<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION NO. 333-13329
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONSECO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 6719 35-1468632
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
11825 N. PENNSYLVANIA ST., CARMEL, INDIANA 46032, (317) 817-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAWRENCE W. INLOW
CONSECO, INC.
11825 N. PENNSYLVANIA ST.
CARMEL, INDIANA 46032
(317) 817-6163
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JOHN A. POWELL RAMON R. OBOD
AMERICAN TRAVELLERS CORPORATION FOX, ROTHSCHILD, O'BRIEN & FRANKEL
3220 TILLMAN DRIVE 2000 MARKET STREET, 10TH FLOOR
BENSALEM, PENNSYLVANIA 19020 PHILADELPHIA, PENNSYLVANIA 19103-3291
(215) 244-1600 (215) 299-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the merger (the "Merger") of American
Travellers Corporation ("ATC") with and into Conseco, Inc. ("Conseco")
pursuant to an Agreement and Plan of Merger described in the enclosed Joint
Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CONSECO HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL CONSECO SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN TRAVELLERS CORPORATION
3220 TILLMAN DRIVE
BENSALEM, PENNSYLVANIA 19020
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
American Travellers Corporation ("ATC"), to be held on Tuesday, November 26,
1996 at the Four Seasons Hotel, Washington Room, One Logan Square,
Philadelphia, Pennsylvania, at 10:00 a.m., local time (including any
adjournment or postponement thereof, the "ATC Special Meeting").
At the ATC Special Meeting, shareholders of record of ATC at the close of
business on October 21, 1996 will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
August 25, 1996 (the "Merger Agreement"), by and between Conseco, Inc., an
Indiana corporation ("Conseco"), and ATC, and the transactions contemplated
thereby. Pursuant to the terms of the Merger Agreement, among other things,
(1) ATC will be merged with and into Conseco, with Conseco being the surviving
corporation (the "Merger"), and (2) each outstanding share of the common
stock, par value $.01 per share ("ATC Common Stock"), of ATC (other than
Dissenting Shares (as defined in the Merger Agreement)) will be canceled and
converted into the right to receive the Merger Consideration (as defined in
the Merger Agreement).
Details of the Merger, including the terms of the Merger Consideration and
other important information concerning ATC and Conseco appear in the
accompanying Joint Proxy Statement/Prospectus. Please give this material your
careful attention. Details regarding the background of and reasons for the
Merger, among other things, may be found in the section of the Joint Proxy
Statement/Prospectus entitled "The Merger."
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ATC AND THE SHAREHOLDERS OF
ATC, HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF ATC VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors has received a written opinion of Donaldson, Lufkin &
Jenrette Securities Corporation, which has acted as financial advisor to ATC
in connection with the Merger, as to the fairness to ATC's shareholders, from
a financial point of view, of the Merger Consideration to be received by ATC's
shareholders pursuant to the Merger Agreement.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the ATC Special
Meeting, please complete, sign and date the accompanying proxy and return it
in the enclosed postage prepaid envelope as soon as possible so that your
shares will be represented at the ATC Special Meeting. If you attend the ATC
Special Meeting, you may vote in person even if you have previously returned
your proxy. If you have any questions regarding the proposed transaction,
please call Georgeson & Company, Inc., our proxy solicitation agent, toll free
at (800) 223-2064.
As a shareholder of ATC, you have dissenters rights, described in the
accompanying Joint Proxy Statement/Prospectus. To exercise such rights, a
shareholder must not have voted his or her ATC Common Stock in favor of the
Merger and must have followed the procedure of Subchapter D of Chapter 15 of
the Pennsylvania Business Corporation Law. See "The Merger--Dissenters Rights"
and Annex C in the Joint Proxy Statement/ Prospectus.
Sincerely,
LOGO
John A. Powell
Chairman of the Board and President
October 25, 1996
<PAGE>
[LOGO OF CONSECO, INC.]
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Conseco, Inc. ("Conseco") to be held on Tuesday, November 26, 1996 at 10:00
a.m., local time, at 11799 College Avenue, Carmel, Indiana (including any
adjournment or postponement thereof, the "Conseco Special Meeting").
At the Conseco Special Meeting, holders of shares of common stock, no par
value per share, of Conseco ("Conseco Common Stock") and holders of shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock, no par value per share, of Conseco ("Conseco
PRIDES") will be asked to consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger, dated as of August 25, 1996 (the
"Merger Agreement"), by and between Conseco and American Travellers
Corporation ("ATC") and the transactions contemplated thereby. Pursuant to the
terms of the Merger Agreement, among other things, (1) ATC will be merged with
and into Conseco, with Conseco being the surviving corporation (the "Merger"),
and (2) each outstanding share of the common stock, par value $.01 per share
("ATC Common Stock"), of ATC (other than Dissenting Shares (as defined in the
Merger Agreement)) will be canceled and converted into the right to receive
the Merger Consideration (as defined in the Merger Agreement).
Details of the proposed Merger including the terms of the Merger
Consideration and other important information concerning ATC and Conseco
appear in the accompanying Joint Proxy Statement/Prospectus. Please give this
material your careful attention. Details regarding the background of and
reasons for the proposed Merger, among other things, may be found in the
section of the Joint Proxy Statement/Prospectus entitled "The Merger."
Your Board of Directors believes that the terms of the proposed Merger are
fair to, and in the best interests of, the holders of Conseco Common Stock and
Conseco PRIDES and has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Conseco
unanimously recommends that shareholders vote FOR approval and adoption of the
Merger Agreement and the transactions contemplated thereby.
Only holders of record of shares of Conseco Common Stock and Conseco PRIDES
as of the close of business on October 21, 1996 are entitled to notice of, and
to vote at, the Conseco Special Meeting.
YOUR VOTE IS IMPORTANT. Whether or not you are able to attend the Conseco
Special Meeting, please complete, sign, date and return the enclosed proxy
card as soon as possible. A postage-paid envelope is enclosed for your
convenience. If you attend the Conseco Special Meeting, you may revoke your
proxy and, if you wish, vote your shares of Conseco Common Stock and Conseco
PRIDES in person.
Sincerely,
/s/ Stephen C. Hilbert
Stephen C. Hilbert
Chairman of the Board
October 25, 1996
<PAGE>
AMERICAN TRAVELLERS CORPORATION
3220 TILLMAN DRIVE
BENSALEM, PENNSYLVANIA 19020
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
----------------
To the Shareholders of American Travellers Corporation:
Notice is hereby given that a special meeting (the "ATC Special Meeting") of
the shareholders of American Travellers Corporation ("ATC") will be held on
Tuesday, November 26, 1996 at The Four Seasons Hotel, Washington Room, One
Logan Square, Philadelphia, Pennsylvania, at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 25, 1996 (the "Merger
Agreement"), by and between Conseco, Inc., an Indiana corporation
("Conseco"), and ATC, and the transactions contemplated thereby, pursuant
to which, among other things, (i) ATC will be merged with and into Conseco,
with Conseco being the surviving corporation (the "Merger"), and (ii) each
outstanding share of the common stock, par value $.01 per share (the "ATC
Common Stock"), of ATC (other than Dissenting Shares (as defined in the
Merger Agreement)) will be canceled and converted into the right to receive
the Merger Consideration (as defined in the Merger Agreement).
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Merger is more completely described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Merger Agreement is attached as Annex A
thereto.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ATC AND THE SHAREHOLDERS OF
ATC, HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF ATC VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors of ATC has fixed the close of business on October 21,
1996, as the record date for determination of shareholders entitled to notice
of, and to vote at, the ATC Special Meeting and any adjournments and
postponements thereof.
By order of the Board of Directors
/s/ Susan T. Mankowski
Susan T. Mankowski
Secretary
October 25, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE ATC SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND, WE URGE YOU TO COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE IN ORDER TO ASSURE THAT YOUR SHARES OF ATC COMMON
STOCK WILL BE REPRESENTED. IF YOU ATTEND THE ATC SPECIAL MEETING YOU MAY VOTE
IN PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE>
IMPORTANT
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES REPRESENTING ATC COMMON STOCK AT
THIS TIME. IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
<PAGE>
[CONSECO, INC. LOGO]
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 26, 1996
NOTICE IS HEREBY GIVEN THAT a special meeting of shareholders of Conseco,
Inc. ("Conseco"), will be held at 11799 College Avenue, Carmel, Indiana at
10:00 a.m., local time, on Tuesday, November 26, 1996 (the "Conseco Special
Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 25, 1996 (the "Merger
Agreement"), by and between Conseco and American Travellers Corporation, a
Pennsylvania corporation ("ATC") and the transactions contemplated thereby,
pursuant to which, among other things, (i) ATC will be merged with and into
Conseco, with Conseco being the surviving corporation (the "Merger"), and
(ii) each outstanding share of the common stock, par value $.01 per share
(the "ATC Common Stock"), of ATC (other than Dissenting Shares (as defined
in the Merger Agreement)) will be canceled and converted into the right to
receive the Merger Consideration (as defined in the Merger Agreement); and
2. To consider such other matters as may properly come before the meeting
or any adjournment or postponement thereof.
Holders of record of outstanding shares of common stock, no par value per
share, of Conseco ("Conseco Common Stock") and Preferred Redeemable Increased
Dividend Equity Securities, 7% PRIDES, Convertible Preferred Stock, no par
value per share, of Conseco ("Conseco PRIDES") as of the close of business on
October 21, 1996, are entitled to notice of and to vote at the meeting.
Holders of Conseco Common Stock and Conseco PRIDES will vote together as a
single class at the Conseco Special Meeting. Holders of shares of Conseco
Common Stock have one vote for each share held of record, and holders of
shares of Conseco PRIDES have 4/5 of one vote for each share held of record.
Whether or not you plan to be present at the meeting, please complete, sign
and return the enclosed form of proxy. No postage is required to return the
form of proxy in the enclosed envelope. The proxies of shareholders who attend
the meeting in person may be withdrawn and such shareholders may vote
personally at the meeting.
By Order of The Board of Directors
Signature of Lawrence W. Inlow
Lawrence W. Inlow, Secretary
October 25, 1996
Carmel, Indiana
<PAGE>
CONSECO, INC.
AND
AMERICAN TRAVELLERS CORPORATION
----------------
JOINT PROXY STATEMENT
----------------
CONSECO, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of common stock, no par value per share ("Conseco Common Stock"), and
to holders of shares of Preferred Redeemable Increased Dividend Equity
Securities, 7% PRIDES, Convertible Preferred Stock, no par value per share
("Conseco PRIDES" and, together with the Conseco Common Stock, the "Conseco
Stock") of Conseco, Inc., an Indiana corporation ("Conseco"), in connection
with the solicitation of proxies by the Conseco Board of Directors for use at
a special meeting of Conseco shareholders to be held on Tuesday, November 26,
1996, at 11799 College Avenue, Carmel, Indiana, commencing at 10:00 a.m.,
local time, and at any adjournment or postponement thereof (the "Conseco
Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of Common Stock, par value $.01 per share ("ATC Common Stock"), of
American Travellers Corporation, a Pennsylvania corporation ("ATC"), in
connection with the solicitation of proxies by the ATC Board of Directors for
use at a special meeting of ATC shareholders to be held on Tuesday, November
26, 1996 at the Four Seasons Hotel, Washington Room, One Logan Square,
Philadelphia, Pennsylvania, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "ATC Special Meeting").
The respective shareholder meetings are each being called to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of August 25, 1996 (the "Merger Agreement"), by and between Conseco
and ATC pursuant to which ATC will be merged with and into Conseco with
Conseco being the surviving corporation (the "Merger").
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Conseco, filed as part of a Registration Statement on Form S-4 (together with
all amendments, supplements, exhibits and schedules thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the shares of Conseco Common Stock issuable in connection with the Merger.
All information concerning Conseco contained in this Joint Proxy
Statement/Prospectus has been furnished by Conseco, and all information
concerning ATC contained in this Joint Proxy Statement/Prospectus has been
furnished by ATC.
The Conseco Common Stock is quoted on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "CNC". On October 22, 1996, the closing price of the
Conseco Common Stock as reported on the NYSE was $51.625.
The ATC Common Stock is quoted on the NASDAQ National Market under the
symbol "ATVC". On October 22, 1996, the closing price of the ATC Common Stock
as reported on NASDAQ was $34.125.
This Joint Proxy Statement/Prospectus and the related forms of proxy are
first being mailed to shareholders of Conseco and ATC on or about October 25,
1996.
----------------
THE SHARES OF CONSECO COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Joint Proxy Statement/Prospectus is October 25, 1996.
<PAGE>
AVAILABLE INFORMATION
Conseco and ATC are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The periodic reports, proxy statements and
other information filed by Conseco and ATC with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained, at
prescribed rates, from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, including
Conseco and ATC, that file electronically with the Commission. The Conseco
Common Stock is listed on the NYSE and such reports and other information may
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
Conseco has filed the Registration Statement with the Commission with respect
to the Conseco Common Stock to be issued pursuant to or as contemplated by the
Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed as
a part thereof, are available for inspection and copying as set forth above.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS FOR SUCH DOCUMENTS
RELATING TO CONSECO, CAPITOL AMERICAN FINANCIAL CORPORATION, LIFE PARTNERS
GROUP, INC. AND TRANSPORT HOLDINGS INC. SHOULD BE DIRECTED TO JAMES W.
ROSENSTEELE, VICE PRESIDENT, INVESTOR RELATIONS, CONSECO, INC., 11825 NORTH
PENNSYLVANIA STREET, CARMEL, INDIANA 46032, AND TELEPHONE REQUESTS MAY BE
DIRECTED TO MR. ROSENSTEELE AT (317) 817-2893. WRITTEN REQUESTS FOR SUCH
DOCUMENTS RELATING TO ATC SHOULD BE DIRECTED TO BENEDICT J. IACOVETTI, CHIEF
FINANCIAL OFFICER, AMERICAN TRAVELLERS CORPORATION, 3220 TILLMAN DRIVE,
BENSALEM, PENNSYLVANIA 19020, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MR.
IACOVETTI AT (215) 244-1600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE TUESDAY, NOVEMBER 19, 1996.
ii
<PAGE>
The following documents previously filed with the Commission pursuant to the
Exchange Act are incorporated herein by this reference:
1. Conseco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("Conseco's Annual Report"); Conseco's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996;
Conseco's Current Reports on Form 8-K dated January 17, 1996, March 11,
1996, 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. ATC's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 ("ATC's Annual Report"); ATC's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996 and June 30, 1996; ATC's Current Report
on Form 8-K dated August 25, 1996; and the description of ATC Common Stock
in ATC's Registration Statement filed pursuant to Section 12 of the
Exchange Act and any amendment or report filed for the purpose of updating
any such description.
3. Annual Report on Form 10-K of Capitol American Financial Corporation
("CAF") for the fiscal year ended December 31, 1995 ("CAF's Annual
Report"); CAF's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996 and June 30, 1996; and CAF's Current Report on Form 8- K dated
August 25, 1996.
4. Annual Report on Form 10-K of Life Partners Group, Inc. ("LPG") for
the fiscal year ended December 31, 1995 ("LPG's Annual Report"); LPG's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996; and LPG's Current Reports on Form 8-K dated March 11, 1996
and April 10, 1996.
5. Annual Report on Form 10-K of Transport Holdings Inc. ("THI") for the
fiscal year ended December 31, 1995 ("THI's Annual Report"); THI's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996 and THI's Current Report on Form 8-K dated September 25,
1996.
In addition, the Merger Agreement, a copy of which is attached hereto as
Annex A, is incorporated herein by reference.
All documents filed by Conseco, ATC, CAF, LPG or THI pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the date of the Conseco Special Meeting or the ATC Special
Meeting, as the case may be, shall be deemed to be incorporated by reference
herein and to be a part hereof from the date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall be deemed, except as so modified or superseded, to constitute
a part hereof. All information appearing in this Joint Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
State insurance holding company laws and regulations applicable to Conseco
and ATC generally provide that no person may acquire control of Conseco or
ATC, and thus indirect control of their respective insurance subsidiaries,
unless such person has provided certain required information to, and such
acquisition is approved (or not disapproved) by, the appropriate insurance
regulatory authorities. Generally, any person acquiring beneficial ownership
of 10% or more of the Conseco Common Stock or ATC Common Stock, as the case
may be, would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application
determine otherwise.
iii
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CONSECO OR ATC. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF CONSECO OR ATC SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..... ii
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE... ii
TABLE OF CONTENTS......... v
SUMMARY................... 1
General................. 1
The Companies........... 1
Shareholder Meetings.... 2
The Merger; The Merger
Agreement.............. 5
Selected Historical
Financial Information
of Conseco............. 12
Selected Historical
Financial Information
of LPG................. 14
Selected Historical
Financial Information
of ATC................. 16
Selected Historical
Financial Information
of CAF................. 18
Selected Historical
Financial Information
of THI................. 20
Summary Unaudited Pro
Forma Consolidated
Financial Information.. 22
Comparative Unaudited
Per Share Data of
Conseco, ATC, LPG, CAF
and THI ............... 25
Market Price Data....... 26
INFORMATION CONCERNING
CONSECO.................. 27
Background.............. 27
Insurance Operations.... 27
Fee-Based Operations.... 28
Other Pending
Acquisitions by
Conseco................ 28
General Information
Concerning Conseco..... 29
INFORMATION CONCERNING
ATC...................... 29
General................. 29
Product Lines........... 30
Long Term Care
Insurance.............. 30
Marketing............... 30
Other................... 30
SHAREHOLDER MEETINGS...... 31
General................. 31
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
Matters to be Considered at the Meetings................................. 31
Voting at the Meetings; Record Date; Quorum.............................. 31
Proxies.................................................................. 36
THE MERGER................................................................. 36
Background of the Merger................................................. 36
Conseco's Reasons for the Merger; Recommendation of the Conseco Board of
Directors............................................................... 38
ATC's Reasons for the Merger; Recommendation of the ATC Board of
Directors............................................................... 39
Opinion of ATC's Financial Advisor....................................... 40
Certain Consequences of the Merger....................................... 47
Conduct of the Business of Conseco and ATC After the Merger.............. 47
Certain Federal Income Tax Consequences.................................. 48
Regulatory Approvals..................................................... 49
NYSE Listing of Conseco Common Stock..................................... 49
Federal Securities Law Consequences...................................... 49
Dissenters Rights........................................................ 50
Accounting Treatment..................................................... 52
Interests of Certain Persons in the Merger............................... 52
THE MERGER AGREEMENT....................................................... 54
The Merger............................................................... 54
Effective Time........................................................... 55
Conversion of Shares; Exchange of Stock Certificates; No Fractional
Amounts................................................................. 55
Treatment of ATC Stock Options........................................... 56
Dissenting Shares........................................................ 56
Representations and Warranties........................................... 56
Certain Covenants........................................................ 57
Conditions to the Merger................................................. 59
Termination.............................................................. 60
Right of ATC Board of Directors to Withdraw its Recommendation........... 60
Fees..................................................................... 60
Expenses................................................................. 61
Modification or Amendment................................................ 61
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO........... 62
COMPARISON OF SHAREHOLDERS' RIGHTS......................................... 85
Bylaws................................................................... 85
Distributions to Shareholders............................................ 85
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Class of Directrors...................................................... 86
Removal of Directors..................................................... 86
Meetings of Shareholders................................................. 86
Action by Shareholders without Meeting................................... 86
Dissenters Rights........................................................ 87
Certain Statutory and Charter Provisions................................. 87
Shareholder Rights Agreement............................................. 87
Interested Shareholder Transactions...................................... 87
Fiduciary Duty and Limitations of Liability.............................. 89
Derivative Actions....................................................... 89
Indemnification.......................................................... 90
MANAGEMENT OF CONSECO UPON CONSUMMATION OF THE MERGER...................... 90
LEGAL MATTERS.............................................................. 91
EXPERTS.................................................................... 91
INDEPENDENT ACCOUNTANTS.................................................... 91
OTHER MATTERS.............................................................. 92
Annex A--Agreement and Plan of Merger...................................... A-1
Annex B--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation.... B-1
Annex C--Pennsylvania Business Corporation Law, Chapter 15, Subchapter D.
Dissenters Rights......................................................... C-1
</TABLE>
vii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
and financial statements, including the notes thereto, contained elsewhere, or
incorporated by reference, in this Joint Proxy Statement/Prospectus and the
Annexes hereto. Unless otherwise stated, all share and per share information in
this Joint Proxy Statement/Prospectus concerning Conseco has been adjusted to
reflect a two-for-one stock split of the Conseco Common Stock effected April 1,
1996 and all share and per share information concerning ATC has been adjusted
to reflect a three-for-two stock split of the ATC Common Stock effected April
10, 1996. Except as otherwise indicated, all financial information in this
Joint Proxy Statement/Prospectus is presented in accordance with generally
accepted accounting principles ("GAAP"). Shareholders are urged to read this
Joint Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated herein by reference in their entirety. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Joint Proxy Statement/Prospectus.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed Merger pursuant
to the Merger Agreement. See "The Merger."
THE COMPANIES
CONSECO, INC. .............. Conseco is a financial services holding company
engaged primarily in the development, marketing
and administration of annuity, individual health
insurance and individual life insurance products.
Conseco's earnings result primarily from operat-
ing life insurance companies and providing in-
vestment management, administrative and other
fee-based services to affiliated businesses as
well as non-affiliates. Conseco's operating
strategy is to consolidate and streamline manage-
ment and administrative functions, to realize su-
perior investment returns through active asset
management, and to focus resources on the devel-
opment and expansion of profitable products and
strong distribution channels.
On August 2, 1996, Conseco completed its acquisi-
tion of Life Partners Group, Inc. ("LPG").
Conseco and LPG collected an aggregate of approx-
imately $3.6 billion of total premiums and annu-
ity deposits in 1995 from a diverse portfolio of
products. After giving pro forma effect to the
acquisition of LPG, Conseco's total assets and
shareholders' equity at June 30, 1996 would have
been approximately $23 billion and $1.9 billion,
respectively.
On September 30, 1996, Conseco acquired the
shares of American Life Holdings, Inc. ("ALH")
(of which Conseco previously owned approximately
37 percent) which Conseco or its affiliates did
not own for approximately $165 million in cash.
Conseco has also entered into (1) an Agreement
and Plan of Merger with Capitol American Finan-
cial Corporation ("CAF") pursuant to which CAF
will become a wholly-owned subsidiary of Conseco,
1
<PAGE>
with each share of the common stock of CAF con-
verted 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 (the "CAF Merger") and
(2) an Agreement and Plan of Merger with Trans-
port Holdings Inc. ("THI") pursuant to which THI
will be merged into Conseco, with each share of
common stock of THI converted into between 1.40
and 1.83 shares of Conseco Common Stock (the "THI
Merger"). Conseco has also announced that it in-
tends to acquire the shares of Bankers Life Hold-
ing Corporation ("BLH") (of which Conseco cur-
rently owns approximately 90.5 percent) which
Conseco does not own, in a merger in which each
share of BLH Common Stock would be converted into
the right to receive a fraction of a share of
Conseco Common Stock having a value of $25.00 per
share. Consummation of the Merger is not condi-
tioned upon consummation by Conseco of any of the
other pending acquisitions. See "Information Con-
cerning Conseco--Other Pending Acquisitions" and
"Unaudited Pro Forma Consolidated Financial
Statements of Conseco."
AMERICAN TRAVELLERS ATC is an insurance holding company, the operat-
CORPORATION................. ing subsidiaries of which market and underwrite
long term care insurance products consisting of
both nursing home and home health care policies
and, to a lesser extent, other supplemental acci-
dent and health insurance policies, as well as
life insurance. On June 30, 1996, ATC had $393.3
million of annualized premiums in force, approxi-
mately 90 percent of which, or $355 million, were
attributable to long term care insurance. See
"Information Concerning ATC."
SHAREHOLDER MEETINGS
TIME, DATE AND PLACE........
Conseco. The Conseco Special Meeting will be held
at 10:00 a.m., local time, on Tuesday, November
26, 1996, at 11799 College Avenue, Carmel, Indi-
ana and at any adjournment or postponement there-
of.
ATC. The ATC Special Meeting will be held at
10:00 a.m., local time, on Tuesday, November 26,
1996, at the Four Seasons Hotel, Washington Room,
One Logan Square, Philadelphia, Pennsylvania and
at any adjournment or postponement thereof.
PURPOSES OF THE MEETINGS....
Conseco. The purpose of the Conseco Special Meet-
ing is to consider and vote upon (1) a proposal
to approve and adopt the Merger Agreement and the
transactions contemplated thereby and (2) such
other business as may properly come before the
Conseco Special Meeting or any adjournment or
postponement thereof. See "Shareholder Meetings--
Matters to be Considered at the Meetings--
Conseco."
ATC. The purpose of the ATC Special Meeting is to
consider and vote upon (1) a proposal to approve
and adopt the Merger Agreement and the transac-
tions contemplated thereby and (2) such other
business as may properly come before the ATC Spe-
cial Meeting or any adjournment or postponement
thereof. See "Shareholder Meetings--Matters to be
Considered at the Meetings--ATC."
2
<PAGE>
RECORD DATE, SHARES
ENTITLED TO VOTE, QUORUM....
Conseco. Holders of record of Conseco Common
Stock and Conseco PRIDES at the close of business
on October 21, 1996 (the "Conseco Record Date"),
are entitled to notice of and to vote, together
as a single class, at the Conseco Special Meet-
ing. As of the Conseco Record Date, there were
66,994,809 shares of Conseco Common Stock out-
standing and entitled to vote, and 4,369,700
shares of Conseco PRIDES outstanding and entitled
to vote. Each holder of record of shares of
Conseco Common Stock on the Conseco Record Date
is entitled to cast, either in person or by prop-
erly executed proxy, one vote per share of
Conseco Common Stock on the Merger Agreement and
such other matters, if any, properly submitted
for the vote of the Conseco shareholders at the
Conseco Special Meeting. Each holder of record of
shares of Conseco PRIDES on the Conseco Record
Date is entitled to cast, either in person or by
properly executed proxy, four-fifths ( 4/5) of
one vote per share of Conseco PRIDES on the
Merger Agreement and such other matters, if any,
properly submitted for the vote of the Conseco
shareholders at the Conseco Special Meeting. See
"Shareholder Meetings."
The presence, in person or by properly executed
proxy, of the holders of Conseco Common Stock and
Conseco PRIDES representing a majority of the
voting power of all outstanding Conseco Stock at
the Conseco Special Meeting is necessary to con-
stitute a quorum at the Conseco Special Meeting.
See "Shareholder Meetings."
ATC. Holders of record of shares of ATC Common
Stock at the close of business on October 21,
1996 (the "ATC Record Date"), are entitled to no-
tice of and to vote at the ATC Special Meeting.
As of the ATC Record Date, there were 16,327,791
shares of ATC Common Stock outstanding and enti-
tled to vote. Each holder of record of shares of
ATC Common Stock on the ATC Record Date is enti-
tled to cast, either in person or by properly ex-
ecuted proxy, one vote per share on the Merger
Agreement and the other matters, if any, properly
submitted for the vote of the ATC shareholders at
the ATC Special Meeting. See "Shareholder Meet-
ings."
The presence, in person or by properly executed
proxy, of the holders of stock representing a ma-
jority of the voting power of all outstanding
shares of the ATC Common Stock at the ATC Special
Meeting is necessary to constitute a quorum at
the ATC Special Meeting. See "Shareholder Meet-
ings."
PROXIES, REVOCATION OF The enclosed proxy cards permit each ATC share-
PROXIES..................... holder and Conseco shareholder to specify that
shares be voted "FOR" or "AGAINST" (or "ABSTAIN")
the approval and adoption of the Merger Agreement
and the Merger. If properly executed and re-
turned, shares represented by such proxy will be
voted in accordance with the choice specified.
Where a signed proxy card is returned, but no
choice specified, the shares represented by such
proxy will be voted for approval and adoption of
the Merger Agreement and the Merger.
3
<PAGE>
A proxy relating to the ATC Special Meeting or
the Conseco Special Meeting may be revoked by the
shareholder giving the proxy at any time before
it is exercised; however, mere attendance at the
respective shareholder meeting will not itself
have the effect of revoking the proxy. An ATC
shareholder or a Conseco shareholder may revoke a
proxy (i) by notification of revocation in writ-
ing sent (or given in person at the respective
shareholder meeting) to the Secretary of ATC or
Conseco, as the case may be, (ii) by giving to
the Secretary of ATC or Conseco, as the case may
be, a later dated proxy, or (iii) by attending
the respective shareholder meeting and voting in
person. See "Shareholder Meetings--Proxies."
VOTE REQUIRED...............
Conseco. The affirmative vote of a majority of
the votes entitled to be cast by holders of
Conseco Stock is required for the approval and
adoption by Conseco of the Merger Agreement. See
"Shareholder Meetings--Voting at the Meetings;
Record Date; Quorum--Conseco."
ATC. The approval and adoption by ATC of the
Merger Agreement will require the affirmative
vote of a majority of the votes cast by all hold-
ers of ATC Common Stock entitled to vote thereon.
See "Shareholder Meetings--Voting at the Meet-
ings; Record Date; Quorum--ATC."
CERTAIN VOTING INFORMATION..
Conseco. As of October 21, 1996, the executive
officers and directors of Conseco were entitled
to vote 6,710,084 shares of Conseco Common Stock
and no shares of Conseco PRIDES, representing ap-
proximately 9.5 percent of the outstanding votes
of Conseco Stock entitled to be cast as of such
date. The executive officers of Conseco were en-
titled to vote 5,753,206 shares of Conseco Common
Stock and no shares of Conseco PRIDES, represent-
ing approximately 8.2 percent of the outstanding
votes of Conseco Stock entitled to be cast as of
such date. The executive officers are obligated,
pursuant to written agreements with ATC, to vote
such shares in favor of the approval and adoption
of the Merger Agreement at the Conseco Special
Meeting.
ATC. As of October 21, 1996, the executive offi-
cers and directors of ATC and the trustees (the
"Trustees") of the Trust under Deed of Trust of
Francis E. Powell, Jr., Settlor, dated August 24,
1988 (the "Trust") were entitled to vote
1,722,194 shares of ATC Common Stock, or approxi-
mately 10.5 percent of the number of shares of
ATC Common Stock outstanding and entitled to vote
at the ATC Special Meeting. As of October 21,
1996, John A. Powell and the Trustees were enti-
tled to vote 1,556,733 shares of the ATC Common
Stock, or approximately 9.5 percent of the number
of shares of ATC Common Stock outstanding and en-
titled to vote at the ATC Special Meeting. John
A. Powell and the Trustees are obligated, pursu-
ant to written agreements with Conseco, to vote
their shares in favor of the approval and adop-
tion of the Merger Agreement at the ATC Special
Meeting.
4
<PAGE>
THE MERGER; THE MERGER AGREEMENT
EFFECT OF MERGER............ Upon consummation of the Merger, (1) ATC will be
merged with and into Conseco, with Conseco being
the surviving corporation (the "Surviving Corpo-
ration"); and (2) each outstanding share of ATC
Common Stock will be canceled, and each holder of
a certificate representing shares of ATC Common
Stock will cease to have any rights with respect
thereto, except the right to receive, upon the
surrender of such certificate, the Merger Consid-
eration (as defined below). Fractional shares of
Conseco Common Stock will not be issuable in con-
nection with the Merger. ATC shareholders other-
wise entitled to fractional shares of Conseco
Common Stock will receive the value of such frac-
tional shares in cash, determined as described
herein under "The Merger Agreement--Conversion of
Shares; Exchange of Stock Certificates; No Frac-
tional Amounts."
A copy of the Merger Agreement is attached as An-
nex A to this Joint Proxy Statement/Prospectus
and is incorporated by reference herein. See "The
Merger Agreement."
MERGER CONSIDERATION........ Upon the consummation of the Merger, each out-
standing share of ATC Common Stock (other than
shares of ATC Common Stock held by ATC as trea-
sury stock or Dissenting Shares (as hereinafter
defined)) will be canceled and converted into the
right to receive (1) if the Conseco Share Price
(as defined below) is greater than or equal to
$42.25 per share and less than or equal to $46.25
per share, .7574 of a share of Conseco Common
Stock, (2) if the Conseco Share Price is less
than $42.25 per share, the fraction (rounded to
the nearest ten-thousandth) of a share (or such
fraction and whole number, as the case may be) of
Conseco Common Stock determined by dividing
$32.00 by the Conseco Share Price or (3) if the
Conseco Share Price is greater than $46.25 per
share, the fraction (rounded to the nearest ten-
thousandth) of a share of Conseco Common Stock
determined by dividing $35.03 by the Conseco
Share Price (such fraction as set forth in
clauses (1), (2) and (3), the "Exchange Ratio").
The "Conseco Share Price" shall be equal to the
average of the closing prices of the Conseco Com-
mon Stock on the NYSE Composite Transactions Re-
porting System for the 10 trading days immedi-
ately preceding the second trading day prior to
the Effective Time. Thus, holders of shares of
ATC Common Stock will receive Conseco Common
Stock with a value (based on the average closing
price during such 10 day period) of not less than
$32.00 per share and up to $35.03 per share. The
Conseco Common Stock to be issued to holders of
shares of ATC Common Stock pursuant to the Merger
and any cash to be paid in lieu of fractional
shares of Conseco Common Stock are referred to
collectively as the "Merger Consideration." The
issuance of Conseco Common Stock in the Merger is
referred to as the "Merger Consideration Stock
Issuance." Conseco will apply to have the addi-
tional shares of Conseco Common Stock issued pur-
suant to the Merger listed on the NYSE. See "The
Merger Agree-
5
<PAGE>
ment--Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
No fractional shares of Conseco Common Stock will
be issued in the Merger. Each ATC shareholder who
otherwise would have been entitled to a fraction
of a share of Conseco Common Stock will receive
in lieu thereof cash in accordance with the terms
of the Merger Agreement. See "The Merger Agree-
ment--Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
As soon as reasonably practicable after consumma-
tion of the Merger, a letter of transmittal (in-
cluding instructions setting forth the procedures
for exchanging such holder's certificates repre-
senting ATC Common Stock ("Certificates") for the
Merger Consideration payable to such holder pur-
suant to the Merger Agreement) will be sent to
each holder of record, as of the Effective Time
(as hereinafter defined), of shares of ATC Common
Stock. Upon surrender of such Certificates to the
designated exchange agent together with a duly
completed and executed letter of transmittal,
such holder will promptly receive the Merger Con-
sideration for each share of ATC Common Stock
previously represented by the Certificates so
surrendered. See "The Merger Agreement--Conver-
sion of Shares; Exchange of Stock Certificates;
No Fractional Amounts."
TREATMENT OF OPTIONS........ Options to purchase ATC Common Stock granted pur-
suant to any ATC Stock Option Plan ("ATC Stock
Options") which remain outstanding immediately
prior to the Effective Time will be converted au-
tomatically into options to purchase, for the
same aggregate consideration payable to exercise
such ATC Stock Options, the number of shares of
Conseco Common Stock which the holder would have
been entitled to receive at the Effective Time if
such ATC Stock Options had been exercised for
shares of ATC Common Stock prior to the Effective
Time. Except for ATC Stock Options held by non-
employee directors, each ATC Stock Option, if not
then vested, will vest in full at the earlier of
(1) the expiration of three months after the Ef-
fective Time or (2) termination by Conseco of the
employment of the holder of such option. Each ATC
Stock Option held by a non-employee director of
ATC will vest in full at the Effective Time. See
"The Merger Agreement--Treatment of ATC Stock Op-
tions."
REASONS FOR THE MERGER;
BOARD RECOMMENDATIONS
REGARDING THE MERGER........
Conseco. The Board of Directors of Conseco ap-
proved the Merger Agreement and the Merger Con-
sideration Stock Issuance based on a number of
factors including its belief that (1) the addi-
tion of ATC's long term care and supplemental
health insurance business would further
strengthen Conseco's sales of those products; (2)
the addition of ATC's agents would further diver-
sify Conseco's current distribution system; (3)
ATC's distribution system would provide Conseco
additional opportunities to cross-sell its cur-
rent products; (4) the Merger offers Conseco and
ATC the opportunity to improve their profitabil-
ity through the achievement of economies of
scale, the
6
<PAGE>
elimination of redundancies and the enhancement
of market position; and (5) the issuance of addi-
tional shares of Conseco Common Stock in the
Merger would result in a substantial increase in
Conseco's equity.
The Board of Directors of Conseco unanimously
recommends that the shareholders of Conseco ap-
prove and adopt the Merger Agreement. In evaluat-
ing the recommendation of the Conseco Board of
Directors, shareholders of Conseco should care-
fully consider the matters described under "The
Merger--Conseco's Reasons for the Merger; Recom-
mendation of the Conseco Board of Directors."
ATC. The ATC Board of Directors determined to
pursue the Merger based upon many different fac-
tors, including but not limited to: (1) the sub-
stantial premium over the then current market
price of the ATC Common Stock offered by Conseco;
(2) the financial condition and results of opera-
tions of Conseco and the ATC Board of Directors'
perceptions of the more favorable overall busi-
ness prospects of Conseco and ATC on a combined
basis as compared to the prospects of ATC as a
separate entity; (3) the tax-deferred nature of
the transaction to the extent that the ATC share-
holders receive shares of Conseco Common Stock in
exchange for their shares of ATC Common Stock;
(4) the potential future performance of Conseco
and the Conseco Common Stock after the Merger and
Conseco's strength and position in the insurance
industry; (5) the written opinion rendered to the
ATC Board of Directors by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") with re-
gard to the fairness to the holders of ATC Common
Stock, from a financial point of view, of the Ex-
change Ratio pursuant to the terms of the Merger
Agreement; and (6) the likelihood of continued
employment, for the immediate future, of a sub-
stantial number of the employees of ATC.
The Board of Directors of ATC unanimously recom-
mends that the shareholders of ATC approve and
adopt the Merger and the Merger Agreement. In
evaluating the recommendation of the ATC Board of
Directors, shareholders of ATC should carefully
consider the matters described under "The Merg-
er--ATC's Reasons for the Merger; Recommendation
of the ATC Board of Directors," and "--Interests
of Certain Persons in the Merger.
OPINION OF ATC'S FINANCIAL DLJ has delivered its written opinion to the
ADVISOR..................... Board of Directors of ATC that, as of August 25,
1996 and based upon and subject to the assump-
tions, limitations and qualifications set forth
in such opinion, the Exchange Ratio pursuant to
the terms of the Merger Agreement was fair, from
a financial point of view, to the holders of ATC
Common Stock.
The full text of the written opinion of DLJ,
which sets forth assumptions made, procedures
followed, other matters considered and limits of
the review undertaken in connection with the
opinion, is attached hereto as Annex B and is in-
corporated herein by reference. Holders of ATC
Common Stock should read such opinion in its en-
tirety. See "The Merger--Opinion of ATC's Finan-
cial Advisor."
7
<PAGE>
CERTAIN CONSEQUENCES OF THE
MERGER...................... Upon consummation of the Merger, the ATC share-
holders will become shareholders of Conseco, and
each share of ATC Common Stock issued and out-
standing immediately prior to the consummation of
the Merger (other than shares held as treasury
shares of ATC or Dissenting Shares) shall be con-
verted into the right to receive the Merger Con-
sideration. See "--Merger Consideration." In ad-
dition, Conseco shall become the obligor and as-
sume all rights and obligations under the Inden-
ture and all supplements thereto (the "Inden-
ture") governing ATC's outstanding 6.5 percent
Convertible Subordinated Debentures due 2005 (the
"Debentures"), including the supplemental inden-
ture to be entered into by Conseco in connection
with its assumption of the rights and obligations
under the Indenture and Debentures. The Deben-
tures that remain outstanding immediately prior
to the Effective Time will be converted automati-
cally into debentures of Conseco, the holders of
which will have the same rights as they did under
the Debentures and the Indenture including the
right to receive interest payments and the right
to convert the Debentures into the number of
shares of Conseco Common Stock which the holder
would have been entitled to receive at the Effec-
tive Time if such Debentures had been converted
into shares of ATC Common Stock prior to the Ef-
fective Time, subject to future adjustments for,
among other things, changes in the capitalization
of Conseco, as contemplated by the Indenture.
Further, holders of ATC Stock Options will be en-
titled to receive, upon the exercise of their re-
spective ATC Stock Options, a number of shares of
Conseco Common Stock determined as described un-
der "The Merger Agreement--Conversion of Shares;
Exchange of Stock Certificates; No Fractional
Amounts;" and "--Treatment of ATC Stock Options."
After consummation of the Merger, assuming con-
version of the Debentures but excluding the ATC
Stock Options, and assuming the Conseco Share
Price is equal to or between $42.25 and $46.25
(without giving effect to the proposed acquisi-
tions of CAF, BLH and THI), the current Conseco
shareholders will own approximately 77 percent of
the then outstanding shares of Conseco Common
Stock, and the current ATC shareholders will own
approximately 23 percent of such shares.
See "The Merger--Certain Consequences of the
Merger."
CONDUCT OF THE BUSINESS OF
CONSECO AND ATC AFTER THE
MERGER......................
Conseco plans to consolidate certain operations
of ATC with Conseco's operations after consumma-
tion of the Merger. See "The Merger--Conduct of
the Business of Conseco and ATC After the Merg-
er." Conseco's Board of Directors and management
will not be affected by the Merger. See "Manage-
ment of Conseco Upon Consummation of the Merger."
INTERESTS OF CERTAIN
PERSONS IN THE MERGER.......
Pursuant to the Merger Agreement, the Certificate
of Incorporation and By-laws of each of ATC's
subsidiaries shall contain the provisions with
respect to indemnification set forth therein on
the date of
8
<PAGE>
the Merger Agreement, and such provisions shall
not be amended, repealed or otherwise modified
for a period of six years after the Effective
Time in any manner that would adversely affect
the rights thereunder of individuals who at any
time prior to the Effective Time were directors
or officers of ATC or any of its subsidiaries
(the "Indemnified Parties") in respect of actions
or omissions occurring at or prior to the Effec-
tive Time (including, without limitation, the
transactions contemplated by the Merger Agree-
ment), unless such modification is required by
law. Conseco has agreed to indemnify the Indemni-
fied Parties, but only to the extent that ATC
would have been obligated to do so had it been
the Surviving Corporation. See "The Merger--In-
terests of Certain Persons in the Merger--Indem-
nification of Officers and Directors."
Pursuant to the Merger Agreement, Conseco Serv-
ices L.L.C., an Indiana limited liability company
wholly owned by Conseco ("Conseco Services"),
will enter into employment agreements with John
A. Powell, Thomas J. Parry, Kevin Shields and De-
nise Powell. See "The Merger--Interests of Cer-
tain Persons in the Merger."
Certain of the ATC executives are entitled to
severance payments pursuant to their existing em-
ployment agreements if their employment is termi-
nated within three years of the Merger, subject
to certain conditions. The Merger Agreement pro-
vides for a reimbursement of excise taxes imposed
on certain of such individuals. See "The Merger--
Interests of Certain Persons in the Merger."
