,000.6 $ - $26,000.6
======== ======== ======= ========== ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 84.
(b) Amounts have been carried forward to page 86.
</FN>
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
for the
Pro forma Merger
Pro forma adjustments and other
Conseco THI relating to planned
subtotal (a) historical the THI Merger transactions
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $ 19,370.0 $ 612.7 $(253.4)(57) $19,729.3
Income tax liabilities 0.0 18.4 2.8 (56) 21.2
Investment borrowings 516.6 516.6
Other liabilities 494.0 17.0 511.0
Liabilities related to separate accounts 271.6 271.6
Notes payable of Conseco 2,165.1 108.3 (58.3)(58) 2,183.6
(50.0)(58)
18.5 (58)
Notes payable of Bankers Life Holding
Corporation, not direct obligations
of Conseco - -
------- -------- ------- ---------
Total liabilities 22,817.3 756.4 (340.4) 23,233.3
-------- -------- -------- ---------
Minority interest 93.2 93.2
-------- -------- ------- ---------
Shareholders' equity:
Preferred stock 267.1 22.8 (22.8)(59) 267.1
Monthly income preferred stock 350.0 350.0
Common stock and additional paid-in capital 1,889.1 169.7 (169.7)(59) 2,117.0
121.7 (59)
106.2 (59)
Unrealized appreciation (depreciation)
of securities (56.1) 4.0 (4.0)(59) (56.1)
Retained earnings 640.0 (28.4) 28.4 (59) 640.0
------- -------- --------- ----------
Total shareholders' equity 3,090.1 168.1 59.8 3,318.0
------- -------- -------- ----------
Total liabilities and shareholders' equity $26,000.6 $ 924.5 $(280.6) $ 26,644.5
========= ======== ======== ==========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 85.
</FN>
</TABLE>
86
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
PRO FORMA ADJUSTMENTS
TRANSACTIONS RELATING TO THE MERGER
The Merger will be accounted for under the purchase method of accounting.
Under this method, the total cost to acquire ATC will be allocated to the assets
and liabilities acquired based on their fair values as of the date of the
Merger, with any excess of the total purchase cost over the fair value of the
assets acquired less the fair value of the liabilities assumed recorded as
goodwill. Conseco believes the Merger will not qualify to be accounted for under
the pooling of interests method in accordance with APB No. 16 because an
affiliate of ATC intends to sell a portion of the Conseco Common Stock it
receives in the Merger shortly after the Effective Time. In the Merger, each
outstanding share of ATC Common Stock is assumed to be exchanged for a fraction
of a share of Conseco Common Stock to be determined based on an average price of
Conseco's Common Stock prior to its closing (it is assumed the Conseco Share
Price will be $48.00, resulting in an exchange ratio of .7298 shares valued at
$35.03). Conseco will issue an assumed 13.1 million shares of Conseco Common
Stock with a value of approximately $628.8 million to acquire the ATC Common
Stock. In addition, Conseco will assume the Debentures, which will be
convertible into an assumed 5.0 million shares of Conseco Common Stock with a
value of approximately $240 million. In addition, Conseco is expected to incur
costs related to the Merger (including contract termination, relocation, legal,
accounting and other costs) of approximately $30.4 million.
<TABLE>
<CAPTION>
The cost to acquire ATC is allocated as follows (dollars in millions):
<S> <C>
Book value of assets acquired based on the assumed date of the
Merger (June 30, 1996) ............................................................ $171.0
Convertible subordinated debentures assumed by Conseco at the
assumed date of the Merger......................................................... 103.5
Increase (decrease) in ATC's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the Merger:
Cost of policies purchased (related to the Merger).............................. 256.2
Cost of policies produced and cost of policies purchased (historical) (172.0)
Goodwill (related to the Merger)................................................ 577.3
Income taxes.................................................................... (25.6)
Other liabilities............................................................... (11.2)
--------
Total estimated fair value adjustments..................................... 624.7
-------
Total cost to acquire ATC.......................................................... $899.2
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the Merger as of January 1, 1995, are summarized below.
(1) Net investment income and net realized gains of ATC are adjusted to
include the effect of adjustments to restate the amortized cost basis
of fixed maturity securities to their estimated fair value.
(2) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the
Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's revolving credit facility used to complete the Merger
would result in: (1) an increase (or decrease) in pro forma interest
expense of $.2 million and $.1 million for the year ended December
31, 1995, and the six months ended June 30, 1996, respectively; and
(2) a decrease (or increase) in pro forma net income of $.1 million
and $.1 million for the same respective periods.
(3) Interest expense is reduced to reflect the amortization of the
liability established at the assumed date of the Merger representing
the present value of the interest payable on ATC's convertible
subordinated debentures to October 1, 1998 (the earliest call date),
less the present value of the dividends that would be paid on the
Conseco Common Stock that such debentures would be convertible into
during the same period.
87
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) Amortization of the cost of policies produced and the cost of
policies purchased prior to the Merger is replaced with the
amortization of the cost of policies purchased (amortized in relation
to estimated premiums on the policies purchased with interest equal
to the liability rate which averages 5.5 percent).
(5) Amortization of goodwill acquired in the Merger is recognized over a
40-year period on a straight-line basis.
(6) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(7) Common shares outstanding are increased to reflect the Conseco shares
issued in the Merger. Fully diluted shares also include Conseco
shares which will be issued when ATC's convertible subordinated
debentures are converted.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Merger as of June 30, 1996, are summarized below.
(8) Cash is reduced for payments made to complete the Merger.
(9) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the Merger.
(10) ATC's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the
Merger. Cost of policies purchased reflects the estimated fair value
of ATC's business in force and represents the portion of the cost to
acquire ATC that is allocated to the value of the right to receive
future cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations and
tax laws.
- Complexity of the acquired company.
- Prices paid (i.e.,discount rates used in determining valuations)
on similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted
upon final determination of such value. Expected gross amortization
of such value using current assumptions and accretion of interest
based on an interest rate equal to the liability rate (such rate
averages 5.5 percent) for each of the years in the five-year period
ending June 30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
Year ending Beginning Gross Accretion Net Ending
June 30, balance amortization of interest amortization balance
----------- ---------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
1997 $256.2 $33.7 $13.5 $20.2 $236.0
1998 236.0 30.8 12.3 18.5 217.5
1999 217.5 28.2 11.4 16.8 200.7
2000 200.7 26.0 10.4 15.6 185.1
2001 185.1 24.0 9.6 14.4 170.7
</TABLE>
(11) ATC's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(12) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax liabilities of ATC are
netted against deferred tax assets of Conseco.
88
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(13) Goodwill acquired in the Merger is recognized.
(14) Notes payable are increased to reflect the fair value of ATC's
convertible subordinated debentures at the date of the Merger. Such
fair value represents the value of the Conseco Common Stock which
ATC's convertible subordinated debentures will be convertible into
after the Merger. It is assumed that the holders of such debentures
do not convert into Conseco Common Stock at the time of the Merger.
In addition, a liability is established representing the present
value of the interest payable on such debentures to October 1, 1998
(the earliest call date), less the present value of the dividends
that would be paid on the Conseco Common Stock that such debentures
would be convertible into during the same period.
(15) The prior shareholders' equity of ATC is eliminated in conjunction
with the Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the Merger.
OTHER PLANNED TRANSACTIONS
Transactions relating to the BLH Transaction
Conseco has proposed to acquire all of the common stock of BLH, not
previously owned by Conseco. In the BLH Transaction, each share of BLH common
stock would be converted into the right to receive a fraction of a share of
Conseco Common Stock to be determined based on the average price of Conseco
Common Stock prior to closing (it is assumed that such price per share of
Conseco Common Stock will be $48.00, resulting in an exchange ratio of .5208
shares valued at $25.00). Conseco will issue an assumed 2.6 million shares of
Conseco Common Stock with a value of approximately $122.5 million.
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco using the step acquisition method of accounting.
Under this method, the total purchase cost of the common stock of BLH, not
already owned by Conseco, is allocated to the assets and liabilities acquired
based on their relative fair values as of the date of acquisition, with any
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed recorded as goodwill. The values
of the assets and liabilities of BLH included in Conseco's pro forma
consolidated financial statements represent the combination of the following
values: (1) the portion of BLH's net assets acquired by Conseco in the initial
acquisition made by Conseco Capital Partners, L.P. on October 31, 1992, is
valued as of that acquisition date; (2) the portion of BLH's net assets acquired
by Conseco on September 30, 1993, is valued as of that acquisition date; (3) the
portion of BLH's net assets acquired during 1995 and the first quarter of 1996
is valued as of its assumed date of acquisition; and (4) the portion of BLH's
net assets acquired in the BLH Transaction is valued at the assumed dates of
acquisition.
Adjustments to give effect to the BLH Transaction are summarized below:
(16) As described above, the BLH Transaction is accounted for as a step
acquisition. The accounts of BLH are adjusted to reflect the step
basis method of accounting as if the BLH Transaction was completed on
the assumed dates of acquisition.
(17) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
(18) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of BLH.
(19) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares
of BLH common stock.
(20) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by Conseco.
(21) Common stock and additional paid-in capital is increased by the value
of Conseco Common Stock issued in the acquisition of additional
shares of BLH common stock.
89
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Transactions relating to the CAF Merger
The CAF Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire CAF will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the CAF Merger, with any excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. In the CAF Merger, each outstanding share of CAF common
stock is assumed to be exchanged for $30 in cash and the right to receive a
fraction of a share of Conseco Common Stock to be determined based on the
average price of Conseco Common Stock prior to its closing (it is assumed that
such average price per share of Conseco Common Stock will be $48.00, resulting
in an exchange ratio of .1354). Conseco will pay approximately $534 million in
cash and issue an assumed 2.4 million shares of Conseco Common Stock with a
value of approximately $115.7 million to acquire the CAF common stock. In
addition, Conseco is expected to assume a note payable of CAF of $29.5 million
and incur costs related to the CAF Merger (including contract termination,
relocation, legal, accounting and other costs) of approximately $26 million.
<TABLE>
<CAPTION>
The cost to acquire CAF is allocated as follows (dollars in millions):
<S> <C>
Book value of assets acquired based on the assumed date of the
CAF Merger (June 30, 1996) ........................................................ $294.3
Notes payable of CAF assumed by Conseco at the assumed date
of the CAF Merger.................................................................. 29.5
Increase (decrease) in CAF's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the CAF Merger:
Actively managed fixed maturity securities...................................... 448.9
Held-to-maturity fixed maturity securities...................................... (351.8)
Cost of policies purchased (related to the CAF Merger).......................... 483.3
Cost of policies produced....................................................... (266.4)
Goodwill (related to the CAF Merger)............................................ 232.5
Insurance liabilities .......................................................... (85.0)
Income taxes.................................................................... (80.1)
--------
Total estimated fair value adjustments..................................... 381.4
-------
Total cost to acquire CAF.......................................................... $705.2
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the CAF Merger as of January 1, 1995, are summarized below.
(22) Net investment income and net realized gains of CAF are adjusted to
include the effect of adjustments to restate the amortized cost basis
of fixed maturity securities to their estimated fair value.
(23) Change in policy benefits is reduced to reflect the purchase
accounting adjustments made at the assumed date of the CAF Merger.
Such adjustment reflects the lower discount rate used to discount
amounts of expected future benefit payments to correspond to the
adjustments to restate the amortized cost of fixed maturity
investments to their estimated fair value.
(24) Interest expense is reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the CAF Merger.
(25) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the CAF
Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's revolving credit facility used to complete the CAF
Merger would result in: (1) an increase (or decrease) in pro forma
interest expense of $2.9 million and $1.5 million for the year ended
December 31, 1995, and the six months ended June 30, 1996,
respectively; and (2) a decrease (or increase) in pro forma net
income of $1.9 million and $1.0 million for the same respective
periods.
90
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(26) Amortization of the cost of policies produced for policies sold by
CAF prior to January 1, 1995, is replaced with the amortization of
the cost of policies purchased (amortized in relation to estimated
premiums on the policies purchased with interest equal to the
liability rate which averages 5.5 percent.
(27) Amortization of goodwill acquired in the CAF Merger is recognized
over a 40-year period on a straight-line basis.
(28) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(29) Common shares outstanding are increased to reflect the shares issued
in the CAF Merger.
Adjustments to the pro forma consolidated balance sheet to give effect to
the CAF Merger as of June 30, 1996, are summarized below.
(30) After the CAF Merger, all held-to-maturity securities are classified
as actively managed fixed maturity securities consistent with the
intention of the new management.
(31) CAF's fixed maturity securities are restated to estimated fair value.
(32) Cash is reduced for payments made to complete the CAF Merger.
(33) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the CAF Merger.
(34) Cost of policies purchased reflects the estimated fair value of CAF's
business in force and represents the portion of the cost to acquire
CAF that is allocated to the value of the right to receive future
cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations and
tax laws.
- Complexity of the acquired company.
- Prices paid (i.e.,discount rates used in determining valuations)
on similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted
upon final determination of such value. Expected gross amortization
of such value using current assumptions and accretion of interest
based on an interest rate equal to the liability rate (such rate
averages 5.5 percent) for each of the years in the five-year period
ending June 30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
Year ending Beginning Gross Accretion Net Ending
June 30, balance amortization of interest amortization balance
----------- ----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1997 $483.3 $59.3 $26.6 $32.7 $450.6
1998 450.6 54.2 24.7 29.5 421.1
1999 421.1 51.3 23.2 28.1 393.0
2000 393.0 48.6 21.7 26.9 366.1
2001 366.1 46.1 20.1 26.0 340.1
</TABLE>
91
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(35) CAF's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(36) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. In addition, deferred tax
liabilities of CAF are netted against deferred tax assets of Conseco.
(37) Goodwill acquired in the CAF Merger is recognized.
(38) Additional insurance liabilities are recognized to reflect the lower
discount rates used to determine the present value of future
obligations, consistent with the lower yields to be earned on
invested assets as a result of recognizing the fair value of fixed
maturity securities.
(39) Notes payable are reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the CAF Merger.
(40) The prior shareholders' equity of CAF is eliminated in conjunction
with the CAF Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the CAF
Merger.
Transactions relating to the Preferred Securities Offering
Conseco intends to issue $350 million par value of 9.25 percent tax
deductible Preferred Securities and use the proceeds to reduce borrowings under
the Conseco Credit Agreement.
(41) Interest expense is reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement.
A change in interest rates of .5 percent on the borrowings under the
Conseco Credit Agreement to be repaid from the Preferred Securities
Offering would result in: (1) a decrease (or increase) in pro forma
interest expense of $1.7 million and $.8 million for the year ended
December 31, 1995, and the six months ended June 30, 1996,
respectively; and (2) an increase (or decrease) in pro forma net
income of $1.1 million and $.5 million for the same respective
periods.
(42) The pro forma adjustment is tax affected, based on Conseco's
effective tax rate of 35 percent.
(43) Earnings per share are adjusted to reflect the change in net income
and the payment of dividends (net of related tax benefit) on the
Preferred Securities.
(44) Notes payable are reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement using the net proceeds from the
Preferred Securities.
(45) Preferred stock is increased by the total par value of the Preferred
Securities. Issuance and other transaction costs related to the
Preferred Securities are charged to paid-in capital.
Transactions relating to the THI Merger
The THI Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire THI will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the THI Merger, with any excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. Conseco believes the THI Merger will not qualify to be
accounted for under the pooling of interests method in accordance with APB No.
16 because THI was a subsidiary of another corporation within two years of the
contemplated transaction. In the THI Merger, each outstanding share of THI
common stock (or its equivalent) is assumed to be exchanged for a fraction of a
share of Conseco Common Stock to be determined based on the price of Conseco
Common Stock prior to its closing (it is assumed such average price per share of
Conseco Common Stock will be $48.00, resulting in an exchange ratio of 1.4583
shares valued at $70.00). Conseco will issue an assumed 2.5 million shares of
Conseco Common Stock with a value of approximately $121.7 million to acquire the
THI Common Stock (or equivalents). In addition, THI's convertible subordinated
notes (the "THI Convertibles Notes") will be exchanged
92
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
for Conseco convertible subordinated notes (the "Conseco Convertible Notes")
which will be convertible into shares of Conseco Common Stock based on the price
of Conseco Common Stock prior to the THI Merger (such fully converted value
being the same as the THI Convertible Notes). Using the same assumption that
each share of THI will be convertible into 1.4583 shares of Conseco Common Stock
with a value of $70.00, in aggregate, the Conseco Convertible Notes will be
convertible into 2.2 million shares of Conseco Common Stock with a value of
approximately $106.2 million. Immediately after the THI Merger, Conseco plans to
cause the Conseco Convertible Notes to be converted by payment of a premium of
$8.5 million. Conseco is expected to incur costs related to the THI Merger
(including contract termination, relocation, legal, accounting and other costs)
of approximately $10 million.
<TABLE>
<CAPTION>
The cost to acquire THI is allocated as follows (dollars in millions):
<S> <C>
Book value of assets acquired based on assumed date of the
THI Merger (June 30, 1996) ........................................................ $168.1
THI Convertible Notes exchanged into Conseco Convertible Notes and converted
to Conseco Common Stock at the assumed date of the THI Merger...................... 50.0
Less book value of THI preferred stock.................................................. (22.8)
Increase (decrease) in THI's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the THI Merger:
Cost of policies purchased (related to the THI Merger).......................... 117.3
Cost of policies produced and cost of policies purchased (historical)........... (40.1)
Income taxes.................................................................... (24.1)
Premium incurred to cause the conversion of the Conseco Convertible Notes....... (8.5)
Premium incurred to retire THI preferred stock.................................. (2.0)
---------
Total estimated fair value adjustments..................................... 42.6
--------
Total cost to acquire THI.......................................................... $237.9
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the THI Merger as of January 1, 1995, are summarized below.
