As filed with the Securities and Exchange Commission on October 18, 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:
T. Gary Cole Thomas A. Roberts
Transport Holdings Inc. David A. Bryson
714 Main Street Weil, Gotshal & Manges LLP
Fort Worth, Texas 76102 100 Crescent Court, Suite 1300
(817) 390-8000 Dallas, Texas 75201-6950
(214) 746-7700
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 Transport
Holdings Inc. ("THI") with and into Conseco, Inc. ("Conseco") pursuant to an
Agreement and Plan of Merger described in the enclosed 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 $134,051,408 $40,621.64
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 THI, par value $.01 per share ("THI Common Stock"), and upon the
exercise or conversion of securities exercisable for or convertible into
shares of THI Common Stock in the Merger.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the THI 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
System on October 11, 1996.
</FN>
</TABLE>
G:\LEGAL\REGSTMNT\THI10-16.S-4
<PAGE>
---------------------
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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
<PAGE>
TRANSPORT HOLDINGS INC.
714 Main Street
Fort Worth, Texas 76102
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
of Transport Holdings Inc. ("THI"), to be held on the _____ day of ____________,
1996 in the Executive Board Room of Texas Commerce Bank (lobby level), located
in the Texas Commerce Bank Tower at 201 Main Street in the City of Fort Worth,
Texas, at 10:00 a.m., local time (the "Special Meeting").
At the Special Meeting, stockholders of record of THI 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 September 25,
1996 (the "Merger Agreement"), by and between THI and Conseco, Inc., an Indiana
corporation ("Conseco"), and the transactions contemplated thereby. Pursuant to
the terms of the Merger Agreement, among other things, (1) THI will be merged
with and into Conseco, with Conseco being the surviving corporation (the
"Merger"), and (2) each outstanding share of Class A Common Stock, par value
$.01 per share ("THI Common Stock"), of THI (other than shares of THI Common
Stock held as treasury shares by THI) will be 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 THI and Conseco, appear
in the accompanying 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 Proxy
Statement/Prospectus entitled "The Merger."
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THI AND THE STOCKHOLDERS OF THI, AND HAS
APPROVED AND AUTHORIZED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THI VOTE FOR
THE AUTHORIZATION 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 THI in connection with the Merger, as to the fairness to THI's stockholders,
from a financial point of view, of the Merger Consideration to be received by
THI's stockholders pursuant to the terms of the Merger Agreement. Details
regarding such opinion may be found in the section of the Proxy
Statement/Prospectus entitled "The Merger - Opinion of THI's Financial Advisor,"
and a copy of such opinion is attached as an annex thereto.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy and return it in the enclosed postage
prepaid envelope as soon as possible so that your shares will be represented at
the Special Meeting. If you attend the Special Meeting, you may 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) ___-____.
Sincerely,
John T. Sharpe
Chairman of the Board of Directors
__________, 1996
G:\LEGAL\REGSTMNT\THI10-16.S-4
<PAGE>
TRANSPORT HOLDINGS INC.
714 Main Street
Fort Worth, Texas 76102
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Transport Holdings Inc.:
Notice is hereby given that a special meeting (the "Special Meeting")
of the stockholders of Transport Holdings Inc. ("THI") will be held on the _____
day of _____________, 1996 in the Executive Board Room of Texas Commerce Bank
(lobby level), located in the Texas Commerce Bank Tower at 201 Main Street in
the City of Fort Worth, Texas, at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to authorize and adopt
the Agreement and Plan of Merger, dated as of September 25, 1996 (the
"Merger Agreement"), by and between THI and Conseco, Inc., an Indiana
corporation ("Conseco"), and the transactions contemplated thereby,
pursuant to which, among other things, (1) THI will be merged with and
into Conseco, with Conseco being the surviving corporation (the
"Merger"), and (2) each outstanding share of Class A Common Stock, par
value $.01 per share (the "THI Common Stock"), of THI (other than
shares of THI Common Stock held as treasury shares by THI) will be
converted into the right to receive the Merger Consideration (as
defined in the Merger Agreement).
2. To transact any and all other business that may
properly come before the meeting or any adjournments or postponements
thereof.
The Merger is more completely described in the accompanying Proxy
Statement/Prospectus and a copy of the Merger Agreement is attached as Annex A
thereto.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THI AND THE STOCKHOLDERS OF THI, AND HAS
APPROVED AND AUTHORIZED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THI VOTE FOR
THE AUTHORIZATION AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
The THI Board of Directors has fixed the close of business on
___________, 1996, as the record date (the "Record Date") for determination of
stockholders entitled to notice of, and to vote at, the Special Meeting and any
adjournments and postponements thereof. Only stockholders of record at the close
of business on the Record Date are entitled to notice of, and to vote at, such
meeting. A complete list of stockholders entitled to vote at the Special Meeting
will be available for examination at the offices of THI at 714 Main Street, Fort
Worth, Texas for ten days prior to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
T. Gary Cole
Vice President and Secretary
_______________, 1996
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<PAGE>
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO PROMPTLY MARK, SIGN, DATE AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE SO THAT YOUR SHARES OF STOCK MAY BE
REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED AT THE SPECIAL MEETING. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY.
IMPORTANT
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES REPRESENTING THI COMMON
STOCK AT THIS TIME. IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
G:\LEGAL\REGSTMNT\THI10-16.S-4
<PAGE>
SUBJECT TO COMPLETION
Dated October 18, 1996
TRANSPORT HOLDINGS INC. PROXY STATEMENT
------------------
CONSECO, INC. PROSPECTUS
Shares of Common Stock
This Proxy Statement/Prospectus is being furnished to holders of shares
of Class A Common Stock, par value $.01 per share ("THI Common Stock"), and to
holders of Series A Cumulative Exchangeable Preferred Stock, par value $.01 per
share ("THI Preferred Stock"), of Transport Holdings Inc., a Delaware
corporation ("THI"), in connection with the solicitation of proxies by the THI
Board of Directors for use at a special meeting of THI stockholders to be held
on the _____ day of _________, 1996 in the Executive Board Room of Texas
Commerce Bank (lobby level), located in the Texas Commerce Bank Tower at 201
Main Street in the City of Fort Worth, Texas, commencing at 10:00 a.m., local
time, (the "Special Meeting"). The Special Meeting has been called to consider
and vote on a proposal to authorize and adopt an Agreement and Plan of Merger,
dated as of September 25, 1996 (the "Merger Agreement"), between THI and
Conseco, Inc., an Indiana corporation ("Conseco"), pursuant to which THI will be
merged with and into Conseco with Conseco being the surviving corporation (the
"Merger").
This 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 Common Stock, no par value per share ("Conseco Common Stock"), of
Conseco issuable in connection with the Merger. All information concerning
Conseco and all companies other than THI contained in this Proxy
Statement/Prospectus has been furnished by Conseco. All information concerning
THI contained in this Proxy Statement/Prospectus has been furnished by THI.
The Conseco Common Stock is listed 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 THI Common Stock is quoted on the NASDAQ National Market under the
symbol "TLIC". On _______, 1996, the closing price of the THI Common Stock as
reported on the NASDAQ National Market was $___________.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to stockholders of THI 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 PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Proxy Statement/Prospectus is
______________, 1996.
G:\LEGAL\REGSTMNT\THI10-16.S-4
<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 THI 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 THI 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 THI, 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 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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS 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 PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS FOR SUCH DOCUMENTS
RELATING TO CONSECO, AMERICAN TRAVELLERS CORPORATION, CAPITOL AMERICAN FINANCIAL
CORPORATION AND LIFE PARTNERS GROUP, 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 THI SHOULD BE DIRECTED TO DEBORAH V. GREER, VICE PRESIDENT
AND CONTROLLER, TRANSPORT HOLDINGS INC., 714 MAIN STREET, FORT WORTH, TEXAS
76102 AND TELEPHONE REQUESTS MAY BE DIRECTED TO MS. GREER AT (817) 390-8000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BEFORE _______________, 1996.
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, March 14,
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. THI's Annual Report on Form 10-K 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; THI's Current Report on Form
8-K dated September 25, 1996; and the description of THI Common Stock in THI's
Registration Statement filed pursuant to Section 12 of the Exchange Act, and any
amendment or report filed for the purpose of updating such description.
3. Annual Report on Form 10-K of American Travellers Corporation
("ATC") 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; and ATC's Current Report on Form 8-K dated August 25, 1996.
4. 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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
iii
<PAGE>
5. 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.
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, THI, ATC, CAF or LPG pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date 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 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.
State insurance holding company laws and regulations applicable to
Conseco and THI generally provide that no person may acquire control of Conseco
or THI, 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
ten percent or more of the total outstanding shares of Conseco Common Stock or
THI 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 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 THI. THIS 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 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 THI SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS 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 SUCH
COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
G:\LEGAL\REGSTMNT\THI10-16.S-4
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION........................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................ iii
TABLE OF CONTENTS................................................................................................ v
SUMMARY ....................................................................................................... 1
GENERAL ............................................................................................... 1
THE COMPANIES........................................................................................... 1
THE SPECIAL MEETING..................................................................................... 2
THE MERGER; THE MERGER AGREEMENT........................................................................ 4
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO .................................................. 12
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG........................................................15
SELECTED HISTORICAL FINANCIAL INFORMATION OF THI........................................................17
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATC....................................................... 19
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAF....................................................... 21
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF CONSECO................................................................................ 23
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND THI................................................ 27
MARKET PRICE INFORMATION............................................................................... 29
INFORMATION CONCERNING CONSECO ................................................................................. 31
BACKGROUND............................................................................................. 31
INSURANCE OPERATIONS................................................................................... 31
FEE-BASED OPERATIONS................................................................................... 32
OTHER PENDING ACQUISITIONS BY CONSECO.................................................................. 33
GENERAL INFORMATION CONCERNING CONSECO ................................................................ 34
INFORMATION CONCERNING THI...................................................................................... 35
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<PAGE>
THE SPECIAL MEETING............................................................................................. 37
GENERAL .............................................................................................. 37
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING........................................................ 37
VOTING AT THE SPECIAL MEETING; RECORD DATE; QUORUM..................................................... 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.....................................................................................39
PROXIES; REVOCATION OF PROXIES......................................................................... 43
THE MERGER...................................................................................................... 44
BACKGROUND OF THE MERGER............................................................................... 44
CONSECO'S REASONS FOR THE MERGER....................................................................... 47
THI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE THI BOARD
OF DIRECTORS.................................................................................. 48
OPINION OF THI'S FINANCIAL ADVISOR.................................................................... 49
CERTAIN CONSEQUENCES OF THE MERGER..................................................................... 58
CONDUCT OF THE BUSINESS OF CONSECO AND THI AFTER THE MERGER............................................ 58
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................................. 58
ACCOUNTING TREATMENT................................................................................... 60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................ 60
REGULATORY APPROVALS................................................................................... 61
NYSE LISTING OF CONSECO COMMON STOCK ...................................................................62
ABSENCE OF APPRAISAL RIGHTS ............................................................................62
THE MERGER AGREEMENT............................................................................................ 62
THE MERGER............................................................................................. 62
EFFECTIVE TIME......................................................................................... 62
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO
FRACTIONAL AMOUNTS............................................................................ 62
TREATMENT OF THI STOCK OPTIONS AND THI WARRANTS........................................................ 64
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vi
<PAGE>
REDEMPTION OF THI PREFERRED STOCK...................................................................... 64
EXCHANGE OF CONVERTIBLE NOTES.......................................................................... 64
THI EMPLOYEE MATTERS................................................................................... 65
REPRESENTATIONS AND WARRANTIES......................................................................... 65
CERTAIN COVENANTS...................................................................................... 65
CONDITIONS TO THE MERGER............................................................................... 68
TERMINATION............................................................................................ 69
RIGHT OF THI BOARD OF DIRECTORS TO WITHDRAW ITS
RECOMMENDATION................................................................................ 69
BREAKUP FEES........................................................................................... 69
EXPENSES ...............................................................................................70
MODIFICATION OR AMENDMENT ............................................................................. 70
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS .......................................................... 71
COMPARISON OF SHAREHOLDERS' RIGHTS.............................................................................. 92
AMENDMENT OF BY-LAWS....................................................................................92
VOTING WITH RESPECT TO CERTAIN BUSINESS COMBINATIONS....................................................92
CERTAIN PROVISIONS RELATING TO ACQUISITIONS.............................................................93
RIGHT TO BRING BUSINESS BEFORE AN ANNUAL OR SPECIAL MEETING OF
SHAREHOLDERS.................................................................................. 93
SHAREHOLDER ACTION BY WRITTEN CONSENT.................................................................. 94
REMOVAL OF DIRECTORS................................................................................... 94
DIRECTOR LIABILITY..................................................................................... 94
INDEMNIFICATION ....................................................................................... 94
DIVIDENDS AND REPURCHASES ............................................................................. 95
DISSENTERS' RIGHTS..................................................................................... 96
DIRECTOR AND OFFICER DISCRETION ....................................................................... 96
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<PAGE>
MANAGEMENT OF CONSECO UPON CONSUMMATION OF THE MERGER .......................................................... 97
LEGAL MATTERS.................................................................................................. 97
EXPERTS ...................................................................................................... 97
INDEPENDENT ACCOUNTANTS........................................................................................ 98
OTHER MATTERS.................................................................................................. 98
Annex A - Agreement and Plan of Merger......................................................................... A-1
Annex B - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation....................................... B-1
</TABLE>
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viii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this 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 Proxy Statement/Prospectus and the Annexes
hereto. All share and per share information in this 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, unless otherwise stated. Except as
otherwise indicated, all financial information in this Proxy
Statement/Prospectus is presented in accordance with generally accepted
accounting principles ("GAAP"). Stockholders are urged to read this 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 Proxy Statement/Prospectus.
General
This Proxy Statement/Prospectus relates to the proposed Merger of THI with
and into Conseco 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. On
September 30, 1996, Conseco acquired the shares of
American Life Holdings, Inc. ("ALH") (of which
Conseco previously owned 37 percent) which Conseco
did not previously own for approximately $165
million in cash. After giving pro forma effect to
the acquisitions of LPG and ALH, Conseco's total
assets and shareholders' equity at June 30, 1996
were approximately $23 billion and $1.9 billion,
respectively.
On August 25, 1996, Conseco entered into (1) an
Agreement and Plan of Merger (the "ATC Merger
Agreement") with American Travellers Corporation
("ATC") pursuant to which ATC will be merged into
Conseco (the "ATC Merger"), with each share of
G:\LEGAL\REGSTMNT\THI10-16.S-4
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<PAGE>
common stock of ATC converted into the right to
receive a fraction of a share of Conseco Common
Stock having a value between $32.00 and $35.03 per
share, and (2) an Agreement and Plan of Merger
(the "CAF Merger Agreement") with Capitol American
Financial Corporation ("CAF") pursuant to which
CAF will become a wholly-owned subsidiary of
Conseco, with each share of common stock of CAF
converting 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. 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 currently own in a merger
in which each share of common stock of BLH 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 Conseco's
Merger with THI is not conditioned upon
consummation by Conseco of any of the other
pending acquisitions.
See "Incorporation of Certain Documents by Reference,"
"Selected Historical Financial Information of
Conseco," "Selected Historical Financial
Information of LPG," "Selected Historical
Financial Information of ATC," "Selected
Historical Financial Information of CAF,"
"Information Concerning Conseco" and "Unaudited
Pro Forma Consolidated Financial Statements of
Conseco" for additional information concerning
Conseco, LPG, ATC and CAF.
Transport Holdings
Inc.................THI, through its insurance subsidiaries, is principally
engaged in the underwriting and distribution of
supplemental health insurance. For the six months
ended June 30, 1996, THI's earned premiums were
$56 million, of which approximately 64 percent was
from cancer insurance, 19 percent was from
heart/stroke insurance, and the remaining 17
percent was from other supplemental health and
discontinued life insurance products. See
"Information Concerning THI" and "Selected
Historical Financial Information of THI" for
additional information concerning THI.
The Special Meeting
Time,Date and Place...The Special Meeting will be held at 10:00 a.m., local
time, on the ___ day of ________, 1996, in the
Executive Board Room of Texas Commerce Bank (lobby
level), located in the Texas Commerce Bank Tower
at 201 Main Street in the City of Fort Worth,
Texas, and at any adjournment or postponement
thereof.
Purpose of the
Meeting.............The purpose of the Special Meeting is to consider and
vote upon (1) a proposal to authorize and adopt
the Merger Agreement and the transactions
contemplated thereby and (2) such other business
as may properly come before the Special Meeting or
any adjournments or postponements thereof. See
"The Special Meeting - Matters to be Considered at
the Special Meeting."
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<PAGE>
Record Date, Shares
Entitled to Vote,
Quorum..............Holders of record of shares of THI Common Stock at the
close of business on _______, 1996 (the "Record
Date") are entitled to notice of and to vote at
the Special Meeting. As of the Record Date, there
were 1,592,048 shares of THI Common Stock
outstanding and entitled to vote, and 91,030
shares of THI Preferred Stock outstanding and
entitled to vote. Travelers Group Inc.
("Travelers") is the sole holder of shares of THI
Preferred Stock. Each holder of record of shares
of THI Common Stock on the 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 THI stockholders at the
Special Meeting and each share of THI Preferred
Stock is entitled to a fraction of a vote per
share (approximately .46) which in the aggregate
represents approximately 2.5 percent of the votes
eligible to be cast. Travelers has agreed to vote
its shares in the same proportion as the votes
cast by holders of THI Common Stock (other than
Insurance Partners, L.P. and Insurance Partners
Offshore (Bermuda), L.P. (collectively, "IP")).
See "The Special Meeting - Voting at the Special
Meeting; Record Date; Quorum."
The presence, in person or by properly executed proxy,
of the holders of shares of capital stock
representing a majority of the voting power of
outstanding capital stock entitled to vote at the
Special Meeting will constitute a quorum. See "The
Special Meeting - Voting at the Special Meeting;
Record Date; Quorum."
Vote Required.........The authorization and adoption by THI of the Merger
Agreement will require the affirmative vote of the
holders of a majority of the voting power of the
outstanding capital stock entitled to vote
thereon. See "The Special Meeting - Voting at the
Special Meeting; Record Date; Quorum."
Proxies, Revocation of
Proxies..............The enclosed proxy card permits each THI stockholder
to specify that shares held by such THI
stockholder be voted "FOR" or "AGAINST" (or
"ABSTAIN") the authorization and adoption of the
Merger Agreement and the Merger. If properly
executed and returned, such proxy will be voted in
accordance with the choice specified. Where a
signed proxy card is returned, but no choice
specified, the shares held by such THI stockholder
will be voted for authorization and adoption of
the Merger Agreement and the Merger. Abstentions
will have the same practical effect as a vote
against the authorization and adoption of the
Merger Agreement and the Merger. See "The Special
Meeting - Voting at the Special Meeting; Record
Date; Quorum."
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<PAGE>
A proxy relating to the Special Meeting may be
revoked by the stockholder giving the proxy at any
time before it is exercised; however, mere
attendance at the Special Meeting will not itself
have the effect of revoking the proxy. A THI
stockholder may revoke a proxy by notification in
writing sent (or given in person at the Special
Meeting) to the Secretary of THI or by sending or
giving to the Secretary of THI a later dated
proxy. See "The Special Meeting - Proxies;
Revocation of Proxies."
Certain Voting
Information.........As of the Record Date, THI's directors and officers
as a group owned 3,427 shares (or less than one
percent) of the outstanding shares of THI Common
Stock entitled to vote at the Special Meeting. All
directors and officers of THI have indicated that
they will vote for the authorization and adoption
of the Merger Agreement and the Merger. See "The
Special Meeting - Voting at the Special Meeting;
Record Date; Quorum."
The Merger; The Merger Agreement
Reasons for the Merger;
Recommendation of the
THI Board of
Directors...........Conseco. The Conseco Board of Directors approved the Merger
Agreement and the Merger based on a number of
factors including its belief that: (1) the
addition of THI's cancer insurance, heart/stroke
insurance and other supplemental health insurance
business would enable Conseco to offer a more
complete portfolio of insurance products to its
customers; (2) the addition of THI's distribution
channels further diversifies Conseco's current
distribution system and provides Conseco
additional opportunities to cross-market its
current products; (3) the Merger offers Conseco
and THI the opportunity to improve their
profitability through the achievements of
economies of scale, the elimination of
redundancies and the enhancement of market
position; and (4) the Merger and the other pending
acquisitions would further strengthen Conseco's
position in its targeted markets. See "The Merger
- Conseco's Reasons for the Merger."
THI. In voting to approve the Merger Agreement and the
Merger, the THI Board of Directors relied upon
many different factors, including: (1) the premium
over the then current market price of the THI
Common Stock offered by Conseco; (2) the length of
time that would be required if the Merger were not
consummated to equal the stockholder value to be
received by the THI stockholders through the
Merger; (3) the financial condition and results of
operations of Conseco and the THI Board of
Directors' perception of the more favorable
overall business prospects of Conseco and THI on a
combined basis as compared to THI's prospects as a
separate entity; (4) the tax-deferred nature of
the transaction; (5) the potential increase in
value of the Conseco
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<PAGE>
Common Stock after the Merger based on Conseco's
financial strength and competitive position; (6)
the highly competitive nature of the life and
health insurance business; (7) the difficulty of
maintaining financial and claims-paying ratings
issued by rating agencies; (8) the current trend
of consolidation within the insurance industry;
(9) the broader, more active trading market for
Conseco Common Stock; and (10) the opinion
rendered to the THI Board of Directors by
Donaldson, Lufkin & Jenrette Corporation ("DLJ")
with regard to the fairness to the stockholders of
THI, from a financial point of view, of the
Exchange Ratio (as defined below) to be received
by the stockholders of THI pursuant to the Merger
Agreement. See "The Merger - THI's Reasons for the
Merger; Recommendation of the THI Board of
Directors."
The THI Board of Directors recommends that
stockholders of THI authorize and adopt the Merger
and the Merger Agreement. In evaluating the
recommendation of the THI Board of Directors,
stockholders of THI should carefully consider the
matters described under "The Merger -- THI's
Reasons for the Merger; Recommendation of the THI
Board of Directors" and "-- Interests of Certain
Persons in the Merger."
Opinion of THI's
Financial Advisor.....DLJ has delivered its written opinion to the THI Board
of Directors that, as of September 24, 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 THI 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 THI Common Stock
should read such opinion in its entirety. See "The
Merger -- Opinion of THI's Financial Advisor."
Effect of Merger.....Upon consummation of the Merger: (1) THI will be merged
with and into Conseco, with Conseco being the
surviving corporation (the "Surviving
Corporation"); and (2) each outstanding share of
THI Common Stock (other than shares of THI Common
Stock held as treasury shares by THI) will be
converted into the right to receive the Merger
Consideration (as defined below). Fractional
shares of Conseco Common Stock will not be
issuable in connection with the Merger. THI
stockholders 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."
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<PAGE>
A copy of the Merger Agreement is attached as Annex
A to this Proxy Statement/Prospectus and is
incorporated by reference herein. See "The Merger
Agreement."
Merger Consideration..Upon the consummation of the Merger, each share of THI
Common Stock issued and outstanding immediately
prior to the Effective Time (as defined below)
(other than shares of THI Common Stock held as
treasury shares by THI) will 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 Share Price (such whole
number and fraction is referred to herein as the
"Exchange Ratio"). The "Conseco Share Price" shall
be equal to the Trading Average (as defined
below); provided, however, that if the Trading
Average is less than $38.25, then the Conseco
Share Price shall be $38.25, and if the Trading
Average is greater than $50.00, then the Conseco
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
ten consecutive trading days immediately preceding
the second trading day prior to the Effective
Time. The Conseco Common Stock to be issued to
holders of shares of THI Common Stock in
accordance with the Merger Agreement and any cash
to be paid in lieu of fractional shares of Conseco
Common Stock are referred to collectively as the
"Merger Consideration." No fractional shares of
Conseco Common Stock will be issued in the Merger.
Each THI stockholder 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.
Conseco will apply to have the additional shares
of Conseco Common Stock issued pursuant to the
Merger Agreement listed on the NYSE. See "The
Merger Agreement -- Conversion of Shares; Exchange
of Stock Certificates; No Fractional Amounts."
Promptly after consummation of the Merger, a letter of
transmittal from First Union National Bank of
North Carolina (the "Exchange Agent") (including
instructions setting forth the procedures for
exchanging such holder's certificates representing
THI 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, of shares of
THI Common Stock. Upon surrender to the Exchange
Agent of such Certificates, together with a duly
completed and executed letter of transmittal, such
holder will promptly receive the Merger
Consideration for each share of THI Common Stock
previously represented by the Certificates so
surrendered. See "The Merger Agreement -
Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
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<PAGE>
Effective Time of the
Merger................The Merger will become effective on the date that a
Certificate of Merger is filed with the Secretary
of State of Delaware (the "Certificate of Merger")
and Articles of Merger are filed with the
Secretary of State of Indiana (the "Articles of
Merger") or at such time thereafter as is provided
in the Certificate of Merger and Articles of
Merger (the "Effective Time"). See "The Merger
Agreement - Effective Time."