EFFECTIVE TIME OF THE
MERGER...................... The Merger will become effective on the date Ar-
ticles of Merger are filed with the Secretary of
State of Indiana and the Secretary of State of
Pennsylvania or at such time thereafter as is
provided in the Articles of Merger (the "Effec-
tive Time"). See "The Merger Agreement--Effective
Time."
CONDITIONS TO THE MERGER;
TERMINATION OF THE MERGER
AGREEMENT...................
The obligations of Conseco and ATC to consummate
the Merger are subject to the satisfaction of
certain conditions, including obtaining requisite
Conseco and ATC shareholder approvals, delivery
to ATC of a tax opinion and the receipt of cer-
tain governmental consents and approvals includ-
ing, without limitation, certain consents and ap-
provals required under applicable state insurance
laws and the expiration (or earlier termination)
of the relevant waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"). The Federal Trade
Commission orally confirmed early termination of
the HSR Act waiting period on October 22, 1996.
See "The Merger--Regulatory Approvals" and "The
Merger Agreement--Conditions to the Merger."
The Merger Agreement is subject to termination by
Conseco or ATC (provided that such party is not
in breach of the Merger Agreement) if the Merger
is not consummated by December 31, 1996, and
prior to such time upon the occurrence of certain
events. See "The Merger Agreement--Termination."
9
<PAGE>
RIGHT OF ATC BOARD OF
DIRECTORS TO WITHDRAW ITS
RECOMMENDATION; FEES........
Under the Merger Agreement, the Board of Direc-
tors of ATC shall not (1) withdraw or modify, in
a manner materially adverse to Conseco, the ap-
proval or recommendation by the Board of Direc-
tors of the Merger Agreement or the Merger, (2)
approve or recommend an Acquisition Proposal (as
defined in the Merger Agreement) or (3) enter
into any agreement with respect to any Acquisi-
tion Proposal, unless ATC receives an Acquisition
Proposal and the Board of Directors of ATC deter-
mines in good faith, following consultation with
outside counsel, that in order to comply with its
fiduciary duties to shareholders under applicable
law it is necessary for the Board of Directors to
withdraw or modify, in a manner materially ad-
verse to Conseco, its approval or recommendation
of the Merger Agreement or the Merger, approve or
recommend such Acquisition Proposal, enter into
an agreement with respect to such Acquisition
Proposal or terminate the Merger Agreement. In
the event the Board of Directors of ATC takes any
of the foregoing actions, ATC shall, concurrently
with the taking of any such action, pay to
Conseco upon demand $20 million, payable in same-
day funds.
In the absence of an Acquisition Proposal, unless
the other party is materially in breach of the
Merger Agreement or is unable to satisfy certain
closing conditions in the Merger Agreement, ATC
and Conseco have each agreed to pay to the other
party upon demand an amount not to exceed $2 mil-
lion, to reimburse the other party for out-of-
pocket fees and expenses incurred in connection
with the Merger, if its shareholders do not ap-
prove the Merger and all other closing conditions
contained in the Merger Agreement have been sat-
isfied or waived or, with respect to any condi-
tion not then satisfied, it is substantially
likely that such condition will be satisfied on
or before March 31, 1997.
DISSENTERS RIGHTS........... Conseco. Holders of Conseco Stock will not be en-
titled to appraisal or dissenters rights under
the Indiana Business Corporation Law (the
"IBCL").
ATC. A holder of ATC Common Stock may assert dis-
senters rights in connection with the Merger un-
der Subchapter D of Chapter 15 ("Subchapter 15D")
of the Pennsylvania Business Corporation Law (the
"PBCL"). Holders of ATC Common Stock who follow
the procedures of Subchapter 15D will be entitled
to receive from ATC the fair value of their
shares of ATC Common Stock immediately before the
Effective Time. See "The Merger--Dissenters
Rights" and Annex C attached hereto.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES................
The Merger is expected to qualify as a reorgani-
zation within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended
(the "Code"). The obligation of ATC to consummate
the Merger is subject to the condition that it
shall have received an opinion of counsel to the
effect that the Merger will be treated for tax
purposes as a reorganization with the meaning of
Section 368(a)
10
<PAGE>
of the Code. No gain or loss will be recognized
by ATC shareholders upon their exchange of ATC
Common Stock for Conseco Common Stock, except
that any ATC shareholder who receives cash pro-
ceeds in lieu of a fractional share interest in
Conseco Common Stock will recognize gain or loss
equal to the difference between such proceeds and
the tax basis allocated to the fractional share
interest and such gain or loss will constitute
capital gain or loss if such shareholder's ATC
Common Stock is held as a capital asset at the
Effective Time. See "The Merger--Certain Federal
Income Tax Consequences."
ACCOUNTING TREATMENT........ The Merger will be accounted for as a "purchase"
under GAAP. See "The Merger--Accounting Treat-
ment."
COMPARISON OF SHAREHOLDERS' Upon consummation of the Merger, the ATC share-
RIGHTS...................... holders will become shareholders of Conseco. See
"Comparison of Shareholders' Rights" for a sum-
mary of the material differences between the
rights of holders of Conseco Common Stock and ATC
Common Stock. These differences arise from the
distinctions between the laws of the jurisdic-
tions in which Conseco and ATC are incorporated
(Indiana and Pennsylvania, respectively) and the
distinctions between the respective articles of
incorporation and bylaws of Conseco and ATC.
11
<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
YEARS ENDED DECEMBER 31, ENDED 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--
PEROD 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
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
</TABLE>
12
<PAGE>
- --------
(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.
(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.
13
<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
YEARS ENDED DECEMBER 31, ENDED 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
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
</TABLE>
14
<PAGE>
- --------
(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.
15
<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 JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <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
(losses).............. (.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
the 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
</TABLE>
- --------
(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.
16
<PAGE>
(c) Represents net income excluding net realized gains (losses), net of income
taxes.
(d) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which ATC began to
do effective December 31, 1995. Such adjustments are in accordance with
SFAS 115, as described in the notes to the consolidated financial
statements included in ATC's Annual Report which is incorporated herein by
reference.
(e) Represents the ratio of notes payable (including the Debentures) to the sum
of shareholders' equity and notes payable (including the Debentures).
(f) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of ATC's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(g) Represents gains from operations before interest expense and income taxes
of ATC's consolidated insurance subsidiaries as reported for statutory
accounting 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.
17
<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
</TABLE>
18
<PAGE>
- --------
(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.
19
<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 JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ ------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Insurance policy income.. $342.7 $289.0 $256.9 $227.7 $ 190.2 $108.6 $ 55.6
Investment activity:
Net investment income... 42.1 43.7 44.0 46.6 49.7 26.0 19.9
Net realized gains
(losses)............... 2.8 19.7 26.8 (3.4) 6.7 .4 .3
Total revenues........... 399.6 368.1 331.0 270.9 246.6 135.0 76.4
Interest expense......... -- -- -- -- 2.3 -- 4.5
Expenses of spin-off and
related transactions.... -- -- -- -- 2.2 -- --
Loss on sale of long-term
care business........... -- -- -- -- 68.5 -- --
Total benefits and
expenses................ 356.5 305.3 281.0 234.9 287.7 113.9 62.5
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle .............. 43.1 62.8 50.0 36.0 (41.1) 21.1 13.9
Cumulative effect of
change in accounting
principle............... -- -- (.3) -- -- -- --
Net income (loss)........ 30.3 42.7 32.6 23.0 (26.8) 14.0 9.0
PER SHARE DATA
Net income (loss),
primary (a)............. $(17.75) $ 3.85
Net income (loss), fully
diluted (a)............. (17.75) 2.42
Book value per fully
diluted common share
(b)..................... 66.59 61.60
Shares outstanding at
period end.............. 1.6 1.6
Average fully diluted
shares outstanding...... 2.0 3.1
BALANCE SHEET DATA--
PERIOD END
Total assets............. $740.0 $813.3 $890.7 $885.2 $ 950.5 $949.7 $924.5
Notes payable (including
convertible subordinated
debentures) ............ -- -- -- -- 110.3 -- 108.3
Total liabilities........ 502.1 548.3 587.6 595.8 746.4 619.9 756.4
Shareholders' equity..... 237.9 265.0 303.1 289.4 204.1 329.8 168.1
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 (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
</TABLE>
20
<PAGE>
- --------
(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 subordinated convertible
notes) to the sum of shareholders' equity and notes payable (including
subordinated convertible notes).
(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.
21
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The summary unaudited pro forma consolidated financial information set forth
below was derived from the unaudited pro forma consolidated financial
statements of Conseco included elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Consolidated Financial
Statements of Conseco". The summary unaudited pro forma consolidated financial
information is based upon the historical and pro forma consolidated financial
statements and related notes thereto of Conseco, LPG, ATC, CAF and THI
incorporated by reference in this Joint Proxy Statement/Prospectus. This
information should be read in conjunction with such materials and the unaudited
pro forma consolidated financial statements appearing elsewhere in this Joint
Proxy Statement/Prospectus.
The summary unaudited pro forma consolidated statement of operations
information for the year ended December 31, 1995, and the six months ended June
30, 1996, in the columns headed "Pro forma Conseco before the Merger" reflects
the following transactions, all of which have already occurred, as if such
transactions had occurred on January 1, 1995: (1) the call of Conseco's Series
D Convertible Preferred Stock (the "Series D Call") completed on 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 on September 30, 1996; (3) the acquisition and merger of LPG
completed effective June 30, 1996 (the "LPG Merger"); (4) the acquisition of
all of the outstanding common stock of CCP not previously owned by Conseco and
related transactions (including the repayment of the existing $250.0 million
revolving credit agreement); (5) the increase of Conseco's ownership in BLH to
90.5 percent, as a result of purchases of common shares of BLH by Conseco and
BLH during 1995 and the first three months of 1996; (6) the issuance of 4.37
million shares of Conseco PRIDES in January 1996; (7) the BLH tender offer for
and repurchase of its 13 percent senior subordinated notes due 2002 and related
financing transactions completed in March 1996 (the "BLH Tender Offer"); and
(8) the debt restructuring of ALH in the fourth quarter of 1995. The summary
unaudited pro forma consolidated statement of operations information for the
year ended December 31, 1995, and the six months ended June 30, 1996, in the
columns headed "Pro forma for the Merger" reflects further adjustments to the
consolidated operating results for Conseco as if the Merger had occurred on
January 1, 1995. The summary unaudited pro forma consolidated statement of
operations information for the year ended December 31, 1995, and the six months
ended June 30, 1996, in the columns headed "Pro forma for the Merger and other
planned transactions" reflects further adjustments to the consolidated
operating results for Conseco as if the following additional planned
transactions had occurred on January 1, 1995:(1) the acquisition of all of the
outstanding common stock of BLH not previously owned by Conseco and related
transactions (the "BLH Transaction"); (2) the CAF Merger; (3) the planned
issuance 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"); and (4) the THI Merger.
The summary unaudited pro forma consolidated balance sheet information at
June 30, 1996, in the column headed "Pro forma Conseco before the Merger"
reflects the application of certain pro forma adjustments for the LPG Merger,
the Series D Call and the ALH Transaction, which have already occurred. The
summary unaudited pro forma consolidated balance sheet information at June 30,
1996, in the columns headed "Pro forma for the Merger" reflects further
adjustments to the financial position of Conseco as if the Merger had occurred
on June 30, 1996. The summary unaudited pro forma consolidated balance sheet
information at June 30, 1996, in the columns headed "Pro forma for the Merger
and other planned transactions" reflects further adjustments to the financial
position of Conseco as if the following additional planned transactions had
occurred on June 30, 1996: (1) the BLH Transaction; (2) the CAF Merger; (3) the
Preferred Securities Offering; and (4) the THI Merger.
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,
22
<PAGE>
the CAF Merger and the THI Merger will be accounted for under the purchase
method of accounting. The BLH Transaction will be accounted for using the step
acquisition method of accounting.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
--------------------------------- ------------------------------------
PRO FORMA FOR PRO FORMA FOR
PRO FORMA PRO THE MERGER PRO FORMA THE MERGER
CONSECO FORMA AND OTHER CONSECO PRO FORMA AND OTHER
BEFORE THE FOR THE PLANNED BEFORE THE FOR THE PLANNED
MERGER MERGER TRANSACTIONS MERGER MERGER TRANSACTIONS
---------- -------- ------------- ---------- --------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Insurance policy income. $1,752.8 $2,026.7 $2,498.7 $ 897.2 $ 1,084.1 $ 1,286.3
Investment activity:
Net investment income.. 1,461.1 1,486.1 1,574.0 719.4 741.4 783.7
Net trading income
(losses) ............. 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains..... 220.3 222.5 222.0 15.4 19.0 19.0
Total revenues.......... 3,498.4 3,799.5 4,358.9 1,685.4 1,897.9 2,143.0
Interest expense on
notes payable.......... 143.5 145.5 161.9 67.6 70.1 78.5
Total benefits and
expenses............... 3,001.7 3,278.2 3,771.9 1,423.9 1,616.5 1,822.7
Income before income
taxes, minority
interest and
extraordinary charge... 496.7 521.3 587.0 261.5 281.4 320.3
Income before
extraordinary charge... 283.1 295.2 327.5 148.9 159.9 181.3
PER SHARE DATA
Income before
extraordinary charge,
primary................ $ 3.74 $ 3.32 $ 3.33 $ 1.93 $ 1.77 $ 1.82
Income before
extraordinary charge,
fully diluted.......... 3.72 3.15 3.17 1.91 1.69 1.74
Book value per common
share outstanding at
period end............. 24.29 28.17 30.11
Shares outstanding at
period end............. 65.7 78.8 88.5 66.9 80.0 89.7
Average fully diluted
shares outstanding..... 76.0 94.1 103.8 77.8 95.9 105.6
BALANCE SHEET DATA--
PERIOD END
Total assets............ $23,058.3 $24,540.6 $26,644.5
Notes payable for which
Conseco is directly
liable................. 1,198.5 1,468.9 2,183.6
Notes payable of BLH,
not direct obligations
of Conseco............. 437.9 437.9 --
Total liabilities....... 21,015.7 21,869.2 23,233.3
Minority interest 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 2,520.7 2,968.0
OTHER FINANCIAL DATA (a)
Premiums collected (b).. $3,671.8 $3,945.8 $4,418.1 $ 1,781.7 $ 1,968.6 $ 2,170.8
Operating earnings (c).. 231.0 241.7 274.1 136.0 144.7 165.3
Operating earnings per
fully diluted common
share (c).............. 3.04 2.58 2.65 1.75 1.54 1.59
Shareholders' equity
excluding unrealized
appreciation
(depreciation) of fixed
maturity securities
(d).................... 1,948.3 2,577.1 3,024.4
Book value per common
share outstanding,
excluding unrealized
appreciation
(depreciation) of fixed
maturity securities
(d).................... 25.13 28.87 30.74
Ratio of debt for which
Conseco is directly
liable to total capital
of Conseco only (e):
As reported............ .38X .36X .39X
Excluding unrealized
appreciation
(depreciation) (d).... .37X .35X .39X
Excluding unrealized
appreciation
(depreciation) and
assuming conversion of
the Debentures into
Conseco Common Stock
(d)................... .30X .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
the Debentures into
Conseco Common Stock
(d)................... .41X
Adjusted statutory
capital (at period end)
(g).................... $1,508.6 $1,582.9 $1,834.9 $ 1,515.6 $ 1,603.3 $ 1,849.5
Adjusted statutory
earnings (h)........... 480.7 451.1 533.8 253.4 260.8 301.2
Ratio of adjusted
statutory earnings to
cash interest (i)...... 3.36X 3.05X 3.26X 3.74X 3.61X 3.78X
</TABLE>
23
<PAGE>
- --------
(a) Amounts under this heading are included to assist the reader in analyzing
Conseco's pro forma financial position and pro forma results of operations.
Such amounts are not intended to, and do not, represent pro forma insurance
policy income, pro forma net income, pro forma net income per share, pro
forma shareholders' equity or pro forma book value per share prepared in
accordance with GAAP.
(b) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(c) Represents pro forma income before extraordinary charge, excluding net
trading income (net of income taxes), net realized gains (less that portion
of change in future policy benefits, amortization of cost of policies
purchased and cost of policies produced and income taxes relating to such
gains) and restructuring activities (net of income taxes).
(d) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which Conseco began
to do in 1992. Such adjustments are in accordance with SFAS 115, as
described in the notes to the consolidated financial statements included in
Conseco's Annual Report which is incorporated herein by reference.
(e) Represents the ratio of pro forma notes payable for which Conseco is
directly liable to the sum of pro forma shareholders' equity, pro forma
notes payable for which Conseco is directly liable, the 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, the 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.
24
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO, ATC, LPG, CAF AND THI
The following table sets forth selected historical per share data of Conseco,
LPG, ATC, CAF and THI and corresponding pro forma and pro forma equivalent per
share amounts for the year ended December 31, 1995, and as of and for the six
months ended June 30, 1996, giving effect to the LPG Merger, the Series D Call,
the ALH Transaction, the Merger, the CAF Merger, the BLH Transaction, the
Preferred Securities Offering and the THI Merger. Pro forma equivalent amounts
are presented assuming that the Conseco Share Price will be $48.00, so that
each share of ATC Common Stock is exchanged for .7298 shares of Conseco Common
Stock in the Merger. The information presented is derived from the consolidated
financial statements and related notes thereto included in Conseco's Annual
Report, LPG's Annual Report, ATC's Annual Report, CAF's Annual Report, THI's
Annual Report (all of which are incorporated by reference herein) and the
unaudited pro forma consolidated financial statements of Conseco included
elsewhere in this Joint Proxy Statement/Prospectus. The information should be
read in conjunction with such materials. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco." The pro forma financial information is
provided for informational purposes only and is not necessarily indicative of
the actual results that would have been achieved had the above transactions
been consummated at the beginning of the periods presented, or of future
results.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
<S> <C> <C>
Net income (loss) before extraordinary charge per
fully diluted common share:
Historical:
Conseco....................................... $ 4.26 $ 1.88
LPG........................................... (.49) .56
ATC........................................... 1.36 .81
CAF........................................... 2.64 1.55
THI........................................... (17.75)(a) 2.42
Pro forma:
Conseco before the Merger..................... $ 3.72 $ 1.91
Adjusted for the Merger....................... 3.15 1.69
Further adjusted for the CAF Merger, the THI
Merger and other planned transactions........ 3.17 1.74
Equivalent for one share of ATC Common Stock.. 2.31 1.27
Dividends per common share:
Historical:
Conseco....................................... $ .093 $ .040
LPG........................................... .110 .060
ATC........................................... -- --
CAF........................................... .360 .200
THI........................................... -- --
Pro forma:
Conseco before the Merger..................... $ .093 $ .040
Adjusted for the Merger....................... .093 .040
Further adjusted for the CAF Merger, the THI
Merger and other planned transactions........ .093 .040
Equivalent for one share of ATC Common Stock.. .068 .029
Book value per common share:
Historical:
Conseco....................................... $17.68
LPG........................................... 12.47
ATC........................................... 10.50
CAF .......................................... 16.83
THI........................................... 61.60(b)
Pro forma:
Conseco before the Merger..................... $24.29
Adjusted for the Merger....................... 28.17
Further adjusted for the CAF Merger, the THI
Merger and other planned transactions........ 30.11
Equivalent for one share of ATC Common Stock.. 21.97
</TABLE>
- -------
(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.
25
<PAGE>
MARKET PRICE DATA
Market prices for the shares of Conseco Common Stock are reported on the
NYSE, and market prices for the shares of ATC Common Stock are reported on the
NASDAQ National Market. The table below sets forth for the periods indicated
the high and low sale prices of Conseco Common Stock and ATC Common Stock and
the dividends paid per share of Conseco Common Stock. ATC has not paid
dividends on ATC Common Stock. For current price information with respect to
the Conseco Common Stock and ATC Common Stock, shareholders are urged to
consult publicly available sources.
<TABLE>
<CAPTION>
CONSECO COMMON STOCK ATC COMMON STOCK
------------------------- -----------------
HIGH LOW DIVIDENDS HIGH LOW
------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
1994
First Quarter ................... $32.125 $26.563 $0.0625 $ 9.875 $ 7.25
Second Quarter................... 29.063 23.188 0.0625 9.375 7.313
Third Quarter ................... 26.188 21.625 0.0625 11.75 8.75
Fourth Quarter................... 23.125 17.938 0.0625 12 8.875
1995
First Quarter ................... 24.313 16.25 0.0625 13.625 $10.563
Second Quarter................... 23.313 19.563 0.0625 13.438 10.938
Third Quarter ................... 26.625 22.75 0.01 12.875 10.563
Fourth Quarter................... 31.563 25.438 0.01 18.75 12.125
1996
First Quarter ................... 36.313 29.875 0.01 20.917 $17.417
Second Quarter................... 40.75 34.75 0.02 23.875 17.25
Third Quarter ................... 49.375 35.25 0.02 33.375 19.50
Fourth Quarter (through October
22, 1996)....................... 52.375 48.875 0.0625 34.125 33.313
</TABLE>
The information set forth in the table below presents: (1) the closing price
for shares of Conseco Common Stock and ATC Common Stock on August 23, 1996, the
last day on which trading occurred prior to the public announcement of the
Merger Agreement and on October 22, 1996, the last full trading day for which
information was available prior to the mailing of the Joint Proxy
Statement/Prospectus and (2) the "Equivalent Per Share Price" (as hereinafter
defined) of ATC Common Stock on August 23, 1996 and October 22, 1996. The
"Equivalent Per Share Price" of ATC Common Stock represents the closing price
per share of Conseco Common Stock reported on the NYSE, multiplied by .7574 and
.6962 assuming consummation of the Merger had occurred on August 23, 1996 and
October 22, 1996, respectively. The amount and value of the Merger
Consideration to be received by holders of the ATC Common Stock can be
determined only at the date the Merger is consummated. See "The Merger
Agreement--Conversion of Shares; Exchange of Stock Certificates; No Fractional
Amounts."
<TABLE>
<CAPTION>
ATC COMMON
STOCK
CONSECO ATC EQUIVALENT
COMMON COMMON PER SHARE
PER SHARE PRICE STOCK STOCK PRICE
- --------------- ------- ------ ----------
<S> <C> <C> <C>
August 23, 1996....................................... $42.00 $28.38 $31.81
October 22, 1996...................................... 51.63 34.13 35.94
</TABLE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger.
CONSECO AND ATC SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION
FOR THE CONSECO COMMON STOCK AND THE ATC COMMON STOCK. NO ASSURANCE CAN BE
GIVEN AS TO THE FUTURE PRICES OF, OR MARKETS FOR, CONSECO COMMON STOCK OR ATC
COMMON STOCK.
26
<PAGE>
INFORMATION CONCERNING CONSECO
BACKGROUND
Conseco is a financial services holding company engaged primarily in the
development, marketing and administration of annuity, individual health
insurance and individual life insurance products. Conseco's earnings result
primarily from operating life insurance companies and other financial services
businesses and providing investment management, administrative and other fee-
based services to affiliated businesses as well as non-affiliates. Conseco's
operating strategy is to consolidate and streamline management and
administrative functions, to realize superior investment returns through
active asset management and to focus resources on the development and
expansion of profitable products and strong distribution channels.
On August 2, 1996, the Company completed the LPG Merger and LPG became a
wholly-owned subsidiary of Conseco. 16.3 million shares of Conseco Common
Stock were issued in connection with the LPG Merger, and Conseco assumed notes
payable of LPG of $249.5 million. The subsidiaries of LPG sell a diverse
portfolio of universal life insurance and, to a lesser extent, annuity
products to individuals.
On September 30, 1996, Conseco completed the acquisition of all of the
common shares of ALH not already owned by Conseco or its affiliates for
approximately $165 million in cash. ALH is a provider of retirement savings
annuities. ALH has been included in Conseco's consolidated financial
statements since September 1994, when it was acquired by Conseco Capital
Partners II, L.P. Conseco now holds 59.2 percent of the outstanding common
shares of ALH and BLH holds the remaining 40.8 percent of such shares.
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.; (3) Great American Reserve Insurance
Company ("Great American Reserve") and Beneficial Standard Life Insurance
Company ("Beneficial Standard"), in which Conseco has had an ownership
interest since their acquisition by Conseco Capital Partners, L.P. and which
became wholly-owned subsidiaries in August 1995; (4) the subsidiaries of LPG,
which are now wholly-owned subsidiaries of Conseco, including Philadelphia
Life Insurance Company ("Philadelphia Life"), Massachusetts General Life
Insurance Company ("Massachusetts General Life") and Lamar Life Insurance
Company ("Lamar Life"); and (5) Bankers National Life Insurance Company
("Bankers National"), National Fidelity Life Insurance Company ("National
Fidelity") and Lincoln American Life Insurance Company ("Lincoln American"),
all of which are wholly owned by Conseco and which have profitable blocks of
in-force business, although new product sales are currently not being pursued.
BLH and its subsidiaries are collectively referred to hereinafter as BLH.
INSURANCE OPERATIONS
Conseco's insurance operations are conducted through three segments: (1)
senior market operations, consisting of the activities of BLH; (2) annuity
operations, consisting of the activities of Great American Reserve and
Beneficial Standard; and (3) life insurance operations, consisting of the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life, as
well as National Fidelity, Bankers National and Lincoln American.
SENIOR MARKET OPERATIONS. BLH, with total assets of approximately $4.9
billion at June 30, 1996, markets health and life insurance and annuity
products primarily to senior citizens through approximately 200 branch offices
and approximately 3,200 career agents. Most of BLH's agents sell only BLH
policies. Approximately 56 percent of the $1,513.8 million of total premiums
and annuity deposits collected by BLH in 1995 (and approximately 59 percent of
$757.9 million of total premiums and annuity deposits collected in the first
six months of 1996) was from the sale of individual health insurance products,
principally Medicare supplement and long-term care policies. BLH believes that
its success in the individual health insurance market is attributable in large
part to its career agency force, which permits one-on-one contacts with
potential policyholders and builds loyalty to BLH among existing
policyholders. Its efficient and highly automated claims processing system is
designed to complement its personalized marketing strategy by stressing prompt
payment of claims and rapid response to policyholder inquiries.
27
<PAGE>
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 collected by the annuity companies in 1995
(and approximately 88 percent of the $347.5 million of total premiums and
annuity deposits collected in the first six months of 1996) was from the sale
of annuity products. Effective September 30, 1996, this segment includes ALH
after its acquisition by Conseco. ALH, with total assets of approximately $6.1
billion at June 30, 1996, is engaged primarily in the development, marketing,
underwriting, issuance and administration of annuity and life insurance
products. ALH markets those products through a general agency and insurance
brokerage system comprised of approximately 25,000 independent licensed
agents. Approximately 91 percent of the $825.6 million of total premiums and
annuity deposits collected by ALH in 1995 (and approximately 91 percent of the
$358.7 million of total premiums and annuity deposits collected in the first
six months of 1996) was from the sale of deferred annuities. On September 30,
1996, Conseco completed the acquisition of the shares of ALH common stock not
already owned by Conseco for approximately $165 million in cash.
LIFE INSURANCE OPERATIONS. Life insurance operations include the activities
of Philadelphia Life, Massachusetts General Life and Lamar Life, beginning
with their acquisition in the third quarter of 1996. These companies
distribute universal life insurance products using two primary marketing
systems--the client company system and the regional director system--
comprising a total of approximately 25,000 professional independent producers.
Approximately 74 percent of the $497.3 million of total insurance premiums and
annuity deposits collected by LPG in 1995 (and approximately 72 percent of the
$280.1 million of total insurance premium and annuity deposits collected in
the first six months of 1996) was from the sale of life insurance products,
primarily universal life insurance. Segment activities also include Conseco's
other wholly owned life insurance subsidiaries--Bankers National Life,
National Fidelity Life and Lincoln American Life--which have profitable in-
force blocks of annuity and life products, but do not currently market their
products to new customers.
FEE-BASED OPERATIONS
Conseco's subsidiaries provide various services to affiliated and
unaffiliated clients. Conseco Capital Management, Inc. manages approximately
$28 billion of invested assets at June 30, 1996, including $17.2 billion of
assets of affiliated companies. Marketing Distribution Systems Consulting
Group, Inc. provides marketing services to financial institutions related to
the distribution of insurance and investment products. Conseco Risk
Management, Inc. distributes property and casualty insurance products as an
independent agency. Conseco Mortgage Capital, Inc. originates and services
mortgages. Total fees from affiliates and nonaffiliates were $69.2 million and
$54.3 million for 1995 and the first six months of 1996. To the extent that
these services are provided to entities that are included in the financial
statements on a consolidated basis, the intercompany fees are eliminated in
consolidation. Earnings in this segment increase when Conseco adds new clients
(either affiliated or unaffiliated) and when Conseco increases the fee-
producing activities conducted for clients. Effective January 1, 1996,
Conseco's subsidiaries entered into new service agreements with its service
subsidiaries. Such new agreements had the effect of increasing revenues from
fee-based operations by $21.9 million in the first six months of 1996, but had
no effect on consolidated net income.
In addition to Conseco's fee-based operations, Conseco Private Capital
Group, Inc. makes direct strategic investments in growing companies, providing
these firms with the capital or financing they need to continue their growth,
make acquisitions or realize the potential of their businesses.
OTHER PENDING ACQUISITIONS BY CONSECO
CAF. On August 25, 1996, Conseco and CAF entered into an Agreement and Plan
of Merger (the "CAF Merger Agreement") pursuant to which CAF will be merged
with and become a wholly-owned subsidiary of
28
<PAGE>
Conseco. Under the CAF Merger Agreement, each of the approximately 17.8
million issued and outstanding shares of common stock of CAF would be
converted into the right to receive (1) $30.00 in cash plus the Time Factor
(as defined below), if any, and (2) the fraction (rounded to the nearest ten-
thousandth) of a share of Conseco Common Stock determined by dividing $6.50 by
the Trading Value (as hereinafter defined). The "Trading Value" shall be equal
to the average of the closing prices of the Conseco Common Stock on the NYSE
Composite Transactions Reporting System for the 20 consecutive trading days
immediately preceding the second trading day prior to the date of the CAF
Merger. The "Time Factor" will be equal to $0.25 if the CAF Merger does not
occur by December 10, 1996, which amount will increase by an additional $0.25
on the tenth day of each month thereafter until the CAF Merger is consummated.
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."
THI. On September 25, 1996, Conseco and THI entered into an Agreement and
Plan of Merger (the "THI Merger Agreement") pursuant to which THI will be
merged with and into Conseco, with Conseco being the surviving corporation.
Under the THI Merger Agreement, each of the outstanding shares of common stock
of THI would be converted into the right to receive the whole number and
fraction (rounded to the nearest ten-thousandth) of a share of Conseco Common
Stock determined by dividing $70.00 by the Conseco/THI Share Price (as
hereinafter defined). The "Conseco/THI Share Price" shall be equal to the
Trading Average (as hereinafter defined); provided, however, that if the
Trading Average is less than $38.25, then the Conseco/THI Share Price shall be
$38.25, and if the Trading Average is greater than $50.00, then the
Conseco/THI Share Price shall be $50.00. The "Trading Average" shall be equal
to the average of the closing prices of the Conseco Common Stock on the NYSE
Composite Transactions Reporting System for the 10 consecutive trading days
immediately preceding the second trading day prior to the date of the THI
Merger. 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."
BLH. Conseco also announced on August 26, 1996 that it intends to merge with
BLH in a transaction in which each of the 4.7 million shares of BLH Common
Stock not already owned by Conseco would be converted into the right to
receive $25.00 in Conseco Common Stock.
Consummation of the Merger is not conditioned upon consummation by Conseco
of the other pending acquisitions. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco."
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."
INFORMATION CONCERNING ATC
GENERAL
ATC is an insurance holding company, the operations of which are conducted
through its insurance subsidiaries, American Travellers Life Insurance Company
("ATL"), United General Life Insurance ("UGL") and American Travellers
Insurance Company of New York ("ATICNY"), and through its insurance agency
subsidiary, American Travellers Insurance Services Company, Inc. ("ATIS").
ATC, through its operating subsidiaries, is licensed to market its products in
46 states, the District of Columbia, and the U.S. and British Virgin Islands.
29
<PAGE>
ATC is a leading marketer and underwriter of long term care insurance. ATC's
long term care products consist of both nursing home and home health care
policies which provide limited benefit payments primarily to senior citizens.
ATC also markets and underwrites other supplemental accident and health
insurance policies, as well as life insurance. As of June 30, 1996, ATC's long
term care products accounted for approximately 90 percent of its annualized
premiums in force of $393.3 million. ATC has experienced substantial growth in
both premiums and net income, which have increased from 1993 through 1995 at
compounded annual rates of 28.3 percent and 27.3 percent, respectively. Since
1988, ATC has completed eight acquisitions of existing books of business from
other companies.
PRODUCT LINES
ATC's primary focus has been, and continues to be, the sale of long term
care insurance. ATC's other lines of insurance include (1) Medicare
supplement, (2) hospital indemnity, (3) cancer, (4) disability income, (5)
various accident and health riders, and (6) life insurance. Coverages are
generally provided on an individual basis rather than on a group basis.
LONG TERM CARE INSURANCE
ATC's long term care products generally fall into one of two categories: (1)
nursing home care coverage, and (2) home health care coverage. Some of ATC's
products provide for a combination of both nursing home and home health care
benefits. Nursing home care coverage primarily provides for a fixed indemnity
benefit during periods of covered nursing home confinement. Home health care
coverage primarily provides for benefit payments based on expenses incurred,
subject to maximum hourly or daily limits. In addition to basic nursing home
care or home health care benefits, some products also provide benefits for
such expenses as prescription drugs (prescribed for use while the policyholder
is confined in a nursing home or is receiving home health care), ambulance
service and homemaker services. In addition, some policies include a rider,
known as the "Alternative Plan of Care," that provides benefits for facilities
or services other than nursing home care to the extent the insured would
otherwise have required nursing home confinement.
MARKETING
Policies are marketed primarily through a network of over 22,400 independent
agents and, to a lesser extent, by sponsored agents through ATIS, and by
sponsored agents who market products to members of the Veterans of Foreign
Wars of Pennsylvania, an organization which endorses ATC's products.
OTHER
For a more detailed description of the business of ATC, see the description
set forth in ATC's Annual Report, which is incorporated herein by reference.
ATC's executive offices are located at 3220 Tillman Drive, Bensalem,
Pennsylvania 19020 and its telephone number is (215) 244-1600.
30
<PAGE>
SHAREHOLDER MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of Conseco Stock in connection with the solicitation of proxies by the
Conseco Board of Directors for use at the Conseco Special Meeting to be held
on Tuesday, November 26, 1996, at 11799 College Avenue, Carmel, Indiana,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
ATC Common Stock in connection with the solicitation of proxies by the ATC
Board of Directors for use at the ATC Special Meeting to be held on Tuesday,
November 26, 1996 at the Four Seasons Hotel, Washington Room, One Logan
Square, Philadelphia, Pennsylvania, commencing at 10:00 a.m., local time, and
at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Conseco filed with the Commission as part of the Registration Statement under
the Securities Act relating to the shares of Conseco Common Stock issuable in
connection with the Merger. This Joint Proxy Statement/Prospectus and
accompanying forms of proxy are first being mailed to shareholders of Conseco
and ATC on or about October 25, 1996.
MATTERS TO BE CONSIDERED AT THE MEETINGS
CONSECO. At the Conseco Special Meeting, holders of shares of Conseco Stock
will consider and vote upon (1) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (2) such other
business as may properly come before the Conseco Special Meeting or any
adjournment or postponement thereof.
THE CONSECO BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT CONSECO SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--CONSECO'S
REASONS FOR THE MERGER; RECOMMENDATION OF THE CONSECO BOARD OF DIRECTORS."
Holders of shares of Conseco Stock will not be entitled to appraisal or
dissenters rights as a result of the Merger.
ATC. At the ATC Special Meeting, holders of shares of ATC Common Stock will
consider and vote upon (1) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (2) such other
business as may properly come before the ATC Special Meeting or any
adjournment or postponement thereof.
THE ATC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT ATC SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--ATC'S REASONS FOR
THE MERGER; RECOMMENDATION OF THE ATC BOARD OF DIRECTORS."
Holders of shares of ATC Common Stock will be entitled to dissenters rights
under the PBCL as a result of the Merger. See "The Merger--Dissenters Rights."
VOTING AT THE MEETINGS; RECORD DATE; QUORUM
CONSECO. The Conseco Board of Directors has fixed October 21, 1996 as the
Conseco Record Date. Accordingly, only holders of record of shares of Conseco
Common Stock and Conseco PRIDES on the Conseco Record Date will be entitled to
notice of and to vote, together as a single class, at the Conseco Special
Meeting. As of the Conseco Record Date, there were 66,994,809 shares of
Conseco Common Stock outstanding and entitled to vote, and 4,369,700 shares of
Conseco PRIDES outstanding and entitled to vote. Each holder
31
<PAGE>
of record of shares of Conseco Common Stock on the Conseco Record Date is
entitled to cast, either in person or by properly executed proxy, one vote per
share of Conseco Common Stock on the Merger Agreement and such other matters
properly submitted for the vote of the Conseco shareholders at the Conseco
Special Meeting. Each holder of record of shares of Conseco PRIDES on the
Conseco Record Date is entitled to cast, either in person or by properly
executed proxy, four-fifths ( 4/5) of one vote per share of Conseco PRIDES on
the Merger Agreement and such other matters properly submitted for the vote of
the Conseco shareholders at the Conseco Special Meeting. The presence at the
Conseco Special Meeting, in person or by properly executed proxy, of the
holders of Conseco Common Stock and Conseco PRIDES entitled to cast a majority
of the votes at the Conseco Special Meeting is necessary to constitute a
quorum at the Conseco Special Meeting.
The affirmative vote of a majority of the votes entitled to be cast by
holders of Conseco Stock is required for approval of the Merger Agreement.
Shares subject to abstentions will be treated as shares that are present at
the Conseco Special Meeting for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the number of shares voting
on a particular proposal. If a broker or other nominee holder indicates on the
proxy card that it does not have discretionary authority to vote the shares
for which it is the holder of record on a particular proposal, those shares
will not be considered as votes cast for purposes of determining the number of
Conseco shareholders that have voted for or against the proposal. Accordingly,
abstentions and broker non-votes will have the same practical effect as a vote
against the approval and adoption of the Merger Agreement or any other matter
submitted to the Conseco shareholders which requires a percentage of the total
number of votes entitled to be cast for approval.
As of October 21, 1996, the executive officers and directors of Conseco (as
a group, ten persons) were entitled to vote 6,710,084 shares of Conseco Common
Stock and no shares of Conseco PRIDES, representing approximately 9.5 percent
of the outstanding votes of Conseco Stock entitled to be cast as of such date.
The executive officers of Conseco (as a group, five persons) were entitled to
vote 5,753,206 shares of Conseco Common Stock and no shares of Conseco PRIDES,
representing approximately 8.2 percent of the outstanding votes of Conseco
Stock entitled to be cast as of such date. The executive officers are
obligated pursuant to written agreements with ATC to vote such shares in favor
of the approval and adoption of the Merger Agreement at the Conseco Special
Meeting.
32
<PAGE>
The following table sets forth information as of October 21, 1996, regarding
ownership of Conseco Common Stock (excluding shares held by subsidiaries not
entitled to vote) by the only persons known to own beneficially more than five
percent thereof, by the directors individually, by the executive officers
individually, and by all executive officers and directors of Conseco as a
group. Where any footnote indicates that shares included in the table are
owned by, or jointly with, family members or by an affiliate of such person,
the executive officer or director may be deemed to exercise shared voting and
investment power with respect to those shares, unless otherwise indicated. The
amounts shown below for each of the directors and executive officers do not
include (i) stock options which are not exercisable within 60 days of October
21, 1996 providing for the right to purchase an aggregate of 6,373,250 shares
of Conseco Common Stock or (ii) an aggregate of 1,449,517.6 units (each
representing one share of Conseco Common Stock) under Conseco's Amended and
Restated Stock Bonus and Deferred Compensation Program and the Conseco 1994
Stock and Incentive Plan. The executive officers and directors do not own any
shares of any other class of equity securities of Conseco.
<TABLE>
<CAPTION>
SHARES OWNED
AND PERCENTAGE
NAME AND ADDRESS(1) OF OWNERSHIP
- ------------------- -------------------
<S> <C> <C>
Five-percent Owners:
Stephen C. Hilbert....................................... 3,470,360(2) 5.1%
11825 North Pennsylvania Street
Carmel, Indiana 46032
Alex. Brown Investment Management........................ 7,115,626(3) 10.6%
135 East Baltimore Street
Baltimore, Maryland 21201
Directors and Executive Officers:
Ngaire E. Cuneo.......................................... 486,566(4) *
David R. Decatur, M.D.................................... 20,000 *
Rollin M. Dick........................................... 1,746,402(5) 2.6%
Louis P. Ferrero......................................... 72,667(6) *
Donald F. Gongaware...................................... 1,733,172(7) 2.6%
M. Phil Hathaway......................................... 54,128(8) *
Stephen C. Hilbert....................................... 3,470,360(2) 5.1%
Lawrence W. Inlow........................................ 1,467,024(9) 2.2%
James D. Massey.......................................... 58,000(10) *
Dennis E. Murray, Sr..................................... 842,750(11) 1.3%
All executive officers and directors as a group (10
persons)................................................ 9,951,069(12) 14.2%
</TABLE>
- --------
* less than 1%
(1) Address given for five-percent owners only.
(2) Of these shares, 660,000 are owned by irrevocable trusts as to which Mr.
Hilbert has sole voting and investment power, and 1,155,370 are subject to
options held by Mr. Hilbert which are exercisable within 60 days.
(3) According to a Schedule 13G dated February 21, 1996, filed with the
Commission, the holder is an investment adviser registered under Section
203 of the Investment Advisers Act of 1940. The holder has indicated that
it has sole voting power with respect to 2,141,356 of such shares and sole
dispositive power as to all of the shares.
(4) Of these shares, 358,998 are subject to options held by Ms. Cuneo which
are exercisable within 60 days.
(5) Of these shares, 293,360 are owned by Mr. Dick's wife, 202,862 are owned
by a charitable foundation as to which shares he shares voting and
investment power, 400,000 are owned by a limited partnership in which Mr.
Dick and his wife are the general partners, 418,650 are subject to options
held by Mr. Dick which are exercisable within 60 days and 590 are
attributable to Mr. Dick's account under the ConsecoSave Plan, a 401(k)
savings plan. Mr. Dick expressly disclaims beneficial ownership of all
shares owned by his wife and the charitable foundation.
33
<PAGE>
(6) All of these shares are subject to options held by Mr. Ferrero which are
exercisable within 60 days.