(46) Net investment income and net realized gains of THI are adjusted
to include the effect of adjustments to restate the amortized
cost basis of fixed maturity securities to their estimated fair
value and the effect of the assumed sale of $83.1 million fixed
maturity investments, with the proceeds used to repay $58.3
million of bank debt and redeem preferred stock with a
redemption value of $24.8 million.
(47) Interest expense is reduced to reflect the repayment of bank
debt of $58.3 million and the conversion of the Conseco
Convertible Notes (which were issued in exchange for the THI
Convertible Notes) into Conseco Common Stock. Interest expense
is increased to reflect borrowings by Conseco to: (i) pay the
estimated cost of the THI Merger; and (ii) pay the $8.5 million
premium to cause Conseco's Convertible Notes to be converted.
(48) Amortization of the cost of policies produced and the cost of
policies purchased prior to the THI Merger is replaced with the
amortization of the cost of policies purchased (amortized in
relation to estimated premiums on the policies purchased with
interest equal to the liability rate which averages 5.5
percent).
(49) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(50) Common shares outstanding are increased to reflect the Conseco
shares issued in the THI Merger and the conversion of the
Conseco Convertible Notes.
(51) Effective October 1, 1995, THI sold its long term care business
to ATC. An adjustment is made to remove the loss on the sale of
the long term care business. However, the revenues, benefits and
expenses related to this business prior to its sale are not
eliminated, since the business is retained within the Conseco
consolidated group after the ATC Merger (and previous pro forma
adjustments for the ATC Merger did not include adjustments
related to THI's long term care business prior to its purchase
by ATC). In addition, expenses related to THI's spin-off from
its parent are eliminated. Such costs include certain legal,
accounting, actuarial and advisory fees.
93
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Adjustments to the pro forma consolidated balance sheet to give effect to
the THI Merger as of June 30, 1996, are summarized below.
(52) Actively managed fixed maturity securities with a carrying value
of $83.1 million are assumed to be sold at the date of the THI
Merger.
(53) Short-term investments are reduced for: (i) payments made to
complete the THI Merger; (ii) the repayment of bank debt with a
balance of $58.3 million; (iii) the redemption of preferred
stock with a redemption value of $24.8 million; and (iv) the
payment of the $8.5 million premium to cause the Conseco
Convertible Notes to be converted to Conseco Common Stock.
Short-term investments are increased by additional borrowings by
Conseco of $18.5 million to complete the THI Merger and related
transactions.
(54) THI's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the
THI Merger. Cost of policies purchased reflects the estimated
fair value of THI's business in force and represents the portion
of the cost to acquire THI that is allocated to the value of the
right to receive future cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the
rate of return required by Conseco to invest in the business
being acquired. In determining such rate of return, the
following factors are considered:
- The magnitude of the risks associated with each of the
actuarial assumptions used in determining the expected cash
flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations
and tax laws.
- Complexity of the acquired company.
- Prices paid (i.e., discount rates used in determining
valuations) on similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based
on a preliminary valuation; accordingly, this allocation may be
adjusted upon final determination of such value. Expected gross
amortization of such value using current assumptions and
accretion of interest based on an interest rate equal to the
liability rate (such rate averages 5.5 percent) for each of the
years in the five-year period ending June 30, 2001, are as
follows (dollars in millions):
<TABLE>
<CAPTION>
Year ending Beginning Gross Accretion Net Ending
June 30, balance amortization of interest amortization balance
----------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
1997 $121.9 $20.7 $6.8 $13.9 $108.0
1998 108.0 17.2 6.0 11.2 96.8
1999 96.8 15.7 5.4 10.3 86.5
2000 86.5 14.4 4.8 9.6 76.9
2001 76.9 13.8 4.3 9.5 67.4
</TABLE>
(55) THI's cost of policies produced is eliminated since such amounts
are reflected in the determination of the cost of policies
purchased.
(56) All of the applicable pro forma balance sheet adjustments are
tax affected at the appropriate rate. Deferred tax assets are
netted against deferred tax liabilities.
(57) Reinsurance receivables and insurance liabilities related to
business of THI ceded to ATC are eliminated in consolidation.
94
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(58) Notes payable are decreased to reflect: (i) the repayment of
bank debt of $58.3 million; and (ii) the conversion of the
Conseco Convertible Notes (which were issued in exchange for the
THI Convertible Notes) into Conseco Common Stock. In addition,
notes payable are increased to reflect additional borrowings by
Conseco used to complete the THI Merger and related
transactions.
(59) The prior shareholders' equity of THI is eliminated in
conjunction with the THI Merger. Common stock and additional
paid-in capital is increased by the value of Conseco common
stock issued in the THI Merger. The value of the Conseco
Convertible Notes represents the value of the Conseco common
stock which the Conseco Convertible Notes are convertible into.
Preferred stock of THI is eliminated to reflect its redemption.
S:\ACCTING\SECRPT\S-4ATC.896\PROFORM4.WPD
95
<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
The following is a summary of material differences between the rights
of holders of ATC Common Stock and the rights of holders of Conseco Common
Stock.
The rights of the shareholders of ATC, a Pennsylvania corporation, are
currently governed primarily by Pennsylvania law, the ATC Articles of
Incorporation (the "ATC Articles") and the ATC Bylaws (the "ATC Bylaws"). Upon
consummation of the Merger, ATC shareholders who have not exercised their
statutory dissenters rights will become holders of Conseco Common Stock. Because
Conseco is an Indiana corporation, the rights of the former ATC shareholders
will be governed primarily by Indiana law and Conseco's Amended and Restated
Articles of Incorporation ("Conseco Articles of Incorporation") and Amended and
Restated Code of By-laws ("Conseco By-Laws"). The summary set forth is a list of
material differences in shareholders' rights under Pennsylvania and Indiana law,
the ATC Articles, the ATC Bylaws, the Conseco Articles of Incorporation and the
Conseco By-Laws. This discussion, however, is not and does not purport to be an
exhaustive list or to identify all differences that may, under any given fact
situation, be material to ATC shareholders. Moreover, this discussion is
qualified in its entirety by reference to the ATC Articles, the ATC Bylaws, the
PBCL, the Conseco Articles of Incorporation, the Conseco By-Laws and the IBCL.
Bylaws
Under the IBCL, only a corporation's board of directors may amend or
repeal the corporation's bylaws, unless the articles of incorporation provide
otherwise. The Conseco By-Laws provide that they may be amended by a majority
vote of the Board of Directors.
Under the PBCL, the power to adopt, amend or repeal bylaws may be
vested by the bylaws in the directors, with statutory exceptions for certain
actions and subject to the power of shareholders to change such actions.
Pennsylvania law provides that, unless the articles of incorporation otherwise
provide, shareholders may change the bylaws without the consent of the
directors. The ATC Bylaws provide that the ATC Bylaws may be amended or repealed
by a majority vote of the Board of Directors subject to the right of its
shareholders to amend or repeal such action by majority vote at any regular or
special meeting of the shareholders, duly convened after notice to the
shareholders of such purpose at which a quorum is present, except that any
repeal or modification to Article XIII (dealing with limitation of directors'
lability) shall be prospective only and any repeal or modification to Article X,
Section 8 (dealing with indemnification of directors and officers) may not
reduce, terminate or otherwise adversely affect the right of a person who is or
was a director or officer to obtain indemnification or advancement of expenses
with respect to a proceeding relating to actions or omissions occurring prior to
the effective date of such repeal or modification.
Distributions to Shareholders
Under the IBCL, a corporation may make distributions to its
shareholders as long as the corporation's net assets are greater than zero,
debts may be paid as they come due, and the payment of these distributions is
consistent with the corporation's articles of incorporation. The Conseco
Articles of Incorporation provide that the directors may from time to time
distribute to shareholders out of capital surplus a portion of Conseco's assets
as provided in the IBCL.
Under the PBCL, a corporation has the power, subject to restrictions in
its bylaws, to make distributions to its shareholders unless after giving effect
thereto (1) the corporation would not be able to pay its debts as they become
due in the usual course of business, or (2) the corporation's assets
96
<PAGE>
would be less than the sum of its total liabilities plus the amount that would
be needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of shareholders having superior preferential rights to those
shareholders receiving the distribution. The ATC Bylaws do not contain any
limitations on such powers.
Class of Directors
Under the IBCL, a corporation's articles of incorporation may provide
that directors be elected in two or three classes whose terms expire at
different times provided that at least one director must be elected at each
annual meeting. The Conseco Articles of Incorporation provide for the
classification of directors into three classes, each class serving for staggered
three-year terms.
Under the PBCL, the articles of incorporation may provide that
directors be elected in two or more classes whose terms expire at different
times provided that no single term shall exceed four years. The ATC Articles
provide for the classification of directors into three classes, each class
serving for staggered three-year terms.
Removal of Directors
Under the IBCL, directors may be removed in any manner provided in a
corporation's articles of incorporation and, in addition, the shareholders or
directors may remove a director with or without cause unless the articles of
incorporation provide otherwise. The Conseco Articles of Incorporation refer to
the Conseco By-laws for provisions relating to removal of directors. The Conseco
By-Laws provide that a director may be removed, either for or without cause, at
any special meeting of the shareholders called for that purpose, by the
affirmative vote of a majority in number of shares present in person or by proxy
and entitled to vote for the election of such director.
Under the PBCL, unless a corporation's articles of incorporation or
bylaws provide otherwise, directors may be removed by the shareholders of a
corporation for or without cause, and by the board of directors for any proper
cause specified in the bylaws. The ATC Articles provide for removal of directors
only for cause by the affirmative vote of holders of at least 80 percent of the
outstanding shares entitled to vote at an election of directors, voting together
as a single class.
Meetings of Shareholders
Under the IBCL, a corporation with more than fifty shareholders must
hold a special meeting of shareholders called by its board of directors or the
person or persons specifically authorized to do so by the articles of
incorporation or bylaws. The Conseco By-Laws provide that a special meeting of
the shareholders may be called by the President, by the Board of Directors or by
shareholders holding not less than one-fourth of all shares of Conseco Common
Stock outstanding and entitled to vote.
Under the PBCL, special meetings of shareholders may be called by the
board of directors, by shareholders entitled to cast at least 20 percent of the
votes which all shareholders are entitled to cast at the particular meeting
unless otherwise provided in the articles of incorporation, and by such officers
or other persons as may be provided in the bylaws. The ATC Articles and ATC
Bylaws permit the President, the Chairman of the Board and shareholders entitled
to cast 50 percent of the votes which all shareholders are entitled to cast to
call a special meeting.
97
<PAGE>
Action By Shareholders Without Meeting
Under the IBCL, action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
all the shareholders entitled to vote on the action and the action is evidenced
by a written consent describing the action and signed by all shareholders
entitled to vote on the action. The Conseco By-Laws specifically authorize
shareholder action by written consent of all the shareholders entitled to vote
on such action.
Under the PBCL, the bylaws may provide that any action which may be
taken at a meeting of the shareholders may be taken without a meeting if there
is written consent of shareholders who would have been entitled to cast the
minimum number of votes that would be necessary to authorize the action at a
meeting at which all the shareholders were present and voting. The ATC Bylaws
permit all actions to be taken by unanimous consent in writing signed by all
shareholders who would be entitled to vote at a meeting for such purpose.
Dissenters' Rights
Under both the IBCL and the PBCL, shareholders may perfect dissenters'
rights with regard to corporate actions involving certain mergers,
consolidations or the sale, lease or exchange of substantially all the assets of
another corporation (under limited circumstances). In addition, under both the
IBCL and the PBCL, dissenters' rights are generally denied when a corporation's
shares are listed on a national securities exchange, or in the case of the PBCL,
held of record by more than 2,000 persons.
Certain Statutory and Charter Provisions
Under both the IBCL and the PBCL, the articles of incorporation may
provide for a higher shareholder vote requirement than that required by law in
order to approve certain proposed actions or transactions of the corporation.
The Conseco Articles of Incorporation require the vote of 80 percent of the
votes which shareholders are entitled to cast, to alter, amend or repeal Article
IX, Section 5 (minimum price provisions for certain business combinations). The
ATC Articles require the vote of 80 percent of the votes which shareholders are
entitled to cast to alter, amend or repeal Article 10 of the ATC Articles
(removal of directors) or Article 12 of the ATC Articles (business combinations
with related persons).
Shareholder Rights Agreement
On April 25, 1990, the ATC Board of Directors declared a dividend
distribution of one right (a "Right") for each outstanding share of ATC Common
Stock to shareholders of record at the close of business on May 15, 1990
pursuant to the Rights Agreement. Each Right entitles the registered holder to
purchase from ATC one one-hundredth of a share of Series A Preferred Stock at a
purchase price of $50.00, subject to further adjustment. The Rights have certain
anti-takeover effects. The Rights will cause substantial dilution to a person or
group that attempts to acquire ATC without conditioning the offer on a
substantial number of Rights being acquired. The Rights will not interfere with
any merger or other business combination approved by the ATC Board of Directors
since the ATC Board of Directors may, at its option, at any time until ten days
following the Stock Acquisition Date (as defined in the Rights Agreement) redeem
all but not less than all the then outstanding Rights at the Redemption Price
(as defined in the Rights Agreement). Notwithstanding the foregoing, the ATC
Board of Directors may not redeem the outstanding Rights if it has previously
declared any
98
<PAGE>
person to be an Adverse Person (as defined in the Rights Agreement). In such
event, the Rights could interfere with any merger or other business combination
approved by the Board of Directors. On August 25, 1996, the ATC Board of
Directors amended the Rights Agreement in order to clarify that the Merger
Agreement would not trigger the Rights Agreement.
Conseco is not a party to any similar arrangement, and no Rights attach
to any Conseco Common Stock.
Interested Shareholder Transactions
The Conseco Articles of Incorporation provide that Conseco may not
enter into a Special Business Combination Transaction (hereinafter defined)
unless (1) the consideration to be received per share by holders of Conseco
Common Stock in such transaction is at least equal to the highest per share
price paid in order to acquire any shares of Conseco Common Stock beneficially
owned by the Related Person (hereinafter defined) or (2) the transaction shall
have been approved by two-thirds of the Continuing Directors (hereinafter
defined).
The term "Special Business Combination Transaction" shall mean:
(1) any merger or consolidation of Conseco or any subsidiary with (A)
any Related Person or (B) any other corporation or entity (whether or
not itself a Related Person) which is, or after each merger or
consolidation would be, an affiliate of a Related Person; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or in a series of transactions) to or
with any Related Person or any affiliate of any Related Person of all
or a substantial part of the assets of Conseco (including, without
limitation, any securities of a subsidiary) or any subsidiary; or
(3) the adoption of any plan or proposal for the liquidation or
dissolution of Conseco proposed by or on behalf of a Related Person or
any affiliate of a Related Person; or
(4) the issuance or transfer by Conseco or any subsidiary (in one
transaction or in a series of related transactions) of any securities
of Conseco or any subsidiary to a Related Person, or any affiliate of a
Related Person, in exchange for cash, securities or other property (or
a combination thereof); or
(5) any reclassification of securities (including any reverse stock
split), or recapitalization or reorganization of Conseco or any merger
or consolidation of Conseco with any of its subsidiaries, or any self
tender offer for or repurchase of securities of Conseco or any
subsidiary by Conseco or any subsidiary, or any other transaction
(whether or not with or into or otherwise involving a Related Person)
which in any such case has the effect, directly or indirectly, of
increasing the proportionate shares of the outstanding shares of any
class or series of stock or securities convertible into stock of
Conseco or any subsidiary which is directly or indirectly beneficially
owned by any Related Person or any affiliate of any Related Person.
The term "Related Person" shall mean any person (other than Conseco or
subsidiary or any employee benefit plan of Conseco or any subsidiary) who or
which, as of the date on which such determination is made:
99
<PAGE>
(1) is the beneficial owner, directly or indirectly, of more than 10
percent of the combined voting power of the then outstanding shares of
voting stock; or
(2) is an affiliate of Conseco and at any time within the two-year
period immediately prior thereto was the beneficial owner, directly or
indirectly, of 10 percent or more of the combined voting power of the
then outstanding shares of voting stock; or
(3) which is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of voting stock that were at any
time within the two-year period immediately prior thereto beneficially
owned by a Related Person, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
utilizing the facilities of a national securities exchange, occurring
in the national over-the-counter market or involving a public
distribution.
The term "Continuing Director" under the Conseco Articles of
Incorporation shall mean any director who:
(1) was a member of Conseco's Board of Directors on April 23, 1986; or
(2) was designated (before such person's initial election as a
Director) by a Continuing Director; or
(3) with respect to a Special Business Combination Transaction, was a
member of the Board of Directors immediately prior to the date on which
any Related Person involved, either directly or through an affiliate or
associate, in such Special Business Combination Transaction first
became a Related Person.