Treatment of Options
and Warrants..........From and after the Effective Time, (1) each outstanding
unexpired option to purchase shares of THI Common
Stock (a "THI Stock Option") which has been
granted pursuant to THI's 1995 Stock Plan, as
amended (the "1995 Stock Plan"), shall be fully
vested and shall be exercisable, for the same
aggregate consideration payable to exercise such
THI Stock Option immediately prior to the
Effective Time, for the number of shares of
Conseco Common Stock which the holder would have
been entitled to receive at the Effective Time if
such THI Stock Option had been fully vested and
exercised for THI Common Stock immediately prior
to the Effective Time and (2) each outstanding
warrant to purchase shares of THI Common Stock (a
"THI Warrant") shall be exercisable, for the same
aggregate consideration payable to exercise such
THI Warrant immediately prior to the Effective
Time, for the number of shares of Conseco Common
Stock which the holder would have been entitled to
receive at the Effective Time if such THI Warrant
had been exercised in full for shares of THI
Common Stock immediately prior to the Effective
Time. See "The Merger Agreement - Treatment of THI
Stock Options and THI Warrants."
Certain Consequences of
the Merger...........Upon consummation of the Merger, holders of THI Common
Stock will become shareholders of Conseco, and
each share of THI Common Stock issued and
outstanding immediately prior to the consummation
of the Merger will be converted into the right to
receive the Merger Consideration. In addition,
holders of THI Stock Options and THI Warrants will
be entitled to receive, upon the exercise of their
respective THI Stock Options and THI Warrants, 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 THI Stock Options and THI Warrants."
After consummation of the Merger and without giving
effect to the proposed acquisitions of ATC, CAF
and BLH, the current Conseco shareholders will own
between approximately ___ percent and ___ percent
of the shares of Conseco Common Stock then
outstanding, and the current holders of THI Common
Stock will own between approximately ___ percent
and ___ percent of such shares. See "The Merger -
Certain Consequences of the Merger."
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<PAGE>
Conditions to the Merger;
Regulatory Approvals;
Termination of the Merger
Agreement.............The obligations of Conseco and THI to consummate the
Merger are subject to the satisfaction of certain
conditions, including the receipt of requisite THI
stockholder approval and of certain governmental
consents and approvals including, without
limitation, the approval of the Commissioner of
the Texas Department of Insurance (Texas is the
jurisdiction in which the insurance companies
owned by THI are domiciled), 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 is scheduled to expire
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 THI (provided that such party is not in
breach of the Merger Agreement) if the Merger is
not consummated by January 31, 1997 (or March 31,
1997 under certain circumstances), and prior to
such time upon the occurrence of certain events.
See "The Merger Agreement - Termination."
Right of THI Board
of Directors to Withdraw
its Recommendation;
Fees.................Under the Merger Agreement, the THI Board of Directors
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 or (2) enter into
any agreement with respect to any Acquisition
Proposal (as hereinafter defined), unless THI
receives an Acquisition Proposal and the THI Board
of Directors determines in good faith, following
consultation with outside counsel, that in order
to comply with its fiduciary duties to its
stockholders under applicable law it is necessary
for the THI 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, enter into an agreement
with respect to such Acquisition Proposal or
terminate the Merger Agreement. In the event the
THI Board of Directors takes any of the foregoing
actions, THI is required to, concurrently with the
taking of any such action, pay to Conseco upon
demand $7.5 million. See "The Merger Agreement -
Certain Covenants - No Solicitation," "- Right of
THI Board of Directors to Withdraw its
Recommendation" and " - Breakup Fees." In
addition, THI has agreed that, subject to the
exercise of its fiduciary duties, it 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,
THI or
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<PAGE>
any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal or (ii)
participate in any discussions or negotiations
regarding, or furnish to any person any
information with respect to, or take any other
action to facilitate any inquiries or the making
of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition
Proposal. See "The Merger Agreement Certain
Covenants - No Solicitation."
Conduct of the Business
of Conseco After the
Merger...............The Merger Agreement provides that the members of the
Conseco Board of Directors and the officers of
Conseco immediately prior to the consummation of
the Merger shall continue as the directors and
officers of Conseco following the consummation of
the Merger. See "Management of Conseco Upon
Consummation of the Merger."
Conseco plans to consolidate certain operations of
THI with Conseco's operations after consummation
of the Merger. See "The Merger -- Conduct of the
Business of Conseco and THI After the Merger."
Interests of Certain
Persons in the
Merger...............Certain directors and officers of THI will receive
benefits from the Merger in the form of enhanced
Severance, acceleration of stock options and other
benefits. See "The Merger -- Interests of Certain
Persons in the Merger."
Indemnification of Directors
and Officers;
Insurance.............Conseco has agreed to maintain the existing
indemnification provisions in the certificates of
incorporation and bylaws of the subsidiaries of
THI. In addition, for a period of three years
after the Effective Time, Conseco has agreed to
maintain officers' and directors' liability
insurance. See "The Merger -- Interests of Certain
Persons in the Merger" and " The Merger Agreement
- Indemnification of Officers and Directors;
Insurance."
Absence of Appraisal
Rights................Holders of THI Common Stock will not be entitled to
appraisal rights under the Delaware General
Corporation Law (the "DGCL"). See "The Merger -
Absence of Appraisal Rights" and "Comparison of
Shareholders' Rights - Dissenters' Rights."
Certain Federal
Income Tax
Consequences.........The Merger is expected to qualify as a reorganization
within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the
"Code"). The obligation of THI to consummate the
Merger is subject to the condition that it shall
have received an opinion of counsel, based upon
certain representations and assumptions, that the
Merger will be treated for tax purposes as a
reorganization with the meaning of Section
368(a)(1) of the Code. Assuming the Merger
qualifies as a reorganization within
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<PAGE>
the meaning of Section 368(a)(1) of the Code, no
gain or loss will be recognized by THI
stockholders upon their exchange of THI Common
Stock for Conseco Common Stock, except that any
THI stockholder 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 cash proceeds and the tax
basis in the fractional share interest, and such
gain or loss will constitute capital gain or loss
if such stockholder's THI Common Stock is held as
a capital asset at the Effective Time. See "The
Merger - Certain Federal Income Tax Consequences."
Accounting Treatment..The Merger will be accounted as a "purchase" under
GAAP. See "The Merger -- Accounting Treatment."
Comparison of
Shareholders'
Rights...............Upon consummation of the Merger, the holders of THI
Common Stock 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 THI
Common Stock. These differences arise from the
distinctions between the laws of the jurisdictions
in which Conseco and THI are incorporated (Indiana
and Delaware, respectively) and the distinctions
between the respective charters and bylaws of
Conseco and THI.
Exchange of Convertible
Notes.................Pursuant to the Merger Agreement, Conseco has agreed to
offer to exchange, by means of a registered
exchange offer (the "Exchange Offer"), as of the
Effective Time, Conseco Convertible Debentures
("Conseco Convertible Notes") for the outstanding
Series A Subordinated Convertible Notes due 2005
of THI (the "Series A Convertible Notes") and
Series B Subordinated Convertible Notes due 2005
of THI (the "Series B Convertible Notes" and,
collectively with the Series A Convertible Notes,
the "THI Convertible Notes") in the aggregate
principal amount of $50 million. IP holds $35
million principal amount of Series A Convertible
Notes, certain executive officers, directors, and
key producers of THI hold the remaining $7 million
aggregate principal amount of Series A Convertible
Notes, and Travelers holds the entire $8 million
aggregate principal amount of Series B Convertible
Notes. Conseco's obligation to consummate the
Merger is conditioned upon, among other things,
holders of at least 90 percent of the aggregate
principal amount of THI Convertible Notes
accepting Conseco's offer to exchange such notes
for Conseco Debentures. IP and Messrs. Lasater and
Sharpe have entered into agreements ("Exchange
Agreements") requiring such holders to exchange
their Series A Convertible Notes for Conseco
Convertible Notes in the Exchange Offer and
consenting to the amendment of the
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<PAGE>
documents governing the Series A Convertible Notes
to remove the covenants therefrom. In addition,
Travelers indicated orally that it would
participate in the Exchange Offer, but declined to
execute an Exchange Agreement. Assuming that such
holders accept Conseco's offer to exchange their
THI Convertible Notes for Conseco Convertible
Notes in the Exchange Offer, the condition to the
Merger described above will be satisfied. The
Conseco Convertible Debentures are similar to the
THI Convertible Notes, but contain certain
changes, including a reduced coupon rate (6.0
percent instead of 8.5 percent), mandatory
conversion (under certain circumstances),
elimination of the mandatory redemption feature,
and certain other variations. See "The Merger
Agreement - Exchange of Convertible Notes," "-
Conditions to the Merger" and "The Merger -
Interests of Certain Persons in the Merger -
Series A Convertible Notes."
Redemption of THI
Preferred
Stock................The Merger Agreement provides that all of the
outstanding shares of THI Preferred Stock will be
redeemed before the Effective Time. See "The
Merger Agreement -- Redemption of THI Preferred
Stock."
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<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>
12
<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.
13
<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>
14
S:\ACCTING\SECRPT\S-4CAP.896\CNCSFD3.696
<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>
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 (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.
S:\ACCTING\SECRPT\S-4CAP.896\LPGSFD3.696
</FN>
</TABLE>
16
<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. In conjunction with the September 29, 1995 transactions, THI
issued $50 million of its subordinated notes and borrowed $62 million from a
group of banks. The proceeds of the borrowings were used, in part, to make a
distribution of $96 million to the former parent and to pay expenses of $6.5
million associated with the September 29, 1995 transactions. During the fourth
quarter of 1995, THI sold its long term care business to ATC. These transactions
significantly affect the comparability of the results of operations in 1996 with
prior periods.
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 1994
---- ---- ---- ---- ---- ---- ----
(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>
17
<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)....................... 59.14 60.49
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 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.
(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 purposes 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.
S:\ACCTING\SECRPT\S-4THI\THISFD4.996
</FN>
</TABLE>
18
<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
19
<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 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.
(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 convertible
subordinated debentures) to the sum of shareholders' equity and notes
payable (including the convertible subordinated 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 purposes 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.
S:\ACCTING\SECRPT\S-4THI\ATCSFD2.696
</FN>
</TABLE>
20
<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
21
<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.
S:\ACCTING\SECRPT\S-4THI\CAPSFD2.696
</FN>
</TABLE>
22
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF CONSECO
The summary unaudited pro forma consolidated financial information of
Conseco set forth below was derived from the unaudited pro forma consolidated
financial statements of Conseco included elsewhere in this 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, THI, ATC and CAF incorporated by
reference in this 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 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 ATC Merger; (3) the CAF Merger; and (4) the planned
issuance by Conseco 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").
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 ATC Merger; (3) the
CAF Merger; and (4) the Preferred Securities Offering.
23
<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 ATC Merger and the CAF 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 $1,943.0 $2,498.7 $ 897.2 $ 952.8 $1,286.3
Investment activity:
Net investment income...................... 1,461.1 1,503.9 1,574.0 719.4 736.0 783.7
Net trading income (losses) ............... 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains ....................... 220.3 220.3 222.0 15.4 15.4 19.0
Total revenues................................. 3,498.4 3,731.4 4,358.9 1,685.4 1,758.2 2,143.0
Interest expense on notes payable.............. 143.5 144.7 161.9 67.6 68.2 78.5
Total benefits and expenses.................... 3,001.7 3,209.0 3,771.9 1,423.9 1,485.3 1,822.7
Income before income taxes, minority interest
and extraordinary charge................... 496.7 522.4 587.0 261.5 272.9 320.3
Income before extraordinary charge............. 283.1 300.4 327.5 148.9 156.3 181.3
PER SHARE DATA
Income before extraordinary charge, primary.... $3.74 $3.74 $3.33 $1.93 $1.91 $1.82
Income before extraordinary charge, fully
diluted.................................... 3.72 3.72 3.17 1.91 1.89 1.74
Book value per common share outstanding
at period end.............................. 24.29 25.88 30.11
Shares outstanding at period end............... 65.7 70.4 88.5 66.9 71.6 89.7
Average fully diluted shares outstanding....... 76.0 80.7 103.8 77.8 82.5 105.6
BALANCE SHEET DATA - PERIOD END
Total assets................................... $23,058.3 $23,681.0 $26,644.5
Notes payable for which Conseco is directly
liable..................................... 1,198.5 1,217.0 2,183.6
Notes payable of BLH, not direct obligations
of Conseco................................. 437.9 437.9 -
Total liabilities.............................. 21,015.7 21,410.5 23,233.3
Minority interest in consolidated subsidiaries:
Company-obligated mandatorily redeemable
preferred stock........................ - - 350.0
Preferred stock............................ 93.2 93.2 93.2
Common stock............................... 57.5 57.5 -
Shareholders' equity .......................... 1,891.9 2,119.8 2,968.0
</TABLE>
24
<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 $3,862.0 $4,418.1 $1,781.7 $1,837.3 $2,170.8
Operating earnings (c)........................ 231.0 248.3 274.1 136.0 143.4 165.3
Operating earnings per fully diluted
common share (c).......................... 3.04 3.08 2.65 1.75 1.74 1.59
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities (d)................... 1,948.3 2,176.2 3,024.4
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities (d)............................ 25.13 26.66 30.74
Ratio of debt for which Conseco is directly
liable to total capital of Conseco only (e):
As reported............................ .38X .35X .39X
Excluding unrealized appreciation
(depreciation) (d)................... .37X .35X .39X
Excluding unrealized appreciation
(depreciation) and assuming conversion
of ATC's Convertible Subordinated
Debentures into Conseco Common
Stock (d)............................ .34X
Ratio of debt for which Conseco is directly
liable and Preferred Securities to total
capital of Conseco only (f):
As reported............................ .45X
Excluding unrealized appreciation
(depreciation) (d)................... .45X
Excluding unrealized appreciation
(depreciation) and assuming conversion
of ATC's Convertible Subordinated
Debentures into Conseco Common
Stock (d)............................ .41X
Adjusted statutory capital (at period end) (g) $1,508.6 $1,672.1 $1,834.9 $1,515.6 $1,662.3 $1,849.5
Adjusted statutory earnings (h)............... 480.7 532.5 533.8 253.4 272.7 301.2
Ratio of adjusted statutory earnings to cash
interest (i).............................. 3.36X 3.73X 3.26X 3.74X 4.04X 3.78X
<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.
25
<PAGE>
(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, minority interest
related to preferred stock issued by a subsidiary of ALH and the
Preferred Securities.
(f) Represents the ratio of pro forma notes payable for which Conseco is
directly liable and the Preferred Securities to the sum of pro forma
shareholders' equity, pro forma notes payable for which Conseco is
directly liable, minority interest related to preferred stock issued by a
subsidiary of ALH and the Preferred Securities.
(g) 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.
(h) 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.
(i) 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.
S:\ACCTING\SECRPT\S-4THI\SUMMAR2.PRO
</FN>
</TABLE>
26
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND THI
The following table sets forth selected historical per share data of
Conseco, LPG, THI, ATC and CAF 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 ATC Merger, the CAF Merger,
the BLH Transaction and the Preferred Securities Offering. Pro forma equivalent
amounts are presented assuming that the Conseco Share Price will be $48.00, so
that each share of THI Common Stock is exchanged for 1.4583 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, THI's Annual Report, ATC's Annual
Report, CAF'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 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
THI...................................................................................... (17.75) (a) 2.42
ATC...................................................................................... 1.36 .81
CAF...................................................................................... 2.64 1.55
Pro forma:
Conseco before the Merger................................................................ $ 3.72 $ 1.91
Adjusted for the Merger.................................................................. 3.72 1.89
Further adjusted for the ATC Merger, the CAF Merger and other planned transactions...... 3.17 1.74
Equivalent for one share of THI Common Stock............................................. 4.62 2.54
Dividends per common share:
Historical:
Conseco.................................................................................. $ .093 $ .040
LPG...................................................................................... .110 .060
THI...................................................................................... - -
ATC...................................................................................... - -
CAF...................................................................................... .360 .200
Pro forma:
Conseco before the Merger................................................................ $ .093 $ .040
Adjusted for the Merger.................................................................. .093 .040
Further adjusted for the ATC Merger, the CAF Merger and other planned transactions....... .093 .040
Equivalent for one share of THI Common Stock............................................. .135 .058
Book value per common share:
Historical:
Conseco.................................................................................. $17.68
LPG...................................................................................... 12.47
THI...................................................................................... 61.60 (b)
ATC ..................................................................................... 10.50
CAF...................................................................................... 16.83
Pro forma:
Conseco before the Merger................................................................ $24.29
Adjusted for the Merger.................................................................. 25.88
Further adjusted for the ATC Merger, the CAF Merger and other planned transactions...... 30.11
Equivalent for one share of THI Common Stock............................................. 43.91
27
<PAGE>
<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.
S:\ACCTING\SECRPT\S-4THI\PERSHAR3.THI
</FN>
</TABLE>
28
<PAGE>
MARKET PRICE INFORMATION
Market prices for the shares of Conseco Common Stock are reported on the
NYSE, and market prices for the shares of THI Common Stock are reported on the
NASDAQ National Market. The table below sets forth for the periods indicated the
high and low sale prices per share of Conseco Common Stock and THI Common Stock
and the cash dividends paid per share of Conseco Common Stock. No dividends have
been paid on the THI Common Stock. The THI Common Stock has been traded on the
NASDAQ National Market since October 2, 1995. For current price information with
respect to the Conseco Common Stock and THI Common Stock, stockholders are urged
to consult publicly available sources.
<TABLE>
<CAPTION>
Conseco Common Stock THI Common Stock
-------------------- ----------------
High Low Dividends High Low
---- --- --------- ---- ---
<S> <C> <C> <C> <C> <C>
1994
First Quarter........................... $32 1/8 $26 9/16 $ 0.0625 - -
Second Quarter.......................... 29 1/16 23 3/16 0.0625 - -
Third Quarter........................... 26 3/16 21 5/8 0.0625 - -
Fourth Quarter.......................... 23 1/8 17 15/16 0.0625 - -
1995
First Quarter........................... 24 5/16 16 1/4 0.0625 - -
Second Quarter.......................... 23 5/16 19 9/16 0.0625 - -
Third Quarter........................... 26 5/8 22 3/4 0.01 - -
Fourth Quarter.......................... 31 9/16 25 7/16 0.01 $44 $32 1/4
1996
First Quarter........................... 36 5/16 29 7/8 0.01 45 3/4 39 1/2
Second Quarter.......................... 39 7/8 36 1/2 0.02 48 1/4 41 1/2
Third Quarter........................... 49 3/8 35 1/4 0.02 70 1/2 44 1/2
Fourth Quarter
(through October 16, 1996)........... 52 3/8 48 7/8 0.0625 73 1/2 68 1/2
</TABLE>
The information set forth in the table below presents: (1) the closing price
for shares of Conseco Common Stock and THI Common Stock on September 25, 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 Proxy
Statement/Prospectus and (2) the "Equivalent Per Share Price" (as hereinafter
defined) of THI Common Stock on September 25, 1996 and _____________, 1996. The
"Equivalent Per Share Price" of THI Common Stock represents the closing price
per share of Conseco Common Stock reported on the NYSE, multiplied by $70.00 and
divided by the Trading Average ($45.31 and $_______ assuming consummation of the
Merger had occurred on September 25, 1996 and _________, 1996, respectively).
The Equivalent Per Share Price is not the same as the Merger Consideration. The
amount and value of the Merger Consideration to be received by holders of the
THI 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>
THI
Conseco THI Common Stock
Common Common Equivalent Per
Per Share Price Stock Stock Share Price
--------------- ----- ----- -----------
<S> <C> <C> <C>
September 25, 1996.............................. $46.50 $51.75 $71.83
___________, 1996...............................
</TABLE>
G:\LEGAL\REGSTMNT\THI10-16.S-4
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<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. See
"The Merger Agreement - Conditions to the Merger."
Holders are urged to obtain a current market quotation for the Conseco Common
Stock and the THI Common Stock. No assurance can be given as to the future
prices of, or markets for, Conseco Common Stock or THI Common Stock.
G:\LEGAL\REGSTMNT\THI10-16.S-4
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<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 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. A total of 16.3 million shares of the
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 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. in
1990 and 1991, respectively, 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.
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, Beneficial
Standard and ALH; 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 approximately 200 branch offices and
approximately 3,200 career agents. Most of BLH's agents sell only
G:\LEGAL\REGSTMNT\THI10-16.S-4
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<PAGE>
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
the $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 (Great American Reserve and
Beneficial Standard), 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 and annuity deposits 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. This segment will include ALH beginning
with its acquisition in the third quarter of 1996. 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.
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 premiums 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. managed 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. Total fees
from affiliated and nonaffiliated clients were $69.2 million and $54.3 million
for 1995 and the first six months of 1996, respectively. To the extent that
these services are provided to entities that are
G:\LEGAL\REGSTMNT\THI10-16.S-4
32
<PAGE>
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
Conseco's 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
ATC. On August 25, 1996, Conseco and ATC entered into the ATC Merger
Agreement pursuant to which ATC will be merged into Conseco. Under the ATC
Merger Agreement, each of the approximately 18.0 million issued and outstanding
shares of ATC Common Stock would be converted into the right to receive a
fraction of a share of Conseco Common Stock having a value between $32.00 and
$35.03, calculated as follows: (1) if the Conseco/ATC 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/ATC Share Price is less than $42.25 per share, the fraction (rounded to
the nearest ten-thousandth) of a share of Conseco Common Stock determined by
dividing $32.00 by the Conseco Share Price or (3) if the Conseco/ATC 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/ATC Share Price. The "Conseco/ATC 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 ten trading days immediately
preceding the second trading day prior to the date of the ATC Merger. For
additional information concerning ATC, see ATC's Annual Report and other filings
listed under "Incorporation of Certain Documents by Reference" and "Selected
Historical Financial Information of ATC."
CAF. On August 25, 1996, Conseco and CAF entered into 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 $.025 if the CAF Merger does not
occur by December 10, 1996, which amount will increase by an additional $.025 on
the tenth day of each month thereafter until the CAF Merger is consummated. For
additional information concerning CAF, see CAF's Annual Report and other filings
listed under "Incorporation of Certain Documents by Reference" and "Selected
Historical Financial Information of CAF."
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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
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<PAGE>
Consummation of the Merger is not conditioned upon consummation by
Conseco of any of the other pending acquisitions. See "Unaudited Pro Forma
Consolidated Financial Statements of Conseco."
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 additional information concerning Conseco, including information
concerning ALH and BLH, see Conseco's Annual Report and other filings listed
under "Incorporation of Certain Documents by Reference" and "Selected Historical
Financial Information of Conseco." For additional information concerning LPG,
see LPG's Annual Report and other filings listed under "Incorporation of Certain
Documents by Reference" and "Selected Historical Financial Information of LPG."
G:\LEGAL\REGSTMNT\THI10-16.S-4
34
<PAGE>
INFORMATION CONCERNING THI
In 1982, Transport Life Insurance Company ("Transport Life"), a Texas
life insurance company organized in 1958 and in continuous operation since that
time, was acquired by American Can Company, a predecessor of Travelers. THI was
incorporated in 1990 under the laws of the State of Delaware. In a series of
transactions that culminated on September 29, 1995, THI became the sole
stockholder of Intermediate Holdings Inc., a Delaware corporation. Intermediate
Holdings Inc. is the sole stockholder of THD Inc. a Delaware corporation. THD
Inc. is the sole shareholder of TLIC Life Insurance Company ("TLIC Life"), a
Texas life insurance company. TLIC Life is the sole shareholder of Transport
Life. Transport Life in turn owns all of the common stock of Continental Life
Insurance Company ("Continental Life"), a Texas life insurance company formed
and in continuous operation since 1969, and a wholly owned subsidiary of
Transport Life since 1971. On September 29, 1995, all of the outstanding THI
Common Stock was distributed to the stockholders of Travelers.
THI, through its life insurance subsidiaries, is principally engaged in
the underwriting and distribution of supplemental health insurance and, until
late 1995, was engaged in long-term care insurance. THI has several lines of
business with policies in force that it no longer actively offers, including
life insurance, major/catastrophic hospital insurance and credit insurance. In
addition, THI administers a discontinued line of life insurance business for a
subsidiary of Travelers and manages and administers certain discontinued lines
of credit insurance business for other subsidiaries of Travelers. THI provides
administrative and management services for a line of personal accident insurance
and personal effects coverage sold through auto rental agencies for a subsidiary
of Travelers. THI provides premium processing, claims adjudication and payment,
and actuarial and accounting services related to these businesses, and receives
monthly fee payments pursuant to contracts which expire in September 1998.
THI's supplemental health insurance products include cancer insurance
and heart/stroke insurance, and generally provide fixed or limited benefits to
the insureds. These supplemental health products are primarily sold by two
independent general agencies and accounted for approximately 43 percent of 1995
premium income. These general agencies market THI's insurance products through
what THI believes are such agencies' exclusive full time agents.
Until late 1995, THI marketed long-term care insurance products
including nursing home and home health care insurance to the senior age market.
THI's long-term care insurance products were marketed primarily by an
independent marketing organization that relies on non-exclusive insurance
brokers for sales to prospective insureds. Long-term care products accounted for
approximately 46 percent of 1995 premium income. This business was sold to ATC
in the fourth quarter of 1995. THI continues to administer (for a fee) the
long-term care business for ATC through 1996.
The remaining approximately 11 percent of 1995 premium income was
derived primarily from insurance products that are no longer actively marketed.