(7) Of these shares, 62,000 are owned by Mr. Gongaware's wife, 140,000 are
owned by a charitable trust as to which shares he shares voting and
investment power, 36,000 are owned by irrevocable trusts as to which Mr.
Gongaware's wife has sole voting and investment power, 558,650 are subject
to options held by Mr. Gongaware which are exercisable within 60 days and
460 are attributable to Mr. Gongaware's account under the ConsecoSave
Plan. Mr. Gongaware expressly disclaims beneficial ownership for all
shares owned by his wife and the trusts as to which she has sole voting
and investment power.
(8) Of these shares, 8,000 are owned by Mr. Hathaway's wife, and 6,000 are
subject to options held by Mr. Hathaway which are exercisable within 60
days. Mr. Hathaway expressly disclaims beneficial ownership of all shares
owned by his wife.
(9) Of these shares, 200,000 are owned by irrevocable trusts as to which Mr.
Inlow has sole voting and investment power, 658,650 are subject to options
held by Mr. Inlow which are exercisable within 60 days and 508 are
attributable to Mr. Inlow's account under the ConsecoSave Plan.
(10) Of these shares, 6,000 are subject to options held by Mr. Massey which
are exercisable within 60 days.
(11) Of these shares, 592,000 are owned by retirement plan trusts as to which
Mr. Murray shares voting and investment power, and 6,000 are subject to
options held by Mr. Murray which are exercisable within 60 days.
(12) Includes 3,240,985 shares subject to outstanding stock options which are
exercisable within 60 days.
ATC. The ATC Board of Directors has fixed October 21, 1996 as the ATC Record
Date. Accordingly, only holders of record of shares of ATC Common Stock on the
ATC Record Date will be entitled to notice of and to vote at the ATC Special
Meeting. As of the ATC Record Date, there were 16,327,791 shares of ATC Common
Stock outstanding and entitled to vote. Each holder of record of shares of ATC
Common Stock on the ATC Record Date is entitled to cast, either in person or
by properly executed proxy, one vote per share on the Merger Agreement and the
other matters, if any, properly submitted for the vote of the ATC shareholders
at the ATC Special Meeting. The presence at the ATC Special Meeting, in person
or by properly executed proxy, of the holders of stock representing a majority
of the voting power of all outstanding shares of ATC Common Stock is necessary
to constitute a quorum at the ATC Special Meeting.
The approval and adoption by ATC of the Merger Agreement will require the
affirmative vote of at least a majority of the votes cast by all holders of
ATC Common Stock entitled to vote thereon. Shares subject to abstentions and
any shares as to which a broker or nominee indicates that it does not have
discretionary authority to vote on a particular proposal will be treated as
shares that are present at the ATC Special Meeting for purposes of determining
the presence of a quorum but as unvoted for purposes of determining whether
approval of the shareholders has been obtained on a particular proposal.
Accordingly, abstentions and brokers non-votes will have the same practical
effect as a vote against the approval and adoption of the Merger Agreement or
on any other matter submitted to the ATC shareholders.
As of October 21, 1996, the executive officers and directors of ATC and the
Trustees were entitled to vote 1,722,194 shares of ATC Common Stock, or
approximately 10.5 percent of the number of shares of ATC Common Stock
outstanding and entitled to vote as of such date. John A. Powell and the
Trustees were entitled to vote 1,556,733 shares of ATC Common Stock, or
approximately 9.5 percent of the number of shares of ATC Common Stock
outstanding and entitled to vote as of such date and such persons are
obligated, pursuant to written agreements with Conseco, to vote their shares
at the ATC Special Meeting in favor of adoption of the Merger Agreement.
The following table sets forth information as of October 21, 1996 regarding
ownership of ATC Common Stock by the only persons known to own beneficially
more than five percent thereof, by the directors individually, by certain of
the executive officers individually, and by all executive officers and
directors of ATC as a group.
34
<PAGE>
Unless otherwise indicated, each person has sole voting and investment power
over the shares deemed to be beneficially owned by such person.
<TABLE>
<CAPTION>
SHARES OWNED AND
NAME AND ADDRESS(1) PERCENTAGE OF OWNERSHIP
- ------------------- -----------------------
<S> <C> <C>
John A. Powell................................. 2,011,540(2) 11.3%
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Brinson Partners, Inc. ........................ 1,307,994(3) 8.0%
209 South La Salle Street
Chicago, Illinois 60604-1295
Trust under Deed of Trust of Francis E. Powell,
Jr. ........................................... 1,062,693(4) 6.5%
c/o Ramon R. Obod, Esquire
2000 Market Street, 10th Floor
Philadelphia, Pennsylvania 19103
Susan T. Mankowski............................. 174,250(2) 1.1%
Walter E. Conrad............................... 81,706(2) *
Thomas J. Parry................................ 53,500(2) *
Alice E. Powell................................ 53,500(2)(4) *
Ramon R. Obod.................................. 52,150(2)(4) *
Arnold H. Keehn................................ 42,150(2) *
Ronald J. Holmer............................... 41,957(2)(5) *
Walter J. Diener............................... 40,000(6) *
Benedict J. Iacovetti.......................... 21,750(2) *
Ernest Iannucci................................ 13,250(2) *
Henry G. Hager................................. 5,500(2) *
Directors and officers as a group (15 persons). 2,769,956(2) 15.0%
</TABLE>
- --------
* less than 1%
(1) Address given for five-percent owners only.
(2) John A. Powell, Susan T. Mankowski, Walter E. Conrad, Thomas J. Parry,
Alice E. Powell, Ramon R. Obod, Arnold H. Keehn, Ronald J. Holmer, Walter
J. Diener, Benedict J. Iacovetti, Ernest Iannucci, Henry G. Hager and the
directors and officers of ATC as a group may acquire 1,517,500, 151,750,
22,000, 52,000, 52,000, 32,750, 40,500, 33,500, 1,500, 21,750, 11,750,
4,000 and 2,108,875 shares, respectively, pursuant to stock options which
are currently exercisable or become exercisable within sixty (60) days,
which numbers of shares are included in the respective numbers of shares
beneficially owned.
(3) Brinson Partners, Inc. ("BPI") has indicated in a Schedule 13-G dated
February 9, 1996 filed on behalf of itself, its wholly-owned subsidiary,
Brinson Trust Company ("BTC"), its parent company, Brinson Holdings, Inc.
("BHI"), BHI's parent company, SBC Holding (USA), Inc. ("SBCUSA"), and
SBCUSA's parent company, Swiss Bank Corporation ("SBC"), that BPI owns
directly 956,812 of the shares, BTC owns directly 351,182 of the shares
and that BHI, SBCUSA and SBC own the shares indirectly through BPI and
BTC.
(4) Alice E. Powell, Debra F. Powell and Ramon R. Obod are the Trustees.
Shares owned by the Trust are not included in the number of shares
beneficially owned by the Trustees.
(5) Includes 3,875 shares held by Mr. Holmer's wife and 1,582 shares
obtainable by Mr. Holmer's wife upon conversion of the Debentures owned by
her.
(6) All shares held jointly by Mr. Diener and his wife.
35
<PAGE>
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to holders of
Conseco Stock and ATC Common Stock in connection with the solicitation of
proxies by and on behalf of the respective Boards of Directors of Conseco and
ATC for use at the Conseco Special Meeting or the ATC Special Meeting, as the
case may be.
Conseco Stock and ATC Common Stock represented by properly executed proxies
received at or prior to the Conseco Special Meeting and the ATC Special
Meeting, respectively, that have not been revoked will be voted at the Conseco
Special Meeting and the ATC Special Meeting, respectively, in accordance with
the instructions contained therein. The stock represented by properly executed
proxies for which no instruction is given will be voted FOR approval and
adoption of the Merger Agreement. Shareholders are requested to complete,
sign, date and return promptly the enclosed proxy card in the postage-prepaid
envelope provided for this purpose to ensure that their shares are voted. A
shareholder of Conseco or ATC may revoke a proxy at any time prior to the vote
on the Merger Agreement by (i) submitting a later-dated proxy with respect to
the same shares, (ii) delivering written notice of revocation to the Secretary
of Conseco or ATC, as the case may be, at any time prior to such vote, or
(iii) attending the Conseco Special Meeting or the ATC Special Meeting, as the
case may be, and voting in person. Mere attendance at the Conseco Special
Meeting or the ATC Special Meeting will not, in and of itself, revoke a proxy.
If the Conseco Special Meeting or the ATC Special Meeting is postponed or
adjourned for any reason, at any subsequent reconvening of the Conseco Special
Meeting or the ATC Special Meeting all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Conseco Special Meeting or the ATC Special Meeting (except for any proxies
that have theretofore effectively been revoked or withdrawn), notwithstanding
that they may have been effectively voted on the same or any other matter at a
previous meeting.
If any other matters are properly presented at the Conseco Special Meeting
or the ATC Special Meeting for consideration, including among other things,
consideration of a motion to adjourn the meeting to another time and/or place
(including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment.
Conseco and ATC will each bear the cost of soliciting proxies from their
respective shareholders. Additionally, Conseco and ATC will each bear one-half
the cost of preparing and mailing this Joint Proxy Statement/Prospectus and
the preparation and filing of the Registration Statement. In addition to
solicitation by mail, directors, officers and employees of Conseco and ATC may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees of Conseco and ATC will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage firms, fiduciaries and other custodians who
forward soliciting material to the beneficial owners of shares of Conseco
Stock and shares of ATC Common Stock held of record by them will be reimbursed
for their reasonable expenses incurred in forwarding such material. In
addition, Conseco and ATC have retained Georgeson & Company, Inc.
("Georgeson") to assist in soliciting proxies and to provide materials to
banks, brokerage firms, nominees, fiduciaries and other custodians. For such
services, Conseco and ATC will pay Georgeson a fee of $17,500 plus
reimbursement of reasonable expenses.
ATC SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
THE MERGER
BACKGROUND OF THE MERGER
In late July 1996, John A. Powell, the Chairman and Chief Executive Officer
of ATC, consulted with representatives of DLJ to ascertain whether there
existed books of business that would be potential acquisition
36
<PAGE>
targets of ATC. During the ensuing discussions, Mr. Powell suggested that DLJ
contact Conseco to determine if it would be interested in selling its book of
long term care insurance business to ATC. DLJ made the contact with Conseco
and reported back to ATC that Conseco was not interested in selling its long
term care book of business but that Conseco expressed a preliminary indication
of interest in the possibility of a merger with ATC. In following up on
Conseco's expression of interest, on August 1, 1996, Mr. Powell met with
Stephen C. Hilbert, the Chairman of the Board, President and Chief Executive
Officer of Conseco, and Rollin M. Dick, the Executive Vice President and Chief
Financial Officer of Conseco, during which meeting they preliminarily explored
the advantages of combining the companies and discussed operating philosophies
and growth potential in the long term care insurance business. In further
pursuit of such preliminary discussions, Mr. Powell and Ramon R. Obod, general
counsel to ATC, met with DLJ representatives on August 7, 1996 and Mr. Powell
met again with Mr. Hilbert on that date.
As a result of those meetings, Conseco indicated a strong interest in
merging with ATC and proposed a tax free transaction pursuant to which Conseco
Common Stock would be issued in exchange for ATC Common Stock.
On August 8, 1996, at a meeting of the Board of Directors, the directors of
ATC were informed by Mr. Powell of the discussions regarding a possible merger
with Conseco. Mr. Powell reviewed the background events leading to the merger
discussions, the proposed transaction structure, the proposed principal terms
and conditions of the acquisition, the due diligence that had been
accomplished to date and the probable timing of the transaction. Mr. Powell
also indicated that Conseco had recently completed its acquisition of LPG and
was in the process of conducting merger (or acquisition) discussions with CAF.
Mr. Powell distributed to the Board a report dated August 7, 1996 prepared by
DLJ which contained detailed financial information regarding Conseco, along
with a summary of the anticipated effects of the merger on the financial
results of Conseco and ATC. The initial proposed acquisition price and
exchange ratio range were discussed with the Board along with job security and
severance issues and the possibility of employment agreements for Mr. Powell
and certain of ATC's officers. With respect to severance, Mr. Powell
summarized Conseco's severance policy and indicated that the proposed merger
agreement allowed for approximately $2 million additional aggregate severance
benefits. The provisions of the proposed merger agreement allowing ATC to
consider other offers if a better proposal was made and the substantial "break
up" fee payable to Conseco if such alternative was exercised by ATC were
discussed. Mr. Powell noted that DLJ would be paid a fee for its services as
financial advisor in connection with the Merger and that DLJ would render a
fairness opinion to the Board if the transaction ensued. At the conclusion of
the discussion, it was the unanimous view of the Board that the transaction,
within the structure described by Mr. Powell, was in the best interest of ATC
and its shareholders and that ATC was authorized to proceed with negotiations
with a view to developing a definitive agreement at which time it would be
considered in depth by the Board.
At the regular quarterly meeting of the Conseco Board of Directors held on
August 8, 1996, Mr. Hilbert and other members of Conseco's management reviewed
with the Board the discussions regarding a possible merger with ATC.
Information concerning ATC had been provided to the Directors prior to the
meeting. After the Board considered and discussed the proposed acquisition of
ATC and the proposed acquisitions of CAF, ALH and BLH, it was agreed that
management of Conseco would continue to pursue a possible acquisition of ATC,
with the understanding that final approval of any transaction would be
considered at a special meeting of the Conseco Board of Directors.
From August 12, 1996 through August 23, 1996 representatives of each Company
met with representatives of the other and conducted a due diligence review of
the business and financial condition of the other company. In addition, ATC
visited Conseco's facility.
Conseco furnished ATC with an initial draft of a form of merger agreement on
August 19, 1996 setting forth the terms of Conseco's offer to acquire ATC in
exchange for Conseco Common Stock. From that date through August 25, 1996,
members of the senior management of Conseco and ATC, together with their legal
advisors, negotiated the provisions of the Merger Agreement.
37
<PAGE>
The Conseco Board of Directors met on August 23, 1996 to consider the
proposed merger. At the meeting, Conseco management reported on the due
diligence review undertaken by Conseco and its advisors and on the results of
the discussions to date with representatives of ATC and its legal and
financial advisors. The Conseco Board discussed the potential benefits to
Conseco of an acquisition of ATC. Management outlined for the Conseco Board
the proposed terms and conditions of the Merger Agreement. After reviewing and
discussing the merger proposal, the Conseco Board of Directors authorized
management to execute and deliver the Merger Agreement in the form presented
at the meeting, with such further changes as Conseco's management approved.
See "--Conseco's Reasons for the Merger; Recommendation of the Conseco Board
of Directors."
On August 24, 1996, ATC's Board of Directors held a special meeting. Prior
to the meeting each of the ATC directors received, among other documents, the
most recent draft of the Merger Agreement. At the meeting, ATC's senior
management and its legal and financial advisors reviewed the ongoing
discussions, negotiations and due diligence between ATC and Conseco. The terms
of the engagement letter with DLJ dated August 15, 1996 were reviewed and
unanimously approved. The ATC Board of Directors was informed by its legal
advisors with regard to the Board's fiduciary duties to the shareholders of
ATC in the context of considering the terms of the Merger Agreement. ATC's
advisors also summarized, in detail, the material terms and conditions of the
Merger Agreement. Conseco management delivered a presentation of Conseco's
business and financial performance and plans and prospects for the future
operation of the combined enterprise and answered questions posed by the ATC
Board of Directors. DLJ's representatives made a presentation in which they
summarized the terms of the proposed transaction, explained the three other
concurrent acquisitions of Conseco, discussed the potential benefits of a
merger and gave an overview of Conseco and its other acquisitions. DLJ then
presented its analysis of the financial terms of the Merger Agreement and
reviewed various public company analyses and recent merger and acquisition
transactions in the insurance industry. DLJ then discussed various other
financial considerations that it used in its analyses and then answered
questions of the ATC Board of Directors with respect to its analyses. See "--
Opinion of ATC's Financial Advisor."
The Board of Directors of ATC held an additional meeting on August 25, 1996
after the completion of negotiations between the parties and their respective
representatives with regard to the definitive terms of the Merger Agreement.
After a full discussion of the proposed Merger and careful consideration by
the ATC Board of Directors of the terms of the Merger Agreement and the advice
rendered to the ATC Board of Directors by ATC's advisors, including the
written opinion delivered by DLJ to the effect, that, as of August 25, 1996
and based upon and subject to the assumptions, limitations and qualifications
set forth in such opinion, the Exchange Ratio was fair, from a financial point
of view, to the holders of ATC Common Stock, the ATC Board of Directors voted
unanimously to approve the Merger Agreement in the form presented to it at the
August 25, 1996 meeting. See "--ATC's Reasons for the Merger; Recommendation
of the ATC Board of Directors" and "--Opinion of ATC's Financial Advisor." The
ATC Board of Directors simultaneously (1) approved an amendment to ATC's
Rights Agreement (the "Rights Agreement") dated April 25, 1990 in order to
clarify that the Merger Agreement would not trigger the Rights Agreement; (2)
confirmed the termination of certain officers' employment agreements with ATC
subject to the consummation of the Merger and their entering new employment
agreements with Conseco; and (3) amended the ATC Stock Options in a manner
consistent with applicable sections of the Merger Agreement. See "--Employment
Agreements" and "The Merger Agreement--Treatment of ATC Stock Options."
CONSECO'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CONSECO BOARD OF
DIRECTORS
The Board of Directors of Conseco approved the Merger Agreement by a
unanimous vote at its August 23, 1996 meeting. In reaching its decision, the
Conseco Board considered information provided at the Board meeting, including,
among other things, (1) information concerning the financial performance and
condition, business operations and prospects of ATC, including an analysis of
possible cost savings and synergies, and a qualitative overview of the
individual business segments, (2) the potential long-term and short-term
effect of the transaction on Conseco's earnings per share, (3) the structure
of the proposed transaction, (4) the terms of the Merger Agreement and (5) the
presentation and recommendation made by the management of Conseco.
38
<PAGE>
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. Conseco intends to make
strategic acquisitions which are consistent with this strategy and which
enable Conseco to maintain its targeted ratio of debt to total capital.
The Conseco Board of Directors believes that the Merger and Conseco's other
pending acquisitions will enable Conseco to be a major competitor in the
senior market, with more than 90,000 agents selling long term care insurance,
Medicare supplement insurance, cancer insurance and other supplemental health
insurance, universal life insurance and retirement annuity products. After it
consummates the Merger and BLH Transaction, Conseco believes it will be the
leading seller of long term care insurance.
The Conseco Board of Directors also believes that the Merger offers Conseco
and ATC the opportunity to improve their profitability and capitalization
through the achievement of economies of scale, the elimination of redundancies
and the enhancement of market position. By consolidating certain operations
and eliminating expenses, Conseco expects to achieve, over time, significant
savings of operating costs. See "--Conduct of the Business of Conseco and ATC
After the Merger." In addition, the issuance of additional shares of Conseco
Common Stock in the Merger would result in a substantial increase in Conseco's
equity.
ACCORDINGLY, THE BOARD OF DIRECTORS OF CONSECO RECOMMENDS THAT THE
SHAREHOLDERS OF CONSECO VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT SET FORTH AS ITEM 1 ON THE CONSECO PROXY CARD.
ATC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ATC BOARD OF DIRECTORS
During the past few years, ATC recognized, and participated in, the trend
toward consolidation within the insurance industry where larger companies were
continuing to grow through the acquisition of smaller companies. A significant
portion of ATC's growth in premiums in force, revenues and earnings is
attributable to its historical acquisitions of books of business. However,
senior management of ATC noted recently that the number and quality of
available books of business for future acquisitions had diminished. Without a
continuing supply of such acquisitions, senior management believed that ATC
may encounter difficulty in sustaining its historical rate of growth to the
satisfaction of the investment community. Additionally, ATC's management was
aware of the probable need for additional capital required to consummate
additional acquisitions and maintain an appropriate statutory capitalization,
and the likely dilutive effect to ATC's shareholders of obtaining such
capital.
ATC's senior management considered the acquisition proposal made by Conseco
in August 1996 in order to participate further in the industry consolidation
with the intention of enhancing shareholder value. After careful consideration
by the members of the ATC Board of Directors of the terms of the Merger
Agreement and the advice rendered to the ATC Board of Directors by ATC's
advisors, the ATC Board of Directors voted unanimously to approve the Merger
Agreement in the form presented to it at the Board of Directors meeting on
August 25, 1996. In voting to approve the Merger Agreement, the ATC Board of
Directors considered and relied upon many different factors including: (1) the
substantial premium over the market price of the ATC Common
39
<PAGE>
Stock at the time of the commencement of the Merger negotiations offered by
Conseco; (2) the financial condition and results of operations of Conseco and
the Board of Directors' perceptions of the more favorable business prospects
of Conseco and ATC on a combined basis as compared to the prospect of ATC as a
separate entity; (3) the tax deferred nature of the transaction to the extent
that the shareholders of ATC receive shares of Conseco Common Stock in
exchange for their shares of ATC Common Stock; (4) the potential future
performance of Conseco and the Conseco Common Stock, including potential
dividend payments, after the Merger and Conseco's strength in the insurance
industry; (5) the written opinion rendered by DLJ to the extent that, as of
August 25, 1996 and based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the Exchange Ratio was fair, from a
financial point of view, to the holders of ATC Common Stock (See "--Opinion of
ATC's Financial Advisor"); and (6) the likelihood of continued employment for
the immediate future of a substantial number of the employees of ATC. Based on
these factors, as well as the dilutive nature of issuing additional equity,
the ATC Board of Directors believed that the Conseco offer represented the
maximum value that could reasonably be expected to be achieved for ATC's
shareholders in the foreseeable future. After careful consideration of these
factors, as well as consideration of the terms of the offer of Conseco, the
ATC Board of Directors determined that it was in the best interests of ATC and
its shareholders to accept the Conseco offer.
THE BOARD OF DIRECTORS OF ATC UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS OF ATC VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT SET FORTH AS ITEM 1 ON THE ATC PROXY
CARD.
OPINION OF ATC'S FINANCIAL ADVISOR
In its role as financial advisor to ATC, DLJ was asked by ATC to render its
opinion to the ATC Board as to the fairness, from a financial point of view,
to the holders of ATC Common Stock of the consideration to be received by the
shareholders of ATC pursuant to the terms of the Merger Agreement. On August
25, 1996, DLJ delivered its written opinion (the "DLJ Opinion") to the effect
that as of the date of such opinion and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
Exchange Ratio was fair, from a financial point of view, to the holders of ATC
Common Stock.
A copy of the DLJ Opinion is attached hereto as Annex B. ATC shareholders
are urged to read the opinion in its entirety for assumptions made, procedures
followed, other matters considered and limits of the review by DLJ.
The DLJ Opinion was prepared for the ATC Board and is directed only to the
fairness, from a financial point of view, to the holders of ATC Common Stock,
and does not constitute a recommendation to any shareholder as to how to vote
at the ATC Special Meeting.
The DLJ Opinion does not constitute an opinion as to the price at which
Conseco Common Stock will actually trade at any time. The Merger Consideration
was determined in arm's length negotiations between ATC and Conseco, in which
negotiations DLJ advised ATC. No restrictions or limitations were imposed by
the ATC Board upon DLJ with respect to the investigations made or the
procedures followed by DLJ in rendering its opinion. DLJ was not requested to,
nor did it, solicit the interests of any other party in acquiring ATC.
In arriving at its opinion, DLJ reviewed the Merger Agreement and exhibits
thereto. DLJ also reviewed financial and other information that was publicly
available or furnished to it by ATC and Conseco, including information
provided during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of ATC for the years ending December 31, 1996
and December 31, 1997 prepared by the management of ATC, and certain pro forma
financial statements of Conseco for the year ended December 31, 1995 and the
six months ended June 30, 1996 and certain financial projections of Conseco
for the years ending December 31, 1996 through December 31, 2005 and pro forma
financial projections for Conseco and ATC and other potential acquisitions
being
40
<PAGE>
considered by Conseco prepared by the management of Conseco. In addition, DLJ
compared certain financial and securities data of ATC and Conseco with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of ATC Common Stock and Conseco
Common Stock, reviewed prices and premiums paid in other business combinations
and conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to it from public sources, that was provided to it by ATC and
Conseco or its representatives, or that was otherwise reviewed by it. With
respect to the financial projections of ATC supplied to it, DLJ assumed that
they have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of ATC as to the future
operating and financial performance of ATC. With respect to the pro forma
financial statements and pro forma financial projections of Conseco supplied
to it, DLJ assumed that they were reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of
Conseco as to the pro forma and future operating and financial performance of
ATC and Conseco. DLJ did not assume any responsibility for making an
independent evaluation of ATC's and Conseco's assets or liabilities or for
making any independent verification of any of the information reviewed by it.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
it as of, August 25, 1996. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to
update, revise or reaffirm its opinion. However, the receipt of an update to
the DLJ Opinion as of the Mailing Date (as defined below) which does not
materially modify, rescind or revoke the DLJ Opinion is a condition to the
obligation of ATC to effect the merger. See "The Merger Agreement--Conditions
to the Merger."
DLJ assumed an Exchange Ratio such that each holder of ATC Common Stock will
receive $32.00 per share in its analysis based on the price of Conseco Common
Stock at the time DLJ performed its analysis. Such amount also represented the
lowest value per share that could be received by holders of ATC Common Stock
pursuant to the terms of the Merger Agreement. Such use should in no way be
viewed by ATC shareholders as an opinion as to the value of Conseco Common
Stock that may actually be received in the Merger. Such amount is merely for
illustrative and analytical purposes.
The following is a summary of the presentation made by DLJ to the ATC Board
at its August 25, 1996 meeting.
TRANSACTION ANALYSIS. DLJ reviewed publicly available information for
selected transactions involving the acquisition of life insurance and accident
and health insurance companies since January 1, 1993 (the "Selected Life and
Health Transactions") and for selected transactions involving the acquisition
only of accident and health insurance companies since January 1, 1993 (the
"Selected Health Transactions") (together, the "Selected Transactions"). In
reviewing these transactions, several factors were considered, including: (i)
the lack of publicly available information for subsidiary and private company
transactions which represent a significant portion of the merger and
acquisition activity; and (ii) the lack of directly comparable transactions.
The Selected Transactions were not intended to represent the complete list of
life insurance and accident and health insurance company transactions which
have occurred. Rather, such transactions included only selected recent
transactions involving life insurance and accident and health insurance
companies. Such transactions were used in this analysis because the companies
involved were deemed by DLJ to operate in similar businesses or have similar
financial characteristics to ATC and Conseco.
DLJ reviewed the consideration paid in such transactions in terms of the
price paid for the common stock plus the amount of debt and preferred stock
assumed repaid or redeemed in such transactions (the "Transaction Value") as a
multiple of statutory capital and surplus as of the end of the last fiscal
quarter ("LFQ") or last fiscal year ("LFY") ended prior to the announcement of
such transactions. In analyzing acquisitions of life insurance and accident
and health insurance companies, the purchase price paid may be described in
terms of
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multiples of the Transaction Value to statutory capital and surplus. Variances
in multiples for different transactions may reflect such considerations as the
consistency, quality and growth of earnings and the company's capitalization,
asset quality and return on surplus. Since statutory capital and surplus does
not reflect the cost of a company's debt or preferred stock financing, which
are usually at the holding company level rather than the insurance company
level, analysis of a multiple of statutory capital and surplus is usually
based on a Transaction Value which includes the cost of assuming, repaying or
redeeming such debt or preferred stock financing. Comparing the multiple of
Transaction Value to be paid for ATC by Conseco to the statutory capital and
surplus of ATC with the multiples paid in other transactions indicates whether
the valuation being placed on ATC is within the range of values paid for other
life insurance and accident and health insurance companies.
The low, average and high multiples of Transaction Value to statutory
capital and surplus as of the end of the LFQ or LFY ended prior to the
announcement of the transaction were 1.2x, 1.9x and 3.4x, respectively, for
the Selected Life and Health Companies and 1.3x, 2.1x and 5.3x, respectively,
for the Selected Health Companies. Based on the Merger Consideration, the
implied multiple of Transaction Value to ATC's statutory capital and surplus
as of December 31, 1995 was 10.8x. This multiple is greater than the high
multiple of both the Selected Life and Health Transactions and the Selected
Health Transactions.
Additionally, DLJ reviewed the consideration paid in the Selected
Transactions in terms of the price paid for the common stock in the Selected
Life and Health Transactions and the Selected Health Transactions as a
multiple of GAAP operating earnings for the latest twelve months ("LTM") ended
prior to the announcement of such transactions and as a multiple of
shareholders' equity as of the end of the LFQ ended prior to the announcement
of such transactions. In analyzing acquisitions of life insurance and accident
and health insurance companies, the purchase price paid may be described in
terms of multiples of the price paid for common stock to GAAP operating
earnings and to shareholders' equity. Variances in multiples for different
transactions may reflect such considerations as the consistency, quality and
growth of earnings and the company's capitalization, asset quality and return
on capital. Since GAAP operating earnings and shareholders' equity already
reflect the cost of a company's debt or preferred stock financing, analyses of
multiples of GAAP operating earnings or shareholders' equity are usually based
on the price paid for the company's common stock, which excludes the cost of
assuming, repaying or redeeming such debt or preferred stock financing.
Comparing the multiples of the price offered to be paid for ATC Common Stock
by Conseco to the GAAP operating earnings and shareholders' equity of ATC with
multiples paid by acquirers in other transactions indicates whether the
valuation being placed on ATC is within the range of values paid for other
life insurance and accident and health insurance companies.
The low, average and high multiples of price paid for common stock to LTM
GAAP operating earnings were 5.2x, 16.0x and 35.1x, respectively, for the
Selected Life and Health Transactions and 10.8x, 13.0x and 16.9x,
respectively, for the Selected Health Transactions. Based on an offer price of
$32.00 per share, the implied multiple of price paid for common stock to ATC's
GAAP operating earnings for the LTM ended June 30, 1996 was 21.9x. This
multiple is greater than the average multiple of the Selected Life and Health
Transactions and greater than the high multiple of the Selected Health
Transactions. The low, average and high multiples of price paid for common
stock to shareholders' equity as of the end of the LFQ ended prior to the
announcement of the transaction were 0.8x, 1.4x and 2.8x, respectively, for
the Selected Life and Health Transactions and 1.8x, 2.1x and 2.8x,
respectively, for the Selected Health Transactions. Based on an offer price of
$32.00 per share, the implied multiple of price paid for common stock to ATC's
shareholders' equity as of June 30, 1996 was 2.7x. This multiple is greater
than the average multiples of both the Selected Life and Health Transactions
and the Selected Health Transactions.
DLJ also determined the percentage premium of the offer prices (represented
by the purchase price per share in cash transactions and the price of the
constituent securities times the Merger Consideration in the case of stock-
for-stock mergers) over the public market trading prices one day, one week and
one month prior to the announcement date of selected life, accident and health
insurance company transactions since January 1, 1993 where the acquired
company's stock was publicly traded (the "Selected Public Transactions"). The
average premiums of offer prices to public market trading prices one day, one
week and one month prior to the
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announcement date for the Selected Public Transactions were 12.2%, 16.5% and
22.3%, respectively. An offer price of $32.00 per share represents premiums to
the trading prices of ATC Common Stock one day, one week and one month prior
to August 20, 1996 of 18.3%, 21.3% and 53.4%, respectively. These premiums are
greater than the corresponding average premiums of the Selected Public
Transactions.
PUBLIC COMPANY ANALYSIS. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios of
ATC to the corresponding data and ratios of selected accident and health
insurance companies whose securities are publicly traded. Such companies
included AFLAC, Inc., BLH, CAF, Delphi Financial Group, Inc., Penn Treaty
American Corp., Pioneer Financial Services, Inc. and UNUM Corp. (the "Selected
Companies"). See "Information Concerning Conseco--Other Pending Acquisitions
by Conseco" for a discussion of the relationships of BLH and CAF to Conseco.
Such analysis included, among other things, the ratios of stock price to
GAAP operating earnings per share ("EPS") for the LTM ended June 30, 1996,
estimated GAAP operating EPS for 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for the
Selected Companies and management's projections for ATC) and shareholders'
equity per share as of June 30, 1996, as well as the ratios of the aggregate
equity market capitalization plus the amount of debt and preferred stock
outstanding (the "Enterprise Value") to statutory operating earnings for the
LTM or LFY and statutory capital and surplus as of the end of the LFQ or LFY.
Closing prices as of August 20, 1996 were used in this analysis. The ratios
described in this paragraph have been designed to reflect the value
attributable in the public equity markets to various valuation measures of
accident and health insurance companies. Measures utilized in the public
marketplace to value the stock of publicly traded companies in the accident
and health insurance industry are based on, among other things, a company's
historical and projected GAAP operating earnings, historical statutory
operating earnings, shareholders' equity and statutory capital and surplus.
The multiples of stock price to GAAP operating EPS and Enterprise Value to
statutory operating earnings reflect the value attributed to a company by
public equity market investors based on the company's historical and projected
earnings. The multiples of stock price to shareholders' equity per share and
Enterprise Value to statutory capital and surplus reflect the values
attributed to a company by public equity market investors based on the
company's net worth. Variances in multiples for different companies may
reflect such considerations as the consistency, quality and growth of earnings
and the company's capitalization, asset quality and return on capital. Since
GAAP operating earnings and shareholders' equity already reflect the cost of a
company's debt or preferred stock financing, analyses of multiples of GAAP
operating earnings or shareholders' equity are usually based on public stock
price, which excludes debt or preferred stock financing. Since statutory
operating earnings and statutory capital and surplus do not reflect the cost
of a company's debt or preferred stock financing, which are usually at the
holding company level rather than the insurance company level, analyses of
multiples of statutory operating earnings and statutory capital and surplus
are usually based on Enterprise Value, which includes debt or preferred stock
financing. Comparing the multiples of price offered to be paid by Conseco to
the GAAP operating EPS, shareholders' equity, statutory operating earnings and
statutory capital and surplus of ATC with the multiples at which the Selected
Companies trade indicates whether the valuation being placed on ATC is within
the range of values at which the Selected Companies trade.
The low, average and high multiples of public stock price to GAAP operating
EPS for the LTM ended June 30, 1996 were 7.8x, 10.6x and 28.8x, respectively,
for the Selected Companies. Based on an offer price of $32.00 per share, the
implied multiple of offer price to ATC's GAAP operating EPS for the LTM ended
June 30, 1996 was 21.9x. This multiple is greater than the average multiple of
the Selected Companies. The low, average and high multiples of public stock
price to estimated 1996 GAAP operating EPS were 7.5x, 10.2x and 15.1x,
respectively, for the Selected Companies. Based on the same offer price, the
implied multiple of offer price to ATC's estimated 1996 GAAP operating EPS was
19.3x. This multiple is greater than the high multiple of the Selected
Companies. The low, average and high multiples of public stock price to
estimated 1997 GAAP operating EPS were 6.1x, 8.9x and 12.9x, respectively, for
the Selected Companies. Based on the same offer price, the implied multiple of
offer price to ATC's estimated 1997 GAAP operating EPS was 16.3x. This
multiple is greater than the high multiple of the Selected Companies. The low,
average and high multiples of public stock
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price to shareholders' equity per share as of June 30, 1996 were 1.1x, 1.5x
and 2.4x, respectively, for the Selected Companies. Based on the same offer
price, the implied multiple of offer price to ATC's shareholders' equity per
share as of June 30, 1996 was 2.7x. This multiple is greater than the high
multiple of the Selected Companies. The low, average and high multiples of
Enterprise Value to statutory capital and surplus as of the end of the LFQ or
the LFY were 2.1x, 3.7x and 5.3x, respectively, for the Selected Companies.
Based on the same offer price, the implied multiple of Transaction Value to
ATC's statutory capital and surplus as of December 31, 1995 was 10.8x. This
multiple is greater than the high multiple of the Selected Companies.
Since the Merger Consideration will be in the form of Conseco Common Stock,
to provide comparative market information, DLJ compared selected historical
and projected operating and financial ratios of Conseco to the corresponding
data and ratios of Equitable of Iowa Cos., Liberty Financial Companies, Inc.,
Presidential Life Corp., SunAmerica Inc. and Western National Corp. (the
"Selected Annuity Companies") and of AFLAC, Inc., PennCorp Financial Group,
Inc., Provident Companies and UNUM Corp. (the "Selected Large Capitalization
Companies").
Such analysis included, among other things, the multiples of stock price to
GAAP operating EPS for the LTM ended June 30, 1996, estimated GAAP operating
EPS for 1996 and 1997 (as estimated by research analysts and compiled by
Institutional Brokers Estimating Service for the Selected Annuity Companies
and the Selected Large Capitalization Companies and management's projections
for Conseco) and shareholders' equity per share as of June 30, 1996, as well
as the multiples of Enterprise Value to statutory operating earnings for the
LTM or the LFY and statutory capital and surplus as of the end of the LFQ or
the LFY. Closing prices as of August 20, 1996 were used in this analysis.
Comparing the multiples of Conseco's stock price to GAAP operating EPS,
shareholders' equity per share, statutory operating earnings and statutory
capital and surplus with the multiples at which the Selected Annuity Companies
and the Selected Large Capitalization Companies trade indicates whether
Conseco's stock price is within the range of values at which the Selected
Annuity Companies and the Selected Large Capitalization Companies trade.
Conseco's GAAP operating EPS, shareholders' equity per share, statutory
operating earnings and statutory capital and surplus used in this analysis
were adjusted to give pro forma effect to the LPG Merger and certain other
matters.
The low, average and high multiples of public stock price to GAAP operating
EPS for the LTM ended June 30, 1996 were 8.5x, 12.6x and 17.1x, respectively,
for the Selected Annuity Companies and 10.3x, 13.2x and 14.8x, respectively,
for the Selected Large Capitalization Companies. The multiple of price to
Conseco's GAAP operating EPS for the LTM ended June 30, 1996 was 13.6x. This
multiple is greater than the average multiples of both the Selected Annuity
Companies and the Selected Large Capitalization Companies. The low, average
and high multiples of public stock price to estimated 1996 GAAP operating EPS
were 9.4x, 11.7x and 16.4x, respectively, for the Selected Annuity Companies
and 10.4x, 13.1x and 15.1x, respectively, for the Selected Large
Capitalization Companies. The multiple of price to Conseco's estimated 1996
GAAP operating EPS was 12.8x. This multiple is greater than the average
multiple of the Selected Annuity Companies and greater than the low multiple
of the Selected Large Capitalization Companies. The low, average and high
multiples of public stock price to estimated 1997 GAAP operating EPS were
8.4x, 10.5x and 14.3x, respectively, for the Selected Annuity Companies and
9.0x, 11.2x and 12.9x, respectively, for the Selected Large Capitalization
Companies. The multiple of price to Conseco's estimated 1997 GAAP operating
EPS was 9.5x. This multiple is greater than the low multiples of both the
Selected Annuity Companies and the Selected Large Capitalization Companies.
The low, average and high multiples of public stock price to shareholders'
equity per share as of June 30, 1996 were 0.9x, 1.7x and 3.4x, respectively,
for the Selected Annuity Companies and 1.2x, 1.9x and 2.8x, respectively, for
the Selected Large Capitalization Companies. The multiple of price to
Conseco's shareholders' equity per share as of June 30, 1996 was 1.7x. This
multiple is equal to the average multiple of the Selected Annuity Companies
and greater than the low multiple of the Selected Large Capitalization
Companies. The low, average and high multiples of Enterprise Value to
statutory operating earnings for the LTM or the LFY were 9.7x, 23.8x and
42.9x, respectively, for the Selected Annuity Companies and 27.1x, 31.6x and
37.1x, respectively, for the Selected Large Capitalization Companies. The
multiple of Enterprise Value to Conseco's 1995 statutory operating earnings
was 21.3x. This multiple is greater than the low multiple of the Selected
Annuity Companies
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and less than the low multiple of the Selected Large Capitalization Companies.
The low, average and high multiples of Enterprise Value to statutory capital
and surplus as of the end of the LFQ or the LFY were 1.2x, 1.8x and 2.2x,
respectively, for the Selected Annuity Companies and 3.6x, 4.5x and 5.6x,
respectively, for the Selected Large Capitalization Companies. The multiple of
Enterprise Value to Conseco's statutory capital and surplus as of December 31,
1995 was 3.5x. This multiple is greater than the high multiple of the Selected
Annuity Companies and less than the low multiple of the Selected Large
Capitalization Companies.
No company or transaction used in the Transaction Analysis or the Public
Company Analysis described above was directly comparable to ATC, Conseco or the
proposed Merger. Accordingly, an analysis of the results of the foregoing was
not simply mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the
transaction values and trading prices. For example, many qualitative factors
are involved in valuing a company or analyzing a transaction in the life,
accident and health insurance and annuity industries, including assessments of
the quality of management, the attractiveness of the company's target market,
the economics of the products being sold and the company's market position
relative to its competitors. Other factors that could affect the transaction
values or trading prices include differences in distribution, products,
geographic or demographic customer concentration, size, accounting practices,
asset portfolio quality, interest rate sensitivity and other factors. These
factors may affect the transaction values or trading prices in each case by
affecting in varying degrees investors' expectations of such factors as the
company's risk and future operating profitability.
STOCK TRADING HISTORY. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices and their relative
relationships for both ATC Common Stock and Conseco Common Stock for various
periods ended August 20, 1996. DLJ also reviewed the daily closing prices of
ATC Common Stock and Conseco Common Stock and compared the ATC and Conseco
closing stock prices with the S&P 500 Index and indices of selected publicly
traded companies. DLJ reviewed the trading history since January 1, 1994 of the
ATC Common Stock and the Conseco Common Stock to determine whether trading
levels immediately prior to August 20, 1996 were reflective of longer term
trading levels or were affected by recent unusual or event specific trading
activity. In addition, DLJ reviewed the trading history of ATC Common Stock and
Conseco Common Stock relative to indices of selected companies in order to
assess the relative stock price performance of ATC, Conseco and such indices.
PRO FORMA MERGER ANALYSIS. DLJ analyzed certain pro forma financial effects
resulting from the Merger. In conducting its analysis, DLJ relied upon certain
assumptions described above and financial projections provided by the
management of ATC and pro forma financial statements and pro forma financial
projections provided by the management of Conseco. DLJ analyzed the pro forma
effect of the Merger and of completing the ALH Transaction and the BLH
Transaction on the EPS, stockholders' equity per share and leverage ratios of
the combined companies. Conseco's management has indicated that it believes
that the Merger will offer consolidation opportunities which will result in
revenue enhancements and expense savings relative to the stand-alone projected
revenues and expenses of ATC and Conseco. DLJ has incorporated estimates of
such revenue enhancements and expense savings, determined in conjunction with
the managements of ATC and Conseco, in its analysis, although DLJ does not
express any opinion as to the likelihood of such revenue enhancements or
expense savings being realized. The results of the pro forma merger analysis
are not necessarily indicative of future operating results or financial
position. Based on this analysis and assuming the Merger, the ALH Transaction
and the BLH Transaction are completed and that the cash portion of the
consideration paid in such transactions is financed with debt, Conseco's
shareholders would realize EPS dilution of 8.1%, 8.3% and 8.4%, respectively,
in 1996, 1997 and 1998 versus assuming only the ALH Transaction and the BLH
Transaction are completed and that the cash portion of the consideration paid
in such transactions is financed with debt. Based on this analysis and assuming
the Merger, the ALH Transaction and the BLH Transaction are completed and that
the cash portion of the consideration paid in such transactions is financed
with debt, Conseco's ratios of debt to total capitalization and debt and
preferred stock to total capitalization as of June 30, 1996 would be 33.5% and
35.8%, respectively, versus 40.9% and 43.8%, respectively, assuming only the
ALH Transaction and the BLH Transaction are completed and that the cash portion
of the consideration paid in such transactions is financed with debt. There can
be no assurance as to whether the assumptions regarding financing sources set
forth in this paragraph will occur, and such assumptions are used only for
purposes of illustration.