The ATC Articles require the affirmative vote of holders of at least 80
percent of the votes that all shareholders would be entitled to vote generally
for the election of directors, voting together as a single class, to approve the
authorization of any Business Combination (hereinafter defined) involving a
Related Person (hereinafter defined), unless (1) the Continuing Directors
(hereinafter defined) of ATC by a two-thirds vote have expressly approved the
Business Combination either in advance of or subsequent to the acquisition of
outstanding shares of ATC Common Stock that caused the Related Person to become
the Related Person; or (2)(A) the aggregate amount of the cash and the fair
market value, as determined by two-thirds of the Continuing Directors, of the
property, securities or other consideration to be received per share of ATC
Common Stock, is not less than the highest price determined to have been paid by
the Related Person for any share or shares of ATC Common Stock in acquiring its
holdings of ATC Common Stock, and (B) a proxy or information statement complying
with the requirements of the Exchange Act, and the rules and regulations
thereunder shall have been mailed to all shareholders of ATC at least 30 days
prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Act).
The term "Business Combination" shall mean (1) any merger or
consolidation of ATC or a subsidiary of ATC into or with a Related Person, in
each case irrespective of which corporation or company is the surviving entity;
(2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
to or with a Related Person (in a single transaction or a series of related
transactions) of more than 20 percent of the total consolidated assets of ATC
and its subsidiaries taken as a whole, as of the end of its most recent fiscal
year ending prior to the time the determination is being made; (3) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition to or with ATC
or to or
100
<PAGE>
with a subsidiary of ATC (in a single transaction or a series of related
transactions) of more than 20 percent of the assets of a Related Person; (4) the
issuance of any securities of ATC or a subsidiary of ATC to a Related Person
(other than an issuance of securities which is effected on a pro rata basis to
all shareholders); (5) any recapitalization or reclassification of securities
(including a reverse stock split) of ATC which would have the effect, directly
or indirectly, of increasing the proportionate share of the outstanding stock of
ATC owned by a Related Person; (6) the adoption of any plan or proposal for the
liquidation or dissolution of ATC proposed by or on behalf of a Related Person;
and (7) the acquisition by ATC or by a subsidiary of ATC of any securities of a
Related Person.
The term "Related Person" shall mean any individual, corporation,
partnership or other person or entity (other than any subsidiary of ATC and
other than any profit-sharing, employee stock ownership or other employee
benefit plan of ATC) which, as of the record date for the determination of
shareholders entitled to notice of and to vote on any Business Combination, or
immediately prior to the consummation of such transaction, together with its
"Affiliates" and "Associates" (as each is defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) are "Beneficial Owners" (as
defined in Rule 13d-3 of the Exchange Act) in the aggregate of 10 percent or
more of the outstanding shares of stock of ATC.
The term "Continuing Director" under the ATC Articles shall mean a
director who was a member of the Board of Directors of ATC at the date of the
adoption of Article 12 of the ATC Articles by the shareholders of ATC, together
with each director who either (1) was a member of the Board of Directors
immediately prior to the time that the Related Person involved in a Business
Combination became the Beneficial Owner of 10 percent of the stock of ATC, or
(2) was designated (before his or her initial election as director) as a
Continuing Director by a majority of the then Continuing Directors.
Fiduciary Duty and Limitations of Liability
Under the IBCL, in discharging his duties to the corporation and in
determining what he believes to be in the best interests of the corporation, a
director or officer may, in addition to considering the effects of any action on
shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which the corporation operates and any other
factors that the director or officer considers pertinent.
Under the PBCL, a director may, in considering the best interests of a
corporation, consider (1) the effects of any action on shareholders, employees,
suppliers, customers and creditors of the corporation, and upon communities in
which offices or other facilities of the corporation are located; (2) the
short-term and long-term interests of the corporation, including the possibility
that the best interests of the corporation may be served by the continued
independence of the corporation; (3) the resources, intent and conduct of any
person seeking to take control of the corporation; and (4) all other pertinent
factors.
The IBCL provides that a director is not liable for any action taken as
a director, or any failure to take any action, unless (1) the director has
breached or failed to perform the duties of the director's office; and (2) the
breach or failure to perform constitutes willful misconduct or recklessness.
As permitted under the PBCL, the ATC Bylaws limit the personal
liability of directors of ATC for monetary damages for any action taken unless
the director has breached or failed to perform the duties of his office and the
breach or failure constitutes self-dealing, willful misconduct or
101
<PAGE>
recklessness. The above provision does not eliminate the personal liability of
directors for violations of a criminal statute or the liability of a director
for the payment of taxes pursuant to federal, state or local law.
Derivative Actions
Under the IBCL, a person may not commence a proceeding in the right of
a corporation unless the person was a shareholder of the corporation when the
transaction complained of occurred or unless the person became a shareholder at
that time.
Under the PBCL, a shareholder may maintain a derivative action, even if
the shareholder was not a shareholder at the time of the alleged wrongdoing, if
there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice will result without
such action.
Indemnification
The IBCL grants authorization to Indiana corporations to indemnify
officers and directors for their conduct if such conduct was in good faith and
the officer or director reasonably believed that his conduct was in the
corporation's best interests and permits the purchase of insurance in this
regard. The indemnification provided for in the IBCL does not exclude any other
rights to indemnification that a person may have under: (1) a corporation's
articles of incorporation or bylaws; (2) a resolution of the board of directors
or of the shareholders; or (3) any other authorization, whenever adopted, after
notice, by a majority vote of all the voting shares then issued and outstanding.
The Conseco By-laws 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 Conseco, 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.
Under the PBCL, a business corporation has the power to indemnify its
directors, officers, shareholders, legal representatives, employees and agents
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such individuals in connection
with a third-party action or proceeding if such individual acted in good faith
and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
no reason to believe his conduct was unlawful. A business corporation has the
power to indemnify its directors, officers, shareholders, legal representatives,
employees and agents against expenses (including attorneys' fees) actually and
reasonably incurred in connection with a threatened, pending or completed action
by or in the right of the corporation if such individual acted in good faith and
in a manner reasonably believed to be in, or not opposed to, the best interests
of the corporation. Indemnification shall not be made in respect of any claim,
issue or matter as to which the person has been adjudged to be liable to the
corporation and unless and only to the extent that a Court of Common Pleas or
other court in which the action was brought deems proper. The ATC Bylaws grant
such indemnification rights to the directors, officers and legal
102
<PAGE>
representatives of ATC and provide that ATC may, by action of its Board of
Directors, provide indemnification to employees, agents or fiduciaries of ATC.
MANAGEMENT OF CONSECO
UPON CONSUMMATION OF THE MERGER
The directors and executive officers of Conseco are Stephen C. Hilbert,
Ngaire E. Cuneo, Rollin M. Dick, Donald F. Gongaware, Lawrence W. Inlow, David
R. Decatur, Louis P. Ferrero, M. Phil Hathaway, James D. Massey and Dennis E.
Murray, Sr. and such individuals will continue to be the directors and executive
officers of Conseco upon consummation of the Merger. For information with
respect to the directors and executive officers of Conseco, see Items 10-13 of
Conseco's Annual Report (which incorporates portions of Conseco's proxy
statement dated April 24, 1996), which is incorporated herein by reference.
LEGAL MATTERS
The validity of the Conseco Common Stock to be issued in connection
with the Merger will be passed upon for Conseco by Lawrence W. Inlow, Executive
Vice President, General Counsel and Secretary of Conseco. Mr. Inlow is a
full-time employee and officer of Conseco and owns 796,359 shares of Conseco
Common Stock and holds options to purchase 1,406,900 shares of Conseco Common
Stock.
Certain tax matters in connection with the transaction will be passed
upon by Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pennsylvania. Ramon R.
Obod, a director of ATC, is a partner of Fox, Rothschild, O'Brien & Frankel. Mr.
Obod owns 14,605 shares of ATC Common Stock and holds options to purchase 38,750
shares of ATC Common Stock.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of ATC at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report with respect thereto, and are incorporated by reference in reliance
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of LPG at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
103
<PAGE>
The consolidated financial statements of CAF at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of THI at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
INDEPENDENT ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P. will be present at the
Conseco Special Meeting and will be available to respond to appropriate
questions and have the opportunity to make a statement if they desire.
Representatives of Arthur Andersen LLP will be present at the ATC Special
Meeting and will be available to respond to appropriate questions and have the
opportunity to make a statement if they desire.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Conseco and ATC do not intend to present, and have not been
informed that any other person intends to present, any matter for action at the
Conseco Special Meeting or the ATC Special Meeting, as the case may be, other
than as discussed herein.
If the Merger is consummated, shareholders of ATC will become
shareholders of Conseco as of the Effective Time. Conseco shareholders may
submit to Conseco proposals for formal consideration at the 1997 annual meeting
of Conseco's shareholders and inclusion in Conseco's proxy statement for such
meeting. Any such proposals must have been received in writing by the Secretary
of Conseco, 11825 North Pennsylvania Street, Carmel, Indiana 46032, by December
24, 1996 in order to be considered for inclusion in Conseco's proxy statement
and proxy for the 1997 annual meeting.
104
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Indiana 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 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 Conseco, 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.
The above discussion of Conseco's By-laws and the Indiana Corporation
Law is not intended to be exhaustive and is qualified in its entirety by such
By-laws and the Indiana Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of 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 Securities 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 thereof in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C> <C>
2 - Agreement and Plan of Merger, dated as of August 25, 1996 by and between
Conseco, Inc., and American Travellers Corporation (included as Annex A to
the Joint Proxy Statement/Prospectus (schedules omitted -- the Registrant agrees
to furnish a copy of any schedule to the Commission upon request)).*
4 - Supplemental Indenture dated _______, 1996 by and between Conseco and _____.**
5 - Opinion of Lawrence W. Inlow, General Counsel to Conseco, Inc., as to the
validity of the issuance of the securities registered hereby.*
8 - Form of Opinion of Fox, Rothschild, O'Brien & Frankel as to certain tax
matters (included as Exhibit B to Annex A of the Joint Proxy
Statement/Prospectus).*
23(a) - Consent of Lawrence W. Inlow, General Counsel to Conseco, Inc. (included in
the opinion filed as Exhibit 5 to the Registration Statement).*
23(b) - Consent of Coopers & Lybrand L.L.P., with respect to the financial statements
of the Registrant.*
23(c) - Consent to Arthur Andersen LLP with respect to the consolidated financial
statements of American Travellers Corporation and subsidiaries.*
23(d) - Consent of KPMG Peat Marwick LLP with respect to the financial statements
of Capitol American Financial Corporation.*
23(e) - Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of Life Partners Group, Inc.*
23(f) - Consent of KPMG Peat Marwick LLP with respect to the financial statements
of Transport Holdings Inc.*
23(g) - Consent of Donaldson, Lufkin & Jenrette Securities Corporation.*
23(h) - Consent of Fox, Rothschild, O'Brien & Frankel.*
24(a) - Powers of Attorney of directors and officers of Conseco. (See page II-5 of this
Registration Statement).
99(a) - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (included as
Annex B to the Joint Proxy Statement/Prospectus).*
99(b) - Form of proxy card for Conseco Stock.*
99(c) - Form of proxy card for ATC Common Stock.*
<FN>
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules - Inapplicable.
</FN>
</TABLE>
II-2
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant'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) The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which
is a part of this registration statement, by any
person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will
contain the information called for by the applicable
registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the
information called for by the other items of the
applicable form.
(2) That every prospectus: (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3)
of the Securities Act and is used in connection
with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the
registration statement and will not be used until such
amendment is effective, and that, for purposes of
determining any liability under the Securities
Act of 1933, each such post-effective amendment,
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) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
(e) The undersigned registrant hereby undertakes:
(3) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement;
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(4) That, for the purpose of determining any liability
under the Securities Act, each such post-effective
amendment 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.
(5) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(f) See Part II-Item 20.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Carmel and
the State of Indiana, on the 30th day of September, 1996.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
-----------------------------------------------------------
Stephen C. Hilbert,
Chairman of the Board, President and Chief Executive Officer
Each person whose signature to this Registration Statement appears
below hereby appoints Lawrence W. Inlow, Karl W. Kindig and Kathleen S. Kiefer,
and each of them, either of whom may act without the joinder of the other, as
his or her attorney-in-fact to sign on his or her behalf individually and in the
capacity stated below and to file all amendments and post-effective amendments
to this Registration Statement, which amendments may make such changes in and
additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ------- -------
<S> <C> <C>
/s/ Stephen C. Hilbert Director, Chairman of the Board, Chief September 30,1996
- ---------------------- Executive Officer and President (Principal
Stephen C. Hilbert Executive Officer)
/s/ Rollin M. Dick September 30, 1996
- --------------------- Director, Executive Vice President and Chief
Rollin M. Dick Financial Officer (Principal Financial and
Accounting Officer)
/s/ Ngaire E. Cuneo Director September 30, 1996
- --------------------
Ngaire E. Cuneo
/s/ David R. Decatur Director September 30, 1996
- --------------------
David R. Decatur
/s/ M. Phil Hathaway Director September 30, 1996
- --------------------
M. Phil Hathaway
/s/ Louis P. Ferrero Director September 30, 1996
- --------------------
Louis P. Ferrero
/s/ Donald F. Gongaware Director September 30, 1996
- -----------------------
Donald F. Gongaware
/s/ James D. Massey Director September 30, 1996
- ----------------------
James D. Massey
/s/ Dennis E. Murray, Sr.
- ------------------------ Director September 30, 1996
Dennis E. Murray, Sr.
</TABLE>
II-5
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 25, 1996
By and Between
CONSECO, INC.
and
AMERICAN TRAVELLERS CORPORATION
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
<S> <C>
THE MERGER.................................................................................... 1
1.1 The Merger........................................................................... 1
1.2 Closing.............................................................................. 1
1.3 Effective Time....................................................................... 2
1.4 Articles of Incorporation............................................................ 2
1.5 By-Laws.............................................................................. 2
1.6 Directors............................................................................ 2
1.7 Officers............................................................................. 2
1.8 Conversion of Shares................................................................. 2
1.9 Exchange of Certificates............................................................. 4
1.10 Conseco Substituted under Indenture and Debentures................................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 7
2.1 Organization, Standing and Corporate Power........................................... 7
2.2 Capital Structure.................................................................... 8
2.3 Authority; Noncontravention.......................................................... 9
2.4 SEC Documents........................................................................ 10
2.5 Absence of Certain Changes or Events................................................. 11
2.6 Absence of Changes in Benefit Plans.................................................. 11
2.7 Benefit Plans........................................................................ 12
2.8 Taxes................................................................................ 12
2.9 No Excess Parachute Payments; Section 162(m) of
the Code............................................................................. 13
2.10 Voting Requirements.................................................................. 14
2.11 Compliance with Applicable Laws...................................................... 14
2.12 Opinion of Financial Advisor......................................................... 15
2.13 Brokers.............................................................................. 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO .................................................... 15
3.1 Organization, Standing and Corporate Power........................................... 15
3.2 Conseco Capital Structure............................................................ 16
3.3 Authority; Noncontravention.......................................................... 17
3.4 SEC Documents........................................................................ 18
3.5 Absence of Certain Changes or Events................................................. 18
3.6 Compliance with Applicable Laws...................................................... 19
3.7 Brokers.............................................................................. 20
3.8 Voting Requirements.................................................................. 20
</TABLE>
i
A-2
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
<S> <C>
ADDITIONAL AGREEMENTS......................................................................... 20
4.1 Preparation of Form S-4 and the Joint Proxy
Statement; Information Supplied...................................................... 20
4.2 Meetings of Stockholders............................................................. 21
4.3 Letter of the Company's Accountants.................................................. 22
4.4 Letter of Conseco's Accountants...................................................... 22
4.5 Access to Information; Confidentiality............................................... 22
4.6 Best Efforts......................................................................... 23
4.7 Public Announcements................................................................. 23
4.8 Acquisition Proposals................................................................ 23
4.9 Fiduciary Duties..................................................................... 24
4.10 Consents, Approvals and Filings...................................................... 25
4.11 Certain Fees......................................................................... 25
4.12 Affiliates and Certain Stockholders.................................................. 26
4.13 NYSE Listing......................................................................... 27
4.14 Stockholder Litigation............................................................... 27
4.15 Indemnification...................................................................... 27
4.16 Financing ........................................................................... 27
4.17 Stock Options........................................................................ 27
4.18 Employment Agreements................................................................ 28
4.19 Officers' Certificates Relating to Tax Treatment..................................... 28
4.20 Supplemental Indenture; Other Actions................................................ 28
4.21 Severance and Other Payments......................................................... 29
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER..................................... 29
5.1 Conduct of Business by the Company................................................... 29
5.2 Conduct of Business by Conseco....................................................... 32
5.3 Other Actions ....................................................................... 33
5.4 Certificates......................................................................... 33
5.5 Investment Advisory Agreements ...................................................... 33
ARTICLE VI
CONDITIONS PRECEDENT.......................................................................... 34
6.1 Conditions to Each Party's Obligation To Effect
the Merger........................................................................... 34
6.2 Conditions to Obligations of Conseco ................................................ 36
6.3 Conditions to Obligation of the Company.............................................. 37
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER............................................................. 38
7.1 Termination.......................................................................... 38
7.2 Effect of Termination................................................................ 38
7.3 Amendment............................................................................ 39
7.4 Extension; Waiver.................................................................... 39
7.5 Procedure for Termination, Amendment, Extension
or Waiver............................................................................ 39
</TABLE>
ii
A-3
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VIII
<S> <C>
SURVIVAL OF PROVISIONS........................................................................ 40
8.1 Survival............................................................................. 40
ARTICLE IX
NOTICES....................................................................................... 40
9.1 Notices.............................................................................. 40
ARTICLE X
MISCELLANEOUS................................................................................. 41
10.1 Entire Agreement.................................................................... 41
10.2 Expenses............................................................................ 41
10.3 Counterparts ....................................................................... 41
10.4 No Third Party Beneficiary.......................................................... 41
10.5 Governing Law....................................................................... 42
10.6 Assignment; Binding Effect.......................................................... 42
10.7 Enforcement........................................................................ 42
10.8 Headings, Gender, etc............................................................... 42
10.9 Invalid Provisions.................................................................. 43
iii
A-4
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of August 25, 1996 by and between CONSECO, INC., an Indiana corporation
("Conseco"), and AMERICAN TRAVELLERS CORPORATION, a Pennsylvania corporation
(the "Company").