Transport Life is licensed to conduct insurance business in the
District of Columbia and all states except New York. THI's net premium income in
1995 and the six months ended June 30, 1996 was $190 million and $56 million,
respectively. At June 30, 1996, THI had total assets of $925 million and
stockholders' equity of $168 million. Its operating results for the year ended
December 31, 1995 and the six months ended June 30, 1996 were a loss of $26.8
million and income of $9 million, respectively.
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<PAGE>
For additional information concerning THI, see THI's Annual Report and
other filings listed under "Incorporation of Certain Documents by Reference" and
"Selected Historical Financial Information of THI."
THI's executive offices are located at 714 Main Street, Fort Worth,
Texas 76102 and its telephone number is (817) 390-8000.
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<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of THI
Common Stock in connection with the solicitation of proxies by the THI Board of
Directors for use at the Special Meeting to be held on the ____ day of
__________, 1996 in the Executive Board Room of Texas Commerce Bank (lobby
level), located in the Texas Commerce Bank Tower at 201 Main Street in the City
of Fort Worth, Texas, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof.
This 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 Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed to stockholders of THI on or about
_____________, 1996.
Matters to be Considered at the Special Meeting
At the Special Meeting, THI stockholders will consider and vote upon
(1) a proposal to authorize and adopt the Merger Agreement and the transactions
contemplated thereby and (2) such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
THE THI BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT THI STOCKHOLDERS VOTE FOR AUTHORIZATION AND
ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER -- BACKGROUND OF THE MERGER"
AND "- THI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE THI BOARD OF
DIRECTORS."
Voting at the Special Meeting; Record Date; Quorum
The THI Board of Directors has fixed ___________, 1996 as the Record
Date for determination of stockholders entitled to notice of, and to vote at,
the Special Meeting and any adjournments or postponements thereof. Only
stockholders of record on the Record Date are entitled to notice of, and to vote
at, the Special Meeting. As of the Record Date, there were 1,592,048 shares of
THI Common Stock outstanding and entitled to vote, and 91,030 shares of THI
Preferred Stock outstanding and entitled to vote. Travelers is the sole holder
of shares of THI Preferred Stock. Each holder of record of shares of THI Common
Stock on the 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 THI stockholders at the
Special Meeting. Each share of THI Preferred Stock is entitled to a fraction of
a vote per share (approximately .46), which in the aggregate represents
approximately 2.5 percent of the votes eligible to be cast at the Special
Meeting. Travelers has agreed to vote its shares in the same proportion as the
votes cast by holders of THI Common Stock (other than IP). The presence, in
person or by properly executed proxy, of the holders of shares of capital stock
representing a majority of the voting power of outstanding capital stock
entitled to vote at the Special Meeting will constitute a quorum.
The authorization and adoption by THI of the Merger Agreement will
require the affirmative vote of the holders of a majority of the voting power of
the outstanding capital stock entitled to vote thereon. Shares subject to
abstentions will be treated as shares that are present at the 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
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<PAGE>
does not have discretionary authority to vote the shares for which it is the
holder of record on a particular proposal, those shares will be treated as
shares that are present at the Special Meeting for purposes of determining the
presence of a quorum but will not be considered as voted for purposes of
determining the number of THI stockholders 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 authorization and adoption of the Merger
Agreement and the Merger or on any other matter submitted to the THI
stockholders which requires a percentage of the total number of outstanding
shares for approval.
As of the Record Date, the directors and executive officers (as a
group, eight persons) and their affiliates were entitled to vote 3,427 shares
(or less than one percent) of THI Common Stock. Information with respect to the
beneficial ownership of shares of THI Common Stock by each of THI's directors
and all directors and officers of THI as a group, and each person known to THI
to be the beneficial owner of more than five percent of the outstanding shares
of THI Common Stock is set forth below under "- Security Ownership of Certain
Beneficial Owners and Management."
G:\LEGAL\REGSTMNT\THI10-16.S-4
38
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the Record Date (except as otherwise
indicated), the number and percentage of outstanding shares of THI Common Stock
beneficially owned by each THI director, named executive officer and all
executive officers and directors as a group, and by all persons known by THI to
own more than five percent of THI Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of Beneficial Percent
Beneficial Owner (1) Ownership (2) of Class
- ---------------- ------------- --------
<S> <C> <C>
Daniel L. Doctoroff
Director 529(3) *
Gerald Grinstein
Director 529(4) *
J. Luther King, Jr.
Director 529(5) *
John T. Sharpe
Chairman of the Board of Directors 780(6) *
Garland M. Lasater, Jr.
Director
President and Chief Executive Officer 838(7) *
A. Foster Nelson
Director
Vice President and Chief Financial Officer 40,148(8) 2.46%
T. Gary Cole
Vice President, Secretary and
General Counsel 25,071(9) 1.55%
Deborah V. Greer
Vice President and Controller 8,003(10) *
- ------------------------------- -------- --------
All directors and executive officers
as a group (8 persons) 76,427 4.59%
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017 166,946(11) 10.43%
David B. Heller
Advisory Research, Inc.
Two Prudential Plaza
180 N. Stetson, Suite 5780
Chicago, Illinois 60601 157,000(12) 9.86%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 114,153(13) 7.17%
Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404 98,697(14) 6.20%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of Beneficial Percent
Beneficial Owner (1) Ownership (2) of Class
- ---------------- ------------- --------
<S> <C> <C>
The Lasater Children's 1995 GST
Exempt Trusts(15)
4610 Staunton Street
Houston, Texas 77027 125,000(16) 7.28%(17)
Edward A. Lasater, Trustee(18)
4610 Staunton Street
Houston, Texas 77027 125,000(16) 7.28%(17)
The Sharpe Children's 1995 GST
Exempt Trusts(19)
700 Preston Commons West
8117 Preston Road
Dallas, Texas 75225 125,000(20) 7.28%(17)
Donald J. Malouf, Trustee(21)
700 Preston Commons West
8117 Preston Road
Dallas, Texas 75225 125,000(20) 7.28%(17)
*Percentage of shares beneficially owned does not exceed one percent.
<FN>
(1) Unless otherwise indicated, the address of each person is in care of
THI at 714 Main Street, Fort Worth, Texas 76102.
(2) Calculated pursuant to Rule 13d-3 of the Exchange Act. Unless otherwise
stated below, each such person has sole voting and dispositive power
with respect to all such shares. Under Rule 13d-3(d), shares not
outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within sixty (60) days are deemed
outstanding for the purpose of calculating the percentage owned by such
persons but are not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed.
(3) Represents restricted THI Common Stock issued to THI non-employee
Directors pursuant to the 1995 Stock Plan ("Restricted Director
Shares"). Does not include 1,113,231 shares of THI Common Stock
issuable upon conversion of the $35,000,000 aggregate principal amount
of Series A Convertible Notes held by IP. Mr. Doctoroff is a vice
president and minority stockholder of the ultimate corporate general
partners of IP and, accordingly, may be deemed to share the voting and
dispositive power of any voting securities held by IP.
(4) Represents Restricted Director Shares. Does not include 6,361 shares of
THI Common Stock issuable upon conversion of the $200,000 principal
amount of Series A Convertible Notes held by Mr. Grinstein.
(5) Represents Restricted Director Shares. Does not include 7,952 shares of
THI Common Stock issuable upon conversion of the $250,000 principal
amount of Series A Convertible Notes held by Mr. King.
(6) Includes 99 shares of THI Common Stock held by Mr. Sharpe as trustee
for his minor grandchildren. Does not include 40,331 shares of THI
Common Stock issuable upon conversion of the $1,268,000 principal
amount of Series A Convertible Notes held by Mr. Sharpe, nor 125,000
shares of THI Common Stock issuable upon exercise of a THI Warrant (the
"Sharpe Trust Warrant") held in equal proportions by The Sharpe
Children's 1995 GST Exempt Trusts (the "Sharpe Children's Trusts") with
respect to which Mr. Sharpe disclaims beneficial ownership.
(7) Does not include 40,331 shares of THI Common Stock issuable upon
conversion of the $1,268,000 principal amount of Series A Convertible
Notes held by Mr. Lasater, nor 125,000 shares of THI Common Stock
issuable upon exercise of the THI Warrant (the "Lasater Trust Warrant")
held in equal proportions by The Lasater Children's 1995 GST Exempt
Trusts (the "Lasater Children's Trusts") with respect to which Mr.
Lasater disclaims beneficial ownership.
40
<PAGE>
(8) Includes 7 shares of THI Common Stock held by Mr. Nelson as custodian
for his children under the Texas Uniform Transfers to Minors Act. Also
includes 40,000 shares of THI Common Stock reserved for issuance under
THI Stock Options held by Mr. Nelson. A portion of such THI Stock
Options will become exercisable as a result of the Merger. See "The
Merger - Interests of Certain Persons in the Merger." Does not include
14,440 shares of THI Common Stock issuable upon conversion of the
$454,000 principal amount of Series A Convertible Notes held by Mr.
Nelson.
(9) Includes 25,000 shares of THI Common Stock reserved for issuance under
THI Stock Options held by Mr. Cole. A portion of such THI Stock Options
will become exercisable as a result of the Merger. See "The Merger
Interests of Certain Persons in the Merger." Does not include 6,361
shares of THI Common Stock issuable upon conversion of the $200,000
principal amount of Series A Convertible Notes held by Mr. Cole.
(10) Includes 8,000 shares of THI Common Stock reserved for issuance under
THI Stock Options held by Ms. Greer. A portion of such THI Stock
Options will become exercisable as a result of the Merger. See "The
Merger Interests of Certain Persons in the Merger." Does not include
1,272 shares of THI Common Stock issuable upon conversion of the
$40,000 principal amount of Series A Convertible Notes held by Ms.
Greer.
(11) Indicates ownership as of September 4, 1996. Warburg, Pincus
Counsellors, Inc. had sole dispositive power over all such shares and
shared voting power as to 13,046 of such shares. All information
contained in this Proxy Statement/Prospectus concerning such entities
is based on a Schedule 13G filed by Warburg Pincus Counsellors, Inc.
with the Commission in September 1996.
(12) Indicates ownership as of December 31, 1995. Includes 155,000 shares
(9.74% of the THI Common Stock outstanding) of THI Common Stock held by
Advisory Research, Inc. with respect to which Mr. Heller, as the
President and sole stockholder of Advisory Research, Inc., shares
voting and dispositive power. All information contained in this Proxy
Statement/Prospectus concerning such persons and entities is based on a
Schedule 13G filed by Mr. Heller with the Commission in February 1996.
(13) Indicates ownership as of January 31, 1996. FMR Corp., through its
affiliates, Fidelity Management & Research Company ("Fidelity") and
Fidelity Low Priced Stock Fund ("Fidelity Fund"), had sole dispositive
power over all such shares and shared voting power as to 113,520 of
such shares. Fidelity is the beneficial owner of 118,461 of such shares
(7.44% of the THI Common Stock outstanding) and Fidelity Fund is the
beneficial owner of 112,200 of such shares (7.05% of the THI Common
Stock outstanding). All information contained in this Proxy
Statement/Prospectus concerning such entities is based on information
provided by FMR Corp.
(14) Indicates ownership as of December 31, 1995. Franklin Resources, Inc.
holds shared dispositive power with respect to all such shares and
shared voting power with 98,693 of such shares. Includes 89,700 shares
(5.63% of the THI Common Stock outstanding) of THI Common Stock held by
Franklin Balance Sheet Investment Fund. Franklin Resources, Inc., its
subsidiaries and investment companies advised by such subsidiaries and
Charles B. Johnson and Rupert H. Johnson, Jr. (principal stockholders
of Franklin Resources, Inc.) have informed the Company that they are
not acting as a "group" for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, and that they are not otherwise
required to attribute to each other "beneficial ownership" of
securities. All information contained in this Proxy
Statement/Prospectus concerning such entities is based on a Schedule
13G filed by Franklin Resources, Inc. with the Commission in February
1996.
(15) The Lasater Children's Trusts may be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Exchange Act, although
nothing contained herein should be deemed to be an admission by the
Lasater Children's Trusts that such a group exists.
(16) Represents 125,000 shares of THI Common Stock issuable upon exercise of
the Lasater Trust Warrant. The exercise price of the Lasater Trust
Warrant is $55.00 per share.
(17) Based on Schedules 13D filed with the Commission by such persons
or entities in October 1995.
(18) Mr. Edward A. Lasater is the sole trustee of each of the Lasater
Children's Trusts. Solely by virtue of his position as the sole trustee
of the Lasater Children's Trusts, Mr. Edward A. Lasater may, pursuant
to Rule 13d-3 of the Exchange Act, be deemed to beneficially own the
125,000 shares of THI Common Stock issuable upon exercise of the
Lasater Trust Warrant.
41
<PAGE>
(19) The Sharpe Children's Trusts may be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Exchange Act, although
nothing contained herein should be deemed to be an admission by the
Sharpe Children's Trusts that a group exists.
(20) Represents 125,000 shares of THI Common Stock issuable upon exercise of
the Sharpe Trust Warrant. The exercise price of the Sharpe Trust
Warrant is $55.00 per share.
(21) Mr. Malouf is the sole trustee of the Sharpe Children's Trusts. Solely
by virtue of his position as the sole trustee of the Sharpe Children's
Trusts, Mr. Malouf may, pursuant to Rule 13d-3 of the Exchange Act, be
deemed to beneficially own the 125,000 shares of THI Common Stock
issuable upon exercise of the Sharpe Trust Warrant.
S:\ACCTING\SECRPT\S-4THI\SECOWN2.THI
</FN>
</TABLE>
42
<PAGE>
Proxies; Revocation of Proxies
Shares of THI Common Stock represented by properly executed proxies
received at or prior to the Special Meeting that have not been properly revoked
will be voted at the Special Meeting in accordance with the instructions
contained therein. Shares of THI Common Stock represented by properly executed
proxies for which no instruction is given will be voted FOR authorization and
adoption of the Merger Agreement and the Merger. THI stockholders are requested
to mark, 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 stockholder may revoke a proxy at any time prior to the vote on the
Merger Agreement and the Merger by submitting a later-dated proxy with respect
to the same shares, delivering written notice of revocation to the Secretary of
THI at any time prior to such vote or attending the Special Meeting and voting
in person. Mere attendance at the Special Meeting will not itself revoke a
proxy.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies that have theretofore been properly
revoked or withdrawn), notwithstanding that they may have been effectively voted
on the same or any other matter at a previous meeting.
At the date of this Proxy Statement/Prospectus, the THI Board of
Directors does not know of any business to be presented at the Special Meeting
other than as set forth in the notice accompanying this Proxy
Statement/Prospectus. If any other matters are properly presented at the 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 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.
Proxy Solicitation. THI will bear the cost of soliciting proxies from
its stockholders. Additionally, Conseco and THI will each bear one-half of the
cost of preparing and mailing this Proxy Statement/Prospectus and the
preparation and filing of the Registration Statement. In addition to
solicitation by mail, directors, officers and employees of THI, as well as
Georgeson & Company, Inc., the proxy solicitation agent retained by THI (the
"Proxy Solicitation Agent"), may solicit proxies by telephone, special letter,
telegram or otherwise. Such directors, officers and employees of THI will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. The Proxy Solicitation
Agent will be paid a fee of $6,000 for its services and will be entitled to
reimbursement of its expenses. Brokerage firms, fiduciaries and other custodians
who forward soliciting material to the beneficial owners of shares of THI Common
Stock held of record by them will be reimbursed for their reasonable expenses
incurred in forwarding such material.
THI STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
G:\LEGAL\REGSTMNT\THI10-16.S-4
43
<PAGE>
THE MERGER
Background of the Merger
In late August 1996, DLJ indicated to IP that Conseco might be willing
to pay a premium over current market price to the holders of THI Common Stock
and THI Convertible Notes. Subsequently, representatives of DLJ gave a
presentation in early September 1996 to Conseco concerning THI. A few days
later, THI's management met directly with management of Conseco. Based on such
conversations, Conseco entered into a confidentiality agreement with THI, and
THI furnished Conseco with certain non-public information requested by Conseco.
From September 17, 1996 through September 20, 1996, representatives of
THI and Conseco negotiated the terms of a possible acquisition of THI by
Conseco. Among the proposals discussed was an offer by Conseco to acquire THI by
merger for (i) $71.50 per share value for THI Common Stock (payable in Conseco
Common Stock), (ii) a collar placing high and low limits on the price of Conseco
Common Stock used in calculating the Merger Consideration (the "Collar") (see
"The Merger Agreement -- Conversion of Shares; Exchange of Stock Certificates;
No Fractional Amounts"), and (iii) conversion of the THI Convertible Notes into
Conseco Common Stock. The holders of the THI Convertible Notes, however,
indicated that they were unwilling to accept conversion of such notes into
Conseco Common Stock. In order to facilitate the successful conclusion of the
negotiations, the primary holders of THI Convertible Notes ultimately agreed to
exchange (by means of the Exchange Offer) such notes for Conseco Convertible
Notes similar to the THI Convertible Notes but having a reduced coupon rate from
that contained in the THI Convertible Notes (6.0% instead of 8.5%) and granting
Conseco mandatory conversion rights (under certain circumstances). In addition,
IP and Messrs. Lasater and Sharpe agreed to execute Exchange Agreements
requiring such holders to exchange their THI Convertible Notes in the Exchange
Offer. Travelers indicated orally that it would participate in the Exchange
Offer, but declined to execute an Exchange Agreement. See "The Merger Agreement
- - Exchange of THI Convertible Notes." After further negotiations, managements of
THI and Conseco and the primary holders of THI Convertible Notes agreed (subject
to approval thereof by the respective Boards of Directors of THI and Conseco) to
the terms described in this Proxy Statement/Prospectus, including (i) $70.00 per
share value for THI Common Stock (payable in Conseco Common Stock), (ii) the
Collar, (iii) the offer to exchange Conseco Convertible Notes for THI
Convertible Notes, and (iv) the execution by IP and Messrs. Lasater and Sharpe
of Exchange Agreements.
DAFS02.:\46\77946\0004\1170\RID0096U.56C
44
<PAGE>
On September 20, 1996, the outside directors of THI were informed by
John Sharpe, the Chairman of the Board of THI, of the discussions regarding a
possible merger with Conseco. Mr. Sharpe reviewed the background events leading
to the merger discussions, the proposed transaction structure, the proposed
principal terms and conditions of the acquisition, and the probable timing of
the transaction. Mr. Sharpe indicated that a package of detailed financial
information regarding Conseco had been sent to the directors for delivery the
next day.
Conseco provided THI with an initial draft of a form of merger
agreement on September 21, 1996 setting forth the terms of Conseco's offer to
acquire THI by merger in exchange for Conseco Common Stock. From September 21
through September 25, 1996, representatives of THI and its advisors met with
representatives of Conseco and conducted a due diligence review of the business
and financial condition of Conseco.
On September 22, 1996, THI's Board of Directors held a special
telephonic meeting regarding the proposed merger. At this initial meeting, THI's
senior management and legal and financial advisors reviewed the ongoing
discussions and negotiations between THI and Conseco. It was agreed that
management of THI would continue to pursue a possible sale of THI to Conseco,
with the understanding that final approval of any transaction would be
considered at a special meeting of the THI Board of Directors to be held on
September 24, 1996.
From September 23 through September 25, 1996, members of the senior
management of Conseco and THI, together with their legal advisors, negotiated
the provisions of the Merger Agreement and the Conseco Convertible Notes.
The THI Board of Directors held a special meeting on September 24,
1996. Prior to the meeting, each of the THI directors received the most recent
draft of the definitive documents relating to the proposed merger. At the
meeting, 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 THI Board of Directors.
The THI Board of Directors then heard presentations of its advisors with regard
to its fiduciary duties to the stockholders of THI in the context of considering
the proposed merger and the terms of the Merger Agreement. THI's management
reported on the results of the discussions to date with representa tives of
Conseco, and THI's advisors reported on the due diligence review undertaken to
date. THI's advisors also summarized the material terms and conditions of the
Merger Agreement. The THI Board of Directors instructed THI's management and
legal advisors to perform additional due diligence with regard to various
matters and instructed THI's management to take certain positions in the
negotiations with Conseco, including a change in the method of computing the
average price per share of Conseco Common Stock in calculating the Merger
Consideration and the addition of a termination event in the event that the five
day trading average of the Conseco Common Stock as of
45
DAFS02...:\46\77946\0004\1170\RID0096U.56C
<PAGE>
the scheduled Closing Date is less than $34.875. DLJ then presented its analysis
of the financial terms of the Merger Agreement and discussed various other
financial considerations that it used to reach its opinion on the fairness to
the stockholders of THI, from a financial point of view, of the Merger
Consideration to be received by the stockholders of THI pursuant to the Merger
Agreement. DLJ then answered questions of the members of the THI Board of
Directors before orally rendering its opinion that the Merger Consideration to
be received by the stockholders of THI pursuant to the Merger Agreement is fair,
from a financial point of view, to such holders. DLJ delivered its written
opinion at the end of the meeting. See "-- Opinion of THI's Financial Advisor."
The THI Board of Directors held a subsequent telephonic meeting on
September 25, 1996 after the completion of negotiations between the parties and
their respective representatives with regard to the definitive terms of the
Merger. Prior to the meeting of the THI Board of Directors, each of the THI
directors received the most recent draft of the definitive documents. At such
meeting, THI's legal advisors discussed the final results of their due diligence
review of Conseco, including the results of the additional due diligence review
requested by the THI Board of Directors at the prior meeting. THI's advisors
also summarized the changes in the terms and conditions of the Merger Agreement
since the last meeting, and answered questions posed by the directors. After
careful consideration by the members of the THI Board of Directors of the terms
of the Merger Agreement and after consultation with its advisors, the THI Board
of Directors voted unanimously to approve the Merger Agreement in the form
presented to it at the meeting, with such changes thereto as the Executive
Committee thereof may approve. See "- THI's Reasons for the Merger;
Recommendations of the THI Board of Directors."
S:\ACCTING\SECRPT\S-4THI\BACKGRD.WPD
46
<PAGE>
The Conseco Board of Directors met on September 20 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 THI and its legal and financial
advisors. The Conseco Board discussed the potential benefits to Conseco of an
acquisition of THI. 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 of Conseco
to execute and deliver the Merger Agreement as outlined to the Directors at the
meeting, with such further changes as management approved. See "-- Conseco's
Reasons for the Merger."
Conseco's Reasons for the Merger
The Conseco Board of Directors approved the Merger Agreement by a
unanimous vote at its September 20 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 THI, 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.
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. Strategic
acquisitions will be made by Conseco 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 believes that the insurance businesses
of Conseco and THI complement each other. THI's cancer insurance, heart/stroke
insurance and other supplemental health products will provide Conseco an
opportunity to expand its product portfolio. Completion of the Merger and
Conseco's other pending acquisitions would enable Conseco to be a major
competitor in its targeted markets, with more than 90,000 agents selling long
term care insurance, Medicare supplement insurance, cancer insurance, other
supplemental health insurance, universal life insurance and retirement annuity
products. The addition of THI's distribution system would also provide Conseco
additional opportunities to cross-market its current products. The Conseco Board
of Directors also believes that the Merger offers Conseco and THI 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 THI After the
Merger."
G:\LEGAL\REGSTMNT\THI10-16.S-4
47
<PAGE>
THI's Reasons for the Merger; Recommendation of the THI Board of Directors
After careful consideration by the members of the THI Board of
Directors of the terms of the Merger Agreement and consultation with its
advisors, the THI Board of Directors voted unanimously to approve the Merger
Agreement in the form presented to it at the THI Board of Directors meeting on
September 25, 1996, with such changes thereto as the Executive Committee thereof
may approve. In voting to approve the Merger Agreement and the Merger, the THI
Board of Directors relied upon many different factors, including: (1) the
premium over the then current market price of the THI Common Stock offered by
Conseco; (2) the length of time that would be required if the Merger were not
consummated to equal the stockholder value to be received by the THI
stockholders through the Merger; (3) the financial condition and results of
operations of Conseco and the THI Board of Directors' perception of the more
favorable overall business prospects of Conseco and THI on a combined basis as
compared to THI's prospects as a separate entity; (4) the tax-deferred nature of
the transaction; (5) the potential increase in value of the Conseco Common Stock
after the Merger based on Conseco's financial strength and competitive position;
(6) the highly competitive nature of the life and health insurance business; (7)
the difficulty of maintaining financial and claims-paying ratings issued by
rating agencies; (8) the current trend of consolidation within the insurance
industry; (9) the broader, more active trading market for Conseco Common Stock;
and (10) the opinion rendered to the THI Board of Directors by DLJ with regard
to the fairness to the stockholders of THI, from a financial point of view, of
the Exchange Ratio to be received by the stockholders of THI pursuant to the
Merger Agreement.
THE DIRECTORS OF THI HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT
AND RECOMMEND THAT THE STOCKHOLDERS OF THI VOTE FOR THE PROPOSAL TO AUTHORIZE
AND ADOPT THE MERGER AGREEMENT SET FORTH AS ITEM 1 ON THE PROXY CARD.
G:\LEGAL\REGSTMNT\THI10-16.S-4
48
<PAGE>
Opinion of THI's Financial Advisor
In its role as financial advisor to THI, DLJ was asked by THI to render
its opinion to the THI Board of Directors as to the fairness, from a financial
point of view, to the holders of THI Common Stock of the consideration to be
received by the holders of THI Common Stock pursuant to the terms of the Merger
Agreement. On September 24, 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 Exchange Ratio was fair, from a financial point of view, to the
holders of THI Common Stock.