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CONTRIBUTION ANALYSIS. DLJ analyzed ATC's and Conseco's relative
contributions to the combined company with respect to GAAP operating revenues,
GAAP operating earnings, shareholders' equity and total assets and compared
this with the relative ownership of ATC shareholders in the combined company
after the Merger. Such analysis was considered on a percentage contribution
basis and was made, where appropriate, (i) for 1995 and for the LTM ended June
30, 1996 based on Conseco's and ATC's historical and pro forma (in the case of
Conseco, pro forma for the acquisition of LPG and certain other matters)
financial results and (ii) with respect to estimated GAAP operating earnings
for 1996 and 1997, as projected by ATC's and Conseco's managements.
ATC's relative contribution to the combined company with respect to 1995
GAAP operating revenues was 8.4% of the total. ATC's relative contribution to
the combined company with respect to GAAP operating earnings for 1995 and the
LTM ended June 30, 1996 were 12.0% and 11.3%, respectively, of the total.
ATC's relative contribution to the combined company with respect to estimated
GAAP operating earnings for 1996 and 1997 were 12.7% and 12.1%, respectively,
of the total. ATC's relative contribution to the combined company with respect
to total assets was 3.6% of the total. Including the PRIDES for Conseco as
common equity, ATC's relative contribution to shareholders' equity as of June
30, 1996 was 14.7% of the total.
Assuming a price for Conseco Common Stock of $41.25 (the closing market
price as of August 20, 1996), ATC shareholders would own approximately 19.5%
of the combined company after the Merger. The results of these contribution
analyses are not necessarily indicative of the contributions that the
respective businesses may actually make in the future.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ in rendering the DLJ Opinion. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Each of the analyses conducted by
DLJ was carried out in order to provide a different perspective on the Merger
and add to the total mix of information available. DLJ did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness, from a financial
point of view. Rather, in reaching its conclusion, DLJ considered the results
of the analyses in light of each other and did not place particular reliance
or weight on any individual analysis and ultimately reached its opinion based
on the results of all analyses taken as a whole. Accordingly, notwithstanding
the separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selected portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying the DLJ
Opinion. In performing its analyses, DLJ made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by DLJ are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
The ATC Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience
in transactions similar to the Merger and is familiar with ATC, its business
and the life, accident and health insurance and annuity industries. Pursuant
to the terms of an engagement letter dated August 15, 1996 between ATC and
DLJ, ATC paid DLJ a $50,000 retainer fee and an additional $350,000 upon
rendering of the DLJ Opinion. Pursuant to the terms of the engagement letter,
ATC will pay DLJ, on the Closing Date, cash compensation equal to five-eighths
of one percent (0.625%) of the Transaction Value, less the $400,000 paid to
date. Based on an assumed Transaction Value, ATC will pay DLJ, on the Closing
Date, cash consideration of approximately $4.9 million, less the $400,000 paid
to date. ATC also agreed to reimburse DLJ for all out-of-pocket expenses
(including the reasonable fees and out-of-pocket expenses of counsel) incurred
by DLJ in connection with its engagement and to indemnify DLJ and certain
related persons against certain liabilities in connection with its engagement,
including liabilities under the federal securities laws. The terms of the fee
arrangement with DLJ, which DLJ and ATC believe are customary in transactions
of this nature, were negotiated at arm's length between ATC and DLJ and the
ATC Board was aware of such arrangement, including the fact that a significant
portion of the aggregate fee payable to DLJ is contingent upon consummation of
the Merger.
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In the ordinary course of business, DLJ may actively trade the securities of
both ATC and Conseco for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. DLJ has performed investment banking and other services
for ATC and Conseco in the past and has received usual and customary
compensation for such services. In addition, DLJ acted as financial advisor to
CAF in connection with the CAF Merger and to THI in connection with the THI
Merger.
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, the shareholders of ATC will become shareholders
of Conseco, and thereby will continue to have an interest in the business of
ATC through Conseco. See "Comparison of Shareholders' Rights." Upon the
consummation of the Merger, each outstanding share of ATC Common Stock (other
than shares of ATC Common Stock held by ATC as treasury stock or Dissenting
Shares) will be canceled and converted into the right to receive the Merger
Consideration. Conseco will apply to have the additional shares of Conseco
Common Stock issued pursuant to the Merger listed on the NYSE.
ATC Stock Options held at the Effective Time will be converted automatically
into options to purchase, for the same aggregate consideration payable to
exercise such ATC Stock Options, the number of shares of Conseco Common Stock
which the holder would have been entitled to receive at the Effective Time if
such ATC Stock Options had been exercised for shares of ATC Common Stock prior
to the Effective Time. Except for ATC Stock Options held by non-employee
directors, each ATC Stock Option, if not then vested, will vest in full at the
earlier of (1) the expiration of three months after the Effective Time or (2)
termination by Conseco of the employment of the holder of such options. Each
ATC Stock Option held by a non-employee director of ATC will vest in full at
the Effective Time. Conseco has agreed to take all corporate action necessary
to reserve for issuance a sufficient number of shares of Conseco Common Stock
for delivery upon exercise of ATC Stock Options assumed in accordance with the
Merger Agreement.
Upon consummation of the Merger, pursuant to a supplemental indenture,
Conseco will be substituted for, and assume all of the rights and obligations
of, ATC under the Indenture and the Debentures. Conseco will become the
obligor with respect to the Debentures and holders of the Debentures will
become creditors of Conseco. All rights and obligations of ATC under the
Indenture and Debentures will cease.
The Debentures that remain outstanding immediately prior to the Effective
Time will be converted automatically into debentures of Conseco, the holders
of which will have the same rights as they did under the Debentures and the
Indenture including the right to receive interest payments and the right to
convert the Debentures into the number of shares of Conseco Common Stock which
the holder would have been entitled to receive at the Effective Time if such
Debentures had been converted into shares of ATC Common Stock prior to the
Effective Time, subject to future adjustments for, among other things, changes
in the capitalization of Conseco, as contemplated by the Indenture.
CONDUCT OF THE BUSINESS OF CONSECO AND ATC AFTER THE MERGER
Following the Merger, Conseco expects to achieve operating cost savings
through the consolidation of certain Conseco and ATC operations and the
elimination of redundant expenses. Such savings would be realized, over time,
primarily through reductions in staff, the combination, elimination or
relocation of certain office facilities and the consolidation of certain
operations. There can be no assurance that such cost savings will be realized
as anticipated by Conseco.
Conseco's Board of Directors and management will not be affected by the
Merger. See "Management of Conseco Upon Consummation of the Merger."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material United States federal
income tax consequences of the Merger to ATC and its shareholders. This
summary is not a complete description of all of the tax consequences of the
Merger and, in particular, does not address tax considerations which may
affect the treatment of certain special status taxpayers such as financial
institutions, broker-dealers, insurance companies, tax-exempt organizations,
investment companies, foreign persons, holders of options, warrants or similar
rights with respect to ATC Common Stock, or persons who acquired ATC Common
Stock pursuant to the exercise of stock options, warrants or similar rights.
In addition, no information is provided herein with respect to the tax
consequences of the Merger under any foreign, state or local tax laws.
The following discussion is based on the Code, as in effect on the date of
this Joint Proxy Statement/Prospectus, without consideration of the particular
facts or circumstances of any particular holder of ATC Common Stock. Neither
ATC nor Conseco has sought or will seek any rulings from the Internal Revenue
Service with respect to any of the matters discussed herein.
The obligation of ATC to effect the Merger is conditioned on delivery to ATC
of an opinion dated the Closing Date (as defined in the Merger Agreement) from
Fox, Rothschild, O'Brien & Frankel, counsel to ATC, based on certain
representations to be made by ATC, Conseco and certain shareholders of ATC and
on assumptions set forth in the opinion, that for federal income tax purposes
the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that no gain or loss will be recognized by the
ATC shareholders with respect to the shares of Conseco Common Stock received
by the ATC shareholders in the Merger.
Based on such opinion, the material federal income tax consequences of the
Merger to ATC and its shareholders will be as follows:
(i) No gain or loss will be recognized by ATC shareholders upon their
exchange of ATC Common Stock for Conseco Common Stock, except that: (A) any
ATC shareholder who receives cash proceeds in lieu of a fractional share
interest in Conseco Common Stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to the
fractional share interest, and such gain or loss will constitute capital
gain or loss (short or long term, depending on such shareholder's holding
period for his ATC Common Stock) if such shareholder's ATC Common Stock is
held as a capital asset at the Effective Time; and (B) similarly, any ATC
shareholder who exercises dissenters rights will recognize gain or loss
with respect to the disposition of his ATC Common Stock equal to the
difference between such shareholder's tax basis in his ATC Common Stock and
the total cash received upon exercise of his or her dissenters rights;
(ii) No gain or loss will be recognized by ATC as a result of the Merger;
(iii) The tax basis of the Conseco Common Stock (including any fractional
share interest deemed received and exchanged for a cash payment) received
by an ATC shareholder in exchange for ATC Common Stock will be the same as
such shareholder's tax basis in the ATC Common Stock surrendered in
exchange therefor; and
(iv) The holding period of the Conseco Common Stock (including any
fractional share interest deemed received and exchanged for a cash payment)
received by an ATC shareholder will include the period during which the ATC
Common Stock surrendered in exchange therefor was held (provided that such
ATC Common Stock was held by such ATC shareholder as a capital asset at the
Effective Time).
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN POTENTIAL MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO ATC AND ATC SHAREHOLDERS AND IS
INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE
INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OR TAX STATUS OR
ATTRIBUTES OF EACH ATC SHAREHOLDER. AS A RESULT, THE FEDERAL INCOME TAX
CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH ATC
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SHAREHOLDER. ACCORDINGLY, EACH ATC SHAREHOLDER SHOULD CONSULT HIS OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING, BUT
NOT LIMITED TO, THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN SUCH LAWS.
REGULATORY APPROVALS
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Conseco and ATC filed notification and report forms under the HSR
Act with the FTC and the Antitrust Division on October 8, 1996. The FTC orally
confirmed early termination of the HSR Act waiting period on October 22, 1996.
At any time before or after the consummation of the Merger, and
notwithstanding that the HSR Act waiting period has been terminated, the
Antitrust Division of the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
to enjoin the consummation of the Merger or seeking divestiture of substantial
assets of Conseco and ATC. At any time before or after the consummation of the
Merger, and notwithstanding that the HSR Act waiting period has been
terminated, any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of ATC
or businesses of Conseco or ATC. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Conseco and ATC believe that the Merger can be effected in compliance with
federal and state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds will not be
made or that, if such a challenge were made, Conseco and ATC would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures, in order to consummate the Merger.
INSURANCE. The consummation of the Merger will require the approvals or
exemptive orders of the insurance commissioners, directors of insurance or
superintendents of insurance (the "Insurance Regulators") under the state
insurance codes (the "Insurance Codes") of New York, Pennsylvania and Texas,
which are jurisdictions in which insurance companies owned by ATC are
domiciled. The Insurance Codes generally contain provisions applicable to the
acquisition of control of a domestic insurer, including a presumption of
control that arises from the ownership of 10 percent or more of the voting
securities of a domestic insurer or a person that controls a domestic insurer.
The filing of an application for acquisition of control of a domestic insurer
gives rise to mandatory or, in some states, discretionary public hearing
requirements and/or statutory periods (ranging from 30 to 90 days, which may
be extended in certain circumstances) within which decisions must be rendered
approving or disapproving the acquisition of control. Appropriate filings with
the relevant Insurance Regulators are being made and it is anticipated,
although there can be no assurance, that approvals of such Insurance
Regulators will be obtained.
NYSE LISTING OF CONSECO COMMON STOCK
Pursuant to the Merger Agreement, Conseco is required to use its best
efforts to obtain listing on the NYSE of the shares of Conseco Common Stock to
be issued in connection with the Merger. Approval of the listing on the NYSE
of the shares of Conseco Common Stock to be issued in the Merger is a
condition to the respective obligations of ATC and Conseco to consummate the
Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Conseco Common Stock issued in connection with the Merger will
be freely transferable, except that any shares of Conseco Common Stock
received by persons who are deemed to be "affiliates" (as
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such term is defined under the Securities Act) of ATC prior to the Merger
which may be resold by them only in transactions registered under the
Securities Act, permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 if such persons are or become affiliates
of Conseco), or otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of ATC generally include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal shareholders of such party.
DISSENTERS RIGHTS
ATC. Pursuant to the Merger Agreement and the PBCL, holders of ATC Common
Stock have dissenters rights in connection with the Merger under Subchapter
15D of the PBCL, a copy of which is attached as Annex C to this Joint Proxy
Statement/Prospectus, and may object to the Merger Agreement and demand in
writing that ATC pay them the fair value of their ATC Common Stock.
Failure by any dissenting shareholder to comply with any procedure required
by Subchapter 15D may result in termination of such shareholders' dissenters
rights. ATC will not give any notice of the following requirements other than
as described in this Joint Proxy Statement/Prospectus and as required by the
PBCL.
A holder of record of ATC Common Stock may assert dissenters rights as to
fewer than all of the shares of ATC Common Stock registered in such holder's
name only if the holder dissents with respect to all of the ATC Common Stock
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder
has dissented and the other shares are registered in the names of different
holders. A beneficial owner of shares of ATC Common Stock who is not also the
record holder of such shares may assert dissenters rights with respect to
shares held on such owner's behalf and shall be treated as a dissenting
shareholder under the terms of Subchapter 15D if the beneficial owner submits
to ATC, not later than the time of filing the Notice of Intention to Dissent
(as defined below), a written consent of the record holder. Such beneficial
owner may not dissent with respect to less than all shares of ATC Common Stock
beneficially owned by such beneficial owner.
Holders of ATC Common Stock (or beneficial owners thereof as provided above)
who follow the procedures of Subchapter 15D as outlined below will be entitled
to receive from ATC the fair value of their shares of ATC Common Stock
immediately before the Effective Time, taking into account all relevant
factors but excluding any appreciation or depreciation in anticipation of the
effectuation of the Merger Agreement. Holders of ATC Common Stock (or
beneficial owners thereof) who elect to exercise their dissenters rights must
comply with all of the following procedures to reserve those rights.
Holders of ATC Common Stock (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand
the fair value of their shares of ATC Common Stock if the Merger is
effectuated (the "Notice of Intention to Dissent"). Such dissenters must file
the Notice of Intention to Dissent with the Secretary of ATC prior to the vote
by ATC shareholders on the Merger Agreement; they must make no change in their
beneficial ownership of ATC Common Stock from the date of filing until the
Effective Time; and they must refrain from voting their ATC Common Stock for
the approval and adoption of the Merger Agreement. The Notice of Intention to
Dissent must be in addition to and separate from any proxy or vote against the
Merger Agreement.
If the Merger Agreement is approved and adopted by the required vote at the
ATC Special Meeting, Conseco will mail a notice (the "Notice of Approval") to
all dissenters who filed a Notice of Intention to Dissent prior to the vote on
the Merger Agreement and who refrained from voting for the approval and
adoption of the Merger Agreement. Conseco expects to mail the Notice of
Approval promptly after effectuation of the Merger. The Notice of Approval
will state where and when (the "Demand Deadline") a demand for payment must be
sent and certificates for shares of ATC Common Stock must be deposited in
order to obtain payment; it will supply a form for demanding payment (the
"Demand Form") which includes a request for certification of the
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date on which the holder, or the person on whose behalf the holder dissents,
acquired beneficial ownership of the shares of ATC Common Stock; and it will
be accompanied by a copy of Subchapter 15D. Dissenters must ensure that the
Demand Form and their certificates for shares of ATC Common Stock are received
by Conseco on or before the Demand Deadline. All mailings to Conseco are at
the risk of the dissenter. However, it is recommended that the Notice of
Intention to Dissent, the Demand Form and the holder's share certificates be
sent by certified mail.
Any holder (or beneficial owner) of ATC Common Stock who fails to file a
Notice of Intention to Dissent, fails to complete and return the Demand Form,
or fails to deposit share certificates with Conseco, each within the time
periods provided above, will lose the holder's (or beneficial owner's)
dissenters rights under Subchapter 15D. A dissenter will retain all rights of
a shareholder, or beneficial owner, as the case may be, until those rights are
modified by effectuation of the Merger.
Upon timely receipt of the completed Demand Form, Conseco is required by the
PBCL either to remit to dissenters who have returned the Notice of Intention
to Dissent and the completed Demand Form and have deposited their
certificates, the amount Conseco estimates to be the fair value for their
shares or to give written notice that no such remittance will be made. Conseco
does not intend to make payment of any part of the amounts payable to
dissenters until the fair value of the ATC Common Stock affected by the Merger
has been finally determined. The remittance or notice will be accompanied by:
(1) the closing balance sheet and statement of income of ATC for the
fiscal year ended December 31, 1995, together with the latest available
interim financial statements;
(2) a statement of Conseco's estimate of the fair value of the ATC Common
Stock ("Conseco's Estimate"); and
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case bay be, accompanied by a copy of
Subchapter 15D.
If Conseco does not remit the amount of its estimate of fair value of the
ATC Common Stock, it will return any certificates that have been deposited,
and may make a notation on any such certificates that a demand for payment in
accordance with Subchapter 15D has been make. If shares carrying such notation
are thereafter transferred, each new certificate issued therefor may bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares will not acquire by such
transfer any rights in ATC other than those which the original dissenter had
after making demand for payment of their fair value.
After Conseco gives notice of Conseco's Estimate, without remitting that
amount, and if the dissenter believes that Conseco's Estimate is less than the
fair value of the shares, the dissenter may send to Conseco the dissenter's
own estimate (the "Holder's Estimate") of the fair value of the shares as
contemplated by PBCL Section 1578, which will be deemed a demand for payment
of the amount of the Holder's Estimate. If a dissenter does not file a
Holder's Estimate within 30 days after the mailing by Conseco of its
remittance or notice, the dissenter will be entitled to no more than Conseco's
Estimate.
If, within 60 days after the Effective Time or after the timely receipt by
Conseco of any Holder's Estimate, whichever is later, any demands for payment
remain unsettled, Conseco may file in the Court of Common Pleas of Bucks
County, Pennsylvania an application for relief requesting that the fair value
of the ATC Common Stock be determined by the court. There is no assurance that
Conseco will file such an application. All dissenters, wherever residing,
whose demands have not been settled will be made parties to any such appraisal
proceeding. The court may appoint an appraiser to receive evidence and
recommend a decision on the issue of fair value. Each dissenter who is made a
party will be entitled to recover the amount by which the fair value of the
dissenters ATC Common Stock is found to exceed the amount, if any, previously
remitted, plus interest. Interest shall be payable from the Effective Time
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by Conseco
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on its principal line of credit. If Conseco fails to file an application for
relief, any dissenter who has made a demand and who has not already settled
the dissenter's claim against Conseco may do so in the name of Conseco at any
time within 30 days after the expiration of the 60-day period. If a dissenter
does not file an application within the 30-day period, each dissenter entitled
to file an application shall be paid Conseco's Estimate and no more, and may
bring an action to recover any amount thereof not previously remitted.
The costs and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against Conseco, except that any part of
the costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment the court finds to be dilatory,
arbitrary or in bad faith. Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems appropriate against
Conseco, and in favor of any or all dissenters, if Conseco fails to comply
substantially with the requirements of subchapter 15D. Such fees and expenses
may be assessed against either Conseco or a dissenter, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith,
arbitrarily, or in a dilatory manner. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated and should not be assessed against Conseco, it may award
such counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefitted.
Under the PBCL, a shareholder of ATC has no right to obtain, in the absence
of fraud or fundamental unfairness, an injunction against the Merger, nor any
right to valuation and payment of the fair value of the holder's shares
because of the Merger, except to the extent provided by the dissenters rights
provisions of Subchapter 15D. The PBCL also provides that, absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive.
The foregoing description of the rights of dissenters under Subchapter 15D
is qualified in its entirety by the provision of Subchapter 15D and should be
read in conjunction with Annex C to this Joint Proxy Statement/Prospectus.
CONSECO. Holders of Conseco Stock will not be entitled to appraisal or
dissenters rights under the IBCL in connection with the Merger because the
Conseco Common Stock is traded on the NYSE.
ACCOUNTING TREATMENT
Conseco intends to account for the Merger under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16 ("APB
No. 16"). Under this method of accounting, the cost of acquiring all
outstanding shares of ATC Common Stock and the assumption of all outstanding
ATC Stock Options will be determined by the cost of shares of ATC Common Stock
currently owned by Conseco and the value at the Effective Time of Conseco
Common Stock (and cash in lieu of fractional shares) to be issued to holders
of ATC Common Stock and ATC Stock Options, plus the direct costs associated
with the Merger. Conseco will allocate such cost in establishing new
accounting and reporting bases for the underlying acquired assets and
liabilities based on their estimated fair values at the Effective Time.
Conseco believes the Merger will not qualify for the pooling of interest
method of accounting in accordance with APB No. 16, because an affiliate of
ATC intends to sell a portion of the Conseco Common Stock it receives in the
Merger shortly after the Effective Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to the Merger Agreement,
the Articles of Incorporation and Bylaws of ATC's subsidiaries shall contain
the provisions with respect to indemnification set forth therein on the date
of the Merger Agreement, and such provisions shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights of Indemnified Parties in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law. Conseco has agreed to
indemnify the Indemnified Parties, but only to the extent that ATC would have
been obligated to do so had it been the Surviving Corporation. The foregoing
provisions are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his heirs and his personal representatives and shall
be binding on all successors and assigns of Conseco.
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SEVERANCE PAYMENTS. The Merger Agreement provides for a payment to Ronald J.
Holmer, Benedict J. Iacovetti, Ernest Iannucci and Wayne G. Vosik up to a
maximum of $120,000 each, if necessary, intended to reimburse such individuals
for any excise tax imposed under section 4999 of the Code with respect to any
payment that such individuals may receive under their employment agreements
with ATC as described below.
Each of Ronald J. Holmer, Benedict J. Iacovetti, Ernest Iannucci, Susan T.
Mankowski and Wayne G. Vosik have "at-will" employment agreements with ATC
which have a change of control provision. The change of control provision
provides that upon the occurrence of the Merger, ATC is required to deposit in
an escrow account an amount equal to 200 percent of the executive's then
current annual salary. If within three years of the Merger, the executive's
employment is terminated for a reason other than death, normal retirement for
age, disability or termination for cause, the executive may demand that the
escrowed funds be paid to him or her.
EMPLOYMENT AGREEMENTS. Conseco Services will enter into employment agreements
with John A. Powell, Thomas J. Parry, Kevin Shields and Denise Powell, all of
which will be effective as of the Effective Time. The legal fees incurred by
John A. Powell, Thomas J. Parry, Kevin Shields and Denise Powell in connection
with the employment agreements were paid by ATC.
John A. Powell. John A. Powell's employment agreement with Conseco Services
provides for an employment term of five years and an initial position of
President of ATLIC. Mr. Powell will be entitled to an initial annual salary of
$1,000,000 plus such bonuses or incentive compensation as the boards of
directors of Conseco and its subsidiaries (the "Boards") shall deem
appropriate. In addition, Mr. Powell shall be entitled to a cash bonus in 1996
pursuant to his current employment agreement with ATC and a minimum cash bonus
of $250,000 in 1997. Mr. Powell may receive annual salary increases in the
discretion of the Boards.
Pursuant to his employment agreement, Mr. Powell is entitled to participate
in such employee benefit plans and insurance programs currently offered by
Conseco Services for its executive management or supervisory personnel.
At the Effective Time, Mr. Powell will receive a grant of options to purchase
100,000 shares of Conseco Common Stock at a purchase price per share equal to
the average sale price of Conseco Common Stock on the date of grant. Twenty-
five percent of such options will vest upon receipt and twenty-five percent
will vest on each of the first three anniversaries of the Effective Time. In
addition, Mr. Powell shall be eligible to receive such other stock option
grants in accordance with the policy of Conseco Services applicable to
similarly situated executives.
The employment agreement provides that Conseco Services shall assume all
rights and obligations of ATC to pay for a split-dollar life insurance policy
on the life of Mr. Powell. An insurance policy presently maintained by ATC on
the life of Mr. Powell to fund the payment of certain deferred compensation
benefits shall be transferred to Mr. Powell without any payment by or other
cost to Mr. Powell and the obligation to make such deferred compensation
benefits shall be terminated.
Mr. Powell's employment agreement with Conseco Services will prevent him from
disclosing confidential information obtained pursuant to his employment by
Conseco Services and contains limited non-solicitation and non-compete
provisions. The employment agreement provides that either Mr. Powell or Conseco
Services may terminate it any time for any reason. However, if the employment
agreement is terminated by Conseco Services for other than "just cause" (as
defined in the employment agreement) or by Mr. Powell for "good reason" (as
defined in the employment agreement) during the initial employment term, Mr.
Powell will be entitled to receive his base salary, for the greater of one year
from the date of notice of termination or the remainder of the initial
employment term, plus the pro rata share of any bonuses and all other unpaid
amounts accrued as of the date of termination to which he would otherwise be
entitled. In the event of termination resulting from a "change of control" (as
defined in the employment agreement), Mr. Powell may elect to be paid a lump
sum severance allowance in lieu of the termination payments provided in the
preceding sentence. If the term of employment is not renewed at the end of the
initial employment term, then, thereafter, upon Mr. Powell's termination of
employment by Conseco Services without just cause or Mr. Powell's termination
of employment with Conseco Services for good reason, Mr. Powell will be
entitled to receive an amount equal to his base salary for a period
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of one year from the earlier of the date Conseco Services gives Mr. Powell
notice of its intent to terminate his employment or the date of such
termination of employment.
In the event of Mr. Powell's disability during the initial employment term,
he shall be entitled to his base salary for six months and, thereafter, 50
percent of his base salary and a pro rata share of his bonus. In the event of
Mr. Powell's death during the initial employment term, his beneficiary shall
be entitled to his pro rata share of his bonus and all other unpaid amounts
accrued as of the date of death.
Other Employment Agreements. The employment agreements with Thomas J. Parry,
Kevin Shields and Denise Powell each provide for a three-year initial
employment term and their respective positions and base salaries are: Vice
President--Marketing of ATLIC--$175,000; Vice President--Sales of ATLIC--
$125,000; and Vice President--Sales of ATLIC--$120,000.
Each of the executives will be entitled to (1) an annual cash bonus in 1996
as determined under the current ATC arrangement; (2) in 1997, a minimum cash
bonus of $20,000; and (3) such other bonus or incentive compensation as the
Boards may approve from time to time.
All of the executives are entitled to participate in such employee benefit
plans and insurance programs currently offered by Conseco Services. At the
Effective Time, each of the executives shall receive a grant of options to
purchase 20,000 shares of Conseco Common Stock at a purchase price per share
equal to the average sale price of stock on the date of grant. Such options
shall vest in equal annual installments over three years. In addition, such
executives shall be eligible to receive such other stock option grants in
accordance with the policy of Conseco Services applicable to similarly
situated executives.
The executives' employment agreements prevent them from disclosing
confidential information obtained pursuant to their employment by Conseco
Services and contain certain limited non-solicitation and non-compete
provisions. Each of the employment agreements provides that either the
executive or Conseco Services may terminate it any time for any reason.
However, if the employment agreement is terminated by Conseco Services for
other than "just cause" (as defined in the employment agreement) during the
initial employment term, the executive shall be entitled to receive his or her
base salary for the greater of two years from the termination or the remainder
of the initial employment term, plus the pro rata share of any bonuses he or
she is otherwise entitled to and all other unpaid amounts accrued as of the
date of termination.
In the event of the executive's disability during the initial employment
term, the executive shall be entitled to his or her pro rata share of bonus
and all other unpaid amounts accrued as of the date of disability and such
benefits as are provided under Conseco Service's salary continuation and
disability plans. In the event of the executive's death during the initial
employment term, the executive's beneficiary shall be entitled to receive a
pro rata share of bonuses and all other unpaid amounts accrued as of the date
of the executive's death.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement. All
shareholders are urged to read the Merger Agreement in its entirety.
THE MERGER
The Merger Agreement provides that, subject to satisfaction or waiver of the
terms and conditions contained in the Merger Agreement, including the approval
of the Merger Agreement and the transactions contemplated thereby by the
shareholders of ATC and approval of the Merger Consideration Stock Issuance by
the shareholders of Conseco, ATC will be merged with and into Conseco, with
Conseco being the Surviving Corporation.
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EFFECTIVE TIME
The Merger Agreement provides that, subject to the satisfaction or waiver of
certain conditions and the requisite approval of the shareholders of Conseco
and ATC, the Merger will be consummated by, and will become effective on the
date of, the filing of a Certificate of Merger with the Secretary of State of
Indiana and the Secretary of State of Pennsylvania or at such time thereafter
as is provided in the Certificate of Merger. The Merger Agreement may be
terminated by either Conseco or ATC if, among other reasons, the Merger has
not been consummated on or before December 31, 1996; provided, however, such
date may be extended to March 31, 1997 if certain conditions are satisfied.
See "--Conditions to the Merger" and "--Termination."
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL AMOUNTS
At the Effective Time, pursuant to the Merger Agreement, each share of ATC
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by ATC or Dissenting Shares), shall
be converted into the right to receive (i) if the Conseco Share Price is
greater than or equal to $42.25 per share, and less than or equal to $46.25
per share, .7574 of a share of Conseco Common Stock; (ii) if the Conseco Share
Price is less than $42.25 per share, the fraction (rounded to the nearest ten-
thousandth) a share (or such fraction and whole number as the case may be) of
Conseco Common Stock determined by dividing $32.00 by the Conseco Share Price;
or (iii) if the Conseco Share Price is greater than $46.25 per share, the
fraction (rounded to the nearest ten-thousandth) of a share of Conseco Common
Stock determined by dividing $35.03 by the Conseco Share Price. The "Conseco
Share Price" shall be equal to the average of the closing prices of the
Conseco Common Stock on the NYSE Composite Transactions Reporting System for
the 10 trading days immediately preceding the second trading day prior to the
Effective Time. Thus, holders of shares of ATC Common Stock will receive
Conseco Common Stock with a value (based on the average closing price during
such 10 day period) of not less than $32.00 per share and up to $35.03 per
share. The Conseco Common Stock to be issued to holders of ATC Common Stock
pursuant to the Merger and any cash to be paid in lieu of fractional shares of
Conseco Common Stock are referred to collectively as the "Merger
Consideration."
In the event of any change in Conseco Common Stock between the date of the
Merger Agreement and the Effective Time of the Merger by reason of any stock
dividend, subdivision, reclassification, recapitalization, combination,
exchange of shares or the like, the number and class of shares of Conseco
Common Stock to be issued and delivered in the Merger in exchange for each
outstanding share of ATC Common Stock as provided in the Merger Agreement
shall be proportionately adjusted.
The structure of the Merger was the result of arm's length negotiations
between ATC and Conseco and economic considerations and was intended to
qualify as a tax-free reorganization under Sections 368(a)(1)(A) of the Code.
On October 22, 1996, the last full trading day for which information was
available prior to the mailing of this Joint Proxy Statement/Prospectus, the
closing price reported for shares of Conseco Common Stock on the NYSE was
$51.625 per share and the closing price reported for shares of ATC Common
Stock on the NASDAQ National Market was $34.125 per share. There can be no
assurance or prediction, and neither Conseco nor ATC hereby make any assurance
or prediction, as to the future price of the Conseco Common Stock or ATC
Common Stock.
At the Effective Time, each share of ATC Common Stock issued and outstanding
immediately prior to the Effective Time which is then held as a treasury share
by ATC or any of its subsidiaries immediately prior to the Effective Time,
shall, by virtue of the Merger and without any action on the part of ATC, be
canceled and retired and cease to exist, without any conversion thereof.
No fractional shares of Conseco Common Stock will be issued in connection
with the Merger. Each ATC shareholder who otherwise would have been entitled
to a fraction of a share of Conseco Common Stock (after taking into account
all certificates delivered by such holder) shall receive in lieu thereof cash
(without interest) in an amount equal to such fractional part of a share of
Conseco Common Stock multiplied by the Conseco Share Price.
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Promptly after the Effective Time, the designated exchange agent will mail
to each record holder of Certificates a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the
consideration to which such holder shall be entitled. After receipt of such
transmittal form, each holder of Certificates should surrender such
Certificates to the exchange agent together with such letter of transmittal
duly executed and completed in accordance with the instructions thereto, and
each such holder will be entitled to receive in exchange therefor certificates
for shares of Conseco Common Stock and/or a check for any cash which may be
payable in lieu of a fractional share of Conseco Common Stock.
ATC SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER AND INSTRUCTIONS.
After the Effective Time, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number of shares of Conseco Common Stock that the holder of such
certificate is entitled to receive pursuant to the terms of the Merger
Agreement and the right to receive any cash payment in lieu of a fractional
share of Conseco Common Stock.
TREATMENT OF ATC STOCK OPTIONS
At the Effective Time, each ATC Stock Option shall be deemed disposed to ATC
and then converted automatically into an option to purchase, for the same
aggregate consideration payable to exercise such ATC Stock Options, the number
of shares of Conseco Common Stock which the holder would have been entitled to
receive at the Effective Time if such ATC Stock Options had been fully vested
and exercised for shares prior to the Effective Time, but otherwise on the
same terms and conditions as were applicable under the ATC stock option plan
and the underlying stock option agreement except as provided in the next two
sentences. Each ATC Stock Option held by anyone other than a non-employee
director of ATC, if not then vested, will vest in full at the earlier of (1)
the expiration of three months after the Effective Time or (2) the termination
by Conseco of the employment of the holder of such ATC Stock Option. Each ATC
Stock Option held by a non-employee director of ATC, if not then vested, will
vest in full at the Effective Time.
Conseco has agreed to take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conseco Common Stock for delivery
upon exercise of ATC Stock Options assumed in accordance with the Merger
Agreement and to register such shares of Conseco Common Stock with the
Commission pursuant to a Registration Statement on Form S-8.
DISSENTING SHARES
ATC Common Stock which is held by shareholders of ATC who shall have
effectively dissented from the Merger and perfected their dissenters rights in
accordance with the provisions of Subchapter 15D of the PBCL (the "Dissenting
Shares") shall not be converted into or be exchangeable for the right to
receive the Merger Consideration, but the holders thereof shall be entitled to
payment from Conseco of the appraised value of such Dissenting Shares in
accordance with the provisions of Subchapter 15D. See "The Merger--Dissenters
Rights."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties relating to, among other things, (1) each of Conseco's and ATC's
organization and similar corporate matters; (2) each of Conseco's and ATC's
capital structure; (3) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement with respect to Conseco and ATC and
related matters; (4) documents filed by each of Conseco and ATC with the
Commission and the accuracy of information contained therein; (5) the absence
of material changes with respect to the business of Conseco and ATC; and (6)
compliance with applicable laws.
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CERTAIN COVENANTS
The Merger Agreement contains certain customary covenants and agreements,
including, without limitation, the following:
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, and except as set
forth in the disclosure schedules thereto, Conseco has agreed that during the
period from the date of the Merger Agreement to the Effective Time, Conseco
shall, and shall cause its subsidiaries to, carry on their respective
businesses in the usual, regular and ordinary course and will not, among other
things, (1)(A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than regular quarterly cash
dividends of $.0625 per share of Conseco Common Stock and regular cash
dividends on the Conseco Series D Preferred Stock and the Conseco PRIDES, in
each case with usual record and payment dates and in accordance with Conseco's
Articles of Incorporation and its present dividend policy) or (B) split,
combine or reclassify any of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Conseco's outstanding capital stock (other than
under the Conseco stock option plans); (2) issue, sell, grant, pledge or
otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities, in each case if any such action could reasonably be expected (A)
to delay materially the date of mailing of this Joint Proxy
Statement/Prospectus or, (B) if it were to occur after such date of mailing,
to require an amendment of this Joint Proxy Statement/Prospectus; or (3) to
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 (A) to delay materially the
date of mailing of this Joint Proxy Statement/Prospectus or, (B) if it were to
occur after such date of mailing, to require an amendment of this Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, ATC has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement or as set forth on the disclosure schedules
thereto, ATC will, and will cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and will not (without
the prior consent of Conseco), among other things (1)(A) declare, set aside or
pay any dividends on, or make any other distributions (whether in cash, stock
or property) in respect of, any of ATC's outstanding capital stock, (B) split,
combine or reclassify any of ATC's outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of ATC's outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of ATC's outstanding capital stock or
any rights, warrants or options to acquire such shares; (2) issue, sell,
grant, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or convertible
securities, other than upon the exercise of ATC Stock Options outstanding on
the date of the Merger Agreement; (3) amend its articles of incorporation or
bylaws; (4) acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof; (5)
sell, mortgage or otherwise encumber or dispose of any of its properties or
assets that are material to ATC and its subsidiaries taken as a whole, except
in the ordinary course of business; (6)(A) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, other than certain
specified limitations, or (B) make any loans or advances to any other person,
other than to ATC or any wholly-owned subsidiary of ATC and other than routine
advances to employees; (7) make any tax election or settle or compromise any
income tax liability that would reasonably be expected to be material to ATC
and its subsidiaries taken as a whole; (8) pay, discharge, settle or satisfy
any claims, liabilities or obligations other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements of ATC or incurred since the date of such financial statements in
the ordinary course of business consistent with past practice; (9) invest its
future cash flow, any cash from matured and maturing investments, any cash
proceeds from the sale of its assets and properties, and any cash funds
currently held by it, in any investments other than cash equivalent
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assets or in short-term investments, except (A) as otherwise required by law,
(B) as required to provide cash (in the ordinary course of business and
consistent with past practice) to meet its actual or anticipated obligations,
(C) in publicly traded corporate bonds that are rated investment grade by at
least two nationally recognized statistical rating organizations, (D) as may
be otherwise required in ATC's contractual undertakings with Transport Life
Insurance Company, or (E) as may be otherwise provided in the investment
guidelines contained in the investment advisory agreements with Conseco
Capital Management, Inc., a wholly-owned subsidiary of Conseco ("CCM"); (10)
except as may be required by law, (A) make any representation or promise to
any employee or former director, officer or employee of ATC or any subsidiary
which is inconsistent with the terms of any existing ATC benefit plan, (B)
make any change to the contracts, salaries, wages, or other compensation of
any employee or any agent or consultant of ATC or any subsidiary other than
(i) routine changes or amendments that are required under existing contracts,
or (ii) individual, routine changes or amendments that are made in the
ordinary course of business and consistent with past practice and do not
exceed 8 percent, (C) adopt, enter into, amend, alter or terminate any benefit
plan or any election made pursuant to the provisions of any existing ATC
benefit plan, to accelerate any payments, obligations or vesting schedules
under any existing ATC benefit plan, or (D) approve any general or company-
wide pay increases for employees; (11) except in the ordinary course of
business, modify, amend or terminate any material agreement, permit,
concession, franchise, license or similar instrument to which ATC or any
subsidiary is a party or waive, release or assign any material rights or
claims thereunder; and (12) hold any meeting of the board of directors of ATC
or any subsidiary or any committee of any such board, or take any action by
written consent of any such board or committee, without providing (A) written
notice five days in advance of any such meeting or date of any proposed action
by written consent, and (B) an agenda of the specific matters intended to be
considered at such meeting or a copy of the proposed written consent.
CCM ADVISORY AGREEMENT. Pursuant to the Merger Agreement, ATC has agreed to
enter into, and cause each of its subsidiaries to enter into, an investment
advisory agreement with CCM. The investment advisory agreements shall be
effective as of the date this Joint Proxy Statement/Prospectus is first mailed
to ATC's shareholders (the "Mailing Date").
NO SOLICITATION. Pursuant to the Merger Agreement, ATC shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, ATC or any of its subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage the submission of any bona fide
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving ATC, ATL or UGL (each a "Significant Subsidiary"), or
any purchase of all or any significant portion of the assets of ATC or any
Significant Subsidiary, or any equity interest in ATC or any Significant
Subsidiary, other than the transactions contemplated by the Merger Agreement
(each an "Acquisition Proposal") or (2) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal. The foregoing shall not prohibit the Board of Directors
of ATC from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal if, and only to the extent that (1) the Board of Directors of ATC,
after consultation with and based upon the advice of outside counsel,
determines in good faith that such action is necessary for the Board of
Directors of ATC to comply with its fiduciary duties to shareholders under
applicable law and (2) prior to taking such action, ATC (A) provides
reasonable notice to Conseco to the effect that it is taking such action and
(B) receives from such person or entity an executed confidentiality agreement
in reasonably customary form.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to the Merger Agreement,
Conseco has agreed that the articles of incorporation and bylaws of ATC's
subsidiaries shall contain the provisions with respect to indemnification set
forth therein on the date of the Merger Agreement, and such provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights of
individuals who at any time prior to the Effective Time were directors or
officers of ATC or any of its subsidiaries (the "Indemnified Parties") in
respect of actions or omissions occurring at or
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prior to the Effective Time unless such modification is required by law.
Conseco has agreed to indemnify the Indemnified Parties, but only to the
extent that ATC would have been obligated to do so had it been the surviving
corporation of the Merger.