PREAMBLE
WHEREAS, the respective Boards of Directors of Conseco and the Company
have approved the merger of the Company with and into Conseco, upon the terms
and subject to the conditions set forth herein; and
WHEREAS, Conseco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as such term is defined in Section 1.3 hereof), the
Company shall be merged with and into Conseco (the "Merger"), in a transaction
intended to qualify as a tax-free reorganization under Section 368(a)(1) (A) of
the Internal Revenue Code of 1986, as amended (the "Code"), in accordance with
the Indiana Business Corporation Law (the "IBCL Code") and the Pennsylvania
Business Corporation Law (the "Pennsylvania Code") and the separate corporate
existence of the Company shall cease and Conseco shall continue as the surviving
corporation under the laws of the State of Indiana (the "Surviving Corporation")
with all the rights, privileges, immunities and powers, and subject to all the
duties and liabilities, of a corporation organized under the IBCL. The Merger
shall have the effects set forth in the IBCL and the Pennsylvania Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 9:00
a.m. on the second business day following the date on which the
1
A-5
<PAGE>
last to be fulfilled or waived of the conditions set forth in Article VI shall
be fulfilled or waived in accordance with this Agreement (the "Closing Date"),
at the office of Conseco in Carmel, Indiana, unless another date, time or place
is agreed to in writing by the parties hereto.
1.3 Effective Time. The parties hereto will file with the Secretary of
State of the State of Indiana (the "Indiana Secretary of State") and the
Secretary of State of the Commonwealth of Pennsylvania (the "Pennsylvania
Secretary of State") on the date of the Closing (or on such other date as
Conseco and the Company may agree) articles of merger or other appropriate
documents, executed in accordance with the relevant provisions of the IBCL and
the Pennsylvania Code, and make all other filings or recordings required under
the IBCL and the Pennsylvania Code in connection with the Merger. The Merger
shall become effective upon the filing of the articles of merger with the
Indiana Secretary of State and the Pennsylvania Secretary of State, or at such
later time as is specified in the articles of merger (the "Effective Time").
1.4 Articles of Incorporation. The Articles of Incorporation of
Conseco, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law.
1.5 By-Laws. The By-Laws of Conseco, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
1.6 Directors. The directors of Conseco at the Effective Time
shall be the directors of the Surviving Corporation.
1.7 Officers. The officers of Conseco at the Effective Time shall
be the officers of the Surviving Corporation.
1.8 Conversion of Shares. (a) Outstanding Shares. Each of the shares of
common stock, $.01 par value, of the Company (the "Shares") issued and
outstanding immediately prior to the Effective Time (other than Shares held as
treasury shares by the Company or Dissenting Shares (as defined below)) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into a right to receive (i) if the Conseco Share Price (as
defined below) is greater than or equal to $42.25 per share and less than or
equal to $46.25 per share, .7574 of a validly issued, fully paid and
nonassessable share of common stock, without par value, of Conseco ("Conseco
Common Stock"), (ii) if the Conseco Share Price is less than $42.25 per share,
the fraction (rounded to the nearest ten-thousandth of a share) of a share (or
such fraction and whole number, as the case may
2
A-6
<PAGE>
be) of Conseco Common Stock determined by dividing $32.00 by the Conseco Share
Price or (iii) if the Conseco Share Price is greater than $46.25 per share, the
fraction (rounded to the nearest ten-thousandth of a share) of a share of
Conseco Common Stock determined by dividing $35.03 by the Conseco Share Price.
The "Conseco Share Price" shall be equal to the average of the closing prices of
the Conseco Common Stock on the New York Stock Exchange ("NYSE") Composite
Transactions Reporting System, as reported in The Wall Street Journal, for the
10 trading days immediately preceding the second trading day prior to the
Effective Time. The Conseco Common Stock to be issued to holders of Shares in
accordance with this Section and any cash to be paid in accordance with Section
1.9 in lieu of fractional shares of Conseco Common Stock are referred to
collectively as the "Merger Consideration."
(b) Treasury Shares. Each Share issued and outstanding immediately
prior to the Effective Time which is then held as a treasury share by the
Company or any of its subsidiaries immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
Company, be canceled and retired and cease to exist, without any conversion
thereof.
(c) Impact of Stock Splits, etc. In the event of any change in Conseco
Common Stock between the date of this Agreement and the Effective Time of the
Merger by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of Conseco Common Stock to be issued and
delivered in the Merger in exchange for each outstanding Share as provided in
this Agreement and the calculation of all share prices provided for in this
Agreement shall be proportionately adjusted.
(d) Company Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are held by the Company shareholders who
shall have effectively dissented from the Merger and perfected their dissenters'
rights in accordance with the provisions of Section 1571 et seq. of the
Pennsylvania Code (the "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the Merger Consideration, but the holders
thereof shall be entitled to payment from the Surviving Corporation of the
appraised value of such shares in accordance with the provisions of Section 1571
et seq. of the Pennsylvania Code; provided, however, that if any such holder
shall have failed to perfect such dissenters' rights or shall have effectively
withdrawn or lost such rights, his or her outstanding Shares shall thereupon be
converted into and exchangeable for, as if completed at the Effective Time, the
Merger Consideration, as determined and paid in the manner set forth in this
Agreement, without any interest thereon. The
3
A-7
<PAGE>
Company shall give Conseco (i) prompt notice of any notice or demands for
payment for Dissenting Shares pursuant to Section 1571 et seq. of the
Pennsylvania Code received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands or notices. The Company shall not, without the prior written
consent of Conseco, make any payment with respect to, settle, offer to settle or
otherwise negotiate, any such demands.
(e) Treatment of Company Stock Options. (i) At the Effective Time each
outstanding unexpired stock option ("Company Stock Option") to purchase Shares
which have been granted pursuant to the Company's 1987 Stock Option Plan, 1989
Stock Option Plan, 1993 Stock Option Plan, 1995 Stock Option Plan or 1996 Stock
Option Plan, as amended to the date hereof (the "Company Stock Option Plans")
shall be deemed disposed to the Company in accordance with final Rule 16b-3(e)
as promulgated by the Securities and Exchange Commission ("SEC") pursuant to
Release 34-37260 (May 31, 1996) and then converted automatically into an option
to purchase, for the same aggregate consideration payable to exercise such
Company Stock Options, the number of shares of Conseco Common Stock which the
holder would have been entitled to receive at the Effective Time if such Company
Stock Options had been fully vested and exercised for shares prior to the
Effective Time, but otherwise on the same terms and conditions as were
applicable under the Company Stock Option Plan and the underlying stock option
agreement except as provided in subsections (ii) and (iii) below.
(ii) Except as provided in subsection (iii) below, each
Company Stock Option, if not then vested, will vest in full at the earlier of
(x) the expiration of three months after the Effective Time or (y) termination
by Conseco of the employment of the holder of such Company Stock Option.
(iii) Each Company Stock Option held by a non-employee
director of the Company, if not then vested, will vest in full at the Effective
Time.
1.9 Exchange of Certificates. (a) Exchange Agent. As of the Effective
Time, Conseco shall deposit with its transfer agent and registrar (the "Exchange
Agent"), for the benefit of the holders of Shares, certificates representing the
shares of Conseco Common Stock to be issued to holders of Shares pursuant to
Section 1.8(a) (such certificates, together with any dividends or distributions
with respect to such certificates, being hereinafter referred to as the "Payment
Fund").
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented Shares shall, upon surrender to the Exchange Agent of such
certificate or
4
A-8
<PAGE>
certificates and acceptance thereof by the Exchange Agent, be entitled to a
certificate representing that number of whole shares of Conseco Common Stock
(and cash in lieu of fractional shares of Conseco Common Stock as contemplated
by this Section 1.9) which the aggregate number of Shares previously represented
by such certificate or certificates surrendered shall have been converted into
the right to receive pursuant to Section 1.8(a) of this Agreement. The Exchange
Agent shall accept such certificates upon compliance with such reasonable terms
and conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. If the consideration to be
paid in the Merger (or any portion thereof) is to be delivered to any person
other than the person in whose name the certificate representing Shares
surrendered in exchange therefor is registered, it shall be a condition to such
exchange that the certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
exchange shall pay to the Exchange Agent any transfer or other taxes required by
reason of the payment of such consideration to a person other than the
registered holder of the certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of certificates representing Shares
and if such certificates are presented to the Company for transfer, they shall
be canceled against delivery of the Merger Consideration as hereinabove
provided. Until surrendered as contemplated by this Section 1.9(b), each
certificate representing Shares (other than certificates representing Shares to
be canceled in accordance with Section 1.8(b) and other than Dissenting Shares),
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration payable with respect to
such Shares, without any interest thereon, as contemplated by Section 1.8. No
interest will be paid or will accrue on any cash payable as Merger
Consideration.
(c) Letter of Transmittal. Promptly after the Effective Time (but in no
event more than five business days thereafter), the Surviving Corporation shall
require the Exchange Agent to mail to each record holder of certificates that
immediately prior to the Effective Time represented Shares which have been
converted pursuant to Section 1.8, a form of letter of transmittal and
instructions for use in surrendering such certificates and receiving the
consideration to which such holder shall be entitled therefor pursuant to
Section 1.8.
(d) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Conseco Common Stock with a record date
after the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented Shares which have been
converted
5
A-9
<PAGE>
pursuant to Section 1.8, until the surrender for exchange of such certificate in
accordance with this Article I. Following surrender for exchange of any such
certificate, there shall be paid to the holder of such certificate, without
interest, (i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to the number of whole shares of Conseco Common Stock into which the
Shares represented by such certificate immediately prior to the Effective Time
were converted pursuant to Section 1.8, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time, but prior to such surrender, and with a payment date
subsequent to such surrender, payable with respect to such whole shares of
Conseco Common Stock.
(e) No Further Ownership Rights in Shares. The Merger Consideration
paid upon the surrender for exchange of certificates representing Shares in
accordance with the terms of this Article I shall be deemed to have been issued
and paid in full satisfaction of all rights pertaining to the Shares theretofore
represented by such certificates, subject, however, to the Surviving
Corporation's obligation (if any) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared by the Company on such Shares in accordance with the terms of this
Agreement or prior to the date of this Agreement and which remain unpaid at the
Effective Time.
(f) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Conseco Common Stock shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Shares which have been converted pursuant to Section 1.8, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of Conseco.
(ii) Notwithstanding any other provisions of this Agreement, each
holder of Shares who would otherwise have been entitled to receive a fraction of
a share of Conseco Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Conseco
Common Stock multiplied by the Conseco Share Price.
(g) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of the certificates representing Shares for
120 days after the Effective Time shall be delivered to Conseco, upon demand,
and any holders of Shares who have not theretofore complied with this Article I
shall thereafter look only to Conseco and only as general creditors thereof for
payment of their claim for any Merger
6
A-10
<PAGE>
Consideration and any dividends or distributions with respect to Conseco Common
Stock.
(h) No Liability. Neither Conseco nor the Exchange Agent shall be
liable to any person in respect of any cash, shares, dividends or distributions
payable from the Payment Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any certificates
representing Shares shall not have been surrendered prior to five years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration in respect of such certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined in Section 2.3)),
any such cash, shares, dividends or distributions payable in respect of such
certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
1.10 Conseco Substituted under Indenture and Debentures. As of the
Effective Time, Conseco shall succeed to, be substituted for, and assume all
obligations of, and may exercise every right and power of, the Company under the
Indenture (the "Indenture") governing the 6.5% Convertible Subordinated
Debentures due October 1, 2005 (the "Debentures") by and between the Company and
American Bank, National Association with the same effect as if Conseco had been
named therein as the Company. As of the Effective Time, Conseco shall assume all
the obligations of the Company pursuant to the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Conseco and as follows:
2.1 Organization, Standing and Corporate Power. Each of the Company and
each Significant Subsidiary of the Company (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each of the
Company and each Significant Subsidiary of the Company is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary. The Company has delivered to Conseco
complete and correct copies of its Certificate of Incorporation and By-laws, as
amended to the date of this Agreement. For purposes of this Agreement, a
"Significant Subsidiary" of the Company means each of American Travellers Life
7
A-11
<PAGE>
Insurance Company, United General Life Insurance Company, and any other
subsidiary of the Company that would constitute a Significant Subsidiary within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
2.2 Capital Structure. The authorized capital stock of the Company
consists of (i) 50,000,000 Shares and (ii) 5,000,000 shares of Preferred Stock,
$.01 par value (the "Preferred Stock"). At the close of business on August 23,
1996: (i) 16,281,432 Shares were issued and outstanding, 2,668,826 Shares were
reserved for issuance pursuant to outstanding Company Stock Options and
6,824,790 Shares were reserved for issuance upon conversion of the Debentures;
and (ii) no shares of Preferred Stock were issued and outstanding. Except as set
forth above, at the close of business on August 23, 1996, no shares of capital
stock or other equity securities of the Company were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the Company
are, and all shares which may be issued pursuant to the Company Stock Option
Plans or any outstanding Company Stock Options will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except for $103,500,000 of 6.5% Convertible Subordinated
Debentures due October 1, 2005, no bonds, debentures, notes or other
indebtedness of the Company or any Significant Subsidiary of the Company having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which the stockholders of the Company or
any Significant Subsidiary of the Company may vote are issued or outstanding.
Except as disclosed in Section 2.2 of the Disclosure Schedule dated the date
hereof and delivered by the Company to Conseco concurrently herewith (the
"Disclosure Schedule"), all the outstanding shares of capital stock of each
Significant Subsidiary of the Company have been validly issued and are fully
paid and nonassessable and are owned by the Company, by one or more subsidiaries
of the Company or by the Company and one or more such subsidiaries, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens") except as may
be provided by law. Except as set forth above or in Section 2.2 of the
Disclosure Schedule, neither the Company nor any Significant Subsidiary of the
Company has any outstanding option, warrant, subscription or other right,
agreement or commitment which either (i) obligates the Company or any
Significant Subsidiary of the Company to issue, sell or transfer, repurchase,
redeem or otherwise acquire or vote any shares of the capital stock of the
Company or any Significant Subsidiary of the Company or (ii) restricts the
transfer of Shares. The Company has delivered to Conseco a complete and correct
copy of the Rights Agreement dated as of April 25, 1990, as amended to the date
of this Agreement (the "Rights Agreement").
8
A-12
<PAGE>
2.3 Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to the
approval of its stockholders as set forth in Section 6.1(a) with respect to the
consummation of the Merger, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the approval of its stockholders as set
forth in Section 6.1(a). A majority of the members of the Board of Directors who
are not officers of the Company and who are not representatives, nominees,
affiliates or associates of Conseco, after receiving advice from one or more
investment banking firms, have determined that the price and terms of the
conversion of the Shares are (a) at a price which is fair to the stockholders of
the Company and (b) otherwise in the best interests of the Company and its
stockholders. This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes the valid and binding agreement of
Conseco, constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except that the enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). Except as
disclosed in Section 2.3 of the Disclosure Schedule, the execution and delivery
of this Agreement do not, and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions hereof will not, (i)
conflict with any of the provisions of the Certificate of Incorporation or
By-laws of the Company or the comparable documents of any Significant Subsidiary
of the Company, (ii) subject to the governmental filings and other matters
referred to in the following sentence, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, or require the consent of any person under,
any indenture or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their assets is bound or affected, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, contravene any
law, rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any governmental
agency or regulatory authority (a "Governmental Entity") which has not been
9
A-13
<PAGE>
received or made, is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") with respect to the Merger, (ii) the filings and/or notices required
under the insurance laws of the jurisdictions set forth in Section 2.3 of the
Disclosure Schedule, (iii) the filing with the SEC of (x) a proxy statement
relating to the approval by the stockholders of the Company of the Merger (such
proxy statement, together with the proxy statement relating to the approval of
the issuance of Conseco Common Stock in the Merger by an affirmative vote of the
holders of a majority of the votes entitled to be cast by the holders of Conseco
Common Stock and Conseco PRIDES (as hereinafter defined) present, or
represented, and entitled to vote thereon at the meeting to be called therefor
(the "Conseco Stockholder Approval"), in each case as amended or supplemented
from time to time, the "Joint Proxy Statement"), and (y) such reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (iv) the filing of the articles of merger with the Pennsylvania
Secretary of State and the Indiana Secretary of State and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, (v) such other consents, approvals, authorizations, filings or
notices as are set forth in Section 2.3 of the Disclosure Schedule and (vi) any
applicable filings under state anti-takeover laws.
2.4 SEC Documents. (i) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January 1,
1994 (such reports, schedules, forms, statements and other documents are
hereinafter referred to as the "SEC Documents"); (ii) as of their respective
dates, the SEC Documents complied with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such SEC Documents, and none of the SEC Documents as of such dates contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) the consolidated financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited
10
A-14
<PAGE>
statements, as permitted by Rule 10-01 of Regulation S-X) and fairly present, in
all material respects, the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end audit
adjustments).