A copy of the DLJ Opinion is attached hereto as Annex B. THI stockholders
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 THI Board of Directors and is
directed only to the fairness, from a financial point of view, to the holders of
THI Common Stock, and does not constitute a recommendation to any shareholder as
to how to vote at the 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 Exchange Ratio was
determined in arms' length negotiations between THI and Conseco, in which
negotiations DLJ advised THI. No restrictions or limitations were imposed by the
THI Board of Directors 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 THI.
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 THI 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 THI for the years ending December 31, 1996
through December 31, 2000 prepared by the management of THI, 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 announced
by Conseco for the years ending December 31, 1996 through December 31, 2005
prepared by the management of Conseco. In addition, DLJ compared certain
financial and securities data of THI and Conseco with various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of THI 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 THI and Conseco
or its representatives, or that was otherwise reviewed by it. With respect to
the financial projections of THI 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 THI as to the future operating and financial
performance of THI. 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 THI and Conseco. DLJ did not
assume any responsibility for making an independent evaluation
62660026.CPY (DLJNY01)
49
<PAGE>
of THI's and Conseco's assets or liabilities or for making any independent
verification of any of the information reviewed by it. DLJ relied as to all
legal matters on advice of counsel to THI.
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, September 24, 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.
The following is a summary of the presentation made by DLJ to the THI
Board of Directors at its September 24, 1996 meeting.
DLJ assumed an Exchange Ratio such that each holder of THI Common Stock
would receive $70.00 per share in its analysis, which is based on Conseco's
closing stock price on September 19, 1996 of $45.00. DLJ also assumed an
Exchange Ratio such that each holder of THI Common Stock would receive $63.82
per share in its analysis, which is the lowest per share value the holders of
THI Common Stock could receive without triggering their right to terminate the
Merger. Such assumptions should in no way be viewed by the holders of THI Common
Stock as an opinion as to the value of Conseco Common Stock that may actually be
received in the Merger. Such use is merely for illustrative and analytical
purposes.
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 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 THI 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 operating earnings for the latest twelve months ("LTM") or
latest fiscal year ("LFY") ended prior to announcement of such transactions and
statutory capital and surplus as of the end of the last fiscal quarter ("LFQ")
or 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 operating earnings and 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
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, analysis of a multiple of
statutory operating earnings and 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 THI by Conseco to the statutory operating
earnings and statutory capital and surplus of THI with the multiples paid in the
Selected Transactions indicates whether the valuation being placed on THI is
within the range of values paid for the Selected Transactions.
The low, average and high multiples of Transaction Value to statutory
operating earnings for the LTM or LFY ended prior to announcement of the
transaction were 7.5x, 16.7x and 36.7x, respectively, for the Selected Life and
Health Transactions and 5.1x, 20.5x and 46.9x, respectively, for the Selected
Health Transactions.
50
<PAGE>
Based on an offer price of $70.00 per share, the implied multiple of Transaction
Value to THI's 1995 statutory operating earnings was 16.6x. This multiple is
higher than the low multiples of both the Selected Life and Health Transactions
and the Selected Health Transactions. Based on an offer price of $63.82 per
share, the implied multiple of Transaction Value to THI's 1995 statutory
operating earnings was 15.5x. This multiple is higher than the low multiples of
both the Selected Life and Health Transactions and the Selected Health
Transactions. 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, 2.7x and 10.5x, respectively, for the
Selected Life and Health Transactions and 1.3x, 3.9x and 10.8x, respectively,
for the Selected Health Transactions. Based on an offer price of $70.00 per
share, the implied multiple of Transaction Value to THI's statutory capital and
surplus as of December 31, 1995 was 2.1x. This multiple is higher than the low
multiples of both the Selected Life and Health Transactions and the Selected
Health Transactions. Based on an offer price of $63.82 per share, the implied
multiple of Transaction Value to THI's statutory capital and surplus as of
December 31, 1995 was 1.9x. This multiple is higher than the low multiples 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 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 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 THI Common Stock by Conseco to the GAAP operating earnings and
shareholders' equity of THI with multiples paid by acquirers in other
transactions indicates whether the valuation being placed on THI 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, 14.7x and 23.9x, respectively, for the
Selected Life and Health Transactions and 10.8x, 13.1x and 16.9x, respectively,
for the Selected Health Transactions. Based on an offer price of $70.00 per
share, the implied multiple of price paid for common stock to THI's GAAP
operating earnings for the LTM ended June 30, 1996 was 16.4x. This multiple is
higher than the average multiples of both the Selected Life and Health
Transactions and the Selected Health Transactions. Based on an offer price of
$63.82 per share, the implied multiple of price paid for common stock to THI's
GAAP operating earnings for the LTM ended June 30, 1996 was 14.9x. This multiple
is higher than the average multiples of both the Selected Life and Health
Transactions and 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 0.9x, 1.6x
and 2.8x, respectively, for the Selected Life and Health Transactions and 1.8x,
2.3x and 2.8x, respectively, for the Selected Health Transactions. Based on an
offer price of $70.00 per share, the implied multiple of price paid for common
stock to THI's shareholders' equity as of June 30, 1996 was 1.2x. This multiple
is higher than the low multiple of the Selected Life and Health Transactions and
lower than the low multiple of the Selected Health Transactions. Based on an
offer price of $63.82 per share, the implied multiple of price paid for common
stock
62660026.CPY (DLJNY01)
51
<PAGE>
to THI's shareholders' equity as of June 30, 1996 was 1.1x. This multiple is
higher than the low multiple of the Selected Life and Health Transactions and
lower than the low multiple of 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 exchange ratio 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 transactions involving life
insurance and accident and health insurance companies since January 1, 1993
where the acquired company's stock was publicly traded (the "Selected Public
Life and Health Transactions") and selected transactions involving only accident
and health insurance companies since January 1, 1993 where the acquired
company's stock was publicly traded (the "Selected Public Health Transactions").
The average premiums of offer prices to public market trading prices one day,
one week and one month prior to the announcement date were 20.7%, 22.0% and
30.4%, respectively, for the Selected Public Life and Health Transactions and
20.1%, 24.7% and 27.6%, respectively, for the Selected Public Health
Transactions. An offer price of $70.00 per share represents premiums to the
trading prices of THI Common Stock one day, one week and one month prior to
September 19, 1996, of 42.1%, 45.8% and 50.1%, respectively. These premiums are
higher than the corresponding average premiums of both the Selected Public Life
and Health Transactions and the Selected Public Health Transactions. An offer
price of $63.82 per share represents premiums to the trading prices of THI
Common Stock one day, one week and one month prior to September 19, 1996 of
29.6%, 32.9% and 36.9%, respectively. These premiums are higher than the
corresponding average premiums of both the Selected Public Life and Health
Transactions and the Selected Public Health Transactions.
Public Company Analysis. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios of THI
to the corresponding data and ratios of selected accident and health insurance
companies whose securities are publicly traded. Such companies included American
Heritage Life Investment Corp., Delphi Financial Group, Inc., Penn Treaty
American Corp. and Pioneer Financial Services, Inc. (the "Selected Small Health
Companies").
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 1997 through 2001 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for 1997 for
the Selected Small Health Companies and management's projections for 1997
through 2001 for THI) 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 ("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. The projections for THI's GAAP operating EPS for 1997
through 2001 provided by THI's management to DLJ were preliminary in nature and
were not made available to the public or to research analysts. Such projections
showed a decline in estimated GAAP operating EPS when comparing 1997 to 1998
through 2001. 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 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 the
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price paid for the company's common stock, 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 THI with the
multiples at which the Selected Small Health Companies trade indicates whether
the valuation being placed on THI is within the range of values at which the
Selected Small Health Companies trade.
The low, average and high multiples of public stock price to GAAP
operating EPS for the LTM ended June 30, 1996 were 8.1x, 12.2x and 15.6x,
respectively, for the Selected Small Health Companies. Based on an offer price
of $70.00 per share, the implied multiple of offer price to THI's GAAP operating
EPS for the LTM ended June 30, 1996 was 16.4x. This multiple is higher than the
high multiple of the Selected Small Health Companies. Based on an offer price of
$63.82 per share, the implied multiple of offer price to THI's GAAP operating
EPS for the LTM ended June 30, 1996 was 14.9x. This multiple is higher than the
average multiple of the Selected Small Health Companies. The low, average and
high multiples of public stock price to estimated 1997 GAAP operating EPS were
6.8x, 9.4x and 12.3x, respectively, for the Selected Small Health Companies.
Based on an offer price of $70.00 per share, the implied multiple of offer price
to THI's estimated 1997 GAAP operating EPS was 8.8x. This multiple is higher
than the low multiple of the Selected Small Health Companies. Based on an offer
price of $63.82 per share, the implied multiple of offer price to THI's
estimated 1997 GAAP operating EPS was 8.0x. This multiple is higher than the low
multiple of the Selected Small Health Companies. Based on an offer price of
$70.00 per share, the implied multiple of offer price to the simple average of
THI's estimated GAAP operating EPS for 1999 through 2001 (the "Normalized
Estimated GAAP Operating EPS") was 10.3x. This multiple is higher than the
average multiple of public stock price to estimated 1997 GAAP operating EPS of
the Selected Small Health Companies.. Based on an offer price of $63.82 per
share, the implied multiple of offer price to THI's Normalized Estimated GAAP
Operating EPS was 9.4x. This multiple is equal to the average multiple of public
stock price to estimated 1997 GAAP operating EPS of the Selected Small Health
Companies. The low, average and high multiples of public stock price to
shareholders' equity per share as of June 30, 1996 were 1.1x, 1.4x and 1.7x,
respectively, for the Selected Small Health Companies Based on an offer price of
$70.00 per share, the implied multiple of offer price to THI's shareholders'
equity per share as of June 30, 1996 was 1.2x. This multiple is higher than the
low multiple of the Selected Small Health Companies. Based on an offer price of
$63.82 per share, the implied multiple of offer price to THI's shareholders'
equity per share as of June 30, 1996 was 1.1x. This multiple is equal to the low
multiple of the Selected Small Health Companies. The low, average and high
multiples of Enterprise Value to statutory operating earnings for the LTM or LFY
were 15.1x, 22.8x and 29.8x, respectively, for the Selected Small Health
Companies. Based on an offer price of $70.00 per share, the implied multiple of
Transaction Value to THI's 1995 statutory operating earnings was 16.6x. This
multiple is higher than the low multiple of the Selected Small Health Companies.
Based on and offer price of $63.82 per share, the implied multiple of
Transaction Value to THI's 1995 statutory operating earnings was 15.5x. This
multiple is higher than the low multiple of the Selected Small Health Companies.
The low, average and high multiples of Enterprise Value to statutory capital and
surplus as of the end of the LFQ or LFY were 2.1x, 3.5x and 5.2x, respectively,
for the Selected Small Health Companies. Based on an offer price of $70.00 per
share, the implied multiple of Transaction Value to THI's statutory capital and
surplus as of December 31, 1995 was 2.1x. This multiple is equal to the low
multiple of the Selected Small Health Companies. Based on an offer price of
$63.82 per share, the implied multiple of Transaction Value to THI's statutory
capital
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and surplus as of December 31, 1995 was 1.9x. This multiple is lower than the
low multiple of the Selected Small Health 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 Companies, Liberty Financial
Companies, Inc., Presidential Life Corp., SunAmerica Inc. and Western National
Corp. (the "Selected Annuity Companies"), of Jefferson-Pilot Corp., Kansas City
Life Insurance Company, Protective Life Corp., ReliaStar Financial Corp., and
USLIFE Corp. (The "Selected Life Companies") and of AFLAC, Inc., PennCorp
Financial Group, Inc., Provident Companies and UNUM Corp. (the "Selected Large
Health Companies") (together, the "Selected Companies").
Such analysis included, among other things, the multiples of stock price
to 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 Conseco) and shareholders'
equity per share as of June 30, 1996. Closing prices as of September 19, 1996
were used in this analysis. Comparing the multiples of Conseco's stock price to
GAAP operating EPS and shareholders' equity per share with the multiples at
which the Selected Companies trade indicates whether Conseco's stock price is
within the range of values at which the Selected Companies trade. Conseco's GAAP
operating EPS and shareholders' equity per share used in this analysis were
adjusted to give pro forma effect to the LPG Merger, the CAF Merger, the ATC
Merger, the ALH Transaction, the BLH Transaction and certain other matters
(together the "Concurrent Transactions").
The low, average and high multiples of public stock price to estimated
1996 GAAP operating EPS were 9.8x, 11.9x and 17.0x, respectively, for the
Selected Annuity Companies, 8.4x, 10.8x and 13.8x, respectively, for the
Selected Life Companies and 11.4x, 13.6x and 15.4x, respectively, for the
Selected Large Health Companies. The multiple of price to Conseco's estimated
1996 GAAP operating EPS was 12.5x. This multiple is higher than the average
multiple of both the Selected Annuity Companies and the Selected Life Companies
and higher than the low multiple of the Selected Large Health Companies. The
low, average and high multiples of public stock price to estimated 1997 GAAP
operating EPS were 8.8x, 10.6x and 14.7x, respectively, for the Selected Annuity
Companies, 7.7x, 9.7x and 12.4x, respectively, for the Selected Life Companies
and 9.8x, 11.5x and 13.1x, respectively, for the Selected Large Health
Companies. The multiple of price to Conseco's estimated 1997 GAAP operating EPS
was 10.2x. This multiple is higher than the low multiple of both the Selected
Annuity Companies and the Selected Large Health Companies and higher than the
average multiple of the Selected Life Companies. The low, average and high
multiples of public stock price to shareholders' equity per share as of June 30,
1996 were 1.0x, 1.4x and 1.8x, respectively, for the Selected Annuity Companies,
0.8x, 1.5x and 2.1x, respectively, for the Selected Life Companies and 1.2x,
1.9x and 2.8x, respectively, for the Selected Large Health Companies. The
multiple of price to Conseco's shareholders' equity per share as of June 30,
1996 was 1.4x. This multiple is equal to the average multiple of the Selected
Annuity Companies and higher than the low multiples of both the Selected Life
Companies and the Selected Large Health Companies.
No company or transaction used in the Transaction Analysis or the Public
Company Analysis described above was directly comparable to THI, 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 insurance, 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
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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 THI Common Stock and Conseco Common Stock for various
periods ended prior to September 19, 1996. DLJ also reviewed the daily closing
prices of THI Common Stock and Conseco Common Stock and compared the THI and
Conseco closing stock prices with the S&P 500 Index and indices of selected
publicly traded companies. DLJ reviewed the trading history since the spin-off
from Travelers Group, Inc. of the THI Common Stock on October 2, 1995 and since
September 17, 1993 of Conseco Common Stock to determine whether trading levels
immediately prior to September 19, 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 THI Common Stock and Conseco
Common Stock relative to indices of selected publicly traded companies in order
to assess the relative stock price performance of THI, 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 THI 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 on the EPS, shareholders' equity per share and leverage
ratios of the combined companies, assuming the Concurrent Transactions have been
completed. 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 THI and Conseco. DLJ incorporated estimates of such revenue enhancements and
expense savings, determined in conjunction with the managements of THI 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 on an
offer price of $70.00 per share and assuming that the cash portion of the
consideration paid in the Concurrent Transactions is financed with $300 million
of tax-deductible preferred stock and the remainder with debt, Conseco's
shareholders would realize EPS accretion of 3.6%, and 1.5%, respectively, in
1997 and 1998 assuming the Merger and the Concurrent Transactions are completed
versus assuming only the Concurrent Transactions are completed. Based on this
analysis and on an offer price of $70.00 per share and assuming that the cash
portion of the consideration paid in the Concurrent Transactions is financed
with $300 million of tax-deductible preferred stock and the remainder 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 34.2% and 36.4%, respectively,
assuming the Merger and the Concurrent Transactions are completed, versus 34.5%
and 36.6%, respectively, assuming only the Concurrent Transactions are
completed. 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 THI'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 THI 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 THI's historical and pro forma (in the case of Conseco,
pro forma for the Concurrent Transactions) financial results and (ii) with
respect to estimated GAAP operating earnings for 1997 and 1998, as projected by
THI's and Conseco's managements.
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THI's relative contribution to the combined company with respect to
estimated GAAP operating earnings for 1997 and 1998 were 5.5% and 4.2%,
respectively, of the total. THI's relative contribution to the combined company
with respect to total assets was 3.4% of the total. Including the tax-deductible
preferred stock and the PRIDES for Conseco as common equity, THI's relative
contribution to shareholders' equity as of June 30, 1996 was 4.4% of the total.
Based on offer prices of $70.00 per share and $63.82 per share, THI
shareholders would own approximately 4.8% and 5.6%, respectively, 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 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 THI Board of Directors 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 THI, its
business and the life insurance, accident and health insurance and annuity
industries. Pursuant to the terms of an engagement letter dated September 25,
1996 between THI and DLJ, THI paid DLJ a $100,000 retainer fee and an additional
$250,000 upon rendering of the DLJ Opinion. Pursuant to the terms of the
engagement letter, THI will pay DLJ, on the Closing Date, cash compensation
equal to three-quarters of one percent (0.75%) of the Transaction Value, less
the $350,000 paid to date. Based on an assumed Transaction Value, THI will pay
DLJ, on the Closing Date, cash compensation of approximately $2.3 million, less
the $350,000 paid to date. THI 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 THI believe are customary
in transactions of this nature, were negotiated at arms' length between THI and
DLJ and the THI Board of Directors 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 THI 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
Conseco in the past and has received usual and customary compensation for such
services. In addition, DLJ acted as financial advisor to ATC in connection with
the
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purchase of THI's long-term care insurance business in December 1995 and as
financial advisor to LPG, CAF and ATC in connection with the LPG Merger, the CAF
Merger and the ATC Merger, respectively. DLJ has received or will receive usual
and customary compensation for each of such services.
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Certain Consequences of the Merger
As a result of the Merger, the holders of THI Common Stock will become
shareholders of Conseco, and thereby will continue to have an interest in THI
through Conseco. See "Comparison of Shareholders' Rights." Upon the consummation
of the Merger, each outstanding share of THI Common Stock (other than shares of
THI Common Stock held as treasury stock by THI) will be 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.
See "The Merger Agreement -- Treatment of THI Stock Options and THI
Warrants" for a description of the treatment of THI Stock Options and THI
Warrants in the Merger. 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 THI Stock Options and THI Warrants
assumed in accordance with the Merger Agreement.
Conduct of the Business of Conseco and THI 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."
Conseco expects to achieve annual operating cost savings through the
consolidation of Conseco and THI 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 operations. There can be no
assurance that such cost savings will be realized as anticipated by Conseco.
Interests of Certain Persons in the Merger
Severance Benefits. Members of THI's senior management who experience a
Severance Event (as defined below) within 18 months after the Effective Time
will be entitled to receive, in lieu of the severance benefits described under
"The Merger Agreement - THI Employee Matters," severance benefits in the form of
a lump sum equal to (i) one and one-half of such officer's base salary plus (ii)
if such Severance Event occurs during 1997, 60 percent of the bonus received by
such senior officer for services performed in 1995 and 1996 (pro rated to
reflect when the Severance Event occurred during 1997) less any cash bonus paid
to such senior officer with respect to services performed in calendar year 1997
prior to such Severance Event. Any such severance payments shall be in addition
to amounts otherwise payable under any employment or other agreement between THI
and any of its officers. The term "Severance Event" means: (i) the material
reduction or elimination of such employee's duties, responsibilities or title
(other than the elimination of positions with THI as a result of the Merger);
(ii) the reduction or elimination of such employee's compensation; (iii) the
requirement that such employee relocate or commute an unreasonable distance in
order to effectively perform such employee's duties; or (iv) with respect to
senior officers only, the failure to pay to such senior officer a bonus with
respect to services performed in calendar year 1997 equal to at least 60 percent
of the bonus received by such senior officer for services performed in 1995 and
1996.
Vesting of THI Stock Options. In accordance with the terms of the
Merger Agreement and the 1995 Stock Plan, all outstanding THI Stock Options will
become immediately exercisable in full at the Effective Time. As a result of
such acceleration, the following executive officers and directors of THI will be
able, at and after the Effective Time, to exercise their THI Stock Options for
the following number of additional shares of THI Common Stock that would not yet
otherwise be exercisable but for the Merger: A. Foster Nelson (32,000 shares);
T. Gary Cole (20,000 shares); and Deborah V. Greer (6,400 shares). See "The
Special Meeting - Security Ownership of Certain Beneficial Owners and
Management."
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THI Warrants. From and after the Effective Time, each outstanding THI
Warrant shall be exercisable, for the same aggregate consideration payable to
exercise such THI Warrant, for the number of shares of Conseco Common Stock
which the holder of such THI Warrant would have been entitled to receive at the
Effective Time if such THI Warrant had been exercised in full for shares of THI
Common Stock immediately prior to the Effective Time, and otherwise on the same
terms and conditions as were applicable under such THI Warrant. Conseco has also
agreed to amend the outstanding THI Warrants as soon as practicable after the
Effective Time to provide that the holders thereof may, from time to time, sell
all or part of the THI Warrants (subject to a reasonable minimum size limitation
and a reasonable limit on the number of such sales each year) to Conseco for a
price equal to the difference between the "current market price" and the
"current warrant price" (as such terms are defined in the underlying warrant
agreement), each as of the date of the proposed sale. The outstanding THI
Warrants are held by trusts established for the benefit of the children of
Messrs. Lasater and Sharpe. See "The Special Meeting - Security Ownership of
Certain Beneficial Owners and Management" and "The Merger Agreement - Treatment
of THI Stock Options and THI Warrants."
Series A Convertible Notes. Certain executive officers and directors of
THI, including Messrs. Lasater, Sharpe, Nelson and Cole and Ms. Greer, own
Series A Convertible Notes in the aggregate principal amount of $3,680,000. See
"The Special Meeting - Security Ownership of Certain Beneficial Owners and
Management." Conseco has agreed to exchange, by means of the Exchange Offer,
Conseco Convertible Notes for the Series A Convertible Notes, including those
described above. The Conseco Convertible Notes are similar to the THI
Convertible Notes, but incorporate certain changes, including a reduced coupon
rate (6.0 percent instead of 8.5 percent), mandatory conversion (under certain
circumstances), elimination of the mandatory redemption feature, and certain
other variations. IP and Messrs. Lasater and Sharpe have entered into Exchange
Agreements requiring such holders to exchange their Series A Convertible Notes
for Conseco Convertible Notes in the Exchange Offer and consenting to the
amendment of the documents governing the THI Convertible Notes to remove the
covenants therefrom. See "The Merger Agreement - Exchange of THI Convertible
Notes."
Consulting and Employment Arrangements. Conseco has agreed to enter
into agreements with each of Messrs. Lasater, Sharpe and Nelson that will
provide that the noncompetition and related covenants contained in their
respective employment agreements will not apply to any companies that become
affiliates of THI, Transport Life or any of their respective affiliates by
reason of the Merger or subsequent acts or transactions of Conseco or companies
under Conseco's control. Conseco has also agreed to enter into agreements with
Transport Life and certain officers of Transport Life (including Mr. Cole and
Ms. Greer) that will provide that such officers shall be continuously employed
as an employee/consultant of Transport Life through January 31, 1998. In
addition, Conseco has agreed to enter into an agreement with Transport Life and
Ms. Greer that will provide that Ms. Greer shall not be terminated as an
employee of Transport Life prior to February 25, 1997.
Indemnification of Directors and Officers; Insurance. The Merger
Agreement provides that the certificate of incorporation and by-laws of each of
THI'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 THI 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 THI
would have been obligated to do so had it been the Surviving Corporation. In
addition, for a period of three years after the Effective Time, Conseco has
agreed to maintain the current policies of officers' and
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directors' liability insurance covering the Indemnified Parties with respect to
claims arising out of facts or events that occurred prior to the Effective Time.
The foregoing provisions are intended to be for the benefit of, and shall be
enforceable by, each Indemnified Party and the heirs and personal
representatives of such Indemnified Party and shall be binding on all successors
and assigns of Conseco.
Accounting Treatment
Conseco intends to account for the Merger under the purchase method of
accounting in accordance with APB Opinion No. 16, "Business Combinations." Under
this method of accounting, the cost of acquiring all outstanding shares of THI
Common Stock and the assumption of all outstanding THI Stock Options and
warrants will be determined by the value at the Effective Time of the Merger
Consideration and the Conseco Common Stock (or cash) to be issued to holders of
THI Stock Options and warrants, 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.
Certain Federal Income Tax Consequences
The following is a summary description of the material United States
federal income tax consequences of the Merger to THI and the THI stockholders.
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, life insurance companies, tax-exempt
organizations, investment companies and foreign taxpayers. In addition, no
information is provided herein with respect to the tax consequences of the
Merger either under applicable foreign, state or local laws or to persons who
acquire THI Common Stock pursuant to employee stock options or otherwise as
compensation.
The following discussion is based on the Code, as in effect on the date
of this Proxy Statement/Prospectus, without consideration of the particular
facts or circumstances of any particular holder of THI Common Stock. THI and
Conseco have not sought and will not seek any rulings from the Internal Revenue
Service with respect to any of the matters discussed herein.