CONDITIONS TO THE MERGER
The respective obligations of Conseco and ATC to effect the Merger are
subject to the following conditions, among others: (1) the Merger Agreement
and the Merger shall have been approved and adopted by the shareholders of ATC
and the holders of Conseco Stock shall have approved and adopted the Merger
Consideration Stock Issuance; (2) all required consents, approvals, permits
and authorizations to the consummation of the transactions contemplated hereby
by ATC and Conseco shall be obtained from (A) the Insurance Regulators in
Pennsylvania, New York and Texas, and (B) any other governmental entity whose
consent, approval, permission or authorization is required by reason of a
change in law after the date of the Merger Agreement, unless the failure to
obtain such consent, approval, permission or authorization (i) would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of ATC and its subsidiaries,
taken as a whole, or on the validity or enforceability of the Merger Agreement
or (ii) is the failure to obtain the approval of the Insurance Regulator of
any life insurance subsidiary of ATC, which does not constitute a "significant
subsidiary" (within the meaning of Rule 1-02 of Regulation S-X of the
Commission) of ATC (a "Non-Significant Life Subsidiary") to the transfer of
control of such Non- Significant Life Subsidiary, then such non-approval can
be waived at the option of Conseco if certain specified actions are taken; (3)
the waiting period (and any extension thereof) applicable to the Merger under
the HSR Act shall have been terminated or shall have otherwise expired; (4) no
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the Merger shall be in effect;
(5) the shares of Conseco Common Stock issuable to ATC's shareholders pursuant
to the Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance; and (6) the Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
The obligation of Conseco to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of ATC contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and as of the Mailing Date (except
to the extent that they expressly relate only to an earlier time, in which
case they shall have been true and correct as of such earlier time), other
than such breaches of representations and warranties which in the aggregate
would not reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of ATC and its
subsidiaries taken as a whole; (2) ATC shall have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; and (3) no more than 20 percent of
the shares of ATC Common Stock shall have become Dissenting Shares.
The obligation of ATC to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of Conseco contained in the Merger Agreement shall have been true
and correct on the date of the Merger Agreement and as of the Mailing Date
(except to the extent that they expressly relate only to an earlier time, in
which case they shall have been true and correct as of such earlier time),
other than such breaches of representations and warranties which in the
aggregate would not reasonably be expected to have a material adverse effect
on the business, financial condition or results of operations of Conseco and
its subsidiaries taken as a whole; (2) Conseco shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date; (3) ATC shall have received
an opinion of counsel to the effect that the Merger will be treated as a
reorganization under Section 368(a)(1) of the Code and that shareholders of
ATC will not be subject to federal income tax on the receipt of shares of
Conseco Common Stock in the Merger; and (4) ATC shall have received from DLJ,
immediately prior to or on the Mailing Date, an update of its fairness opinion
which was rendered as of the date of the Merger Agreement.
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TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time: (1) by the mutual written consent of Conseco and
ATC; (2) by Conseco or ATC at any time if, (A) upon a vote at a duly held
meeting of ATC or Conseco's shareholders or any adjournment thereof, any
required approval of the holders of ATC Common Stock or Conseco Stock shall
not be obtained, (B) the Merger shall not have been consummated on or before
December 31, 1996, unless the failure to consummate the Merger is the result
of a willful and material breach of the Merger Agreement by the party seeking
to terminate the Merger Agreement; provided, however, that either party may by
notice to the other party extend such date to March 31, 1997 if the only
conditions to closing not satisfied as of December 31, 1996 are those relating
to stockholder approval, governmental and regulatory consents and HSR Act, (C)
any governmental entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable, or (D) the Board of Directors of ATC shall have
exercised its rights set forth in Section 4.9 of the Merger Agreement; (See
"--Right of ATC Board of Directors to Withdraw its Recommendation"); (3) by
Conseco if ATC does not deliver a certificate signed by ATC's Chief Executive
Officer and Chief Financial Officer certifying that, as of the Mailing Date,
the representations and warranties of ATC in the Merger Agreement are true and
correct, subject to certain limitations; or (4) by ATC if Conseco does not
deliver a certificate signed by Conseco's Chief Executive Officer and Chief
Financial Officer certifying that, as of the Mailing Date, the representatives
and warranties of Conseco in the Merger Agreement are true and correct,
subject to certain limitations.
If the Merger Agreement is validly terminated as described above, the Merger
Agreement shall become void and have no effect, except for certain covenants
regarding confidentiality, brokers and, as described herein, payment of
certain fees and expenses, and except that no party thereto will be relieved
of any liability for damages that such party may have to the other party by
reason of such party's breach of the Merger Agreement.
RIGHT OF ATC BOARD OF DIRECTORS TO WITHDRAW ITS RECOMMENDATION
Under the Merger Agreement, the Board of Directors of ATC shall not (1)
withdraw or modify, in a manner materially adverse to Conseco, the approval or
recommendation by the Board of Directors of the Merger Agreement or the
Merger, (2) approve or recommend an Acquisition Proposal or (3) enter into any
agreement with respect to any Acquisition Proposal, unless ATC receives an
Acquisition Proposal and the Board of Directors of ATC determines in good
faith, following consultation with outside counsel, that in order to comply
with its fiduciary duties to shareholders under applicable law it is necessary
for the Board of Directors to withdraw or modify, in a manner materially
adverse to Conseco, its approval or recommendation of the Merger Agreement or
the Merger, approve or recommend such Acquisition Proposal, enter into an
agreement with respect to such Acquisition Proposal or terminate the Merger
Agreement. In the event the Board of Directors of ATC takes any of the
foregoing actions, ATC shall, concurrently with the taking of any such action,
pay to Conseco the fee described in "--Fees--Acquisition Proposal Fees."
FEES
ACQUISITION PROPOSAL FEES. ATC has agreed to pay to Conseco upon demand $20
million (an "Acquisition Proposal Fee"), payable in same-day funds, if a bona
fide Acquisition Proposal is commenced, publicly proposed, publicly disclosed
or communicated to ATC (or the willingness of any person to make such an
Acquisition Proposal is publicly disclosed or communicated to ATC) and the
Board of Directors of ATC, in accordance with its fiduciary duties, withdraws
or modifies in a manner materially adverse to Conseco its approval or
recommendation of the Merger Agreement or the Merger, approves or recommends
such Acquisition Proposal, enters into an agreement with respect to such
Acquisition Proposal, or terminates the Merger Agreement.
OTHER FEES. In the absence of a requirement to pay an Acquisition Proposal
Fee, unless Conseco is materially in breach of the Merger Agreement or is
unable to satisfy certain closing conditions in the Merger
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Agreement, ATC has agreed to pay to Conseco upon demand an amount not to
exceed $2 million to reimburse Conseco for its out-of-pocket fees and expenses
in connection with the Merger or the consummation of the transactions
contemplated by the Merger Agreement, payable in same-day funds, if the
requisite approval of ATC's shareholders for the Merger is not obtained and
all other closing conditions contained in the Merger Agreement have been
satisfied or waived or, with respect to any condition not then satisfied, it
is substantially likely that such condition will be satisfied on or before
March 31, 1997, through the exercise of best efforts to procure the
satisfaction thereof.
In the absence of a requirement to pay an Acquisition Proposal Fee, unless
ATC is materially in breach of the Merger Agreement or is unable to satisfy
certain closing conditions in the Merger Agreement, Conseco has agreed to pay
to ATC upon demand an amount not to exceed $2 million to reimburse ATC for its
out-of-pocket fees and expenses in connection with the Merger or the
consummation of the transactions contemplated by the Merger, payable in same-
day funds, if the requisite approval of holders of Conseco Stock of the Merger
Consideration Stock Issuance is not obtained and all other closing conditions
contained in the Merger Agreement have been satisfied or waived or, with
respect to any condition not then satisfied, it is substantially likely that
such condition will be satisfied on or before March 31, 1997, through the
exercise of best efforts to procure the satisfaction thereof.
EXPENSES
Except as otherwise expressly provided in the Merger Agreement, whether or
not the Merger is consummated, each of ATC and Conseco will pay its own costs
and expenses incident to preparing for, entering into and carrying out the
Merger Agreement and the consummation of the transactions contemplated thereby
except that the expenses incurred in connection with the printing, mailing and
distribution of this Joint Proxy Statement/Prospectus and the preparation and
filing of the Registration Statement shall be borne equally by Conseco and
ATC.
MODIFICATION OR AMENDMENT
Subject to the applicable provisions of the IBCL and the PBCL, at any time
prior to the Effective Time, ATC and Conseco may modify or amend the Merger
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
the Merger by the shareholders of ATC, no amendment may be made which reduces
the consideration payable in the Merger or adversely affects the rights of the
ATC's shareholders under the Merger Agreement without the approval of such
shareholders.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO
The unaudited pro forma consolidated statements of operations of Conseco for
the year ended December 31, 1995, and for the six months ended June 30, 1996,
present the consolidated operating results for Conseco as if the following
planned transactions had occurred on January 1, 1995: (1) the Merger; (2) the
BLH Transaction; (3) the CAF Merger; (4) the Preferred Securities Offering;
and (5) the THI Merger.
The pro forma consolidated statement of operations data for Conseco for the
year ended December 31, 1995, set forth in the unaudited pro forma
consolidated statement of operations under the column "Pro forma Conseco
before the Merger" reflect the prior application of certain pro forma
adjustments for the following transactions, all of which have already
occurred, as if such transactions had occurred on January 1, 1995: (1) the
Series D Call; (2) the ALH Transaction; (3) the LPG Merger; (4) the
acquisition of all of the outstanding common stock of CCP not previously owned
by Conseco and related transactions (including the repayment of the existing
$250.0 million revolving credit agreement); (5) the increase of Conseco's
ownership in BLH to 90.5 percent, as a result of purchases of common shares of
BLH by Conseco and BLH during 1995 and the first three months of 1996; (6) the
issuance of 4.37 million shares of Conseco PRIDES in January 1996; (7) the BLH
Tender Offer; and (8) the debt restructuring of ALH in the fourth quarter of
1995. Such pro forma adjustments are set forth in: (1) Exhibit 99.2 included
in Conseco's Current Report on Form 8-K dated September 25, 1996; (2)
Conseco's Current Report on Form 8-K dated August 2, 1996; and (3) Exhibit
99.1 included in Conseco's Current Report on Form 8-K dated April 10, 1996.
The pro forma consolidated statement of operations data for Conseco for the
six months ended June 30, 1996, set forth in the unaudited pro forma
consolidated statement of operations under the column "Pro forma Conseco
before the Merger" reflect the prior application of certain pro forma
adjustments for the following transactions, all of which have already
occurred, as if such transactions had occurred on January 1, 1995: (1) the
Series D Call; (2) the ALH Transaction; (3) the LPG Merger; (4) the issuance
of 4.37 million shares of Conseco PRIDES in January 1996; and (5) the BLH
Tender Offer. Such pro forma adjustments are set forth in: (1) Exhibit 99.2
included in Conseco's Current Report on Form 8-K dated September 25, 1996; (2)
Conseco's Current Report on Form 8-K dated August 2, 1996; and (3) Exhibit
99.1 included in Conseco's Form 10-Q for the quarterly period ended June 30,
1996.
The unaudited pro forma consolidated balance sheet as of June 30, 1996,
gives effect to the following planned transactions as if each had occurred on
June 30, 1996: (1) the Merger; (2) the BLH Transaction; (3) the CAF Merger;
(4) the Preferred Securities Offering; and (5) the THI Merger.
The unaudited pro forma consolidated balance sheet data as of June 30, 1996,
set forth in the unaudited pro forma consolidated balance under the column
"Pro forma Conseco before the Merger" reflect the prior application of certain
pro forma adjustments for the following transactions, all of which have
already occurred, as if such transactions had occurred on June 30, 1996: (1)
the Series D Call; (2) the ALH Transaction; and (3) the LPG Merger. Such pro
forma adjustments are set forth in: (1) Exhibit 99.2 included in Conseco's
Current Report on Form 8-K dated September 25, 1996; and (2) Conseco's Current
Report on Form 8-K dated August 2, 1996.
The pro forma consolidated financial statements are based on the historical
financial statements of Conseco, LPG, ATC, CAF and THI and should be read in
conjunction with their respective financial statements and notes. The pro
forma data are not necessarily indicative of the results of operations or
financial condition of Conseco had these transactions occurred on January 1,
1995 or June 30, 1996, 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.
62
<PAGE>
The unaudited pro forma consolidated financial statements reflect cost
allocations for the LPG Merger, the ALH Transaction, the Merger, the BLH
Transaction, the CAF Merger and the THI Merger using estimated values of the
assets and liabilities of LPG, ATC, ALH, BLH, CAF and THI as of the assumed
merger dates based on appraisals and other studies, which are not yet
complete. Accordingly, the final allocations will be different than the
amounts included in the accompanying pro forma consolidated financial
statements. Although the final allocations will differ, the pro forma
consolidated financial statements reflect management's best estimate based on
currently available information as if the LPG Merger, the ALH Transaction, the
Merger, the BLH Transaction, the CAF Merger and the THI Merger had occurred on
the assumed merger dates.
63
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONSECO PRO FORMA ADJUSTMENTS
BEFORE ADJUSTMENTS PRO FORMA RELATING PRO FORMA
THE ATC RELATING TO THE FOR THE TO THE BLH CONSECO
MERGER HISTORICAL MERGER MERGER TRANSACTION SUBTOTAL(A)
--------- ---------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy
income................ $ 897.2 $186.9 $ -- $1,084.1 $ -- $1,084.1
Investment activity:
Net investment
income.............. 719.4 21.3 0.7 (1) 741.4 0.1(16) 741.5
Net trading losses... (7.3) (7.3) (7.3)
Net realized gains... 15.4 1.3 2.3 (1) 19.0 19.0
Fee revenue............ 20.1 20.1 20.1
Restructuring income... 30.4 30.4 30.4
Other income........... 10.2 10.2 10.2
------- ------ ------ -------- ------ --------
Total revenues..... 1,685.4 209.5 3.0 1,897.9 0.1 1,898.0
------- ------ ------ -------- ------ --------
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits.............. 626.0 127.3 753.3 (1.0)(16) 752.3
Interest expense on
annuities and
financial products.... 378.3 378.3 378.3
Interest expense on
notes payable......... 67.6 4.0 1.0 (2) 70.1 70.1
(2.5)(3)
Interest expense on
investment
borrowings............ 10.7 10.7 10.7
Amortization related
to operations......... 168.3 10.9 (10.9)(4) 188.7 0.1(16) 188.8
13.2 (4)
7.2 (5)
Amortization related
to realized gains..... 15.1 15.1 0.1(16) 15.2
Other operating costs
and expenses.......... 157.9 42.4 200.3 1.1(16) 201.4
------- ------ ------ -------- ------ --------
Total benefits and
expenses.......... 1,423.9 184.6 8.0 1,616.5 0.3 1,616.8
------- ------ ------ -------- ------ --------
Income (loss)
before income
taxes, minority
interest and
extraordinary
charge............ 261.5 24.9 (5.0) 281.4 (0.2) 281.2
Income tax expense
(benefit).............. 100.3 8.1 0.8 (6) 109.2 0.1(17) 109.3
------- ------ ------ -------- ------ --------
Income (loss)
before minority
interest and
extraordinary
charge............ 161.2 16.8 (5.8) 172.2 (0.3) 171.9
Minority interest 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)(18) --
------- ------ ------ -------- ------ --------
Income (loss)
before
extraordinary
charge............ $ 148.9 $ 16.8 $ (5.8) $ 159.9 $ 7.6 $ 167.5
======= ====== ====== ======== ====== ========
Earnings per common
share and common
equivalent share:
Primary:
Weighted average
shares outstanding.. 77.0 13.1 (7) 90.1 2.6(19) 92.7
======= ====== ======== ====== ========
Income before
extraordinary
charge.............. $ 1.93 $ 1.77 $ 1.81
======= ======== ========
Fully diluted:
Weighted average
shares outstanding.. 77.8 18.1 (7) 95.9 2.6(19) 98.5
======= ====== ======== ====== ========
Income before
extraordinary
charge.............. $ 1.91 $ 1.69 $ 1.73
======= ======== ========
</TABLE>
- --------
(a) Amounts have been carried forward to page 65.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
64
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
ADJUSTMENTS PRO RELATING TO
PRO FORMA RELATING TO FORMA THE PREFERRED PRO FORMA
CONSECO CAF THE CAF CONSECO SECURITIES CONSECO
SUBTOTAL (A) HISTORICAL MERGER SUBTOTAL OFFERING SUBTOTAL (B)
------------ ---------- ----------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy
income................ $1,084.1 $146.6 $ -- $1,230.7 $ -- $1,230.7
Investment activity:
Net investment
income.............. 741.5 27.3 (1.7)(22) 767.1 767.1
Net trading losses... (7.3) (7.3) (7.3)
Net realized gains... 19.0 0.1 (0.1)(22) 19.0 19.0
Fee revenue............ 20.1 20.1 20.1
Restructuring income... 30.4 30.4 30.4
Other income........... 10.2 10.2 10.2
-------- ------ ------- -------- ----- --------
Total revenues..... 1,898.0 174.0 (1.8) 2,070.2 -- 2,070.2
-------- ------ ------- -------- ----- --------
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits.............. 752.3 80.9 (1.5)(23) 831.7 831.7
Interest expense on
annuities and
financial products.... 378.3 378.3 378.3
Interest expense on
notes payable......... 70.1 1.0 (1.0)(24) 88.7 (10.8)(41) 77.9
18.6 (25)
Interest expense on
investment
borrowings............ 10.7 10.7 10.7
Amortization related
to operations......... 188.8 12.3 (12.3)(26) 207.9 207.9
16.2 (26)
2.9 (27)
Amortization related
to realized gains..... 15.2 15.2 15.2
Other operating costs
and expenses.......... 201.4 38.2 239.6 239.6
-------- ------ ------- -------- ----- --------
Total benefits and
expenses.......... 1,616.8 132.4 22.9 1,772.1 (10.8) 1,761.3
-------- ------ ------- -------- ----- --------
Income (loss)
before income
taxes, minority
interest and
extraordinary
charge............ 281.2 41.6 (24.7) 298.1 10.8 308.9
Income tax expense
(benefit).............. 109.3 14.5 (7.6)(28) 116.2 3.8 (42) 120.0
-------- ------ ------- -------- ----- --------
Income (loss)
before minority
interest and
extraordinary
charge............ 171.9 27.1 (17.1) 181.9 7.0 188.9
Minority interest in
consolidated
subsidiaries:
Dividends on
redeemable preferred
stock................. -- -- 10.6(43) 10.6
Dividends on preferred
stock................. 4.4 4.4 4.4
Equity in earnings..... -- -- --
-------- ------ ------- -------- ----- --------
Income (loss)
before
extraordinary
charge............ $ 167.5 $ 27.1 $ (17.1) $ 177.5 $(3.6) $ 173.9
======== ====== ======= ======== ===== ========
Earnings per common
share and common
equivalent share:
Primary:
Weighted average
shares outstanding.. 92.7 2.4 (29) 95.1 95.1
======== ======= ======== ========
Income before
extraordinary
charge.............. $ 1.81 $ 1.87 $ 1.83
======== ======== ========
Fully diluted:
Weighted average
shares outstanding.. 98.5 2.4 (29) 100.9 100.9
======== ======= ======== ========
Income before
extraordinary
charge.............. $ 1.73 $ 1.78 $ 1.75
======== ======== ========
</TABLE>
- --------
(a) Amounts have been carried forward from page 64.
(b) Amounts have been carried forward to page 66.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
65
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (AMOUNTS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS MERGER
PRO FORMA RELATING TO AND OTHER
CONSECO THI THE THI PLANNED
SUBTOTAL (A) HISTORICAL MERGER TRANSACTIONS
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income.... $1,230.7 $55.6 $ -- $1,286.3
Net investment income.... 767.1 19.9 (3.3)(46) 783.7
Net trading losses....... (7.3) (7.3)
Net realized gains....... 19.0 0.3 (0.3)(46) 19.0
Fee revenue................ 20.1 20.1
Restructuring income....... 30.4 30.4
Other income............... 10.2 0.6 10.8
-------- ----- ----- --------
Total revenues......... 2,070.2 76.4 (3.6) 2,143.0
-------- ----- ----- --------
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits........... 831.7 37.1 868.8
Interest expense on
annuities and financial
products.................. 378.3 378.3
Interest expense on notes
payable................... 77.9 4.5 (4.5)(47) 78.5
0.6 (47)
Interest expense on
investment borrowings..... 10.7 10.7
Amortization related to
operations................ 207.9 4.2 (4.2)(48) 214.9
7.0 (48)
Amortization related to
realized gains............ 15.2 15.2
Other operating costs and
expenses.................. 239.6 16.7 256.3
-------- ----- ----- --------
Total benefits and
expenses.............. 1,761.3 62.5 (1.1) 1,822.7
-------- ----- ----- --------
Income (loss) before
income taxes, minority
interest and
extraordinary charge.. 308.9 13.9 (2.5) 320.3
Income tax expense
(benefit).................. 120.0 4.9 (0.9)(49) 124.0
-------- ----- ----- --------
Income (loss) before
minority interest and
extraordinary charge.. 188.9 9.0 (1.6) 196.3
Minority interest in
consolidated subsidiaries:
Dividends on redeemable
preferred stock........... 10.6 10.6
Dividends on preferred
stock..................... 4.4 4.4
Equity in earnings......... -- --
-------- ----- ----- --------
Income (loss) before
extraordinary charge.. $ 173.9 $ 9.0 $(1.6) $ 181.3
======== ===== ===== ========
Earnings per common share
and common equivalent
share:
Primary:
Weighted average shares
outstanding............. 95.1 4.7 (50) 99.8
======== ===== ========
Income before
extraordinary charge.... $ 1.83 $ 1.82
======== ========
Fully diluted:
Weighted average shares
outstanding............. 100.9 4.7 (50) 105.6
======== ===== ========
Income before
extraordinary charge.... $ 1.75 $ 1.74
======== ========
</TABLE>
- --------
(a) Amounts have been carried forward from page 65.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
66
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONSECO PRO FORMA ADJUSTMENTS
BEFORE ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
THE ATC RELATING TO FOR THE THE BLH CONSECO
MERGER HISTORICAL THE MERGER MERGER TRANSACTION SUBTOTAL(A)
--------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy
income................ $1,752.8 $273.9 $ -- $2,026.7 $(0.3)(16) $2,026.4
Investment activity:
Net investment
income.............. 1,461.1 23.2 1.8 (1) 1,486.1 (0.1)(16) 1,486.0
Net trading income... 2.5 2.5 2.5
Net realized gains... 220.3 0.2 2.0 (1) 222.5 (0.4)(16) 222.1
Fee revenue............ 33.9 33.9 33.9
Restructuring income... 15.2 15.2 15.2
Other income........... 12.6 12.6 (0.1)(16) 12.5
-------- ------ ------ -------- ----- --------
Total revenues..... 3,498.4 297.3 3.8 3,799.5 (0.9) 3,798.6
-------- ------ ------ -------- ----- --------
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits.............. 1,261.4 172.9 1,434.3 (1.7)(16) 1,432.6
Interest expense on
annuities and
financial products.... 758.5 758.5 0.3 (16) 758.8
Interest expense on
notes payable......... 143.5 3.3 1.9 (2) 145.5 (0.4)(16) 145.1
(3.2)(3)
Interest expense on
investment
borrowings............ 30.2 30.2 30.2
Amortization related
to operations......... 307.3 22.7 (22.7)(4) 345.2 (2.8)(16) 342.4
23.5 (4)
14.4 (5)
Amortization related
to realized gains..... 144.4 144.4 (0.6)(16) 143.8
Loss on sale of long-
term care business.... -- --
Expenses of spin-off
and related
transactions.......... -- --
Other operating costs
and expenses.......... 356.4 63.7 420.1 5.9 (16) 426.0
-------- ------ ------ -------- ----- --------
Total benefits and
expenses.......... 3,001.7 262.6 13.9 3,278.2 0.7 3,278.9
-------- ------ ------ -------- ----- --------
Income (loss)
before income
taxes, minority
interest and
extraordinary
charge............ 496.7 34.7 (10.1) 521.3 (1.6) 519.7
Income tax expense
(benefit).............. 192.3 11.0 1.5 (6) 204.8 (0.6)(17) 204.2
-------- ------ ------ -------- ----- --------
Income (loss)
before minority
interest and
extraordinary
charge............ 304.4 23.7 (11.6) 316.5 (1.0) 315.5
Minority interest 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)(18) --
-------- ------ ------ -------- ----- --------
Income (loss)
before
extraordinary
charge............ $ 283.1 $ 23.7 $(11.6) $ 295.2 $11.6 $ 306.8
======== ====== ====== ======== ===== ========
Earnings per common
share and common
equivalent share:
Primary:
Weighted average
shares outstanding.. 75.7 13.1 (7) 88.8 2.6 (19) 91.4
======== ====== ======== ===== ========
Income before
extraordinary
charge.............. $ 3.74 $ 3.32 $ 3.36
======== ======== ========
Fully diluted:
Weighted average
shares outstanding.. 76.0 18.1 (7) 94.1 2.6 (19) 96.7
======== ====== ======== ===== ========
Income before
extraordinary
charge.............. $ 3.72 $ 3.15 $ 3.19
======== ======== ========
</TABLE>
- --------
(a) Amounts have been carried forward to page 68.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
67
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA RELATING
ADJUSTMENTS TO THE
PRO FORMA RELATING TO PRO FORMA PREFERRED PRO FORMA
CONSECO CAF THE CAF CONSECO SECURITIES CONSECO
SUBTOTAL (A) HISTORICAL MERGER SUBTOTAL OFFERING SUBTOTAL (B)
------------ ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy
income................ $2,026.4 $282.1 $ -- $2,308.5 $ -- $2,308.5
Investment activity:
Net investment
income.............. 1,486.0 48.6 (3.4)(22) 1,531.2 1,531.2
Net trading income... 2.5 2.5 2.5
Net realized gains... 222.1 (0.1)(22) 222.0 222.0
Fee revenue............ 33.9 33.9 33.9
Restructuring income... 15.2 15.2 15.2
Other income........... 12.5 0.1 12.6 12.6
-------- ------ ------ -------- ------ --------
Total revenues..... 3,798.6 330.8 (3.5) 4,125.9 -- 4,125.9
-------- ------ ------ -------- ------ --------
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits.............. 1,432.6 155.3 (3.0)(23) 1,584.9 1,584.9
Interest expense on
annuities and
financial products.... 758.8 758.8 758.8
Interest expense on
notes payable......... 145.1 2.4 (2.4)(24) 182.2 (21.5)(41) 160.7
37.1 (25)
Interest expense on
investment
borrowings............ 30.2 30.2 30.2
Amortization related
to operations......... 342.4 21.5 (21.5)(26) 380.2 380.2
32.0 (26)
5.8 (27)
Amortization related
to realized gains..... 143.8 143.8 143.8
Loss on sale of long-
term care business.... -- --
Expenses of spin-off
and related
transactions.......... -- --
Other operating costs
and expenses.......... 426.0 80.0 506.0 506.0
-------- ------ ------ -------- ------ --------
Total benefits and
expenses............ 3,278.9 259.2 48.0 3,586.1 (21.5) 3,564.6
-------- ------ ------ -------- ------ --------
Income (loss)
before income
taxes, minority
interest and
extraordinary
charge............ 519.7 71.6 (51.5) 539.8 21.5 561.3
Income tax expense
(benefit).............. 204.2 25.6 (16.0)(28) 213.8 7.5 (42) 221.3
-------- ------ ------ -------- ------ --------
Income (loss)
before minority
interest and
extraordinary
charge............ 315.5 46.0 (35.5) 326.0 14.0 340.0
Minority interest in
consolidated
subsidiaries:
Dividends on
redeemable preferred
stock................. -- -- 21.1(43) 21.1
Dividends on preferred
stock................. 8.7 8.7 8.7
Equity in earnings..... -- -- --
-------- ------ ------ -------- ------ --------
Income (loss)
before
extraordinary
charge............ $ 306.8 $ 46.0 $(35.5) $ 317.3 $ (7.1) $ 310.2
======== ====== ====== ======== ====== ========
Earnings per common
share and common
equivalent share:
Primary:
Weighted average
shares outstanding.. 91.4 2.4 (29) 93.8 93.8
======== ====== ======== ========
Income before
extraordinary
charge.............. $ 3.36 $ 3.38 $ 3.31
======== ======== ========
Fully diluted:
Weighted average
shares outstanding.. 96.7 2.4 (29) 99.1 99.1
======== ====== ======== ========
Income before
extraordinary
charge.............. $ 3.19 $ 3.22 $ 3.14
======== ======== ========
</TABLE>
- --------
(a) Amounts have been carried forward from page 67.
(b) Amounts have been carried forward to page 69.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
68
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA FOR
PRO FORMA ADJUSTMENTS THE MERGER AND
CONSECO THI RELATING TO THE OTHER PLANNED
SUBTOTAL(A) HISTORICAL THI MERGER TRANSACTIONS
----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy
income................. $2,308.5 $190.2 $ -- $2,498.7
Investment activity:
Net investment income. 1,531.2 49.7 (6.9)(46) 1,574.0
Net trading income.... 2.5 2.5
Net realized gains.... 222.0 6.7 (6.7)(46) 222.0
Fee revenue............. 33.9 33.9
Restructuring income.... 15.2 15.2
Other income............ 12.6 12.6
-------- ------ ------ --------
Total revenues...... 4,125.9 246.6 (13.6) 4,358.9
-------- ------ ------ --------
Benefits and expenses:
Insurance policy
benefits and change in
future policy
benefits............... 1,584.9 131.9 1,716.8
Interest expense on
annuities and
financial products..... 758.8 758.8
Interest expense on
notes payable.......... 160.7 2.3 (2.3)(47) 161.9
1.2 (47)
Interest expense on
investment borrowings.. 30.2 30.2
Amortization related to
operations............. 380.2 24.5 (24.5)(48) 396.1
15.9 (48)
Amortization related to
realized gains......... 143.8 143.8
Loss on sale of long-
term care business..... -- 68.5 (68.5)(51) --
Expenses of spin-off
and related
transactions........... -- 2.2 (2.2)(51) --
Other operating costs
and expenses........... 506.0 58.3 564.3
-------- ------ ------ --------
Total benefits and
expenses............. 3,564.6 287.7 (80.4) 3,771.9
-------- ------ ------ --------
Income (loss) before
income taxes,
minority interest
and extraordinary
charge............. 561.3 (41.1) 66.8 587.0
Income tax expense
(benefit)............... 221.3 (14.3) 22.7 (49) 229.7
-------- ------ ------ --------
Income (loss) before
minority interest
and extraordinary
charge............. 340.0 (26.8) 44.1 357.3
Minority interest in
consolidated
subsidiaries:
Dividends on redeemable
preferred stock........ 21.1 21.1
Dividends on preferred
stock.................. 8.7 8.7
Equity in earnings...... -- --
-------- ------ ------ --------
Income (loss) before
extraordinary
charge............. $ 310.2 $(26.8) $ 44.1 $ 327.5
======== ====== ====== ========
Earnings per common share
and common equivalent
share:
Primary:
Weighted average
shares outstanding... 93.8 4.7 (50) 98.5
======== ====== ========
Income before
extraordinary charge. $ 3.31 $ 3.33
======== ========
Fully diluted:
Weighted average
shares outstanding... 99.1 4.7 (50) 103.8
======== ====== ========
Income before
extraordinary charge. $ 3.14 $ 3.17
======== ========
</TABLE>
- --------
(a) Amounts have been carried forward from page 68.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
69
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO PRO FORMA PRO FORMA
BEFORE ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
THE ATC RELATING TO FOR THE RELATING TO THE CONSECO
MERGER HISTORICAL THE MERGER MERGER BLH TRANSACTION SUBTOTAL(A)
--------- ---------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Actively managed fixed
maturity securities
at fair value........ $15,872.3 $651.8 $ -- $16,524.1 $ -- $16,524.1
Held-to-maturity fixed
maturity securities.. -- --
Equity securities at
fair value........... 99.6 99.6 99.6
Mortgage loans........ 404.2 0.4 404.6 404.6
Credit-tenant loans... 309.7 309.7 309.7
Policy loans.......... 528.7 528.7 528.7
Other invested assets. 191.0 191.0 191.0
Trading account
securities........... 0.7 0.7 0.7
Short-term
investments.......... 204.6 17.5 (30.4)(8) 222.1 222.1
30.4 (9)
Assets held in
separate accounts.... 271.6 271.6 271.6
--------- ------ ------- --------- ----- ---------
Total investments... 17,882.4 669.7 -- 18,552.1 -- 18,552.1
Accrued investment
income................. 284.1 7.4 291.5 291.5
Cost of policies
purchased.............. 1,893.6 11.2 256.2 (10) 2,149.8 65.0 (16) 2,214.8
(11.2)(10)
Cost of policies
produced............... 483.2 160.8 (160.8)(11) 483.2 (50.0)(16) 433.2
Reinsurance receivables. 374.6 374.6 374.6
Income taxes............ 209.7 (25.6)(12) 163.1 (5.3)(17) 157.8
(21.0)(12)
Goodwill................ 1,566.8 577.3 (13) 2,144.1 55.3 (16) 2,199.4
Property and equipment.. 89.0 4.0 93.0 93.0
Securites segregated for
future redemption of
redeemable preferred
stock of a Partnership
II entity.............. 40.7 40.7 40.7
Other assets............ 234.2 14.3 248.5 248.5
--------- ------ ------- --------- ----- ---------
Total assets........ $23,058.3 $867.4 $ 614.9 $24,540.6 $65.0 $24,605.6
========= ====== ======= ========= ===== =========
</TABLE>
- --------
(a) Amounts have been carried forward to page 71.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
70
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
ADJUSTMENTS RELATING TO
PRO FORMA RELATING PRO FORMA THE PREFERRED PRO FORMA
CONSECO CAF TO THE CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL CAF MERGER SUBTOTAL OFFERING SUBTOTAL(B)
----------- ---------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Actively managed fixed
maturity securities
at fair value........ $16,524.1 $318.1 $ 351.8 (30) $17,291.1 $ -- $17,291.1
97.1 (31)
Held-to-maturity fixed
maturity securities.. -- 351.8 (351.8)(30) -- --
Equity securities at
fair value........... 99.6 99.6 99.6
Mortgage loans........ 404.6 404.6 404.6
Credit-tenant loans... 309.7 309.7 309.7
Policy loans.......... 528.7 528.7 528.7
Other invested assets. 191.0 191.0 191.0
Trading account
securities........... 0.7 0.7 0.7
Short-term
investments.......... 222.1 2.2 (534.0)(32) 224.3 331.2 (44) 224.3
(26.0)(32) (331.2)(44)
(29.5)(32)
589.5 (33)
Assets held in
separate accounts.... 271.6 271.6 271.6
--------- ------ ------- --------- ------- ---------
Total investments... 18,552.1 672.1 97.1 19,321.3 -- 19,321.3
Accrued investment
income................. 291.5 8.3 299.8 299.8
Cost of policies
purchased.............. 2,214.8 483.3 (34) 2,698.1 2,698.1
Cost of policies
produced............... 433.2 266.4 (266.4)(35) 433.2 433.2
Reinsurance receivables. 374.6 374.6 374.6
Income taxes............ 157.8 (80.1)(36) 25.9 25.9
(51.8)(36)
Goodwill................ 2,199.4 232.5 (37) 2,431.9 2,431.9
Property and equipment.. 93.0 4.8 97.8 97.8
Securites segregated for
future redemption of
redeemable preferred
stock of a Partnership
II entity.............. 40.7 40.7 40.7
Other assets............ 248.5 28.8 277.3 277.3
--------- ------ ------- --------- ------- ---------
Total assets........ $24,605.6 $980.4 $ 414.6 $26,000.6 $ -- $26,000.6
========= ====== ======= ========= ======= =========
</TABLE>
- --------
(a) Amounts have been carried forward from page 70.
(b) Amounts have been carried forward to page 72.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
71
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA THE MERGER
PRO FORMA ADJUSTMENTS AND OTHER
CONSECO THI RELATING TO THE PLANNED
SUBTOTAL(A) HISTORICAL THI MERGER TRANSACTIONS
----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Actively managed fixed
maturity securities at
fair value............ $17,291.1 $480.5 $ (83.1)(52) $17,688.5
Held-to-maturity fixed
maturity securities... -- --
Equity securities at
fair value............ 99.6 0.9 100.5
Mortgage loans......... 404.6 8.6 413.2
Credit-tenant loans.... 309.7 309.7
Policy loans........... 528.7 17.8 546.5
Other invested assets.. 191.0 5.1 196.1
Trading account
securities............ 0.7 0.7
Short-term investments. 224.3 21.0 83.1 (52) 245.3
18.5 (53)
(18.5)(53)
(58.3)(53)
(24.8)(53)
Assets held in separate
accounts.............. 271.6 271.6
--------- ------ ------- ---------
Total investments.... 19,321.3 533.9 (83.1) 19,772.1
Accrued investment
income.................. 299.8 6.4 306.2
Cost of policies
purchased............... 2,698.1 11.3 121.9 (54) 2,820.0
(11.3)(54)
Cost of policies
produced................ 433.2 28.8 (28.8)(55) 433.2
Reinsurance receivables.. 374.6 319.7 (253.4)(57) 440.9
Income taxes............. 25.9 (25.9)(56) --
Goodwill................. 2,431.9 2,431.9
Property and equipment... 97.8 97.8
Securites segregated for
future redemption of
redeemable preferred
stock of a Partnership
II entity............... 40.7 40.7
Other assets............. 277.3 24.4 301.7
--------- ------ ------- ---------
Total assets......... $26,000.6 $924.5 $(280.6) $26,644.5
========= ====== ======= =========
</TABLE>
- --------
(a) Amounts have been carried forward from page 71.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
72
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONSECO PRO FORMA ADJUSTMENTS
BEFORE ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
THE ATC RELATING TO FOR THE THE BLH CONSECO
MERGER HISTORICAL THE MERGER MERGER TRANSACTION SUBTOTAL(A)
--------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities. $18,133.2 $563.9 $ -- $18,697.1 $ -- $18,697.1
Income tax
liabilities.......... -- 21.0 (21.0)(12) -- --
Investment borrowings. 516.6 516.6 516.6
Other liabilities..... 457.9 8.0 11.2 (14) 477.1 477.1
Liabilities related to
separate accounts.... 271.6 271.6 271.6
Notes payable of
Conseco.............. 1,198.5 103.5 30.4 (9) 1,468.9 437.9 (20) 1,906.8
136.5 (14)
Notes payable of
Bankers Life Holding
Corporation, not
direct obligations of
Conseco.............. 437.9 437.9 (437.9)(20) --
--------- ------ ------ --------- ------ ---------
Total liabilities... 21,015.7 696.4 157.1 21,869.2 -- 21,869.2
--------- ------ ------ --------- ------ ---------
Minority interest 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)(18) --
--------- ------ ------ --------- ------ ---------
Shareholders' equity:
Preferred stock....... 267.1 267.1 267.1
Common stock and
additional paid-in
capital.............. 1,040.9 63.8 (63.8)(15) 1,669.7 122.5 (21) 1,792.2
628.8 (15)
Unrealized
appreciation
(depreciation) of
securities........... (56.1) (10.8) 10.8 (15) (56.1) (56.1)
Retained earnings..... 640.0 118.0 (118.0)(15) 640.0 640.0
--------- ------ ------ --------- ------ ---------
Total shareholders'
equity............. 1,891.9 171.0 457.8 2,520.7 122.5 2,643.2
--------- ------ ------ --------- ------ ---------
Total liabilities
and shareholders'
equity............. $23,058.3 $867.4 $614.9 $24,540.6 $ 65.0 $24,605.6
========= ====== ====== ========= ====== =========
</TABLE>
- --------
(a) Amounts have been carried forward to page 74.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
73
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATING
PRO FORMA TO THE
PRO FORMA ADJUSTMENTS PRO FORMA PREFERRED PRO FORMA
CONSECO CAF RELATING TO CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL THE CAF MERGER SUBTOTAL OFFERING SUBTOTAL(B)
----------- ---------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities....... $18,697.1 $587.9 $ 85.0 (38) $19,370.0 $ -- $19,370.0
Income tax liabilities...... -- 51.8 (51.8)(36) -- --
Investment borrowings....... 516.6 516.6 516.6
Other liabilities........... 477.1 16.9 494.0 494.0
Liabilities related to
separate accounts.......... 271.6 271.6 271.6
Notes payable of Conseco.... 1,906.8 29.5 (29.5)(39) 2,496.3 (331.2)(44) 2,165.1
589.5 (33)
Notes payable of Bankers
Life Holding Corporation,
not direct obligations of
Conseco.................... -- --
--------- ------ ------ --------- ------- ---------
Total liabilities......... 21,869.2 686.1 593.2 23,148.5 (331.2) 22,817.3
--------- ------ ------ --------- ------- ---------
Minority interest in
consolidated subsidiaries:
Company-obligated mandatorily
redeemable preferred stock. -- -- 350.0(45) 350.0
Preferred stock............. 93.2 93.2 93.2
Common stock................ -- -- --
--------- ------ ------ --------- ------- ---------
Shareholders' equity:
Preferred stock............. 267.1 267.1 267.1
Common stock and additional
paid-in capital............ 1,792.2 35.5 (35.5)(40) 1,907.9 (18.8)(45) 1,889.1
115.7 (40)
Unrealized appreciation
(depreciation) of
securities................. (56.1) (2.1) 2.1 (40) (56.1) (56.1)
Retained earnings........... 640.0 260.9 (260.9)(40) 640.0 640.0
--------- ------ ------ --------- ------- ---------
Total shareholders'
equity................... 2,643.2 294.3 (178.6) 2,758.9 (18.8) 2,740.1
--------- ------ ------ --------- ------- ---------
Total liabilities and
shareholders' equity..... $24,605.6 $980.4 $414.6 $26,000.6 $ -- $26,000.6
========= ====== ====== ========= ======= =========
</TABLE>
- --------
(a) Amounts have been carried forward from page 73.
(b) Amounts have been carried forward to page 75.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
74
<PAGE>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS MERGER AND
PRO FORMA RELATING TO OTHER
CONSECO THI THE THI PLANNED
SUBTOTAL(A) HISTORICAL MERGER TRANSACTIONS
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Liabilities:
Insurance liabilities..... $19,370.0 $612.7 $(253.4)(57) $19,729.3
Income tax liabilities.... -- 18.4 2.8 (56) 21.2
Investment borrowings..... 516.6 516.6
Other liabilities......... 494.0 17.0 511.0
Liabilities related to
separate accounts........ 271.6 271.6
Notes payable of Conseco.. 2,165.1 108.3 (58.3)(58) 2,183.6
(50.0)(58)
18.5 (58)
Notes payable of Bankers
Life Holding Corporation,
not direct obligations of
Conseco.................. -- --
--------- ------ ------- ---------
Total liabilities....... 22,817.3 756.4 (340.4) 23,233.3
--------- ------ ------- ---------
Minority interest in
consolidated subsidiaries:
Company-obligated
mandatorily redeemable
preferred stock.......... 350.0 350.0
Preferred stock........... 93.2 93.2
Common stock.............. -- --
--------- ------ ------- ---------
Shareholders' equity:
Preferred stock........... 267.1 22.8 (22.8)(59) 267.1
Common stock and
additional paid-in
capital.................. 1,889.1 169.7 (169.7)(59) 2,117.0
121.7 (59)
106.2 (59)
Unrealized appreciation
(depreciation) of
securities............... (56.1) 4.0 (4.0)(59) (56.1)
Retained earnings......... 640.0 (28.4) 28.4 (59) 640.0
--------- ------ ------- ---------
Total shareholders'
equity................. 2,740.1 168.1 59.8 2,968.0
--------- ------ ------- ---------
Total liabilities and
shareholders' equity... $26,000.6 $924.5 $(280.6) $26,644.5
========= ====== ======= =========
</TABLE>
- --------
(a) Amounts have been carried forward from page 74.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
75
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA ADJUSTMENTS
Transactions Relating to the Merger
The Merger will be accounted for under the purchase method of accounting.