2.5 Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Filed SEC Documents") or in Section 2.5 of the Disclosure Schedule, since
the date of the most recent audited financial statements included in the Filed
SEC Documents, the Company and its subsidiaries have conducted their business
only in the ordinary course, and there has not been (i) any change which would
have a material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock, (iii) any split, combination or reclassification of
any of its outstanding capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its outstanding capital stock, (iv) (x) any granting by the
Company or any of its subsidiaries to any executive officer or other employee of
the Company or any of its subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Filed SEC Documents, (y) any
granting by the Company or any of its subsidiaries to any such executive officer
or other employee of any increase in severance or termination pay, except in the
ordinary course of business consistent with prior practice or as was required
under any employment, severance or termination agreements in effect as of the
date of the most recent audited financial statements included in the Filed SEC
Documents or (z) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive officer
or other employee or (v) any change in accounting methods, principles or
practices by the Company or any of its subsidiaries materially affecting its
assets, liability or business, except insofar as may have been required by a
change in generally accepted accounting principles.
2.6 Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents or in Section 2.6 of the Disclosure Schedule, since the date
of the most recent audited financial statements included in the Filed SEC
Documents, there has not been any adoption or amendment in any material respect
by the Company or any of its subsidiaries of any collective
11
A-15
<PAGE>
bargaining agreement or any Benefit Plan (as defined in Section 2.7). Except as
disclosed in the Filed SEC Documents or in Section 2.6 of the Disclosure
Schedule, there exist no employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings between the Company
or any of its subsidiaries and any current or former employee, officer or
director of the Company or any of its subsidiaries.
2.7 Benefit Plans. (i) Each "employee pension benefit plan" (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (hereinafter a "Pension Plan"), "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and
each other plan, arrangement or policy (written or oral) relating to stock
options, stock purchases, compensation, deferred compensation, severance, fringe
benefits or other employee benefits, in each case maintained or contributed to,
or required to be maintained or contributed to, by the Company and its
subsidiaries for the benefit of any present or former officers, employees,
agents, directors or independent contractors of the Company or any of its
subsidiaries (all the foregoing being herein called "Benefit Plans") has been
administered in accordance with its terms and all applicable laws and
regulations. All required contributions to the Benefit Plans have been made. The
Company, its subsidiaries and all the Benefit Plans are in compliance with the
applicable provisions of ERISA, the Internal Revenue Code of 1986, as amended
(the "Code"), all other applicable laws and all applicable collective bargaining
agreements.
(ii) None of the Company or any other person or entity that together
with the Company is treated as a single employer under Section 414(b), (c), (m)
or (o) of the Code (each a "Commonly Controlled Entity") has incurred any
liability to a Pension Plan covered by Title IV of ERISA (other than for
contributions not yet due) or to the Pension Benefit Guaranty Corporation (other
than for the payment of premiums not yet due) which liability has not been fully
paid as of the date hereof.
(iii) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted or
would result in any "withdrawal liability" (within the meaning of Section 4201
of ERISA) that has not been fully paid.
2.8 Taxes. Except as disclosed in Section 2.8 of the Disclosure
Schedule,
(i) Each of the Company and its subsidiaries has filed all tax returns
and reports required to be filed by it or requests for extensions to file such
returns or reports have been timely
12
A-16
<PAGE>
filed, granted and have not expired, except to the extent that such failures to
file or to have extensions granted that remain in effect individually and in the
aggregate would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole. All tax returns filed by the Company and each of its subsidiaries are
complete and accurate except to the extent that such failure to be complete and
accurate would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole. The Company and each of its subsidiaries has paid (or the Company has
paid on the subsidiaries' behalf) all taxes shown as due on such returns, and
the most recent financial statements contained in the Filed SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries taken as a whole, and,
except as set forth on Section 2.8 of the Disclosure Schedule, no requests for
waivers of the time to assess any such taxes have been granted or are pending.
The Federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the United
States Internal Revenue Service, or the statute of limitations on assessment or
collection of any Federal income taxes due from the Company or any of its
subsidiaries has expired, through such taxable years as are set forth in Section
2.8 of the Disclosure Schedule.
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, premium, sales, excise, employment,
payroll, withholding and other taxes, tariffs or governmental charges of any
nature whatsoever and any interest, penalties and additions to taxes relating
thereto.
2.9 No Excess Parachute Payments; Section 162(m) of the Code. (i)
Except as disclosed in Section 2.9 of the Disclosure Schedule, any amount that
could be received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
13
A-17
<PAGE>
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code).
(ii) Except as disclosed in Section 2.9 of the Disclosure Schedule, the
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by the Company or any
subsidiary of the Company under any contract, Benefit Plan, program, arrangement
or understanding currently in effect.
2.10 Voting Requirements. The affirmative vote of a majority of the
votes cast by the holders of the Shares entitled to vote thereon at the
Stockholders Meeting with respect to the approval of the Merger is the only vote
of the holders of any class or series of the Company's capital stock necessary
to approve this Agreement and the transactions contemplated by this Agreement.
2.11 Compliance with Applicable Laws. (i) Each of the Company and its
subsidiaries has in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Permit. Except as disclosed in the Filed
SEC Documents, the Company and its subsidiaries are in compliance in all
material respects with all applicable statutes, laws, ordinances, rules, orders
and regulations of any Governmental Entity. Except as disclosed in the Filed SEC
Documents or Section 2.11 of the Disclosure Schedule and except for routine
examinations by state Governmental Entities charged with supervision of
insurance companies ("Insurance Regulators"), as of the date of this Agreement,
to the knowledge of the Company, no investigation by any Governmental Entity
with respect to the Company or any of its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1995,
together with all exhibits and schedules thereto, and financial statements
relating thereto, and any actuarial opinion, affirmation or certification filed
in connection therewith, and the Quarterly Statements for the periods ended
after January 1, 1996, together with all exhibits and schedules thereto, with
respect to each subsidiary of the Company that is a regulated insurance company
(an "Insurance Company"), in each case as filed with the applicable Insurance
Regulator of its jurisdiction of domicile, were prepared in conformity with
statutory accounting practices prescribed or permitted by such Insurance
Regulator applied on a consistent basis ("SAP"), present fairly, in all material
respects, to the extent required by and in conformity with SAP, the statutory
14
A-18
<PAGE>
financial condition of such Insurance Company at their respective dates and the
results of operations, changes in capital and surplus and cash flow of such
Insurance Company for each of the periods then ended, and were correct in all
material respects when filed and there were no material omissions therefrom when
filed. No deficiencies or violations material to the financial condition or
operations of any Insurance Company have been asserted in writing by any
Insurance Regulator which have not been cured or otherwise resolved to the
satisfaction of such Insurance Regulator and which have not been disclosed in
writing to Conseco prior to the date of this Agreement.
2.12 Opinion of Financial Advisor. The Company has received the
opinion of Donaldson, Lufkin & Jenrette Securities Corp. ("DLJ"), dated the date
hereof, to the effect that, as of such date, the consideration to be received in
the Merger by the Company's stockholders is fair to the Company's stockholders.
2.13 Brokers. Except with respect to DLJ, all negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
the Company directly with Conseco, without the intervention of any person on
behalf of the Company in such manner as to give rise to any valid claim by any
person against Conseco, the Company or any subsidiary for a finder's fee,
brokerage commission, or similar payment. The Company has provided Conseco with
a true and complete copy of the agreement between the Company and DLJ, and the
Company has no other agreements or understandings (written or oral) with respect
to such services.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO
Conseco hereby represents and warrants to the Company as follows:
3.1 Organization, Standing and Corporate Power. Each of Conseco and
each Significant Subsidiary of Conseco (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of Conseco
and each Significant Subsidiary of Conseco is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary. Conseco has delivered to the Company complete and
correct copies of its Articles of Incorporation and By-laws, as amended to the
date of this Agreement. For purposes of this Agreement, a "Significant
Subsidiary" of Conseco means
15
A-19
<PAGE>
any subsidiary of Conseco that would constitute a Significant Subsidiary within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
3.2 Conseco Capital Structure. The authorized capital stock of Conseco
consists of 500,000,000 shares of Conseco Common Stock and 20,000,000 shares of
preferred stock, without par value. At the close of business on August 23, 1996,
(i) 58,416,433 shares of Conseco Common Stock, 5,264,767 shares of $3.25 Series
D Cumulative Convertible Preferred Stock of Conseco (the "Conseco Series D
Preferred Stock") and 4,369,700 shares of Preferred Redeemable Increased
Dividend Equity Securities of Conseco (the "Conseco PRIDES") were issued and
outstanding (net of treasury shares or shares held by subsidiaries), (ii)
13,721,689 shares of Conseco Common Stock were reserved for issuance pursuant to
outstanding options to purchase shares of Conseco Common Stock and other
benefits granted under Conseco's benefit plans (the "Conseco Stock Plans"),
(iii) 8,258,314 shares of Conseco Common Stock were reserved for issuance upon
conversion of the Conseco Series D Preferred Stock and (iv) 8,739,400 shares of
Conseco Common Stock were reserved for issuance upon conversion of the Conseco
PRIDES. Except (x) as set forth above, (y) for outstanding options to purchase
an aggregate of 1,105,550 shares of Bankers Life Holding Corporation under its
Stock Option Plan and (z) with respect to stock units awarded under the Conseco
Stock Option Plans, at the close of business on August 23, 1996, no shares of
capital stock or other voting securities of Conseco were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Conseco are,
and all shares which may be issued pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No bonds, debentures, notes or other indebtedness
of Conseco or any Significant Subsidiary of Conseco having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Conseco or any Significant Subsidiary
of Conseco may vote are issued or outstanding. All the outstanding shares of
capital stock of each Significant Subsidiary of Conseco have been validly issued
and are fully paid and nonassessable and, except as set forth in the Filed
Conseco SEC Documents (as defined in Section 3.4), are owned by Conseco, free
and clear of all Liens. Except as set forth above or in the Filed Conseco SEC
Documents, neither Conseco nor any Significant Subsidiary of Conseco has any
outstanding option, warrant, subscription or other right, agreement or
commitment which either (i) obligates Conseco or any Significant Subsidiary of
Conseco to issue, sell or transfer, repurchase, redeem or otherwise acquire or
vote any shares of the capital stock of Conseco or any Significant Subsidiary of
Conseco or (ii) restricts the transfer of Conseco Common Stock.
16
A-20
<PAGE>
3.3 Authority; Noncontravention. Conseco has all requisite corporate
power and authority to enter into this Agreement and, subject to the Conseco
Stockholder Approval with respect to the issuance of Conseco Common Stock in the
Merger, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Conseco and the consummation by
Conseco of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Conseco, subject, in
the case of the issuance of Conseco Common Stock in the Merger, to the Conseco
Stockholder Approval. This Agreement has been duly executed and delivered by
and, assuming this Agreement constitutes the valid and binding agreement of the
Company, constitutes a valid and binding obligation of Conseco, enforceable
against Conseco in accordance with its terms except that the enforcement thereof
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditor's rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will not (i)
conflict with any of the provisions of the Articles of Incorporation or By-laws
of Conseco, or the comparable documents of any Significant Subsidiary of
Conseco, (ii) subject to the governmental filings and other matters referred to
in the following sentence, conflict with, result in a breach of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which Conseco or any of its subsidiaries is a party
or by which Conseco or any of its subsidiaries or any of their assets is bound
or affected, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation of
any state or of the United States or any political subdivision thereof or
therein, or any order, writ, judgment, injunction, decree, determination or
award currently in effect. No consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity which has not
been received or made is required by or with respect to Conseco in connection
with the execution and delivery of this Agreement by Conseco or the consummation
by Conseco of any of the transactions contemplated by this Agreement, except for
(i) the filing of premerger notification and report forms under the HSR Act with
respect to the Merger, (ii) the filings and/or notices required under the
insurance laws of the jurisdictions set forth in Section 2.3 of the Disclosure
Schedule, (iii) the filing with the SEC of the registration statement on Form
S-4 to be filed with the SEC by Conseco in connection with the issuance of
17
A-21
<PAGE>
Conseco Common Stock in the Merger (the "Form S-4"), the Joint Proxy Statement
relating to the Conseco Stockholder Approval and such reports under the Exchange
Act as may be required in connection with this Agreement and the transactions
contemplated hereby, (iv) the filing of the articles of merger with the Indiana
Secretary of State and the Pennsylvania Secretary of State, and appropriate
documents with the relevant authorities of the other states in which the Company
is qualified to do business, (v) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 2.3 of the Disclosure Schedule
and (vi) any applicable filings under state anti-takeover laws.
3.4 SEC Documents. Conseco and its subsidiaries have filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1994 (the "Conseco SEC Documents"). As of their respective dates, the
Conseco SEC Documents complied with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Conseco SEC Documents, and none of the
Conseco SEC Documents as of such dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Conseco included in the Conseco SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S- X) and fairly present, in all material respects, the consolidated
financial statements of Conseco and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments).
3.5 Absence of Certain Changes or Events. Except as disclosed in the
Conseco SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed Conseco SEC Documents") or in Section 3.5 of a Disclosure
Schedule dated the date hereof and delivered concurrently herewith by Conseco to
the Company (the "Conseco Disclosure Schedule"), since the date of the most
recent audited financial statements included in the Filed Conseco SEC Documents,
Conseco has conducted its business only in the ordinary course, and there has
not been (i) any change which would have a material adverse effect on the
business, financial condition or results of operations of Conseco and its
subsidiaries, taken as a whole, (ii) any declaration,
18
A-22
<PAGE>
setting aside or payment of any dividend or distribution (whether in cash, stock
or property) with respect to any of Conseco's outstanding capital stock (other
than the payment of cash dividends of $.02 per share on July 1, 1996, and the
declaration of a cash dividend payable October 1, 1996 of $.0625 per share, on
Conseco Common Stock and regular cash dividends on the Conseco Series D
Preferred Stock and the Conseco PRIDES, in each case in accordance with usual
record and payment dates and in accordance with Conseco's dividend policy and
Articles of Incorporation at the date of such payment), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (iv) any
change in accounting methods, principles or practices by Conseco materially
affecting its assets, liabilities or business, except as may have been required
by a change in generally accepted accounting principles.
3.6 Compliance with Applicable Laws. (i) Each of Conseco and its
subsidiaries has in effect all Permits necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, and
there has occurred no default under any such Permit. Except as disclosed in the
Filed Conseco SEC Documents, Conseco and its subsidiaries are in compliance in
all material respects with all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity. Except as disclosed in the
Filed Conseco SEC Documents and except for routine examinations by state
Governmental Entities charged with supervision of insurance companies
("Insurance Regulators"), as of the date of this Agreement, to the knowledge of
Conseco, no investigation by any Governmental Entity with respect to Conseco or
any of its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1995,
together with all exhibits and schedules thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and the Quarterly
Statements for the periods ended after January 1, 1996, together with all
exhibits and schedules thereto, with respect to each subsidiary of Conseco that
is an Insurance Company, in each case as filed with the applicable Insurance
Regulator of its jurisdiction of domicile, were prepared in conformity with,
present fairly, in all material respects, to the extent required by and in
conformity with SAP, the statutory financial condition of such Insurance Company
at their respective dates and the results of operations, changes in capital and
surplus and cash flow of such Insurance Company for each of the periods then
ended, and were correct in all material respects when filed and there were no
material omissions therefrom when filed. No deficiencies or violations material
to the financial condition or operations of
19
A-23
<PAGE>
any Insurance Company have been asserted in writing by any Insurance Regulator
which have not been cured or otherwise resolved to the satisfaction of such
Insurance Regulator and which have not been disclosed in writing to the Company
prior to the date of this Agreement.
3.7 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Conseco directly with
the Company, without the intervention of any person on behalf of Conseco in such
manner as to give rise to any valid claim by any person against the Company or
any of the Subsidiaries for a finder's fee, brokerage commission, or similar
payment.
3.8 Voting Requirements. The affirmative vote of the holders of a
majority of the votes entitled to be cast by the holders of Common Stock and
Conseco PRIDES present, or represented, and entitled to vote thereon at the
Conseco Stockholders Meeting with respect to the issuance of shares of Conseco
Common Stock in the Merger is the only vote of the holders of any class or
series of Conseco's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and the Joint Proxy Statement; Information
Supplied.
(a) As soon as practicable following the date of this Agreement, the
Company and Conseco shall prepare and file with the SEC the Joint Proxy
Statement and Conseco shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the Company
and Conseco shall use its best efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. The
Company will use its best efforts to cause the Joint Proxy Statement to be
mailed to the Company's stockholders, and Conseco will use its best efforts to
cause the Joint Proxy Statement to be mailed to Conseco's stockholders, in each
case as promptly as practicable after the Form S-4 is declared effective under
the Securities Act. Conseco shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified) required to
be taken under any applicable state securities laws in connection with the
issuance of Conseco Common Stock in the Merger and the Company shall furnish all
information concerning the Company and the holders of the Common Stock as may be
reasonably requested in connection with any such action.
20
A-24
<PAGE>
(b) The Company agrees that none of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting (as defined in Section 4.2), contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except with
respect to statements made or incorporated by reference therein based on
information supplied by Conseco specifically for inclusion or incorporated by
reference in the Joint Proxy Statement.
(c) Conseco agrees that none of the information supplied or to be
supplied by Conseco specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Joint Proxy Statement will, at
the date the Joint Proxy Statement is first mailed to Conseco's stockholders or
at the time of the Conseco Stockholders Meeting (as defined in Section 4.2),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder and the Joint Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except with respect to statements made or incorporated
by reference in either the Form S-4 or the Joint Proxy Statement based on
information supplied by the Company specifically for inclusion or incorporation
by reference therein.