The obligation of THI to effect the Merger is conditioned on delivery
to THI of an opinion dated the Closing Date from Weil, Gotshal & Manges LLP,
counsel to THI, or other legal counsel reasonably acceptable to THI and Conseco,
based on certain representations to be made by THI, Conseco and certain
significant stockholders and security holders 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) of the Code and, as a
result, the stockholders of THI will not be subject to federal income tax on
their receipt, pursuant to the Merger, of shares of Conseco Common Stock in
exchange for THI Common Stock. Such opinion is not binding on the Internal
Revenue Service.
Assuming that the Merger qualifies for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1) of the Code, the material
federal income tax consequences of the Merger for the THI stockholders and THI
will be as follows:
(i) No gain or loss will be recognized by THI stockholders upon their
exchange of THI Common Stock for Conseco Common Stock, except that any
THI stockholder 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 cash proceeds and the
stockholder's tax basis in the fractional share interest, determined as
provided below, and such gain or loss will constitute a capital gain or
loss if such stockholder's THI Common Stock is held as a capital asset
at the Effective Time;
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(ii) The tax basis in the Conseco Common Stock (including any
fractional share interest deemed received and exchanged for a cash
payment) received by a THI stockholder in exchange for THI Common Stock
will be the same as such stockholder's tax basis in the THI Common
Stock surrendered in exchange therefor;
(iii) The holding period of the Conseco Common Stock (including any
fractional share interest deemed received and exchanged for a cash
payment) received by a THI stockholder will include the period during
which the THI Common Stock surrendered in exchange therefor was held
(provided that such THI Common Stock was held by such THI stockholder
as a capital asset at the Effective Time); and
(iv) No gain or loss will be recognized by THI upon the transfer of its
assets to Conseco pursuant to the Merger.
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER FOR THI AND THI STOCKHOLDERS AND IS
INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE
INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH THI STOCKHOLDER'S
TAX STATUS AND ATTRIBUTES. ACCORDINGLY, EACH THI STOCKHOLDER SHOULD CONSULT HIS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN SUCH TAX 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 THI filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on October , 1996. The required waiting
period under the HSR Act is scheduled to expire on November , 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 THI. 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 THI or businesses of Conseco or THI. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
Conseco and THI 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 THI 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 approval of
the Commissioner of the Texas Department of Insurance (Texas is the jurisdiction
in which the insurance companies owned by THI are domiciled). The Texas
Insurance Code contains provisions applicable to the acquisition of
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control of a Texas-domiciled insurer, including a presumption of control that
arises from the ownership of ten percent or more of the voting securities of a
Texas-domiciled insurer or a person that controls a Texas-domiciled insurer.
Appropriate filings with the Texas Insurance Commissioner have been made and it
is anticipated, although there can be no assurance, that the approval of the
Texas Insurance Commissioner will be obtained.
NYSE Listing of Conseco Common Stock
Pursuant to the Merger Agreement, Conseco is required to use
commercially reasonable 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 THI and Conseco to
consummate the Merger.
Absence of Appraisal Rights
Holders of THI Common Stock will not be entitled to appraisal rights
under the DGCL in connection with the Merger. Holders of Conseco Common Stock
will not be entitled to appraisal rights under the Indiana Business Corporation
Law (the "IBCL") in connection with the Merger. See "Comparison of Shareholders'
Rights - Dissenters' Rights."
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Proxy Statement/Prospectus and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the Merger Agreement. All stockholders 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 Merger by the stockholders of THI and
the obtaining of required regulatory approvals. THI will be merged with and into
Conseco, with Conseco being the surviving corporation. See "- Conditions to the
Merger" and "- Termination."
Effective Time
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions and the requisite approval of the stockholders of
THI, the Merger will be consummated by and will become effective on the date of
the filing of the Articles of Merger with the Secretary of State of Indiana and
the Certificate of Merger with the Secretary of State of Delaware or at such
time thereafter as is provided in the Articles of Merger and the Certificate of
Merger. The Merger Agreement may be terminated by either Conseco or THI if,
among other reasons, the Merger has not been consummated on or before January
31, 1997 (or March 31, 1997 under certain circumstances). 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
THI Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares
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by THI) will, by virtue of the Merger and without any action on the part of the
holder thereof, 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 Share Price. The "Conseco
Share Price" shall be equal to the Trading Average (as defined below); provided,
however, that if the Trading Average is less than $38.25, then the Conseco Share
Price shall be $38.25, and if the Trading Average is greater than $50.00, then
the Conseco 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, as reported in The Wall Street Journal,
for the ten trading days immediately preceding the second trading day prior to
the Effective Time. As a result of this Exchange Ratio, holders of THI Common
Stock will receive, upon consummation of the Merger, not less than 1.4000 shares
and not more than 1.8301 shares of Conseco Common Stock for each share of THI
Common Stock held at the Effective Time. The Conseco Common Stock to be issued
to holders of shares of THI Common Stock in accordance with 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
THI Common Stock as provided in the Merger Agreement shall be proportionately
adjusted.
On ,____ 1996, the last full trading day for which information was
available prior to the mailing of this 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 THI Common Stock on the NASDAQ
National Market was $ per share. There can be no assurance or prediction, and
neither Conseco nor THI hereby make any assurance or prediction, as to the
future price of the Conseco Common Stock or THI Common Stock.
No fractional shares of Conseco Common Stock will be issued in
connection with the Merger. Each THI stockholder 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 Exchange Agent will mail to each
record holder of Certificates, which prior thereto represented THI Common Stock,
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 pursuant to the Merger Agreement. After receipt of such transmittal
form, each holder of Certificates should surrender such Certificates to the
Exchange Agent together with the 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 a check for any cash which may be payable in lieu of a
fractional share of Conseco Common Stock.
THI STOCKHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER AND
INSTRUCTIONS.
After the Effective Time, each outstanding Certificate (other than
Certificates evidencing shares of THI Common Stock held as treasury shares by
THI), which prior thereto represented THI Common Stock, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the Merger Consideration that the holder of such Certificate is entitled
to receive pursuant to the terms of the Merger Agreement.
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Treatment of THI Stock Options and THI Warrants
From and after the Effective Time, each THI Stock Option shall be
exercisable, for the same aggregate consideration payable to exercise such THI
Stock Option immediately prior to the Effective Time, for the number of shares
of Conseco Common Stock which the holder would have been entitled to receive at
the Effective Time if such THI Stock Option had been fully vested and exercised
for shares of THI Common Stock immediately prior to the Effective Time, and
otherwise on the same terms and conditions as were applicable under the 1995
Stock Plan and the underlying stock option agreement; provided, that each THI
Stock Option, if not then vested, will vest in full at the Effective Time in
accordance with the 1995 Stock Plan.
From and after the Effective Time, each outstanding THI Warrant shall
be exercisable, for the same aggregate consideration payable to exercise such
THI Warrant immediately prior to the Effective Time, for the number of shares of
Conseco Common Stock which the holder of such THI Warrant would have been
entitled to receive at the Effective Time if such THI Warrant had been exercised
in full for shares of THI Common Stock immediately prior to the Effective Time,
and otherwise on the same terms and conditions as were applicable under such THI
Warrant. Conseco has also agreed to amend the outstanding THI Warrants as soon
as practicable after the Effective Time to provide that the holders thereof may,
from time to time, sell all or part of the THI Warrants (subject to a reasonable
minimum size limitation and a reasonable limit on the number of such sales each
year) to Conseco for a price equal to the difference between the "current market
price" and the "current warrant price" (as such terms are defined in the
underlying warrant agreement), each as of the date of the proposed sale. The
outstanding THI Warrants are held by trusts established for the benefit of the
children of Messrs. Lasater and Sharpe. See "The Special Meeting - Security
Ownership of Certain Beneficial Owners and Management."
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 THI 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.
Redemption of THI Preferred Stock
The Merger Agreement provides that all of the outstanding shares of THI
Preferred Stock will be redeemed before the Effective Time. In accordance with
the terms of the THI Certificate of Incorporation, Travelers, as the sole holder
of THI Preferred Stock, will receive, upon redemption of the shares of THI
Preferred Stock held by it, an amount equal to the liquidation preference
therefor ($250 per share), plus accrued and unpaid dividends thereon (whether or
not declared) to but excluding the date of redemption. Such amount is expected
to be approximately $26.4 million.
Exchange of THI Convertible Notes
The Merger Agreement provides that Conseco shall offer to exchange, as
of the Effective Time, Conseco Convertible Notes in an aggregate principal
amount of $50 million for the outstanding THI Convertible Notes. The Conseco
Convertible Notes are similar to the THI Convertible Notes, but contain certain
changes, including a reduced coupon rate (6.0 percent instead of 8.5 percent),
mandatory conversion (under certain circumstances), elimination of the mandatory
redemption feature, and certain other variations. Conseco will take such action
as is necessary for the making and consummation of such exchange and the
issuance by it of the Conseco Convertible Notes, including the filing of a
registration statement with the Commission with respect to the Conseco
Convertible Notes and the shares of Conseco Common Stock to be issuable upon
conversion of the
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Conseco Convertible Notes. In addition, Conseco has agreed that if any of the
shares of Conseco Common Stock issued upon conversion of Conseco Convertible
Notes shall not be immediately freely tradeable by the holder thereof, then, at
the request of the holder, Conseco shall, as promptly as practicable, at
Conseco's option, either (i) acquire such shares directly from such holder at
the then current market price, or (ii) file and have declared effective a
registration statement on Form S-3 (or other appropriate form) with the
Commission to register such shares for resale by such holder and use
commercially reasonable efforts to keep such registration statement effective
until such time as such shares become freely tradeable. For purposes of the
preceding sentence, shares which may be sold at such time pursuant to Rule 144
(as promulgated by the Commission) shall be considered "freely tradeable." Upon
the exchange of any Series A Convertible Notes or Series B Convertible Notes for
Conseco Convertible Notes, Conseco shall pay to the exchanging holder an amount
equal to the accrued and unpaid interest on such Series A Convertible Notes or
Series B Convertible Notes, as applicable, through and including the Closing
Date. IP and Messrs. Lasater and Sharpe have entered into Exchange Agreements
requiring such holders to exchange their Series A Convertible Notes for Conseco
Convertible Notes in the Exchange Offer and consenting to the amendment of the
documents governing the THI Convertible Notes to remove the covenants therefrom.
In addition, Travelers indicated orally that it would participate in the
Exchange Offer, but declined to execute an Exchange Agreement. Assuming that
such holders accept Conseco's offer to exchange their THI Convertible Notes for
Conseco Convertible Notes in the Exchange Offer, the condition to the Merger
that holders of at least 90 percent of the aggregate principal amount of the THI
Convertible Notes shall have accepted Conseco's offer to exchange such notes
pursuant to the Exchange Offer will be satisfied. See "- Conditions to the
Merger."
THI Employee Matters
Pursuant to the Merger Agreement, Conseco will provide severance
benefits for certain persons who are eligible employees of THI or any of THI's
subsidiaries immediately prior to the Effective Time. Any such person who
experiences a Severance Event within 18 months after the Effective Time will be
entitled to receive severance benefits in the form of a lump sum equal to (i) up
to twelve months of base salary (based upon employee classification) plus (ii)
two weeks of base salary plus (iii) one week of base salary for every year of
service. In lieu of such severance benefits, THI's senior officers will be
entitled to receive the severance benefits described under "The Merger -
Interests of Certain Persons in the Merger."
Representations and Warranties
The Merger Agreement contains certain customary representations and
warranties relating to, among other things, (1) each of Conseco's and THI's
organization and similar corporate matters; (2) each of Conseco's and THI's
capital structure; (3) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement with respect to Conseco and THI and
related matters; (4) documents filed by each of Conseco and THI with the
Commission and the accuracy of information contained therein; (5) the absence of
material changes with respect to the business of Conseco and THI; and (6)
compliance with applicable laws.
Certain Covenants
The Merger Agreement contains certain customary covenants and
agreements, including, without limitation, the following:
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Conduct of Business. Pursuant to the Merger Agreement, 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 its regular quarterly cash
dividend on Conseco Common Stock and regular cash dividends on 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; (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 Proxy Statement/Prospectus or, (B)
if it were to occur after such date of mailing, require an amendment of this
Proxy Statement/Prospectus; or (3) 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 this Proxy Statement/Prospectus
or, (B) if it were to occur after such date of mailing, require an amendment of
this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, THI has agreed that, during the
period from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement, as set forth on the Disclosure Schedules
thereto or as otherwise consented to in writing by Conseco, THI 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 THI's outstanding capital stock; (B) split, combine or reclassify any of
THI'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 THI's
outstanding capital stock; or (C) purchase, redeem or otherwise acquire any
shares of THI'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 other than upon the exercise of THI Stock Options outstanding on the date
of the Merger Agreement; (3) amend its Certificate of Incorporation or By-laws;
(4) acquire, form, or commence operations of any business; (5) sell, mortgage or
otherwise encumber or otherwise dispose of any of its properties or assets that
are material to THI and its subsidiaries taken as a whole, except in the
ordinary course of business; (6) 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 THI or any subsidiary of THI, or make
any loans or advances to any other person other than routine advances to agents
and employees; (7) make any tax election or settle or compromise any income tax
liability that would reasonably be expected to be material to THI 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 THI filed
with the Commission 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
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obligations or (C) in publicly traded corporate bonds that are rated investment
grade by at least two nationally recognized statistical rating organizations;
(10) except as may be required by law, (A) make any representation or promise to
any employee or former director, officer, or employee of THI or its subsidiaries
that is inconsistent with the terms of any THI benefit plan, (B) make any change
to the contracts, salaries, wages, or other compensation of any employee or any
agent or consultant of THI or any subsidiary other than changes that are
required under existing contracts, (C) adopt, enter into, amend, alter or
terminate any existing THI benefit plan or any election made pursuant to the
provisions of any existing THI benefit plan, to accelerate any payments,
obligations or vesting schedules under any existing THI 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, concession, franchise, license or similar instrument to which
THI or any subsidiary is a party or waive, release or assign any material rights
or claims thereunder; and (12) hold any meeting of the THI Board of Directors 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 to Conseco (A) notice
of any such meeting no later than the date notice is given to the board of
directors or in advance of the date of any proposed action by written consent
and (B) with such notice, except as provided in the Merger Agreement, an agenda
of the specific matters to be considered at such meeting or a copy of the
proposed written consent.
No Solicitation. Pursuant to the Merger Agreement, THI 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, THI 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 THI, or any subsidiary of THI, or any purchase of all or
any significant portion of the assets of THI or any subsidiary of THI, or any
equity interest in THI or any subsidiary of THI, 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 THI Board of Directors 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 THI
Board of Directors, after consultation with and based upon the advice of outside
counsel, determines in good faith that in order for the THI Board of Directors
to comply with its fiduciary duties to THI stockholders under applicable law it
should take such action and (2) prior to taking such action, THI (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; Insurance. Pursuant to the
Merger Agreement, Conseco has agreed that the certificate of incorporation and
by-laws of each of THI'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 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
THI would have been obligated to do so if it had been the Surviving Corporation
in the Merger. In addition, for a period of three years following the Effective
Time Conseco has agreed to maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered by THI's existing
officers' and directors' liability insurance policies.
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Conditions to the Merger
The respective obligations of Conseco and THI 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 stockholders of THI; (2)
all required consents, approvals, permits and authorizations to the consummation
of the transactions contemplated hereby by THI and Conseco shall be obtained
from (A) the Commissioner of the Texas Department of Insurance 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
would not reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of THI and its
subsidiaries, taken as a whole, or on the validity or enforceability of the
Merger Agreement; (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 THI's
stockholders 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 obligation of Conseco to effect the Merger is subject to, among
other things, the following additional conditions: (1) the representations and
warranties of THI contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and on the Closing 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 THI and its subsidiaries taken
as a whole; (2) THI 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) holders of at least 90 percent of the
aggregate principal amount of Series A and Series B Notes shall have accepted
the offer made by Conseco to exchange such notes for Conseco Debentures as of
the Effective Time.
The obligation of THI 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 on the Closing 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; and (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 Effective Time; and (3) THI shall have received the opinion dated
the Closing Date of Weil, Gotshal & Manges LLP, counsel to THI, or such other
legal counsel reasonably acceptable to THI and Conseco to the effect that the
Merger will be treated as a reorganization under Section 368(a)(1) of the Code
as a result of which the stockholders of THI will not be subject to federal
income tax on the receipt of shares of Conseco Common Stock in exchange for
shares of THI Common Stock pursuant to the Merger.
G:\LEGAL\REGSTMNT\THI10-16.S-4
68
<PAGE>
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 THI; or (2) by Conseco or THI (A) if, upon a vote at a duly held meeting of
the stockholders of THI or any adjournment thereof, any required approval of the
stockholders of THI shall not be obtained; (B) at any time after January 31,
1997, 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 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 January 31, 1997 are those relating to stockholder approval, governmental and
regulatory consents and the HSR Act; (C) 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; (D) if
the THI Board of Directors shall have exercised its rights set forth in Section
4.9 of the Merger Agreement (summarized below under "- Right of THI Board of
Directors to Withdraw its Recommendation") with regard to an Acquisition
Proposal; or (E) if on the scheduled Closing Date the average of the closing
prices of the Conseco Common Stock on the NYSE Composite Transactions Reporting
System for the five trading days immediately preceding the second trading day
prior to the scheduled Closing Date is less than $34.875. See "-- Right of THI
Board of Directors to Withdraw its Recommendation." The failure to satisfy or
obtain the waiver of any condition to the Merger (as described above under "-
Conditions to the Merger"), including, without limitation, the condition
relating to the accuracy of representations and warranties contained in the
Merger Agreement, could prevent the consummation of the Merger prior to the
applicable dates described under clause 2(B) above and thereby allow either
party to unilaterally terminate the Merger Agreement.
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 brokers, confidentiality and, as described herein, payment
of 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 THI Board of Directors to Withdraw its Recommendation
Under the Merger Agreement, the THI Board of Directors shall not (1)
withdraw or modify, in a manner materially adverse to Conseco, the approval or
recommendation by the THI Board of Directors of the Merger Agreement or the
Merger or (2) enter into any agreement with respect to any Acquisition Proposal,
unless THI receives an Acquisition Proposal and the THI Board of Directors
determines in good faith, following consultation with outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
the THI Board of Directors should withdraw or modify, in a manner materially
adverse to Conseco, its approval or recommendation of the Merger Agreement or
the Merger, or enter into an agreement with respect to such Acquisition Proposal
or terminate the Merger Agreement. In the event the THI Board of Directors takes
any of the foregoing actions, THI shall, concurrently with the taking of any
such action, pay to Conseco the fee described in "-- Breakup Fees."
Breakup Fees
THI has agreed to pay to Conseco upon demand $7.5 million (a "Breakup
Fee"), payable in same-day funds, if a bona fide Acquisition Proposal is
commenced, publicly proposed, publicly disclosed or communicated to THI (or the
willingness of any person to make such an Acquisition Proposal is publicly
disclosed or communicated to THI) and the THI Board of Directors, in accordance
with Section
G:\LEGAL\REGSTMNT\THI10-16.S-4
69
<PAGE>
4.9 of the Merger Agreement (summarized above under "- Right of THI Board of
Directors to Withdraw its Recommendation"), withdraws or modifies in a manner
materially adverse to Conseco its approval or recommendation of the Merger
Agreement or the Merger, or enters into an agreement with respect to such
Acquisition Proposal, or terminates the Merger Agreement.
Expenses
In the absence of a requirement to pay a Breakup Fee and except as
provided in the following paragraph, whether or not the Merger is consummated,
each of THI 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 Proxy
Statement/Prospectus and the preparation and filing of the Registration
Statement shall be borne equally by Conseco and THI.
In the absence of a requirement to pay a Breakup Fee, unless Conseco is
materially in breach of the Merger Agreement or is unable to satisfy certain
closing conditions in the Merger Agreement, THI 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 THI's stockholders 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 January 31, 1997 (or March 31, 1997 under certain circumstances)
through the exercise of commercially reasonable efforts to procure the
satisfaction thereof. See "- Termination."
Modification or Amendment
Subject to the applicable provisions of the IBCL and DGCL, at any time
prior to the Effective Time, THI 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 stockholders of THI, no amendment may be made which reduces
the consideration payable in the Merger or adversely affects the rights of the
THI's stockholders under the Merger Agreement without the approval of such
stockholders.
G:\LEGAL\REGSTMNT\THI10-16.S-4
70
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANICAL 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 ATC Merger; (4) the CAF Merger; and (5) the Preferred
Securities Offering.
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 ATC Merger; (4)
the CAF Merger; and (5) the Preferred Securities Offering.
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, THI, ATC and CAF 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 ALH Transaction, the Merger, the BLH
Transaction, the ATC Merger and the CAF Merger using estimated values of the
assets and liabilities of LPG, ALH, THI, BLH, ATC and CAF 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 ALH Transaction, the Merger, the BLH Transaction, the ATC
Merger and the CAF Merger had occurred on the assumed merger dates.
71
<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
Pro forma adjustments Pro forma
Conseco relating to Pro forma adjustments Pro forma
before the THI the for the ATC relating to the Conseco
Merger historical Merger Merger historical ATC Merger subtotal(a)
------------ ----------- ----------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 1,752.8 $ 190.2 $ - $1,943.0 $ 273.9 $ - $ 2,216.9
Investment activity:
Net investment income 1,461.1 49.7 (6.9)(1) 1,503.9 23.2 1.8 (15) 1,528.9
Net trading income 2.5 2.5 2.5
Net realized gains 220.3 6.7 (6.7)(1) 220.3 0.2 2.0 (15) 222.5
Fee revenue 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2
Other income 12.6 12.6 12.6
--------- -------- -------- --------- -------- ------- ----------
Total revenues 3,498.4 246.6 (13.6) 3,731.4 297.3 3.8 4,032.5
--------- -------- -------- --------- -------- ------- ----------
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 1,261.4 131.9 1,393.3 172.9 1,566.2
Interest expense on annuities
and financial products 758.5 758.5 758.5
Interest expense on notes payable 143.5 2.3 (2.3)(2) 144.7 3.3 1.9 (16) 146.7
1.2 (2) (3.2)(17)
Interest expense on investment
borrowings 30.2 30.2 30.2
Amortization related to
operations 307.3 24.5 (24.5)(3) 323.2 22.7 (22.7)(18) 361.1
15.9 (3) 23.5 (18)
14.4 (19)
Amortization related to
realized gains 144.4 144.4 144.4
Loss on sale of long-term
care business - 68.5 (68.5)(6) - -
Expenses of spin-off and
related transactions - 2.2 (2.2)(6) - -
Other operating costs and
expenses 356.4 58.3 414.7 63.7 478.4
--------- -------- -------- --------- -------- ------- ----------
Total benefits and
expenses 3,001.7 287.7 (80.4) 3,209.0 262.6 13.9 3,485.5
--------- -------- -------- --------- -------- ------- ----------
Income (loss) before
income taxes, minority interest
and extraordinary charge 496.7 (41.1) 66.8 522.4 34.7 (10.1) 547.0
Income tax expense (benefit) 192.3 (14.3) 22.7 (4) 200.7 11.0 1.5 (20) 213.2
--------- -------- -------- --------- -------- ------- ----------
Income (loss) before minority
interest and
extraordinary charge 304.4 (26.8) 44.1 321.7 23.7 (11.6) 333.8
Minority interest in consolidated
subsidiaries:
Dividends on redeemable
preferred stock - - -
Dividends on preferred stock 8.7 8.7 8.7
Equity in earnings 12.6 12.6 12.6
--------- -------- -------- --------- -------- ------- ----------
Income (loss) before
extraordinary charge $ 283.1 $ (26.8) $ 44.1 $ 300.4 $ 23.7 $ (11.6) $ 312.5
========= ======== ======== ========= ======= ======== ==========
Earnings per common share and
common equivalent share:
Primary:
Weighted average shares
outstanding 75.7 4.7 (5) 80.4 13.1(21) 93.5
======= ======== ========== ======= ==========
Income before extraordinary
charge $3.74 $3.74 $3.34
======= ========== ==========
Fully diluted:
Weighted average shares
outstanding 76.0 4.7 (5) 80.7 18.1(21) 98.8
======= ======== ========== ======= ==========
Income before extraordinary
charge $3.72 $3.72 $3.18
======= ========== ==========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward to page 73.