Under this method, the total cost to acquire ATC will be allocated to the
assets and liabilities acquired based on their fair values as of the date of
the Merger, with any excess of the total purchase cost over the fair value of
the assets acquired less the fair value of the liabilities assumed recorded as
goodwill. Conseco believes the Merger will not qualify to be accounted for
under the pooling of interests method in accordance with APB No. 16 because an
affiliate of ATC intends to sell a portion of the Conseco Common Stock it
receives in the Merger shortly after the Effective Time. In the Merger, each
outstanding share of ATC Common Stock is assumed to be exchanged for a
fraction of a share of Conseco Common Stock to be determined based on an
average price of Conseco's Common Stock prior to its closing (it is assumed
the Conseco Share Price will be $48.00, resulting in an exchange ratio of
.7298 shares valued at $35.03). Conseco will issue an assumed 13.1 million
shares of Conseco Common Stock with a value of approximately $628.8 million to
acquire the ATC Common Stock. In addition, Conseco will assume the Debentures,
which will be convertible into an assumed 5.0 million shares of Conseco Common
Stock with a value of approximately $240 million. In addition, Conseco is
expected to incur costs related to the Merger (including contract termination,
relocation, legal, accounting and other costs) of approximately $30.4 million.
<TABLE>
<S> <C>
The cost to acquire ATC is allocated as follows (dollars in
millions):
Book value of assets acquired based on the assumed date of
the Merger (June 30, 1996).................................. $ 171.0
Debentures assumed by Conseco at the assumed date of the
Merger...................................................... 103.5
Increase (decrease) in ATC's net asset value to reflect
estimated fair value and asset reclassifications at the
assumed date of the Merger:
Cost of policies purchased (related to the Merger)......... 256.2
Cost of policies produced and cost of policies purchased
(historical).............................................. (172.0)
Goodwill (related to the Merger)........................... 577.3
Income taxes............................................... (25.6)
Other liabilities.......................................... (11.2)
-------
Total estimated fair value adjustments..................... 624.7
-------
Total cost to acquire ATC................................ $ 899.2
=======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the Merger as of January 1, 1995, are summarized below.
(1) Net investment income and net realized gains of ATC are adjusted to
include the effect of adjustments to restate the amortized cost basis of
fixed maturity securities to their estimated fair value.
(2) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's revolving credit facility used to complete the Merger would
result in: (1) an increase (or decrease) in pro forma interest expense of
$.2 million and $.1 million for the year ended December 31, 1995, and the
six months ended June 30, 1996, respectively; and (2) a decrease (or
increase) in pro forma net income of $.1 million and $.1 million for the
same respective periods.
(3) Interest expense is reduced to reflect the amortization of the
liability established at the assumed date of the Merger representing the
present value of the interest payable on the 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 the Debentures would be
convertible into during the same period.
76
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) Amortization of the cost of policies produced and the cost of
policies purchased prior to the Merger is replaced with the amortization of
the cost of policies purchased (amortized in relation to estimated premiums
on the policies purchased with interest equal to the liability rate which
averages 5.5 percent).
(5) Amortization of goodwill acquired in the Merger is recognized over a
40-year period on a straight-line basis.
(6) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(7) Common shares outstanding are increased to reflect the Conseco shares
issued in the Merger. Fully diluted shares also include Conseco shares
which will be issued when the Debentures are converted.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Merger as of June 30, 1996, are summarized below.
(8) Cash is reduced for payments made to complete the Merger.
(9) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the Merger.
(10) ATC's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the Merger. Cost
of policies purchased reflects the estimated fair value of ATC's business
in force and represents the portion of the cost to acquire ATC that is
allocated to the value of the right to receive future cash flows from the
acquired policies.
The 18 percent discount rate used to determine such value is the rate of
return required by Conseco to invest in the business being acquired. In
determining such rate of return, the following factors are considered:
--The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
--Cost of capital available to fund the acquisition.
--The perceived likelihood of changes in insurance regulations and tax
laws.
--Complexity of the acquired company.
--Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 5.5 percent)
for each of the years in the five-year period ending June 30, 2001, are as
follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR
ENDING BEGINNING GROSS ACCRETION OF NET ENDING
JUNE 30, BALANCE AMORTIZATION INTEREST AMORTIZATION BALANCE
-------- --------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1997 $256.2 $33.7 $13.5 $20.2 $236.0
1998 236.0 30.8 12.3 18.5 217.5
1999 217.5 28.2 11.4 16.8 200.7
2000 200.7 26.0 10.4 15.6 185.1
2001 185.1 24.0 9.6 14.4 170.7
</TABLE>
(11) ATC's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
77
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax liabilities of ATC are
netted against deferred tax assets of Conseco.
(13) Goodwill acquired in the Merger is recognized.
(14) Notes payable are increased to reflect the fair value of the
Debentures at the date of the Merger. Such fair value represents the value
of the Conseco Common Stock which the Debentures will be convertible into
after the Merger. It is assumed that the holders of the Debentures do not
convert into Conseco Common Stock at the time of the Merger.
In addition, a liability is established representing the present value of
the interest payable on the 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 the Debentures would be convertible into
during the same period.
(15) The prior shareholders' equity of ATC is eliminated in conjunction
with the Merger. Common stock and additional paid-in capital is increased
by the value of Conseco Common Stock issued in the Merger.
OTHER PLANNED TRANSACTIONS
Transactions relating to the BLH Transaction
Conseco has proposed to acquire all of the common stock of BLH, not
previously owned by Conseco. In the BLH Transaction, each share of BLH common
stock would be converted into the right to receive a fraction of a share of
Conseco Common Stock to be determined based on the average price of Conseco
Common Stock prior to closing (it is assumed that such price per share of
Conseco Common Stock will be $48.00, resulting in an exchange ratio of .5208
shares valued at $25.00). Conseco will issue an assumed 2.6 million shares of
Conseco Common Stock with a value of approximately $122.5 million.
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco using the step acquisition method of
accounting. Under this method, the total purchase cost of the common stock of
BLH, not already owned by Conseco, is allocated to the assets and liabilities
acquired based on their relative fair values as of the date of acquisition,
with any excess of the total purchase cost over the fair value of the assets
acquired less the fair value of the liabilities assumed recorded as goodwill.
The values of the assets and liabilities of BLH included in Conseco's pro
forma consolidated financial statements represent the combination of the
following values: (1) the portion of BLH's net assets acquired by Conseco in
the initial acquisition made by Conseco Capital Partners, L.P. on October 31,
1992, is valued as of that acquisition date; (2) the portion of BLH's net
assets acquired by Conseco on September 30, 1993, is valued as of that
acquisition date; (3) the portion of BLH's net assets acquired during 1995 and
the first quarter of 1996 is valued as of its assumed date of acquisition; and
(4) the portion of BLH's net assets acquired in the BLH Transaction is valued
at the assumed dates of acquisition.
Adjustments to give effect to the BLH Transaction are summarized below:
(16) As described above, the BLH Transaction is accounted for as a step
acquisition. The accounts of BLH are adjusted to reflect the step basis
method of accounting as if the BLH Transaction was completed on the assumed
dates of acquisition.
(17) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
(18) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of BLH.
(19) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares of BLH
common stock.
(20) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by Conseco.
78
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(21) Common stock and additional paid-in capital is increased by the
value of Conseco Common Stock issued in the acquisition of additional
shares of BLH common stock.
Transactions relating to the CAF Merger
The CAF Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire CAF will be allocated
to the assets and liabilities acquired based on their fair values as of the
date of the CAF Merger, with any excess of the total purchase cost over the
fair value of the assets acquired less the fair value of the liabilities
assumed recorded as goodwill. In the CAF Merger, each outstanding share of CAF
common stock is assumed to be exchanged for $30 in cash and the right to
receive a fraction of a share of Conseco Common Stock to be determined based
on the average price of Conseco Common Stock prior to its closing (it is
assumed that such average price per share of Conseco Common Stock will be
$48.00, resulting in an exchange ratio of .1354). Conseco will pay
approximately $534 million in cash and issue an assumed 2.4 million shares of
Conseco Common Stock with a value of approximately $115.7 million to acquire
the CAF common stock. In addition, Conseco is expected to assume a note
payable of CAF of $29.5 million and incur costs related to the CAF Merger
(including contract termination, relocation, legal, accounting and other
costs) of approximately $26 million.
<TABLE>
<S> <C>
The cost to acquire CAF is allocated as follows (dollars in
millions):
Book value of assets acquired based on the assumed date of
the CAF Merger (June 30, 1996) ............................. $ 294.3
Notes payable of CAF assumed by Conseco at the assumed date
of the CAF Merger........................................... 29.5
Increase (decrease) in CAF's net asset value to reflect
estimated fair value and asset reclassifications at the
assumed date of the CAF Merger:
Actively managed fixed maturity securities................. 448.9
Held-to-maturity fixed maturity securities................. (351.8)
Cost of policies purchased (related to the CAF Merger)..... 483.3
Cost of policies produced.................................. (266.4)
Goodwill (related to the CAF Merger)....................... 232.5
Insurance liabilities ..................................... (85.0)
Income taxes............................................... (80.1)
-------
Total estimated fair value adjustments................... 381.4
-------
Total cost to acquire CAF................................ $ 705.2
=======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the CAF Merger as of January 1, 1995, are summarized below.
(22) Net investment income and net realized gains of CAF are adjusted to
include the effect of adjustments to restate the amortized cost basis of
fixed maturity securities to their estimated fair value.
(23) Change in policy benefits is reduced to reflect the purchase
accounting adjustments made at the assumed date of the CAF Merger. Such
adjustment reflects the lower discount rate used to discount amounts of
expected future benefit payments to correspond to the adjustments to
restate the amortized cost of fixed maturity investments to their estimated
fair value.
(24) Interest expense is reduced to reflect the repayment of notes
payable of CAF by Conseco at the assumed date of the CAF Merger.
(25) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the CAF Merger.
79
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(26) Amortization of the cost of policies produced for policies sold by
CAF prior to January 1, 1995, is replaced with the amortization of the cost
of policies purchased (amortized in relation to estimated premiums on the
policies purchased with interest equal to the liability rate which averages
5.5 percent.
(27) Amortization of goodwill acquired in the CAF Merger is recognized
over a 40-year period on a straight-line basis.
(28) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(29) Common shares outstanding are increased to reflect the shares issued
in the CAF Merger.
Adjustments to the pro forma consolidated balance sheet to give effect to the
CAF Merger as of June 30, 1996, are summarized below.
(30) After the CAF Merger, all held-to-maturity securities are classified
as actively managed fixed maturity securities consistent with the intention
of the new management.
(31) CAF's fixed maturity securities are restated to estimated fair
value.
(32) Cash is reduced for payments made to complete the CAF Merger.
(33) Short-term investments and notes payable of Conseco are increased
for additional borrowings by Conseco to complete the CAF Merger.
(34) Cost of policies purchased reflects the estimated fair value of
CAF's business in force and represents the portion of the cost to acquire
CAF that is allocated to the value of the right to receive future cash
flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate of
return required by Conseco to invest in the business being acquired. In
determining such rate of return, the following factors are considered:
--The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
--Cost of capital available to fund the acquisition.
--The perceived likelihood of changes in insurance regulations and tax
laws.
--Complexity of the acquired company.
--Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 5.5 percent)
for each of the years in the five-year period ending June 30, 2001, are as
follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDING BEGINNING GROSS ACCRETION NET ENDING
JUNE 30, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
----------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1997 $483.3 $59.3 $26.6 $32.7 $450.6
1998 450.6 54.2 24.7 29.5 421.1
1999 421.1 51.3 23.2 28.1 393.0
2000 393.0 48.6 21.7 26.9 366.1
2001 366.1 46.1 20.1 26.0 340.1
</TABLE>
80
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(35) CAF's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(36) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. In addition, deferred tax liabilities of
CAF are netted against deferred tax assets of Conseco.
(37) Goodwill acquired in the CAF Merger is recognized.
(38) Additional insurance liabilities are recognized to reflect the lower
discount rates used to determine the present value of future obligations,
consistent with the lower yields to be earned on invested assets as a
result of recognizing the fair value of fixed maturity securities.
(39) Notes payable are reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the CAF Merger.
(40) The prior shareholders' equity of CAF is eliminated in conjunction
with the CAF Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the CAF Merger.
Transactions relating to the Preferred Securities Offering
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.
(41) Interest expense is reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement.
A change in interest rates of .5 percent on the borrowings under the
Conseco Credit Agreement to be repaid from the Preferred Securities
Offering would result in: (1) a decrease (or increase) in pro forma
interest expense of $1.7 million and $.8 million for the year ended
December 31, 1995, and the six months ended June 30, 1996, respectively;
and (2) an increase (or decrease) in pro forma net income of $1.1 million
and $.5 million for the same respective periods.
(42) The pro forma adjustment is tax affected, based on Conseco's
effective tax rate of 35 percent.
(43) Minority interest is adjusted to reflect the dividends (net of the
related tax benefit) on the Preferred Securities.
(44) Notes payable are reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement using the net proceeds from the
Preferred Securities.
(45) Conseco's minority interest in consolidated subsidiaries is
increased by the total par value of the Preferred Securities. Issuance and
other transaction costs related to the Preferred Securities are charged to
paid-in capital.
Transactions relating to the THI Merger
The THI Merger will be accounted for under the purchase method of accounting.
Under this method, the total cost to acquire THI will be allocated to the
assets and liabilities acquired based on their fair values as of the date of
the THI Merger, with any excess of the total purchase cost over the fair value
of the assets acquired less the fair value of the liabilities assumed recorded
as goodwill. Conseco believes the THI Merger will not qualify to be accounted
for under the pooling of interests method in accordance with APB No. 16 because
THI was a subsidiary of another corporation within two years of the
contemplated transaction. In the THI Merger, each outstanding share of THI
common stock (or its equivalent) is assumed to be exchanged for a fraction of a
share of Conseco Common Stock to be determined based on the price of Conseco
Common Stock prior to its closing (it is assumed such average price per share
of Conseco Common Stock will be $48.00, resulting in an exchange ratio of
1.4583 shares valued at $70.00). Conseco will issue an assumed 2.5 million
shares of Conseco Common
81
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock with a value of approximately $121.7 million to acquire the THI Common
Stock (or equivalents). In addition, THI's convertible subordinated notes (the
"THI Convertibles Notes") will be exchanged for Conseco convertible
subordinated notes (the "Conseco Convertible Notes") which will be convertible
into shares of Conseco Common Stock based on the price of Conseco Common Stock
prior to the THI Merger (such fully converted value being the same as the THI
Convertible Notes). Using the same assumption that each share of THI will be
convertible into 1.4583 shares of Conseco Common Stock with a value of $70.00,
in aggregate, the Conseco Convertible Notes will be convertible into 2.2
million shares of Conseco Common Stock with a value of approximately $106.2
million. Immediately after the THI Merger, Conseco plans to cause the Conseco
Convertible Notes to be converted by payment of a premium of $8.5 million.
Conseco is expected to incur costs related to the THI Merger (including
contract termination, relocation, legal, accounting and other costs) of
approximately $10 million.
<TABLE>
<S> <C>
The cost to acquire THI is allocated as follows (dollars in
millions):
Book value of assets acquired based on assumed date of the THI
Merger (June 30, 1996) ....................................... $168.1
THI Convertible Notes exchanged into Conseco Convertible Notes
and converted to Conseco Common Stock at the assumed date of
the THI Merger................................................ 50.0
Less book value of THI preferred stock......................... (22.8)
Increase (decrease) in THI's net asset value to reflect
estimated fair value and asset reclassifications at the
assumed date of the THI Merger:
Cost of policies purchased (related to the THI Merger)....... 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
Convertible Notes........................................... (8.5)
Premium incurred to retire THI preferred stock............... (2.0)
------
Total estimated fair value adjustments..................... 42.6
------
Total cost to acquire THI.................................. $237.9
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the THI Merger as of January 1, 1995, are summarized below.
(46) Net investment income and net realized gains of THI are adjusted to
include the effect of adjustments to restate the amortized cost basis of
fixed maturity securities to their estimated fair value and the effect of
the assumed sale of $83.1 million fixed maturity investments, with the
proceeds used to repay $58.3 million of bank debt and redeem preferred
stock with a redemption value of $24.8 million.
(47) Interest expense is reduced to reflect the repayment of bank debt of
$58.3 million and the conversion of the Conseco Convertible Notes (which
were issued in exchange for the THI Convertible Notes) into Conseco Common
Stock. Interest expense is increased to reflect borrowings by Conseco to:
(i) pay the estimated cost of the THI Merger; and (ii) pay the $8.5 million
premium to cause Conseco's Convertible Notes to be converted.
(48) Amortization of the cost of policies produced and the cost of
policies purchased prior to the THI Merger is replaced with the
amortization of the cost of policies purchased (amortized in relation to
estimated premiums on the policies purchased with interest equal to the
liability rate which averages 5.5 percent).
(49) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
82
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(50) Common shares outstanding are increased to reflect the Conseco
shares issued in the THI Merger and the conversion of the Conseco
Convertible Notes.
(51) Effective October 1, 1995, THI sold its long term care business to
ATC. An adjustment is made to remove the loss on the sale of the long term
care business. However, the revenues, benefits and expenses related to this
business prior to its sale are not eliminated, since the business is
retained within the Conseco consolidated group after the Merger (and
previous pro forma adjustments for the 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 THI Merger as of June 30, 1996, are summarized below.
(52) Actively managed fixed maturity securities with a carrying value of
$83.1 million are assumed to be sold at the date of the THI Merger.
(53) Short-term investments are reduced for: (i) payments made to
complete the THI Merger; (ii) the repayment of bank debt with a balance of
$58.3 million; (iii) the redemption of preferred stock with a redemption
value of $24.8 million; and (iv) the payment of the $8.5 million premium to
cause the Conseco Convertible Notes to be converted to Conseco Common
Stock. Short-term investments are increased by additional borrowings by
Conseco of $18.5 million to complete the THI Merger and related
transactions.
(54) THI's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the THI Merger.
Cost of policies purchased reflects the estimated fair value of THI's
business in force and represents the portion of the cost to acquire THI
that is allocated to the value of the right to receive future cash flows
from the acquired policies.
The 18 percent discount rate used to determine such value is the rate of
return required by Conseco to invest in the business being acquired. In
determining such rate of return, the following factors are considered:
--The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
--Cost of capital available to fund the acquisition.
--The perceived likelihood of changes in insurance regulations and tax
laws.
--Complexity of the acquired company.
--Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 5.5 percent)
for each of the years in the five-year period ending June 30, 2001, are as
follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDING BEGINNING GROSS ACCRETION NET ENDING
JUNE 30, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
----------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1997 $121.9 $20.7 $6.8 $13.9 $108.0
1998 108.0 17.2 6.0 11.2 96.8
1999 96.8 15.7 5.4 10.3 86.5
2000 86.5 14.4 4.8 9.6 76.9
2001 76.9 13.8 4.3 9.5 67.4
</TABLE>
83
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(55) THI's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(56) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax assets are netted against
deferred tax liabilities.
(57) Reinsurance receivables and insurance liabilities related to
business of THI ceded to ATC are eliminated in consolidation.
(58) Notes payable are decreased to reflect: (i) the repayment of bank
debt of $58.3 million; and (ii) the conversion of the Conseco Convertible
Notes (which were issued in exchange for the THI Convertible Notes) into
Conseco Common Stock. In addition, notes payable are increased to reflect
additional borrowings by Conseco used to complete the THI Merger and
related transactions.
(59) The prior shareholders' equity of THI is eliminated in conjunction
with the THI Merger. Common stock and additional paid-in capital is
increased by the value of Conseco common stock issued in the THI Merger.
The value of the Conseco Convertible Notes represents the value of the
Conseco common stock which the Conseco Convertible Notes are convertible
into. Preferred stock of THI is eliminated to reflect its redemption.
84
<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
The following is a summary of material differences between the rights of
holders of ATC Common Stock and the rights of holders of Conseco Common Stock.
The rights of the shareholders of ATC, a Pennsylvania corporation, are
currently governed primarily by Pennsylvania law, the ATC Articles of
Incorporation (the "ATC Articles") and the ATC Bylaws (the "ATC Bylaws"). Upon
consummation of the Merger, ATC shareholders who have not exercised their
statutory dissenters rights will become holders of Conseco Common Stock.
Because Conseco is an Indiana corporation, the rights of the former ATC
shareholders will be governed primarily by Indiana law and Conseco's Amended
and Restated Articles of Incorporation ("Conseco Articles of Incorporation")
and Amended and Restated Code of By-laws ("Conseco By-Laws"). The summary set
forth is a list of material differences in shareholders' rights under
Pennsylvania and Indiana law, the ATC Articles, the ATC Bylaws, the Conseco
Articles of Incorporation and the Conseco By-Laws. This discussion, however,
is not and does not purport to be an exhaustive list or to identify all
differences that may, under any given fact situation, be material to ATC
shareholders. Moreover, this discussion is qualified in its entirety by
reference to the ATC Articles, the ATC Bylaws, the PBCL, the Conseco Articles
of Incorporation, the Conseco By-Laws and the IBCL.
BYLAWS
Under the IBCL, only a corporation's board of directors may amend or repeal
the corporation's bylaws, unless the articles of incorporation provide
otherwise. The Conseco By-Laws provide that they may be amended by a majority
vote of the Board of Directors.
Under the PBCL, the power to adopt, amend or repeal bylaws may be vested by
the bylaws in the directors, with statutory exceptions for certain actions and
subject to the power of shareholders to change such actions. Pennsylvania law
provides that, unless the articles of incorporation otherwise provide,
shareholders may change the bylaws without the consent of the directors. The
ATC Bylaws provide that the ATC Bylaws may be amended or repealed by a
majority vote of the Board of Directors subject to the right of its
shareholders to amend or repeal such action by majority vote at any regular or
special meeting of the shareholders, duly convened after notice to the
shareholders of such purpose at which a quorum is present, except that any
repeal or modification to Article XIII (dealing with limitation of directors'
lability) shall be prospective only and any repeal or modification to Article
X, Section 8 (dealing with indemnification of directors and officers) may not
reduce, terminate or otherwise adversely affect the right of a person who is
or was a director or officer to obtain indemnification or advancement of
expenses with respect to a proceeding relating to actions or omissions
occurring prior to the effective date of such repeal or modification.
DISTRIBUTIONS TO SHAREHOLDERS
Under the IBCL, a corporation may make distributions to its shareholders as
long as the corporation's net assets are greater than zero, debts may be paid
as they come due, and the payment of these distributions is consistent with
the corporation's articles of incorporation. The Conseco Articles of
Incorporation provide that the directors may from time to time distribute to
shareholders out of capital surplus a portion of Conseco's assets as provided
in the IBCL.
Under the PBCL, a corporation has the power, subject to restrictions in its
bylaws, to make distributions to its shareholders unless after giving effect
thereto (1) the corporation would not be able to pay its debts as they become
due in the usual course of business, or (2) the corporation's assets would be
less than the sum of its total liabilities plus the amount that would be
needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of shareholders having superior preferential rights to those
shareholders receiving the distribution. The ATC Bylaws do not contain any
limitations on such powers.
85
<PAGE>
CLASS OF DIRECTORS
Under the IBCL, a corporation's articles of incorporation may provide that
directors be elected in two or three classes whose terms expire at different
times provided that at least one director must be elected at each annual
meeting. The Conseco Articles of Incorporation provide for the classification
of directors into three classes, each class serving for staggered three-year
terms.
Under the PBCL, the articles of incorporation may provide that directors be
elected in two or more classes whose terms expire at different times provided
that no single term shall exceed four years. The ATC Articles provide for the
classification of directors into three classes, each class serving for
staggered three-year terms.
REMOVAL OF DIRECTORS
Under the IBCL, directors may be removed in any manner provided in a
corporation's articles of incorporation and, in addition, the shareholders or
directors may remove a director with or without cause unless the articles of
incorporation provide otherwise. The Conseco Articles of Incorporation refer
to the Conseco By-Laws for provisions relating to removal of directors. The
Conseco By-Laws provide that a director may be removed, either for or without
cause, at any special meeting of the shareholders called for that purpose, by
the affirmative vote of a majority in number of shares present in person or by
proxy and entitled to vote for the election of such director.
Under the PBCL, unless a corporation's articles of incorporation or bylaws
provide otherwise, directors may be removed by the shareholders of a
corporation for or without cause, and by the board of directors for any proper
cause specified in the bylaws. The ATC Articles provide for removal of
directors only for cause by the affirmative vote of holders of at least 80
percent of the outstanding shares entitled to vote at an election of
directors, voting together as a single class.
MEETINGS OF SHAREHOLDERS
Under the IBCL, a corporation with more than fifty shareholders must hold a
special meeting of shareholders called by its board of directors or the person
or persons specifically authorized to do so by the articles of incorporation
or bylaws. The Conseco By-Laws provide that a special meeting of the
shareholders may be called by the President, by the Board of Directors or by
shareholders holding not less than one-fourth of all shares of Conseco Common
Stock outstanding and entitled to vote.
Under the PBCL, special meetings of shareholders may be called by the board
of directors, by shareholders entitled to cast at least 20 percent of the
votes which all shareholders are entitled to cast at the particular meeting
unless otherwise provided in the articles of incorporation, and by such
officers or other persons as may be provided in the bylaws. The ATC Articles
and ATC Bylaws permit the President, the Chairman of the Board and
shareholders entitled to cast 50 percent of the votes which all shareholders
are entitled to cast to call a special meeting.
ACTION BY SHAREHOLDERS WITHOUT MEETING
Under the IBCL, action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting if the action is taken by all the
shareholders entitled to vote on the action and the action is evidenced by a
written consent describing the action and signed by all shareholders entitled
to vote on the action. The Conseco By-Laws specifically authorize shareholder
action by written consent of all the shareholders entitled to vote on such
action.
Under the PBCL, the bylaws may provide that any action which may be taken at
a meeting of the shareholders may be taken without a meeting if there is
written consent of shareholders who would have been entitled to cast the
minimum number of votes that would be necessary to authorize the action at a
meeting at which all the shareholders were present and voting. The ATC Bylaws
permit all actions to be taken by unanimous consent in writing signed by all
shareholders who would be entitled to vote at a meeting for such purpose.
86
<PAGE>
DISSENTERS RIGHTS
Under both the IBCL and the PBCL, shareholders may perfect dissenters rights
with regard to corporate actions involving certain mergers, consolidations or
the sale, lease or exchange of substantially all the assets of another
corporation (under limited circumstances). In addition, under both the IBCL
and the PBCL, dissenters rights are generally denied when a corporation's
shares are listed on a national securities exchange, or in the case of the
PBCL, held of record by more than 2,000 persons.
CERTAIN STATUTORY AND CHARTER PROVISIONS
Under both the IBCL and the PBCL, the articles of incorporation may provide
for a higher shareholder vote requirement than that required by law in order
to approve certain proposed actions or transactions of the corporation. The
Conseco Articles of Incorporation require the approval of 80 percent of the
votes which shareholders are entitled to cast, to alter, amend or repeal
Article IX, Section 5 (minimum price provisions for certain business
combinations). The ATC Articles require the approval of 80 percent of the
votes which shareholders are entitled to cast to alter, amend or repeal
Article 10 of the ATC Articles (removal of directors) or Article 12 of the ATC
Articles (business combinations with related persons).
SHAREHOLDER RIGHTS AGREEMENT
On April 25, 1990, the ATC Board of Directors declared a dividend
distribution of one right (a "Right") for each outstanding share of ATC Common
Stock to shareholders of record at the close of business on May 15, 1990
pursuant to the Rights Agreement. Each Right entitles the registered holder to
purchase from ATC one one-hundredth of a share of Series A Preferred Stock at
a purchase price of $50.00, subject to further adjustment. The Rights have
certain anti-takeover effects. The Rights will cause substantial dilution to a
person or group that attempts to acquire ATC without conditioning the offer on
a substantial number of Rights being acquired. The Rights will not interfere
with any merger or other business combination approved by the ATC Board of
Directors since the ATC Board of Directors may, at its option, at any time
until ten days following the Stock Acquisition Date (as defined in the Rights
Agreement) redeem all but not less than all the then outstanding Rights at the
Redemption Price (as defined in the Rights Agreement). Notwithstanding the
foregoing, the ATC Board of Directors may not redeem the outstanding Rights if
it has previously declared any person to be an Adverse Person (as defined in
the Rights Agreement). In such event, the Rights could interfere with any
merger or other business combination approved by the Board of Directors. On
August 25, 1996, the ATC Board of Directors amended the Rights Agreement in
order to clarify that the Merger Agreement would not trigger the Rights
Agreement.
Conseco is not a party to any similar arrangement, and no Rights attach to
any Conseco Common Stock.
INTERESTED SHAREHOLDER TRANSACTIONS
The Conseco Articles of Incorporation provide that Conseco may not enter
into a Special Business Combination Transaction (hereinafter defined) unless
(1) the consideration to be received per share by holders of Conseco Common
Stock in such transaction is at least equal to the highest per share price
paid in order to acquire any shares of Conseco Common Stock beneficially owned
by the Related Person (hereinafter defined) or (2) the transaction shall have
been approved by two-thirds of the Continuing Directors (hereinafter defined).
The term "Special Business Combination Transaction" shall mean:
(1) any merger or consolidation of Conseco or any subsidiary with (A) any
Related Person or (B) any other corporation or entity (whether or not
itself a Related Person) which is, or after each merger or consolidation
would be, an affiliate of a Related Person; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or in a series of transactions) to or with
any Related Person or any affiliate of any Related Person of all or a
substantial part of the assets of Conseco (including, without limitation,
any securities of a subsidiary) or any subsidiary; or
87
<PAGE>
(3) the adoption of any plan or proposal for the liquidation or
dissolution of Conseco proposed by or on behalf of a Related Person or any
affiliate of a Related Person; or
(4) the issuance or transfer by Conseco or any subsidiary (in one
transaction or in a series of related transactions) of any securities of
Conseco or any subsidiary to a Related Person, or any affiliate of a
Related Person, in exchange for cash, securities or other property (or a
combination thereof); or
(5) any reclassification of securities (including any reverse stock
split), or recapitalization or reorganization of Conseco or any merger or
consolidation of Conseco with any of its subsidiaries, or any self tender
offer for or repurchase of securities of Conseco or any subsidiary by
Conseco or any subsidiary, or any other transaction (whether or not with or
into or otherwise involving a Related Person) which in any such case has
the effect, directly or indirectly, of increasing the proportionate shares
of the outstanding shares of any class or series of stock or securities
convertible into stock of Conseco or any subsidiary which is directly or
indirectly beneficially owned by any Related Person or any affiliate of any
Related Person.
The term "Related Person" shall mean any person (other than Conseco or
subsidiary or any employee benefit plan of Conseco or any subsidiary) who or
which, as of the date on which such determination is made:
(1) is the beneficial owner, directly or indirectly, of more than 10
percent of the combined voting power of the then outstanding shares of
voting stock; or
(2) is an affiliate of Conseco and at any time within the two-year period
immediately prior thereto was the beneficial owner, directly or indirectly,
of 10 percent or more of the combined voting power of the then outstanding
shares of voting stock; or
(3) which is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of voting stock that were at any time within the
two-year period immediately prior thereto beneficially owned by a Related
Person, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not utilizing the facilities of
a national securities exchange, occurring in the national over-the-counter
market or involving a public distribution.
The term "Continuing Director" under the Conseco Articles of Incorporation
shall mean any director who:
(1) was a member of Conseco's Board of Directors on April 23, 1986; or
(2) was designated (before such person's initial election as a Director)
by a Continuing Director; or
(3) with respect to a Special Business Combination Transaction, was a
member of the Board of Directors immediately prior to the date on which any
Related Person involved, either directly or through an affiliate or
associate, in such Special Business Combination Transaction first became a
Related Person.
The ATC Articles require the affirmative vote of holders of at least 80
percent of the votes that all shareholders would be entitled to vote generally
for the election of directors, voting together as a single class, to approve
the authorization of any Business Combination (hereinafter defined) involving
a Related Person (hereinafter defined), unless (1) the Continuing Directors
(hereinafter defined) of ATC by a two-thirds vote have expressly approved the
Business Combination either in advance of or subsequent to the acquisition of
outstanding shares of ATC Common Stock that caused the Related Person to
become the Related Person; or (2)(A) the aggregate amount of the cash and the
fair market value, as determined by two-thirds of the Continuing Directors, of
the property, securities or other consideration to be received per share of
ATC Common Stock, is not less than the highest price determined to have been
paid by the Related Person for any share or shares of ATC Common Stock in
acquiring its holdings of ATC Common Stock, and (B) a proxy or information
statement complying with the requirements of the Exchange Act, and the rules
and regulations thereunder shall have been mailed to all shareholders of ATC
at least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be mailed
pursuant to such Act).
The term "Business Combination" shall mean (1) any merger or consolidation
of ATC or a subsidiary of ATC into or with a Related Person, in each case
irrespective of which corporation or company is the surviving entity; (2) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or
with a Related Person
88
<PAGE>
(in a single transaction or a series of related transactions) of more than 20
percent of the total consolidated assets of ATC and its subsidiaries taken as
a whole, as of the end of its most recent fiscal year ending prior to the time
the determination is being made; (3) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition to or with ATC or to or with a
subsidiary of ATC (in a single transaction or a series of related
transactions) of more than 20 percent of the assets of a Related Person; (4)
the issuance of any securities of ATC or a subsidiary of ATC to a Related
Person (other than an issuance of securities which is effected on a pro rata
basis to all shareholders); (5) any recapitalization or reclassification of
securities (including a reverse stock split) of ATC which would have the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding stock of ATC owned by a Related Person; (6) the adoption of any
plan or proposal for the liquidation or dissolution of ATC proposed by or on
behalf of a Related Person; and (7) the acquisition by ATC or by a subsidiary
of ATC of any securities of a Related Person.
The term "Related Person" shall mean any individual, corporation,
partnership or other person or entity (other than any subsidiary of ATC and
other than any profit-sharing, employee stock ownership or other employee
benefit plan of ATC) which, as of the record date for the determination of
shareholders entitled to notice of and to vote on any Business Combination, or
immediately prior to the consummation of such transaction, together with its
"Affiliates" and "Associates" (as each is defined in Rule 12b-2 under the
Exchange Act) are "Beneficial Owners" (as defined in Rule 13d-3 under the
Exchange Act) in the aggregate of 10 percent or more of the outstanding shares
of stock of ATC.
The term "Continuing Director" under the ATC Articles shall mean a director
who was a member of the Board of Directors of ATC at the date of the adoption
of Article 12 of the ATC Articles by the shareholders of ATC, together with
each director who either (1) was a member of the Board of Directors
immediately prior to the time that the Related Person involved in a Business
Combination became the Beneficial Owner of 10 percent of the stock of ATC, or
(2) was designated (before his or her initial election as director) as a
Continuing Director by a majority of the then Continuing Directors.
FIDUCIARY DUTY AND LIMITATIONS OF LIABILITY
Under the IBCL, in discharging his duties to the corporation and in
determining what he believes to be in the best interests of the corporation, a
director or officer may, in addition to considering the effects of any action
on shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which the corporation operates and any other
factors that the director or officer considers pertinent.
Under the PBCL, a director may, in considering the best interests of a
corporation, consider (1) the effects of any action on shareholders,
employees, suppliers, customers and creditors of the corporation, and upon
communities in which offices or other facilities of the corporation are
located; (2) the short-term and long-term interests of the corporation,
including the possibility that the best interests of the corporation may be
served by the continued independence of the corporation; (3) the resources,
intent and conduct of any person seeking to take control of the corporation;
and (4) all other pertinent factors.
The IBCL provides that a director is not liable for any action taken as a
director, or any failure to take any action, unless (1) the director has
breached or failed to perform the duties of the director's office; and (2) the
breach or failure to perform constitutes willful misconduct or recklessness.
As permitted under the PBCL, the ATC Bylaws limit the personal liability of
directors of ATC for monetary damages for any action taken unless the director
has breached or failed to perform the duties of his office and the breach or
failure constitutes self-dealing, willful misconduct or recklessness. The
above provision does not eliminate the personal liability of directors for
violations of a criminal statute or the liability of a director for the
payment of taxes pursuant to federal, state or local law.
DERIVATIVE ACTIONS
Under the IBCL, a person may not commence a proceeding in the right of a
corporation unless the person was a shareholder of the corporation when the
transaction complained of occurred or unless the person became a shareholder
at that time.
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Under the PBCL, a shareholder may maintain a derivative action, even if the
shareholder was not a shareholder at the time of the alleged wrongdoing, if
there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice will result without
such action.
INDEMNIFICATION
The IBCL grants authorization to Indiana corporations to indemnify officers
and directors for their conduct if such conduct was in good faith and the
officer or director reasonably believed that his conduct was in the
corporation's best interests and permits the purchase of insurance in this
regard. The indemnification provided for in the IBCL does not exclude any
other rights to indemnification that a person may have under: (1) a
corporation's articles of incorporation or bylaws; (2) a resolution of the
board of directors or of the shareholders; or (3) any other authorization,
whenever adopted, after notice, by a majority vote of all the voting shares
then issued and outstanding.
The Conseco By-laws provides for the indemnification of any person made a
party to any action, suit or proceeding by reason of the fact that he is a
director, officer or employee of Conseco, unless it is adjudged in such
action, suit or proceeding that such person is liable for negligence or
misconduct in the performance of his duties. Such indemnification shall be
against the reasonable expenses, including attorneys' fees, incurred by such
person in connection with the defense of such action, suit or proceeding. In
some circumstances, Conseco may reimburse any such person for the reasonable
costs of settlement of any such action, suit or proceeding if a majority of
the members of the Board of Directors not involved in the controversy shall
determine that it was in the interests of Conseco that such settlement be made
and that such person was not guilty of negligence or misconduct.
Under the PBCL, a business corporation has the power to indemnify its
directors, officers, shareholders, legal representatives, employees and agents
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such individuals in
connection with a third-party action or proceeding if such individual acted in
good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal
proceeding, had no reason to believe his conduct was unlawful. A business
corporation has the power to indemnify its directors, officers, shareholders,
legal representatives, employees and agents against expenses (including
attorneys' fees) actually and reasonably incurred in connection with a
threatened, pending or completed action by or in the right of the corporation
if such individual acted in good faith and in a manner reasonably believed to
be in, or not opposed to, the best interests of the corporation.
Indemnification shall not be made in respect of any claim, issue or matter as
to which the person has been adjudged to be liable to the corporation and
unless and only to the extent that a Court of Common Pleas or other court in
which the action was brought deems proper. The ATC Bylaws grant such
indemnification rights to the directors, officers and legal representatives of
ATC and provide that ATC may, by action of its Board of Directors, provide
indemnification to employees, agents or fiduciaries of ATC.
MANAGEMENT OF CONSECO
UPON CONSUMMATION OF THE MERGER
The directors and executive officers of Conseco are Stephen C. Hilbert,
Ngaire E. Cuneo, Rollin M. Dick, Donald F. Gongaware, Lawrence W. Inlow, David
R. Decatur, Louis P. Ferrero, M. Phil Hathaway, James D. Massey and Dennis E.
Murray, Sr. and such individuals will continue to be the directors and
executive officers of Conseco upon consummation of the Merger. For information
with respect to the directors and executive officers of Conseco, see Items 10-
13 of Conseco's Annual Report (which incorporates portions of Conseco's proxy
statement dated April 24, 1996), which is incorporated herein by reference.
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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 tax matters in connection with the transaction will be passed upon
by Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pennsylvania. Ramon R.
Obod, a director of ATC, is a partner of Fox, Rothschild, O'Brien & Frankel.
Mr. Obod owns 19,400 shares of ATC Common Stock and holds options to purchase
37,750 shares of ATC Common Stock.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent auditors, as set forth in
their report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of ATC at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report with respect thereto, and are incorporated by reference in
reliance upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of LPG at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent auditors, as set forth in
their report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of CAF at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of THI at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
INDEPENDENT ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P. will be present at the Conseco
Special Meeting and will be available to respond to appropriate questions and
have the opportunity to make a statement if they desire. Representatives of
Arthur Andersen LLP will be present at the ATC Special Meeting and will be
available to respond to appropriate questions and have the opportunity to make
a statement if they desire.
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OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Conseco and ATC do not intend to present, and have not been
informed that any other person intends to present, any matter for action at
the Conseco Special Meeting or the ATC Special Meeting, as the case may be,
other than as discussed herein.
If the Merger is consummated, shareholders of ATC will become shareholders
of Conseco as of the Effective Time. Conseco shareholders may submit to
Conseco proposals for formal consideration at the 1997 annual meeting of
Conseco's shareholders and inclusion in Conseco's proxy statement for such
meeting. Any such proposals must have been received in writing by the
Secretary of Conseco, 11825 North Pennsylvania Street, Carmel, Indiana 46032,
by December 24, 1996 in order to be considered for inclusion in Conseco's
proxy statement and proxy for the 1997 annual meeting.
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 25, 1996
BY AND BETWEEN
CONSECO, INC.