4.2 Meetings of Stockholders. The Company will take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and By-laws to convene a meeting of its stockholders (the "Stockholders
Meeting") to consider and vote upon the approval of the Merger. Conseco will
take all
21
A-25
<PAGE>
action necessary in accordance with applicable law and its Articles of
Incorporation and By-laws to convene a meeting of its stockholders (the "Conseco
Stockholders Meeting") to consider and vote upon the approval of the issuance of
Conseco Common Stock in the Merger. Subject to Section 4.9 hereof in the case of
the Company, the Company and Conseco will, through their respective Boards of
Directors, recommend to their respective stockholders approval of the foregoing
matters. Without limiting the generality of the foregoing, the Company agrees
that, subject to its right to terminate this Agreement pursuant to Section 4.9,
its obligations pursuant to the first sentence of Section 4.2 shall not be
affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal (as defined in Section
4.8) or (ii) the withdrawal or modification by the Board of Directors of the
Company of its approval or recommendation of this Agreement or the Merger.
Conseco and the Company will use their best efforts to hold the Stockholders
Meeting and the Conseco Stockholders Meeting on the same day and use best
efforts to hold such Meetings and (except in the case of the Company, subject to
Section 4.9 hereof) to obtain the favorable votes of their respective
stockholders as soon as practicable after the date hereof.
4.3 Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to Conseco a letter of Arthur Andersen LLP, the
Company's independent public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective and a letter of
Arthur Andersen LLP, dated a date within two business days before the Closing
Date, addressed to Conseco, in form and substance reasonably satisfactory to
Conseco and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S- 4.
4.4 Letter of Conseco's Accountants. Conseco shall use its best efforts
to cause to be delivered to the Company a letter of Coopers & Lybrand L.L.P.,
Conseco's independent public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective and a letter of
Coopers & Lybrand L.L.P., dated a date within two business days before the
Closing Date, each addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
4.5 Access to Information; Confidentiality. Upon reasonable notice,
each of the Company and Conseco shall, and shall cause each of its respective
subsidiaries to, afford to the other party and to the officers, employees,
counsel, financial
22
A-26
<PAGE>
advisors and other representatives of such other party reasonable access during
normal business hours during the period prior to the Effective Time to all its
properties, books, contracts, commitments, personnel and records and, during
such period, each of the Company and Conseco shall, and shall cause each of its
respective subsidiaries to, furnish as promptly as practicable to the other
party such information concerning its business, properties, financial condition,
operations and personnel as such other party may from time to time reasonably
request. Except as required by law, Conseco will hold, and will cause its
respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information obtained from the Company in confidence to the extent
required by, and in accordance with, the provisions of the letter dated August
14, 1996, between Conseco and the Company (the "Confidentiality Agreement").
Except as required by law, the Company will hold, and will cause its directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information obtained
from Conseco in confidence to the extent required by, and in accordance with,
the Confidentiality Agreement.
4.6 Best Efforts. Upon the terms and subject to the conditions and
other agreements set forth in this Agreement, each of the parties agrees to use
its best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
4.7 Public Announcements. Conseco and the Company will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or NASDAQ.
4.8 Acquisition Proposals. The Company shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take
23
A-27
<PAGE>
any other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below); provided, however, that nothing contained in this Section
4.8 shall prohibit the Board of Directors of the Company from furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited Acquisition Proposal if, and only to the extent
that (A) the Board of Directors of the Company, after consultation with and
based upon the advice of outside counsel, determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (B) prior to taking
such action, the Company (x) provides reasonable notice to Conseco to the effect
that it is taking such action and (y) receives from such person or entity an
executed confidentiality agreement in reasonably customary form. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Conseco orally and in writing of the receipt by it (or any of the other entities
or persons referred to above) after the date hereof of any Acquisition Proposal,
or any inquiry which could lead to any Acquisition Proposal, the material terms
and conditions of such Acquisition Proposal or inquiry, and the identity of the
person making any such Acquisition Proposal or inquiry. The Company will keep
Conseco fully informed of the status and details of any such Acquisition
Proposal or inquiry. For purposes of this Agreement, "Acquisition Proposal"
means any bona fide proposal with respect to a merger, consolidation, share
exchange or similar transaction involving the Company or any Significant
Subsidiary of the Company, or any purchase of all or any significant portion of
the assets of the Company or any Significant Subsidiary of the Company, or any
equity interest in the Company or any Significant Subsidiary of the Company,
other than the transactions contemplated hereby.
4.9 Fiduciary Duties. The Board of Directors of the Company shall not
(i) withdraw or modify, in a manner materially adverse to Conseco, the approval
or recommendation by such Board of Directors of this Agreement or the Merger,
(ii) approve or recommend an Acquisition Proposal or (iii) enter into any
agreement with respect to any Acquisition Proposal, unless the Company receives
an Acquisition Proposal and the Board of Directors of the Company determines in
good faith, following consultation with outside counsel, that in order to comply
with its fiduciary duties to stockholders under applicable law it is necessary
for the Board of Directors to withdraw or modify, in a manner materially adverse
to Conseco, its approval or recommendation of this Agreement or the Merger,
approve or recommend such Acquisition Proposal, enter into an agreement with
respect to such Acquisition Proposal or terminate this Agreement. In the event
the Board of Directors of the Company takes any of the foregoing actions, the
Company shall, concurrently with the
24
A-28
<PAGE>
taking of any such action, pay to Conseco the Section 4.11 Fee pursuant to
Section 4.11. Nothing contained in this Section 4.9 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders which, in the good faith reasonable judgment of the Board
of Directors of the Company based on the advice of outside counsel, is required
under applicable law; provided that, subject to the provisions of the first
sentence of this Section, the Company does not withdraw or modify, in a manner
materially adverse to Conseco, its position with respect to the Merger or
approve or recommend an Acquisition Proposal. Notwithstanding anything contained
in this Agreement to the contrary, any action by the Board of Directors
permitted by this Section 4.9 shall not constitute a breach of this Agreement by
the Company.
4.10 Consents, Approvals and Filings. The Company and Conseco will make
and cause their respective subsidiaries to make all necessary filings, as soon
as practicable, including, without limitation, those required under the HSR Act,
the Securities Act, the Exchange Act, and applicable state insurance laws in
order to facilitate prompt consummation of the Merger and the other transactions
contemplated by this Agreement. In addition, the Company and Conseco will each
use their best efforts, and will cooperate fully with each other (i) to comply
as promptly as practicable with all governmental requirements applicable to the
Merger and the other transactions contemplated by this Agreement and (ii) to
obtain as promptly as practicable all necessary permits, orders or other
consents of Governmental Entities and consents of all third parties necessary
for the consummation of the Merger and the other transactions contemplated by
this Agreement. Each of the Company and Conseco shall use best efforts to
promptly provide such information and communications to Governmental Entities as
such Governmental Entities may reasonably request. Each of the parties shall
provide to the other party copies of all applications in advance of filing or
submission of such applications to Governmental Entities in connection with this
Agreement and shall make such revisions thereto as reasonably requested by such
other party. Each party shall provide to the other party the opportunity to
participate in all meetings and material conversations with Governmental
Entities.
4.11 Certain Fees. (a) The Company shall pay to Conseco upon demand $20
million (the "Section 4.11 Fee"), payable in same-day funds, if a bona fide
Acquisition Proposal is commenced, publicly proposed, publicly disclosed or
communicated to the Company (or the willingness of any person to make such an
Acquisition Proposal is publicly disclosed or communicated to the Company) and
the Board of Directors of the Company, in accordance with Section 4.9, withdraws
or modifies in a manner materially
25
A-29
<PAGE>
adverse to Conseco its approval or recommendation of this Agreement or the
Merger, approves or recommends such Acquisition Proposal, enters into an
agreement with respect to such Acquisition Proposal, or terminates this
Agreement.
(b) Unless Conseco is materially in breach of this Agreement or is
unable to satisfy the condition of Section 6.3(a) hereof, the Company shall pay
to Conseco upon demand an amount, not to exceed $2,000,000, to reimburse Conseco
for its Expenses (as such term is defined in subparagraph (d) of this Section
4.11), payable in same-day funds, if the requisite approval of the Company's
stockholders for the Merger is not obtained (other than the circumstances
specified in Section 4.11(a) hereof) and all other conditions contained in
Section 6.1 of this Agreement have been satisfied, waived or, with respect to
any condition not then satisfied, it is substantially likely that such condition
will be satisfied on or before March 31, 1997, through the exercise of best
efforts to procure the satisfaction thereof.
(c) Unless the Company is materially in breach of this Agreement or is
unable to satisfy the condition of Section 6.2(a) hereof, Conseco shall pay to
the Company upon demand, an amount, not to exceed $2,000,000, to reimburse the
Company for its Expenses, payable in same-day funds, if the requisite approval
of Conseco's stockholders for the Merger is not obtained and all other
conditions contained in Section 6.1 of this Agreement have been satisfied,
waived or, with respect to any condition not then satisfied, it is substantially
likely that such condition will be satisfied on or before March 31, 1997,
through the exercise of best efforts to procure the satisfaction thereof.
(d) For purposes of this Section 4.11, "Expenses" shall mean all
documented out-of-pocket fees and expenses incurred or paid by or on behalf of
Conseco or the Company, as the case may be, to third parties in connection with
the Merger or the consummation of any of the transactions contemplated by this
Agreement, including all bank fees, financing fees, printing costs and
reasonable fees and expenses of counsel, investment banking firms, accountants,
experts and consultants.
4.12 Affiliates and Certain Stockholders. Prior to the Closing Date,
the Company shall deliver to Conseco a letter identifying all persons who are,
at the time the Merger is submitted for approval to the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best efforts to cause each such person
to deliver to Conseco on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit A hereto. Conseco shall not be
required to maintain the effectiveness of the Form S-4 or any other registration
statement under the Securities Act for the purposes of resale of Conseco
26
A-30
<PAGE>
Common Stock by such affiliates and the certificates representing Conseco Common
Stock received by such affiliates in the Merger shall bear a customary legend
regarding applicable Securities Act restrictions and the provisions of this
Section 4.12.
4.13 NYSE Listing. Conseco shall use its best efforts to cause the
shares of Conseco Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
4.14 Stockholder Litigation. The Company shall give Conseco the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; provided, however, that no such settlement shall
be agreed to without Conseco's consent, which consent shall not be unreasonably
withheld.
4.15 Indemnification. (a) The certificate of incorporation and by-laws
of each of the Company's subsidiaries shall contain the provisions with respect
to indemnification set forth therein on the date of this Agreement, and such
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors or officers of the Company or any of its subsidiaries (the
"Indemnified Parties") in respect of actions or omissions occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such modification is required by law.
Conseco agrees to indemnify the Indemnified Parties, but only to the extent that
the Company would have been obligated to do so had it been the Surviving
Corporation.
(b) The provisions of this Section 4.15 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs and
his personal representatives and shall be binding on all successors and assigns
of Conseco.
4.16 Financing. Conseco shall have funds available sufficient to repay
when due all indebtedness outstanding under the Company's senior credit facility
and to pay when due the aggregate Repurchase Payment (as defined in the
Indenture) for any of the Debentures which are required to be repurchased by the
Company in accordance with Section 11.1 of the Indenture.
4.17 Stock Options. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of the Company (or, if appropriate, any
committee administering a Company Stock Option Plan) shall adopt such
resolutions or take such actions as may be required to adjust the terms of all
outstanding Company Stock Options in accordance with Section 1.8(e) and shall
make
27
A-31
<PAGE>
such other changes to the Company Stock Option Plans as it deems appropriate to
give effect to the Merger (subject to the approval of Conseco, which shall not
be unreasonably withheld). The parties agree that after the date hereof, except
for the Company Stock Options outstanding on the date hereof and any changes
thereto described in this Agreement or the Disclosure Schedule, no option,
warrants or other rights of any kind to purchase capital stock of the Company
shall be granted or made, under the Company Stock Plans or otherwise, and no
amendment, repricing or other change to the outstanding Company Stock Options
shall be made, without the prior written consent of Conseco, and any such grant,
issuance, amendment, repricing or other change without Conseco's consent shall
be null, void and unenforceable against Conseco.
(b) Conseco shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conseco Common Stock for delivery upon
exercise of the Company Stock Options. Prior to the Effective Time, Conseco
shall have filed a registration statement on Form S-8 (or any successor form) or
another appropriate form with respect to the shares of Conseco Common Stock
subject to the Company Stock Options and shall use its best efforts to maintain
the effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as Company Stock Options remain outstanding.
4.18 Employment Agreements. The Company shall enter into the employment
agreements described in Section 4.18 of the Conseco Disclosure Schedule. Such
employment agreements shall be subject to the approval of Conseco, which shall
not be unreasonably withheld.
4.19 Officers' Certificates Relating to Tax Treatment. Conseco shall
provide to the Tax Opinion Provider (as defined in Section 6.3(c) hereof), a
certificate in the form agreed to by Conseco dated the Closing Date and signed
on behalf of Conseco by the chief executive officer and the chief financial
officer of Conseco. The Company shall provide to the Tax Opinion Provider a
certificate in the form agreed to by the Company dated the Closing Date and
signed on behalf of the Company by the chief executive officer and the chief
financial officer of the Company.
4.20 Supplemental Indenture; Other Actions. Prior to the Effective
Time, Conseco shall execute and deliver to the Trustee, a supplemental indenture
or indentures evidencing the succession of Conseco to the Company and meeting
the requirements of the Indenture and the Company and Conseco shall take any and
all other actions required by the Indenture to substitute Conseco for the
Company under the Indenture and Debentures as of the Effective Time.
28
A-32
<PAGE>
4.21 Severance and Other Payments. If, after the Effective Time, the
employment of employees (other than officers) of the Company are terminated, the
Employee Severance Pay Plan of Conseco shall be applicable to such employees
giving credit for service to the Company as service to Conseco. In addition, an
aggregate of up to $2 million of additional severance pay may be paid to the
following individuals in such manner and in such proportions as shall be
determined from time to time by the Company's present chief executive office
after consultation with the Chief Operations Officer of Conseco or his designee:
(i) employees of the Company (other than officers) whose employment has
been terminated by Conseco within 18 months after the Effective Time;
(ii) outside actuarial consultants of the Company (other than officers)
whose services are terminated by Conseco within 18 months after the Effective
Time; and
(iii) Ronald J. Holmer, Benedict J. Iacovetti, Ernest Iannucci and
Wayne G. Vosik in order to satisfy such individuals' parachute payment tax
liability pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended and the regulations thereunder; provided that no individual shall
receive a payment in excess of $120,000.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
MERGER
5.1 Conduct of Business by the Company. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Disclosure Schedule, during the
period from the date of this Agreement to the Effective Time, the Company shall,
and shall cause its subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations, keep available the services of their current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with them. In addition, the Company agrees on and after the
Mailing Date (as defined in Section 5.4) to allow representatives of Conseco to
have access to the management and other personnel of the Company so that Conseco
can be fully informed at all times as to significant day-to-day executive,
legal, financial, marketing and other operational matters involving the Company,
its subsidiaries or their businesses. Prior to taking or approving any action
during such time with respect to any such significant matters involving the
Company, management of the Company will notify the representative of Conseco
designated by Conseco for oversight of the functional area(s) involved with such
decision
29
A-33
<PAGE>
and will, if consistent with the fiduciary obligations of such officer, follow
any suggestions made by the Conseco representative with respect to the proposed
action. During such time, the Company will cause its personnel to cooperate with
personnel from Conseco in preparing for any proposed relocation by Conseco of
the Company's operations following Closing. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior consent of Conseco:
(i) (x) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, stock or property) in respect
of, any of the Company's outstanding capital stock, (y) split, combine
or reclassify any of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its outstanding capital stock, or
(z) purchase, redeem or otherwise acquire any shares of outstanding
capital stock or any rights, warrants or options to acquire any such
shares;
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
other than upon the exercise of Company Stock Options outstanding on
the date of this Agreement;
(iii) amend its articles of organization, By-laws or other
comparable charter or organizational documents or the Rights Agreement;
(iv) acquire any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof;
(v) sell, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets that are
material to the Company and its subsidiaries taken as a whole, except
in the ordinary course of business;
(vi)(x) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, other than indebtedness owing
to or guarantees of indebtedness owing to the Company or any direct or
indirect wholly-owned subsidiary of the Company or (y) make any loans
or advances to any other person, other than to the Company, or to any
direct or indirect wholly-owned subsidiary of the Company and other
than routine advances to employees;
30
A-34
<PAGE>
(vii) make any tax election or settle or compromise any income
tax liability that would reasonably be expected to be material to the
Company and its subsidiaries taken as a whole;
(viii)pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in
the Filed SEC Documents or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice;
(ix) except as may be otherwise required in the Company's
contractual undertakings with Transport Life Insurance Company or as
may be otherwise provided in the investment guidelines to be contained
in the investment advisory agreements specified in Section 5.6 hereof,
invest its future cash flow, any cash from matured and maturing
investments, any cash proceeds from the sale of its assets and
properties, and any cash funds currently held by it, in any investments
other than cash equivalent assets or in short-term investments
(consisting of United States government issued or guaranteed
securities, or commercial paper rated A-1 or P-1), except (i) as
otherwise required by law, (ii) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet
its actual or anticipated obligations or (iii) publicly-traded
corporate bonds that are rated investment grade by at least two
nationally recognized statistical rating organizations;
(x) except as may be required by law,
(i) make any representation or promise, oral or
written, to any employee or former director, officer or
employee of the Company or any subsidiary which is
inconsistent with the terms of any Benefit Plan;
(ii) make any change to, or amend in any way, the
contracts, salaries, wages, or other compensation of any
employee or any agent or consultant of the Company or any
subsidiary other than (a) changes or amendments that are
required under existing contracts of (b) individual, routine
changes or amendments that are made in the
31
A-35
<PAGE>
ordinary course of business and consistent with past practice
and do not exceed 8%;
(iii) adopt, enter into, amend, alter or terminate,
partially or completely, any Benefit Plan or any election made
pursuant to the provisions of any Benefit Plan, to accelerate
any payments, obligations or vesting schedules under any
Benefit Plan; or
(iv) approve any general or company-wide pay increases
for employees;
(xi) except in the ordinary course of business, modify, amend
or terminate any material agreement, permit, concession, franchise,
license or similar instrument to which the Company or any subsidiary is
a party or waive, release or assign any material rights or claims
thereunder;
(xii) hold any meeting of the board of directors of the
Company or any subsidiary or any committee of any such board, or take
any action by written consent of any such board of committee, without
providing (i) written notice five days in advance of any such meeting
or in advance of the date of any proposed action by written consent and
(ii) an agenda of the specific matters intended to be considered at
such meeting or a copy of the proposed written consent; provided,
however, that the submission of an agenda shall not prohibit the
directors from considering matters not on the agenda, if the Company
made a reasonable effort to give Conseco advance notice of such
matters; or
(xiii) authorize any of, or commit or agree to take any of,
the foregoing actions.