</FN>
</TABLE>
72
<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 Pro forma
adjustments adjustments
Pro forma relating Pro forma relating Pro forma
Conseco to the BLH Conseco CAF to the Conseco
subtotal(a) Transaction subtotal historical CAF Merger subtotal(b)
------------ ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 2,216.9 $(0.3) (30) $2,216.6 $282.1 $ - $ 2,498.7
Investment activity:
Net investment income 1,528.9 (0.1) (30) 1,528.8 48.6 (3.4)(36) 1,574.0
Net trading income 2.5 2.5 2.5
Net realized gains 222.5 (0.4) (30) 222.1 (0.1)(36) 222.0
Fee revenue 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2
Other income 12.6 (0.1) (30) 12.5 0.1 12.6
--------- -------- --------- ------- ------- --------
Total revenues 4,032.5 (0.9) 4,031.6 330.8 (3.5) 4,358.9
--------- -------- --------- ------- ------- --------
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 1,566.2 (1.7) (30) 1,564.5 155.3 (3.0)(37) 1,716.8
Interest expense on annuities and financial
products 758.5 0.3 (30) 758.8 758.8
Interest expense on notes payable 146.7 (0.4) (30) 146.3 2.4 (2.4)(38) 183.4
37.1 (39)
Interest expense on investment borrowings 30.2 30.2 30.2
Amortization related to operations 361.1 (2.8) (30) 358.3 21.5 (21.5)(40) 396.1
32.0 (40)
5.8 (41)
Amortization related to realized gains 144.4 (0.6) (30) 143.8 143.8
Loss on sale of long-term care business - -
Expenses of spin-off and related
transactions - -
Other operating costs and expenses 478.4 5.9 (30) 484.3 80.0 564.3
--------- ------- --------- ------- ------- --------
Total benefits and expenses 3,485.5 0.7 3,486.2 259.2 48.0 3,793.4
--------- ------- --------- ------- ------- --------
Income (loss) before income taxes,
minority interest
and extraordinary charge 547.0 (1.6) 545.4 71.6 (51.5) 565.5
Income tax expense (benefit) 213.2 (0.6) (31) 212.6 25.6 (16.0)(42) 222.2
--------- ------- --------- ------- ------ --------
Income (loss) before minority
interest and
extraordinary charge 333.8 (1.0) 332.8 46.0 (35.5) 343.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock - - -
Dividends on preferred stock 8.7 8.7 8.7
Equity in earnings 12.6 (12.6) (32) - -
--------- ------- --------- ------- ------ --------
Income (loss) before extraordinary
charge $ 312.5 $ 11.6 $ 324.1 $ 46.0 $(35.5) $ 334.6
========= ======= ========= ======= ====== =======
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding 93.5 2.6 (33) 96.1 2.4(43) 98.5
========= ======= ========= ===== =======
Income before extraordinary charge $3.34 $3.37 $3.40
========= ========= =======
Fully diluted:
Weighted average shares outstanding 98.8 2.6 (33) 101.4 2.4(43) 103.8
========= ======= ========= ===== =======
Income before extraordinary charge $3.18 $3.21 $3.24
========= ========= =======
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 72.
(b) Amounts have been carried forward to page 74.
</FN>
</TABLE>
73
<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
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
----------- --------------------- --------------
<S> <C> <C> <C>
Revenues:
Insurance policy income $ 2,498.7 $ - $ 2,498.7
Investment activity:
Net investment income 1,574.0 1,574.0
Net trading income 2.5 2.5
Net realized gains 222.0 222.0
Fee revenue 33.9 33.9
Restructuring income 15.2 15.2
Other income 12.6 12.6
--------- ------- ---------
Total revenues 4,358.9 - 4,358.9
--------- ------- ---------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits 1,716.8 1,716.8
Interest expense on annuities and financial products 758.8 758.8
Interest expense on notes payable 183.4 (21.5) (55) 161.9
Interest expense on investment borrowings 30.2 30.2
Amortization related to operations 396.1 396.1
Amortization related to realized gains 143.8 143.8
Loss on sale of long-term care business - -
Expenses of spin-off and related transactions - -
Other operating costs and expenses 564.3 564.3
--------- ------- ---------
Total benefits and expenses 3,793.4 (21.5) 3,771.9
--------- ------- ---------
Income (loss) before income taxes,
minority interest
and extraordinary charge 565.5 21.5 587.0
Income tax expense (benefit) 222.2 7.5 (56) 229.7
--------- ------- ---------
Income (loss) before minority interest and
extraordinary charge 343.3 14.0 357.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock - 21.1(57) 21.1
Dividends on preferred stock 8.7 8.7
Equity in earnings - -
--------- ------- ---------
Income (loss) before extraordinary charge $ 334.6 $ (7.1) $ 327.5
========= ======= =========
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 98.5 98.5
======= =========
Income before extraordinary charge $3.40 $3.33
======= =========
Fully diluted:
Weighted average shares outstanding 103.8 103.8
======= =========
Income before extraordinary charge $3.24 $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 73.
</FN>
</TABLE>
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
Pro forma adjustments Pro forma
Conseco relating to Pro forma adjustments Pro forma
before the THI the for the ATC relating to the Conseco
Merger historical Merger Merger historical ATC Merger subtotal(a)
------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 897.2 $ 55.6 $ - $ 952.8 $ 186.9 $ - $1,139.7
Investment activity:
Net investment income 719.4 19.9 (3.3)(1) 736.0 21.3 0.7 (15) 758.0
Net trading losses (7.3) (7.3) (7.3)
Net realized gains 15.4 0.3 (0.3)(1) 15.4 1.3 2.3 (15) 19.0
Fee revenue 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4
Other income 10.2 0.6 10.8 10.8
-------- ------ -------- --------- ------ ------ --------
Total revenues 1,685.4 76.4 (3.6) 1,758.2 209.5 3.0 1,970.7
-------- ------ -------- --------- ------ ------ --------
Benefits and expenses:
Insurance policy benefits and
change in future
policy benefits 626.0 37.1 - 663.1 127.3 - 790.4
Interest expense on annuities
and financial products 378.3 378.3 378.3
Interest expense on notes payable 67.6 4.5 (4.5)(2) 68.2 4.0 1.0 (16) 70.7
0.6 (2) (2.5)(17)
Interest expense on investment
borrowings 10.7 10.7 10.7
Amortization related to
operations 168.3 4.2 (4.2)(3) 175.3 10.9 (10.9)(18) 195.7
7.0 (3) 13.2 (18)
7.2 (19)
Amortization related to
realized gains 15.1 15.1 15.1
Other operating costs and
expenses 157.9 16.7 174.6 42.4 217.0
-------- ------ -------- --------- ------ ------ --------
Total benefits and expenses 1,423.9 62.5 (1.1) 1,485.3 184.6 8.0 1,677.9
-------- ------ -------- --------- ------ ------ --------
Income (loss) before
income taxes, minority interest
and extraordinary charge 261.5 13.9 (2.5) 272.9 24.9 (5.0) 292.8
Income tax expense (benefit) 100.3 4.9 (0.9)(4) 104.3 8.1 0.8 (20) 113.2
-------- ------ -------- --------- ------ ------ --------
Income (loss) before minority
interest and
extraordinary charge 161.2 9.0 (1.6) 168.6 16.8 (5.8) 179.6
Minority interest in consolidated
subsidiaries:
Dividends on redeemable
preferred stock - - -
Dividends on preferred stock 4.4 4.4 4.4
Equity in earnings 7.9 7.9 7.9
-------- ------ -------- --------- ------ ------ --------
Income (loss) before
extraordinary charge $ 148.9 $ 9.0 $ (1.6) $ 156.3 $ 16.8 $ (5.8) $167.3
======== ====== ======== ========= ====== ====== ========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding 77.0 4.7(5) 81.7 13.1 (21) 94.8
====== ===== ======== ====== ========
Income before extraordinary
charge $1.93 $1.91 $1.76
====== ======== ========
Fully diluted:
Weighted average shares
outstanding 77.8 4.7(5) 82.5 18.1 (21) 100.6
====== ===== ======= ====== ========
Income before extraordinary
charge $1.91 $1.89 $1.69
====== ======= ========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been 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 Pro forma
adjustments adjustments
Pro forma relating Pro forma relating Pro forma
Conseco to the BLH Conseco CAF to the Conseco
subtotal(a) Transaction subtotal historical CAF Merger subtotal(b)
--------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 1,139.7 $ - $ 1,139.7 $146.6 $ - $ 1,286.3
Investment activity:
Net investment income 758.0 0.1 (30) 758.1 27.3 (1.7)(36) 783.7
Net trading losses (7.3) (7.3) (7.3)
Net realized gains 19.0 19.0 0.1 (0.1)(36) 19.0
Fee revenue 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4
Other income 10.8 10.8 10.8
-------- ------- ---------- --------- -------- ----------
Total revenues 1,970.7 0.1 1,970.8 174.0 (1.8) 2,143.0
-------- ------- ---------- -------- ------- ----------
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 790.4 (1.0)(30) 789.4 80.9 (1.5)(37) 868.8
Interest expense on annuities and
financial products 378.3 378.3 378.3
Interest expense on notes payable 70.7 70.7 1.0 (1.0)(38) 89.3
18.6 (39)
Interest expense on investment borrowings 10.7 10.7 10.7
Amortization related to operations 195.7 0.1 (30) 195.8 12.3 (12.3)(40) 214.9
16.2 (40)
2.9 (41)
Amortization related to realized gains 15.1 0.1 (30) 15.2 15.2
Other operating costs and expenses 217.0 1.1 (30) 218.1 38.2 256.3
-------- ------- ---------- -------- ------- ----------
Total benefits and expenses 1,677.9 0.3 1,678.2 132.4 22.9 1,833.5
-------- ------- ---------- -------- ------- ----------
Income (loss) before income taxes,
minority interest
and extraordinary charge 292.8 (0.2) 292.6 41.6 (24.7) 309.5
Income tax expense (benefit) 113.2 0.1 (31) 113.3 14.5 (7.6)(42) 120.2
-------- ------- ---------- -------- ------ ---------
Income (loss) before minority interest
and extraordinary charge 179.6 (0.3) 179.3 27.1 (17.1) 189.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock - - -
Dividends on preferred stock 4.4 4.4 4.4
Equity in earnings 7.9 (7.9)(32) - -
-------- ------- --------- -------- ------- ----------
Income (loss) before
extraordinary charge $ 167.3 $ 7.6 $ 174.9 $ 27.1 $(17.1) $ 184.9
======== ======= ========= ======= ====== ==========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding 94.8 2.6 (33) 97.4 2.4 (43) 99.8
======= ======= ======== ======= =======
Income before extraordinary charge $1.76 $1.80 $1.85
======= ======== =======
Fully diluted:
Weighted average shares outstanding 100.6 2.6 (33) 103.2 2.4 (43) 105.6
======= ======= ======== ====== =======
Income before extraordinary charge $1.69 $1.72 $1.78
======= ======== =======
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
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal (a) Securities Offering transactions
----------- --------------------- ---------------
<S> <C> <C> <C>
Revenues:
Insurance policy income $ 1,286.3 $ - $1,286.3
Investment activity:
Net investment income 783.7 783.7
Net trading losses (7.3) (7.3)
Net realized gains 19.0 19.0
Fee revenue 20.1 20.1
Restructuring income 30.4 30.4
Other income 10.8 10.8
-------- ------- --------
Total revenues 2,143.0 - 2,143.0
-------- ------- --------
Benefits and expenses:
Insurance policy benefits and change in future policy
benefits 868.8 868.8
Interest expense on annuities and financial products 378.3 378.3
Interest expense on notes payable 89.3 (10.8)(55) 78.5
Interest expense on investment borrowings 10.7 10.7
Amortization related to operations 214.9 214.9
Amortization related to realized gains 15.2 15.2
Other operating costs and expenses 256.3 256.3
-------- ------- --------
Total benefits and expenses 1,833.5 (10.8) 1,822.7
-------- ------- --------
Income (loss) before income taxes,
minority interest
and extraordinary charge 309.5 10.8 320.3
Income tax expense (benefit) 120.2 3.8 (56) 124.0
-------- ------- --------
Income (loss) before minority interest
and extraordinary charge 189.3 7.0 196.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock - 10.6 (57) 10.6
Dividends on preferred stock 4.4 4.4
Equity in earnings - -
-------- ------- --------
Income (loss) before extraordinary charge $ 184.9 $(3.6) $ 181.3
======== ======= ========
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 99.8 99.8
======== =========
Income before extraordinary charge $1.85 $1.82
======== =========
Fully diluted:
Weighted average shares outstanding 105.6 105.6
======== =========
Income before extraordinary charge $1.78 $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 BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
Pro forma adjustments Pro forma
Conseco relating to Pro forma adjustments Pro forma
before the THI the for the ATC relating to the Conseco
Merger historical Merger Merger historical ATC Merger subtotal(a)
------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed
maturity securities
at fair value $15,872.3 $ 480.5 $ (83.1)(7) $16,269.7 $ 651.8 $ - $ 16,921.5
Held-to-maturity fixed
maturity securities - - -
Equity securities at
fair value 99.6 0.9 100.5 - 100.5
Mortgage loans 404.2 8.6 412.8 0.4 413.2
Credit-tenant loans 309.7 309.7 - 309.7
Policy loans 528.7 17.8 546.5 - 546.5
Other invested assets 191.0 5.1 196.1 - 196.1
Trading account securities 0.7 0.7 - 0.7
Short-term investments 204.6 21.0 83.1 (7) 225.6 17.5 (30.4)(22) 243.1
18.5 (8) 30.4 (23)
(18.5)(8)
(58.3)(8)
(24.8)(8)
Assets held in separate
accounts 271.6 271.6 - 271.6
---------- ------- -------- -------- ------- ------- --------
Total investments 17,882.4 533.9 (83.1) 18,333.2 669.7 - 19,002.9
Accrued investment income 284.1 6.4 290.5 7.4 297.9
Cost of policies purchased 1,893.6 11.3 121.9 (9) 2,015.5 11.2 256.2 (24) 2,271.7
(11.3)(9) (11.2)(24)
Cost of policies produced 483.2 28.8 (28.8)(10) 483.2 160.8 (160.8)(25) 483.2
Reinsurance receivables 374.6 319.7 (253.4)(12) 440.9 - 440.9
Income taxes 209.7 (28.7)(11) 162.6 - (25.6)(26) 116.0
(18.4)(11) (21.0)(26)
Goodwill 1,566.8 1,566.8 - 577.3 (27) 2,144.1
Property and equipment 89.0 89.0 4.0 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 24.4 258.6 14.3 272.9
--------- ------- -------- --------- ------ ------- ---------
Total assets $23,058.3 $ 924.5 $ (301.8) $23,681.0 $ 867.4 $ 614.9 $ 25,163.3
========= ======= ======== ========= ======= ======= =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward to page 79.
</FN>
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma Pro forma
adjustments adjustments
Pro forma relating Pro forma relating Pro forma
Conseco to the BLH Conseco CAF to the Conseco
subtotal(a) Transaction subtotal historical CAF Merger subtotal(b)
------------ ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $16,921.5 $ - $16,921.5 $ 318.1 $351.8 (44) $17,688.5
97.1 (45)
Held-to-maturity fixed maturity securities - - 351.8 (351.8)(44) -
Equity securities at fair value 100.5 100.5 - 100.5
Mortgage loans 413.2 413.2 - 413.2
Credit-tenant loans 309.7 309.7 - 309.7
Policy loans 546.5 546.5 - 546.5
Other invested assets 196.1 196.1 - 196.1
Trading account securities 0.7 0.7 - 0.7
Short-term investments 243.1 243.1 2.2 (534.0)(46) 245.3
(26.0)(46)
(29.5)(46)
589.5 (47)
Assets held in separate accounts 271.6 271.6 - 271.6
--------- ------- --------- ------- ------- ---------
Total investments 19,002.9 - 19,002.9 672.1 97.1 19,772.1
Accrued investment income 297.9 297.9 8.3 306.2
Cost of policies purchased 2,271.7 65.0 (30) 2,336.7 483.3 (48) 2,820.0
Cost of policies produced 483.2 (50.0)(30) 433.2 266.4 (266.4)(49) 433.2
Reinsurance receivables 440.9 440.9 - 440.9
Income taxes 116.0 (5.3)(31) 110.7 - (80.1)(50) -
(30.6)(50)
Goodwill 2,144.1 55.3 (30) 2,199.4 - 232.5 (51) 2,431.9
Property and equipment 93.0 93.0 4.8 97.8
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 40.7 - 40.7
Other assets 272.9 272.9 28.8 301.7
--------- ------- --------- ------- ------- ---------
Total assets $25,163.3 $ 65.0 $25,228.3 $ 980.4 $ 435.8 $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 78.
(b) Amounts have been carried forward to page 80.
</FN>
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
----------- --------------------- -------------
<S> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $ 17,688.5 $ - $17,688.5
Held-to-maturity fixed maturity securities - -
Equity securities at fair value 100.5 100.5
Mortgage loans 413.2 413.2
Credit-tenant loans 309.7 309.7
Policy loans 546.5 546.5
Other invested assets 196.1 196.1
Trading account securities 0.7 0.7
Short-term investments 245.3 331.2 (58) 245.3
(331.2)(58)
Assets held in separate accounts 271.6 271.6
--------- -------- ---------
Total investments 19,772.1 - 19,772.1
Accrued investment income 306.2 306.2
Cost of policies purchased 2,820.0 2,820.0
Cost of policies produced 433.2 433.2
Reinsurance receivables 440.9 440.9
Income taxes - -
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 301.7 301.7
--------- ---------- ---------
Total assets $26,644.5 $ - $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 79.
</FN>
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (continued)
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
Pro forma adjustments Pro forma
Conseco relating to Pro forma adjustments Pro forma
before the THI the for the ATC relating to the Conseco
Merger historical Merger Merger historical ATC Merger subtotal(a)
------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $18,133.2 $612.7 $(253.4)(12) $ 18,492.5 $ 563.9 $ - $ 19,056.4
Income tax liabilities - 18.4 (18.4)(11) - 21.0 (21.0)(26) -
Investment borrowings 516.6 516.6 - 516.6
Other liabilities 457.9 17.0 474.9 8.0 11.2 (28) 494.1
Liabilities related to
separate accounts 271.6 271.6 - 271.6
Notes payable of Conseco 1,198.5 108.3 (58.3)(13) 1,217.0 103.5 30.4 (23) 1,487.4
(50.0)(13) 136.5 (28)
18.5 (13)
Notes payable of Bankers
Life Holding Corporation,
not direct obligations of
Conseco 437.9 437.9 - 437.9
--------- ------ ------- --------- ------ ------ ---------
Total liabilities 21,015.7 756.4 (361.6) 21,410.5 696.4 157.1 22,264.0
--------- ------ ------- --------- ------ ------ ---------
Minority interest in consolidated
subsidiaries:
Company - obligated mandatorily
redeemable preferred stock - - -
Preferred stock 93.2 93.2 93.2
Common stock 57.5 57.5 57.5
--------- ------ ------- --------- ------ ------ --------
Shareholders' equity:
Preferred stock 267.1 22.8 (22.8)(14) 267.1 - 267.1
Common stock and additional
paid-in capital 1,040.9 169.7 (169.7)(14) 1,268.8 63.8 (63.8)(29) 1,897.6
121.7 (14) 628.8 (29)
106.2 (14)
Unrealized appreciation
(depreciation) of securities (56.1) 4.0 (4.0)(14) (56.1) (10.8) 10.8 (29) (56.1)
Retained earnings 640.0 (28.4) 28.4 (14) 640.0 118.0 (118.0)(29) 640.0
--------- ------ ------- --------- ------ ------ ---------
Total shareholders' equity 1,891.9 168.1 59.8 2,119.8 171.0 457.8 2,748.6
--------- ------ ------- --------- ------ ------ ---------
Total liabilities and
shareholders' equity $23,058.3 $924.5 $(301.8) $23,681.0 $867.4 $614.9 $25,163.3
========= ====== ======= ========= ====== ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been 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 Pro forma
adjustments adjustments
Pro forma relating Pro forma relating Pro forma
Conseco to the BLH Conseco CAF to the Conseco
subtotal(a) Transaction subtotal historical CAF Merger subtotal(b)
------------ ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $19,056.4 $ - $19,056.4 $587.9 $ 85.0 (52) $19,729.3
Income tax liabilities - - 51.8 (30.6)(50) 21.2
Investment borrowings 516.6 516.6 - 516.6
Other liabilities 494.1 494.1 16.9 511.0
Liabilities related to separate accounts 271.6 271.6 - 271.6
Notes payable of Conseco 1,487.4 437.9 (34) 1,925.3 29.5 (29.5)(53) 2,514.8
589.5 (47)
Notes payable of Bankers Life Holding
Corporation, not direct obligations
of Conseco 437.9 (437.9)(34) - - -
--------- ------- --------- ------ ------ ----------
Total liabilities 22,264.0 - 22,264.0 686.1 614.4 23,564.5
--------- ------- --------- ------ ------ ----------
Minority interest in consolidated subsidiaries:
Company - obligated mandatorily redeemable
preferred stock - - -
Preferred stock 93.2 93.2 93.2
Common stock 57.5 (57.5)(32) - -
--------- ------- --------- ------ ------ ---------
Shareholders' equity:
Preferred stock 267.1 267.1 - 267.1
Common stock and additional paid-in capital 1,897.6 122.5 (35) 2,020.1 35.5 (35.5)(54) 2,135.8
115.7 (54)
Unrealized appreciation (depreciation)
of securities (56.1) (56.1) (2.1) 2.1 (54) (56.1)
Retained earnings 640.0 640.0 260.9 (260.9)(54) 640.0
--------- -------- --------- ------ ------ ---------
Total shareholders' equity 2,748.6 122.5 2,871.1 294.3 (178.6) 2,986.8
--------- ------- --------- ------ ------- ---------
Total liabilities and shareholders'
equity $25,163.3 $ 65.0 $25,228.3 $980.4 $ 435.8 $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 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
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal (a) Securities Offering transactions
----------- --------------------- ---------------
<S> <C> <C> <C>
Liabilities:
Insurance liabilities $19,729.3 $ - $19,729.3
Income tax liabilities 21.2 21.2
Investment borrowings 516.6 516.6
Other liabilities 511.0 511.0
Liabilities related to separate accounts 271.6 271.6
Notes payable of Conseco 2,514.8 (331.2)(58) 2,183.6
Notes payable of Bankers Life Holding
Corporation, not direct obligations of Conseco - -
---------- --------- ---------
Total liabilities 23,564.5 (331.2) 23,233.3
---------- --------- ---------
Minority interest in consolidated subsidiaries:
Company - obligated mandatorily redeemable
preferred stock - 350.0 (59) 350.0
Preferred stock 93.2 93.2
Common stock - -
--------- --------- ---------
Shareholders' equity:
Preferred stock 267.1 267.1
Common stock and additional paid-in capital 2,135.8 (18.8)(59) 2,117.0
Unrealized appreciation (depreciation) of securities (56.1) (56.1)
Retained earnings 640.0 640.0
--------- --------- ---------
Total shareholders' equity 2,986.8 (18.8) 2,968.0
--------- --------- ---------
Total liabilities and shareholders' equity $26,644.5 $ - $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>
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 THI 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 THI was a
subsidiary of another corporation within two years of the contemplated
transaction. In the 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, the Series A Notes and Series B Notes will
be exchanged for Conseco Debentures which will be convertible into shares of
Conseco Common Stock based on the price of Conseco Common Stock prior to the
Merger (such fully converted value being the same as the Series A Notes and
Series B 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 Debentures will be convertible into 2.2 million shares
of Conseco Common Stock with a value of approximately $106.2 million.
Immediately after the Merger, Conseco plans to cause the Conseco Debentures to
be converted by payment of a premium of $8.5 million. Conseco is expected to
incur costs related to the 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
Merger (June 30, 1996) ............................................................ $168.1
Series A Notes and Series B Notes exchanged into Conseco Debentures and
converted to Conseco Common Stock at the assumed date of the 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 Merger:
Cost of policies purchased (related to the Merger).............................. 121.9
Cost of policies produced and cost of policies purchased (historical)........... (40.1)
Income taxes.................................................................... (28.7)
Premium incurred to cause the conversion of the Conseco Debentures.............. (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 Merger as of January 1, 1995, are summarized below.
(1) 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.
(2) Interest expense is reduced to reflect the repayment of bank debt of
$58.3 million and the conversion of the Conseco Debentures (which were
issued in exchange for the Series A Notes and Series B Notes) into
Conseco Common Stock. Interest expense is increased to reflect
borrowings by Conseco to: (i) pay the estimated cost of the Merger;
and (ii) pay the $8.5 million premium to cause Conseco's Debentures to
be converted.
(3) 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).
84
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(5) Common shares outstanding are increased to reflect the Conseco shares
issued in the Merger and the conversion of the Conseco Debentures.
(6) 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.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Merger as of June 30, 1996, are summarized below.
(7) Actively managed fixed maturity securities with a carrying value of
$83.1 million are assumed to be sold at the date of the Merger.
(8) Short-term investments are reduced for: (i) payments made to complete
the 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 Debentures to be converted to Conseco
Common Stock. Short- term investments are increased by additional
borrowings by Conseco of $18.5 million to complete the Merger and
related transactions.
(9) THI'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 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>
85
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(10) THI's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(11) 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.
(12) Reinsurance receivables and insurance liabilities related to business
of THI ceded to ATC are eliminated in consolidation.
(13) Notes payable are decreased to reflect: (i) the repayment of bank debt
of $58.3 million; and (ii) the conversion of the Conseco Debentures
(which were issued in exchange for the Series A Notes and Series B
Notes) into Conseco Common Stock. In addition, notes payable are
increased to reflect additional borrowings by Conseco used to complete
the Merger and related transactions.
(14) The prior shareholders' equity of THI 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.
The value of the Conseco Debentures 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.
OTHER PLANNED TRANSACTIONS
Transactions relating to the ATC Merger
The ATC 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 ATC 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 ATC 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 ATC Merger shortly after the Effective Time. In the ATC
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 ATC's convertible
subordinated 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 ATC Merger
(including contract termination, relocation, legal, accounting and other costs)
of approximately $30.4 million.