AND
AMERICAN TRAVELLERS CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I
<C> <S> <C>
THE MERGER............................................................... A-5
1.1 The Merger..................................................... A-5
1.2 Closing........................................................ A-5
1.3 Effective Time................................................. A-5
1.4 Articles of Incorporation...................................... A-5
1.5 By-Laws........................................................ A-5
1.6 Directors...................................................... A-6
1.7 Officers....................................................... A-6
1.8 Conversion of Shares........................................... A-6
1.9 Exchange of Certificates....................................... A-7
1.10 Conseco Substituted under Indenture and Debentures............. A-8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ A-9
2.1 Organization, Standing and Corporate Power..................... A-9
2.2 Capital Structure.............................................. A-9
2.3 Authority; Noncontravention.................................... A-9
2.4 SEC Documents.................................................. A-10
2.5 Absence of Certain Changes or Events........................... A-11
2.6 Absence of Changes in Benefit Plans............................ A-11
2.7 Benefit Plans.................................................. A-11
2.8 Taxes.......................................................... A-12
2.9 No Excess Parachute Payments; Section 162(m) of the Code....... A-12
2.10 Voting Requirements............................................ A-12
2.11 Compliance with Applicable Laws................................ A-13
2.12 Opinion of Financial Advisor................................... A-13
2.13 Brokers........................................................ A-13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO ............................... A-13
3.1 Organization, Standing and Corporate Power..................... A-13
3.2 Conseco Capital Structure...................................... A-14
3.3 Authority; Noncontravention.................................... A-14
3.4 SEC Documents.................................................. A-15
3.5 Absence of Certain Changes or Events........................... A-15
3.6 Compliance with Applicable Laws................................ A-15
3.7 Brokers........................................................ A-16
3.8 Voting Requirements............................................ A-16
ARTICLE IV
ADDITIONAL AGREEMENTS.................................................... A-16
Preparation of Form S-4 and the Joint Proxy Statement;
4.1 Information Supplied........................................... A-16
4.2 Meetings of Stockholders....................................... A-17
4.3 Letter of the Company's Accountants............................ A-17
4.4 Letter of Conseco's Accountants................................ A-17
4.5 Access to Information; Confidentiality......................... A-18
4.6 Best Efforts................................................... A-18
</TABLE>
A-2
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<TABLE>
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<C> <S> <C>
4.7 Public Announcements............................................ A-18
4.8 Acquisition Proposals........................................... A-18
4.9 Fiduciary Duties................................................ A-19
4.10 Consents, Approvals and Filings................................. A-19
4.11 Certain Fees.................................................... A-19
4.12 Affiliates and Certain Stockholders............................. A-20
4.13 NYSE Listing.................................................... A-20
4.14 Stockholder Litigation.......................................... A-20
4.15 Indemnification................................................. A-20
4.16 Financing ...................................................... A-21
4.17 Stock Options................................................... A-21
4.18 Employment Agreements........................................... A-21
4.19 Officers' Certificates Relating to Tax Treatment................ A-21
4.20 Supplemental Indenture; Other Actions........................... A-21
4.21 Severance and Other Payments.................................... A-21
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER................. A-22
5.1 Conduct of Business by the Company.............................. A-22
5.2 Conduct of Business by Conseco.................................. A-23
5.3 Other Actions .................................................. A-24
5.4 Certificates.................................................... A-24
5.5 Investment Advisory Agreements ................................. A-24
ARTICLE VI
CONDITIONS PRECEDENT...................................................... A-25
6.1 Conditions to Each Party's Obligation to Effect the Merger...... A-25
6.2 Conditions to Obligations of Conseco ........................... A-26
6.3 Conditions to Obligation of the Company......................... A-26
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER......................................... A-27
7.1 Termination..................................................... A-27
7.2 Effect of Termination........................................... A-27
7.3 Amendment....................................................... A-27
7.4 Extension; Waiver............................................... A-27
7.5 Procedure for Termination, Amendment, Extension or Waiver....... A-27
ARTICLE VIII
SURVIVAL OF PROVISIONS.................................................... A-28
8.1 Survival........................................................ A-28
ARTICLE IX
NOTICES................................................................... A-28
9.1 Notices......................................................... A-28
ARTICLE X
MISCELLANEOUS............................................................. A-28
10.1 Entire Agreement................................................ A-28
10.2 Expenses........................................................ A-29
</TABLE>
A-3
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<TABLE>
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<C> <S> <C>
10.3 Counterparts .................................................... A-29
10.4 No Third Party Beneficiary....................................... A-29
10.5 Governing Law.................................................... A-29
10.6 Assignment; Binding Effect....................................... A-29
10.7 Enforcement...................................................... A-29
10.8 Headings, Gender, etc............................................ A-29
10.9 Invalid Provisions............................................... A-29
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
as of August 25, 1996 by and between CONSECO, INC., an Indiana corporation
("Conseco"), and AMERICAN TRAVELLERS CORPORATION, a Pennsylvania corporation
(the "Company").
PREAMBLE
WHEREAS, the respective Boards of Directors of Conseco and the Company have
approved the merger of the Company with and into Conseco, upon the terms and
subject to the conditions set forth herein; and
WHEREAS, Conseco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with such merger and also
to prescribe various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as such term is defined in Section 1.3 hereof), the
Company shall be merged with and into Conseco (the "Merger"), in a transaction
intended to qualify as a tax-free reorganization under Section 368(a)(1) (A)
of the Internal Revenue Code of 1986, as amended (the "Code"), in accordance
with the Indiana Business Corporation Law (the "IBCL Code") and the
Pennsylvania Business Corporation Law (the "Pennsylvania Code") and the
separate corporate existence of the Company shall cease and Conseco shall
continue as the surviving corporation under the laws of the State of Indiana
(the "Surviving Corporation") with all the rights, privileges, immunities and
powers, and subject to all the duties and liabilities, of a corporation
organized under the IBCL. The Merger shall have the effects set forth in the
IBCL and the Pennsylvania Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 9:00
a.m. on the second business day following the date on which the last to be
fulfilled or waived of the conditions set forth in Article VI shall be
fulfilled or waived in accordance with this Agreement (the "Closing Date"), at
the office of Conseco in Carmel, Indiana, unless another date, time or place
is agreed to in writing by the parties hereto.
1.3 Effective Time. The parties hereto will file with the Secretary of State
of the State of Indiana (the "Indiana Secretary of State") and the Secretary
of State of the Commonwealth of Pennsylvania (the "Pennsylvania Secretary of
State") on the date of the Closing (or on such other date as Conseco and the
Company may agree) articles of merger or other appropriate documents, executed
in accordance with the relevant provisions of the IBCL and the Pennsylvania
Code, and make all other filings or recordings required under the IBCL and the
Pennsylvania Code in connection with the Merger. The Merger shall become
effective upon the filing of the articles of merger with the Indiana Secretary
of State and the Pennsylvania Secretary of State, or at such later time as is
specified in the articles of merger (the "Effective Time").
1.4 Articles of Incorporation. The Articles of Incorporation of Conseco, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law.
1.5 By-Laws. The By-Laws of Conseco, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
A-5
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1.6 Directors. The directors of Conseco at the Effective Time shall be the
directors of the Surviving Corporation.
1.7 Officers. The officers of Conseco at the Effective Time shall be the
officers of the Surviving Corporation.
1.8 Conversion of Shares. (a) Outstanding Shares. Each of the shares of
common stock, $.01 par value, of the Company (the "Shares") issued and
outstanding immediately prior to the Effective Time (other than Shares held as
treasury shares by the Company or Dissenting Shares (as defined below)) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into a right to receive (i) if the Conseco Share Price
(as defined below) is greater than or equal to $42.25 per share and less than
or equal to $46.25 per share, .7574 of a validly issued, fully paid and
nonassessable share of common stock, without par value, of Conseco ("Conseco
Common Stock"), (ii) if the Conseco Share Price is less than $42.25 per share,
the fraction (rounded to the nearest ten-thousandth of a share) of a share (or
such fraction and whole number, as the case may be) of Conseco Common Stock
determined by dividing $32.00 by the Conseco Share Price or (iii) if the
Conseco Share Price is greater than $46.25 per share, the fraction (rounded to
the nearest ten-thousandth of a share) of a share of Conseco Common Stock
determined by dividing $35.03 by the Conseco Share Price. The "Conseco Share
Price" shall be equal to the average of the closing prices of the Conseco
Common Stock on the New York Stock Exchange ("NYSE") Composite Transactions
Reporting System, as reported in The Wall Street Journal, for the 10 trading
days immediately preceding the second trading day prior to the Effective Time.
The Conseco Common Stock to be issued to holders of Shares in accordance with
this Section and any cash to be paid in accordance with Section 1.9 in lieu of
fractional shares of Conseco Common Stock are referred to collectively as the
"Merger Consideration."
(b) Treasury Shares. Each Share issued and outstanding immediately prior to
the Effective Time which is then held as a treasury share by the Company or
any of its subsidiaries immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the Company, be
canceled and retired and cease to exist, without any conversion thereof.
(c) Impact of Stock Splits, etc. In the event of any change in Conseco
Common Stock between the date of this Agreement and the Effective Time of the
Merger by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the
like, the number and class of shares of Conseco Common Stock to be issued and
delivered in the Merger in exchange for each outstanding Share as provided in
this Agreement and the calculation of all share prices provided for in this
Agreement shall be proportionately adjusted.
(d) Company Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shares which are held by the Company shareholders who shall have
effectively dissented from the Merger and perfected their dissenters' rights
in accordance with the provisions of Section 1571 et seq. of the Pennsylvania
Code (the "Dissenting Shares") shall not be converted into or be exchangeable
for the right to receive the Merger Consideration, but the holders thereof
shall be entitled to payment from the Surviving Corporation of the appraised
value of such shares in accordance with the provisions of Section 1571 et seq.
of the Pennsylvania Code; provided, however, that if any such holder shall
have failed to perfect such dissenters' rights or shall have effectively
withdrawn or lost such rights, his or her outstanding Shares shall thereupon
be converted into and exchangeable for, as if completed at the Effective Time,
the Merger Consideration, as determined and paid in the manner set forth in
this Agreement, without any interest thereon. The Company shall give Conseco
(i) prompt notice of any notice or demands for payment for Dissenting Shares
pursuant to Section 1571 et seq. of the Pennsylvania Code received by the
Company and (ii) the opportunity to participate in and direct all negotiations
and proceedings with respect to any such demands or notices. The Company shall
not, without the prior written consent of Conseco, make any payment with
respect to, settle, offer to settle or otherwise negotiate, any such demands.
(e) Treatment of Company Stock Options. (i) At the Effective Time each
outstanding unexpired stock option ("Company Stock Option") to purchase Shares
which have been granted pursuant to the Company's 1987 Stock
A-6
<PAGE>
Option Plan, 1989 Stock Option Plan, 1993 Stock Option Plan, 1995 Stock Option
Plan or 1996 Stock Option Plan, as amended to the date hereof (the "Company
Stock Option Plans") shall be deemed disposed to the Company in accordance
with final Rule 16b-3(e) as promulgated by the Securities and Exchange
Commission ("SEC") pursuant to Release 34-37260 (May 31, 1996) and then
converted automatically into an option to purchase, for the same aggregate
consideration payable to exercise such Company Stock Options, the number of
shares of Conseco Common Stock which the holder would have been entitled to
receive at the Effective Time if such Company Stock Options had been fully
vested and exercised for shares prior to the Effective Time, but otherwise on
the same terms and conditions as were applicable under the Company Stock
Option Plan and the underlying stock option agreement except as provided in
subsections (ii) and (iii) below.
(ii) Except as provided in subsection (iii) below, each Company Stock
Option, if not then vested, will vest in full at the earlier of (x) the
expiration of three months after the Effective Time or (y) termination by
Conseco of the employment of the holder of such Company Stock Option.
(iii) Each Company Stock Option held by a non-employee director of the
Company, if not then vested, will vest in full at the Effective Time.
1.9 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time,
Conseco shall deposit with its transfer agent and registrar (the "Exchange
Agent"), for the benefit of the holders of Shares, certificates representing
the shares of Conseco Common Stock to be issued to holders of Shares pursuant
to Section 1.8(a) (such certificates, together with any dividends or
distributions with respect to such certificates, being hereinafter referred to
as the "Payment Fund").
(b) Exchange Procedures. As soon as practicable after the Effective Time,
each holder of an outstanding certificate or certificates which prior thereto
represented Shares shall, upon surrender to the Exchange Agent of such
certificate or certificates and acceptance thereof by the Exchange Agent, be
entitled to a certificate representing that number of whole shares of Conseco
Common Stock (and cash in lieu of fractional shares of Conseco Common Stock as
contemplated by this Section 1.9) which the aggregate number of Shares
previously represented by such certificate or certificates surrendered shall
have been converted into the right to receive pursuant to Section 1.8(a) of
this Agreement. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal
exchange practices. If the consideration to be paid in the Merger (or any
portion thereof) is to be delivered to any person other than the person in
whose name the certificate representing Shares surrendered in exchange
therefor is registered, it shall be a condition to such exchange that the
certificate so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the person requesting such exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the payment of such consideration to a person other than the registered holder
of the certificate surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable. After the
Effective Time, there shall be no further transfer on the records of the
Company or its transfer agent of certificates representing Shares and if such
certificates are presented to the Company for transfer, they shall be canceled
against delivery of the Merger Consideration as hereinabove provided. Until
surrendered as contemplated by this Section 1.9(b), each certificate
representing Shares (other than certificates representing Shares to be
canceled in accordance with Section 1.8(b) and other than Dissenting Shares),
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the Merger Consideration payable with
respect to such Shares, without any interest thereon, as contemplated by
Section 1.8. No interest will be paid or will accrue on any cash payable as
Merger Consideration.
(c) Letter of Transmittal. Promptly after the Effective Time (but in no
event more than five business days thereafter), the Surviving Corporation
shall require the Exchange Agent to mail to each record holder of certificates
that immediately prior to the Effective Time represented Shares which have
been converted pursuant to Section 1.8, a form of letter of transmittal and
instructions for use in surrendering such certificates and receiving the
consideration to which such holder shall be entitled therefor pursuant to
Section 1.8.
A-7
<PAGE>
(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 of Shares who have not theretofore complied with this
Article I shall thereafter look only to Conseco and only as general creditors
thereof for payment of their claim for any Merger Consideration and any
dividends or distributions with respect to Conseco Common Stock.
(h) No Liability. Neither Conseco nor the Exchange Agent shall be liable to
any person in respect of any cash, shares, dividends or distributions payable
from the Payment Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any certificates
representing Shares shall not have been surrendered prior to five years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration in respect of such certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined in Section
2.3)), any such cash, shares, dividends or distributions payable in respect of
such certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
1.10 Conseco Substituted under Indenture and Debentures. As of the Effective
Time, Conseco shall succeed to, be substituted for, and assume all obligations
of, and may exercise every right and power of, the Company under the Indenture
(the "Indenture") governing the 6.5% Convertible Subordinated Debentures due
October 1, 2005 (the "Debentures") by and between the Company and American
Bank, National Association with the same effect as if Conseco had been named
therein as the Company. As of the Effective Time, Conseco shall assume all the
obligations of the Company pursuant to the Debentures.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Conseco and as follows:
2.1 Organization, Standing and Corporate Power. Each of the Company and each
Significant Subsidiary of the Company (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Company and each Significant Subsidiary of the Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary. The Company
has delivered to Conseco complete and correct copies of its Certificate of
Incorporation and By-laws, as amended to the date of this Agreement. For
purposes of this Agreement, a "Significant Subsidiary" of the Company means
each of American Travellers Life Insurance Company, United General Life
Insurance Company, and any other subsidiary of the Company that would
constitute a Significant Subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
2.2 Capital Structure. The authorized capital stock of the Company consists
of (i) 50,000,000 Shares and (ii) 5,000,000 shares of Preferred Stock, $.01
par value (the "Preferred Stock"). At the close of business on August 23,
1996: (i) 16,281,432 Shares were issued and outstanding, 2,668,826 Shares were
reserved for issuance pursuant to outstanding Company Stock Options and
6,824,790 Shares were reserved for issuance upon conversion of the Debentures;
and (ii) no shares of Preferred Stock were issued and outstanding. Except as
set forth above, at the close of business on August 23, 1996, no shares of
capital stock or other equity securities of the Company were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of the
Company are, and all shares which may be issued pursuant to the Company Stock
Option Plans or any outstanding Company Stock Options will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights. Except for $103,500,000 of 6.5% Convertible Subordinated
Debentures due October 1, 2005, no bonds, debentures, notes or other
indebtedness of the Company or any Significant Subsidiary of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the stockholders of the
Company or any Significant Subsidiary of the Company may vote are issued or
outstanding. Except as disclosed in Section 2.2 of the Disclosure Schedule
dated the date hereof and delivered by the Company to Conseco concurrently
herewith (the "Disclosure Schedule"), all the outstanding shares of capital
stock of each Significant Subsidiary of the Company have been validly issued
and are fully paid and nonassessable and are owned by the Company, by one or
more subsidiaries of the Company or by the Company and one or more such
subsidiaries, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") except as may be provided by law. Except as set forth
above or in Section 2.2 of the Disclosure Schedule, neither the Company nor
any Significant Subsidiary of the Company has any outstanding option, warrant,
subscription or other right, agreement or commitment which either (i)
obligates the Company or any Significant Subsidiary of the Company to issue,
sell or transfer, repurchase, redeem or otherwise acquire or vote any shares
of the capital stock of the Company or any Significant Subsidiary of the
Company or (ii) restricts the transfer of Shares. The Company has delivered to
Conseco a complete and correct copy of the Rights Agreement dated as of April
25, 1990, as amended to the date of this Agreement (the "Rights Agreement").
2.3 Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to the approval
of its stockholders as set forth in Section 6.1(a) with respect to the
consummation of the Merger, to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company, subject, in the case of the Merger, to the approval of its
stockholders as set forth in Section 6.1(a). A majority of the members of the
Board of Directors who are not officers of the Company and who are not
representatives, nominees, affiliates or associates of Conseco, after
receiving advice from one or more investment
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banking firms, have determined that the price and terms of the conversion of
the Shares are (a) at a price which is fair to the stockholders of the Company
and (b) otherwise in the best interests of the Company and its stockholders.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding agreement of
Conseco, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except that the
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity). Except as disclosed in Section 2.3 of the Disclosure Schedule, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof will not, (i) conflict with any of the provisions of the Certificate of
Incorporation or By-laws of the Company or the comparable documents of any
Significant Subsidiary of the Company, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict
with, result in a breach of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
the Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any
order, writ, judgment, injunction, decree, determination or award currently in
effect. No consent, approval or authorization of, or declaration or filing
with, or notice to, any governmental agency or regulatory authority (a
"Governmental Entity") which has not been received or made, is required by or
with respect to the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (i) the filing
of premerger notification and report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") with respect to
the Merger, (ii) the filings and/or notices required under the insurance laws
of the jurisdictions set forth in Section 2.3 of the Disclosure Schedule,
(iii) the filing with the SEC of (x) a proxy statement relating to the
approval by the stockholders of the Company of the Merger (such proxy
statement, together with the proxy statement relating to the approval of the
issuance of Conseco Common Stock in the Merger by an affirmative vote of the
holders of a majority of the votes entitled to be cast by the holders of
Conseco Common Stock and Conseco PRIDES (as hereinafter defined) present, or
represented, and entitled to vote thereon at the meeting to be called therefor
(the "Conseco Stockholder Approval"), in each case as amended or supplemented
from time to time, the "Joint Proxy Statement"), and (y) such reports under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may
be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iv) the filing of the articles of merger with
the Pennsylvania Secretary of State and the Indiana Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (v) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 2.3 of the
Disclosure Schedule and (vi) any applicable filings under state anti-takeover
laws.
2.4 SEC Documents. (i) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January 1,
1994 (such reports, schedules, forms, statements and other documents are
hereinafter referred to as the "SEC Documents"); (ii) as of their respective
dates, the SEC Documents complied with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents as of such
dates contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and (iii) the consolidated financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of
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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 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, arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director of the
Company or any of its subsidiaries.
2.7 Benefit Plans. (i) Each "employee pension benefit plan" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (hereinafter a "Pension Plan"), "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"),
and each other plan, arrangement or policy (written or oral) relating to stock
options, stock purchases, compensation, deferred compensation, severance,
fringe benefits or other employee benefits, in each case maintained or
contributed to, or required to be maintained or contributed to, by the Company
and its subsidiaries for the benefit of any present or former officers,
employees, agents, directors or independent contractors of the Company or any
of its subsidiaries (all the foregoing being herein called "Benefit Plans")
has been administered in accordance with its terms and all applicable laws and
regulations. All required contributions to the Benefit Plans have been made.
The Company, its subsidiaries and all the Benefit Plans are in compliance with
the applicable provisions of ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), all other applicable laws and all applicable collective
bargaining agreements.
(ii) None of the Company or any other person or entity that together with
the Company is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code (each a "Commonly Controlled Entity") has incurred any
liability to a Pension Plan covered by Title IV of ERISA (other than for
contributions not yet due) or to the
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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 an
adequate reserve for all taxes payable by the Company and its subsidiaries for
all taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or assessed
against the Company or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on the business, financial condition
or results of operations of the Company and its subsidiaries taken as a whole,
and, except as set forth on Section 2.8 of the Disclosure Schedule, no
requests for waivers of the time to assess any such taxes have been granted or
are pending. The Federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns have been examined by and settled
with the United States Internal Revenue Service, or the statute of limitations
on assessment or collection of any Federal income taxes due from the Company
or any of its subsidiaries has expired, through such taxable years as are set
forth in Section 2.8 of the Disclosure Schedule.
(iii) As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, premium, sales, excise, employment,
payroll, withholding and other taxes, tariffs or governmental charges of any
nature whatsoever and any interest, penalties and additions to taxes relating
thereto.
2.9 No Excess Parachute Payments; Section 162(m) of the Code. (i) Except as
disclosed in Section 2.9 of the Disclosure Schedule, any amount that could be
received (whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement by any employee,
officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code).
(ii) Except as disclosed in Section 2.9 of the Disclosure Schedule, the
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by the Company or
any subsidiary of the Company under any contract, Benefit Plan, program,
arrangement or understanding currently in effect.
2.10 Voting Requirements. The affirmative vote of a majority of the votes
cast by the holders of the Shares entitled to vote thereon at the Stockholders
Meeting with respect to the approval of the Merger is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
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2.11 Compliance with Applicable Laws. (i) Each of the Company and its
subsidiaries has in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights ("Permits") necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit. Except as
disclosed in the Filed SEC Documents, the Company and its subsidiaries are in
compliance in all material respects with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity. Except
as disclosed in the Filed SEC Documents or Section 2.11 of the Disclosure
Schedule and except for routine examinations by state Governmental Entities
charged with supervision of insurance companies ("Insurance Regulators"), as
of the date of this Agreement, to the knowledge of the Company, no
investigation by any Governmental Entity with respect to the Company or any of
its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1995,
together with all exhibits and schedules thereto, and financial statements
relating thereto, and any actuarial opinion, affirmation or certification
filed in connection therewith, and the Quarterly Statements for the periods
ended after January 1, 1996, together with all exhibits and schedules thereto,
with respect to each subsidiary of the Company that is a regulated insurance
company (an "Insurance Company"), in each case as filed with the applicable
Insurance Regulator of its jurisdiction of domicile, were prepared in
conformity with statutory accounting practices prescribed or permitted by such
Insurance Regulator applied on a consistent basis ("SAP"), present fairly, in
all material respects, to the extent required by and in conformity with SAP,
the statutory financial condition of such Insurance Company at their
respective dates and the results of operations, changes in capital and surplus
and cash flow of such Insurance Company for each of the periods then ended,
and were correct in all material respects when filed and there were no
material omissions therefrom when filed. No deficiencies or violations
material to the financial condition or operations of any Insurance Company
have been asserted in writing by any Insurance Regulator which have not been
cured or otherwise resolved to the satisfaction of such Insurance Regulator
and which have not been disclosed in writing to Conseco prior to the date of
this Agreement.
2.12 Opinion of Financial Advisor. The Company has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corp. ("DLJ"), dated the date hereof,
to the effect that, as of such date, the consideration to be received in the
Merger by the Company's stockholders is fair to the Company's stockholders.
2.13 Brokers. Except with respect to DLJ, all negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by
the Company directly with Conseco, without the intervention of any person on
behalf of the Company in such manner as to give rise to any valid claim by any
person against Conseco, the Company or any subsidiary for a finder's fee,
brokerage commission, or similar payment. The Company has provided Conseco
with a true and complete copy of the agreement between the Company and DLJ,
and the Company has no other agreements or understandings (written or oral)
with respect to such services.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO
Conseco hereby represents and warrants to the Company as follows:
3.1 Organization, Standing and Corporate Power. Each of Conseco and each
Significant Subsidiary of Conseco (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of Conseco
and each Significant Subsidiary of Conseco is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary. Conseco has delivered to the Company
complete and correct copies of its Articles of Incorporation and By-laws, as
amended to the date of this Agreement. For purposes of this Agreement, a
"Significant Subsidiary" of Conseco means any subsidiary of Conseco that would
constitute a Significant Subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
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3.2 Conseco Capital Structure. The authorized capital stock of Conseco
consists of 500,000,000 shares of Conseco Common Stock and 20,000,000 shares
of preferred stock, without par value. At the close of business on August 23,
1996, (i) 58,416,433 shares of Conseco Common Stock, 5,264,767 shares of $3.25
Series D Cumulative Convertible Preferred Stock of Conseco (the "Conseco
Series D Preferred Stock") and 4,369,700 shares of Preferred Redeemable
Increased Dividend Equity Securities of Conseco (the "Conseco PRIDES") were
issued and outstanding (net of treasury shares or shares held by
subsidiaries), (ii) 13,721,689 shares of Conseco Common Stock were reserved
for issuance pursuant to outstanding options to purchase shares of Conseco
Common Stock and other benefits granted under Conseco's benefit plans (the
"Conseco Stock Plans"), (iii) 8,258,314 shares of Conseco Common Stock were
reserved for issuance upon conversion of the Conseco Series D Preferred Stock
and (iv) 8,739,400 shares of Conseco Common Stock were reserved for issuance
upon conversion of the Conseco PRIDES. Except (x) as set forth above, (y) for
outstanding options to purchase an aggregate of 1,105,550 shares of Bankers
Life Holding Corporation under its Stock Option Plan and (z) with respect to
stock units awarded under the Conseco Stock Option Plans, at the close of
business on August 23, 1996, no shares of capital stock or other voting
securities of Conseco were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of Conseco are, and all shares which may
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. No bonds, debentures, notes or other indebtedness of Conseco or any
Significant Subsidiary of Conseco having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which the stockholders of Conseco or any Significant Subsidiary of Conseco
may vote are issued or outstanding. All the outstanding shares of capital
stock of each Significant Subsidiary of Conseco have been validly issued and
are fully paid and nonassessable and, except as set forth in the Filed Conseco
SEC Documents (as defined in Section 3.4), are owned by Conseco, free and
clear of all Liens. Except as set forth above or in the Filed Conseco SEC
Documents, neither Conseco nor any Significant Subsidiary of Conseco has any
outstanding option, warrant, subscription or other right, agreement or
commitment which either (i) obligates Conseco or any Significant Subsidiary of
Conseco to issue, sell or transfer, repurchase, redeem or otherwise acquire or
vote any shares of the capital stock of Conseco or any Significant Subsidiary
of Conseco or (ii) restricts the transfer of Conseco Common Stock.
3.3 Authority; Noncontravention. Conseco has all requisite corporate power
and authority to enter into this Agreement and, subject to the Conseco
Stockholder Approval with respect to the issuance of Conseco Common Stock in
the Merger, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Conseco and the consummation by
Conseco of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Conseco, subject,
in the case of the issuance of Conseco Common Stock in the Merger, to the
Conseco Stockholder Approval. This Agreement has been duly executed and
delivered by and, assuming this Agreement constitutes the valid and binding
agreement of the Company, constitutes a valid and binding obligation of
Conseco, enforceable against Conseco in accordance with its terms except that
the enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not (i) conflict with any of the
provisions of the Articles of Incorporation or By-laws of Conseco, or the
comparable documents of any Significant Subsidiary of Conseco, (ii) subject to
the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which Conseco or any of its subsidiaries
is a party or by which Conseco or any of its subsidiaries or any of their
assets is bound or affected, or (iii) subject to the governmental filings and
other matters referred to in the following sentence, contravene any law, rule
or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received
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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"), the Joint Proxy Statement
relating to the Conseco Stockholder Approval and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iv) the filing of the articles of merger
with the Indiana Secretary of State and the Pennsylvania Secretary of State,
and appropriate documents with the relevant authorities of the other states in
which the Company is qualified to do business, (v) such other consents,
approvals, authorizations, filings or notices as are set forth in Section 2.3
of the Disclosure Schedule and (vi) any applicable filings under state anti-
takeover laws.
3.4 SEC Documents. Conseco and its subsidiaries have filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1994 (the "Conseco SEC Documents"). As of their respective dates,
the Conseco SEC Documents complied with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Conseco SEC Documents, and none
of the Conseco SEC Documents as of such dates contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Conseco included in the Conseco SEC Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Rule 10-01 of Regulation S-X) and fairly present, in all material respects,
the consolidated financial statements of Conseco and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).
3.5 Absence of Certain Changes or Events. Except as disclosed in the Conseco
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Filed Conseco SEC Documents") or in Section 3.5 of a Disclosure Schedule
dated the date hereof and delivered concurrently herewith by Conseco to the
Company (the "Conseco Disclosure Schedule"), since the date of the most recent
audited financial statements included in the Filed Conseco SEC Documents,
Conseco has conducted its business only in the ordinary course, and there has
not been (i) any change which would have a material adverse effect on the
business, financial condition or results of operations of Conseco and its
subsidiaries, taken as a whole, (ii) any declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) with
respect to any of Conseco's outstanding capital stock (other than the payment
of cash dividends of $.02 per share on July 1, 1996, and the declaration of a
cash dividend payable October 1, 1996 of $.0625 per share, on Conseco Common
Stock and regular cash dividends on the Conseco Series D Preferred Stock and
the Conseco PRIDES, in each case in accordance with usual record and payment
dates and in accordance with Conseco's dividend policy and Articles of
Incorporation at the date of such payment), (iii) any split, combination or
reclassification of any of its outstanding capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iv) any change
in accounting methods, principles or practices by Conseco materially affecting
its assets, liabilities or business, except as may have been required by a
change in generally accepted accounting principles.
3.6 Compliance with Applicable Laws. (i) Each of Conseco and its
subsidiaries has in effect all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit. Except as
disclosed in the Filed Conseco SEC Documents, Conseco and its subsidiaries are
in compliance in all material respects with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity. Except
as disclosed in the Filed
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Conseco SEC Documents Conseco and its subsidiaries are in compliance in all
material respects with all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity. Except as disclosed in the
Filed Conseco SEC Documents and except for routine examinations by state
Governmental Entities charged with supervision of insurance companies
("Insurance Regulators"), as of the date of this Agreement, to the knowledge
of Conseco, no investigation by any Governmental Entity with respect to
Conseco or any of its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1995,
together with all exhibits and schedules thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and the Quarterly
Statements for the periods ended after January 1, 1996, together with all
exhibits and schedules thereto, with respect to each subsidiary of Conseco
that is an Insurance Company, in each case as filed with the applicable
Insurance Regulator of its jurisdiction of domicile, were prepared in
conformity with, present fairly, in all material respects, to the extent
required by and in conformity with SAP, the statutory financial condition of
such Insurance Company at their respective dates and the results of
operations, changes in capital and surplus and cash flow of such Insurance
Company for each of the periods then ended, and were correct in all material
respects when filed and there were no material omissions therefrom when filed.
No deficiencies or violations material to the financial condition or
operations of any Insurance Company have been asserted in writing by any
Insurance Regulator which have not been cured or otherwise resolved to the
satisfaction of such Insurance Regulator and which have not been disclosed in
writing to the Company prior to the date of this Agreement.
3.7 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Conseco directly
with the Company, without the intervention of any person on behalf of Conseco
in such manner as to give rise to any valid claim by any person against the
Company or any of the Subsidiaries for a finder's fee, brokerage commission,
or similar payment.
3.8 Voting Requirements. The affirmative vote of the holders of a majority
of the votes entitled to be cast by the holders of Common Stock and Conseco
PRIDES present, or represented, and entitled to vote thereon at the Conseco
Stockholders Meeting with respect to the issuance of shares of Conseco Common
Stock in the Merger is the only vote of the holders of any class or series of
Conseco's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and the Joint Proxy Statement; Information
Supplied.
(a) As soon as practicable following the date of this Agreement, the Company
and Conseco shall prepare and file with the SEC the Joint Proxy Statement and
Conseco shall prepare and file with the SEC the Form S-4, in which the Joint
Proxy Statement will be included as a prospectus. Each of the Company and
Conseco shall use its best efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. The
Company will use its best efforts to cause the Joint Proxy Statement to be
mailed to the Company's stockholders, and Conseco will use its best efforts to
cause the Joint Proxy Statement to be mailed to Conseco's stockholders, in
each case as promptly as practicable after the Form S-4 is declared effective
under the Securities Act. Conseco shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Conseco Common Stock in the Merger and the
Company shall furnish all information concerning the Company and the holders
of the Common Stock as may be reasonably requested in connection with any such
action.
(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
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with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Joint
Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting (as defined in Section
4.2), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except with respect to statements made or incorporated
by reference therein based on information supplied by Conseco specifically for
inclusion or incorporated by reference in the Joint Proxy Statement.
(c) Conseco agrees that none of the information supplied or to be supplied
by Conseco specifically for inclusion or incorporation by reference in (i) the
Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Joint Proxy Statement will, at
the date the Joint Proxy Statement is first mailed to Conseco's stockholders
or at the time of the Conseco Stockholders Meeting (as defined in Section
4.2), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Form S-4 will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations
promulgated thereunder and the Joint Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, except with respect to statements made
or incorporated by reference in either the Form S-4 or the Joint Proxy
Statement based on information supplied by the Company specifically for
inclusion or incorporation by reference therein.
4.2 Meetings of Stockholders. The Company will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and By-
laws to convene a meeting of its stockholders (the "Stockholders Meeting") to
consider and vote upon the approval of the Merger. Conseco will take all
action necessary in accordance with applicable law and its Articles of
Incorporation and By-laws to convene a meeting of its stockholders (the
"Conseco Stockholders Meeting") to consider and vote upon the approval of the
issuance of Conseco Common Stock in the Merger. Subject to Section 4.9 hereof
in the case of the Company, the Company and Conseco will, through their
respective Boards of Directors, recommend to their respective stockholders
approval of the foregoing matters. Without limiting the generality of the
foregoing, the Company agrees that, subject to its right to terminate this
Agreement pursuant to Section 4.9, its obligations pursuant to the first
sentence of Section 4.2 shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to the Company of any Acquisition
Proposal (as defined in Section 4.8) or (ii) the withdrawal or modification by
the Board of Directors of the Company of its approval or recommendation of
this Agreement or the Merger. Conseco and the Company will use their best
efforts to hold the Stockholders Meeting and the Conseco Stockholders Meeting
on the same day and use best efforts to hold such Meetings and (except in the
case of the Company, subject to Section 4.9 hereof) to obtain the favorable
votes of their respective stockholders as soon as practicable after the date
hereof.
4.3 Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to Conseco a letter of Arthur Andersen LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and a letter
of Arthur Andersen LLP, dated a date within two business days before the
Closing Date, addressed to Conseco, in form and substance reasonably
satisfactory to Conseco and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
4.4 Letter of Conseco's Accountants. Conseco shall use its best efforts to
cause to be delivered to the Company a letter of Coopers & Lybrand L.L.P.,
Conseco's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and a letter
of Coopers & Lybrand L.L.P., dated a date within two business days before the
Closing Date, each addressed to the Company,
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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 August 14, 1996, between Conseco and the Company (the
"Confidentiality Agreement"). Except as required by law, the Company will
hold, and will cause its directors, officers, partners, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information obtained from Conseco in
confidence to the extent required by, and in accordance with, the
Confidentiality Agreement.
4.6 Best Efforts. Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each of the parties agrees to use its
best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
4.7 Public Announcements. Conseco and the Company will consult with each
other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national
securities exchange or NASDAQ.
4.8 Acquisition Proposals. The Company shall not, nor shall it permit any of
its subsidiaries to, nor shall it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any
Acquisition Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal (as defined below); provided,
however, that nothing contained in this Section 4.8 shall prohibit the Board
of Directors of the Company from furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal if, and only to the extent that (A) the Board
of Directors of the Company, after consultation with and based upon the advice
of outside counsel, determines in good faith that such action is necessary for
the Board of Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law and (B) prior to taking such action, the
Company (x) provides reasonable notice to Conseco to the effect that it is
taking such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Conseco orally and in writing of the receipt by it (or any of the other
entities or persons referred to above) after the date hereof of any
Acquisition Proposal, or any inquiry which could lead to any Acquisition
Proposal, the material terms and conditions of such Acquisition Proposal or
inquiry, and the identity of the person making any such Acquisition Proposal
or inquiry. The Company will keep Conseco fully informed of the status and
details of any such Acquisition Proposal or inquiry. For purposes of this
Agreement, "Acquisition Proposal" means any bona fide proposal with respect to
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a merger, consolidation, share exchange or similar transaction involving the
Company or any Significant Subsidiary of the Company, or any purchase of all
or any significant portion of the assets of the Company or any Significant
Subsidiary of the Company, or any equity interest in the Company or any
Significant Subsidiary of the Company, other than the transactions
contemplated hereby.
4.9 Fiduciary Duties. The Board of Directors of the Company shall not (i)
withdraw or modify, in a manner materially adverse to Conseco, the approval or
recommendation by such Board of Directors of this Agreement or the Merger,
(ii) approve or recommend an Acquisition Proposal or (iii) enter into any
agreement with respect to any Acquisition Proposal, unless the Company
receives an Acquisition Proposal and the Board of Directors of the Company
determines in good faith, following consultation with outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
it is necessary for the Board of Directors to withdraw or modify, in a manner
materially adverse to Conseco, its approval or recommendation of this
Agreement or the Merger, approve or recommend such Acquisition Proposal, enter
into an agreement with respect to such Acquisition Proposal or terminate this
Agreement. In the event the Board of Directors of the Company takes any of the
foregoing actions, the Company shall, concurrently with the taking of any such
action, pay to Conseco the Section 4.11 Fee pursuant to Section 4.11. Nothing
contained in this Section 4.9 shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders which, in the good faith reasonable judgment of the
Board of Directors of the Company based on the advice of outside counsel, is
required under applicable law; provided that, subject to the provisions of the
first sentence of this Section, the Company does not withdraw or modify, in a
manner materially adverse to Conseco, its position with respect to the Merger
or approve or recommend an Acquisition Proposal. Notwithstanding anything
contained in this Agreement to the contrary, any action by the Board of
Directors permitted by this Section 4.9 shall not constitute a breach of this
Agreement by the Company.
4.10 Consents, Approvals and Filings. The Company and Conseco will make and
cause their respective subsidiaries to make all necessary filings, as soon as
practicable, including, without limitation, those required under the HSR Act,
the Securities Act, the Exchange Act, and applicable state insurance laws in
order to facilitate prompt consummation of the Merger and the other
transactions contemplated by this Agreement. In addition, the Company and
Conseco will each use their best efforts, and will cooperate fully with each
other (i) to comply as promptly as practicable with all governmental
requirements applicable to the Merger and the other transactions contemplated
by this Agreement and (ii) to obtain as promptly as practicable all necessary
permits, orders or other consents of Governmental Entities and consents of all
third parties necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement. Each of the Company and Conseco
shall use best efforts to promptly provide such information and communications
to Governmental Entities as such Governmental Entities may reasonably request.
Each of the parties shall provide to the other party copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement and shall make such
revisions thereto as reasonably requested by such other party. Each party
shall provide to the other party the opportunity to participate in all
meetings and material conversations with Governmental Entities.
4.11 Certain Fees. (a) The Company shall pay to Conseco upon demand $20
million (the "Section 4.11 Fee"), payable in same-day funds, if a bona fide
Acquisition Proposal is commenced, publicly proposed, publicly disclosed or
communicated to the Company (or the willingness of any person to make such an
Acquisition Proposal is publicly disclosed or communicated to the Company) and
the Board of Directors of the Company, in accordance with Section 4.9,
withdraws or modifies in a manner materially adverse to Conseco its approval
or recommendation of this Agreement or the Merger, approves or recommends such
Acquisition Proposal, enters into an agreement with respect to such
Acquisition Proposal, or terminates this Agreement.
(b) Unless Conseco is materially in breach of this Agreement or is unable to
satisfy the condition of Section 6.3(a) hereof, the Company shall pay to
Conseco upon demand an amount, not to exceed $2,000,000, to reimburse Conseco
for its Expenses (as such term is defined in subparagraph (d) of this Section
4.11), payable in
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same-day funds, if the requisite approval of the Company's stockholders for
the Merger is not obtained (other than the circumstances specified in Section
4.11(a) hereof) and all other conditions contained in Section 6.1 of this
Agreement have been satisfied, waived or, with respect to any condition not
then satisfied, it is substantially likely that such condition will be
satisfied on or before March 31, 1997, through the exercise of best efforts to
procure the satisfaction thereof.
(c) Unless the Company is materially in breach of this Agreement or is
unable to satisfy the condition of Section 6.2(a) hereof, Conseco shall pay to
the Company upon demand, an amount, not to exceed $2,000,000, to reimburse the
Company for its Expenses, payable in same-day funds, if the requisite approval
of Conseco's stockholders for the Merger is not obtained and all other
conditions contained in Section 6.1 of this Agreement have been satisfied,
waived or, with respect to any condition not then satisfied, it is
substantially likely that such condition will be satisfied on or before March
31, 1997, through the exercise of best efforts to procure the satisfaction
thereof.
(d) For purposes of this Section 4.11, "Expenses" shall mean all documented
out-of-pocket fees and expenses incurred or paid by or on behalf of Conseco or
the Company, as the case may be, to third parties in connection with the
Merger or the consummation of any of the transactions contemplated by this
Agreement, including all bank fees, financing fees, printing costs and
reasonable fees and expenses of counsel, investment banking firms,
accountants, experts and consultants.
4.12 Affiliates and Certain Stockholders. Prior to the Closing Date, the
Company shall deliver to Conseco a letter identifying all persons who are, at
the time the Merger is submitted for approval to the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best efforts to cause each such
person to deliver to Conseco on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit A hereto. Conseco
shall not be required to maintain the effectiveness of the Form S-4 or any
other registration statement under the Securities Act for the purposes of
resale of Conseco Common Stock by such affiliates and the certificates
representing Conseco Common Stock received by such affiliates in the Merger
shall bear a customary legend regarding applicable Securities Act restrictions
and the provisions of this Section 4.12.
4.13 NYSE Listing. Conseco shall use its best efforts to cause the shares of
Conseco Common Stock to be issued in the Merger to be approved for listing on
the NYSE, subject to official notice of issuance, prior to the Closing Date.
4.14 Stockholder Litigation. The Company shall give Conseco the opportunity
to participate in the defense or settlement of any stockholder litigation
against the Company and its directors relating to the transactions
contemplated by this Agreement; provided, however, that no such settlement
shall be agreed to without Conseco's consent, which consent shall not be
unreasonably withheld.
4.15 Indemnification. (a) The certificate of incorporation and by-laws of
each of the Company's subsidiaries shall contain the provisions with respect
to indemnification set forth therein on the date of this Agreement, and such
provisions shall not be amended, repealed or otherwise modified for a period
of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at any time prior to the
Effective Time were directors or officers of the Company or any of its
subsidiaries (the "Indemnified Parties") in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement), unless such modification is
required by law. Conseco agrees to indemnify the Indemnified Parties, but only
to the extent that the Company would have been obligated to do so had it been
the Surviving Corporation.
(b) The provisions of this Section 4.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
Conseco.