5.2 Conduct of Business by Conseco. Except as described in Section 5.2
of the Conseco Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, Conseco shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, Conseco shall not, and shall not permit any of its subsidiaries to:
32
A-36
<PAGE>
(i) (x) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, stock or property) in respect
of, any outstanding capital stock of Conseco (other than regular
quarterly cash dividends of $.0625 per share of Conseco Common Stock
and regular cash dividends on the Conseco Series D Preferred Stock and
the Conseco PRIDES, in each case with usual record and payment dates
and in accordance with Conseco's Articles of Incorporation and its
present dividend policy) or (y) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of Conseco's outstanding capital stock (other than under the
Conseco Stock Plans);
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities,
in each case if any such action could reasonably be expected to (a)
delay materially the date of mailing of the Joint Proxy Statement or,
(B) if it were to occur after such date of mailing, require an
amendment of the Joint Proxy Statement;
(iii) except as described in Section 3.5 of the Conseco
Disclosure Schedule, acquire any business or any corporation,
partnership, joint venture, association or other business organization
or division thereof, in each case if any such action could reasonably
be expected to (A) delay materially the date of mailing of the Joint
Proxy Statement or, (B) if it were to occur after such date of mailing,
require an amendment of the Joint Proxy Statement; or
(iv) authorize any of, or commit or agree to take any of, the
foregoing actions.
5.3 Other Actions. The Company and Conseco shall not, and shall not
permit any of their respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in (i) any of the representations
and warranties of such party set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions of the Merger set forth in
Article VI not being satisfied.
5.4 Certificates. (a) On the date the Joint Proxy Statement is first
mailed to the stockholders of the Company (the "Mailing Date"), the Company
shall deliver to Conseco a certificate dated as of the Mailing Date signed by
its Chief Executive Officer and its Chief Financial Officer, in their capacities
as officers of the Company, that the representations
33
A-37
<PAGE>
and warranties of the Company contained in this Agreement are true and correct
on the Mailing Date (except to the extent that they expressly relate only to an
earlier time, in which case they shall have been true and correct as of such
earlier time), other than such breaches of representations and warranties which
in the aggregate would not reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole.
(b) On the Mailing Date, Conseco shall deliver to the Company
a certificate dated as of the Mailing Date signed by its Chief Executive Officer
and its Chief Financial Officer, in their capacities as officers of Conseco,
that the representations and warranties of Conseco contained in this Agreement
are true and correct on the Mailing Date (except to the extent that they
expressly relate only to an earlier time, in which case they shall have been
true and correct as of such earlier time), other than such breaches of
representations and warranties which in the aggregate would not reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of Conseco and its subsidiaries taken as a whole.
5.5 Investment Advisory Agreements. The Company agrees to enter into.
and to cause each of its subsidiaries to enter into, an investment advisory
agreement with Conseco Capital Management, Inc., a wholly-owned subsidiary of
Conseco. Such agreements shall be effective as of the Mailing Date and shall
contain terms and conditions reasonably acceptable to the parties and which are
customary in investment advisory agreements.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the
stockholders of the Company in the manner contemplated in Section 2.10
hereof and the Conseco Stockholder Approval shall have been obtained.
(b) Governmental and Regulatory Consents. All required
consents, approvals, permits and authorizations to the consummation of
the transactions contemplated hereby by the Company and Conseco shall
be obtained from (i) the Insurance Regulators in the jurisdictions set
forth in Section 6.1(b) of the Disclosure Schedule, and (ii) any other
Governmental Entity whose consent, approval,
34
A-38
<PAGE>
permission or authorization is required by reason of a change in law
after the date of this Agreement, unless the failure to obtain such
consent, approval, permission or authorization would not reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole, or on the validity or enforceability of this
Agreement. Notwithstanding the foregoing, in the event that all
governmental and regulatory consents required hereunder shall have been
obtained except the approval of the Insurance Regulator of any life
insurance subsidiary of the Company which does not constitute a
"significant subsidiary" (within the meaning of Rule 1-02 of Regulation
S-X of the SEC) of the Company (a "Non-Significant Life Subsidiary") to
the transfer of control of such Non-Significant Life Subsidiary, then,
subject to Article VII hereof, at any time thereafter at the option of
Conseco, the parties shall take one of the following actions with
respect to such Non-Significant Life Subsidiary and otherwise proceed
to consummate the Merger in accordance with this Agreement: (a) place
into escrow, pursuant to an escrow agreement reasonably acceptable to
the parties, the outstanding shares of capital stock of such
Non-Significant Life Subsidiary; such escrow agreement shall contain
customary provisions concerning duties and responsibilities of the
escrow agent and payment of the fees and expenses of the escrow agent
and shall provide that (i) pending transfer of control of the
Non-Significant Life Subsidiary to Conseco, its current Board of
Directors shall retain all power to vote its shares of capital stock
and to direct its business not inconsistent with this Agreement, (ii)
promptly following receipt of the approval of the Insurance Regulator,
control of the capital stock of such Non-Significant Life Subsidiary
shall be transferred to Conseco and (iii) at any time following June
30, 1997 and prior to receipt of the Insurance Regulator's approval,
Conseco may elect to terminate the escrow agreement, in which event
such Non-Significant Life Subsidiary shall be liquidated and dissolved
and the proceeds thereof shall be paid to Conseco; (b) cause such
Non-Significant Life Subsidiary to surrender its certificate of
authority to do business in its state of domicile; (c) cause such Non-
Significant Life Subsidiary to commence proceedings for its liquidation
and dissolution; (d) enter into an agreement for the sale and transfer
of the Non-Significant Life Subsidiary to a third party; or (e) take
such other action as may be mutually agreeable to the Company and
Conseco.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated
or shall have otherwise expired.
35
A-39
<PAGE>
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties invoking this condition shall use best
reasonable efforts to have any such order or injunction vacated.
(e) NYSE Listing. The shares of Conseco Common Stock issuable
to the Company's stockholders pursuant to this Agreement shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
(f) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
6.2 Conditions to Obligations of Conseco. The obligation of Conseco
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been
true and correct on the date of this Agreement and as of the Mailing
Date (except to the extent that they expressly relate only to an
earlier time, in which case they shall have been true and correct as of
such earlier time), other than such breaches of representations and
warranties which in the aggregate would not reasonably be expected to
have a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries taken as a
whole. The Company shall have delivered to Conseco a certificate dated
as of the Closing Date, signed by its Chief Executive Officer and its
Chief Financial Officer, in their capacities as officers of the
Company, to the effect set forth in this Section 6.2(a).
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing
Date and shall not have willfully or intentionally (i) breached any of
its representations or warranties herein or (ii) failed to perform or
satisfy any of its obligations or covenants hereunder, and Conseco
shall have received a certificate dated as of the Closing Date signed
on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.
36
A-40
<PAGE>
(c) Dissenting Shares. No more than 20% of the Shares shall
have become Dissenting Shares.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Conseco contained in this Agreement shall have been true
and correct on the date of this Agreement and as of the Mailing Date
(except to the extent that they expressly relate only to an earlier
time, in which case they shall have been true and correct as of such
earlier time), other than such breaches of representations and
warranties which in the aggregate would not reasonably be expected to
have a material adverse effect on the business, financial condition or
results of operations of Conseco and its subsidiaries taken as a whole.
Conseco shall have delivered to the Company a certificate dated as of
the Closing Date, signed by its Chief Executive Officer and its Chief
Financial Officer, in their capacities as officers of Conseco, to the
effect set forth in this Section 6.3(a).
(b) Performance of Obligations of Conseco. Conseco shall have
performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date
and shall not have willfully or intentionally (i) breached any of its
representations or warranties herein or (ii) failed to perform or
satisfy any of its obligations or covenants hereunder, and the Company
shall have received a certificate dated as of the Closing Date signed
on behalf of Conseco by its Chief Executive Officer and its Chief
Financial Officer to such effect.
(c) Opinion of Counsel. The Company shall have received the
opinion dated the Closing Date of Fox, Rothschild, O'Brien & Frankel,
counsel to the Company, (the "Tax Opinion Provider") substantially in
the form of Exhibit B, to the effect that the Merger will be treated as
a reorganization under Section 368 (a) (1) of the Code and that
shareholders of the Company will not be subject to federal income tax
on the receipt of shares of Conseco Common Stock in exchange for Shares
pursuant to the Merger.
(d) Update Letter. Immediately prior to the mailing of the
Joint Proxy Statement, the Company shall have received from DLJ an
update of the opinion referred to in Section 2.12 hereof, which update
shall not in any material way modify, rescind or revoke the opinion
referred to in said Section 2.12.
37
A-41
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company and
the stockholders of Conseco:
(a) by mutual written consent of Conseco and the Company;
(b) by either Conseco or the Company:
(i) if, upon a vote at a duly held Stockholders
Meeting or Conseco Stockholders Meeting or any adjournment
thereof, any required approval of the stockholders of the
Company or Conseco, as the case may be, shall not have been
obtained;
(ii) at any time after December 31, 1996, if the
Merger shall not have been consummated by such date, unless
the failure to consummate the Merger is the result of a
willful and material breach of this Agreement by the party
seeking to terminate this Agreement; provided, however, that
either party may by notice to the other extend such date to
March 31, 1997 if the only conditions to closing not satisfied
as of December 31, 1996 are those set forth in Sections
6.1(a), (b) or (c) hereof;
(iii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become
final and nonappealable; or
(iv) if the Board of Directors of the Company shall
have exercised its rights set forth in Section 4.9 of this
Agreement;
(c) by Conseco if the Company does not deliver the certificate
specified in Section 5.4(a); or
(d) by the Company if Conseco does not deliver the certificate
specified in Section 5.4(b).
7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Conseco as provided in Section 7.1, this
Agreement shall forthwith become void and have
38
A-42
<PAGE>
no effect, without any liability or obligation on the part of Conseco or the
Company, other than the last two sentences of Section 4.5 and Sections 2.13,
3.7, 4.11, 7.2 and 10.2. Nothing contained in this Section shall relieve any
party from any liability resulting from any material breach of the
representations, warranties, covenants or agreements set forth in this
Agreement.
7.3 Amendment. Subject to the applicable provisions of the IBCL and the
Pennsylvania Code, at any time prior to the Effective Time, the parties hereto
may modify or amend this Agreement, by written agreement executed and delivered
by duly authorized officers of the respective parties; provided, however, that
after approval of the Merger by the stockholders of the Company, no amendment
shall be made which reduces the consideration payable in the Merger or adversely
affects the rights of the Company's stockholders hereunder without the approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. At any time prior to the Effective Time, each
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to Section 7.3, waive
compliance with any of the agreements or conditions of the other party contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Conseco or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
39
A-43
<PAGE>
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties respectively required
to be made by the Company and Conseco in this Agreement, or in any certificate,
respectively, delivered by the Company or Conseco pursuant to Section 6.2 or
Section 6.3 hereof will not survive the Closing.
ARTICLE IX
NOTICES
9.1 Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to the Company, to:
American Travellers Corporation
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: John A. Powell, Chairman of the Board
Telephone: (215) 244-1600
Telecopy: (215) 244-4893
with copies to:
Fox, Rothschild, O'Brien & Frankel
2000 Market Street, Tenth Floor
Philadelphia, Pennsylvania 19103
Attention: Ramon R. Obod
Telephone: (215) 299-2036
Telecopy: (215) 299-2150
If to Conseco, to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow
Telephone: (317) 817-6163
Telecopy: (317) 817-6327
40
A-44
<PAGE>
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article IX will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third Business Day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. Except for documents executed by the Company and
Conseco pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibits hereto, the Disclosure
Schedule, the Conseco Disclosure Schedule and other documents delivered in
connection herewith) and the Confidentiality Agreement contain the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof.
10.2 Expenses. Except as otherwise expressly provided in Section 4.11,
whether or not the Merger is consummated, each of the Company and Conseco will
pay its own costs and expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby except that the expenses incurred in connection with the
printing, mailing and distribution of the Joint Proxy Statement and the
preparation and filing of the Form S-4 shall be borne equally by Conseco and the
Company.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
10.4 No Third Party Beneficiary. Except as otherwise provided herein,
the terms and provisions of this Agreement are intended solely for the benefit
of the parties hereto, and their respective successors or assigns, and it is not
the intention of the parties to confer third-party beneficiary rights upon any
other person.
41
A-45
<PAGE>
10.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.
10.7 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Indiana, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any Federal
court located in the State of Indiana in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction or
venue by motion or other request for leave from any such court and (c) agrees
that it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a Federal
court sitting in the State of Indiana.
10.8 Headings, Gender, etc. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; and (f) the term "person" shall
include any natural person, corporation, limited liability company, general
partnership, limited partnership, or other entity, enterprise, authority or
business organization.
42
A-46
<PAGE>
10.9 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of the Company or Conseco under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of Conseco and the Company, effective as of the
date first written above.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
Chairman of the Board
AMERICAN TRAVELLERS CORPORATION
By: /s/ John A. Powell
------------------
John A. Powell
Chairman of the Board
G:\LEGAL\CHRIS\TEMP.ATC
43
A-47
<PAGE>
EXHIBIT A
[Closing Date]
CONSECO, INC.
11825 N. Pennsylvania Street
Carmel, IN 46032
Gentlemen:
I have been advised that I have been identified as a possible
"affiliate" of American Travellers Corporation, a Pennsylvania corporation (the
"Company"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the General Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933 (the "Securities Act"), although nothing contained herein should be
construed as an admission of such fact.
Pursuant to the terms of an Agreement and Plan of Merger dated August
25, 1996 (the "Merger Agreement"), by and between Conseco, Inc., an Indiana
corporation ("Conseco"), and the Company, the Company will be merged with and
into Conseco (the "Merger"). As a result of the Merger, I will receive Merger
Consideration (as defined in the Merger Agreement), including shares of Common
Stock, without par value, of Conseco ("Conseco Common Stock") in exchange for
shares of Common Stock $.01 par value, of the Company ("Shares") owned by me at
the effective time of the Merger as determined pursuant to the Merger Agreement.
A. In connection therewith, I represent, warrant and agree
that:
1. I shall not make any sale, transfer or other disposition of
the Conseco Common Stock I receive as a result of the Merger in
violation of the Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Conseco Common
Stock to me as a result of the Merger has been registered with the
Commission under the Securities Act on a Registration Statement on Form
S-4. However, I have also been advised that, because at the time the
Merger was submitted for a vote of the stockholders of the Company I
may have been an "affiliate" of the Company and, accordingly, any sale
by me of the shares of Conseco Common Stock I receive as a result of
the Merger must be (i) registered under the Securities Act, (ii) made
in conformity with the provisions of Rule 145 promulgated by the
Commission under the Securities Act or (iii) made pursuant to a
transaction which, in the opinion of counsel reasonably satisfactory to
Conseco or as described in a "no action" or interpretive letter from
the staff of the Commission, is not required to be registered under the
Securities Act.
A-48
<PAGE>
3. I have carefully read this letter and the Merger Agreement
and have discussed the requirements of the Merger Agreement and other
limitations upon the sale, transfer or other disposition of the shares
of Conseco Common Stock to be received by me, to the extent I have felt
necessary, with my counsel or with counsel for the Company.
B. Furthermore, in connection with the matters set forth
herein, I understand and agree that:
Conseco is under no further obligation to register the sale,
transfer or other disposition of the shares of Conseco Common Stock
received by me as a result of the Merger or to take any other action
necessary in order to make compliance with an exemption from
registration available, except as set forth in Section 4.12 of the
Merger Agreement and in paragraph C below.
C. Conseco hereby represents, warrants and agrees that:
For as long as resales of any shares of Conseco Common Stock
owned by me are subject to Rule 145, Conseco will use all reasonable
efforts to make all filings of the nature specified in paragraph (c)(1)
of Rule 144 of the Rules and Regulations.