The cost to acquire ATC is allocated as follows (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Book value of assets acquired based on the assumed date of the
ATC Merger (June 30, 1996) ........................................................ $171.0
Convertible subordinated debentures assumed by Conseco at the
assumed date of the ATC 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 ATC Merger:
Cost of policies purchased (related to the ATC Merger).......................... 256.2
Cost of policies produced and cost of policies purchased (historical)........... (172.0)
Goodwill (related to the ATC 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>
86
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Adjustments to the pro forma consolidated statement of operations to give
effect to the ATC Merger as of January 1, 1995, are summarized below.
(15) 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.
(16) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the ATC
Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's revolving credit facility used to complete the ATC
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.
(17) Interest expense is reduced to reflect the amortization of the
liability established at the assumed date of the ATC 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.
(18) Amortization of the cost of policies produced and the cost of policies
purchased prior to the ATC 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).
(19) Amortization of goodwill acquired in the ATC Merger is recognized over
a 40-year period on a straight-line basis.
(20) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(21) Common shares outstanding are increased to reflect the Conseco shares
issued in the ATC 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 ATC Merger as of June 30, 1996, are summarized below.
(22) Cash is reduced for payments made to complete the ATC Merger.
(23) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the ATC Merger.
(24) ATC's historical cost of policies purchased is eliminated and replaced
with the cost of policies purchased recognized in the ATC 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.
87
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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>
(25) ATC's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(26) 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.
(27) Goodwill acquired in the ATC Merger is recognized.
(28) Notes payable are increased to reflect the fair value of ATC's
convertible subordinated debentures at the date of the ATC Merger.
Such fair value represents the value of the Conseco Common Stock which
ATC's convertible subordinated debentures will be convertible into
after the ATC Merger. It is assumed that the holders of such
debentures do not convert into Conseco Common Stock at the time of the
ATC 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.
(29) The prior shareholders' equity of ATC is eliminated in conjunction
with the ATC Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the ATC
Merger.
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:
(30) 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.
88
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(31) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
(32) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of BLH.
(33) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares of
BLH common stock.
(34) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by Conseco.
(35) 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.
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.
The cost to acquire CAF is allocated as follows (dollars in millions):
<TABLE>
<CAPTION>
<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.
(36) 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.
(37) 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.
89
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(38) Interest expense is reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the CAF Merger.
(39) 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.
(40) 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.
(41) Amortization of goodwill acquired in the CAF Merger is recognized
over a 40-year period on a straight-line basis.
(42) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(43) 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.
(44) 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.
(45) CAF's fixed maturity securities are restated to estimated fair value.
(46) Cash is reduced for payments made to complete the CAF Merger.
(47) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the CAF Merger.
(48) 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.
90
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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>
(49) CAF's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(50) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. In addition, deferred tax
liabilities are netted against deferred tax assets.
(51) Goodwill acquired in the CAF Merger is recognized.
(52) 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.
(53) Notes payable are reduced to reflect the repayment of notes payable of
CAF by Conseco at the assumed date of the CAF Merger.
(54) 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
A subsidiary of Conseco intends to issue $350 million par value of 9.25
percent tax deductible Preferred Securities. The Conseco subsidiary will
purchase $350 million subordinated notes from Conseco. Conseco will use the
proceeds to reduce borrowings under the Conseco Credit Agreement.
(55) 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.
(56) The pro forma adjustment is tax affected, based on Conseco's effective
tax rate of 35 percent.
(57) Minority interest is adjusted to reflect the dividends (net of the
related tax benefit) on the Preferred Securities.
(58) Notes payable are reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement using the net proceeds from the
Preferred Securities.
(59) Conseco's obligations are 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.
S:\ACCTING\SECRPT\S-4THI\PROFORM2.WPD
91
<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Conseco shareholders are governed by Conseco's Amended
and Restated Articles of Incorporation (the "Conseco Articles of
Incorporation"), its Amended and Restated Code of By-laws (the "Conseco
By-laws") and the IBCL. The rights of THI stockholders are governed by its
Certificate of Incorporation (the "THI Certificate of Incorporation"), its
By-Laws (the "THI By-laws") and the DGCL. After the Effective Time, the rights
of THI stockholders who become Conseco shareholders will be governed by the
Conseco Articles of Incorporation, the Conseco By-laws and the IBCL. The
following is a summary of the material differences between the rights of Conseco
shareholders and the rights of THI stockholders.
Amendment of By-laws
Both the Conseco By-laws and the THI By-laws may be amended by majority
vote of their respective boards of directors. The stockholders of THI may amend
the By-laws of THI by majority vote, and the stockholders may prescribe that any
By-law made by them may not be altered, amended or repealed by the THI Board of
Directors.
Voting with Respect to Certain Business Combinations
The Conseco Articles of Incorporation provide that Conseco may not
enter into a "Special Business Combination Transaction" (defined as a merger or
other business combination transaction with or involving a beneficial owner of
more than ten percent of Conseco Common Stock (a "Related Person")) 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 or (2) the transaction shall have been approved by two-thirds of the
Continuing Directors (defined as the directors of Conseco in office prior to the
date on which a Related Person became such).
THI is governed by Section 203 of the DGCL. Section 203 of the DGCL
provides that a corporation shall not engage in any business combination
(generally defined as a merger, consolidation, sale of greater than ten percent
of assets, issuance of stock or granting of other financial benefits) with any
interested stockholder (generally defined as any person owning greater than 15
percent of the voting stock of a corporation) for a period of three years
following the time that such stockholder became an interested stockholder,
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85 percent of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds (2/3) of the outstanding voting stock which is not
owned by the interested stockholder.
G:\LEGAL\REGSTMNT\THI10-16.S-4
92
<PAGE>
Certain Provisions Relating to Acquisitions
The IBCL contains certain provisions, including the ones described
below, which purport to apply to certain types of shares acquisitions or
corporate transactions.
Business Combinations. Section 23-1-43 of the IBCL provides that a
corporation may not engage in any business combination with any interested
shareholder (defined as the beneficial owner of ten percent or more of the
voting power of the outstanding voting shares) for a period of five years
following the interested shareholder's share acquisition date unless the
business combination or the purchase of shares made by the interested
shareholder is approved by the board of directors of the corporation before the
interested shareholder's share acquisition date.
Control Share Acquisitions. Section 23-1-42 of the IBCL requires that,
unless the articles of incorporation or by-laws of a corporation exempt the
corporation (which Conseco's Articles of Incorporation and By-Laws do not), the
acquisition by any person of more than one-fifth, one-third or a majority of the
voting power of an issuing public corporation in the election of directors be
approved by the shareholders of the issuing public corporation.
Takeover Offers. Section 23-2-3.1 of the IBCL provides that a person
shall not make a takeover offer unless the following conditions are satisfied:
(1) a statement which consists of each document required to be filed with the
Commission is filed with the Indiana securities commissioner and delivered to
the president of the target company; (2) a consent to service of process and the
requisite filing fee accompanies the statement filed with the Indiana securities
commissioner; (3) the takeover offer is made to all offerees holding the same
class of equity securities on substantially equivalent terms; (4) a hearing is
held within 20 business days after required statements are filed; and (5) the
Indiana securities commissioner shall have approved the takeover offer. A
"takeover bid" includes an offer to acquire or an acquisition of any equity
security of a target company pursuant to a tender offer or request or invitation
for tenders if, after the acquisition, the offeror is directly or indirectly a
record or beneficial owner of more than ten percent of any class of the
outstanding equity securities of the target company. A "target company" means an
issuer of securities which is organized under the laws of Indiana, has its
principal place of business in Indiana and has substantial assets in Indiana.
The DGCL contains certain provisions, including the ones described
above under "Voting with Respect to Certain Business Combinations", which
purport to apply to certain types of share acquisitions or corporate
transactions.
Right to Bring Business Before an Annual or Special Meeting of Shareholders
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain any restriction on the ability of shareholders to bring business before
a special meeting of shareholders.
Holders of the THI Common Stock representing a majority of the voting
power of all issued and outstanding shares of THI Common Stock may call a
special meeting of stockholders. Notice of such meeting must be mailed or
delivered to each stockholder not less than 10 nor more than 60 days prior to
such meeting. The notice must state the purpose or purposes for which the
meeting is to be held, and only such matters as are specified in such notice may
be acted upon at such special meeting.
G:\LEGAL\REGSTMNT\THI10-16.S-4
93
<PAGE>
Shareholder Action by Written Consent
The Conseco By-Laws and THI By-Laws specifically authorize stockholder
action by written consent of all the stockholders entitled to vote on such
action.
Removal of Directors
The Conseco Articles of Incorporation provides for the board of
directors to be divided into three classes. Under the Conseco By-laws, a
director may be removed, either for or without cause, at any special meeting of
shareholders called for that purpose, by the affirmative vote of a majority in
number of shares of the shareholders present in person or by proxy and entitled
to vote for the election of such director. Under the THI By-Laws, a director may
be removed with cause only by the affirmative vote of a majority of the
outstanding shares of each class of capital stock entitled to vote at an
election of such director.
Director Liability
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain a specific exculpatory provision regarding director liability. The IBCL,
however, 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 in compliance
with Section 23-1-35-1 of the IBCL (which requires, among other things, that a
director discharge his or her duties as a director in good faith, with the care
an ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner the director reasonably believes to be in the best
interests of the corporation), and (2) the breach or failure to perform
constitutes willful misconduct or recklessness.
The THI Certificate of Incorporation provides that a director of THI
shall not be personally liable to THI or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to THI or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the DGCL (unlawful payment
of dividends), or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification
The IBCL 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 Conseco By-laws provide for the indemnification of any person made
a party to any action, suit or proceeding by reason of the fact that he or she
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 or her 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.
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The THI Certificate of Incorporation provides that THI shall indemnify
any person who was, is, or is threatened to be made a party to a proceeding by
reason of the fact that he or she (i) is or was a director or officer of THI or
(ii) while a director or officer of THI, is or was serving at the request of THI
as a director, officer, partner, venturer, proprietor, trustee, employee, agent,
or similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL. Such right shall
include the right to be paid by THI expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the DGCL. If a claim for indemnification or advancement of expenses is not
paid in full by THI within 60 days after a written claim has been received by
THI, the claimant may at any time thereafter bring suit against THI to recover
the unpaid amount of the claim, and if successful in whole or in part, the
claimant shall also be entitled to be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that such indemnification or
advancement of costs of defense are not permitted under the DGCL, but the burden
of proving such defense shall be on THI. Neither the failure of THI (including
its board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by THI
(including its board of directors or any committee thereof, independent legal
counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution of stockholders or directors, agreement, or otherwise. THI may
additionally indemnify any employee or agent of the corporation to the fullest
extent permitted by law.
The Conseco Articles of Incorporation and Conseco By-laws do not
provide for the advancement of expenses. However, under the IBCL a corporation
may advance expenses if (1) the director furnishes the corporation a written
affirmation of the director's good faith belief that the director has met the
standard of conduct called for by Section 23-1-37-8 of the IBCL (which states
that a corporation may indemnify an individual made a part to a proceeding
because the individual is or was a director against liability incurred in the
proceeding if: (A) the individual's conduct was in good faith; and (B) the
individual reasonably believed: (i) in the case of conduct in the individual's
official capacity with the corporation, that the individual's conduct was in its
best interests; and (ii) in all other cases, that the individual's conduct was
at least not opposed to its best interests; and (C) in the case of any criminal
proceeding, the individual either: (i) had reasonable cause to believe the
individual's conduct was lawful; or (ii) had no reasonable cause to believe the
individual's conduct was unlawful), (2) the director furnishes a written
undertaking to repay the advance if it is ultimately determined that he or she
did not meet such standard of conduct and (3) a determination is made that the
facts then known would not preclude indemnification under Indiana laws.
Dividends and Repurchases
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. Under the DGCL, a
corporation may pay dividends and repurchase stock out of surplus or, if there
is no surplus, out of any net profits for the fiscal year in which the dividend
was declared and/or for the preceding fiscal year as long as no payment reduces
capital below the amount of capital represented by all classes of shares having
a preference upon the distribution of assets.
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Dissenters' Rights
Under both Delaware and Indiana law, a stockholder is entitled, under
certain circumstances, to receive payment of the fair value of the stockholder's
common stock if the stockholder dissents from a proposed merger or
consolidation. Under the DGCL, dissenters' rights are unavailable if the shares
of the Delaware corporation which is a party to a merger or consolidation are
listed on a national securities exchange (such as the NYSE) or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. (e.g., quoted on the NASDAQ
National Market), or are held of record by more than 2,000 persons, and in the
merger or consolidation, stockholders receive shares of stock of the surviving
or resulting corporation and/or shares of stock of any other corporation which
are listed on a national securities exchange or designated on an interdealer
quotation system (as described above) or held of record by more than 2,000
persons. Since the THI Common Stock is currently quoted on the NASDAQ National
Market and the shares of Conseco Common Stock to be received in the Merger will
be listed on the NYSE, dissenters' rights will not be available to stockholders
in connection with the Merger.
Unlike the DGCL, the IBCL provides for dissenters' rights in the case
of a share exchange or sale of all or substantially all of the assets of an
Indiana corporation. Dissenters' rights can also be made applicable by
affirmative provision in the articles of incorporation, by-laws or a Board of
Directors' resolution, or by other actions requiring a stockholder vote.
However, similar to the DGCL, under the IBCL, dissenters' rights are unavailable
to holders of shares registered on a national securities exchange or registered
on a system such as the NASDAQ National Market on the record date for a meeting
of stockholders at which action on the proposed transaction otherwise subject to
dissenters' rights is to be taken.
Director and Officer Discretion
Under Sections 23-1-35-1-(d), (f), and (g) of the IBCL, in discharging
his or her duties to the corporation and in determining what he or she 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. The DGCL does not contain a comparable provision,
and, under Delaware law, the consideration that a board may give to
nonstockholder constituencies is less clear. In considering the best interests
of a corporation, under Delaware law, directors and officers can generally take
into consideration the interest of nonstockholders. However, the Delaware
Supreme Court has held that the consideration of nonstockholder constituencies
is inappropriate when an active "auction" is in process to sell a company.
The foregoing discussion of certain similarities and material
differences between the rights of Conseco shareholders and the rights of THI
stockholders is only a summary of certain provisions and does not purport to be
a complete description of such similarities and differences, and is qualified in
its entirety by reference to the IBCL and the common law thereunder, the DGCL
and the common law thereunder, and the full text of the Conseco Articles of
Incorporation, the Conseco By-laws, the THI Certificate of Incorporation and the
THI By-Laws.
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MANAGEMENT OF CONSECO
UPON CONSUMMATION OF THE MERGER
The directors and executive officers of Conseco will continue as 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 808,374 shares of Conseco
Common Stock and holds options to purchase 1,406,900 shares of Conseco Common
Stock. Certain matters in connection with the Merger will be passed upon for THI
by Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas
75201-6950.
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 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 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 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 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 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 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 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 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 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.
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INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP will be present at the 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 Proxy Statement/Prospectus, the THI Board of
Directors does not intend to present, and has not been informed that any other
person intends to present, any matter for action at the Special Meeting, other
than as discussed herein.
If the Merger is consummated, stockholders of THI will become
stockholders 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.
THI will not hold a 1997 annual meeting of stockholders if the Merger
is consummated. If such a meeting is held, any stockholder proposal intended to
be presented at the THI 1997 annual meeting of stockholders and to be included
in the proxy statement and form of proxy relating to that meeting must be
received by THI at its principal executive offices located at 714 Main Street,
Forth Worth, Texas 76102 not later that December 2, 1996.
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Annex A
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 25, 1996
By and Between
CONSECO, INC.
and
TRANSPORT HOLDINGS INC.
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
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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............................................................. 3
1.10 Redemption of Preferred Stock........................................................ 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 6
2.1 Organization, Standing and Corporate Power........................................... 6
2.2 Capital Structure.................................................................... 6
2.3 Authority; Noncontravention.......................................................... 7
2.4 SEC Documents........................................................................ 9
2.5 Absence of Certain Changes or Events................................................. 9
2.6 Absence of Changes in Benefit Plans.................................................. 10
2.7 Benefit Plans........................................................................ 10
2.8 Taxes................................................................................ 11
2.9 No Excess Parachute Payments; Section 162(m) of the Code............................. 12
2.10 Voting Requirements.................................................................. 12
2.11 Compliance with Applicable Laws...................................................... 12
2.12 Opinion of Financial Advisor......................................................... 14
2.13 Brokers.............................................................................. 14
2.14 Agreements with Travelers Group Inc.................................................. 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO .................................................... 14
3.1 Organization, Standing and Corporate Power........................................... 14
3.2 Conseco Capital Structure............................................................ 15
3.3 Authority; Noncontravention.......................................................... 16
3.4 SEC Documents........................................................................ 17
3.5 Absence of Certain Changes or Events................................................. 17
3.6 Compliance with Applicable Laws...................................................... 18
3.7 Brokers.............................................................................. 19
3.8 Voting Requirements.................................................................. 20
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE IV
<S> <C>
ADDITIONAL AGREEMENTS......................................................................... 20
4.1 Preparation of Form S-4 and the Proxy Statement; Information Supplied................ 20
4.2 Meeting of Stockholders.............................................................. 21
4.3 Letter of the Company's Accountants.................................................. 21
4.4 Letter of Conseco's Accountants...................................................... 21
4.5 Access to Information; Confidentiality............................................... 22
4.6 Commercially Reasonable Efforts...................................................... 22
4.7 Public Announcements................................................................. 22
4.8 Acquisition Proposals................................................................ 23
4.9 Fiduciary Duties..................................................................... 23
4.10 Consents, Approvals and Filings...................................................... 24
4.11 Certain Fees......................................................................... 25
4.12 Affiliates and Certain Stockholders.................................................. 25
4.13 NYSE Listing......................................................................... 26
4.14 Stockholder Litigation............................................................... 26
4.15 Indemnification...................................................................... 26
4.16 Stock Options and Warrants........................................................... 27
4.17 Officers' Certificates Relating to Tax Treatment. ................................... 27
4.18 Severance and Other Payments ........................................................ 27
4.19 Convertible Debentures............................................................... 27
4.20 Warrants..............................................................................28
4.21 Letter Agreements.....................................................................28
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER...................................... 28
5.1 Conduct of Business by the Company................................................... 28
5.2 Conduct of Business by Conseco....................................................... 31
5.3 Other Actions ....................................................................... 32
ARTICLE VI
CONDITIONS PRECEDENT.......................................................................... 32
6.1 Conditions to Each Party's Obligation To Effect the Merger........................... 32
6.2 Conditions to Obligations of Conseco ................................................ 33
6.3 Conditions to Obligation of the Company.............................................. 34
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER............................................................. 35
7.1 Termination.......................................................................... 35
7.2 Effect of Termination................................................................ 36
7.3 Amendment............................................................................ 36
7.4 Extension; Waiver.................................................................... 36
7.5 Procedure for Termination, Amendment, Extension or Waiver............................ 36
ARTICLE VIII
SURVIVAL OF PROVISIONS........................................................................ 37
8.1 Survival............................................................................. 37
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE IX
<S> <C>
NOTICES....................................................................................... 37
9.1 Notices.............................................................................. 37
ARTICLE X
MISCELLANEOUS................................................................................. 38
10.1 Entire Agreement.................................................................... 38
10.2 Expenses............................................................................ 38
10.3 Counterparts ....................................................................... 38
10.4 No Third Party Beneficiary.......................................................... 38
10.5 Governing Law....................................................................... 39
10.6 Assignment; Binding Effect.......................................................... 39
10.7 Enforcement........................................................................ 39
10.8 Headings, Gender, etc............................................................... 39
10.9 Invalid Provisions.................................................................. 39
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of September 25, 1996 by and between CONSECO, INC., an Indiana
corporation ("Conseco"), and TRANSPORT HOLDINGS INC., a Delaware 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") and the Delaware General
Corporation Law (the "DGCL"), 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. At the option of the
Company or Conseco, the structure of the merger may be changed such that a newly
formed subsidiary of Conseco shall be merged with and into the Company;
provided, however, that such structure change does not (i) have any adverse
impact on Conseco or the Company or (ii) prevent delivery of the opinion
specified in Section 6.3(c).
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
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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 State of Delaware (the "Delaware Secretary of State")
on the Closing Date (or on such other date as Conseco and the Company may agree)
articles of merger executed in accordance with the relevant provisions of the
IBCL and a certificate of merger executed in accordance with the relevant
provisions of the DGCL, and make all other filings or recordings required under
the IBCL and the DGCL 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 certificate of merger with the Delaware Secretary of State, or
at such later time as is specified in the articles of merger and the certificate
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
Class A 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) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into a right to receive
the whole number and fraction (rounded to the nearest ten- thousandth) of a
validly issued, fully paid and nonassessable share of common stock, without par
value, of Conseco ("Conseco Common Stock"), determined by dividing $70.00 by the
Conseco Share Price. The "Conseco Share Price" shall be equal to the Trading
Average (as defined below); provided, however, that if the Trading Average is
less than $38.25, then the Conseco Share Price shall be $38.25, and if the
Trading Average is greater than $50.00, then the Conseco 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 New York Stock Exchange ("NYSE")
Composite Transactions Reporting System, as reported in The Wall Street
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Journal, for the ten 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(f) 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 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. Subject to Section 5.2 hereof, 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) Treatment of Company Stock Options and Warrants. (i) From and
after the Effective Time, each outstanding unexpired stock option ("Company
Stock Option") to purchase Shares which has been granted pursuant to the
Company's 1995 Stock Plan, as amended to the date hereof (the "Company Stock
Plan"), shall be exerciseable, for the same aggregate consideration payable to
exercise such Company Stock Option, for 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 Option had been fully vested and exercised for Shares
prior to the Effective Time, and otherwise on the same terms and conditions as
were applicable under the Company Stock Plan and the underlying stock option
agreement except as provided in subsection (ii).
(ii) Each Company Stock Option, if not then vested, will vest
in full at the Effective Time in accordance with the Company Stock Plan.
(iii) From and after the Effective Time, each outstanding
warrant to purchase Shares shall be exerciseable, for the same aggregate
consideration payable to exercise such warrant, for the number of shares of
Conseco Common Stock which the holder would have been entitled to receive at the
Effective Time if such warrant had been exercised in full for Shares immediately
prior to the Effective Time, and otherwise on the same terms and conditions as
were applicable under such warrant.
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
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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 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)), 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
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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 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
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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 the cash portion of any Merger 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 Redemption of Preferred Stock. Before the Effective Time all of
the outstanding shares of Series A Cumulative Exchangeable Preferred Stock of
the Company (the "Series A Preferred Shares") will be redeemed for an amount
equal to the Redemption Price (as such term is defined in the Certificate of
Designations of Series A Cumulative Exchangeable Preferred Stock of the Company)
of such shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Conseco as follows:
2.1 Organization, Standing and Corporate Power. Each of the Company and
each subsidiary of the Company 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 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 Bylaws, as amended to the date of this Agreement.
2.2 Capital Structure. The authorized capital stock of the Company
consists of (i) 8,000,000 Shares, (ii) 2,000,000 shares of Class B Common Stock,
$.01 par value ("Class B Common Stock"), and (iii) 2,000,000 shares of preferred
stock, $.01 par value (the
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"Preferred Stock"). At the close of business on September 23, 1996: (i)
1,592,048 Shares were issued and outstanding, 480,000 Shares were reserved for
issuance pursuant to outstanding Company Stock Options and warrants and
1,517,805 Shares were reserved for issuance upon conversion of the outstanding
Series A Subordinated Convertible Notes due 2005 (the "Series A Notes") and the
outstanding Series B Subordinated Convertible Notes due 2005 ("Series B Notes");
(ii) no shares of Class B Common Stock were issued and outstanding; and (iii)
91,030 Series A Preferred Shares were outstanding. Except as set forth above, at
the close of business on September 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 Plan or any outstanding
Company Stock Options or warrants will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except for $42,000,000 principal amount of Series A Notes and $8,000,000
principal amount of Series B Notes, no bonds, debentures, notes or other
indebtedness of the Company or any 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 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 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
subsidiary of the Company has any outstanding option, warrant, subscription or
other right, agreement or commitment which either (i) obligates the Company or
any 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
subsidiary of the Company or (ii) restricts the transfer of Shares. No issued
and outstanding Shares are owned by the Company's subsidiaries.
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). This Agreement has been duly executed and
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delivered by the Company and, assuming that 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 Bylaws of the Company or the comparable
documents of any 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 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, as amended or supplemented from
time to time, the "Proxy Statement"), and (y) such reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iv) the filing of the certificate of merger or articles of merger
with the Delaware 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
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of the Disclosure Schedule and (vi) any applicable filings under state anti-take
over 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,
1995 (such reports, schedules, forms, statements and other documents, including
the exhibits thereto and documents incorporated therein by reference, 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 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
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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 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
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, bonus or incentive compensation, deferred compensation
or severance, 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 Code, all other applicable laws applicable to the Company's Benefit
Plans 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
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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 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 reserves which are adequate in all
material respects 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,
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tariffs or governmental charges of any nature whatsoever and any interest,
penalties and additions to taxes relating thereto. As used in this Agreement,
"tax returns" shall include any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any governmental agency, department, commission, board, bureau, or
instrumentality in connection with the determination, assessment, collection, or
administration of any taxes.