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4.16 Financing. Conseco shall have funds available sufficient to repay when
due all indebtedness outstanding under the Company's senior credit facility
and to pay when due the aggregate Repurchase Payment (as defined in the
Indenture) for any of the Debentures which are required to be repurchased by
the Company in accordance with Section 11.1 of the Indenture.
4.17 Stock Options. (a) As soon as practicable following the date of this
Agreement, the Board of Directors of the Company (or, if appropriate, any
committee administering a Company Stock Option Plan) shall adopt such
resolutions or take such actions as may be required to adjust the terms of all
outstanding Company Stock Options in accordance with Section 1.8(e) and shall
make such other changes to the Company Stock Option Plans as it deems
appropriate to give effect to the Merger (subject to the approval of Conseco,
which shall not be unreasonably withheld). The parties agree that after the
date hereof, except for the Company Stock Options outstanding on the date
hereof and any changes thereto described in this Agreement or the Disclosure
Schedule, no option, warrants or other rights of any kind to purchase capital
stock of the Company shall be granted or made, under the Company Stock Plans
or otherwise, and no amendment, repricing or other change to the outstanding
Company Stock Options shall be made, without the prior written consent of
Conseco, and any such grant, issuance, amendment, repricing or other change
without Conseco's consent shall be null, void and unenforceable against
Conseco.
(b) Conseco shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conseco Common Stock for delivery
upon exercise of the Company Stock Options. Prior to the Effective Time,
Conseco shall have filed a registration statement on Form S-8 (or any
successor form) or another appropriate form with respect to the shares of
Conseco Common Stock subject to the Company Stock Options and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as Company Stock Options remain
outstanding.
4.18 Employment Agreements. The Company shall enter into the employment
agreements described in Section 4.18 of the Conseco Disclosure Schedule. Such
employment agreements shall be subject to the approval of Conseco, which shall
not be unreasonably withheld.
4.19 Officers' Certificates Relating to Tax Treatment. Conseco shall provide
to the Tax Opinion Provider (as defined in Section 6.3(c) hereof), a
certificate in the form agreed to by Conseco dated the Closing Date and signed
on behalf of Conseco by the chief executive officer and the chief financial
officer of Conseco. The Company shall provide to the Tax Opinion Provider a
certificate in the form agreed to by the Company dated the Closing Date and
signed on behalf of the Company by the chief executive officer and the chief
financial officer of the Company.
4.20 Supplemental Indenture; Other Actions. Prior to the Effective Time,
Conseco shall execute and deliver to the Trustee, a supplemental indenture or
indentures evidencing the succession of Conseco to the Company and meeting the
requirements of the Indenture and the Company and Conseco shall take any and
all other actions required by the Indenture to substitute Conseco for the
Company under the Indenture and Debentures as of the Effective Time.
4.21 Severance and Other Payments. If, after the Effective Time, the
employment of employees (other than officers) of the Company are terminated,
the Employee Severance Pay Plan of Conseco shall be applicable to such
employees giving credit for service to the Company as service to Conseco. In
addition, an aggregate of up to $2 million of additional severance pay may be
paid to the following individuals in such manner and in such proportions as
shall be determined from time to time by the Company's present chief executive
office after consultation with the Chief Operations Officer of Conseco or his
designee:
(i) employees of the Company (other than officers) whose employment has
been terminated by Conseco within 18 months after the Effective Time;
(ii) outside actuarial consultants of the Company (other than officers)
whose services are terminated by Conseco within 18 months after the
Effective Time; and
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(iii) Ronald J. Holmer, Benedict J. Iacovetti, Ernest Iannucci and Wayne
G. Vosik in order to satisfy such individuals' parachute payment tax
liability pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended and the regulations thereunder; provided that no individual shall
receive a payment in excess of $120,000.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business by the Company. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Disclosure Schedule, during
the period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause its subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations, keep available the services of their current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with them. In addition, the Company agrees on and after the
Mailing Date (as defined in Section 5.4) to allow representatives of Conseco
to have access to the management and other personnel of the Company so that
Conseco can be fully informed at all times as to significant day-to-day
executive, legal, financial, marketing and other operational matters involving
the Company, its subsidiaries or their businesses. Prior to taking or
approving any action during such time with respect to any such significant
matters involving the Company, management of the Company will notify the
representative of Conseco designated by Conseco for oversight of the
functional area(s) involved with such decision and will, if consistent with
the fiduciary obligations of such officer, follow any suggestions made by the
Conseco representative with respect to the proposed action. During such time,
the Company will cause its personnel to cooperate with personnel from Conseco
in preparing for any proposed relocation by Conseco of the Company's
operations following Closing. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, the Company shall not, and shall not permit any of its subsidiaries to,
without the prior consent of Conseco:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
the Company's outstanding capital stock, (y) split, combine or reclassify
any of its outstanding capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its outstanding capital stock, or (z) purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any rights,
warrants or options to acquire any such shares;
(ii) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities other than upon the exercise of
Company Stock Options outstanding on the date of this Agreement;
(iii) amend its articles of organization, By-laws or other comparable
charter or organizational documents or the Rights Agreement;
(iv) acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof;
(v) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
the Company and its subsidiaries taken as a whole, except in the ordinary
course of business;
(vi) (x) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any direct or indirect
wholly-owned subsidiary of the Company or (y) make any loans or advances to
any other person, other than to the Company, or to any direct or indirect
wholly-owned subsidiary of the Company and other than routine advances to
employees;
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(vii) make any tax election or settle or compromise any income tax
liability that would reasonably be expected to be material to the Company
and its subsidiaries taken as a whole;
(viii) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice;
(ix) except as may be otherwise required in the Company's contractual
undertakings with Transport Life Insurance Company or as may be otherwise
provided in the investment guidelines to be contained in the investment
advisory agreements specified in Section 5.6 hereof, invest its future cash
flow, any cash from matured and maturing investments, any cash proceeds
from the sale of its assets and properties, and any cash funds currently
held by it, in any investments other than cash equivalent assets or in
short-term investments (consisting of United States government issued or
guaranteed securities, or commercial paper rated A-1 or P-1), except (i) as
otherwise required by law, (ii) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet its
actual or anticipated obligations or (iii) publicly-traded corporate bonds
that are rated investment grade by at least two nationally recognized
statistical rating organizations;
(x) except as may be required by law,
(i) make any representation or promise, oral or written, to any
employee or former director, officer or employee of the Company or any
subsidiary which is inconsistent with the terms of any Benefit Plan;
(ii) make any change to, or amend in any way, the contracts,
salaries, wages, or other compensation of any employee or any agent or
consultant of the Company or any subsidiary other than (a) changes or
amendments that are required under existing contracts of (b)
individual, routine changes or amendments that are made in the ordinary
course of business and consistent with past practice and do not exceed
8%;
(iii) adopt, enter into, amend, alter or terminate, partially or
completely, any Benefit Plan or any election made pursuant to the
provisions of any Benefit Plan, to accelerate any payments, obligations
or vesting schedules under any Benefit Plan; or
(iv) approve any general or company-wide pay increases for employees;
(xi) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which the Company or any subsidiary is a party or
waive, release or assign any material rights or claims thereunder;
(xii) hold any meeting of the board of directors of the Company or any
subsidiary or any committee of any such board, or take any action by
written consent of any such board of committee, without providing (i)
written notice five days in advance of any such meeting or in advance of
the date of any proposed action by written consent and (ii) an agenda of
the specific matters intended to be considered at such meeting or a copy of
the proposed written consent; provided, however, that the submission of an
agenda shall not prohibit the directors from considering matters not on the
agenda, if the Company made a reasonable effort to give Conseco advance
notice of such matters; or
(xiii) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Conduct of Business by Conseco. Except as described in Section 5.2 of
the Conseco Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, Conseco shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors
and others
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having business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time, Conseco shall not, and shall not permit any of its
subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than regular quarterly cash
dividends of $.0625 per share of Conseco Common Stock and regular cash
dividends on the Conseco Series D Preferred Stock and the Conseco PRIDES,
in each case with usual record and payment dates and in accordance with
Conseco's Articles of Incorporation and its present dividend policy) or (y)
split, combine or reclassify any of its outstanding capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of Conseco's outstanding capital stock (other
than under the Conseco Stock Plans);
(ii) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities, in each case if any such
action could reasonably be expected to (a) delay materially the date of
mailing of the Joint Proxy Statement or, (B) if it were to occur after such
date of mailing, require an amendment of the Joint Proxy Statement;
(iii) except as described in Section 3.5 of the Conseco Disclosure
Schedule, acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof, in
each case if any such action could reasonably be expected to (A) delay
materially the date of mailing of the Joint Proxy Statement or, (B) if it
were to occur after such date of mailing, require an amendment of the Joint
Proxy Statement; or
(iv) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.3 Other Actions. The Company and Conseco shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions of the Merger set forth in
Article VI not being satisfied.
5.4 Certificates. (a) On the date the Joint Proxy Statement is first mailed
to the stockholders of the Company (the "Mailing Date"), the Company shall
deliver to Conseco a certificate dated as of the Mailing Date signed by its
Chief Executive Officer and its Chief Financial Officer, in their capacities
as officers of the Company, that the representations and warranties of the
Company contained in this Agreement are true and correct on the Mailing Date
(except to the extent that they expressly relate only to an earlier time, in
which case they shall have been true and correct as of such earlier time),
other than such breaches of representations and warranties which in the
aggregate would not reasonably be expected to have a material adverse effect
on the business, financial condition or results of operations of the Company
and its subsidiaries taken as a whole.
(b) On the Mailing Date, Conseco shall deliver to the Company a certificate
dated as of the Mailing Date signed by its Chief Executive Officer and its
Chief Financial Officer, in their capacities as officers of Conseco, that the
representations and warranties of Conseco contained in this Agreement are true
and correct on the Mailing Date (except to the extent that they expressly
relate only to an earlier time, in which case they shall have been true and
correct as of such earlier time), other than such breaches of representations
and warranties which in the aggregate would not reasonably be expected to have
a material adverse effect on the business, financial condition or results of
operations of Conseco and its subsidiaries taken as a whole.
5.5 Investment Advisory Agreements. The Company agrees to enter into. and to
cause each of its subsidiaries to enter into, an investment advisory agreement
with Conseco Capital Management, Inc., a wholly-owned subsidiary of Conseco.
Such agreements shall be effective as of the Mailing Date and shall contain
terms and conditions reasonably acceptable to the parties and which are
customary in investment advisory agreements.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the stockholders of the
Company in the manner contemplated in Section 2.10 hereof and the Conseco
Stockholder Approval shall have been obtained.
(b) Governmental and Regulatory Consents. All required consents,
approvals, permits and authorizations to the consummation of the
transactions contemplated hereby by the Company and Conseco shall be
obtained from (i) the Insurance Regulators in the jurisdictions set forth
in Section 6.1(b) of the Disclosure Schedule, and (ii) any other
Governmental Entity whose consent, approval, permission or authorization is
required by reason of a change in law after the date of this Agreement,
unless the failure to obtain such consent, approval, permission or
authorization would not reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, or on the validity or
enforceability of this Agreement. Notwithstanding the foregoing, in the
event that all governmental and regulatory consents required hereunder
shall have been obtained except the approval of the Insurance Regulator of
any life insurance subsidiary of the Company which does not constitute a
"significant subsidiary" (within the meaning of Rule 1-02 of Regulation S-X
of the SEC) of the Company (a "Non-Significant Life Subsidiary") to the
transfer of control of such Non-Significant Life Subsidiary, then, subject
to Article VII hereof, at any time thereafter at the option of Conseco, the
parties shall take one of the following actions with respect to such Non-
Significant Life Subsidiary and otherwise proceed to consummate the Merger
in accordance with this Agreement: (a) place into escrow, pursuant to an
escrow agreement reasonably acceptable to the parties, the outstanding
shares of capital stock of such Non-Significant Life Subsidiary; such
escrow agreement shall contain customary provisions concerning duties and
responsibilities of the escrow agent and payment of the fees and expenses
of the escrow agent and shall provide that (i) pending transfer of control
of the Non-Significant Life Subsidiary to Conseco, its current Board of
Directors shall retain all power to vote its shares of capital stock and to
direct its business not inconsistent with this Agreement, (ii) promptly
following receipt of the approval of the Insurance Regulator, control of
the capital stock of such Non-Significant Life Subsidiary shall be
transferred to Conseco and (iii) at any time following June 30, 1997 and
prior to receipt of the Insurance Regulator's approval, Conseco may elect
to terminate the escrow agreement, in which event such Non-Significant Life
Subsidiary shall be liquidated and dissolved and the proceeds thereof shall
be paid to Conseco; (b) cause such Non-Significant Life Subsidiary to
surrender its certificate of authority to do business in its state of
domicile; (c) cause such Non-Significant Life Subsidiary to commence
proceedings for its liquidation and dissolution; (d) enter into an
agreement for the sale and transfer of the Non-Significant Life Subsidiary
to a third party; or (e) take such other action as may be mutually
agreeable to the Company and Conseco.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
otherwise expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties invoking this condition shall use best reasonable efforts to
have any such order or injunction vacated.
(e) NYSE Listing. The shares of Conseco Common Stock issuable to the
Company's stockholders pursuant to this Agreement shall have been approved
for listing on the NYSE, subject to official notice of issuance.
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(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
6.2 Conditions to Obligations of Conseco. The obligation of Conseco to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall have been true and correct on
the date of this Agreement and as of the Mailing Date (except to the extent
that they expressly relate only to an earlier time, in which case they
shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The Company shall have delivered to Conseco
a certificate dated as of the Closing Date, signed by its Chief Executive
Officer and its Chief Financial Officer, in their capacities as officers of
the Company, to the effect set forth in this Section 6.2(a).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date and shall not
have willfully or intentionally (i) breached any of its representations or
warranties herein or (ii) failed to perform or satisfy any of its
obligations or covenants hereunder, and Conseco shall have received a
certificate dated as of the Closing Date signed on behalf of the Company by
its Chief Executive Officer and its Chief Financial Officer to such effect.
(c) Dissenting Shares. No more than 20% of the Shares shall have become
Dissenting Shares.
6.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Conseco contained in this Agreement shall have been true and correct on the
date of this Agreement and as of the Mailing Date (except to the extent
that they expressly relate only to an earlier time, in which case they
shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of Conseco and its
subsidiaries taken as a whole. Conseco shall have delivered to the Company
a certificate dated as of the Closing Date, signed by its Chief Executive
Officer and its Chief Financial Officer, in their capacities as officers of
Conseco, to the effect set forth in this Section 6.3(a).
(b) Performance of Obligations of Conseco. Conseco shall have performed
in all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date and shall not have
willfully or intentionally (i) breached any of its representations or
warranties herein or (ii) failed to perform or satisfy any of its
obligations or covenants hereunder, and the Company shall have received a
certificate dated as of the Closing Date signed on behalf of Conseco by its
Chief Executive Officer and its Chief Financial Officer to such effect.
(c) Opinion of Counsel. The Company shall have received the opinion dated
the Closing Date of Fox, Rothschild, O'Brien & Frankel, counsel to the
Company, (the "Tax Opinion Provider") substantially in the form of Exhibit
B, to the effect that the Merger will be treated as a reorganization under
Section 368 (a) (1) of the Code and that shareholders of the Company will
not be subject to federal income tax on the receipt of shares of Conseco
Common Stock in exchange for Shares pursuant to the Merger.
(d) Update Letter. Immediately prior to the mailing of the Joint Proxy
Statement, the Company shall have received from DLJ an update of the
opinion referred to in Section 2.12 hereof, which update shall not in any
material way modify, rescind or revoke the opinion referred to in said
Section 2.12.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company and
the stockholders of Conseco:
(a) by mutual written consent of Conseco and the Company;
(b) by either Conseco or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting or Conseco
Stockholders Meeting or any adjournment thereof, any required approval
of the stockholders of the Company or Conseco, as the case may be,
shall not have been obtained;
(ii) at any time after December 31, 1996, if the Merger shall not
have been consummated by such date, unless the failure to consummate
the Merger is the result of a willful and material breach of this
Agreement by the party seeking to terminate this Agreement; provided,
however, that either party may by notice to the other extend such date
to March 31, 1997 if the only conditions to closing not satisfied as of
December 31, 1996 are those set forth in Sections 6.1(a), (b) or (c)
hereof;
(iii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or
(iv) if the Board of Directors of the Company shall have exercised
its rights set forth in Section 4.9 of this Agreement;
(c) by Conseco if the Company does not deliver the certificate specified
in Section 5.4(a); or
(d) by the Company if Conseco does not deliver the certificate specified
in Section 5.4(b).
7.2 Effect of Termination. In the event of termination of this Agreement by
either the Company or Conseco as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation
on the part of Conseco or the Company, other than the last two sentences of
Section 4.5 and Sections 2.13, 3.7, 4.11, 7.2 and 10.2. Nothing contained in
this Section shall relieve any party from any liability resulting from any
material breach of the representations, warranties, covenants or agreements
set forth in this Agreement.
7.3 Amendment. Subject to the applicable provisions of the IBCL and the
Pennsylvania Code, at any time prior to the Effective Time, the parties hereto
may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties; provided,
however, that after approval of the Merger by the stockholders of the Company,
no amendment shall be made which reduces the consideration payable in the
Merger or adversely affects the rights of the Company's stockholders hereunder
without the approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. At any time prior to the Effective Time, each party
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to Section 7.3, waive
compliance with any of the agreements or conditions of the other party
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Agreement pursuant to Section 7.1, an amendment of this Agreement
pursuant to Section 7.3 or an extension or waiver pursuant to Section 7.4
shall, in order to be effective, require in the case of Conseco or the
Company, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
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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:
American Travellers Corporation
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: John A. Powell, Chairman of the Board
Telephone: (215) 244-1600
Telecopy: (215) 244-4893
with copies to:
Fox, Rothschild, O'Brien & Frankel
2000 Market Street, Tenth Floor
Philadelphia, Pennsylvania 19103
Attention: Ramon R. Obod
Telephone: (215) 299-2036
Telecopy: (215) 299-2150
If to Conseco, to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow
Telephone: (317) 817-6163
Telecopy: (317) 817-6327
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.
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10.2 Expenses. Except as otherwise expressly provided in Section 4.11,
whether or not the Merger is consummated, each of the Company and Conseco will
pay its own costs and expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby except that the expenses incurred in connection with the
printing, mailing and distribution of the Joint Proxy Statement and the
preparation and filing of the Form S-4 shall be borne equally by Conseco and
the Company.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
10.4 No Third Party Beneficiary. Except as otherwise provided herein, the
terms and provisions of this Agreement are intended solely for the benefit of
the parties hereto, and their respective successors or assigns, and it is not
the intention of the parties to confer third-party beneficiary rights upon any
other person.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, and any such
assignment that is not consented to shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by, the parties and their respective successors and
assigns.
10.7 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Indiana, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any
Federal court located in the State of Indiana in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such court
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than
a Federal court sitting in the State of Indiana.
10.8 Headings, Gender, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include
each other gender; (b) words using the singular or plural number also include
the plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; and (f) the term "person" shall
include any natural person, corporation, limited liability company, general
partnership, limited partnership, or other entity, enterprise, authority or
business organization.
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.
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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.
/s/ Stephen C. Hilbert
By: _________________________________
Stephen C. Hilbert
Chairman of the Board
American Travellers Corporation
/s/ John A. Powell
By: _________________________________
John A. Powell
Chairman of the Board
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EXHIBIT A
[Closing Date]
CONSECO, INC.
11825 N. Pennsylvania Street
Carmel, IN 46032
Gentlemen:
I have been advised that I have been identified as a possible "affiliate" of
American Travellers Corporation, a Pennsylvania corporation (the "Company"),
as that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of
the General Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933 (the "Securities Act"), although nothing contained herein should be
construed as an admission of such fact.
Pursuant to the terms of an Agreement and Plan of Merger dated August 25,
1996 (the "Merger Agreement"), by and between Conseco, Inc., an Indiana
corporation ("Conseco"), and the Company, the Company will be merged with and
into Conseco (the "Merger"). As a result of the Merger, I will receive Merger
Consideration (as defined in the Merger Agreement), including shares of Common
Stock, without par value, of Conseco ("Conseco Common Stock") in exchange for
shares of Common Stock $.01 par value, of the Company ("Shares") owned by me
at the effective time of the Merger as determined pursuant to the Merger
Agreement.
A. In connection therewith, I represent, warrant and agree that:
1. I shall not make any sale, transfer or other disposition of the
Conseco Common Stock I receive as a result of the Merger in violation of
the Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Conseco Common Stock to me as
a result of the Merger has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have
also been advised that, because at the time the Merger was submitted for a
vote of the stockholders of the Company I may have been an "affiliate" of
the Company and, accordingly, any sale by me of the shares of Conseco
Common Stock I receive as a result of the Merger must be (i) registered
under the Securities Act, (ii) made in conformity with the provisions of
Rule 145 promulgated by the Commission under the Securities Act or (iii)
made pursuant to a transaction which, in the opinion of counsel reasonably
satisfactory to Conseco or as described in a "no action" or interpretive
letter from the staff of the Commission, is not required to be registered
under the Securities Act.
3. I have carefully read this letter and the Merger Agreement and have
discussed the requirements of the Merger Agreement and other limitations
upon the sale, transfer or other disposition of the shares of Conseco
Common Stock to be received by me, to the extent I have felt necessary,
with my counsel or with counsel for the Company.
B. Furthermore, in connection with the matters set forth herein, I
understand and agree that:
Conseco is under no further obligation to register the sale, transfer or
other disposition of the shares of Conseco Common Stock received by me as a
result of the Merger or to take any other action necessary in order to make
compliance with an exemption from registration available, except as set
forth in Section 4.12 of the Merger Agreement and in paragraph C below.
C. Conseco hereby represents, warrants and agrees that:
For as long as resales of any shares of Conseco Common Stock owned by me
are subject to Rule 145, Conseco will use all reasonable efforts to make
all filings of the nature specified in paragraph (c)(1) of Rule 144 of the
Rules and Regulations.
Very truly yours,
A-31
<PAGE>
[LETTERHEAD OF FOX, ROTHSCHILD, O'BRIEN & FRANKEL]
EXHIBIT B
[Closing Date]
American Travellers Corporation
3220 Tillman Drive
Bensalem, PA 19020
Ladies and Gentlemen:
You have requested our opinion regarding certain Federal income tax
consequences of the merger (the "Merger") of American Travellers Corporation,
a Pennsylvania corporation (the "Company"), with and into Conseco, Inc., an
Indiana corporation ("Conseco"), pursuant to the terms of a certain Agreement
and Plan of Merger by and between the Company and Conseco entered into as of
August 25, 1996 (the "Agreement").
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement, the Joint Proxy Statement filed by the
Company and Conseco with the Securities and Exchange Commission (the "SEC") on
October 3, 1996 (the "Joint Proxy Statement"), and the Registration Statement
on Form S-4, as filed by Conseco with the SEC on October 3, 1996, in which the
Joint Proxy Statement was included as a prospectus (with all amendments
thereto, the "Registration Statement"). In addition, we have examined such
other records, documents and instruments, as in our judgment have been
necessary or appropriate and have obtained and relied upon certain
representations and certifications made to us by the Company and Conseco and
such additional information as we have deemed relevant and necessary through
consultation with various officers and representatives of the Company and
Conseco.
In addition to the foregoing, in rendering our opinion we have assumed (1)
the accuracy of the statements and facts concerning the Merger set forth in
the Agreement, the Joint Proxy Statement, and the Registration Statement, (2)
the consummation of the Merger in the manner contemplated by, and in
accordance with the terms set forth in, the Agreement, the Joint Proxy
Statement, and the Registration Statement, and (3) the accuracy of (i) the
representations made by Conseco, which are set forth in the Officers'
Certificate delivered to us by Conseco, dated the date hereof, (ii) the
representations made by the Company, which are set forth in the Officers'
Certificate delivered to us by the Company, dated the date hereof and (iii)
the representations made by certain shareholders of the Company in
Certificates delivered to us dated the date hereof.
Based upon the facts and statements set forth above, our examination and
review of the documents and other materials referred to herein and subject to
the assumptions and any qualifications set forth herein, it is our opinion
that, under existing law, for Federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. No gain or loss will be recognized by the shareholders of the Company
with respect to the shares of the common stock of Conseco received by the
shareholders of the Company in the Merger.
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[LETTERHEAD OF FOX, ROTHSCHILD, O'BRIEN & FRANKEL]
We express no opinion concerning any tax consequences of the Merger or any of
the other transactions related thereto other than those specifically set forth
herein. We call your attention to the fact that shareholders of the Company who
exercise dissenters rights will recognize gain or loss with respect to their
shares of the Company's stock; and shareholders of the Company who receive cash
in lieu of fractional shares of the common stock of Conseco will recognize gain
or loss with respect to the cash they receive.
The opinions set forth herein are based upon current provisions of the Code,
Treasury Regulations promulgated thereunder, Internal Revenue Service rulings,
judicial decisions and administrative pronouncements in effect as of the date
hereof, all of which are subject to change at any time, possibly with
retroactive effect. No ruling has been, or will be, sought from the Internal
Revenue Service as to the Federal income tax consequences of any aspect of the
Merger or any other transactions related thereto. Any change in applicable laws
or facts and circumstances surrounding the Merger, or any inaccuracy in the
statements, facts, assumptions and representations on which we have relied, may
affect the continuing validity of the opinions set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention.
Very truly yours,
A-33
<PAGE>
ANNEX B
DONALDSON, LUFKIN & JENRETTE
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 PARK AVENUE, NEW YORK, NEW YORK 10172 . (212) 892-3000
August 25, 1996
Board of Directors
American Travellers Corporation
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of American Travellers Corporation (the "Company") of
the consideration to be received by such shareholders pursuant to the terms of
the Agreement and Plan of Merger dated as of August 25, 1996 (the
"Agreement"), by and between Conseco, Inc. ("Conseco") and the Company,
pursuant to which the Company will be merged (the "Merger") with and into
Conseco.
Pursuant to the Agreement, each share of common stock, par value $.01 per
share, of the Company ("Company Common Stock") will be converted into the
right to receive, subject to certain exceptions, shares of common stock,
without par value, of Conseco ("Conseco Common Stock"), as follows: (i) if the
Conseco Share Price (as defined below) is greater than or equal to $42.25 per
share and less than or equal to $46.25 per share, 0.7574 of a share of Conseco
Common Stock, (ii) if the Conseco Share Price is less than $42.25 per share,
the fraction of a share of Conseco Common Stock determined by dividing $32.00
by the Conseco Share Price or (iii) if the Conseco Share Price is greater than
or equal to $46.25 per share, the fraction of a share of Conseco Common Stock
determined by dividing $35.03 by the Conseco Share Price (such fraction as set
forth in clauses (i) through (iii) above, the "Exchange Ratio"). The Conseco
Share Price is defined as the average of the closing prices of Conseco Common
Stock for the ten trading days immediately preceding the second trading day
prior to the consummation of the Merger.
In arriving at our opinion, we have reviewed the Agreement dated as of
August 25, 1996 and the exhibits thereto. We have also reviewed financial and
other information that was publicly available or furnished to us by the
Company and Conseco, including information provided during discussions with
their respective managements. Included in the information provided during
discussions with the respective managements were certain financial projections
of the Company for the years ending December 31, 1996 and December 31, 1997
prepared by the management of the Company, and certain pro forma financial
statements of Conseco for the year ended December 31, 1995 and the six months
ended June 30, 1996 and certain financial projections of Conseco which are pro
forma for the Merger and for certain other transactions contemplated by
Conseco for the years ending December 31, 1996 through December 31, 2005
prepared by the management of Conseco. In addition, we have compared certain
financial and securities data of the Company and Conseco with various other
companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the Company Common Stock and
Conseco Common Stock, reviewed prices and premiums paid in other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
not requested to, nor did we, solicit the interest of any other party in
acquiring the Company.
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In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to us from public sources, that was provided to us by the
Company and Conseco or its representatives, or that was otherwise reviewed by
us. With respect to the financial projections of the Company supplied to us,
we have assumed that they have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of the
Company as to the future operating and financial performance of the Company.
With respect to the pro forma financial statements and pro forma financial
projections of Conseco supplied to us, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Conseco as to the historical pro
forma results of Conseco and the future operating and financial performance of
the Company and Conseco. We have not assumed any responsibility for making an
independent evaluation of the Company's and Conseco's assets or liabilities or
for making any independent verification of any of the information reviewed by
us. We have relied as to all legal matters on advice of counsel to the
Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Conseco Common Stock will actually trade at any time. Our
opinion does not constitute a recommendation to any member of the Board of
Directors of the Company or shareholder as to how such member or shareholder
should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
DLJ has performed investment banking and other services for the Company and
Conseco in the past, including lead managing the Company's offering of
convertible subordinated debentures in September 1995, and representing the
Company in its purchase of the long term care insurance business of Transport
Holdings, Inc. in December 1995, and has received usual and customary
compensation for such services. DLJ is being compensated for services rendered
in connection with the Merger, including the delivery of this opinion.
Additionally, DLJ is delivering an opinion as to the fairness, from a
financial point of view to the shareholders of Capitol American Financial
Corporation ("Capitol American") of the consideration to be received by such
shareholders in connection with the merger of Capitol American into a wholly
owned subsidiary of Conseco.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
/s/ Mark K. Gormley
By: _________________________________
Mark K. Gormley
Managing Director
B-2
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ANNEX C
PENNSYLVANIA BUSINESS CORPORATION LAW
SUBCHAPTER D. DISSENTERS RIGHTS
1571 APPLICATION AND EFFECT OF SUBCHAPTER.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
1 part expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d)(relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions. (1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the record
date fixed to determine the shareholders entitled to notice of and to vote at
the meeting at which a plan specified in any of section 1930, 1931(d), 1932(c)
or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred to special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that
the acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
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(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenting
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See section 1105 (relating to restriction on equitable
relief), 1904 (relating to de facto transaction doctrine abolished) and 2512
(relating to dissenters rights procedure).
1572 DEFINITIONS.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have the sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the
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assertion of dissenters rights a written consent of the record holder. A
beneficial owner may not dissent with respect to some but less than all shares
of the same class or series owned by the owner, whether or not the shares so
owned by him are registered in his name.
1574 NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he paid the
fair value for his shares if the proposed action is effectuated, must effect
no change in the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed action and must
refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value
of his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
1575 NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed action is approved by the required vote at
a meeting of shareholders of a business corporation, the corporation shall
mail a further notice to all dissenters who gave due notice of intention to
demand payment of the fair value of their shares and who refrained from voting
in favor of the proposed action. If the proposed corporate action is to be
taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value
of their shares a notice of the adoption of the plan or other corporation
action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of the
demand and deposits of certificated shares shall be not less than 30 days from
the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment), shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
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1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporation action. Within 60 days after the date
for demanding payment and depositing certificates, if the business corporation
has not effectuated the proposed action, it shall return any certificates that
have been deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming
to the requirements of section 1575 (relating to notice to demand payment),
with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the name of
the original dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the corporation other
than those that the original dissenters had after making demand for payment of
their fair value.
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his owner estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled
to no more than the amount stated in the notice or remitted to him by the
corporation.
1579 VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
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(3) Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served
on each such dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the
corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expense may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or
vexatious manner in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
1930 DISSENTERS RIGHTS.
(a) General rule. If any shareholder of a domestic business corporation that
is to be a party to a merger of consolidation pursuant to a plan of merger or
consolidation objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 (relating to dissenters rights),
the shareholder shall
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be entitled to the rights and remedies of dissenting shareholders therein
provided, if any. See also section 1906(c) (relating to dissenters rights upon
special treatment).
(b) Plans adopted by directors only. Except as otherwise provided pursuant
to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(b)(1)(i) (relating to adoption by board of directors).
(c) Cross references. See sections 1571(b) (relating to exceptions) and 1904
(relating to de facto transaction doctrine abolished).
C-6
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Corporation Law grants authorization to Indiana corporations to
indemnify officers and directors for their conduct if such conduct was in good
faith and was in the corporation's best interests or, in the case of
directors, was not opposed to such best interests, and permits the purchase of
insurance in this regard. In addition, the shareholders of a corporation may
approve the inclusion of other or additional indemnification provisions in the
articles of incorporation and by-laws.
The By-laws of Conseco provides for the indemnification of any person made a
party to any action, suit or proceeding by reason of the fact that he is a
director, officer or employee of Conseco, unless it is adjudged in such
action, suit or proceeding that such person is liable for negligence or
misconduct in the performance of his duties. Such indemnification shall be
against the reasonable expenses, including attorneys' fees, incurred by such
person in connection with the defense of such action, suit or proceeding. In
some circumstances, Conseco may reimburse any such person for the reasonable
costs of settlement of any such action, suit or proceeding if a majority of
the members of the Board of Directors not involved in the controversy shall
determine that it was in the interests of Conseco that such settlement be made
and that such person was not guilty of negligence or misconduct.
The above discussion of Conseco's By-laws and the Indiana Corporation Law is
not intended to be exhaustive and is qualified in its entirety by such By-laws
and the Indiana Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person thereof in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
2 --Agreement and Plan of Merger, dated as of August 25, 1996
by and between Conseco, Inc., and American Travellers
Corporation (included as Annex A to the Joint Proxy
Statement/Prospectus (schedules omitted--
the Registrant agrees to furnish a copy of any schedule to
the Commission upon request)).**
4 --Form of Supplemental Indenture by and between Conseco and
Firstar Bank of Minnesota, N.A .*
5 --Opinion of Lawrence W. Inlow, General Counsel to Conseco,
Inc., as to the validity of the issuance of the securities
registered hereby.**
8 --Form of Opinion of Fox, Rothschild, O'Brien & Frankel as to
certain tax matters (included as Exhibit B to Annex A of the
Joint Proxy Statement/Prospectus).*
23(a) --Consent of Lawrence W. Inlow, General Counsel to Conseco,
Inc. (included in the opinion filed as Exhibit 5 to the
Registration Statement).**
23(b) --Consent of Coopers & Lybrand L.L.P., with respect to the
financial statements of the Registrant.*
23(c) --Consent to Arthur Andersen LLP with respect to the
consolidated financial statements of American Travellers
Corporation and subsidiaries.*
23(d) --Consent of KPMG Peat Marwick LLP with respect to the
financial statements of Capitol American Financial
Corporation.*
23(e) --Consent of Coopers & Lybrand L.L.P. with respect to the
financial statements of Life Partners Group, Inc.*
23(f) --Consent of KPMG Peat Marwick LLP with respect to the
financial statements of Transport Holdings Inc.*
23(g) --Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.**
23(h) --Consent of Fox, Rothschild, O'Brien & Frankel.**
24(a) --Powers of Attorney of directors and officers of Conseco.**
99(a) --Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation (included as Annex B to the Joint Proxy
Statement/Prospectus).**
99(b) --Form of proxy card for Conseco Stock.*
99(c) --Form of proxy card for ATC Common Stock.*
</TABLE>
- --------
* Filed herewith.
**Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES--Inapplicable.
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.
II-2
<PAGE>
(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.
(e) The undersigned registrant hereby undertakes:
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(4) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(f) See Part II-Item 20.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE 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 23RD DAY OF OCTOBER, 1996.
CONSECO, INC.
/s/ Stephen C. Hilbert
By: _________________________________
Stephen C. Hilbert,
Chairman of the Board, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE 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>
* Director, Chairman of the October 23, 1996
____________________________________ Board, Chief Executive
Stephen C. Hilbert Officer and President
(Principal Executive
Officer)
* Director, Executive Vice October 23, 1996
____________________________________ President and Chief
Rollin M. Dick Financial Officer (Principal
Financial and Accounting
Officer)
* Director October 23, 1996
____________________________________
Ngaire E. Cuneo
* Director October 23, 1996
____________________________________
David R. Decatur
* Director October 23, 1996
____________________________________
M. Phil Hathaway
* Director October 23, 1996
____________________________________
Louis P. Ferrero
* Director October 23, 1996
____________________________________
Donald F. Gongaware
* Director October 23, 1996
____________________________________
James D. Massey
* Director October 23, 1996
____________________________________
Dennis E. Murray, Sr.
</TABLE>
/s/ Karl W. Kindig
*By: _____________________
Karl W. Kindig, Attorney-in-
Fact
II-4
<PAGE>
EXHIBIT 4
_____________________________________
FIRST SUPPLEMENTAL INDENTURE
BETWEEN
CONSECO, INC., as Successor Issuer
AND
FIRSTAR BANK OF MINNESOTA, N.A., Trustee
_____________________________________
Dated as of _______________ ___, 1996
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of , 1996, (this "Supplemental
Indenture"), between CONSECO, INC. an Indiana corporation (the "Company"), and
FIRSTAR BANK OF MINNESOTA, N.A. (the "Trustee").
WHEREAS, American Travellers Corporation, a Pennsylvania corporation
("ATC"), and the Trustee have entered into an indenture (the "Indenture") dated
as of September 15, 1995, to provide for the issuance of $103,500,000 principal
amount of ATC's 6.5% Convertible Subordinated Debentures Due 2005 (the
"Securities"); and
WHEREAS, on , 1996, ATC merged with and into the Company
(the "Merger"), with the Company succeeding to the business of ATC and assuming
all of the obligations of ATC under the Securities and the Indenture; and
WHEREAS, the Company has made a request to the Trustee that the Trustee
join with it in the execution of this Supplemental Indenture to permit the
Company to assume all the obligations of ATC under the Indenture pursuant to
Section 5.1 of the Indenture;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are herein acknowledged, the
Company and the Trustee hereby agree for the equal and ratable benefit of all
holders of the Securities as follows:
ARTICLE 1.
Definitions
Section 1.01. Definitions. For purposes of this Supplemental Indenture,
the terms defined in the recitals shall have the meanings therein specified; any
terms defined in the Indenture and not defined herein shall have the meanings
therein specified.
ARTICLE 2.
Assumption and Substitution
Section 2.01. Assumption of Obligations. The Company as the surviving
corporation of the Merger expressly acknowledges and assumes the due and
punctual payment of the principal of, premium, if any, and interest on all the
Securities and the performance and observance of all other obligations under the
Indenture or the Securities to be performed or observed by ATC.
2
<PAGE>
Section 2.02. Substitution. On the date hereof, the Company (as the
surviving corporation of the Merger) shall, by virtue of the assumption
described in Section 2.01 and the execution and delivery of this Supplemental
Indenture, succeed to and be substituted for ATC.
ARTICLE 3.
Miscellaneous
Section 3.01. Effect of the Supplemental Indenture. This Supplemental
Indenture supplements the Indenture and shall be a part, and subject to all the
terms, thereof. Except as expressly supplemented hereby, the Indenture and the
Securities issued thereunder shall continue in full force and effect.
Section 3.02. Counterparts. This Supplemental Indenture may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
Section 3.03. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
CONSECO, INC.
By: __________________________
Name: __________________________
Title: __________________________
FIRSTAR BANK OF MINNESOTA, N.A.
By: __________________________
Name: __________________________
Title: __________________________
3
<PAGE>
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. 333-13329), 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 22, 1996
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement (File No. 333-13329) 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 21, 1996
<PAGE>
EXHIBIT 23(d)
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Capitol American Financial Corporation:
We consent to the incorporation by reference herein of our 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 Joint Proxy
Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
October 22, 1996
<PAGE>
Exhibit 23(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
__________________
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-13329), 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 22, 1996
<PAGE>
Exhibit 23(f)
ACCOUNTANTS' CONSENT
--------------------
The Board of Directors
Transport Holdings Inc.:
We consent to the incorporation by reference herein of our report dated
February 22, 1996, related to the consolidated financial statements of Transport
Holdings Inc. and subsidiaries, and to the reference to our firm under the
headings "Selected Historical Financial Information of THI" and "Experts" in the
Joint Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-----------------------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
October 22, 1996
<PAGE>
EXHIBIT 99(b)
CONSECO, INC.
11825 North Pennsylvania Street, Carmel, IN 46032
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card on the reverse side hereby appoints as proxies
Rollin M. Dick, Donald F. Gongaware and Stephen C. Hilbert, or any of them, with
full power of substitution, to vote all shares of common stock and shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock which such person is entitled to vote at the Special
Meeting of Shareholders of Conseco, Inc. ("Conseco"), to be held at 11799
College Avenue, Carmel, Indiana at 10:00 a.m. local time on November 26, 1996
and any adjournments thereof.
The proxies are hereby authorized to vote as follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
August 25, 1996, by and between Conseco and American Travellers Corporation
("ATC"), pursuant to which, among other things, (i) ATC will be merged with and
into Conseco, with Conseco being the surviving corporation (the "Merger"), and
(ii) each outstanding share of the common stock, par value $.01 per share (the
"ATC Common Stock") of ATC (other than shares of ATC Common Stock held by ATC as
treasury stock or Dissenting Shares (as defined in the Merger Agreement)) will
be cancelled and converted into the right to receive the Merger Consideration
(as defined in the Merger Agreement).
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
THE SHARES REPRESENTED BY THIS PROXY, UNLESS OTHER SPECIFIED, SHALL BE VOTED FOR
ITEM 1.
Please sign below exactly as your name
appears to the left. When signing as
attorney, corporate officer or fiduciary,
please give full title as such. The
undersigned hereby acknowledges receipt
of the Notice of the Special Meeting and
Joint Proxy Statement/Prospectus dated
October 25, 1996.
Dated____________________________________
Signature(s)_____________________________
_________________________________________
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY.
<PAGE>
EXHIBIT 99(c)
[Form of Proxy]
AMERICAN TRAVELLERS CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
American Travellers Corporation for a Special Meeting
of Shareholders to be held on _____, 1996.
The undersigned Shareholder of American Travellers Corporation ("ATC")
hereby appoints John A. Powell and Ramon R. Obod, and either of them, the lawful
attorneys and proxies of the undersigned, with several powers of substitution,
to vote all shares of Common Stock, $.01 par value, of ATC (the "ATC Common
Stock") which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held on ______, 1996, and any adjournments thereof:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
August 25, 1996 (the "Merger Agreement"), by and between ATC and Conseco,
Inc., and Indiana corporation ("Conseco"), and the transactions
contemplated thereby, pursuant to which, among other things, (i) ATC will
be merged with and into Conseco, with Conseco being the surviving
corporation (the "Merger"), and (ii) each outstanding share of the ATC
Common Stock (other than shares of ATC Common Stock held by ATC as treasury
stock or Dissenting Shares (as defined in the Merger Agreement)) will be
cancelled and converted into the right to receive the Merger Consideration
(as defined in the Merger Agreement).
FOR [_] AGAINST [_] ABSTAIN [_]
2. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The Board of Directors unanimously recommends that the shareholders of ATC
vote FOR the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. In the absence of specific instructions, proxies will be
voted for approval and adoption of the Merger Agreement and in the discretion of
the proxies holders as to any other matters.
Note: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature: ______________________ Date: ___________
Signature: ______________________ Date: ___________