Very truly yours,
G:\LEGAL\EXHIBITS\EXHIBITA.CNC
A-49
<PAGE>
EXHIBIT B
[Closing Date]
American Travellers Corporation
3220 Tillman Drive
Bensalem, PA 19020
Ladies and Gentleman:
You have requested our opinion regarding certain Federal income tax
consequences of the merger (the "Merger") of American Travellers Corporation, a
Pennsylvania corporation (the "Company"), with and into Conseco, Inc., an
Indiana corporation ("Conseco"), pursuant to the terms of a certain Agreement
and Plan of Merger by and between the Company and Conseco entered into as of
August 25, 1996 (the "Agreement").
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement, the Joint Proxy Statement filed by the
Company and Conseco with the Securities and Exchange Commission (the "SEC") on ,
1996 (the "Joint Proxy Statement"), and the Registration Statement on Form S-4,
as filed by Conseco with the SEC on , 1996, in which the Joint Proxy Statement
was included as a prospectus, (with all amendments thereto, the "Registration
Statement"). In addition, we have examined such other records, documents and
instruments, as in our judgment have been necessary or appropriate and have
obtained and relied upon certain representations and certifications made to us
by the Company and Conseco and such additional information as we have deemed
relevant and necessary through consultation with various officers and
representatives of the Company and Conseco.
In addition to the foregoing, in rendering our opinion we have assumed
(1) the accuracy of the statements and facts concerning the Merger set forth in
the Agreement, the Joint Proxy Statement, and the Registration Statement, (2)
the consummation of the Merger in the manner contemplated by, and in accordance
with the terms set forth in, the Agreement, the Joint Proxy Statement, and the
Registration Statement, and (3) the accuracy of (i) the representations made by
Conseco, which are set forth in the Officers' Certificate delivered to us by
Conseco, dated the date hereof, (ii) the representations made by the Company,
which are set forth in the Officers' Certificate delivered to us by the Company,
dated the date hereof and (iii) the representations make by certain shareholders
of the Company in Certificates delivered to us dated the date hereof.
Based upon the facts and statements set forth above, our examination
and review of the documents and other materials referred to herein and subject
to the assumptions and any qualifications set forth herein, it is our opinion
that, under existing law, for Federal income tax purposes:
A-50
<PAGE>
American Travellers Corporation
[Closing Date]
1. The Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. No gain or loss will be recognized by the shareholders of the
Company with respect to the shares of the common stock of
Conseco received by the shareholders of the Company in the
Merger.
We express no opinion concerning any tax consequences of the Merger or
any of the other transactions related thereto other than those specifically set
forth herein. We call your attention to the fact that shareholders of the
Company who exercise dissenters' rights will recognize gain or loss with respect
to their shares of the Company's stock; and shareholders of the Company who
receive cash in lieu of fractional shares of the common stock of Conseco will
recognize gain or loss with respect to the cash they receive.
The opinions set forth herein are based upon current provisions of the
Code, Treasury Regulations promulgated thereunder, Internal Revenue Service
rulings, judicial decisions and administrative pronouncements in effect as of
the date hereof, all of which are subject to change at any time, possibly with
retroactive effect. No ruling has been, or will be, sought from the Internal
Revenue Service as to the Federal income tax consequences of any aspect of the
Merger or any other transactions related thereto. Any change in applicable laws
or facts and circumstances surrounding the Merger, or any inaccuracy in the
statements, facts, assumptions and representations on which we have relied, may
affect the continuing validity of the opinions set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention.
Very truly yours,
G:\LEGAL\CHRIS\TAXCONS.ATC
A-51
<PAGE>
Annex B
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 (212) 892-3000
August 25, 1996
Board of Directors
American Travellers Corporation
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Dear Sirs:
You have requested our opinion as to the fairness from a financial
point of view to the shareholders of American Travellers Corporation (the
"Company") of the consideration to be received by such shareholders pursuant to
the terms of the Agreement and Plan of Merger dated as of August 25, 1996 (the
"Agreement"), by and between Conseco, Inc. ("Conseco") and the Company, pursuant
to which the Company will be merged (the "Merger") with and into Conseco.
Pursuant to the Agreement, each share of common stock, par value $.01
per share, of the Company ("Company Common Stock") will be converted into the
right to receive, subject to certain exceptions, shares of common stock, without
par value, of Conseco ("Conseco Common Stock"), as follows: (i) if the Conseco
Share Price (as defined below) is greater than or equal to $42.25 per share and
less than or equal to $46.25 per share, 0.7574 of a share of Conseco Common
Stock, (ii) if the Conseco Share Price is less than $42.25 per share, the
fraction of a share of Conseco Common Stock determined by dividing $32.00 by the
Conseco Share Price or (iii) if the Conseco Share Price is greater than or equal
to $46.25 per share, the fraction of a share of Conseco Common Stock determined
by dividing $35.03 by the Conseco Share Price (such fraction as set forth in
clauses (i) through (iii) above, the "Exchange Ratio"). The Conseco Share Price
is defined as the average of the closing prices of Conseco Common Stock for the
ten trading days immediately preceding the second trading day prior to the
consummation of the Merger.
In arriving at our opinion, we have reviewed the Agreement dated as of
August 25, 1996 and the exhibits thereto. We have also reviewed financial and
other information that was publicly available or furnished to us by the Company
and Conseco, including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements. Included in the information provided during
discussions with the respective managements were certain financial projections
of the Company for the years ending December 31, 1996 and December 31, 1997
prepared by the management of the Company, and certain pro forma financial
statements of Conseco for the year ended December 31, 1995 and the six months
ended June 30, 1996 and certain financial projections of Conseco which are pro
forma for the Merger and for certain other transactions contemplated by Conseco
for the years ending December 31, 1996 through December 31, 2005 prepared by the
management of Conseco. In addition, we have compared certain financial and
securities data of the Company and Conseco with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the Company Common Stock and Conseco Common Stock,
reviewed prices and premiums paid in other business combinations and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion. We were not requested to, nor did we,
solicit the interest of any other party in acquiring the Company.
B-1
<PAGE>
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Conseco or its representatives, or that was otherwise reviewed by us. With
respect to the financial projections of the Company supplied to us, we have
assumed that they have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company. With respect
to the pro forma financial statements and pro forma financial projections of
Conseco supplied to us, we have assumed that they have been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the management of Conseco as to the historical pro forma results of Conseco and
the future operating and financial performance of the Company and Conseco. We
have not assumed any responsibility for making an independent evaluation of the
Company's and Conseco's assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have relied as to all
legal matters on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which Conseco Common Stock will actually trade at any time.
Our opinion does not constitute a recommendation to any member of the Board of
Directors of the Company or shareholder as to how such member or shareholder
should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. DLJ
has performed investment banking and other services for the Company and Conseco
in the past, including lead managing the Company's offering of convertible
subordinated debentures in September 1995, and representing the Company in its
purchase of the long term care insurance business of Transport Holdings, Inc. in
December 1995, and has received usual and customary compensation for such
services. DLJ is being compensated for services rendered in connection with the
Merger, including the delivery of this opinion. Additionally, DLJ is delivering
an opinion as to the fairness, from a financial point of view to the
shareholders of Capitol American Financial Corporation ("Capitol American") of
the consideration to be received by such shareholders in connection with the
merger of Capitol American into a wholly owned subsidiary of Conseco.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ MARK K. GORMLEY
--------------------
Mark K. Gormley
Managing Director
S:\ACCTING\SECRPT\S-4ATC.896\DLJORG.LTR
B-2
<PAGE>
Annex C
PENNSYLVANIA Business Corporation Law
Subchapter D. Dissenters Rights
1571 APPLICATION AND EFFECT OF SUBCHAPTER.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this 1 part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d)(relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions. (1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred to special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the
class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of
the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
G:\LEGAL\REGSTMNT\ATC-2.S4
C-1
<PAGE>
(c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair
value of their shares by complying with the terms of this subchapter;
and
(2) A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenting
rights.
(f) Certain provisions of articles ineffective. This subchapter may
not be relaxed by any provision of the articles.
(g) Cross references. See section 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
1572 DEFINITIONS. The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have the sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans.
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
1574 NOTICE OF INTENTION TO DISSENT. If the proposed corporate action is
submitted to a vote at a meeting of shareholders of a business corporation, any
person who wishes to dissent and obtain payment of the fair value of his shares
must file with the corporation, prior to the vote, a written notice of intention
to demand that he paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval
G:\LEGAL\REGSTMNT\ATC-2.S4
C-2
<PAGE>
of such action. A dissenter who fails in any respect shall not acquire any right
to payment of the fair value of his shares under this subchapter. Neither a
proxy nor a vote against the proposed corporate action shall constitute the
written notice required by this section.
1575 NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed action is approved by the required
vote at a meeting of shareholders of a business corporation, the corporation
shall mail a further notice to all dissenters who gave due notice of intention
to demand payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed corporate action is to
be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporation action.
In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a request
for certification of the date on which the shareholder, or the person
on whose behalf the shareholder dissents, acquired beneficial ownership
of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposits of certificated shares shall be not less than 30 days
from the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment), shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporation action. Within 60 days after the
date for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed action, it shall return any
certificates that have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or notice
together with the latest available interim financial statements.
G:\LEGAL\REGSTMNT\ATC-2.S4
C-3
<PAGE>
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the name of the original dissenting holder
or owner of such shares. A transferee of such shares shall not acquire by such
transfer any rights in the corporation other than those that the original
dissenters had after making demand for payment of their fair value.
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not
file his owner estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
1579 VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 157
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
G:\LEGAL\REGSTMNT\ATC-2.S4
C-4
<PAGE>
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expense may be apportioned and assessed as
the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any of any other party, if the court
finds that the party against whom the fees and expenses are assessed acted in
bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect
to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
1930 DISSENTERS RIGHTS.
(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger of consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only. Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation
that is a party to a merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(c) Cross references. See sections 1571(b) (relating to exceptions)
and 1904 (relating to de facto transaction doctrine abolished).
G:\LEGAL\REGSTMNT\ATC-2.S4
C-5
<PAGE>
October 2, 1996
Board of Directors
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen and Madam:
I am Executive Vice President and General Counsel of Conseco, Inc. (the
"Corporation"). At your request, I have examined or caused to be examined the
Registration Statement on Form S-4, which is being filed by the Corporation with
the Securities and Exchange Commission (the "Registration Statement") in
connection with the registration under the Securities Act of 1933 of shares of
common stock, no par value, of the Corporation (the "Common Stock") to be issued
pursuant to that certain Agreement and Plan of Merger dated as of August 25,
1996 between the Corporation and American Travellers Corporation.
I have examined, or caused to be examined, instruments, documents and
records which I have deemed relevant and necessary for the basis of my opinions
hereinafter expressed. Based on such examination, I am of the opinion that:
1. The Corporation is a corporation duly organized and validly
existing under the laws of the State of Indiana.
2. When the Common Stock has been issued in the manner described
in the Registration Statement, any amendment thereto and the Proxy
Statement/Prospectus contained therein, such Common Stock will be duly
authorized, validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Registration Statement and the Proxy Statement/Prospectus.
Very truly yours,
/s/ Lawrence W. Inlow
---------------------
Lawrence W. Inlow
Executive Vice President and
General Counsel
G:\LEGAL\EXHIBITS\EXHIBIT5.ATC
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-00000), of our reports dated March
20, 1996 on our audits of the consolidated financial statements and financial
statement schedules of Conseco, Inc. and subsidiaries as of December 31, 1995
and 1994, and for the years ended December 31, 1995, 1994 and 1993, included in
the Annual Report on Form 10-K. We also consent to the reference to our firm
under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P.
---------------------------
COOPERS & LYBRAND L.L.P
Indianapolis, Indiana
September 30, 1996
Exhibit 23(c)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 4, 1996
included in American Travellers Corporation Form 10-K for the year ended
December 31, 1995 and to all references to our Firm included in this
Registration Statement.
/s/ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Philadelphia, PA
September 30, 1996
Exhibit 23(d)
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Capitol American Financial Corporation:
We consent to the incorporation by reference herein of our report dated
January 31, 1996, related to the consolidated financial statements of Capitol
American Financial Corporation and subsidiaries, and to the reference to our
firm under the headings "Selected Historical Financial Information of CAF" and
"Experts" in the Joint Proxy Statement/Prospectus.
/s/KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
September 30, 1996
Exhibit 23(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-00000), of our reports dated March
27, 1996 on our audits of the consolidated financial statements and financial
statement schedules of Life Partners Group, Inc. and subsidiaries as of December
31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993,
included in the Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P
Denver, Colorado
September 30, 1996
Exhibit 23(f)
ACCOUNTANTS' CONSENT
The Board of Directors
Transport Holdings Inc.:
We consent to the incorporation by reference herein of our report dated
February 22, 1996, related to the consolidated financial statements of Transport
Holdings Inc. and subsidiaries, and to the reference to our firm under the
headings "Selected Historical Financial Information of THI" and "Experts" in the
Joint Proxy Statement/Prospectus.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
October 2, 1996
Exhibit 23(g)
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
August 25, 1996, to the Board of Directors of American Travellers Corporation
(the "Company") as Annex B to the Joint Proxy Statement/Prospectus of the
Company and Conseco, Inc. ("Conseco") relating to the proposed merger of Conseco
and the Company and (ii) all references to DLJ in the section captioned "Opinion
of ATC's Financial Advisor" of the Joint Proxy Statement/Prospectus of the
Company and Conseco which forms a part of this Registration Statement on Form
S-4. In giving such consent, we do not admit that we come within the category of
persons whose consent is required under, and we do not admit and we disclaim
that we were "experts" for purposes of, the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ JONATHAN D. KELLY
----------------------
Jonathan D. Kelly
Vice President
New York, New York
September 30, 1996
EXHIBIT 23(h)
We consent to the filing of the opinion contained as Exhibit B to the Merger
Agreement filed as Annex A to this Joint Proxy Statement/Prospectus, and to the
reference to our firm under the heading "Legal Matters" in the Joint Proxy
Statement/Prospectus which forms a part of this Registration Statement on Form
S-4. In giving this consent, we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations thereunder.
Sincerely,
/s/ FOX, ROTHSCHILD, O'BRIEN & FRANKEL
---------------------------------------
FOX, ROTHSCHILD, O'BRIEN & FRANKEL
Philadelphia, Pennsylvania
September 30, 1996
G:\LEGAL\EXHIBITS\MRG-AGMT.EXH
EXHIBIT 99(b)
CONSECO, INC.
11825 North Pennsylvania Street, Carmel, IN 46032
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card on the reverse side hereby appoints as proxies
Rollin M. Dick, Donald F. Gongaware and Stephen C. Hilbert, or any of them, with
full power of substitution, to vote all shares of common stock and shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock which such person is entitled to vote at the Special
Meeting of Shareholders of Conseco, Inc. ("Conseco"), to be hold at held at , at
10:00 a.m. local time on , 1996 _____________
___________________________________________________ ___________ and any
adjournments thereof.
The proxies are hereby authorized to vote as follows:
1. Approval of the issuance of common stock, no par value, of Conseco as
provided in the Agreement and Plan of Merger, dated as of August 25, 1996, by
and between Conseco and American Travellers Corporation ("ATC"), pursuant to
which, among other things, (i) ATC will be merged with and into Conseco, with
Conseco being the surviving corporation (the "Merger"), and (ii) each
outstanding share of the common stock, par value $.01 per share (the "ATC Common
Stock") of ATC (other than shares of LPG Common Stock held by LPG as treasury
stock or Dissenting Shares (as defined in the Merger Agreement)) will be
cancelled and converted into the right to receive the Merger Consideration (as
defined in the Merger Agreement).
FOR |_| AGAINST |_| ABSTAIN |_|
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
THE SHARES REPRESENTED BY THIS PROXY, UNLESS OTHERWISE SPECIFIED, SHALL BE VOTED
FOR ITEM 1.
Please sign below exactly as your name appears on the label.
When signing as attorney, corporate officer or fiduciary,
please give full title as such. The undersigned hereby
acknowledges receipt of the Notice of the Special Meeting
and Joint Proxy Statement/Prospectus dated ___________
________, 1996.
Dated____________________________________________
Signature(s)_____________________________________
_________________________________________________
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY.
EXHIBIT 99(c)
[Form of Proxy]
AMERICAN TRAVELLERS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AMERICAN TRAVELLERS CORPORATION FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON , 1996.
The undersigned Shareholder of American Travellers Corporation ("ATC")
hereby appoints John A. Powell and Ramon R. Obod, and either of them, the lawful
attorneys and proxies of the undersigned, with several powers of substitution,
to vote all shares of Common Stock, $.01 par value, of ATC (the "ATC Common
Stock") which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held on _________, 1996, and any adjournments thereof:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
August 25, 1996 (the "Merger Agreement"), by and between ATC and
Conseco, Inc., an Indiana corporation ("Conseco"), and the transactions
contemplated thereby, pursuant to which, among other things, (i) ATC
will be merged with and into Conseco, with Conseco being the surviving
corporation (the "Merger"), and (ii) each outstanding share of the ATC
Common Stock (other than shares of ATC Common Stock held by ATC as
treasury stock or Dissenting Shares (as defined in the Merger
Agreement)) will be cancelled and converted into the right to receive
the Merger Consideration (as defined in the Merger Agreement).
FOR |_| AGAINST |_| ABSTAIN |_|
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
ATC VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND IN
THE DISCRETION OF THE PROXIES HOLDERS AS TO ANY OTHER MATTERS.
Note: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
Signature: ________________ Date:__________________
Signature: ________________ Date:__________________
G:\LEGAL\PROXIES\ATCEX99C.DOC