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
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 and Series A Preferred 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 and except with respect to matters covered by Section 2.11(iii),
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") and except with respect to matters covered by Section
2.11(iii), as of the date of this Agreement, to the knowledge of the Company, no
investigation by any Governmental Entity with
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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
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.
(iii) Except as set forth in Section 2.11(iii) of the Disclosure
Schedule, (a) the Company and its subsidiaries (exclusive of their agents) and,
to the knowledge of the Company (without independent inquiry), their agents have
marketed, sold and issued Company products in compliance, in all material
respects, with all statutes, laws, ordinances, rules, orders and regulations of
any Governmental Entity applicable to the business of the Company and its
subsidiaries ("Laws") in the respective jurisdictions in which such products
have been sold, except where the failure to do so, individually or in the
aggregate, has not had or 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) there are (x) to the
knowledge of the Company, no claims asserted, (y) no actions, suits,
investigations or proceedings by or before any court or other Governmental
Entity or (z) no investigations by or on behalf of the Company (other than
routine investigations in connection with the Company's hiring practices) ((x),
(y) and (z) being collectively referred to as "Actions") pending or, to the
knowledge of the Company, threatened, against or involving the Company, any of
its subsidiaries or, to the knowledge of the Company (without independent
inquiry), any of its agents that include allegations that the Company, any of
its subsidiaries or any of its agents were in violation of or failed to comply
with such Laws, and, to the knowledge of the Company, no
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facts exist which would reasonably be expected to result in the filing or
commencement of any such Action, which Actions, individually or in the
aggregate, would 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, and (c) the Company and its subsidiaries are in
compliance, in all material respects, with and have performed, in all material
respects, all obligations required to be performed by each of them under any
cease-and-desist or other order issued by any Insurance Regulator or other
Governmental Entity to the Company or any of its subsidiaries or under any
written agreement, consent agreement, memorandum of understanding or commitment
letter or similar undertaking entered into between any Insurance Regulator or
other Governmental Entity and the Company or any of its subsidiaries
("Regulatory Agreement"), which Regulatory Agreement remains in effect on the
date hereof, except where the failure to do so, individually or in the
aggregate, has not had or 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.
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, from a financial point of view, 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, transaction fee, investment banking fee, 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.
2.14 Agreements with Travelers Group Inc. Section 2.14 of the
Disclosure Schedule sets forth all agreements between the Company
and Travelers Group Inc. and its affiliates.
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
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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 any
subsidiary of Conseco that would constitute a Significant Subsidiary within the
meaning of Rule 1-02 of Regulation S-X promulgated under the Exchange Act.
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 September 23,
1996, (i) 66,821,974 shares of Conseco Common 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) 13,587,418 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") and (iii) 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
1,043,750 shares of Bankers Life Holding Corporation under its Stock Option Plan
and with respect to stock units awarded under the Conseco Stock Plans, at the
close of business on September 23, 1996, and (z) as set forth in the Filed
Conseco SEC Documents (as defined in Section 3.5), 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, 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
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Conseco or any Significant Subsidiary of Conseco or (ii) restricts the transfer
of Conseco Common Stock.
3.3 Authority; Noncontravention. Conseco has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by 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. 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 Conseco Common Stock in the Merger (the "Form
S-4") and such reports under the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby, (iv) the filing
with the SEC of a registration statement relating to the
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Conseco Debentures (as defined in Section 4.19) and the Conseco Common Stock
issuable upon conversion thereof, (v) the filing of the articles of merger or a
certificate of merger with the Indiana Secretary of State and the Delaware
Secretary of State, and appropriate documents with the relevant authorities of
the other states in which the Company is qualified to do business, (vi) such
other consents, approvals, authorizations, filings or notices as are set forth
in Section 2.3 of the Disclosure Schedule and (vii) 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, 1995 (such documents and the exhibits thereto and documents
incorporated therein by reference are hereinafter referred to as 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, 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
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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 and except with respect to matters covered by
Section 3.6(iii), 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 Insurance Regulators and
except with respect to matters covered by Section 3.6(iii), 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 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.
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(iii) Except as set forth in Section 3.6(iii) of the Conseco Disclosure
Schedule or in the Filed Conseco SEC Documents, (a) Conseco and its subsidiaries
(exclusive of their agents) and, to the knowledge of Conseco (without
independent inquiry), their agents have marketed, sold and issued Conseco
products in compliance, in all material respects, with all statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity applicable
to the business of Conseco and its subsidiaries ("Conseco Laws") in the
respective jurisdictions in which such products have been sold, except where the
failure to do so, individually or in the aggregate, has not had or 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, (b) there are (x) to the knowledge of Conseco, no claims
asserted, (y) no actions, suits, investigations or proceedings by or before any
court or other Governmental Entity or (z) no investigations by or on behalf of
Conseco (other than routine investigations in connection with Conseco's hiring
practices) ((x), (y) and (z) being collectively referred to as "Conseco
Actions") pending or, to the knowledge of Conseco, threatened, against or
involving Conseco, any of its subsidiaries or, to the knowledge of Conseco
(without independent inquiry), any of its agents that include allegations that
Conseco, any of its subsidiaries or any of its agents were in violation of or
failed to comply with such Conseco Laws, and, to the knowledge of Conseco, no
facts exist which would reasonably be expected to result in the filing or
commencement of any such Conseco Action, which Conseco Actions, individually or
in the aggregate, would 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, and (c) Conseco and its subsidiaries are in
compliance, in all material respects, with and have performed, in all material
respects, all obligations required to be performed by each of them under any
cease-and-desist or other order issued by any Insurance Regulator or other
Governmental Entity to Conseco or any of its subsidiaries or under any written
agreement, consent agreement, memorandum of understanding or commitment letter
or similar undertaking entered into between any Insurance Regulator or other
Governmental Entity and Conseco or any of its subsidiaries ("Conseco Regulatory
Agreement"), which Conseco Regulatory Agreement remains in effect on the date
hereof, except where the failure to do so, individually or in the aggregate, has
not had or 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.
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 its subsidiaries for a finder's fee, brokerage commission, transaction
fee, investment banking fee, or similar payment.
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<PAGE>
3.8 Voting Requirements. No authorization or approval by the holders
of any class or series of Conseco's capital stock is necessary to approve this
Agreement or the transactions contemplated by this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and the 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 Proxy Statement and
Conseco shall prepare and file with the SEC the Form S-4, in which the Proxy
Statement will be included as a prospectus. Each of the Company and Conseco
shall use commercially reasonable efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
The Company will use commercially reasonable efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after the Form S-4 is declared effective under the Securities Act. 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.
(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 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 Company agrees that
the 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
incorporation by reference in the Proxy Statement.
(c) Conseco agrees that none of the information supplied or to be
supplied by Conseco specifically for inclusion or
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<PAGE>
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 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. Conseco
agrees that the Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder, except with respect to statements made or incorporated by reference
based on information supplied by the Company specifically for inclusion or
incorporation by reference therein.
4.2 Meeting of Stockholders. The Company will take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
By-laws to convene a meeting of its stockholders (the "Stockholders Meeting") to
consider and vote upon the approval of the Merger. Subject to Section 4.9
hereof, the Company will, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the Merger. Without limiting the
generality of the foregoing, the Company agrees that, subject to its right to
terminate this Agreement pursuant to Section 4.9, its obligations pursuant to
the first sentence of this Section 4.2 shall not be affected by (i) the
commencement, public proposal, public disclosure or communication to the Company
of any Acquisition Proposal (as defined in Section 4.8) 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. The Company will use
commercially reasonable efforts to hold the Stockholders Meeting and (subject to
Section 4.9 hereof) to obtain the favorable vote of its 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 KPMG Peat Marwick 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 KPMG Peat Marwick 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
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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 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 September 12, 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 Commercially Reasonable Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use commercially reasonable 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 and make
a good faith effort to agree 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.
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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 any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that nothing contained in this Section
4.8 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 in order
for the Board of Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law it should take such action 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
(i) promptly advise Conseco orally and in writing of the (A) 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, (B) the material terms and conditions of such Acquisition Proposal or
inquiry, and (C) the identity of the person making any such Acquisition Proposal
or inquiry, and (ii) keep Conseco fully informed of the status and details of
any such Acquisition Proposal or inquiry. Notwithstanding the immediately
preceding sentence, the Company may delay providing any of the information
described in clause (i) (B), (i) (C) or (ii) of such sentence if, and for so
long as, the Board of Directors of the Company, after consultation with outside
counsel, determines and continues to believe in good faith that in order to
comply with its fiduciary duties to stockholders under applicable law it should
not provide such information. 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 subsidiary of
the Company, or any purchase of all or any significant portion of the assets of
the Company or any subsidiary of the Company, or any equity interest in the
Company or any 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, or (ii) enter into any agreement with respect to any Acquisition
Proposal, unless the
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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 the Board of Directors should withdraw or modify, in a manner
materially adverse to Conseco, its approval or recommendation of this Agreement
or the Merger, or 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 taking of any such action, pay to Conseco the Section 4.11 Fee pursuant to
Section 4.11. Subject to the provisions of the first sentence of this Section
4.9, 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 after consultation with outside counsel, should be
made under applicable law. Notwithstanding anything contained in this Agreement
to the contrary, (x) any action by the Board of Directors permitted by this
Section 4.9 shall not constitute a breach of this Agreement by the Company and
(y) a "stop-look-and-listen" communication with respect to the Merger or this
Agreement of the nature contemplated in Rule 14d-9 under the Exchange Act made
by the Company as a result of an Acquisition Proposal shall in no event be
deemed a withdrawal or modification by the Board of Directors of the Company of
its approval or recommendation of this Agreement or the Merger.
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 commercially reasonable 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
commercially reasonable 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
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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
$7.5 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 adverse to Conseco its approval or
recommendation of this Agreement or the Merger or enters into an agreement with
respect to such Acquisition Proposal (other than a confidentiality agreement as
contemplated by Section 4.8), or terminates this Agreement; provided, however,
that no such fee shall be payable if this Agreement shall have been terminated
in accordance with any of the provisions of Section 7.1 (other than Section
7.1(b)(iv)).
(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 (c) 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
commercially reasonable efforts to procure the satisfaction thereof.
(c) For purposes of this Section 4.11, "Expenses" shall mean all
documented, reasonable out-of-pocket fees and expenses incurred or paid by or on
behalf of Conseco to third parties in connection with the Merger or the
consummation of any of the transactions contemplated by this Agreement,
including all 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 commercially reasonable 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 to the Disclosure
Schedule. 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 Common Stock by such affiliates and the
certificates representing Conseco Common Stock received by
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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 commercially reasonable 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) For a period of three years after the Effective Time, the Surviving
Corporation shall maintain in effect the current policies of directors' and
officers' liability insurance maintained by the Company and its subsidiaries on
the date hereof (provided that the Surviving Corporation may substitute therefor
policies with at least as favorable coverage, limits and deductibles and
containing terms and conditions which are no less advantageous as the policy for
which the substitution is made) with respect to claims arising out of facts or
events that occurred before the Effective Time; provided, however, that in no
event shall the Surviving Corporation be required to expend pursuant to this
Section 4.15 on an annual basis more than an amount equal to 200% of the current
annual premiums paid by the Company and its subsidiaries for such insurance and,
in the event the cost of such coverage shall exceed that amount, the Surviving
Corporation shall purchase as much coverage as possible for such amount.
(c) The provisions of this Section 4.15 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and the heirs
and personal representatives of such
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Indemnified Party and shall be binding on all successors and assigns of Conseco.
4.16 Stock Options and Warrants. (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 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(d) and shall
make such other changes to the Company Stock Plan 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 and warrants outstanding on the date hereof and
any changes thereto described in or contemplated by this Agreement or the
Disclosure Schedule, no options, warrants or other rights of any kind to
purchase capital stock of the Company shall be granted or made, under the
Company Stock Plan 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 and warrants. 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.
4.17 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, which agreement shall not be
unreasonably withheld, 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, which agreement shall not be unreasonably withheld,
dated the Closing Date and signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company.
4.18 Severance and Other Payments. Employees of the Company who are
terminated by Conseco within 18 months after the Closing Date will be entitled
to receive the severance payments set forth on Section 4.18 of the Disclosure
Schedule.
4.19 Convertible Debentures. Conseco shall offer to exchange, as of
the Effective Time, Conseco convertible debentures
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(the "Conseco Debentures") in an aggregate principal amount of $50,000,000 and
otherwise containing the terms set forth in Section 4.19 of the Disclosure
Schedule for the outstanding Series A Notes and Series B Notes. Conseco agrees
to take such action as is necessary for the making and consummation of such
exchange and the issuance by it of the Conseco Debentures, including filing of a
registration statement with the SEC with respect to the Conseco Debentures and
the shares of Conseco Common Stock to be issuable upon conversion of the Conseco
Debentures. At the Company's option, such registration shall be either included
in the Form S-4 or filed as a separate registration statement. If a separate
registration statement is filed, the provisions of this Agreement relating to
the Form S-4 will apply to such separate registration statement. In addition,
Conseco agrees that if any of the shares of Conseco Common Stock issued upon
conversion of Conseco Debentures shall not be immediately freely tradeable by
the holder thereof, then, at the request of the holder, Conseco shall, as
promptly as practicable, at Conseco's option, either (i) acquire such shares
directly from such holder at the then current market price, or (ii) file and
have declared effective a registration statement on Form S-3 (or other
appropriate form) with the SEC to register such shares for resale by such holder
and use commercially reasonable efforts to keep such registration statement
effective until such time as such shares become freely tradeable. For purposes
of the preceding sentence, shares which may be sold at such time pursuant to
Rule 144 (as promulgated by the SEC) shall be considered "freely tradeable."
Upon the exchange of any Series A Notes or Series B Notes for Conseco
Debentures, Conseco shall pay to the exchanging holder an amount equal to the
accrued and unpaid interest on such Series A Notes or Series B Notes, as
applicable, through and including the Closing Date.
4.20 Warrants. The Company's outstanding warrants shall be amended as
soon as practicable after the Effective Time to include the provisions specified
in Section 4.20 of the Disclosure Schedule.
4.21 Letter Agreements. At or prior to the Effective Time, Conseco
shall enter into the letter agreements described in Section 4.21 of the
Disclosure Schedule.
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
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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 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 executive, legal, financial, marketing and other
operational matters involving the Company, its subsidiaries or their businesses.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time, the Company shall not, and shall
not permit any of 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; provided, however, that the Company may pay dividends on the
outstanding Series A Preferred Shares in accordance with the terms of
such Series A Preferred Shares, and may, at its option, redeem any
outstanding Series A Preferred Shares in accordance with the terms of
such Series A Preferred 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;
(iv) acquire, form or commence the operations of any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof (including, but not limited
to, the entering into of any reinsurance or coinsurance agreements
involving Mid- America Reinsurance, Ltd.);
(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
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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 agents and
employees;
(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) 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 changes or amendments that are required
under existing contracts;
(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
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payments, obligations or vesting schedules under any Benefit
Plan; or
(iv) approve any general or company-wide payincreases
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 or committee, without
providing to Conseco (i) notice of any such meeting no later than the
date notice is given to the board of directors or in advance of the
date of any proposed action by written consent and (ii) with such
notice, an agenda of the specific matters intended to be considered at
such meeting or a copy of the proposed written consent, unless, in the
reasonable good faith judgment of the President or Chairman of the
Company, providing prior notice of any agenda item or any item of such
written consent will prejudice the ability of the board of directors or
any committee of the board of directors to discharge its duties, in
which case such item may be omitted from the agenda or written consent
provided to Conseco; or
(xiii) authorize any of, or commit or agree to take anyof, 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 and except as disclosed in Conseco SEC Filed Documents, 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:
(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
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dividends on 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 Proxy Statement or, (B) if
it were to occur after such date of mailing, require an amendment of
the Proxy Statement;
(iii) 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 Proxy Statement or,
(B) if it were to occur after such date of mailing, require an
amendment of the 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.
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.
(b) Governmental and Regulatory Consents. All required consents,
approvals, permits and authorizations to the consummation of the
transactions contemplated hereby by the
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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, 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.
(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.
(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
commercially 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 Closing
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 and except for actions contemplated by this
Agreement), 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).
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(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.
(c) Convertible Debentures. Holders of at least 90% of the
aggregate principal amount of Series A and Series B Notes shall have
accepted the offer made by Conseco pursuant to Section 4.19 to exchange
such Series A and Series B Notes for Conseco Debentures as of the
Effective Time.
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 Closing 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 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 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 Weil, Gotshal & Manges LLP, counsel
to the Company, or such other legal counsel reasonably acceptable to
the Company and Conseco (the "Tax Opinion Provider") to the effect that
the Merger will be treated as a reorganization under Section 368(a)(1)
of the
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Code as a result of which the stockholders 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.
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:
(a) by mutual written consent of Conseco and the Company; or
(b) by either Conseco or the Company:
(i) if, upon a vote at a duly held Stockholders
Meeting or any adjournment thereof, any required approval of
the stockholders of the Company shall not have been obtained;
(ii) at any time after January 31, 1997, 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 January 31, 1997 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;
(iv) if the Board of Directors of the Company shall
have exercised its rights set forth in Section 4.9 of this
Agreement; or
(v) if on the scheduled Closing Date the Five Day
Trading Average is less than $34.875. The "Five Day Trading
Average" shall be equal to the average of the closing prices
of the Conseco Common Stock on the NYSE Composite Transactions
Reporting System, as reported in The Wall Street Journal, for
the five trading days immediately preceding the second trading
day prior to the scheduled Closing Date.
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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 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
DGCL, 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.
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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:
Transport Holdings Inc.
714 Main Street
Fort Worth, Texas 76102-5252
Attention: T. Gary Cole
Telephone: (817) 390-8000
Telecopy: (817) 347-3297
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Thomas A. Roberts
Telephone: (214) 746-7700
Telecopy: (214) 746-7777
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
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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. The parties agree that any item disclosed in any section of the
Disclosure Schedule or the Conseco Disclosure Schedule shall be deemed to be
disclosed for all purposes of this Agreement, notwithstanding the fact that such
item was not disclosed in any other section of the Disclosure Schedule or the
Conseco Disclosure Schedule.
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 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.
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<PAGE>
10.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
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, this being in addition to any other
remedy to which they are entitled at law or in equity.
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.
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.
G:\LEGAL\AGREEMNT\MERGER\THI.3RD
39
<PAGE>
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
TRANSPORT HOLDINGS INC.
By: /s/Garland M. Lasater, Jr.
--------------------------
Garland M. Lasater, Jr.
President
G:\LEGAL\AGREEMNT\MERGER\THI.3RD
40
<PAGE>
Annex B
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 (212) 892-3000
September 24, 1996
Board of Directors
Transport Holdings Inc.
714 Main Street
Forth Worth, TX 76102
Dear Sirs:
You have requested our opinion as to the fairness from a financial point
of view to the Class A common shareholders of Transport Holdings Inc. (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 September 24, 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 Class A 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 $38.25 per
share and less than or equal to $50.00 per share, the number of shares of
Conseco Common Stock determined by dividing $70.00 by the Conseco Share Price,
(ii) if the Conseco Share Price is less than $38.25 per share, 1.8301 shares of
Conseco Common Stock or (iii) if the Conseco Share Price is greater than $50.00
per share, 1.4000 shares of Conseco Common Stock (such number as determined
pursuant to clauses (i) through (iii) of this paragraph, the "Exchange Ratio").
The Company will have the right to terminate the Agreement if the Conseco Share
Price is below $34.875. 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 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 were certain financial projections of the Company for the years
ending December 31, 1996 through December 31, 2000 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 announced 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 Company
Common Stock and Conseco Common Stock, reviewed prices and premiums paid in
certain 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.
<PAGE>
Mr. John T. Sharpe
Transport Holdings Inc.
Page 2
September 24, 1996
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 Conseco in the past,
including acting as co-manger on a $111 million initial public offering for CCP
Insurance Inc., an insurance holding company owned by Conseco, and has received
usual and customary compensation for such services. DLJ has also delivered 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. Additionally, DLJ has
delivered an opinion as to the fairness from a financial point of view to the
shareholders of American Travellers Corporation ("American Travellers") of the
exchange ratio pursuant to the terms of the merger of American Travellers 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-4THI\DL&J.WPD
<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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
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 September 25, 1996 by and between
Conseco, Inc. and Transport Holdings Inc. (included as Annex A to the Proxy
Statement/Prospectus (schedules omitted -- the Registrant agrees to furnish a copy
of any schedule to the Securities and Exchange Commission (the "Commission")
upon request)).*
5 - Opinion of Lawrence W. Inlow, General Counsel to Conseco, Inc., as to the
validity of the issuance of the securities registered hereby.(1)
8 - Opinion of Weil, Gotshal & Manges LLP as to certain tax matters. (1)
23(a) - Consent of Lawrence W. Inlow, General Counsel to Conseco, Inc. (included in
the opinion filed as Exhibit 5 to the Registration Statement). (1)
23(b) - Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of the Registrant.*
23(c) - Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Transport Holdings Inc.*
23(d) - Consent of Arthur Andersen LLP with respect to the financial statements of
American Travellers Corporation.*
23(e) - Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Capitol American Financial Corporation.*
23(f) - Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of Life Partners Group, Inc.*
23(g) - Consent of Donaldson, Lufkin & Jenrette Securities Corporation.*
23(h) - Consent of Weil, Gotshal & Manges LLP. (1)
24 - 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 Proxy Statement/Prospectus).*
99(b) - Form of proxy card for THI.*
* Filed herewith.
(1) To be filed by amendment.
(b) Financial Statement Schedules - Inapplicable.
</TABLE>
G:\LEGAL\REGSTMNT\THI10-16.S-4
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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
II-3
<PAGE>
(e) The undersigned registrant hereby undertakes:
(1) 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.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if
the total dollar value of securities offered
would not exceed that which was registered)
and any deviation from the low or high end of
the estimated maximum offering range may be
reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price
represent no more than a 20% change in the
maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in
the effective registration statement; and
(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.
(2) 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.
(3) 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.
G:\LEGAL\REGSTMNT\THI10-16.S-4
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 17th day of October, 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, any of whom may act without the joinder of the others, 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, President October 17, 1996
- -----------------------------------------
Stephen C. Hilbert and Chief Executive Officer (Principal
Executive Officer of the Registrant)
/s/ Rollin M. Dick Director, Executive Vice President and October 17, 1996
- -----------------------------------------
Rollin M. Dick Chief Financial Officer (Principal Financial
and Accounting Officer of the Registrant)
Director October , 1996
Ngaire E. Cuneo
Director October , 1996
David R. Decatur
Director October , 1996
M. Phil Hathaway
/s/ Louis P. Ferrero Director October 17, 1996
- -----------------------------------------
Louis P. Ferrero
/s/ Donald F. Gongaware Director October 17, 1996
- ---------------------------------------
Donald F. Gongaware
Director October , 1996
James D. Massey
/s/ Dennis E. Murray, Sr. Director October 17, 1996
- -----------------------------------------
Dennis E. Murray, Sr.
</TABLE>
G:\LEGAL\REGSTMNT\THI10-16.S-4
II-5
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
October 15, 1996
Exhibit 23(c)
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
Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
October 15, 1996
Exhibit 23(d)
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
October 14, 1996
Exhibit 23(e)
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Capitol American Financial Corporation:
We consent to the incorporation by reference herein of our reports dated
January 31, 1996, related to the consolidated financial statements and related
financial statement schedules 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 Proxy
Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
October 15, 1996
Exhibit 23(f)
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
October 15, 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 Transport Holdings Inc. (the
"Company") as Annex B to the Proxy Statement of the Company and the Prospectus
of 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
THI's Financial Advisor" of the Proxy Statement of the Company and the
Prospectus of 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/MARK K. GORMLEY
-------------------
New York, New York
October 15, 1996
[Form of Proxy]
Exhibit 99(b)
TRANSPORT HOLDINGS INC.
Proxy Solicited on Behalf of the Board of Directors of
Transport Holdings Inc. for a Special Meeting
of Stockholders to be held on , 1996.
The undersigned Stockholder of Transport Holdings Inc. ("THI") hereby
appoints ____________ and _______________, and either of them, the lawful
attorneys and proxys of the undersigned, with several powers of substitution, to
vote all shares of Common Stock, par value $0.01 per share, of THI (the "THI
Common Stock") which the undersigned is entitled to vote at the Special Meeting
of Stockholders to be held on _________ __, 1996, and any adjournments thereof:
1. Approval of the Agreement and Plan of Merger, dated as of September 25,
1996 (the "Merger Agreement"), by and between THI and Conseco, Inc.,
an Indiana corporation ("Conseco"), and the transactions contemplated
thereby (including, without limitation, the Merger (as defined below)),
pursuant to which, among other things, (i) THI will be merged with and into
Conseco, with Conseco being the surviving corporation (the "Merger"), and
(ii) each outstanding share of THI Common Stock (other than shares of THI
Common Stock held as treasury shares by THI immediately prior to the
Effective Time (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 recommends that the stockholders of THI vote FOR
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. In the absence of specific instructions, proxys will be
voted for approval of the Merger Agreement and the Merger and in the discretion
of the proxy 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:__________________
S:\ACCTING\SECRPT\S-4THI\PROXY.THI
